UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __________)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ X ] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant toss. 240.14a-11(c) ofss. 240.14a-12.
DST SYSTEMS, INC.
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(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[ X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share, of DST Systems, Inc.
(2) Aggregate number of securities to which transaction applies: 32.3
million shares of Common Stock of DST Systems, Inc.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: The proposed maximum
aggregate value of the transaction for purposes of calculating
the filing fee only is $0. For purposes of determining the
proposed maximum aggregate value of the transaction, Exchange Act
Rule 0-11(c)(2) and telephone interpretation 1 for Rule 0-11
under paragraph M. "Exchange Act Rules" in the Division of
Corporation Finance Manual of Publicly Available Telephone
Interpretations from July 1997 were reviewed. In the transaction,
DST Systems, Inc. will be receiving only its own shares of Common
Stock and no cash or other property. No cash, securities or other
property is being distributed to DST security holders on a pro
rata basis. Therefore, in following the calculation set forth in
Exchange Act Rule 0-11, the proposed maximum aggregate value of
the transaction for purposes of calculating the filing fee is $0,
and the filing fee is calculated as $0.
(4) Proposed maximum aggregate value of transaction: $0 (See (3)
above).
(5) Total fee paid: $0
[ ] Fee paid previously with preliminary materials.
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[ ] Checkbox if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[DST LOGO]
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105
DST SYSTEMS, INC.
NOTICE AND PROXY STATEMENT
FOR
A SPECIAL MEETING OF STOCKHOLDERS
[ ], 2003
YOUR VOTE IS IMPORTANT!
Please vote by telephone or the Internet as described on the Voting Card or
mark, date and sign the card and promptly return it in the envelope provided.
MAILING OF THIS NOTICE AND PROXY STATEMENT AND THE ACCOMPANYING VOTING CARD
COMMENCED ON OR ABOUT [ ], 2003
DST SYSTEMS, INC.
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105
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PROXY STATEMENT
AND
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
[ ], 2003
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You are hereby notified of and cordially invited to attend the Special
Meeting of Stockholders of DST Systems, Inc., a Delaware corporation ("DST"), to
be held at the offices of DST Systems, Inc., 333 West 11th Street, 3rd Floor,
Kansas City, Missouri, 64105 at 8:30 AM, Central Time, on [date] 2003, to
consider and vote upon the following matter:
Approval of the Share Exchange Agreement, dated August 25, 2003,
by and among DST Systems, Inc., DST Output Marketing Services, Inc.,
and Janus Capital Group Inc. and the transactions contemplated thereby.
The Board of Directors has set the close of business on [date] as the
record date for determining which stockholders are entitled to notice of and to
vote at this meeting or any adjournment thereof. A list of such stockholders
will be available during the Special Meeting for examination by any stockholder
for any purpose germane to the meeting and will be available during regular
business hours at the corporate offices of DST, 333 West 11th Street, Kansas
City, Missouri, for the 10-day period prior to the Special Meeting. The Board of
Directors recommends that you vote "for" approval of the Share Exchange
Agreement and the transactions contemplated thereby.
It is important that your shares be represented at the meeting. Please vote
your shares, regardless of whether you plan to attend the Special Meeting. You
may cast your votes by telephone or through the Internet as described on the
Voting Card. Alternatively, please date the Voting Card, sign it and promptly
return it in the envelope provided, which requires no postage if mailed in the
United States.
If you own shares registered in the name of a broker, you should receive a
card from the broker on which you may direct the broker to vote such shares.
Please promptly complete the card and return it to the broker.
Any stockholder or stockholder's representative who may need special
assistance or accommodation to participate in the Special Meeting because of a
disability should contact DST's Corporate Secretary at the above address, or by
phone at (816) 435-4636. To provide DST sufficient time to arrange for
reasonable assistance, please submit all such requests by [date], 2003.
By Order of the Board of Directors,
Randall D. Young
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
The date of this Notice is [ ], 2003
DST SYSTEMS, INC.
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105
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PROXY STATEMENT
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CONTENTS
PAGE
----
PROXY STATEMENT............................................................ 1
SUMMARY TERM SHEET FOR THE PROPOSAL........................................ 1
QUESTIONS AND ANSWERS ABOUT THE PROPOSAL................................... 3
INFORMATION ABOUT THE SPECIAL MEETING...................................... 5
VOTING..................................................................... 6
BUSINESS OF DST SYSTEMS, INC............................................... 8
BUSINESS OF DST OUTPUT MARKETING SERVICES, INC............................. 9
BUSINESS OF JANUS CAPITAL GROUP INC........................................ 9
BACKGROUND AND RECOMMENDATION.............................................. 11
Background........................................................... 11
Reasons for the Proposal............................................. 13
Opinion of Financial Advisor......................................... 15
Recommendation....................................................... 20
PROPOSAL - APPROVAL OF THE SHARE EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.......................................... 21
Description of the Proposal.......................................... 21
Purposes and Effects of the Proposal................................. 21
Summary of the Share Exchange Agreement ............................. 21
Regulatory Matters................................................... 33
Requirement for Stockholder Approval................................. 33
Required Vote and the DST Board's Recommendation..................... 34
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .................................. 34
SELECTED FINANCIAL DATA.................................................... 37
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS......................... 38
PRINCIPAL STOCKHOLDERS AND STOCK OWNED BENEFICIALLY BY DIRECTORS
AND CERTAIN EXECUTIVE OFFICERS.......................................... 46
i
OTHER MATTERS.............................................................. 49
WHERE YOU CAN FIND MORE INFORMATION........................................ 50
DOCUMENTS INCORPORATED BY REFERENCE........................................ 50
APPENDICES:
Appendix A - Share Exchange Agreement, dated August 25, 2003, by
and between DST, OMS and Janus.......................................... A-1
Appendix B - Proxy relating to shares of DST Common Stock retained
by Janus................................................................ B-1
Appendix C - Fairness Opinion of U.S. Bancorp Piper Jaffray Inc........... C-1
Appendix D - OMS Condensed Combined Financial Statements, June 30, 2003... D-1
Appendix E - OMS Combined Financial Statements, December 31, 2002 and
2001.................................................................... E-1
ii
PROXY STATEMENT
This proxy statement is being mailed on or about [DATE], 2003, to holders
at the close of business on [DATE], 2003 (the "Record Date") of a total of
[115,671,587] shares (the number outstanding as of the Record Date) of the
common stock of DST Systems, Inc. ("DST Common Stock"). DST Common Stock has a
par value of $.01 per share, and is the only outstanding class of voting
securities of DST. Stockholders on the Record Date are entitled to vote on the
proposal to be presented by the DST Board of Directors (the "DST Board") at the
Special Meeting of Stockholders to be held at 8:30 AM Central Time, on [DATE],
2003, at the principal executive offices of DST Systems, Inc. ("DST"), 333 West
11th Street, 3rd Floor, Kansas City, Missouri 64105 ("Special Meeting"). The DST
Board is soliciting your vote in favor of the proposal set forth in the
accompanying notice.
SUMMARY TERM SHEET FOR THE PROPOSAL
THIS SUMMARY TERM SHEET FOR THE PROPOSAL HIGHLIGHTS SELECTED INFORMATION
FROM THIS PROXY STATEMENT REGARDING THE PROPOSAL AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU AS A DST STOCKHOLDER. ACCORDINGLY, WE
ENCOURAGE YOU TO CAREFULLY READ THIS ENTIRE DOCUMENT, INCLUDING THE APPENDICES,
AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. YOU MAY OBTAIN A COPY OF THE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU WITHOUT CHARGE BY FOLLOWING THE
INSTRUCTIONS IN THE SECTION ENTITLED "DOCUMENTS INCORPORATED BY REFERENCE."
PURPOSE OF THE PROPOSAL
On August 25, 2003, DST, DST Output Marketing Services, Inc., a New York
corporation and wholly-owned subsidiary of DST ("OMS"), and Janus Capital Group
Inc., a Delaware corporation ("Janus"), entered into a Share Exchange Agreement
(the "Share Exchange Agreement"). Upon the terms and subject to the conditions
set forth in the Share Exchange Agreement, DST will transfer to Janus all of the
issued and outstanding shares of OMS common stock, par value $0.01 per share
(the "OMS Shares") and Janus will transfer to DST 32.3 million shares of DST
Common Stock owned by Janus (the "Janus DST Shares") in exchange for the OMS
Shares (such transfers collectively referred to as the "Exchange"). Upon
completion of the Exchange, Janus will own approximately 7.4 million shares of
DST Common Stock (or approximately 9% of the outstanding shares), but DST will
hold a proxy to vote these shares. The proposal is for the purpose of allowing
DST, OMS and Janus to consummate the transactions contemplated by the Share
Exchange Agreement.
THE PROPOSAL
You are being asked to consider and vote upon a proposal to approve the
Share Exchange Agreement and the transactions contemplated thereby. The DST
Board recommends that you vote "for" approval of the proposal. The Share
Exchange Agreement and certain related ancillary agreements (the "Ancillary
Agreements") are described in more detail below.
SHARE EXCHANGE AGREEMENT (PAGES 21 THROUGH 33 AND APPENDIX A)
DST has agreed that, prior to the closing of the Exchange, DST will, and
will cause its respective subsidiaries to, transfer to OMS certain business
assets, business liabilities, and additional assets consisting of cash (the
"Reorganization"). In exchange for these transfers, OMS has agreed to accept,
assume and pay, perform or otherwise discharge the liabilities transferred to it
in accordance with their respective terms and conditions.
At the time of the Exchange, OMS will hold graphics design and sheet-fed
offset commercial printing operations, the laser printing and fulfillment
operations of the Marketing Services Division of DST's Output Solutions segment,
and additional cash to approximately equalize the value of the OMS Shares to the
Janus DST Shares being exchanged.
The obligations of DST, OMS and Janus to complete the Exchange are subject,
in addition to other conditions customary for transactions of this type, to the
following conditions:
o Approval by DST stockholders of the Share Exchange Agreement and the
transactions contemplated by the Share Exchange Agreement (described
in the proposal);
o Obtaining required consents and approvals from governmental
authorities;
o Receipt of tax opinions;
o Execution and delivery of certain of the Ancillary Agreements;
o Obtaining certain consents and/or waivers from certain lenders;
o Absence of any action taken by any governmental authority to prohibit,
enjoin or restrain consummation of the transactions contemplated by
the Share Exchange Agreement;
o Completion of the Reorganization; and
o DST entering into customary agreements for financing a portion of the
cash amount to be transferred to OMS as part of the Reorganization.
See "Proposal - Approval of the Share Exchange Agreement and the Transactions
Contemplated Thereby--Summary of the Share Exchange Agreement."
At the Closing, the parties and their respective affiliates, as
appropriate, will execute and deliver certain of the Ancillary Agreements,
pursuant to which among other things, certain services and goods will be
provided to the parties to the Share Exchange Agreement. In addition, Janus will
execute and deliver to DST a proxy for voting the shares of DST Common Stock
Janus will retain after the Exchange is consummated for so long as Janus owns or
retains voting rights to such shares. See "Proposal - Approval of the Share
Exchange Agreement and the Transactions Contemplated Thereby--Summary of the
Share Exchange Agreement--Ancillary Agreements."
FAIRNESS OPINION (PAGES 15 THROUGH 20 AND APPENDIX C)
U.S. Bancorp Piper Jaffray Inc. ("Piper Jaffray") acted as a financial
advisor to DST in connection with the Exchange. At an August 25, 2003 meeting of
the DST Board, Piper Jaffray made a fairness opinion presentation to the Board
and delivered its opinion. The opinion was that the consideration to be
exchanged in the Exchange is fair, from a financial point of view, to DST.
VOTE REQUIRED TO APPROVE THE PROPOSAL (PAGES 6 AND 34)
Approval of the proposal will require the affirmative vote of the holders
of a majority of the outstanding shares of capital stock that are entitled to
vote.
Pursuant to the Share Exchange Agreement, Janus has agreed to vote all
shares of DST Common Stock beneficially owned by Janus at the time of the
Special Meeting (approximately [34%] of the outstanding shares) in favor of
approval of the Share Exchange Agreement and the transactions contemplated
thereby.
QUESTIONS AND ANSWERS ABOUT THE PROPOSAL
This question-and-answer section highlights important information in this
proxy statement but does not contain all of the information that is important to
you. You should read carefully this entire proxy statement, including the
appendices, and the other documents we refer you to for a more complete
understanding of the matters being considered at the Special Meeting. In
addition, we incorporate by reference into this proxy statement important
business and financial information about DST. You may obtain the information
incorporated by reference into this proxy statement without charge by following
the instructions in the section entitled "Documents Incorporated by Reference."
Q: ON WHAT AM I BEING ASKED TO VOTE?
A: You are being asked to vote to approve the Share Exchange Agreement and the
transactions contemplated thereby.
Q: WHAT IS THE PURPOSE OF THE EXCHANGE?
A: The Exchange is intended to achieve important DST business objectives. We
believe the removal of significant ownership by Janus, which is a
competitor to our mutual fund customer base, will improve our competitive
position in serving the mutual fund industry. In addition, we believe the
substantial reduction in Janus' ownership of DST will improve our access to
bank credit by eliminating aggregation of credit risks by lenders. The
Exchange will also address certain of our concerns about the lack of
desired fit of the OMS operations with those of our core Output Solutions
business.
Q: WHY IS DST STOCKHOLDER APPROVAL NECESSARY?
A: DST's Certificate of Incorporation requires stockholder approval of any
transfer or exchange to or with any "Interested Stockholder," of any assets
of DST having an aggregate fair market value equaling or exceeding 25% or
more of the combined assets of DST. Janus is considered an Interested
Stockholder because it owns more than 10% of the voting power of DST's
outstanding capital stock entitled to vote generally in the election of
directors.
Pursuant to the Share Exchange Agreement, DST will transfer to Janus all of
the issued and outstanding shares of OMS. After taking into account the
additional cash to be transferred to OMS in connection with the Exchange,
the value of the assets to be transferred in connection with the proposed
Exchange may exceed 25% of the combined assets of DST.
Q: DO I HAVE APPRAISAL RIGHTS IF I OPPOSE THE PROPOSAL?
A: No. Under Delaware law, stockholders do not have the right to an appraisal
of the value of their shares in connection with the proposal.
Q: WHAT IS THE DST BOARD'S RECOMMENDATION ON HOW TO VOTE?
A: The DST Board has unanimously recommended that you vote FOR the proposal.
Q: WHAT WILL HAPPEN IF THE PROPOSAL IS NOT APPROVED?
A: DST will not be able to complete the Exchange.
Q: WHAT ARE THE EXPECTED TAX CONSEQUENCES OF THE REORGANIZATION AND THE
EXCHANGE?
A: DST will receive tax opinions (the "Tax Opinions") from
PricewaterhouseCoopers LLP ("PWC") and Sonnenschein Nath & Rosenthal LLP
("Sonnenschein") to the effect that, although the matter is not free from
doubt, the Reorganization and the Exchange should be tax free to DST. The
Tax Opinions are not binding on the Internal Revenue Service (the "IRS"),
and it is possible that the IRS could take a position which is contrary to
the Tax Opinions. If the IRS were to take such a contrary position and
prevail, then DST could recognize gain on the Reorganization and the
Exchange as if DST had sold the OMS Stock for fair market value. Under
these circumstances, DST would recognize a gain of approximately $104
million and incur federal and state income tax liabilities of approximately
$41.6 million. Neither DST nor Janus has any obligation to indemnify the
other for tax liabilities arising from the Exchange. For a description of
the material federal income tax consequences of the Reorganization and the
Exchange, see "Material Federal Income Tax Consequences."
Q: WHO CAN ANSWER OTHER QUESTIONS I MAY HAVE?
A: If you have any questions concerning the proposal or the Special Meeting,
or if you would like additional copies of the proxy statement, please
contact the DST Corporate Secretary's Office, 333 West 11th Street, Kansas
City, Missouri 64105, telephone (816) 435-4636.
INFORMATION ABOUT THE SPECIAL MEETING
WHY WERE DST'S STOCKHOLDERS SENT THIS PROXY STATEMENT?
DST is mailing this proxy statement on or about [DATE], 2003 to its
stockholders of record on [DATE], 2003 in connection with the DST Board's
solicitation of proxies for use at a Special Meeting of Stockholders and any
adjournment thereof (the "Special Meeting"). The Special Meeting will be held at
the principal executive offices of DST, 333 West 11th Street, 3rd Floor, Kansas
City, Missouri, on [DATE], 2003 at 8:30 AM, Central Time. The Notice of Special
Meeting of Stockholders and a voting card accompany this proxy statement.
Brokers, dealers, banks, voting trustees, other custodians and their
nominees are asked to forward this notice and proxy statement and the voting
card to the beneficial owners of DST's stock held of record by them. Upon
request, DST will reimburse them for their reasonable expenses in completing the
mailing of the materials to beneficial owners of our stock.
WHO WILL BEAR THE COST OF THE SPECIAL MEETING?
DST will bear the cost of the Special Meeting, including the cost of
mailing the proxy materials and any supplemental materials. Proxies may also be
solicited by telephone, in person or otherwise by directors, officers and
employees not specifically engaged or compensated for that purpose. DST has
retained D.F. King & Co., Inc. to assist in the solicitation of proxies at a
cost not expected to exceed $5,000 plus expenses. In addition, DST may reimburse
brokerage firms and other persons representing beneficial owners of DST Common
Stock for their expenses in forwarding this proxy statement and other DST
soliciting materials to the beneficial owners.
WHO MAY ATTEND THE SPECIAL MEETING?
Only DST stockholders or their proxies and guests of DST may attend the
Special Meeting. Any stockholder or stockholder's representative who, because of
a disability, may need special assistance or accommodation to allow him or her
to participate in the Special Meeting may request reasonable assistance or
accommodation from DST by contacting the office of the Corporate Secretary at
DST's principal executive offices at (816) 435-4636. If written requests are
made to the Corporate Secretary of DST, they should be mailed to 333 West 11th
Street, Kansas City, Missouri 64105. To provide DST sufficient time to arrange
for reasonable assistance, please submit all requests by [DATE], 2003.
WHAT MATTERS WILL BE CONSIDERED AT THE SPECIAL MEETING?
At the Special Meeting, stockholders will consider and vote upon a proposal
to approve the Share Exchange Agreement and the transactions contemplated
thereby. These matters have been proposed by the DST Board. The DST Board knows
of no other matters that will be presented or voted on at the Special Meeting.
VOTING
PROPOSAL. At the Special Meeting, stockholders will consider and vote upon a
proposal to approve the Share Exchange Agreement and the transactions
contemplated by the Share Exchange Agreement. The DST Board knows of no other
matters that will be presented or voted on at the Special Meeting. Stockholders
do not have any dissenters' rights of appraisal in connection with the proposal.
QUORUM. In order for any proposal to be approved at the Special Meeting, a
quorum of DST stockholders must be present at the meeting, either in person or
through a proxy, regardless of whether such stockholders vote their shares. The
presence in person or by proxy of the holders of a majority of the shares of DST
Common Stock outstanding on the Record Date constitutes a quorum. All DST shares
held through a broker or other nominee that votes at least some of the shares
are generally considered present at the Special Meeting.
TABULATION OF VOTES. Each stockholder may cast one vote for each share of DST
Common Stock held by such stockholder on the Record Date on all matters to be
voted on at the Special Meeting. The percentage of shares required to be voted
for a proposal depends on the proposal. For the proposal presented at the
Special Meeting, the affirmative vote of a majority of the outstanding shares of
capital stock entitled to vote is required for the approval of the proposal. The
percentage of shares that have been affirmatively voted for a proposal is
determined by dividing the affirmative votes by the total number of shares
outstanding.
HOW STOCKHOLDERS VOTE. Stockholders holding DST Common Stock on the Record Date
in their own names ("Record Holders"), persons who participate in certain
benefit plans* of DST or its subsidiaries and indirectly hold DST Common Stock
on the Record Date through such plans ("Plan Participants"), and investors
holding DST Common Stock on the Record Date through a broker or other nominee
("Broker Customers") may vote such stock as follows:
DST COMMON STOCK HELD OF RECORD. Record Holders may only vote their shares
of DST Common Stock if they or their proxies are present at the Special Meeting.
Record Holders, through the Voting Card or through Internet or telephone voting,
may appoint as their proxy the Proxy Committee, which consists of officers of
DST whose names are listed on the Voting Card. The Proxy Committee will vote as
specified by the stockholders (either on the Voting Card or through Internet or
telephone voting) all shares of DST Common Stock for which it is the proxy. A
Record Holder desiring to name as proxy someone other than the Proxy Committee
may do so by crossing out the names of the Proxy Committee members on the Voting
Card and inserting the full name of such other person. In that case, the Record
Holder must sign the Voting Card and deliver it to the person named, and the
person named must be present and vote at the Special Meeting.
If a stockholder does not specify when voting (either on the Voting Card or
through Internet or telephone voting) how the shares of DST Common Stock
represented thereby are to be voted, the Proxy Committee intends to vote such
shares in accordance with the discretion of the Proxy Committee upon such other
matters as may properly come before the Special Meeting.
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* The Employee Stock Ownership Plan of DST Systems, Inc. ("DST ESOP"), the DST
Systems, Inc. 401(k) Profit Sharing Plan, and The DST Systems of California,
Inc. 401(k) Retirement Plan (each, a "Plan").
DST COMMON STOCK HELD UNDER THE PLANS. Plan Participants may, by using the
Voting Card, Internet or telephone voting, instruct the trustee of the Plans how
to vote the shares allocated to the respective participant accounts. The trustee
will vote all shares allocated to the accounts of Plan Participants as
instructed by such participants. With respect to any shares of DST Common Stock
not allocated to Plan accounts or for which Plan Participants have not given
instructions to the trustee, the trustee must vote such shares in the same
proportion as those shares for which it received instructions. The trustee may
vote Plan shares either in person or through a proxy. The trustee intends to
vote in the same manner as the Proxy Committee upon other matters as may
properly come before the Special Meeting.
DST COMMON STOCK HELD THROUGH A BROKER OR OTHER NOMINEE. Each broker or
nominee must solicit from the Broker Customers directions on how to vote the
shares, and the broker or nominee must then vote such shares in accordance with
such directions. Brokers or nominees are to forward soliciting materials to the
Broker Customers, and, if requested, DST will reimburse their reasonable
expenses in forwarding the materials. Whether brokers may vote the shares of
Broker Customers when they have not received directions depends on the proposal
and on the rules and procedures of the New York Stock Exchange ("NYSE"), which
is the exchange that lists DST Common Stock for trading.
REVOKING PROXY AUTHORIZATIONS OR INSTRUCTIONS. Until the polls close (or, in the
case of Plan Participants, until the trustee of the Plans votes), votes of
Record Holders and Broker Customers and instructions of Plan Participants to the
Plan trustee may be recast (a) by an Internet or telephone vote subsequent to
the date shown on a previously executed and delivered Voting Card or to the date
of a prior Internet or telephone vote or (b) with a later-dated, properly
executed and delivered Voting Card. Otherwise, stockholders may not revoke their
votes, even by attending the Special Meeting, unless (a) for Record Holders,
they deliver written revocation to the Corporate Secretary of DST at any time
before the Chairman of the Special Meeting closes the polls; (b) for Plan
Participants, they follow the revocation procedures of the trustee; or (c) for
Broker Customers, they follow the revocation procedures of the broker or
nominee.
ATTENDANCE AND VOTING IN PERSON AT THE SPECIAL MEETING. Attendance at the
Special Meeting is limited to Record Holders or their properly appointed
proxies, beneficial owners of DST Common Stock having evidence of such
ownership, and invited guests of DST. Plan Participants and Broker Customers,
absent special direction to DST from the trustee, broker or nominee, may only
vote by instructing the trustee, broker or nominee and may not cast a ballot at
the Special Meeting. Record Holders who have not appointed a proxy, or who have
revoked the appointment of a proxy, may vote by casting a ballot at the Special
Meeting.
BUSINESS OF DST SYSTEMS, INC.
We have several operating business units that offer sophisticated
information processing and software services and products. These business units
are reported as three operating segments, Financial Services, Output Solutions
and Customer Management. In addition, investments in equity securities and
certain financial interests and our real estate subsidiaries and affiliates have
been aggregated into an Investments and Other segment. A summary of each of our
segments follows:
FINANCIAL SERVICES
Our Financial Services segment provides sophisticated information
processing and computer software services and products primarily to mutual
funds, investment managers, corporations, insurance companies, banks, brokers
and financial planners. Our proprietary software systems include mutual fund
shareowner and unit trust recordkeeping systems for U.S. and international
mutual fund companies, a defined-contribution participant recordkeeping system
for the U.S. retirement plan market, securities transfer systems offered to
corporations, corporate trustees and transfer agents, investment management
systems offered to U.S. and international fund accountants and investment
managers, and a workflow management and customer contact system offered to
mutual funds, insurance companies, brokerage firms, banks, cable television
operators and health care providers. We also provide design, management and
transaction processing services for customized consumer equipment maintenance
and debt protection programs.
The segment distributes its services and products on a direct basis and
through subsidiaries and joint venture affiliates in the U.S., United Kingdom
("U.K."), Canada, Europe, Australia, South Africa and Asia-Pacific and, to a
lesser degree, distributes such services and products through various strategic
alliances.
OUTPUT SOLUTIONS
Our Output Solutions segment provides single source, integrated print and
electronic communications solutions. In the U.S., DST Output, Inc. ("DST
Output"), a wholly owned subsidiary, provides customized and personalized bill
and statement processing services and electronic bill payment and presentment
solutions which establish DST Output as a preferred service provider to
customers of the Financial Services and Customer Management segments and other
industries that value customer communications and require high quality, accurate
and timely bill and statement processing.
The segment also offers its services to the Canadian and U.K. markets. DST
Output Canada Inc. offers customer communications and document automation
solutions to the Canadian market. DST International Output Limited provides
similar services in the U.K.
The segment also offers a variety of complementary professional services,
including communications design, direct marketing, fulfillment, assistance in
stimulating consumer and consent adoption for electronic delivery as well as
statement design and formatting services, that allow clients to use bills and
statements as personalized communication and marketing tools.
OMS is included in this segment and, at or before the time of the Exchange,
certain of the business assets of this segment which are not assets of OMS will
have been transferred to OMS and upon consummation of the Exchange will no
longer be business assets of this segment. See "Business of OMS" and "Proposal -
Approval of the Share Exchange Agreement and the Transactions Contemplated
Thereby--Summary of the Share Exchange Agreement--The Business."
CUSTOMER MANAGEMENT
Our Customer Management segment provides customer management, billing and
marketing solutions to the video/broadband, direct broadcast satellite,
wire-line and Internet Protocol telephony, Internet and utility markets. The
segment offers a comprehensive customer management and billing solution by
providing core customer care products that are supplemented with the products
and services offered from our other operating segments.
The segment distributes its services and products on a direct basis,
through subsidiaries in North America, the U.K. and parts of Europe and with
international alliance partners in other regions of the world.
INVESTMENTS AND OTHER
The Investments and Other segment holds investments in equity securities
and certain financial interests and our real estate subsidiaries and affiliates.
We hold investments in equity securities with a market value of approximately
$982.0 million at June 30, 2003, including approximately 12.8 million shares of
State Street Corporation with a market value of $504.0 million and 8.6 million
shares of Computer Sciences Corporation with a market value of $329.1 million.
Additionally, we own and operate real estate mostly in the U.S. and U.K., which
is held primarily for lease to our other business segments.
DST is incorporated in Delaware. Our principal executive offices are
located at 333 West 11th Street, Kansas City, Missouri 64105. Our telephone
number is 888-DST-INFO.
BUSINESS OF DST OUTPUT MARKETING SERVICES, INC.
At the time of the Exchange, OMS will hold graphics design and sheet-fed
offset commercial printing operations, the laser printing and fulfillment
operations of the Marketing Services Division of the Output Solutions segment,
and additional cash to approximately equalize the value of the OMS Shares to the
Janus DST Shares being exchanged.
For a more detailed discussion of the business of OMS, see "Proposal -
Approval of the Share Exchange Agreement and the Transactions Contemplated
Thereby--Summary of the Share Exchange Agreement--The Business."
OMS is incorporated in New York. Its principal executive offices are
located at 525 Broadhollow, Melville, New York 11747. Any calls related to this
proxy statement should be directed to Kenneth V. Hager at (816) 435-8603. DST is
proposing to exchange all of the OMS Shares with Janus in exchange for the Janus
DST Shares. See "Proposal - Approval of the Share Exchange Agreement and the
Transactions Contemplated Thereby--Summary of the Share Exchange Agreement."
BUSINESS OF JANUS CAPITAL GROUP INC.
Janus is a leading asset manager offering individual investors and
institutional clients complementary asset management disciplines through the
firm's global distribution network. Janus consists of Janus Capital Management
LLC, Enhanced Investment Technologies, LLC (INTECH) and Bay Isle Financial LLC.
As of August 31, 2003, Janus owned approximately 34% of DST. Janus also owns 30%
of Perkins, Wolf, McDonnell and Company, LLC.
Janus is incorporated in Delaware. Its principal executive offices are
located at 100 Fillmore Street, Denver, Colorado 80206. Its telephone number is
(303) 333-3863.
BACKGROUND AND RECOMMENDATION
BACKGROUND
On September 3, 2002, Stilwell Financial Inc. ("Stilwell") announced plans
for a merger with its subsidiary Janus Capital Corporation ("JCC") for purposes
of creating a new organization to be named Janus Capital Group Inc. Effective
January 1, 2003, certain changes in the Board of Directors and executive
management of Janus were also announced. In the announcement, and in the
analysts' call held by Stilwell and JCC on September 3, 2002, Stilwell and JCC
indicated that they would assess strategic alternatives for Stilwell's
investment in DST stock.
On September 11, 2002, Thomas McDonnell, CEO of DST, telephoned Mark
Whiston, who had been named to become the new Janus CEO upon completion of the
merger, to extend congratulations and to express DST's willingness to work with
management of Stilwell and JCC as it explored alternatives for its investment in
DST stock. Mr. McDonnell invited management of Stilwell and JCC to meet with DST
representatives in Kansas City to discuss the current state of DST's business
and answer questions that Janus management might have in relation to its
investment in DST. Arrangements were made for a meeting on November 14, 2002 at
the offices of DST. Before that meeting began, the parties executed a
non-disclosure agreement for purposes of protecting the confidentiality of any
information to be exchanged.
At the November 14, 2002 meeting, DST representatives presented financial
information about DST's operations and compared possible financial results to
Stilwell and JCC of open market sales of DST shares over extended time periods.
DST expressed its interest in acquiring a significant portion of the Janus DST
Shares if a transaction could be structured in a fashion that would meet the
business needs of both parties. Shortly after the meeting, representatives of
Stilwell presented DST with a memorandum describing basic requirements for a tax
free split-off, and inquired whether DST had considered such a transaction in
light of DST's objectives. DST officers reviewed the memorandum and discussed
alternatives for exchanging a DST business unit for the Janus DST Shares and the
benefits of such a transaction to DST. Later that day, Mr. McDonnell notified an
officer of Stilwell that DST was considering strategic alternatives for one of
its business units and that DST would be open to further discussion of a
split-off transaction.
Between November 14 and December 18, 2002, DST discussed alternatives for
structuring a transaction to acquire the Janus DST Shares with its legal,
accounting and tax advisors. During this period, DST also received information
from Stilwell and JCC concerning alternative transaction structures being
considered by their management.
On December 16, 2002, DST officers participated in a telephone conference
with JCC officers, legal, accounting, and tax advisors of both companies and JCC
financial advisors to discuss alternative transaction structures, including a
possible split-off transaction. This discussion was followed by a December 18,
2002 meeting at JCC's offices in Denver attended by Stilwell, JCC and DST
officers, legal, accounting and tax advisors of the parties and investment
banking and financial advisors invited by Janus. The outcome of this meeting was
that the parties and their advisors would address numerous legal, accounting,
financial, tax and other business issues required to be resolved before the
parties could determine the type of transaction that would best meet the
business needs of the parties.
From December 18, 2002 to January 28, 2003, the parties participated in
telephone conversations and meetings at Janus' offices attended by DST and Janus
officers, legal, accounting, and tax advisors of both parties and Janus
financial advisors to resolve such issues. During this period, DST also
identified OMS as the business unit that it would propose to exchange for the
Janus DST Shares if a split-off transaction were to be pursued. DST also
consulted with its advisors and determined the actions necessary to complete the
Reorganization. On January 22, 2003, DST engaged Standard and Poor's Corporate
Value Consulting to provide a valuation analysis of the operations to be
included in OMS. On January 28, 2003, the parties met at Janus' offices, agreed
to focus further discussions upon a split-off transaction, and made arrangements
for the preparation by DST of a request for a private letter ruling to be
submitted to the IRS.
During the period from January 28, 2003 through February 7, 2003, the
parties exchanged draft term sheets and drafts of DST's request for a private
letter ruling and worked on arrangements for a due diligence review of the OMS
operations by Janus.
From February 11, 2003 through February 20, 2003, DST provided Janus with
customary financial, technical, legal and business information relating to the
operations of OMS. During this time period representatives of Janus also
personally toured each of the OMS operating facilities in Missouri, Illinois,
New York and California. Through March 13, 2003, Janus continued to conduct its
diligence review and receive further written information from DST about the OMS
operations.
On March 14, 2003, officers of DST and OMS President Garet Hil met with
Janus officers at Janus' offices to discuss the business of OMS and advantages
of Janus ownership of that business.
After that meeting and through April 21, 2003, the parties continued to
meet in person and via telephone to discuss and negotiate the basic financial,
legal and business terms of the proposed transaction and to work towards
completion of the draft request for a private letter ruling. During this time
DST prepared a summary description of the proposed transaction and DST's
business purposes relating to the transaction and submitted it to the IRS along
with a request for a pre-submission conference. On April 21, 2003, Mr. McDonnell
and legal and tax advisors to DST and Janus attended a pre-submission conference
with representatives of the IRS in Washington, D.C.
After April 21, 2003, representatives of DST and Janus, along with legal,
accounting and tax advisors for both parties continued to discuss and negotiate
the financial, legal and business terms of the proposed transaction via
telephone and at meetings at Janus' offices. During this time DST also engaged
in discussions with representatives of the lead bank in its syndicated lending
arrangement concerning alternatives for financing a contribution of cash to OMS
prior to closing of the proposed transaction. DST also discussed the issuance of
tax opinions relating to the proposed transaction with its legal and accounting
tax advisors. As DST neared completion of the draft request for a private letter
ruling, it was advised by legal counsel that it would be required to obtain
customer letters and affidavits relating to its business purposes for the
proposed transaction in connection with the submission of the request for a
private letter ruling. DST determined that certain limited information would be
required to be disclosed in the process of obtaining such documents. On April
29, 2003, prior to discussions with customers to obtain letters and affidavits,
DST issued a press release disclosing the necessary information.
On June 11, 2003, the parties began reviewing draft definitive agreements
for the Exchange. The parties continued to work on the preparation of the
request for a private letter ruling until June 24, 2003, when the IRS issued
Revenue Procedure 2003-48 announcing a new policy for the issuance of private
letter rulings relating to transactions under Section 355 of the Internal
Revenue Code. Based upon informal discussions with representatives of the IRS
and the advice of its legal and accounting tax advisors, DST determined that it
would not proceed with the request for a private letter ruling and that it would
rely upon written opinions from its legal and accounting tax advisors as to the
tax treatment of the Exchange. See "Material Federal Income Tax Consequences--No
Private Letter Ruling."
On June 23, 2003, Mr. McDonnell and Mr. Hil met with Janus officers at
Janus' offices to discuss transition matters, including benefit plans and future
employment arrangements for Mr. Hil and other key OMS management personnel.
During the remainder of June and into July, 2003 the parties continued to
negotiate terms of definitive agreements for the Exchange, and DST continued
discussions with its lenders and investment banking contacts concerning
alternatives for financing the cash contribution to OMS. On July 22, 2003,
during a meeting at Janus' offices, representatives of DST advised Janus that
DST would proceed with a convertible debt offering, the proceeds of which could
be used to finance a portion of the cash contribution to OMS in the event the
parties were able to agree upon and consummate the Exchange.
During the period from July 28 through August 10, 2003, DST worked with its
legal, accounting and investment banking advisors in preparation for the
issuance of convertible debt securities. On August 5, 2003, DST issued press
releases announcing the offering of up to $840 million of convertible debt
securities and describing additional details relating to its ongoing discussions
with Janus about the Exchange. During this period, DST and Janus also continued
to negotiate definitive agreements for the Exchange. On August 13, 2003, the CFO
of Janus notified DST that it would be preferable to eliminate the $150 million
of subordinated debt that DST planned to contribute to OMS and to contribute
such amount in cash. DST promptly commenced discussions with representatives of
its syndicated lending facility concerning the terms upon which that facility
could be expanded or restated to enable DST to replace the subordinated debt
with cash. After concluding those initial discussions, and further negotiation
of transaction terms with Janus, DST management agreed to continue efforts to
finalize definitive agreements for the Exchange. DST officers and
representatives of Janus held a final meeting at Janus' offices on August 22,
2003 to complete drafting of the definitive agreements for the Exchange.
DST management updated the DST Board on the status of negotiations with
Janus and all significant financial, legal, tax and business issues relating to
the Exchange and the financing of the cash contribution to OMS, including the
convertible debt offering, at nine separate regular and special meetings
occurring from September 4, 2002 through August 3, 2003. On August 25, 2003, the
DST Board unanimously approved the Share Exchange Agreement and the Ancillary
Agreements and authorized appropriate officers of DST to take all actions
necessary to complete the Exchange. After the completion of the DST Board
meeting, the parties executed final definitive agreements for the Exchange at
DST's offices in Kansas City, Missouri. After the close of business on August
25, 2003, both parties issued press releases announcing the execution of the
Share Exchange Agreement.
REASON FOR THE PROPOSAL
The Exchange is intended to achieve important DST business objectives. We
believe the removal of significant ownership by Janus, which is a competitor to
our mutual fund customer base, will improve our competitive position in serving
the mutual fund industry. In addition, we believe the substantial reduction in
Janus' ownership of DST will improve our access to bank credit by eliminating
aggregation of credit risks by lenders. The Exchange will also address certain
of our concerns about the lack of desired fit of the OMS operations with those
of our core output business. The reason for the proposal is to allow DST, OMS
and Janus to consummate the transactions contemplated by the Share Exchange
Agreement.
In arriving at its decision to approve the Share Exchange Agreement and the
transactions contemplated by the Share Exchange Agreement and in making its
recommendation discussed below under "--Recommendation," the DST Board
considered the following material factors:
o The firm of Piper Jaffray, a financial advisor to DST in connection
with the Exchange has delivered a written opinion to the DST Board
dated August 25, 2003. Piper Jaffray made an initial presentation of
its analysis at an August 3, 2003 meeting of the DST Board, and
subsequently made another presentation to the DST Board prior to
execution of the Share Exchange Agreement on August 25, 2003. The
opinion was that the consideration to be exchanged in the Exchange is
fair, from a financial point of view, to DST;
o The concerns expressed by DST customers about significant Janus
ownership of DST Common Stock, competitive conditions of the financial
services industry markets in which DST operates and the expected
positive effect on DST's relationship with its mutual fund customers
resulting from the removal of significant ownership of DST by Janus;
o The expected improvement in DST's access to bank credit by eliminating
aggregation of credit risks by lenders;
o The desirability of separating the businesses that will be included in
OMS's business from the rest of DST's core Output Solutions segment;
o DST's business, results of operations and financial condition;
including, but not limited to, its current and projected debt levels;
o The terms of the Share Exchange Agreement, including among other
things, the conditions to Closing, the exchange of the OMS Shares for
the Janus DST Shares, the rights of termination set forth in the Share
Exchange Agreement, and the terms of the Ancillary Agreements;
o The financial impact of the Exchange on the financial condition of
DST, including the effect on earnings per share;
o The likelihood of receiving the requisite regulatory approvals in a
timely manner; and
o Receipt of opinions of tax advisors that the Reorganization and the
Exchange should be tax-free transactions.
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated July 24, 2003, DST engaged Piper
Jaffray to act as a financial advisor to DST and to render a fairness opinion in
connection with the Exchange. At an August 25, 2003 meeting of the DST Board,
Piper Jaffray made a fairness opinion presentation to the DST Board and
delivered its opinion. The opinion was that as of its date and based upon and
subject to the assumptions made, matters considered and limits of the review
undertaken by Piper Jaffray, the consideration to be exchanged in the Exchange
is fair, from a financial point of view, to DST.
THE FULL TEXT OF PIPER JAFFRAY'S WRITTEN OPINION, DATED AUGUST 25, 2003,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITS ON THE REVIEW UNDERTAKEN BY PIPER JAFFRAY IN CONNECTION WITH THE
OPINION, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT AND IS INCORPORATED
HEREIN BY REFERENCE. DST STOCKHOLDERS ARE URGED TO READ PIPER JAFFRAY'S OPINION
IN ITS ENTIRETY. THE SUMMARY OF PIPER JAFFRAY'S OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF PIPER
JAFFRAY'S OPINION.
While Piper Jaffray rendered its opinion and provided certain analyses to
the DST Board, Piper Jaffray was not requested to and did not make any
recommendation to the DST Board as to the specific form or amount of the
consideration to be received by DST in the proposed Exchange. Piper Jaffray's
opinion, which was directed to the DST Board, addresses only the fairness, from
a financial point of view, of the proposed consideration to be exchanged in the
proposed Exchange, does not address our underlying business decision to proceed
with or effect the Exchange or the relative merits of the Exchange compared to
any alternative business strategy or transaction in which we might engage, and
does not constitute a recommendation to any of our stockholders as to how to
vote regarding the Exchange.
In arriving at its opinion, Piper Jaffray's review included:
o a draft of the Share Exchange Agreement dated August 21, 2003;
o certain publicly available financial, operating and business
information related to DST and Janus;
o valuation of the operations of OMS subsequent to the Reorganization,
but excluding the "Additional Assets" (defined below) (referred to
herein as "OMS Post Reorganization") prepared by Standard & Poors
Corporate Value Consulting dated June 13, 2003;
o certain publicly available market and securities data of DST and of
selected public companies deemed comparable to DST and OMS;
o to the extent publicly available, financial terms of certain merger
and acquisition transactions involving acquired entities deemed
comparable to DST's business;
o certain internal financial information of DST and OMS prepared for
financial planning purposes and furnished by its management; and
o other matters which Piper Jaffray considered relevant.
In addition, Piper Jaffray visited our headquarters in Kansas City,
Missouri and OMS's operations in Kansas City, Missouri and Chicago, Illinois and
conducted discussions with members of senior management of DST and OMS
concerning the financial condition, current operating results and business
outlook for DST and OMS.
The following is a summary of certain material analyses and other
information that Piper Jaffray prepared and relied on in delivering its opinion
to the DST Board and does not purport to be a complete description of the
analysis performed by Piper Jaffray:
SELECT MARKET INFORMATION
Piper Jaffray reviewed the stock trading history of DST Common Stock at the
dates or for the periods indicated below:
Closing price on August 21, 2003 $37.90
20 Trading Day Average $36.75
90 Trading Day Average $35.01
5 Days Prior to Announcement (April 23, 2003) $28.24
52 Week Low $24.30
52 Week High $39.84
Average Daily Share Volume 586,892
ANALYSIS OF OMS OPERATIONS
Piper Jaffray reviewed and compared certain financial, operating and stock
market information for OMS and a group of publicly traded companies deemed
similar to OMS. This group was comprised of the following ten companies
operating within the commercial printing, computer programming, data processing
and other computer related services industries: Advo Inc.; Automatic Data
Processing, Inc.; Banta Corp.; Bowne & Company, Inc.; Consolidated Graphics;
Ennis Business Forms, Inc.; Harte-Hanks, Inc.; Moore Wallace Inc.; RR Donnelley
& Sons Co.; and The Standard Register Company.
This analysis produced multiples of selected valuation data as follows(1):
OMS @
$115.0 COMPARABLE COMPANIES
MILLION (2) MEDIAN MEAN LOW HIGH
--------------------------------------------------
Price/LTM Earnings 45.6x 19.6x 21.1x 14.5x 38.9x
Price/2003 Earnings 31.9x 18.7x 20.8x 13.5x 37.0x
Price/2004 Earnings 14.8x 15.8x 16.4x 12.6x 24.7x
Company Value/LTM Revenue 1.2x 0.9x 4.4x 0.5x 33.4x
Company Value/2003 Revenue 1.1x 0.9x 4.5x 0.5x 30.8x
Company Value/2004 Revenue 0.9x 0.9x 4.1x 0.6x 27.7x
Company Value/LTM EBITDA 14.8x 6.8x 8.5x 5.3x 16.0x
(1) Based on historical and projected financial statements. Historical company
information based on most recent filings. Projected comparable company
information provided as of August 21, 2003 as reported by FirstCall.
(2) The $115 million valuation of OMS Post Reorganization was agreed upon by
the parties pursuant to arms' length negotiations.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
Piper Jaffray performed a merger and acquisition multiple analysis that
encompassed a review of transactions involving acquired entities deemed similar
to the business of OMS Post Reorganization. Based upon its analysis, Piper
Jaffray was unable to identify transactions for which meaningful data was
available.
DISCOUNTED CASH FLOW ANALYSIS
Piper Jaffray used a discounted cash flow analysis to calculate a range of
theoretical values for OMS Post Reorganization based on the present value of
future projected cash flows through year 2005 and a terminal value for OMS Post
Reorganization at calendar year-end 2005 calculated based upon a multiple of
projected estimated earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Piper Jaffray's discounted cash flow analysis was based
on the following key assumptions:
o theoretical value of OMS Post Reorganization calculated as of June 30,
2003;
o EBITDA multiples were used to calculate terminal values in the
analysis;
o terminal value was based upon multiples ranging from 6.0x to 8.0x OMS
Post Reorganization's fiscal 2005 EBITDA;
o discount rates applied to the cash flow ranged from 15% to 18%; and
o cash flows assumed to occur evenly throughout the period, and mid-year
discounting methodology applied.
The table below shows the results of the discounted cash flow analysis for
OMS Post Reorganization (dollars in millions):
DISCOUNT RATE
15.0% 16.0% 17.0% 18.0%
--------------------------------------------
EBITDA MULTIPLE 6.0x $109.9 $107.7 $105.5 $103.4
7.0x $125.1 $122.5 $120.0 $117.6
8.0x $140.3 $137.4 $134.6 $131.9
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES COMPARABLE TO DST
Piper Jaffray reviewed and compared certain financial, operating and stock
market information for DST and the following thirteen publicly traded companies
deemed similar to DST: Affiliated Computer Services; Automatic Data Processing,
Inc.; Bisys Group Inc.; Checkfree Corporation; Electronic Data Systems
Corporation; Fiserv, Inc.; Intercept Inc.; Jack Henry & Associates Inc.; Moore
Wallace Inc.; RR Donnelley & Sons Co.; SEI Investments Company; SunGuard Data
Systems Inc.; and State Street Corporation.
This analysis produced multiples of selected valuation data as follows:
DST @ PER
SHARE PRICES COMPARABLE COMPANIES
$30.00 $34.50 MEDIAN MEAN LOW HIGH
-------------- -------------------------------
Price/LTM Earnings(1) 17.2x 19.8x 22.8x 23.5x 16.9x 35.1x
Price/2003 Earnings(2) 16.1x 18.5x 22.1x 22.3x 15.8x 31.7x
Price/2004 Earnings(2) 15.9x 18.3x 19.3x 19.4x 12.6x 25.1x
Company Value/LTM Revenue(3) 1.6x 1.8x 2.8x 2.7x 0.7x 5.8x
Company Value/2003 Revenue(2) 1.6x 1.8x 2.9x 2.6x 0.7x 5.6x
Company Value/2004 Revenue(2) 1.5x 1.7x 2.7x 2.4x 0.7x 5.1x
Company Value/LTM EBIT(3) 12.0x 13.6x 14.1x 16.3x 11.7x 30.2x
Company Value/LTM EBITDA(3) 8.3x 9.4x 10.9x 10.9x 5.7x 16.0x
(1) Based on fully diluted earnings per share for the twelve monthriod ending
June 30, 2003 as reported by FirstCall.
(2) Company estimates based on projected financial information provided by
management. Projections for comparable group based on estimates as of
August 21, 2003 as reported by FirstCall.
(3) Historical information based on most recent filings.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
Piper Jaffray reviewed eight acquisition transactions involving acquired
entities that it deemed comparable to DST's business. It selected these
transactions by Securities and Exchange Commission ("SEC") filings, public
company disclosures, press releases, industry and popular press reports,
databases and other sources and by applying the following criteria:
o transactions analyzed were announced from January 1, 1999 through
present;
o merger transactions where the target company's primary SIC code was:
2759, 2754, 7374, 7375, 7372 or 6099;
o deals with publicly available information on terms;
o targets which Piper Jaffray deemed similar to DST's business; and
o targets in which 100% of the company was acquired.
Piper Jaffray compared the resulting multiples of selected valuation data
to multiples for DST derived from the consideration to be exchanged by DST in
the Exchange.
DST @ PER
SHARE PRICES COMPARABLE TRANSACTIONS
$30.00 $34.50 MEDIAN MEAN LOW HIGH
--------------- ----------------------------------
Price/Net Income 17.2x 19.8x 38.0x 40.3x 21.4x 67.2x
Company Value/Revenue 1.6x 1.8x 2.8x 2.8x 1.4x 4.7x
Company Value/LTM EBIT 12.0x 13.6x 23.7x 23.2x 11.2x 37.5x
Company Value/LTM EBITDA 8.3x 9.4x 12.2x 13.8x 9.5x 22.2x
DISCOUNTED CASH FLOW ANALYSIS
Piper Jaffray performed a discounted cash flow analysis for DST, without
taking into account the Exchange, in which it calculated the present value of
the projected hypothetical future cash flows of DST using internal financial
planning data prepared by DST management. Piper Jaffray estimated a range of
theoretical values for DST, without taking into account the Exchange, based on
the present value of future projected cash flows through the year 2005 and a
terminal value for DST at calendar year end 2005 calculated based upon a
multiple of projected EBITDA. Piper Jaffray applied a range of discount rates of
9.0% to 12.0% and a range of EBITDA multiples of 9.0x to 11.0x to derive a
present value. This analysis yielded the following results:
DISCOUNT RATE
9.0% 10.0% 11.0% 12.0%
---------------------------------------------
9.0x $38.37 $37.45 $36.55 $35.67
EBITDA MULTIPLE 10.0x $42.58 $41.56 $40.57 $39.61
11.0x $46.79 $45.67 $44.59 $43.54
In reaching its conclusion as to the fairness to DST, from a financial
point of view, of the consideration to be exchanged in the Exchange and in its
presentation to the DST Board, Piper Jaffray did not rely on any single analysis
or factor described above, assign relative weights to the analyses or factors
considered by it, or make any conclusion as to how the results of any given
analysis, taken alone, supported its opinion. The preparation of a fairness
opinion is a complex process and not necessarily susceptible to partial analysis
or summary description. Piper Jaffray believes that its analyses must be
considered as a whole and that selection of portions of its analyses and of the
factors considered by it, without considering all of the factors and analyses,
would create a misleading view of the processes underlying the opinion.
The analyses of Piper Jaffray are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by the analyses. Analyses relating to the value of companies do not
purport to be appraisals or valuations or necessarily reflect the price at which
companies may actually be sold. No company or transaction used in any analysis
for purposes of comparison is identical to DST or the Exchange. Accordingly, an
analysis of the results of the comparisons is not mathematical; rather, it
involves complex considerations and judgments about differences in the companies
to which DST and OMS were compared and other factors that could affect the
trading value of the companies.
For purposes of its opinion, Piper Jaffray relied upon and assumed the
accuracy and completeness of the financial statements and other information
provided to it by DST, or otherwise made available to it, and did not assume
responsibility for the independent verification of that information. Piper
Jaffray relied upon the assurances of the management of DST that the information
provided to it by DST was prepared on a reasonable basis in accordance with
industry practice, and the financial planning data and other business outlook
information reflects the best currently available estimates and judgment of
management of DST and OMS, and such management was not aware of any information
or facts that would make the information provided to Piper Jaffray incomplete or
misleading. Piper Jaffray assumed that there have been no material changes in
the assets, financial condition, results of operations, business or prospects of
DST and OMS Post Reorganization since the date of the last financial statements
made available to it. Piper Jaffray also assumed that neither DST, nor OMS Post
Reorganization, are parties to any material pending transactions, other than the
Exchange, anticipated changes to the DST syndicated credit facility and other
transactions in the ordinary course of business.
In arriving at its opinion, Piper Jaffray assumed that all the necessary
regulatory approvals and consents required for the Exchange would be obtained
and that no limitations, restrictions or conditions would be imposed that would
have a material adverse effect on DST or the contemplated benefits to DST of the
Exchange or will otherwise change the consideration to be received by DST. Piper
Jaffray assumed that the Exchange would qualify as a tax-free exchange under the
United States Internal Revenue Code. Piper Jaffray also assumed that the final
form of the Share Exchange Agreement would be substantially similar to the last
draft reviewed by it, without modification of material terms or conditions.
In arriving at its opinion, Piper Jaffray has not performed, nor been
furnished any appraisals or valuations of the specific assets or liabilities of
DST other than the valuation of OMS Post Reorganization prepared by Standard &
Poor's Corporate Value Consulting dated June 13, 2003. Piper Jaffray expressed
no opinion regarding the liquidation value of DST or OMS. The analyses Piper
Jaffray performed in connection with this opinion were going concern analyses.
Piper Jaffray was not requested to opine, and no opinion was rendered, as to
whether any analyses of an entity, other than as a going concern, was
appropriate in the circumstances and, accordingly, Piper Jaffray performed no
such analyses. The DST Board did not request that Piper Jaffray solicit, and
Piper Jaffray did not solicit, any expression of interest from any other parties
with respect to any alternative transaction.
Piper Jaffray undertook no independent analysis of any pending or
threatened litigation, material claims, possible unasserted claims or other
contingent liabilities, to which DST or its affiliates is a party or may be
subject, or of any other governmental investigation of any possible unasserted
claims or other contingent liabilities to which either DST or its affiliates is
a party or may be subject. At DST's direction and with its consent, Piper
Jaffray's opinion makes no assumption concerning, and therefore does not
consider, the potential effects of any such litigation, claims or investigations
or possible assertions of claims, outcomes or damages arising out of any such
matters.
Piper Jaffray's opinion is based upon the information available to it,
facts and circumstances and economic, market and other conditions as they
existed, and is subject to evaluation on the date of the opinion. Events
occurring after that date could materially affect the assumptions used in
preparing the opinion. Except as provided in the engagement letter between DST
and Piper Jaffray, Piper Jaffray has not undertaken to reaffirm or revise its
opinion or otherwise comment upon any events occurring after the date of the
opinion and it does not have any obligation to update, revise or reaffirm its
opinion. Piper Jaffray expressed no opinion as to the prices at which DST Common
Stock has traded or may trade at any future time.
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwritings and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. In the ordinary course of its business, Piper Jaffray and its
affiliates may actively trade securities of DST for their own accounts or the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
Under the terms of the engagement letter dated July 24, 2003, DST agreed to
pay Piper Jaffray, whether or not the transaction is consummated, a retainer of
$50,000, a fee of $600,000 for rendering its opinion and $25,000 for any
updates. In addition, DST has agreed to pay the reasonable out-of-pocket
expenses of Piper Jaffray and to indemnify Piper Jaffray against certain
liabilities incurred. Management of DST is not aware of any material
relationship between Janus and Piper Jaffray.
In addition, Piper Jaffray will receive approximately $375,000 in selling
concessions, in connection with DST's private offering of convertible senior
debentures in August 2003.
Prior to the engagement of Piper Jaffray to provide the fairness opinion,
the following relationships existed between DST and/or its Affiliates and Piper
Jaffray and/or its Affiliates:
o DST has agreed to pay a $100,000 fee to U.S. Bancorp, the parent of
Piper Jaffray, for referring Piper Jaffray for purposes of providing a
fairness opinion to DST.
o U.S. Bank, a subsidiary of U.S. Bancorp, is a participant in DST's
syndicated credit facilities and receives a portion of the fees paid
to the syndicate based upon an allocation formula negotiated by the
syndicate;
o U.S. Bank is a direct lender to one of DST's 50% owned Affiliates and
receives interest on amounts loaned to such Affiliate;
o DST provides U.S. Bancorp with the following services:
o TA2000 remote services to mutual funds sponsored by U.S. Bancorp
and for mutual funds for which U.S. Bancorp acts as a servicing
agent;
o Print mail services through DST's Output Solutions segment; and
o DST's AWD(TM)software product through a licensing agreement; and
o DST is currently soliciting additional service work and business
relationships with U.S. Bancorp and Piper Jaffray.
RECOMMENDATION
The DST Board has unanimously determined that the Share Exchange Agreement
is in the best interests of DST. The DST Board unanimously recommends a vote FOR
the approval of the Share Exchange Agreement and the transactions contemplated
thereby.
PROPOSAL - APPROVAL OF THE SHARE EXCHANGE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
DESCRIPTION OF THE PROPOSAL
The proposal being submitted to DST stockholders is for the approval of the
Share Exchange Agreement and the transactions contemplated by the Share Exchange
Agreement.
PURPOSES AND EFFECTS OF THE PROPOSAL
We are seeking your approval of the proposal in order to allow us to
consummate the transactions contemplated by the Share Exchange Agreement upon
receipt of all regulatory approvals and satisfactions of the conditions to
Closing. At the time of the Exchange, OMS will hold graphics design and
sheet-fed offset commercial printing operations, the laser printing and
fulfillment operations of the Marketing Services Division of DST's Output
Solutions segment, and additional cash to approximately equalize the value of
the OMS Shares to the Janus DST Shares being exchanged. The Exchange is intended
to achieve important DST business objectives. We believe the removal of
significant ownership by Janus, which is a competitor to our mutual fund
customer base, will improve our competitive position in serving the mutual fund
industry. In addition, we believe the substantial reduction in Janus' ownership
of DST will improve our access to bank credit by eliminating aggregation of
credit risks by lenders. The Exchange will also address certain of our concerns
about the lack of desired fit of the OMS operations with those of our core
output business. If the proposal is approved, OMS will become a wholly-owned
subsidiary of Janus and the business operations of OMS will no longer be part of
DST's business. See "--Summary of the Share Exchange Agreement--The Business."
SUMMARY OF THE SHARE EXCHANGE AGREEMENT
The following summary of the terms and provisions of the Share Exchange
Agreement is qualified in its entirety by reference to the Share Exchange
Agreement, a copy of which has been attached hereto as Appendix A. You should
read this Share Exchange Agreement carefully for more details regarding the
provisions described below and for other provisions that may be important to
you. Capitalized terms used, and not otherwise defined, in this summary will
have the meanings given to them in the Share Exchange Agreement.
THE EXCHANGE AND THE CLOSING
On August 25, 2003, DST, OMS, and Janus entered into the Share Exchange
Agreement. Upon the terms and subject to the conditions set forth in the Share
Exchange Agreement, DST will transfer to Janus the OMS Shares and Janus will
transfer to DST the Janus DST Shares in exchange for the OMS Shares. The Closing
will take place on the third business day following the date on which the last
of the unsatisfied or unwaived conditions specified in the Share Exchange
Agreement have been satisfied or waived (other than those conditions
contemplated to be satisfied at, or only capable of being satisfied at, the
Closing, but subject to the satisfaction or waiver of those conditions), or at
such other time and place as agreed in writing by Janus and DST (the date of the
Closing is herein referred to as the "Closing Date").
THE REORGANIZATION
DST has agreed that, prior to the Closing, DST will, and will cause its
respective Subsidiaries to, transfer to OMS: (i) the "Non-OMS Business Assets";
(ii) the "Additional Assets"; and (iii) the "Non-OMS Business Liabilities" (the
"Reorganization"). In exchange for these transfers, OMS has agreed to accept,
assume and pay, perform or otherwise discharge the Non-OMS Business Liabilities
in accordance with their respective terms and conditions.
For purposes of the Share Exchange Agreement:
(i) "Non-OMS Business Assets" means all of the "Business Assets" other
than those Business Assets owned by OMS both prior to the
Reorganization and as of the Closing.
(ii) "Business Assets" means all of the assets, properties, rights,
agreements and other interests identified by DST pursuant to the Share
Exchange Agreement;
(iii)"Non-OMS Business Liabilities" means all of the Business Liabilities
other than those Business Liabilities already owed or assumed by OMS
both prior to the Reorganization and as of the Closing;
(iv) "Business Liabilities" means all liabilities (other than the "Excluded
Liabilities") to the extent related to the Business (as defined below)
or the Business Assets;
(v) "Excluded Liabilities" means any liabilities of DST or any of its
Affiliates (including OMS) which are specifically excluded pursuant to
the Share Exchange Agreement or which do not relate more closely to
the Business than to the businesses of DST other than the Business,
except to the extent of any such liabilities that are reflected in the
Closing Date Balance Sheet and are comparable in nature and amount to
those reflected in the Business financial statement for December 31,
2002;
(vi) "Additional Assets" means an amount in cash equal to (i) the product
of thirty two million three hundred thousand (32,300,000) and the DST
Share Value less (ii) one hundred fifteen million dollars
($115,000,000); and
(vii)"DST Share Value" means the average of the per share closing prices
of DST Common Stock on the NYSE for the 20 consecutive trading days
ending on the day prior to the Closing Date, subject to a minimum
average price of $30.00 per share and a maximum average price of
$34.50 per share as the DST Share Value if the average price is less
than $30.00 or more than $34.50 per share, respectively.
REASONS FOR REORGANIZATION. There are certain assets, liabilities and
employees that prior to the reorganization are located in certain other
wholly-owned subsidiaries. The purpose of the Reorganization is to place within
a single entity all of the assets, liabilities and employees of the OMS
business. Additionally, these actions streamline the DST corporate structure to
enable it to operate more efficiently.
TRANSACTIONS IN REORGANIZATION. The Reorganization will involve
transactions that will place the graphics design and sheet-fed offset commercial
printing operations and the laser printing and fulfillment operations of the
Marketing Services Division of DST, together with the Additional Assets, within
a single entity, OMS.
DST will receive Tax Opinions from Sonnenschein and PWC.
THE BUSINESS
The "Business" is the business of providing the products and services
described below.
The Business products and services include:
o RAPID FULFILLMENT. Rapid Fulfillment is digital printing or electronic
delivery of materials that are (i) printed in connection with the
acquisition of a new customer by a client of the Business or in
response to an inquiry from an existing customer of a client of the
Business, and (ii) usually individually personalized with
client-supplied name, address and demographic information utilizing a
proprietary compilation software application and distributed
production sites owned by OMS in New York and Chicago and sites owned
by DST and its Affiliates. Rapid Fulfillment services may also include
Integrated Fulfillment Services;
o INTEGRATED FULFILLMENT. Integrated Fulfillment is the combination of
pick and pack services with Rapid Fulfillment, eLLITE Suite and
On-demand services. Pick and pack is the pulling of externally
supplied and internally pre-printed materials from inventory and
insertion into a mailing with On-demand materials;
o RAPID PUBLISHER. Rapid Publisher is a Web-enabled database publishing
solution used by clients that offer 403(b) and 401(k) plan
administration to their customers. The service utilizes a licensed
software application that allows the client to customize participant
communication materials based upon the specific plan, and personalize
the materials to the specific plan participant;
o RAPID COMPLIANCE. This service consists of the production of
prospectuses, supplements, annual reports and semi-annual reports
supplied by customers or third parties for printing and mailing and
electronic delivery to meet the regulatory requirements of the 401(k),
403(b), non-variable annuity and mutual fund markets;
o RAPID CONFIRM. Rapid Confirm utilizes the Mail Net software
application for distribution of brokerage trade confirmations, margin
notices and address changes to distributed print production sites,
including those of DST Affiliates, for printing and mailing at those
sites for brokerage firm customers;
o RAPID PROXY. This product utilizes offset and On-demand capabilities
to combine documents such as proxy statements, annual reports, proxy
voting cards, business reply envelopes and other materials selected by
the client, and bound into a single book that can be personalized to
the recipient;
o ELLITE SUITE. A service that utilizes the eLLITE software application
to support order management, inventory management, fulfillment
management and document management of documents such as mutual fund
fact sheets, prospectuses and other pre-sale and post-sale materials,
none of which are personalized documents such as statements;
o RAPID PORTFOLIO SERVICES. This service consists of the printing of
portfolio reports for high net worth individuals in digital four color
format and bound using one of the following: perfect bind, spiral or
tape (but for purposes of clarity, portfolio reports bound by other
methods, e.g. stapling, are excluded from the definition of this
service); and
o COMMERCIAL PRINTING SERVICES. These services consist of graphics
design; plate production; offset printing of Static, Nonrecurring
documents utilizing sheet press printing machines; bindery services;
envelope printing utilizing jet press machinery; and procurement of
the foregoing services from third party commercial printers and resale
of such services to clients.
For purposes of the foregoing description of Business products and
services:
(i) "On-demand," means the printing of Static, documents that were
historically offset printed. Documents can be printed On-demand from
files stored in electronic databases because the contents of such
documents are not altered by the printer except for the recipient's
name, address and limited demographic information that is sometimes
used to personalize the document. On-demand documents are prepared in
print ready formats and do not require the use of software that
formats the document except to the extent necessary to facilitate the
insertion of certain variable demographic data unique to a
transaction, external event or other action of the recipient. By way
of example, account applications and prospectuses are printed
On-demand, whereas, mutual fund account statements are not;
(ii) "Static," means that the information in the document does not change
or fluctuate based upon the occurrence of any transaction, recent
event, or action taken by the ultimate recipient of the document,
except that the name, address and other personal demographic
information of the recipient may be different in each document. By way
of illustration, an account application or a prospectus is a Static
document, while a mutual fund account statement is not Static because
the information varies from document to document based upon various
factors such as financial performance and actions of the recipient
during the period reflected in the statement; and
(iii)"Nonrecurring," means that the event giving rise to the printing of
the document is of a type that does not usually occur on a repetitive
basis when the use of the document by the specific end user is
considered. By way of illustration, a Nonrecurring event is the
submission by a client to its customer or potential customer of a set
of brochures, account applications or other pre-sale marketing
materials or fact sheets, or the fulfillment of orders for technical
materials that are requested by purchasers or potential purchasers of
a client's goods or services, such as engineering schematics or
instructions. In such cases, the end user does not typically need or
receive such a document more than once. In contrast, "Nonrecurring"
does not include documents of a type that are printed for events or
reports such as periodic account statements and confirmations of
transactions in mutual fund, brokerage, or other financial accounts,
monthly billing for television or utility services, the utilization of
insurance benefits or tax reports.
REPRESENTATIONS AND WARRANTIES
The Share Exchange Agreement contains representations and warranties of DST
and Janus that are customary for transactions of this type. DST made
representations and warranties with respect to, among other matters, the
following:
o corporate organization and good standing;
o capitalization of OMS;
o corporate power and authority;
o absence of conflicts that would affect the Exchange;
o consents required in connection with the Exchange;
o stockholder vote to approve the transactions contemplated by the Share
Exchange Agreement;
o the absence of material adverse effects to the Business or OMS;
o compliance with laws;
o intellectual property;
o title to real estate and other assets, and condition and sufficiency
of such assets;
o pending litigation;
o employee benefit plans;
o contracts to which OMS is, or will be, a party;
o labor and employment matters;
o financial statements; and
o relationships with customers.
Janus made representations and warranties with respect to, among other
matters, the following:
o corporate organization and good standing;
o corporate power and authority;
o absence of conflicts that would affect the Exchange;
o title to Janus DST Shares;
o board and stockholder approvals to approve the Share Exchange
Agreement and the transactions contemplated thereby;
o pending litigation;
o the absence of material adverse effects on the ability of Janus to
consummate the transactions contemplated by the Share Exchange
Agreement; and
o consents required in connection with the Exchange.
CONDITIONS TO CLOSING OBLIGATIONS
The obligations of each of DST, OMS and Janus to complete the Closing are
subject to the satisfaction or waiver of a number of conditions, including,
among others:
o DST must have obtained approval of the Share Exchange Agreement and
the transactions contemplated by the Share Exchange Agreement by the
affirmative vote of the holders of a majority of the outstanding
shares of DST Common Stock;
o No action shall have been taken by any governmental authority of
competent jurisdiction to prohibit, enjoin or restrain the
consummation of the transactions contemplated by the Share Exchange
Agreement;
o DST must have received the Tax Opinions of each of Sonnenschein and
PWC, and Janus must have received a tax opinion of each of Wachtell,
Lipton, Rosen & Katz and Ernst & Young LLP, in each case in form and
substance substantially as set forth in exhibits to the Share Exchange
Agreement, dated as of the Closing Date;
o The consents and approvals of governmental authorities required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") must have been obtained (or any applicable waiting
period will have expired or been terminated);
o Certain ancillary agreements to be entered into by and among DST
and/or its Affiliates (other than OMS), on the one hand, and OMS
and/or Janus, on the other hand, on or prior to the Closing, pursuant
to which, among other things, certain services and goods will be
provided to the parties to the Share Exchange Agreement (the
"Ancillary Agreements") must be executed and entered into by each of
the parties to such agreements and delivered at the Closing;
o Truth and accuracy of the other's representations and warranties,
except for inaccuracies that would not have a material adverse effect
on the party making the representations; and
o Performance in all material respects by the other parties of their
obligations under the agreement.
In addition, the obligations of Janus to complete the Closing are subject
to the satisfaction or waiver of a number of conditions, including among others:
o DST must have obtained certain Required Consents;
o Since the date of the Share Exchange Agreement, there must not have
been any Material Adverse Effect with respect to the Business or OMS;
o Janus must have obtained the waiver or consent required under Janus'
revolving credit facility to consummate the Exchange (the "Janus
Consent"); provided that Janus must have used its reasonable
commercial efforts to obtain the such consent; and
o Prior to or at the Closing, the Reorganization must have been
completed.
In addition, the obligations of DST and OMS to complete the Closing are
subject to the satisfaction or waiver of a number of conditions, including among
others;
o DST must have entered into customary agreements providing for the
receipt by DST of the financing necessary to permit the funding of at
least $150 million of the Additional Assets. However, DST may not
assert this condition in the event that it has breached its
obligations with respect to obtaining the financing. See "--Certain
Covenants and Agreements--Financing"; and
o DST must have received the waiver or consent required under certain
credit facilities; provided that DST shall have used its reasonable
commercial efforts to obtain the waivers or consents.
POST CLOSING ADJUSTMENTS
Within 30 days after the Closing Date, DST will deliver to Janus an
unaudited balance sheet of OMS dated as of the Closing Date (the "Closing Date
Balance Sheet"). In the event that the Adjusted Shareholder's Equity (defined as
total shareholder's equity of OMS as of the Closing Date less the Additional
Assets) reflected on the Closing Date Balance Sheet is less than $12 million,
DST will pay to OMS on a dollar-for-dollar basis, the amount necessary to
achieve Adjusted Shareholder's Equity of $13 million as of the Closing Date. In
the event the Adjusted Shareholder's Equity is greater than $14 million, Janus
will cause OMS to pay to DST, on a dollar-for-dollar basis, the amount necessary
to reduce Adjusted Shareholder's Equity to $13 million as of the Closing Date.
Any required payments must be made within 30 days after receipt by Janus of the
Closing Date Balance Sheet, unless a Dispute Notice (defined below) is
delivered.
If Janus disputes the amount of Adjusted Shareholder's Equity reflected in
the Closing Date Balance Sheet, Janus will give written notice to DST within 30
days after Janus' receipt of the Closing Date Balance Sheet specifying in
reasonable detail Janus' basis for its dispute (a "Dispute Notice"). If Janus
submits a Dispute Notice within such 30-day period, DST and Janus will work
together in good faith to seek to resolve the dispute. However, if Janus and DST
are unable to resolve their disagreement within 15 calendar days after DST's
receipt of a Dispute Notice from Janus, the dispute will be referred for
determination to a nationally known firm of independent public accountants
mutually selected by DST and Janus (the "Dispute Accountants") as promptly as
practicable. If DST and Janus are unable to agree on the Dispute Accountants,
then the parties agree to retain KPMG LLP. The Dispute Accountants will make a
written determination as to the correct amount of Adjusted Shareholder's Equity,
which will be conclusive and binding, and will prepare a final Closing Date
Balance Sheet. DST and Janus will use reasonable commercial efforts to cause the
Dispute Accountants to render their decision within 30 days of submitting the
dispute. Any payments required upon the determination by the Dispute Accountants
will be made within 10 days following the determination.
Janus will pay the fees and expenses charged by the Dispute Accountants
unless any payment required to be made by DST is greater than $500,000, in which
case DST will pay such fees and expenses.
CERTAIN COVENANTS AND AGREEMENTS
JANUS VOTE
Janus has agreed to vote all shares of DST Common Stock beneficially owned
by Janus in favor of approval of the Share Exchange Agreement and the
transactions contemplated by the Share Exchange Agreement at the Special
Meeting.
EFFORTS TO CONSUMMATE TRANSACTIONS
Subject to the terms and conditions of the Share Exchange Agreement from
time to time whether before, at or for a period of two years following the
Closing, each of Janus and DST will, and will cause their respective Affiliates
to, make reasonable commercial efforts to do all things reasonably necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by the Share Exchange Agreement, including
completion of transfers of assets contemplated to make the Exchange complete.
OPTIONS TO PURCHASE DST STOCK HELD BY BUSINESS AND FORMER BUSINESS
EMPLOYEES ACCOUNTS
DST or its relevant Affiliate will take all steps necessary or appropriate
to cause all unexercised options to purchase shares of DST's or its Affiliates'
stock held by Business Employees or Former Business Employees that are
outstanding as of the Closing Date (the "DST Options") not to terminate due to
or on account of the Closing and will cause the DST Options to become fully
vested in such Business Employees or Former Business Employees effective as of
the Closing. DST will cause the DST Options to remain outstanding and
exercisable pursuant to their terms until their normal expiration date, unless
such treatment is otherwise not permitted by applicable law.
NON-SOLICITATION OF EMPLOYEES
For three years after the Closing, DST and Janus will not and will cause
each of their respective Subsidiaries not to, directly or indirectly, solicit
the employment of any employee of the other or of its Subsidiaries, without the
other's prior written consent. This non-solicitation covenant does not apply to
(i) a general advertisement or solicitation program that is not specifically
targeted at such persons or (ii) the solicitation of any employee after their
employment has been terminated.
NO SOLICITATION
From the date of the Share Exchange Agreement until the Closing or the
earlier termination of the Share Exchange Agreement:
o other than in the Ordinary Course of Business, DST will not, and will
not authorize or permit any of the DST Entities or OMS to, solicit the
submission of any offers or proposals for the Business, OMS, the
Business Assets or the Business Liabilities from any third party or
otherwise pursue any offer or proposal received; and
o Janus will not, and will not authorize or permit any of its
Subsidiaries to, solicit the submission of offers or proposals for the
sale of the Janus DST Shares from any third party or otherwise pursue
any offer or proposal received.
USE OF NAMES
Within 30 days after the Closing:
o Janus will cause OMS to change its corporate name to a name that does
not include the name of DST or any of its Subsidiaries; and
o Janus will have no right to use the name of DST or of any of its
Subsidiaries, except that, for a period ending 45 days after the
Closing, Janus will have the right to use any catalogues, sales and
promotional materials and printed forms that use such name and are
included in the Intellectual Property as of the Closing, or that were
ordered prior to the Closing for use in the Business.
Promptly after the Closing Date, Janus will make all filings with the
appropriate governmental authorities to effectuate such name changes. Janus will
use its reasonable commercial efforts to minimize the usage of such names, and
to discontinue it as soon as practicable after the Closing. To the extent any
approvals of governmental authorities are necessary to effectuate the name
change, the time limits specified above will be extended by the time period
necessary to obtain such approvals, so long as Janus begins the process of
seeking such approval within 30 days after the Closing.
DST SHARE VALUE DETERMINATION PERIOD
During the 20-day period used to calculate the DST Share Value:
o DST will not, and will cause its Subsidiaries not to, sell or offer to
sell any shares of DST Common Stock (or any securities convertible
into, or whose value is determined by reference to, DST Common Stock),
or solicit or induce other persons to sell or offer to sell any such
securities, except that this provision will not apply to transactions
with participants in DST's employee stock option or stock purchase
plans in a manner consistent with past practice; and
o Janus will not, and will cause its Subsidiaries (other than
Subsidiaries involved in the investment advisory business, to the
extent of its activities in connection with the investment advisory
business (in such capacity, the "IAB Subsidiaries")) not to, purchase
or offer to purchase any shares of DST Common Stock (or any securities
convertible into, or whose value is determined by reference to, DST
Common Stock), or solicit or induce other persons (other than in
connection with the investment advisory business of the IAB
Subsidiaries) to purchase or offer to purchase any such securities.
WAIVER
In consideration of the transactions contemplated by the Share Exchange
Agreement, as of the Closing, DST, on behalf of itself and each of its
Subsidiaries and Affiliates (other than OMS) and their respective heirs,
executors, successors and assigns (the "Waiving Parties"), waives from and after
the Closing all Claims that the Waiving Parties had, have or may have against
OMS and its officers, directors, employees or agents in connection with or
arising out of any act or omission of OMS or its officers, directors, employees,
advisers or agents, in such capacity, at or prior to the Closing. This waiver is
not deemed a waiver by the Waiving Parties of any rights under the Share
Exchange Agreement or any of the other agreements contemplated in connection
with the Share Exchange Agreement.
DST SHARES RETAINED BY JANUS
From and after the Closing Date until the tenth anniversary of the Closing:
o Janus will not, and will cause each of its Subsidiaries (other than
the IAB Subsidiaries) not to, directly own or acquire or agree to
acquire (other than in the course of the investment advisory business
of the IAB Subsidiaries) any shares of DST Common Stock, which will
have the effect of increasing the number of shares of DST Common Stock
that Janus and its Subsidiaries (other than the IAB Subsidiaries) will
own, in the aggregate, following the Closing above 7,424,052 shares
(the "Share Limit"), subject to certain adjustments and exceptions in
the event of certain business combinations; and
o Janus will not, and will cause each of its Subsidiaries (other than
the IAB Subsidiaries) not to, sell or otherwise dispose of any shares
of DST Common Stock, to certain specified persons (other than in the
course of the investment advisory business of the IAB Subsidiaries),
except for sales made on the New York Stock Exchange, or on any other
national securities exchange on which the DST Common Stock is listed,
or if not so listed, on the Nasdaq National Market or the Nasdaq
Smallcap Market if DST Common Stock is admitted for trading, or if not
so listed, on any other exchange or inter-dealer quotation system in
which the purchasers and sellers are anonymous with respect to one
another.
FINANCING
DST will use its reasonable best efforts to secure as promptly as
practicable, the financing necessary to permit the funding of at least $150
million of the Additional Assets at an initial interest rate of 4% per
annum or less and a maturity of not less than 364 days and otherwise on
reasonable and customary terms and conditions for a financing of comparable
size and form (the "Financing").
TERMINATION
The Share Exchange Agreement may be terminated prior to consummation of the
Closing as follows:
o By mutual written consent of DST and Janus;
o By either DST or Janus upon written notice to the other if the Closing
has not been consummated on or before January 30, 2004; except where
the willful act or willful failure to act of the party wishing to
terminate the Share Exchange Agreement or its Affiliate has been the
cause of or resulted in the failure of the Closing to be consummated
on or before January 30, 2004;
o By either DST or Janus upon written notice to the other if DST does
not obtain the required stockholder approval, except, in the case of
DST, if it has breached its obligations under the Share Exchange
Agreement with respect to preparing and filing a proxy statement,
convening a meeting of DST stockholders and the DST Board recommending
approval of the Share Exchange Agreement and the transactions
contemplated by the Share Exchange Agreement, and such breach has been
the cause of or resulted in the failure to obtain stockholder
approval;
o By Janus upon written notice to DST, if any of the conditions to the
obligations of Janus to consummate the Closing shall have become
incapable of fulfillment by January 30, 2004 and have not been waived
in writing by Janus;
o By DST upon written notice to Janus, if any of the conditions to the
obligations of DST and OMS to consummate the Closing shall have become
incapable of fulfillment by January 30, 2004 and have not been waived
in writing by DST;
o By either DST or Janus upon written notice to the other that the
conditions regarding the receipt of the Tax Opinions required by the
Share Exchange Agreement have become incapable of fulfillment by
January 30, 2004 due to changes in the law, regulations or
interpretations of the Internal Revenue Service;
o By Janus, if DST has not obtained the Credit Facilities Consent or the
Financing within 90 days from the date of the Share Exchange
Agreement;
o By DST, if Janus has not obtained the Janus Consent within 90 days
from the date of the Share Exchange Agreement; or
o By either Janus or DST upon written notice to the other, if there is
in effect a final, non-appealable order of a court or government
administrative agency of competent jurisdiction permanently
prohibiting the consummation of the transactions contemplated by the
Share Exchange Agreement.
In the event of a final judicial determination that termination of the
Share Exchange Agreement was caused by an intentional and deliberate breach of
the Share Exchange Agreement, then, in addition to other remedies at law or
equity for breach of the Share Exchange Agreement, the party found to have
intentionally and deliberately breached the Share Exchange Agreement will
indemnify and hold harmless the other parties to the Share Exchange Agreement
for their respective out-of-pocket costs, including the reasonable fees and
expenses of their counsel, accountants, financial advisors and other experts and
advisors, as well as reasonable fees and expenses incident to the negotiation,
preparation and execution of the Share Exchange Agreement and related
documentation.
REQUIRED REGULATORY CONSENTS, APPROVALS AND FILINGS
Certain regulatory consents, approvals and filings are required in
connection with the Closing. These include, among others:
o HSR Act filing by Janus with respect to the proposed transfer of OMS
from DST to Janus and expiration of the applicable waiting period;
o Filings with the Secretary of State of each applicable state, the
appropriate merger or other organizational documents to accomplish the
Reorganization;
For a discussion of the filings made and the status of such filings, see
"--Regulatory Matters" below.
OPINION OF FINANCIAL ADVISOR
Piper Jaffray has delivered its written opinion to the DST Board that, as
of the date of such opinion, the consideration to be exchanged in the Exchange
is fair, from a financial point of view, to DST. See "Background and
Recommendation - Opinion of Financial Advisor."
TAX CONSEQUENCES
The parties have acknowledged and agreed that no party has made, or is
making in the Share Exchange Agreement, any representation or warranty regarding
the tax effects or tax consequences, if any, of the transactions contemplated in
the Share Exchange Agreement or in the Ancillary Agreements and that each party
has consulted with and is relying upon its own tax advisors with respect to such
effects and consequences. Neither DST nor Janus has any obligation to indemnify
the other for tax liabilities arising from the Exchange.
INDEMNIFICATION
INDEMNIFICATION BY DST
Subject to certain limitations set forth in the Share Exchange Agreement,
subsequent to the Closing, DST will indemnify Janus and its respective
Subsidiaries and Affiliates, and their respective officers, directors,
employees, agents and representatives, and each of their heirs, executors,
successors and assigns (collectively, the "Representatives") against Damages
arising out of, resulting from or incurred in connection with or relating to:
o any breach of a representation or warranty made by DST or OMS in the
Share Exchange Agreement or any other document delivered in connection
with the Share Exchange Agreement;
o any breach of any agreement or covenant of DST or OMS contained in the
Share Exchange Agreement;
o the Excluded Liabilities, the Excluded Assets, the Retained Business
and any legal, administrative or arbitration proceeding, suit or
action of any nature with respect thereto;
o any Restrictions;
o a certain claim by a former employee of a DST Affiliate; and
o the failure of DST to obtain certain consents to the continuation of
contract rights in light of the transfer of ownership of OMS from DST
to Janus.
However, DST will not be liable for indemnification with respect to certain
Damages or for certain other pre-closing tax liabilities of OMS agreed upon by
the parties unless and until the aggregate amount of these Damages and other
pre-closing tax liabilities of OMS exceeds $5 million (the "DST Basket"). Janus
will be entitled to indemnification for all Damages and other tax liabilities in
excess of the DST Basket, subject to a limit on DST's aggregate liability, with
respect to the Damages and other pre-closing tax liabilities covered by the DST
Basket, of $115 million (the "DST Cap"). Neither the DST Basket nor the DST Cap
apply to pre-closing income tax liabilities of OMS agreed upon by the parties or
certain other Damages as set forth in the Share Exchange Agreement.
INDEMNIFICATION BY JANUS
Subject to certain limitations set forth in the Share Exchange Agreement,
subsequent to the Closing, Janus will indemnify DST and its Representatives,
against Damages arising out of, resulting from or incurred in connection with or
relating to:
o any breach of a representation or warranty made by Janus in the Share
Exchange Agreement or any other document delivered in connection with
the Share Exchange Agreement;
o any breach of any agreement or covenant of Janus contained in the
Share Exchange Agreement;
o any Business Liability; or
o Janus' operation of the Business after Closing, but not to the extent
resulting from DST's or any of its Affiliates' (including OMS's)
actions or operations prior to the Closing.
However, Janus will not be liable for this indemnification with respect to
certain Damages unless and until the aggregate amount of these Damages exceeds
$5 million (the "Janus Basket"). DST will be entitled to indemnification for all
Damages in excess of the Janus Basket, subject to a limit on Janus' aggregate
liability, with respect to the Damages covered by the Janus Basket, of $115
million (the "Janus Cap"). Neither the Janus Basket nor the Janus Cap apply to
certain other Damages as set forth in the Share Exchange Agreement.
CERTAIN ANCILLARY AGREEMENTS
DST and/or its Affiliates, on the one hand, and OMS and/or Janus and/or
their respective Affiliates, on the other hand, will enter into a number of
Ancillary Agreements in connection with the consummation of the transactions
contemplated by the Share Exchange Agreement. Under these Ancillary Agreements:
o Janus is assuming DST's obligations under certain existing lease
guaranties and guaranteeing to DST OMS's obligations under certain
subleases and certain other Ancillary Agreements;
o Each of DST and OMS may provide certain services as a subcontractor to
the other for their respective customers;
o DST is subleasing to OMS certain space, OMS is assuming obligations
under certain existing leases being assigned to OMS by DST, and notice
letters will be provided to certain landlords as required by the terms
of the applicable leases;
o OMS will enter into an employment agreement with the President of OMS;
o OMS will grant a license to DST for certain software;
o OMS and an Affiliate of DST will exclusively recommend certain
services of the other party to potential customers, and DST will be
paid certain commissions;
o OMS will serve as DST's subcontractor for certain services rendered to
a customer of DST and DST Output and will reimburse DST for its share
of royalties DST must pay to such entity for access to such entity's
databases. DST Output will pay OMS its share of any royalties DST
Output may receive based on certain relationships of such entity;
o DST will assign to OMS and OMS will assume DST's obligations under a
certain agreement for software and under a lease for certain equipment
and software and DST will sublease to OMS certain copiers and products
leased by DST;
o DST will continue to provide to OMS certain data processing services
on agreed upon service levels, will provide to OMS certain
transitional services for a limited period of time to assist in the
transition of OMS to Janus, and an Affiliate of DST will provide
certain statement printing services to Janus;
o Responsibilities will be allocated for the handling of certain tax
matters and liabilities between DST and OMS post Closing; and
o An agreement will be entered into between OMS and an Affiliate of DST
regarding continuation of certain services in support of an OMS
product.
JANUS PROXY
In addition, Janus will provide an irrevocable and continuing proxy to DST
to vote the shares of DST Common Stock retained by Janus upon consummation of
the Exchange for so long as Janus owns or retains voting rights to such shares.
A copy of this proxy is attached to this proxy statement as Appendix B.
REGULATORY MATTERS
As discussed in "--Summary of the Share Exchange Agreement" above, certain
regulatory approvals and filings are required in connection with the closing of
the Exchange. The following actions have occurred to date:
[STATUS OF HSR FILING]
[STATUS OF REORGANIZATION RELATED FILINGS]
REQUIREMENT FOR STOCKHOLDER APPROVAL
DST's Certificate of Incorporation requires stockholder approval of any
transfer or exchange to or with any "Interested Stockholder," of any assets of
DST having an aggregate fair market value equaling or exceeding 25% or more of
the combined assets of DST. Janus is considered an Interested Stockholder
because it owns more than 10% of the voting power of DST's outstanding capital
stock entitled to vote generally in the election of directors. After taking into
account the additional cash to be transferred to OMS in connection with the
Exchange, the value of the assets to be transferred in connection with the
proposed Exchange may exceed 25% of the combined assets of DST.
REQUIRED VOTE AND THE DST BOARD'S RECOMMENDATION
In accordance with the Delaware Corporation Law and DST's Certificate of
Incorporation, approval of this proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of capital stock that are
entitled to vote.
THE DST BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE PROPOSAL - APPROVAL OF THE SHARE EXCHANGE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The material U.S. federal income tax consequences to DST with respect to
the Reorganization and the Exchange are summarized below. The tax consequences
of the Reorganization and the Exchange will only apply to DST, OMS and Janus,
and will not apply to any other stockholder of DST. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated thereunder, the interpretive guidance of the IRS and the decisions
of various courts, all as they exist as of the date hereof. It is possible that
Congress could enact new law, the Department of Treasury or the IRS could issue
new authorities, or a court could issue a new decision after the date hereof,
which would be inconsistent with this summary. Any such changes could have
retroactive effect.
DST's obligations to complete the Closing are conditioned upon receipt by
DST of Tax Opinions from Sonnenschein and PWC to the effect that, although the
matter is not free from doubt, the Reorganization and the Exchange should
qualify as reorganizations pursuant to Code ss.ss. 368 and 355, and that DST
should recognize no gain or loss pursuant to the Reorganization and Exchange.
These Tax Opinions will be subject to certain factual representations and
assumptions provided by DST and Janus. If those factual representations and
assumptions are incorrect in a material respect, the Tax Opinions could become
inoperative. DST and Janus have reviewed those facts and assumptions on which
the Tax Opinions will be based and are not aware of any facts or circumstances
that would cause the representations and assumptions to be untrue.
Certain of the Code ss. 355 requirements such as (i) the active trade or
business requirement; (ii) the non-device requirement; and (iii) the business
purpose requirement were considered in light of the Reorganization and the
Exchange which includes a significant cash contribution to OMS just prior to the
Exchange. These requirements are set forth below followed by certain
considerations related to such cash contribution.
DST and OMS must have been engaged in the active conduct of a trade or
business continuously throughout the five-year period prior to Exchange, and
must be engaged in the active conduct of such trade or business immediately
after the Exchange. DST and OMS have engaged in the active conduct of a trade or
business directly and/or through predecessor organizations for more than five
years, and will continue to provide such services after the Exchange. There is
no requirement that a specific percentage of OMS's assets be devoted to the
active conduct of a trade or business. Nevertheless, as further set forth below,
the IRS may consider DST's contribution of cash to OMS in determining whether
OMS continues the active conduct of its trade or business after the Exchange.
Notwithstanding the contribution of cash to OMS, because DST and OMS will
continue the active conduct of their respective trades or businesses, the active
trade or business requirement should be satisfied.
The Exchange must not be used principally as a device for the distribution
of DST's earnings and profits or OMS's earnings and profits. The determination
of whether a transaction is used principally as a device for the distribution of
earnings and profits is made from all the facts and circumstances. One of the
facts and circumstances is the cash contributed to OMS, and the resulting
difference in the ratios of the value of the assets not used in the active trade
or business to the value of the assets used in the active trade or business in
OMS and DST. OMS will have a considerably higher ratio of assets not used in its
active trade or business than will DST. However, this difference in ratios is
ordinarily not evidence of device if the difference is attributable to the need
to equalize the value of the OMS Shares distributed in the Exchange to the value
of the Janus DST Shares received in the Exchange. In addition, the Exchange will
ordinarily be considered not to have been used principally as a device if, in
the absence of Code ss. 355, the distribution of the OMS Shares would have been
treated as a redemption under Code ss. 302. In the absence of Code ss. 355, the
Exchange would be treated as a redemption under Code ss. 302. Because the
contribution of cash is necessary to equalize the value of the OMS Shares and
the Janus DST Shares, and because the transaction would be treated as a
redemption under Code ss. 302 in the absence of Code ss. 355, the Exchange
should satisfy the nondevice requirement.
The Exchange must be carried out for one or more real and substantial
non-federal income tax purposes germane to the business of DST. There are real,
substantial non-federal income tax purposes of the Exchange which are set forth
in "Background." Accordingly, the Exchange should satisfy the business purpose
requirement.
Notwithstanding the foregoing, the amount of cash contributed to OMS is a
"fact or circumstance" which may be taken into account in the determination of
whether the active trade or business requirement and the nondevice requirement
have been satisfied, and for purposes of assessing the strength of DST's
independent corporate business purpose for the Exchange. The amount of cash
included in OMS may also affect the substance of the Exchange. A transaction
will be taxed in accordance with its substance, and a transaction which meets
the literal requirements of Code ss. 355 may be taxed otherwise if the substance
of the transaction is not within the intent of Code ss. 355.
There is authority under Code ss. 355 that a distributing corporation may
contribute cash to a controlled corporation prior to a split-off in amounts
sufficient to equalize the fair market values of the stock to be exchanged in
the split-off. Revenue Ruling 64-102 approved a split-off after a cash
contribution representing 54% of the total value of the controlled corporation,
where the cash contribution did not cause changes in the controlled
corporation's business of such character as to constitute the acquisition of a
new or different business. Revenue Ruling 71-383 approved a "substantial capital
contribution" prior to a split-off that did not cause a change in the character
of the controlled corporation's business. Thus, in Revenue Ruling. 64-102 and
71-383, the IRS permitted the contribution of substantial amounts of cash to the
controlled corporation that was not to be used in the controlled corporation's
active trade or business. Similarly, Revenue Ruling 73-44 held that a
transaction qualified under Code ss. 355 where the active trade or business
represented less than 50% of the total value of the controlled corporation,
although the nonactive trade or business assets were not investment assets.
Based on current law, the amount of cash present here should not disqualify DST
from nonrecognition treatment under Code ss. 355 upon the Exchange. However,
there is no specific authority that approves a cash contribution in excess of
54% of the total value of the controlled corporation.
Certain actions of Janus and OMS after the Closing of the Exchange could
adversely affect the tax-free status of the Exchange to DST. In this regard,
Janus will receive opinions from Wachtell, Lipton, Rosen & Katz and Ernst &
Young LLP to the effect that, although the matter is not free from doubt, the
Exchange should be treated as a tax-free reorganization under ss. 355, taking
into account representations made by OMS and Janus as to their intentions for
use of the cash contributed to OMS and other post-Closing activities. However,
DST will have no control over actions taken by OMS and Janus after the Closing
of the Exchange that might adversely affect the tax treatment of the Exchange to
DST.
NO PRIVATE LETTER RULING
DST did not and will not request a Private Letter Ruling from the IRS
concerning the federal tax consequences of the Reorganization and the Exchange.
In preliminary conversations with representatives of PWC and Sonnenschein, and
without a review of the specific facts and circumstances of the Exchange,
representatives of the IRS indicated that it would be unlikely that the IRS
would issue a favorable Private Letter Ruling on a transaction with the amount
of cash present in the Exchange. DST did not submit the information necessary to
obtain a Private Letter Ruling, and the IRS did not have all of the facts and
circumstances concerning the Exchange.
The IRS may examine DST's U.S. federal income tax return for the taxable
year in which the Reorganization and the Exchange occur at any time during the
three years after DST files such tax return. DST may under certain circumstances
agree to extend this three-year period. In such an examination, the IRS may
examine DST's reporting of the Exchange as a tax-free reorganization under Code
ss.355. The preliminary conversation with the IRS described above neither limit
nor expand the legal requirements for the timing or scope of, or the procedures
used in, any such IRS examination of DST.
TAX OPINIONS
As set forth above, DST will receive the Tax Opinions to the effect that,
although the matter is not free from doubt, the Reorganization and the Exchange
should be tax free to DST. The Tax Opinions are based upon PWC's and
Sonnenschein's evaluation of facts under the applicable Treasury Regulations
which require consideration of "all the facts and circumstances" and which
provide that certain requirements will "ordinarily" be satisfied by facts which
are present in the Exchange. There are, however, no Code provisions, Treasury
Regulations, IRS rulings or guidelines or other authorities approving a
transaction under Code ss. 355 with the amount of cash present in the Exchange.
In the absence of any such authorities or a Private Letter Ruling, the tax-free
treatment of the Exchange is not free from doubt, and PWC and Sonnenschein are
unable to issue unqualified tax opinions that the Exchange will be tax-free to
DST.
The Tax Opinions are not binding on the IRS. As a result, it is possible
that the IRS could take a position which is contrary to the Tax Opinions. If the
IRS were to take such a contrary position and prevail, then DST could recognize
gain on the Reorganization and Exchange as if DST sold the OMS Shares for fair
market value to Janus. DST estimates, that under those circumstances, it would
recognize a gain of approximately $104 million and incur federal and state
income tax liabilities of approximately $41.6 million.
SELECTED FINANCIAL DATA
SELECTED COMBINED FINANCIAL DATA
The following table sets forth selected combined financial data of OMS. The
selected combined balance sheet data as of December 31, 2002 and 2001 and the
selected combined income statement data for the years ended December 31, 2002,
2001 and 2000 were derived from OMS's audited combined financial statements and
the related notes thereto which are included in Appendix E of this proxy
statement. The selected combined balance sheet data as of December 31, 2000 and
1999 were derived from OMS's audited combined financial statements, not included
herein. The selected combined balance sheet data as of December 31, 1998 and the
selected combined income statement data for the years ended December 31, 1999
and 1998 were derived from OMS's unaudited combined financial statements, not
included herein. The data for the six months ended June 30, 2003 and 2002 has
been derived from OMS's unaudited condensed combined financial statements also
included herein as Appendix D and which, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the unaudited interim periods. This selected
combined financial data should be read in conjunction with and is qualified by
reference to OMS's audited combined financial statements, including the notes
thereto, and the report of independent accountants thereon.
FOR THE SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------- ------------- ------------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
(dollars in thousands)
Total revenues $ 44,524 $ 56,065 $ 105,698 $ 112,032 $ 120,986 $ 95,234 $ 68,792
Cost and expenses 41,278 50,961 95,844 102,643 110,152 85,424 61,154
Depreciation and
Amortization 1,808 2,173 5,249 4,550 3,966 2,989 2,304
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations 1,438 2,931 4,605 4,839 6,868 6,821 5,334
Interest expense (1) (83) (113) (816) (821) (839) (561)
Other income (expense,)
Net 97 (1,133) 2 (103) (170) (52) 7
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
Taxes 1,534 1,715 4,494 3,920 5,877 5,930 4,780
Income taxes 606 705 1,846 1,559 2,501 2,440 1,968
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 928 $ 1,010 $ 2,648 $ 2,361 $ 3,376 $ 3,490 $ 2,812
========== ========== ========== ========== ========== ========== ==========
Total assets $ 22,428 $ 23,619 $ 23,239 $ 23,084 $ 29,839 $ 24,916 $ 16,048
Long-term obligations 392 196 0 7,244 9,616 4,887 690
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
on the historical consolidated balance sheets and statements of income of DST
and OMS, adjusted to give effect to the Exchange.
The unaudited pro forma condensed statements of income for the six months
ended June 30, 2003 and for the year ended December 31, 2002 reflect the
historical results of operations of DST less the historical operations of OMS as
if the Exchange occurred at the beginning of the earliest period presented. The
unaudited pro forma condensed statements of income for the years ended December
31, 2001 and 2000 reflect OMS as a discontinued operation and do not reflect the
Exchange.
The unaudited pro forma condensed combined balance sheet as of June 30,
2003 assumes that the Exchange occurred as of that date.
The following unaudited pro forma condensed financial statements have been
prepared from, and should be read in conjunction with the historical
consolidated financial statements and notes thereto of DST appearing in its
Annual Report on Form 10-K for the year ended December 31, 2002 and Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, which are incorporated
in this proxy statement by reference, and the historical combined financial
statements and notes of OMS for the six months ended June 30, 2003 and the three
years ended December 31, 2002 included in this proxy statement as Appendices D
and E, respectively. These unaudited pro forma condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the operating results or financial position that would have occurred had the
Exchange been consummated on the dates indicated in the preceding paragraphs,
and are not necessarily indicative of the future operating results or financial
position of DST.
DST
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 2003
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS
-----------------------------
ADDITIONAL
DST OMS ASSETS PRO FORMA
------------ ----------- ----------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 72.6 $ $ $ 72.6
Transfer agency investments 59.3 59.3
Accounts receivable 405.4 12.8 392.6
Other current assets 119.1 3.5 115.6
----------- ----------- ----------- -----------
656.4 16.3 640.1
Investments 1,191.9 1,191.9
Properties 588.4 5.0 583.4
Goodwill 261.2 261.2
Intangibles 128.3 128.3
Other assets 34.2 1.1 21.2(3)(6) 54.3
----------- ----------- ----------- -----------
Total assets $ 2,860.4 $ 22.4 $ 21.2 $ 2,859.2
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt due within one year $ 126.4 $ $ $ 126.4
Transfer agency deposits 59.3 59.3
Accounts payable 119.3 3.0 116.3
Accrued compensation and benefits 92.7 1.6 91.1
Deferred revenues and gains 94.4 94.4
Other liabilities 109.6 5.4 12.7(3)(4) 116.9
----------- ----------- ----------- -----------
601.7 10.0 12.7 604.4
Long-term debt 408.2 1,020.4(3) 1,428.6
Deferred income taxes 330.8 330.8
Other liabilities 93.8 0.4 93.4
----------- ----------- ----------- -----------
1,434.5 10.4 1,033.1 2,457.2
----------- ----------- ----------- -----------
Commitments and contingencies ----------- ----------- ----------- -----------
Stockholders' equity
Common stock, $0.01 par; 300 million shares
authorized, 127.6 million shares issued 1.3 1.3
Additional paid-in capital 362.8 0.6(6) 363.4
Retained earnings 1,273.6 12.0 101.9(6) 1,363.5
Treasury stock (44.3 million and 8.0 million
shares, respectively), at cost (458.3) (1,114.4)(1) (1,572.7)
Accumulated other comprehensive income 246.5 246.5
----------- ----------- ----------- -----------
Total stockholders' equity 1,425.9 12.0 (1,011.9) 402.0
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 2,860.4 $ 22.4 $ 21.2 $ 2,859.2
=========== =========== =========== ===========
See accompanying notes to unaudited pro forma condensed financial statements.
DST
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS
-----------------------------
ADDITIONAL
DST OMS(2) ASSETS PRO FORMA
----------- ----------- ----------- ----------
Total revenues $ 1,236.8 $ 44.5 $ $ 1,192.3
Costs and expenses 1,013.9 41.5 972.4
Depreciation and amortization 71.7 1.6 70.1
----------- ----------- ----------- -----------
Income from operations 151.2 1.4 149.8
Interest expense (6.5) (20.8)(3) (27.3)
Other income, net 10.1 0.1 10.0
Equity in earnings of unconsolidated affiliates 3.4 3.4
----------- ----------- ----------- -----------
Income (loss) before income taxes 158.2 1.5 (20.8) 135.9
Provision (benefit) for income taxes 53.8 0.6 (8.1)(4) 45.1
----------- ----------- ----------- -----------
Net income (loss) from continuing operations $ 104.4 $ 0.9 $ (12.7) $ 90.8
=========== =========== =========== ===========
Average common shares outstanding 119.0 (32.3)(5) 86.7
Diluted shares outstanding 120.2 (32.3)(5) 87.9
Basic earnings per share $ 0.88 $ $ 0.39(7) $ 1.05
Diluted earnings per share $ 0.87 $ $ 0.39(7) $ 1.03
See accompanying notes to unaudited pro forma condensed financial statements.
DST
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 2002
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS
----------------------------
ADDITIONAL
DST OMS(2) ASSETS PRO FORMA
------------ ----------- ---------- ---------
Total revenues $ 2,383.8 $ 105.7 $ 2,278.1
Costs and expenses 1,936.7 95.8 1,840.9
Depreciation and amortization 143.8 5.3 138.5
----------- ----------- ----------- -----------
Income from operations 303.3 4.6 298.7
Interest expense (13.4) (0.1) (41.5)(3) (54.8)
Other income, net 20.2 20.2
Equity in earnings of unconsolidated affiliates 6.5 6.5
----------- ----------- ----------- -----------
Income (loss) before income taxes 316.6 4.5 (41.5) 270.6
Provision (benefit) for income taxes 107.6 1.9 (16.2)(4) 89.5
----------- ----------- ----------- -----------
Net income (loss) from continuing operations $ 209.0 $ 2.6 $ (25.3) $ 181.1
=========== =========== =========== ===========
Average common shares outstanding 120.0 (32.3)(5) 87.7
Diluted shares outstanding 121.7 (32.3)(5) 89.4
Basic earnings per share $ 1.74 $ $ 0.78(7) $ 2.06
Diluted earnings per share $ 1.72 $ $ 0.78(7) $ 2.03
See accompanying notes to unaudited pro forma condensed financial statements.
DST
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 2001
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS
-----------
DST OMS(2) PRO FORMA
----------- ---------- ----------
Total revenues $ 2,380.7 $ 112.0 $ 2,268.7
Costs and expenses 1,927.8 102.6 1,825.2
Depreciation and amortization 159.4 4.6 154.8
---------- ---------- ----------
Income from operations 293.5 4.8 288.7
Interest expense (7.5) (0.8) (6.7)
Other income, net 36.2 36.2
Gain on sale of PAS 32.8 32.8
Equity in earnings of
unconsolidated affiliates (1.5) (1.5)
---------- ---------- ----------
Income before income taxes 353.5 4.0 349.5
Income taxes 125.3 1.6 123.7
---------- ---------- ----------
Net income from continuing operations $ 228.2 $ 2.4 $ 225.8
========== ========== ==========
Average common shares outstanding 122.6 122.6
Diluted shares outstanding 126.0 126.0
Basic earnings per share $ 1.86 $ $ 1.84
Diluted earnings per share $ 1.81 $ $ 1.79
See accompanying notes to unaudited pro forma condensed financial statements.
DST
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS
-----------
DST OMS(2) PRO FORMA
----------- ---------- ----------
Total revenues $ 1,968.7 $ 121.0 $ 1,847.7
Costs and expenses 1,575.5 110.1 1,465.4
Depreciation and amortization 128.6 4.0 124.6
---------- ---------- ----------
Income from operations 264.6 6.9 257.7
Interest expense (5.6) (0.8) (4.8)
Other income, net 66.3 (0.2) 66.5
Equity in earnings of
unconsolidated affiliates 11.4 11.4
---------- ---------- ----------
Income before income taxes 336.7 5.9 330.8
Income taxes 120.9 2.5 118.4
---------- ---------- ----------
Net income from continuing operations $ 215.8 $ 3.4 $ 212.4
========== ========== ==========
Average common shares outstanding 125.3 125.3
Diluted shares outstanding 129.4 129.4
Basic earnings per share $ 1.72 $ $ 1.70
Diluted earnings per share $ 1.67 $ $ 1.64
See accompanying notes to unaudited pro forma condensed financial statements.
DST
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. On August 25, 2003, DST, OMS (a wholly-owned subsidiary of DST) and Janus
entered into a Share Exchange Agreement that provides for the exchange of
all of the outstanding shares of OMS owned by DST for 32.3 million shares
of DST Common Stock owned by Janus. The Exchange has been designed to
comply with Section 355 of the Internal Revenue Code, accordingly, DST
should not incur income tax relating to the split-off of OMS. Under the
terms of the Share Exchange Agreement, the Janus DST Shares will be valued
at a price ranging from $30.00 to $34.50 per share, based on the average
closing price for the 20 trading days preceding the Closing of the
Exchange. DST will equalize the difference between the fair market value of
OMS of $115.0 million and the gross transaction value, which can range from
$969.0 million to $1,114.4 million, with cash ranging from $854.0 million
to $999.4 million (Additional Assets). The pro forma financial statements
are prepared assuming a $34.50 share price.
DST will contribute cash sufficient to equalize the difference between the
fair market value of OMS of $115 million and the final transaction value
determined for the Exchange. Following is a summary of the different
amounts of Additional Assets that will be contributed to OMS using
different DST Common Stock share prices to value the transaction (dollars
in millions, except share prices):
DST COMMON STOCK ADDITIONAL TOTAL EXCHANGE
SHARE PRICE FMV OF OMS ASSETS VALUE
----------------- ---------- ---------- --------------
$30.00 $115.0 $854.0 $969.0
$32.25 $115.0 $926.7 $1,041.7
$34.50 $115.0 $999.4 $1,114.4
2. Reflects the historical operations of OMS for the six months ended June 30,
2003 and for the years ended December 31, 2002, 2001 and 2000 and the
financial position of OMS at June 30, 2003, respectively. The OMS
divestiture is considered a discontinued operation.
3. Reflects the annual interest expense of $41.5 million resulting from
funding the contribution of the Additional Assets ($999.4 million) to OMS
assuming a transaction value based on $34.50 per share of DST Common Stock
at Closing. The interest expense for the six month period ended June 30,
2003 is $20.8 million based on the following calculation. DST will fund the
Additional Assets as follows (dollars in millions):
PRINCIPAL INTEREST INTEREST
DEBT ISSUED AMOUNT RATE EXPENSE
----------- --------- -------- --------
Convertible notes $840.0 3.95% $ 33.2
Unsecured revolving credit facility draws 180.4 2.75% 4.9
------- -------
Total 1,020.4 38.1
Less debt issuance costs (21.0) 5-7 years 3.4
------- -------
Net $999.4 $41.5
======= =======
The debt issuance costs represents 2.5% of the offering paid to the
underwriters. The DST unsecured revolving credit facility is subject to a
variable interest rate. It should be noted that the unsecured revolving
credit facility would be $107.7 million and $35.0 million based on a
transaction value of $32.25 and $30.00 per DST Common Stock share,
respectively. The effect of a 1/8% variance in the interest rate on net
income is $0.2 million, $0.1 million, and $0 million based on a transaction
value of $34.50, $32.25 and $30.00 per share, respectively.
4. Reflects the income tax effects of the pro forma adjustments for the
Additional Assets at DST's statutory income tax rate of 39%.
5. Reflects the reduction in average and diluted shares outstanding of 32.3
million shares in accordance with the Share Exchange Agreement.
6. The accompanying pro forma income statements do not reflect a $102.6
million gain expected to be realized from the Share Exchange Agreement. The
gain has not been reflected in the pro forma income statements given the
non-recurring nature of the gain. The accompanying pro forma balance sheet
reflects the net gain in retained earnings as of June 30, 2003 and reflects
the following (in millions):
DESCRIPTION AMOUNT
----------- ------
FMV of OMS $ 115.0
Investment in OMS basis (12.0)
Stock option compensation expense ($0.6), net of
tax 39% ($0.2) (0.4)
--------
Net gain on transaction $ 102.6
========
The $0.2 million deferred tax asset is shown as an adjustment to other
assets in the accompanying pro forma balance sheet.
7. The debentures are convertible under certain circumstances into shares of
DST Common Stock per $1,000 original principal amount of debentures at an
initial conversion rate of 20.3732 shares, each subject to adjustment in
certain events. This is equivalent to an initial conversion price of $49.08
per share for the debentures. Upon conversion, DST has the right to
deliver, in lieu of DST Common Stock, cash or any combination of cash and
DST Common Stock. If the conversion criteria were met, the debentures would
be convertible to 17,113,488 shares of DST Common Stock. Since the
conversion criteria is not met, the shares are not reflected in the
earnings per share. Management currently intends to pay cash in the event
the debt is put.
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
As of the Record Date, DST had outstanding [115,671,587] shares of DST
Common Stock. The following table sets forth information as of the Record Date
concerning the beneficial ownership of DST Common Stock by: (i) stockholders who
have publicly filed a report acknowledging ownership of more than 5% of the
outstanding DST Common Stock; (ii) the directors and certain executive officers
of DST; and (iii) all of DST's executive officers and directors as a group.
Except as otherwise noted, the holders have sole power to vote and dispose of
the shares. For purposes of incorporating a DST subsidiary in a foreign country,
each of several DST officers holds a single share of such subsidiary's stock.
Such holdings constitute less than 1% of the subsidiary's stock. No officer or
director of DST owns any equity securities of any other subsidiary of DST.
[TABLE TO BE UPDATED AS OF RECORD DATE]
---------------------------------------------------- ------------ ------------
NAME AND ADDRESS SHARES OF
DST
COMMON PERCENT OF
STOCK(1) CLASS(2)
---------------------------------------------------- ------------ ------------
Janus Capital Group Inc. ("Janus")(3)
---------------------------------------------------- ------------ ------------
George L. Argyros(4)
---------------------------------------------------- ------------ ------------
A. Edward Allinson(5)
DST Director
---------------------------------------------------- ------------ ------------
Michael G. Fitt(6)
DST Director
---------------------------------------------------- ------------ ------------
Donald J. Kenney(7)
President and Chief Executive Officer
("CEO") of EquiServe, Inc. ("EquiServe")(8)
---------------------------------------------------- ------------ ------------
Thomas A. McCullough(9)
Executive Vice President and Chief
Operating Officer ("COO") of DST,
DST Director
---------------------------------------------------- ------------ ------------
Thomas A. McDonnell(10)
President and CEO of DST, DST Director
---------------------------------------------------- ------------ ------------
William C. Nelson(11)
DST Director
---------------------------------------------------- ------------ ------------
Travis E. Reed(12)
DST Director
---------------------------------------------------- ------------ ------------
Charles W. Schellhorn(13)
President and CEO of DST Output(14);
President of Argus Health Systems, Inc.
("Argus")(15)
---------------------------------------------------- ------------ ------------
M. Jeannine Strandjord(16)
DST Director
---------------------------------------------------- ------------ ------------
J. Michael Winn
Managing Director of DST International
Limited ("DSTi")(17)
---------------------------------------------------- ------------ ------------
All Executive Officers and Directors as a Group
(16 Persons)(18)
---------------------------------------------------- ------------ ------------
-----------------
* Less than 1% of outstanding DST Common Stock
(1) Pursuant to Rule 13d-3 under the Exchange Act, as amended, share amounts
shown for DST's executive officers and directors include shares of DST
Common Stock they may acquire upon the exercise of options which are
exercisable at the Record Date or will become exercisable within 60 days of
such date and shares of DST Common Stock they hold indirectly under the
Plans or otherwise. An executive officer has disclaimed beneficial
ownership of certain shares which are owned by a family member.
(2) The percentage for each person or group is based on the number of shares
outstanding as of the Record Date plus securities of such stockholder(s)
deemed outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act.
(3) The address of Janus is 100 Fillmore Street, Suite 300 Denver, Colorado
80206-4923. The information is based on Amendment No. 3 filed September 10,
2003, to Schedule 13D filed July 10, 2000.
(4) Mr. Argyros formerly served as a director of DST. Mr. Argyros' address is
949 South Coast Drive, Suite 600, Costa Mesa, California 92626. The number
of shares of DST Common Stock is based on information in a Form 4 for
November 2001 filed by Mr. Argyros, and on information provided by Mr.
Argyros to DST on February 27, 2002. The shares consist of 4,679,152 shares
held by Mr. Argyros, 900 shares held by the Leon and Olga Argyros 1986
Trust, 536,502 shares held by the Argyros Foundation, 4,261,000 shares held
by HBI Financial, Inc., and 1,686 shares held by GLA Financial Corporation.
Mr. Argyros disclaims beneficial ownership of the shares held by the
Argyros Foundation and the Leon and Olga Argyros 1986 Trust.
(5) Mr. Allinson's beneficial ownership includes 14,000 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date.
(6) Mr. Fitt's beneficial ownership includes 7,500 shares that may be acquired
through options that are exercisable or will become exercisable within 60
days of the Record Date and 27,327 shares held in a trust.
(7) Mr. Kenney's beneficial ownership includes 100,000 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date.
(8) EquiServe is a wholly-owned subsidiary of DST.
(9) Mr. McCullough's beneficial ownership includes 204,668 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date.
(10) Mr. McDonnell's beneficial ownership includes 365,215 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 41,022 shares allocated to his
account in the DST ESOP.
(11) Mr. Nelson's beneficial ownership includes 30,294 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 200 shares held in an individual
retirement account.
(12) Mr. Reed's beneficial ownership includes 5,000 shares that may be acquired
through options that are exercisable or will become exercisable within 60
days of the Record Date, 2,500 shares held in a trust, and 675 shares held
by Glendon Triverton, Inc. of which Mr. Reed is the president and sole
shareholder.
(13) Mr. Schellhorn's beneficial ownership includes 223,806 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 27,206 shares allocated to his
account in the DST ESOP.
(14) DST Output is a wholly-owned subsidiary of DST.
(15) DST is a 50% owner of Argus.
(16) Ms. Strandjord's beneficial ownership includes 7,500 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 1,000 shares held in a trust.
(17) DSTi is a wholly-owned subsidiary of DST.
(18) The beneficial ownership of all executive officers and directors as a group
includes 1,375,795 shares that may be acquired by the executive officers
and directors through options that are exercisable or will become
exercisable within 60 days of the Record Date. It also includes 126,458
shares allocated to the DST ESOP accounts of executive officers and the
spouse of an executive officer, and 37,835 shares otherwise held
indirectly. Individuals in the group have disclaimed beneficial ownership
as to a total of 5,385 of the shares.
OTHER MATTERS
STOCKHOLDER PROPOSALS. Stockholders may as described below submit proposals for
consideration at a stockholders' meeting. No stockholder proposals are being
considered at this Special Meeting.
INCLUSION OF STOCKHOLDER PROPOSALS IN THE 2004 ANNUAL MEETING PROXY
STATEMENT. If a stockholder desires to have a proposal included in DST's proxy
statement for the annual meeting of stockholders to be held in 2004, the
Corporate Secretary of DST must receive such proposal on or before November 28,
2003, and the proposal must comply with the applicable SEC laws and rules and
the procedures set forth in the DST By-laws. DST will require any proposed
nominee for election as a director or stockholder proposing a nominee to furnish
a consent of the nominee and may reasonably require other information to
determine the eligibility of a proposed nominee to serve as a director or to
properly complete any proxy or information statement used for the solicitation
of proxies.
TIMELY NOTICE TO DST OF NOMINATIONS FOR DIRECTOR AND OTHER STOCKHOLDER
PROPOSALS. The DST By-laws provide that a stockholder proposal (other than a
proposal requested to be set forth in the proxy statement, as noted above) may
not be made at an annual meeting unless the Corporate Secretary of DST has
timely received it. A proposal to nominate a director is timely if received not
less than 60 days nor more than 90 days prior to the meeting, and any other
proposal is timely if received not less than 90 days nor more than 120 days
prior to the meeting; provided, however, that in the event that the DST Board
designates the meeting to be held at a date other than the second Tuesday in May
and gives notice of or publicly discloses the date of the meeting less than 60
days prior to its occurrence, the Corporate Secretary of DST must receive the
written proposal not later than the close of business on the 15th day following
the date of the notice or public disclosure of the meeting date, whichever first
occurs.
Under these requirements, proposals (other than proposals submitted for
inclusion in the proxy statement) to be timely for the 2004 annual meeting must
be received by the Corporate Secretary of DST no earlier than February 11, 2004
and no later than March 12, 2004 if they pertain to nominees for director and no
earlier than January 12, 2004 and no later than February 11, 2004 if they
pertain to proposals other than director nominations.
CONTENTS OF NOTICE OF PROPOSAL. A stockholder proposal must be in the form
of a written notice of proposal. The required contents of the notice depend on
whether the proposal pertains to nominating a director or to other business. A
stockholder's notice pertaining to the nomination of a director shall set forth:
(a) as to each nominee whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of the nominee, (ii) the principal occupation or employment of the
nominee, (iii) the class and number of shares of capital stock of DST that are
beneficially owned by the nominee, and (iv) any other information concerning the
nominee that would be required, under the rules of the SEC, in a proxy statement
soliciting proxies for the election of such nominee; (b) as to the stockholder
giving the notice, (i) the name and address of the stockholder, and (ii) the
class and number of shares of capital stock of DST that are beneficially owned
by the stockholder and the name and address of record under which such stock is
held; and (c) the signed consent of the nominee to serve as a director if
elected.
A stockholder's notice concerning business other than nominating a director
shall set forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (b) the
name and address of the stockholder proposing such business, (c) the class and
number of shares of capital stock of DST that are beneficially owned by the
stockholder and the name and address of record under which such stock is held,
and (d) any material interest of the stockholder in such business. The Chairman
of the annual meeting has the power to determine whether the proposed business
is an appropriate subject for and was properly brought before the meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the
Exchange Act requires DST's directors and certain of its officers, and each
person, legal or natural, who owns more than 10% of DST Common Stock (each, a
"Reporting Person"), to file reports of such ownership with the SEC, the NYSE,
and DST. Based solely on review of the copies of such reports furnished to DST,
and written representations relative to the filing of certain forms, no person
other than James P. Horan, a DST senior vice president, was late in filing such
a report for fiscal year 2002. Mr. Horan exercised options for 60,000 shares on
February 7, 2002 and reported the exercise on a Form 4 for March 2002.
HOUSEHOLDING FOR BROKER CUSTOMERS. Pursuant to the rules of the SEC, services
that deliver DST's communications to Broker Customers may deliver to multiple
stockholders sharing the same address a single copy of DST's proxy statement.
DST will promptly deliver upon written or oral request a separate copy of the
proxy statement to any stockholder at a shared address to which a single copy of
the documents was delivered. Written requests may be made to the DST Corporate
Secretary, 333 West 11th Street, Kansas City, Missouri 64105, and oral requests
may be made by calling the DST Corporate Secretary's Office at (816) 435-4636.
Any stockholder who wants to receive separate copies of the proxy statement in
the future, or any stockholder who is receiving multiple copies and would like
to receive only one copy per household, should contact the stockholder's bank,
broker or other nominee holder of record.
WHERE YOU CAN FIND MORE INFORMATION
DST files annual, quarterly and current reports, proxy statements and other
information with the SEC. These filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Copies of
such information can be obtained by mail from the public reference room of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
reports and other information filed by DST can also be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. DST's
Internet address is WWW.DSTSYSTEMS.COM . Through this website, DST makes
available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as
soon as reasonably practicable after electronic filing or furnishing of these
reports with the SEC.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain documents, which
means that we can disclose important information to you by referring you to
those documents. The information in the documents incorporated by reference is
considered to be part of this proxy statement, except to the extent that this
proxy statement updates or supersedes the information. We incorporate by
reference the documents listed below which we have previously filed with the SEC
(SEC File No. 1-14036):
o Our Annual Report on Form 10-K for the year ended December 31, 2002;
o Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2003 and June 30, 2003; and
o Our Current Reports on Form 8-K filed on April 29, 2003 and August 13,
2003 and our amended Current Report on Form 8-K/A filed on March 17,
2003.
We also incorporate by reference the information contained in all other
documents we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this proxy statement and before the date of the
Special Meeting. The information will be considered part of this proxy statement
from the date of the document filed and will supplement or amend the information
contained in this proxy statement.
We will provide you, without charge, a copy of the documents we incorporate
by reference in this proxy statement upon your request. To request a copy of any
or all of these documents, you should write or telephone us at DST Systems,
Inc., 333 West 11th Street, Kansas City, Missouri 64105, Attention: Corporate
Secretary, or if by telephone at 816-435-4636.
You should rely only on the information contained in this proxy statement
or to which we have referred you to vote your shares at the Special Meeting. We
have not authorized anyone to provide you with information that is different.
By Order of the Board of Directors,
Randall D. Young
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Kansas City, Missouri
[ ], 2003
APPENDIX A
Portions of this document have been redacted pursuant to a Request for
Confidential Treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
Redacted portions are indicated with the notation "[***]".
--------------------------------------------
SHARE EXCHANGE AGREEMENT
by and among
DST SYSTEMS, INC.
DST OUTPUT MARKETING SERVICES, INC.
and
JANUS CAPITAL GROUP INC.
--------------------------------------------
As of August 25, 2003
--------------------------------------------
TABLE OF CONTENTS
PAGE
ARTICLE I. Certain Definitions and Other Matters...................2
Section 1.1 Certain Definitions................................2
Section 1.2 Terms Defined in Other Sections....................9
Section 1.3 Interpretation....................................10
ARTICLE II. Exchange of Stock; Closing; Consideration
Adjustment...........................................10
Section 2.1 Exchange of Stock.................................10
Section 2.2 Closing...........................................11
Section 2.3 DST's Deliveries at the Closing...................11
Section 2.4 Janus' Deliveries at the Closing..................12
Section 2.5 Post-Closing Adjustments..........................12
ARTICLE III. Reorganization.........................................13
Section 3.1 Reorganization....................................13
Section 3.2 Assets and Liabilities............................14
ARTICLE IV. Representations and Warranties of DST..................15
Section 4.1 Organization and Standing.........................15
Section 4.2 Capitalization of OMS.............................16
Section 4.3 Corporate Power and Authority.....................16
Section 4.4 Conflicts; Consents and Approvals.................17
Section 4.5 Proxy Statement...................................18
Section 4.6 Board Approval....................................18
Section 4.7 Required Vote.....................................18
Section 4.8 No Material Adverse Effect........................19
Section 4.9 Taxes.............................................19
Section 4.10 Compliance with Law...............................20
Section 4.11 Intellectual Property.............................20
Section 4.12 Title to Assets; Condition and Sufficiency
of Assets.......................................21
Section 4.13 Environmental Matters.............................21
Section 4.14 Litigation........................................22
Section 4.15 Employee Benefit Plans............................23
Section 4.16 Contracts.........................................24
Section 4.17 Labor and Employment Matters......................26
Section 4.18 Financial Statements..............................27
Section 4.19 Permits; Compliance...............................27
Section 4.20 Real Estate.......................................27
Section 4.21 Intercompany Services.............................28
Section 4.22 Relationships with Customers......................28
Section 4.23 Guaranties........................................29
Section 4.24 Certain Other Tax Matters.........................29
ARTICLE V. Representations and Warranties of Janus................29
Section 5.1 Organization and Standing.........................29
Section 5.2 Corporate Power and Authority.....................29
Section 5.3 Conflicts; Consents and Approvals.................30
Section 5.4 Janus DST Shares..................................30
Section 5.5 Board and Stockholder Approval....................31
Section 5.6 Litigation........................................31
Section 5.7 No Material Adverse Effect........................31
Section 5.8 Investment Representation.........................31
Section 5.9 Certain Tax Matters...............................31
Section 5.10 Governmental Actions..............................31
ARTICLE VI. Covenants and Agreements...............................32
Section 6.1 Proxy Statement...................................32
Section 6.2 Stockholder Meeting; Board Recommendation.........32
Section 6.3 Access and Information............................33
Section 6.4 Conduct of Business...............................33
Section 6.5 Closing Documents.................................33
Section 6.6 Efforts to Consummate; Further Assurances.........34
Section 6.7 Certain Covenants.................................35
Section 6.8 Notification by the Parties.......................36
Section 6.9 Additional Covenants..............................36
Section 6.10 [Reserved]........................................36
Section 6.11 Insurance Policies................................36
Section 6.12 Confidentiality; Access to Records after
Closing.........................................37
Section 6.13 Release of Restrictions; Intercompany
Accounts........................................38
Section 6.14 Options to Purchase DST Stock Held By
Business and Former Business Employees
Accounts........................................38
Section 6.15 Cooperation with Respect to Financial
Reporting.......................................39
Section 6.16 Non-Solicitation of Employees.....................39
Section 6.17 [***].............................................39
Section 6.18 [Reserved]........................................41
Section 6.19 No Solicitation...................................42
Section 6.20 Use of Names......................................42
Section 6.21 [Reserved]........................................42
Section 6.22 DST Share Value Determination Period..............42
Section 6.23 Waiver............................................43
Section 6.24 Certain Tax Matters...............................43
Section 6.25 DST Shares Retained by Janus......................43
Section 6.26 Financing.........................................44
ARTICLE VII. Tax Matters............................................44
ARTICLE VIII. Conditions to Closing..................................44
Section 8.1 Mutual Conditions.................................44
Section 8.2 Conditions to Janus' Obligations..................45
Section 8.3 Conditions to DST's and OMS's Obligations.........46
Section 8.4 Frustration of Closing Conditions.................47
ARTICLE IX. Termination............................................47
Section 9.1 Termination.......................................47
Section 9.2 Effect of Termination.............................48
ARTICLE X. Survival of Representations and Warranties;
Indemnification......................................48
Section 10.1 Survival of Representations and Warranties........48
Section 10.2 Indemnification by DST............................48
Section 10.3 Indemnification by Janus..........................50
Section 10.4 Definition of Damage; Determination of
Indemnification.................................50
Section 10.5 Notice............................................52
Section 10.6 Third Party Claim.................................52
Section 10.7 Exclusivity.......................................53
ARTICLE XI. Miscellaneous..........................................53
Section 11.1 Notices...........................................53
Section 11.2 Expenses..........................................54
Section 11.3 Governing Law; Consent to Jurisdiction............54
Section 11.4 Waiver of Jury Trial..............................54
Section 11.5 Assignment; Successors and Assigns; No
Third Party Rights..............................54
Section 11.6 Counterparts......................................54
Section 11.7 Titles and Headings...............................55
Section 11.8 Entire Agreement..................................55
Section 11.9 Amendment and Modification........................55
Section 11.10 Publicity; Public Announcements...................56
Section 11.11 Waiver............................................56
Section 11.12 Severability......................................56
Section 11.13 No Strict Construction............................56
Section 11.14 Knowledge.........................................56
Section 11.15 Affiliate Status..................................56
Section 11.16 Tax Consequences..................................56
Exhibit A - [***]
Exhibit B - Forms of Tax Opinions
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT, dated as of August 25, 2003 (this
"AGREEMENT"), is entered into by and among DST SYSTEMS, INC., a Delaware
corporation having its principal place of business at 333 West 11th Street,
Kansas City, Missouri, 64105 ("DST"), DST OUTPUT MARKETING SERVICES, INC., a New
York corporation and an indirect wholly owned subsidiary of DST having its
principal place of business at 333 West 11th Street, Kansas City, Missouri,
64105 ("OMS"), and JANUS CAPITAL GROUP INC., a Delaware corporation having its
principal place of business at 100 Fillmore Street, Denver, Colorado 80206
("JANUS").
W I T N E S S E T H:
WHEREAS, the Business (as defined in Article I) is conducted by OMS and the
DST Entities (as defined in Article I);
WHEREAS, prior to the Closing (as defined in Section 2.2), DST will
complete the Reorganization (as defined in Section 3.1), pursuant to which the
Business as a going concern and the Additional Assets (as defined in Article I)
will be consolidated, whether by merger or contribution or otherwise, into OMS,
and thereafter at the Closing the Business will be operated solely by OMS and
OMS will hold the Additional Assets;
WHEREAS, immediately following the Reorganization, OMS shall be a direct,
wholly owned subsidiary of DST;
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, (a) DST desires to exchange the OMS Shares (as defined in Article I)
for the Janus DST Shares (as defined in Article I), and (b) Janus desires to
exchange the Janus DST Shares for the OMS Shares;
WHEREAS, immediately following the Exchange, Janus shall continue to own,
subject to certain restrictions, the shares of DST Common Stock (as defined in
Article I) (other than the Janus DST Shares) which Janus owned immediately prior
to the Closing;
WHEREAS, the parties hereto intend the Exchange (as defined in Section 2.1)
to qualify as a tax-free exchange under Section 355(a) of the Code (as defined
in Article I); and
WHEREAS, the Boards of Directors of DST and Janus have, in each case,
determined that it is in the best interests of their respective corporations to
enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I.
CERTAIN DEFINITIONS AND OTHER MATTERS
Section 1.1 CERTAIN DEFINITIONS.
As used in this Agreement and the schedules hereto, the following terms
have the respective meanings set forth below.
"ACTION" means any administrative, regulatory, judicial or other formal
proceeding by or before any Governmental Authority or arbitrator.
"ADDITIONAL ASSETS" means the Cash Amount.
"AFFILIATE" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. The term "CONTROL"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, including the ability
to elect the members of the board of directors or other governing body of a
Person, and the terms "CONTROLLED" and "CONTROLLING" have correlative meanings.
For purposes of this Agreement, Janus shall be deemed not to be an "AFFILIATE"
of DST or any of its Subsidiaries and DST or any of its Subsidiaries shall be
deemed not to be an "AFFILIATE" of Janus; PROVIDED, HOWEVER, that following the
Closing, OMS shall be an "AFFILIATE" of Janus and shall not be an "AFFILIATE" of
DST.
"ANCILLARY AGREEMENTS" means the agreements to be entered into by and among
DST and/or its Affiliates (other than OMS), on the one hand, and OMS and/or
Janus, on the other hand, on or prior to the Closing, pursuant to which, among
other things, certain services and goods will be provided to the parties to this
Agreement, including, but not limited to the agreements described in Section 1.1
of DST's Disclosure Schedule, which agreements include the terms that have been
agreed to by DST and Janus prior to the date of this Agreement.
"ANTITRUST DIVISION" means the Antitrust Division of the United States
Department of Justice.
"BUSINESS" means the business of providing the products and services
described in Exhibit A to DST's Disclosure Schedule.
"BUSINESS CONTRACTS" mean the Contracts of the Business (other than
Employment Agreements, Employee Benefit Plans and other Contracts primarily
related to employee compensation or benefits, but including, to the extent
assignable, all non-disclosure or confidentiality, non-compete or
non-solicitation Contracts with Business Employees and agents or representatives
of the Business).
"BUSINESS EMPLOYEES" means individuals who provide employment or
employment-type services primarily to the Business as of the date hereof, other
than any such individuals who cease employment with the applicable DST Entity
prior to the Closing, but including any such individuals hired after the date
hereof and prior to the Closing.
"BUSINESS DAY" means a day on which national banks are open for business in
New York, New York.
"CASH AMOUNT" means an amount in cash equal to (i) the product of thirty
two million three hundred thousand (32,300,000) and the DST Share Value less
(ii) one hundred fifteen million dollars ($115,000,000).
"CLAIMS" means any and all (i) claims, (ii) demands or (iii) causes of
action (in the case of clause (iii), relating to or resulting from an Action).
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL BUSINESS INFORMATION" shall mean marketing data, financial
information, customer lists, supplier lists, pricing and cost information,
business and marketing plans and proposals and other non-technical proprietary
business information.
"CONFIDENTIALITY AGREEMENT" means the Mutual Non-Disclosure Agreement,
dated November 11, 2002, among DST, Janus and Stilwell Financial Inc.
"CONTRACT" means any contract, agreement, indenture, deed of trust,
license, note, bond, mortgage, lease, guarantee and any similar understanding or
arrangement, whether written or oral.
"CONTROLLED GROUP LIABILITY" means any and all liabilities (i) under Title
IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971
of the Code, (iv) as a result of a failure to comply with the continuation
coverage requirements of Section 601 ET SEQ. of ERISA and Section 4980B of the
Code or the group health plan requirements of sections 701 ET SEQ. of the Code
and section 701 ET SEQ. of ERISA, and (v) under corresponding or similar
provisions of foreign laws or regulations.
"CREDIT FACILITIES" means (i) the Credit Agreement dated as of December 9,
2001 among DST Systems, Inc., the lenders party thereto and Bank of America,
N.A. as Administrative Agent, as amended, and (ii) the Credit Agreement between
Broadway Square Partners LLP and Firstar Bank, N.A. dated December 28, 2000, as
amended.
"CREDIT FACILITIES CONSENT" means the waiver or consent required under the
Credit Facilities in connection with the Exchange.
"DST COMMON STOCK" means the Common Stock, $0.01 par value per share of
DST.
"DST ENTITIES" means each Affiliate of DST (other than OMS) that is engaged
in the operation or conduct of the Business or that has title to any asset which
constitutes a Business Asset or is subject to a liability which constitutes a
Business Liability, in each case, as of the date hereof or at any time prior to
the Closing.
"DST'S DISCLOSURE SCHEDULE" means the disclosure schedule that DST has
delivered to Janus on the date of this Agreement prior to the execution hereof.
"DST SHARE VALUE" means the average (arithmetic mean) of the per share
closing prices of the DST Common Stock on the New York Stock Exchange for the
twenty (20) consecutive trading days ending on the day prior to the Closing
Date, or, if such common stock is not listed on such exchange, on any other
national securities exchange on which such common stock is listed or, if not so
listed and such common stock is admitted for trading on the Nasdaq National
Market or the Nasdaq Smallcap Market, on such Nasdaq market; PROVIDED, HOWEVER,
that if such average price is less than thirty dollars ($30.00) per share, the
DST Share Value shall be deemed equal to thirty dollars ($30.00) per share, and,
if such average price is greater than thirty-four dollars and fifty cents
($34.50) per share, the DST Share Value shall be deemed equal to thirty-four
dollars and fifty cents ($34.50) per share.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, program, policy,
practices, or other arrangement providing benefits to any current or former
employee, officer or director of DST, the DST Entities or OMS or any beneficiary
or dependent thereof that is sponsored or maintained by DST, the DST Entities or
OMS or to which DST, the DST Entities or OMS contribute or are obligated to
contribute, whether or not written, including without limitation any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee
pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not
such plan is subject to ERISA) and any bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, severance, employment, change of control
or fringe benefit plan, program or policy.
"EMPLOYMENT AGREEMENT" means a written Contract or offer letter of DST or
any of its Affiliates with or addressed to any Business Employee or Former
Business Employee pursuant to which OMS shall, directly or indirectly, have any
actual or contingent liability or obligation to provide compensation and/or
benefits on or after the Closing Date in consideration for past, present or
future services.
"ENCUMBRANCES" means security interests, liens, Claims, charges, title
defects, deficiencies or exceptions (including, with respect to Real Property,
defects, deficiencies or exceptions in, or relating to, marketability of title,
or leases, subleases or the like affecting title), mortgages, pledges,
easements, encroachments, restrictions on use, rights-of-way, rights of first
refusal, conditional sales or other title retention agreements, covenants,
conditions or other similar restrictions (including restrictions on transfer) or
other encumbrances of any nature whatsoever.
"ENVIRONMENTAL LAWS" means all Laws relating to pollution or protection of
human health and safety or the environment (including ambient air, surface
water, groundwater, land surface, natural resources or subsurface strata),
including all such Laws relating to Releases or threatened Releases of Regulated
Substances into the environment or work place, or otherwise relating to the
environmental or worker health and safety aspects of manufacturing, processing,
distribution, importation, use, treatment, storage, disposal, transport or
handling of Regulated Substances, including, but not limited to, chemical
inventories in all relevant jurisdictions, and all such Laws relating to the
registration of products of the Business or OMS under the Federal Insecticide,
Fungicide and Rodenticide Act, the Food Drug and Cosmetic Act, the Toxic
Substances Control Act, the European List of Notified Chemical Substances, the
European Inventory of Existing Commercial Chemical Substances or similar Laws.
"ENVIRONMENTAL PERMIT" means any permit, registration, approval,
identification number, license or other authorization or filing required under
or issued pursuant to any applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any entity which would be aggregated with DST under
Section 414 of the Code or Section 4001(b) of ERISA.
"FLSA" means the Fair Labor Standards Act, 29 U.S.C. Section 201, as
amended.
"FORMER BUSINESS EMPLOYEE" means individuals who, prior to the Closing,
provided employment or employment-type services primarily to the Business.
"FTC" means the United States Federal Trade Commission.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" means any supranational, national, federal, state
or local government, foreign or domestic, or the government of any political
subdivision of any of the foregoing, or any entity, authority, agency, ministry
or other similar body exercising executive, legislative, judicial, regulatory or
administrative authority or functions of or pertaining to government, including
any authority or other quasi-governmental entity established by a Governmental
Authority to perform any of such functions.
"HSR AUTHORITY" means the FTC and/or the Antitrust Division.
"INDEBTEDNESS" of any Person means, without duplication, (i) all
obligations of such Person for money borrowed; (ii) all obligations of such
Person evidenced by notes, debentures, bonds or other similar instruments for
the payment of which such Person is responsible or liable; (iii) all obligations
of such Person issued or assumed for deferred purchase price payments associated
with acquisitions, divestments or other transactions; (iv) all obligations of
such Person under leases required to be capitalized in accordance with GAAP, as
consistently applied by such Person, (v) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance,
guarantees or similar credit transaction, excluding in all cases in clauses (i)
through (v) current accounts payable, trade payables and accrued liabilities
incurred in the Ordinary Course of Business.
"INSURANCE POLICIES" means each insurance policy (other than relating to
Employee Benefit Plans), which, as of the date hereof or hereinafter until the
Closing, is maintained by or on behalf of or provides coverage primarily to (a)
OMS with respect to the Business businesses and properties, or (b) the Business.
"IRS" means the Internal Revenue Service of the United States of America.
"JANUS CONSENT" means the waiver or consent required under the Janus Credit
Facility to consummate the Exchange.
"JANUS CREDIT FACILITY" means the Five-Year Competitive Advance and
Revolving Credit Facility, dated as of December 7, 2000, by and among Stillwell
Financial Inc., Janus Capital Corporation, the Lenders named therein, Wells
Fargo Bank West, N.A. (as Documentation Agent), the Chase Manhattan Bank (as
Syndication Agent) and Citibank, N.A. (as Administrative Agent and Swingline
Lender), as amended from time to time.
"JANUS' DISCLOSURE SCHEDULE" means the disclosure schedule that Janus has
delivered to DST on the date of this Agreement prior to the execution hereof.
"JANUS DST SHARES" means the thirty-two million three hundred thousand
(32,300,000) shares of DST Common Stock owned by Janus as of the date hereof,
appropriately adjusted for any stock dividend, stock split, reverse stock split,
share combination, reclassification, recapitalization or similar transaction
with respect to the DST Common Stock.
"LAWS" means all United States federal, state or local or foreign laws,
constitutions, statutes, codes, rules, regulations, ordinances, executive
orders, decrees or edicts by a Governmental Authority having the force of law.
"LEASED REAL PROPERTY" means any real property leased or subleased to OMS,
DST or any of the DST Entities primarily for use in the operation of the
Business and set forth (and designated as leased) in Section 4.20 of DST's
Disclosure Schedule.
"LIABILITIES" means any and all debts, liabilities, commitments and
obligations, whether or not fixed, contingent or absolute, matured or unmatured,
direct or indirect, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whether or not required by GAAP to be reflected in financial statements
or disclosed in the notes thereto.
"MATERIAL ADVERSE EFFECT" means, with respect to a Person or the Business,
any change, effect, event, occurrence or state of facts which would reasonably
be expected to be materially adverse to the business, operations or financial
condition of such Person, and its Subsidiaries, taken as a whole or the
Business, taken as a whole, or on the ability of such Person to consummate the
transactions contemplated by this Agreement and the Ancillary Agreements, other
than any change, effect, event, occurrence or state of facts (a) that is
generally applicable in the economy of the United States, (b) that is generally
applicable in the United States securities markets, (c) generally affecting the
industry in which OMS and (with respect to the Business) the DST Entities
operate, (d) arising from or related to an act of international terrorism, or
(e) relating to the announcement or disclosure of this Agreement and the
transactions contemplated hereby.
"MATERIAL EMPLOYMENT AGREEMENT" means an Employment Agreement that requires
the payment of cash compensation in excess of $100,000 per year or in excess of
$250,000 in the aggregate.
"MULTIEMPLOYER PLAN" means any "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
"OMS COMMON STOCK" means the common stock, par value $0.01 per share, of
OMS.
"OMS SHARES" means all of the issued and outstanding shares of OMS Common
Stock.
"ORDINARY COURSE OF BUSINESS" means, with respect to the Business or OMS,
actions that (a) are consistent with the past practices of such Business within
the preceding twenty-four months, or (b) are similar in nature, style and
magnitude to actions customarily taken in the ordinary course of the normal
day-to-day operations of such Business.
"PERMITTED ENCUMBRANCES" means (a) Encumbrances for Taxes or other
assessments or charges by Governmental Authorities that arise by operation of
Law and are not yet due and payable, or that are being contested in good faith
by appropriate proceedings; (b) mechanics', carriers', workers', materialmen's,
warehousemen's and similar liens arising or incurred in the Ordinary Course of
Business for (i) sums not due and payable, or (ii) payments which are being
contested in good faith by appropriate proceedings, which proceedings as of the
date hereof are disclosed in Section 4.20 of DST's Disclosure Schedule; (c)
other than with respect to Real Property, Encumbrances arising in the Ordinary
Course of Business of the Business that do not and would not reasonably be
expected to impair the continued use or operation of such assets substantially
as such assets are currently used or operated, and (d) Encumbrances disclosed in
Section 4.12.1 of DST's Disclosure Schedule.
"PERSON" means an individual, partnership, corporation, limited liability
company, joint stock company, unincorporated organization or association, trust
or joint venture, or a Governmental Authority.
"PLAN" means any Employee Benefit Plan other than a Multiemployer Plan.
"REAL PROPERTY" means, collectively, Leased Real Property and any real
property to be leased pursuant to a sublease from DST or any of its Affiliates
(other than OMS).
"REAL PROPERTY LEASE" means the lease or sublease agreement pursuant to
which a Leased Real Property is leased or subleased to OMS or any of the DST
Entities (with respect to the Business).
"REGULATED SUBSTANCES" means any substance which is listed, defined or
regulated as a pollutant, contaminant, hazardous, dangerous or toxic substance,
material or waste, or is otherwise classified as hazardous, dangerous or toxic
in or pursuant to any Environmental Law or which is or contains any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products (including waste
petroleum and petroleum products) as regulated under any applicable
Environmental Law.
"RELEASE" means any release, spill, emission, discharge, leaking, pumping,
injection, deposit, disposal, dispersal, leaching or migration into the indoor
or outdoor environment (including ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Regulated Substances through or in the air, soil, surface water,
groundwater or property.
"REQUIRED CONSENTS" means, collectively, (a) each consent or novation with
respect to any Contract to which DST or any of its Subsidiaries is a party or by
which any of their respective assets are bound required to be obtained from the
other parties thereto by virtue of the execution and delivery of this Agreement
or the Ancillary Agreements or the consummation of the transactions contemplated
hereby or thereby in order to avoid the invalidity of the transfer of such
Contract, the termination or acceleration thereof, giving rise to any obligation
to make a payment thereunder or to any increased, additional or guaranteed
rights of any person thereunder, a breach or default thereunder or any other
change or modification to the terms thereof, and (b) each registration, filing,
application, notice, transfer, consent, approval, order, qualification and
waiver required from any third party or Governmental Authority by virtue of the
execution and delivery of this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby.
"RETAINED BUSINESS" means the business currently conducted by DST and its
Subsidiaries other than the Business.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
"SUBSIDIARIES" of any entity means, at any date, any Person (a) the
accounts of which would be consolidated with those of the applicable entity in
such entity's consolidated financial statements if such financial statements
were prepared in accordance with GAAP as of such date, or (b) of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership,
more than 50% of the general partnership interests or more than 50% of the
profits or losses of which are, as of such date, owned, controlled or held by
the applicable entity or one or more subsidiaries of such entity.
"TAX" means any United States federal, state, local or foreign taxes,
including but not limited to any income, gross receipts, payroll, employment,
excise, severance, stamp, business, premium, windfall profits, environmental
(including taxes under section 59A of the Code), capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, service, service use, lease, lease
use, transfer, registration, value added tax, or similar tax, any alternative or
add-on minimum tax, and any estimated tax, in each case, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX BENEFIT" means the Tax effect of any item of loss, deduction or credit
or any other item (including increases in Tax basis) which decreases Taxes paid
or required to be paid, including any interest with respect thereto or interest
that would have been payable but for such item.
"TAX RETURNS" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of Taxes.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement to be entered into
by and among DST, Janus and OMS as of the Closing, substantially in the form
previously agreed to by the parties hereto.
"TAXING AUTHORITY" means any Governmental Authority having jurisdiction
over the assessment, determination, collection or other imposition of Taxes.
"WARN ACT" means the Worker Adjustment and Retraining Notification Act and
any similar state or local law of any jurisdiction in the United States of
America.
Section 1.2 TERMS DEFINED IN OTHER SECTIONS. The following terms are
defined elsewhere in this Agreement in the following Sections:
Accounting Firm Section 2.5(d)
Adjusted Shareholder's Equity Section 2.5(c)
Agreement Preamble
Antitrust Laws Section 6.7.2
Business Assets Section 3.2.1
Business Financial Statements Section 4.18.1
Business Liabilities Section 3.2.3
Business Products and Services Exhibit A
Business Records Section 6.12.2
Claim Dispute Notice Section 10.5.4
Closing Section 2.2
Closing Date Section 2.2
Closing Date Balance Sheet Section 2.5(a)
Collective Bargaining Agreement Section 4.17.1
Conditions Satisfaction Date Section 2.2
Confidential Information Section 6.12.1
Damages Section 10.4
Dispute Accountants Section 2.5(d)
Dispute Notice Section 2.5(C)
DST Preamble
DST Basket Section 10.2.2
DST Cap Section 10.2.2
[***] Exhibit A
DST Options Section 6.14
DST Proxy Statement Section 6.1.1
DST Stockholder Approval Section 4.3
DST Stockholders Meeting Section 6.2
DST's knowledge Section 11.14
Exchange Section 2.1
Exchange Act Section 4.5
Excluded Assets Section 3.2.2
Excluded Liabilities Section 3.2.4
Final Closing Date Balance Sheet Section 2.5(c)
Financing Section 6.26
HSR Act Section 4.4.4
IAB Subsidiaries Section 6.22
Indemnity Claim Section 10.5.1
Intellectual Property Section 4.11.5.1
Intercompany Arrangement Section 4.21
Interim Business Financial Statements Section 4.18.2
Janus Preamble
Janus Basket Section 10.3.2
Janus Cap Section 10.3.2
Janus' knowledge Section 11.14
Licensed Intellectual Property Section 4.11.2
[***] Section 6.17.1
Non-OMS Business Assets Section 3.2.1
Non-OMS Business Liabilities Section 3.2.3
Notice of Claim Section 10.5.1
OMS Preamble
[***] Exhibit A
OMS Intellectual Property Section 4.11.2
Owned Intellectual Property Section 4.11.1
Permits Section 4.19.1
Records Section 6.12.2
Reorganization Section 3.1
Representatives Section 10.2.1
Required Vote Section 4.7
Restrictions Section 6.13.1
Share Limit Section 6.25.1
Technology Section 4.11.5.2
Third Party Claim Section 10.6.1
Waiving Parties Section 6.23
Section 1.3 INTERPRETATION. Unless otherwise indicated to the contrary in
this Agreement by the context or use thereof: (a) the words, "herein," "hereto,"
"hereof" and words of similar import refer to this Agreement as a whole and not
to any particular Section or paragraph hereof; (b) words importing the masculine
gender shall also include the feminine and neutral genders, and vice versa; (c)
words importing the singular shall also include the plural, and vice versa; and
(d) the word "including" means "including without limitation."
ARTICLE II.
EXCHANGE OF STOCK; CLOSING; CONSIDERATION ADJUSTMENT
Section 2.1 EXCHANGE OF STOCK. Upon the terms and subject to the conditions
of this Agreement, at the Closing, (a) DST shall assign, transfer, convey and
deliver to Janus and Janus shall accept and acquire from DST, all of the OMS
Shares (free and clear of all Encumbrances) in exchange for the Janus DST
Shares, and (b) Janus shall assign, transfer, convey and deliver to DST, and DST
shall accept and acquire from Janus, the Janus DST Shares (free and clear of all
Encumbrances) in exchange for the OMS Shares (collectively, the "EXCHANGE").
Section 2.2 CLOSING. The closing of the Exchange and the other transactions
contemplated hereby (the "CLOSING") shall take place at the offices of
Sonnenschein Nath & Rosenthal LLP, Suite 1100, 4520 Main Street, Kansas City, MO
64111 at 10:00 A.M. on the third Business Day following the Conditions
Satisfaction Date (as defined below), or at such other time and place as is
mutually agreed in writing by Janus and DST. The date of the Closing is referred
to herein as the "CLOSING DATE." For purposes of this Agreement, the "CONDITIONS
SATISFACTION DATE" shall be the date on which the last of the unsatisfied or
unwaived conditions set forth in Article VIII has been satisfied or waived
(other than those conditions contemplated to be satisfied at, or only capable of
being satisfied at, the Closing, but subject to the satisfaction or waiver of
those conditions).
Section 2.3 DST'S DELIVERIES AT THE CLOSING. At the Closing, DST shall
deliver or cause to be delivered to Janus the following:
2.3.1 one or more stock certificates, together with stock powers
executed in blank, representing all of the issued and outstanding capital stock
of OMS;
2.3.2 the Cash Amount, by wire transfer to an account of OMS;
2.3.3 copies of those portions of the stock books, stock ledgers
and minute books of DST and the DST Entities which relate to the Business and
the stock books, stock ledgers and minute books of OMS;
2.3.4 certified copies of resolutions, duly adopted by the Board of
Directors of DST, OMS and the Affiliates of DST who are to be parties to the
Ancillary Agreements, respectively, which shall be in full force and effect at
the time of the Closing authorizing the execution and delivery and performance
by DST, OMS and such DST Affiliates, respectively, of this Agreement and the
applicable Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby;
2.3.5 a certificate of the Chief Executive Officer or Chief
Financial Officer of DST pursuant to Sections 8.2.1 and 8.2.2 hereof;
2.3.6 each of the Ancillary Agreements, executed by DST and its
respective Affiliates, as the case may be;
2.3.7 any written releases and waivers of the Restrictions obtained
by DST pursuant to Section 6.13.1;
2.3.8 letters of resignation, dated as of the Closing Date, from
each of the directors and officers of OMS identified by Janus to DST at least
three (3) days prior to the Closing Date;
2.3.9 the certificates of merger of OMS following the mergers
contemplated by the Reorganization; and
2.3.10 such other documents as are reasonably required by Janus to
be delivered to effectuate the transactions contemplated hereby.
Section 2.4 JANUS' DELIVERIES AT THE CLOSING. At the Closing, Janus shall
deliver or cause to be delivered to DST the following:
2.4.1 one or more stock certificates, together with stock powers
executed in blank, representing the Janus DST Shares;
2.4.2 certified copies of resolutions, duly adopted by the Board of
Directors of Janus which shall be in full force and effect at the time of the
Closing authorizing the execution and delivery and performance by Janus of this
Agreement and the applicable Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby;
2.4.3 each of the Ancillary Agreements to which Janus is a party,
executed by it;
2.4.4 a certificate of the Chief Executive Officer or Chief
Financial Officer of Janus pursuant to Section 8.3.1 and 8.3.2 hereof; and
2.4.5 such other documents as are reasonably required by DST to be
delivered to effectuate the transactions contemplated hereby.
Each document of transfer or assumption referred to in this Article II (or in
any related definition set forth in Article I) that is not attached as an
Exhibit to this Agreement or is not otherwise an Ancillary Agreement shall be in
customary form and shall be reasonably satisfactory in form and substance to the
parties thereto, but shall contain no representations, warranties, covenants and
agreements other than those specifically contemplated by this Agreement.
Section 2.5 POST-CLOSING ADJUSTMENTS.
(a) Within thirty (30) days after the Closing Date, DST shall deliver to
Janus an unaudited balance sheet of OMS dated as of the Closing Date (the
"CLOSING DATE BALANCE SHEET") prepared on a basis consistent with the unaudited
Interim Business Financial Statements. Janus and its representatives and
accountants shall have the right to participate in and observe the process of
the preparation of the Closing Date Balance Sheet, and such access as they may
reasonably request to any books, records, work papers or other information.
(b) In the event that the Adjusted Shareholder's Equity reflected on the
Closing Date Balance Sheet is less than $12 million, DST shall pay to OMS on a
dollar-for-dollar basis, by wire transfer of immediately available funds, the
amount necessary to achieve Adjusted Shareholder's Equity of $13 million as of
the Closing Date. In the event the Adjusted Shareholder's Equity reflected on
the Closing Date Balance Sheet is greater than $14 million, Janus shall cause
OMS to pay to DST, on a dollar-for-dollar basis, by wire transfer of immediately
available funds, the amount necessary to reduce Adjusted Shareholder's Equity to
$13 million as of the Closing Date. As used herein, the term "ADJUSTED
SHAREHOLDER'S EQUITY" shall mean total shareholder's equity of OMS as of the
Closing Date less the Additional Assets. Any payments required pursuant to this
subparagraph (b) shall be made within thirty (30) days following the receipt by
Janus of the Closing Date Balance Sheet, unless a Dispute Notice (defined below)
is delivered.
(c) If, within thirty (30) calendar days after the date of receipt by Janus
of the Closing Date Balance Sheet, Janus disputes the amount of Adjusted
Shareholder's Equity reflected therein, Janus will give written notice to DST
within such thirty (30) calendar day period specifying in reasonable detail
Janus's basis for its dispute (a "DISPUTE NOTICE"). In the event that Janus
notifies DST in writing that it has accepted the Closing Date Balance Sheet, or
in the event that Janus does not issue a Dispute Notice within thirty (30)
calendar days of receipt of the Closing Date Balance Sheet, then the Closing
Date Balance Sheet shall become the Final Closing Date Balance Sheet (the "FINAL
CLOSING DATE BALANCE SHEET").
(d) If Janus submits a Dispute Notice to DST within such 30-day period, DST
and Janus shall work together in good faith to seek to resolve the dispute over
the correct amount of Adjusted Shareholder's Equity. If DST and Janus are unable
to resolve their disagreement within 15 calendar days after DST's receipt of a
Dispute Notice from Janus, the dispute shall be referred for determination to a
nationally known firm of independent public accountants (an "ACCOUNTING FIRM")
mutually selected by DST and Janus (the "DISPUTE ACCOUNTANTS") as promptly as
practicable. In the event that DST and Janus are unable to agree on the Dispute
Accountants, then the Parties agree to retain KPMG LLP. The Dispute Accountants
will make a determination as to the correct amount of Adjusted Shareholder's
Equity, which determination will be (a) in writing, (b) furnished to each of DST
and Janus as promptly as practicable after the dispute has been referred to the
Dispute Accountants, (c) made in accordance with this Agreement, and (d)
conclusive and binding. DST and Janus will use reasonable commercial efforts to
cause the Dispute Accountants to render their decision within thirty (30) days
of submitting such dispute and shall promptly comply with all reasonable written
requests for information, books, records and similar items. Neither party will
disclose to the Dispute Accountants, and the Dispute Accountants will not
consider for any purpose, any settlement offer made by either party. As part of
the resolution of all outstanding disputes, the Parties will cause the Dispute
Accountants to prepare the Final Closing Date Balance Sheet. Any payments
required upon the determination by the Dispute Accountants shall be made within
ten (10) days following such determination.
(e) Janus shall pay the fees and expenses charged by any Dispute Accountant
retained hereunder, unless any payment required to be made by DST pursuant to
this Section 2.5 is greater than $500,000, in which case DST shall pay such fees
and expenses.
ARTICLE III.
REORGANIZATION
Section 3.1 REORGANIZATION. DST agrees that, prior to the Closing, DST
shall, and shall cause its respective Subsidiaries to, assign, transfer, convey
and deliver to OMS, the Non-OMS Business Assets, the Additional Assets and the
Non-OMS Business Liabilities (the "REORGANIZATION"), and in exchange therefore,
OMS shall (i) accept, assume and agree to pay, perform or otherwise discharge,
in accordance with the respective terms and subject to the respective conditions
thereof, the Non-OMS Business Liabilities.
Section 3.2 ASSETS AND LIABILITIES.
3.2.1 BUSINESS ASSETS. For purposes of this Agreement, "BUSINESS
ASSETS" means all of the assets, properties, rights, agreements and other
interests identified in Section 3.2.1 of DST's Disclosure Schedule. "NON-OMS
BUSINESS ASSETS" means all of the Business Assets other than those Business
Assets owned by OMS both prior to the Reorganization and as of the Closing. For
the avoidance of doubt, "BUSINESS ASSETS" shall not include the Additional
Assets.
3.2.2 EXCLUDED ASSETS. Notwithstanding anything in this Agreement
to the contrary, it is hereby acknowledged and agreed that Janus shall not
directly or indirectly acquire or accept from DST or any of its Affiliates, any
assets, rights, properties, agreements or other interests which are not
described or referred to in Section 3.2.1 or Section 3.2.1 of DST's Disclosure
Schedule (such rights, properties, agreements and assets being referred to
herein, collectively, as the "EXCLUDED Assets").
3.2.3 BUSINESS LIABILITIES. For purposes of this Agreement, the
term "BUSINESS LIABILITIES" means all Liabilities (other than the Excluded
Liabilities) to the extent related to the Business or the Business Assets.
"NON-OMS BUSINESS LIABILITIES" means all of the Business Liabilities other than
those Business Liabilities already owed or assumed by OMS both prior to the
Reorganization and as of the Closing.
3.2.4 EXCLUDED LIABILITIES. Notwithstanding anything in this
Agreement to the contrary, it is hereby acknowledged and agreed that Janus shall
not directly or indirectly assume or be obligated to pay, perform or otherwise
assume or discharge any Liabilities of DST or any of its Affiliates (including
OMS), which are set forth in Section 3.2.4 of DST's Disclosure Schedule or which
do not relate more closely to the Business than to the businesses of DST other
than the Business (except to the extent of any such Liabilities that are
reflected in the Closing Date Balance Sheet and are comparable in nature and
amount to those reflected in the Business Financial Statement for December 31,
2002) (such Liabilities being referred to herein, collectively, as the "EXCLUDED
LIABILITIES").
3.2.5 TAXES. For purposes of this Agreement, Taxes shall not be a
Business Liability or an Excluded Liability, and refunds or credits from Taxes
shall not be a Business Asset or Excluded Asset. Liabilities, refunds and
credits with respect to Taxes shall be governed by and allocated in accordance
with the Tax Sharing Agreement.
3.2.6 INSURANCE.
3.2.6.1 If the Business or any Business Asset shall suffer any
damage, destruction or loss after the date hereof, but before the Closing, and
such Business or Business Asset and the related casualty are covered by any
insurance policy maintained by DST or any of its Affiliates, then DST shall as
soon as practicable repair, restore or replace such Business Asset, or if time
does not permit so repairing, restoring or replacing, pay to OMS in cash at the
Closing, the amount of the proceeds from such policy covering such damage,
destruction or loss provided, that no payment shall be required pursuant to this
Section 3.2.6.1 to the extent that the damage, destruction or loss to the
Business or the Business Asset is reflected in the Final Closing Balance Sheet.
3.2.6.2 If the Business or any Business Asset shall incur any
Business Liability following the date hereof, which arises out of or relates to
actions or operations of the Business or such Business Asset prior to the
Closing and for which DST or any of its Affiliates is entitled to receive
reimbursement under any insurance policy, DST shall promptly notify Janus, and
at Janus' request use its reasonable commercial efforts to pursue such claim or,
at DST's discretion, assign and transfer all right of recovery under such claim
to OMS, if such claim is assignable and transferable, and pay to OMS any
recoveries or other payments received by DST or any of its Affiliates from
insurance companies to the extent related to the Business Liability; provided
that OMS agrees to pay reasonable expenses in either pursuing such claim or
transferring such claim; provided, further that such Business Liability shall
not be reflected on the Final Closing Balance Sheet.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF DST
DST hereby represents and warrants to Janus as follows (it being understood
and agreed that, with respect to any DST Entity not in existence as of the date
hereof or ceasing to exist after the date hereof, these representations and
warranties are made only with respect to the period of existence of such DST
Entity):
Section 4.1 ORGANIZATION AND STANDING.
4.1.1 Each of DST, the DST Entities and OMS is (a) a corporation,
limited liability company or other legal entity duly organized, validly existing
and duly qualified or licensed and in good standing under the Laws of the state
or jurisdiction of its organization with full corporate or other power, as the
case may be, and authority to own, lease, use and operate its properties and to
conduct its business, and (b) duly qualified or licensed to do business and, to
the extent applicable, is in good standing in any other jurisdiction in which
the nature of the business conducted by it or the property it owns, leases, uses
or operates requires it to so qualify, be licensed or be in good standing,
except where the failure to be so qualified, licensed or in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on the
Business or OMS. DST has furnished or made available to Janus a complete and
correct copy of the certificate of incorporation and by-laws (or other
comparable organizational documents) for DST, each of the DST Entities in
existence on the date hereof and OMS, each as in effect on the date hereof.
Section 4.1.1 of DST's Disclosure Schedule sets forth a list, correct and
complete, of the DST Entities as of the date of this Agreement.
4.1.2 To DST's knowledge, neither OMS nor any DST Entity has
conducted the Business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name, other
than the names set forth in Section 4.1.1 of DST's Disclosure Schedule.
Section 4.2 CAPITALIZATION OF OMS.
4.2.1 As of the Closing, OMS's authorized capital stock will
consist of one hundred (100) shares of OMS Common Stock. DST will, as of the
Closing, own all of the issued and outstanding shares of OMS beneficially and of
record, free and clear of any Encumbrances. There will, as of the Closing, be no
shares of capital stock of OMS issued or outstanding other than the OMS Shares.
As of the Closing, DST shall have the sole, absolute and unrestricted right,
power and capacity to exchange, assign and transfer all of the OMS Shares to
Janus. Upon delivery to Janus of the certificates representing the OMS Shares at
the Closing, Janus will acquire good and valid title to such shares, free and
clear of any Encumbrances other than Encumbrances created by Janus or any of its
Subsidiaries.
4.2.2 As of the Closing, all of the OMS Shares shall be duly
authorized, validly issued, fully paid and nonassessable, and not issued in
violation of any preemptive or similar rights. As of the Closing, there shall be
no outstanding subscriptions, options, warrants, puts, calls, agreements or
other rights of any type or other securities (a) requiring the issuance, sale,
transfer, repurchase, redemption or other acquisition of any shares of capital
stock of OMS, (b) restricting the transfer of any shares of capital stock of
OMS, or (c) relating to the voting of any shares of capital stock of OMS. As of
the Closing, there shall be no issued or outstanding bonds, debentures, notes or
other indebtedness of OMS having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote), upon the happening of a
certain event or otherwise, on any matters on which the equity holders of OMS
may vote.
4.2.3 As of the Closing, OMS shall not be in material default or
violation (and no event shall have occurred which, with notice or the lapse of
time or both, would constitute such a default or violation) of any term,
condition or provision of its certificate of incorporation or bylaws.
4.2.4 Except for the ownership interests set forth in Section 4.2.4
of DST's Disclosure Schedule, as of the Closing, OMS shall not own, directly or
indirectly, nor have entered into any agreement, arrangement or understanding to
purchase or sell any capital stock or other equity interests in any Person or is
a member of or participant in any Person. As of the Closing, OMS will not have
any Subsidiaries.
Section 4.3 CORPORATE POWER AND AUTHORITY. Each of DST and OMS has all
requisite corporate power and authority to enter into and deliver this Agreement
and to consummate the transactions contemplated hereby. DST and each of its
Affiliates which will be a party to the Ancillary Agreements have all requisite
corporate or other power, as the case may be, and authority to execute and
deliver the Ancillary Agreements and the other agreements, documents and
instruments to be executed and delivered by it in connection with this Agreement
or the Ancillary Agreements and to consummate the transactions contemplated
thereby. The execution, delivery and performance of this Agreement by DST and
OMS and the consummation by each of them of the transactions contemplated
hereby, and the execution, delivery and performance of the Ancillary Agreements
and the other agreements, documents and instruments to be executed and delivered
in connection with this Agreement or the Ancillary Agreements by DST and each of
its Affiliates which is a party thereto and the consummation of the transactions
contemplated thereby, have been duly authorized by all necessary action on the
part of each such Person and, except for obtaining the approval of the
stockholders of DST of this Agreement and the transactions contemplated hereby
by the Required Vote (the "DST STOCKHOLDER APPROVAL"), no other corporate action
or corporate proceeding on the part of DST or OMS is necessary to authorize the
execution, delivery and performance by DST and OMS of this Agreement and the
consummation by each of them of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by DST and OMS and constitutes
the legal, valid and binding obligation of DST and OMS, enforceable against DST
and OMS in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally,
including the effect of statutory and other laws regarding fraudulent
conveyances and preferential transfers and subject to the limitations imposed by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding at law or in equity). The Ancillary Agreements and
the other agreements, documents and instruments to be executed and delivered in
connection with this Agreement or the Ancillary Agreements at the Closing will
be duly executed and delivered by DST and its Affiliates which are a party
thereto and will constitute the legal, valid and binding obligations of DST and
such Affiliates which are a party thereto, enforceable against each such Person
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally, including the effect of statutory and other laws regarding fraudulent
conveyances and preferential transfers and subject to the limitations imposed by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
Section 4.4 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and
delivery by DST, OMS or any of their respective Affiliates of this Agreement,
the Ancillary Agreements and the other agreements, documents and instruments to
be executed and delivered by any of them in connection with this Agreement and
the Ancillary Agreements, nor the consummation of the transactions contemplated
hereby and thereby, will:
4.4.1 conflict with, or result in a breach of any provision of, the
organizational documents of (a) DST, (b) OMS, or (c) any Affiliate of DST which
is a party to the Ancillary Agreements or any other agreements and instruments
to be executed and delivered in connection therewith;
4.4.2 violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event that, with the giving of
notice, the passage of time or otherwise, would constitute a default) under, or
entitle any Person (with the giving of notice, the passage of time or otherwise)
to terminate, accelerate, modify or call a default under, or give rise to any
obligation to make a payment under, or to any increased, additional or
guaranteed rights of any Person under, or result in the creation of any
Encumbrance upon any of the properties or assets of the Business or the OMS
Shares under any of the terms, conditions or provisions of (a) the
organizational documents of DST, the DST Entities or OMS, (b) any Contract to
which DST, the DST Entities (with respect to the Business) or OMS is a party or
to which any of their respective properties or assets (including the Business
Assets) may be bound which, if so affected, would either have a Material Adverse
Effect on the Business or be reasonably likely to prevent the consummation of
the transactions contemplated herein, or (c) any permit, registration, approval,
license or other authorization or filing to which DST, the DST Entities (with
respect to the Business) or OMS is subject or to which any of their respective
properties or assets (including the Business Assets) may be subject;
4.4.3 require any action, consent or approval of any
non-governmental third party, except for the DST Stockholder Approval and the
Credit Facilities Consents;
4.4.4 violate any order, writ, or injunction, or any material
decree, or material Law applicable to DST, the DST Entities, OMS or any
Affiliate of DST which is a party to the Ancillary Agreements or any of their
respective properties or assets (including the Business Assets) or to the
Business; or
4.4.5 require any action, consent or approval of, or review by, or
registration or filing by DST, the DST Entities, OMS or any DST Affiliate which
is a party to the Ancillary Agreements with, any Governmental Authority, other
than (a) actions required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), and (b) actions required to obtain the DST
Stockholder Approval, including the filing of the DST Proxy Statement;
except as disclosed in Section 4.4 of the DST's Disclosure Schedule and except
in the case of Sections 4.4.2 (b) or (c), and Section 4.4.3 for any items (other
than Encumbrances upon any of the properties or assets of the Business (except
for Permitted Encumbrances) or upon the OMS Shares or Additional Assets) that
would not, individually or in the aggregate, result in a Material Adverse Effect
on the Business or materially impair the ability of DST or OMS to timely
consummate the transactions contemplated hereby.
Section 4.5 PROXY STATEMENT. The DST Proxy Statement will comply as to form
in all material respects with the requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), except that no representation is made by
DST with respect to statements made therein based on information supplied in
writing by Janus specifically for inclusion in the DST Proxy Statement. For
purposes of this Agreement, the parties hereto agree that statements made and
information in the DST Proxy Statement relating to the U.S. federal income tax
consequences of the transactions herein contemplated to holders of DST common
stock shall be deemed to be supplied by DST and not by Janus.
Section 4.6 BOARD APPROVAL. The Board of Directors of DST, by resolutions
duly adopted, including approval by a majority of the "Disinterested Directors"
(as defined in DST's Certificate of Incorporation) and not subsequently
rescinded or modified in any way, has duly (a) determined that the transactions
contemplated by this Agreement and the Ancillary Agreements are fair to and in
the best interests of DST and its stockholders, (b) approved this Agreement and
the Ancillary Agreements and (c) determined to recommend to the stockholders of
DST that such stockholders approve this Agreement and the transactions
contemplated by this Agreement.
Section 4.7 REQUIRED VOTE. The affirmative vote of the holders of a
majority of the outstanding shares of common stock of DST is the only vote of
the holders of any class of capital stock of DST necessary to approve the
transactions contemplated by this Agreement (the "REQUIRED VOTE").
Section 4.8 NO MATERIAL ADVERSE EFFECT. Except as expressly contemplated by
this Agreement (including with respect to the Reorganization) or as disclosed in
Section 4.8 of DST's Disclosure Schedule, since December 31, 2002, to the
knowledge of DST, (a) OMS and the DST Entities have (i) operated the Business
only in the Ordinary Course of Business, (ii) maintained their books and records
in accordance with past accounting practice, and (iii) used all reasonable
commercial efforts to preserve intact the assets and the business organization
and operations of the Business, to keep available the services of its employees
and to preserve its relationships with customers, suppliers, licensors,
licensees, contractors and other persons with whom the Business or any of the
DST Entities or OMS have business relations, (b) no Material Adverse Effect on
the Business or OMS has occurred, and (c) there has been no event, occurrence or
development that has had, or would reasonably be expected to have, a material
adverse effect on the ability of DST or OMS to timely consummate the
transactions contemplated hereby. Without limiting the generality of the
foregoing, since December 31, 2002, except as expressly contemplated by this
Agreement (including with respect to the Reorganization), the DST Entities and
OMS have not taken any action that if taken on or after the date hereof, would
constitute a breach of Section 6.4.
Section 4.9 TAXES. OMS (and, to the extent relating to the Business or OMS,
DST, each of the DST Entities and each consolidated, combined or unitary Tax
group of which OMS, DST or any DST Entity is or was a member) has (i) duly and
timely filed all Tax Returns relating to the Business or OMS that it was
required to file (taking into account any extensions of the filing deadlines
which have been validly granted) and (ii) paid all Taxes that are shown thereon
as owing or that are otherwise due and payable by it. Such filed Tax Returns are
true, correct and complete in all material respects. The charges, accruals and
reserves on the Business Financial Statements as of December 31, 2002 in respect
of Taxes for all open fiscal periods are adequate for the payment of all
liabilities of OMS (and of DST and the DST Entities to the extent relating to
the Business) for Taxes, and DST knows of no unpaid assessments for additional
Taxes for any such fiscal period, which are not reflected on the Business
Financial Statements as of December 31, 2002. Except as set forth in Section 4.9
of DST's Disclosure Schedule, any deficiencies proposed with respect to OMS or
the Business as a result of any governmental audits of Tax Returns have been
paid or fully settled, and there are no disputes pending or threatened as to
Taxes payable by OMS or with respect to the Business. Except as set forth in
Section 4.9 of DST's Disclosure Schedule, there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Taxes of
OMS (or of DST or the DST Entities to the extent relating to the Business) for
any period. Except as set forth in Section 4.9 of DST's Disclosure Schedule,
none of OMS, DST or the DST Entities to the extent relating to the Business (i)
has filed a consent to the application of Section 341(f) of the Code, (ii) has
been a "distributing corporation" or a "controlled corporation" in a
distribution intended to qualify under Section 355(a) of the Code within the
past five years, (iii) is a party to any Tax sharing, allocation or
indemnification agreement or arrangement, (iv) is required to make any
adjustments under Section 481(a) of the Code (or any similar provision of state,
local or foreign Tax law) for any taxable year ending after the Closing Date or
(v) has been a member of an affiliated group filing a consolidated, combined or
unitary Tax Return (other than the affiliated group of which DST is the common
parent) or has any liability for the Taxes of any Person (other than OMS and the
DST Entities) under Treasury Regulation ss. 1.1502-6 (or any similar provision
of state, local or foreign law).
Section 4.10 COMPLIANCE WITH LAW. Except as set forth in Section 4.10 of
DST's Disclosure Schedule, to the knowledge of DST, OMS, DST and each of the DST
Entities and each of the officers, directors, employees and agents of OMS, DST
and of the DST Entities has with respect to the Business complied in all
material respects with all Laws applicable to the Business and OMS. Except as
set forth in Section 4.10 of DST's Disclosure Schedule, none of DST, OMS or any
of the DST Entities has received any notice from any Governmental Authority that
the Business or OMS or any DST Entity (with respect to the Business) or any of
the Business Assets, Additional Assets or Business Liabilities has been or is
being conducted in violation of any applicable Law or that an investigation or
inquiry into any noncompliance with any applicable Law is ongoing, pending or,
to DST's knowledge, threatened.
Section 4.11 INTELLECTUAL PROPERTY.
4.11.1 Section 4.11.1 of DST's Disclosure Schedule sets forth a
list that includes all material Intellectual Property (as defined in Section
4.11.5), which as of the Closing will be owned by, registered or filed in the
name of, OMS (all such Intellectual Property is referred to in this Agreement as
the "OWNED INTELLECTUAL PROPERTY"). With respect to the Owned Intellectual
Property that is registered or subject to an application for registration,
Section 4.11.1 of DST's Disclosure Schedule sets forth a list that includes the
jurisdictions where such Owned Intellectual Property is registered or where
applications have been filed, and all registration numbers. Except as set forth
in the Ancillary Agreements or in Section 4.11.1 of DST's Disclosure Schedule,
as of the Closing, OMS will be the sole owner of the Owned Intellectual
Property, free and clear of all Encumbrances other than Permitted Encumbrances,
and will have the right to use and sublicense, without payment to any other
person, all such Owned Intellectual Property. As of the Closing, to DST's
knowledge, OMS will own its Technology free and clear of all Encumbrances other
than Permitted Encumbrances.
4.11.2 Section 4.11.1 of DST's Disclosure Schedule also sets forth
a list that includes all licenses of Intellectual Property to the DST Entities
(with respect to the Business) or OMS (such Intellectual Property is referred to
in this Agreement as the "LICENSED INTELLECTUAL PROPERTY," and together with the
Owned Intellectual Property, the "OMS INTELLECTUAL Property"). Except as set
forth in Section 4.11.1 of DST's Disclosure Schedule, no material license
relating to any OMS Intellectual Property or any Technology (as defined in
Section 4.11.5) has been granted, except as provided in the Ancillary
Agreements, customer agreements and nonexclusive licenses to end-users in the
Ordinary Course of Business. None of the DST Entities (with respect to the
Business) or OMS is bound by or a party to any option, license or similar
Contract relating to any Intellectual Property of any other person for the use
of such Intellectual Property in the conduct of its business, except as set
forth in Section 4.11.1 of DST's Disclosure Schedule, and except for license
agreements relating to computer software licensed to OMS or to DST or a DST
Affiliate for the nonexclusive benefit of OMS in the Ordinary Course of
Business. Except as set forth in Section 4.11.1 of DST's Disclosure Schedule, no
claims are pending or, to the knowledge of DST, threatened, as of the date of
this Agreement against the DST Entities (with respect to the Business) or OMS by
any person claiming infringement by such DST Entity (with respect to the
Business) or OMS of a proprietary right of such person in any Intellectual
Property or Technology.
4.11.3 The DST Entities (with respect to the Business) or OMS have
paid all fees required to be paid, and have made all renewals required to be
made, for the maintenance of their proprietary rights in the Owned Intellectual
Property that is necessary for the conduct of the Business as currently
conducted, except that neither the DST Entities, nor OMS have submitted patent
applications or trademark or copyright applications for any Intellectual
Property or Technology other than as described in Section 4.11.1 of DST's
Disclosure Schedule.
4.11.4 To the knowledge of DST, as of date hereof, no third party
is infringing in any material respect a proprietary right of the DST Entities
(with respect to the Business) or OMS in any Owned Intellectual Property or
Technology of the DST Entities (with respect to the Business) or OMS.
4.11.5 In this Agreement:
4.11.5.1 "INTELLECTUAL PROPERTY" means any patent (including all
reissues, divisions, continuations and extensions thereof), patent application,
trademarks, trademark registrations, trademark applications, service marks,
service mark registrations, service mark applications, copyright registrations,
copyright applications and all rights in Internet domain name registrations and
Internet protocol addresses.
4.11.5.2 "TECHNOLOGY" means any trade secrets, inventions,
know-how, formulae, customer lists, software, manufacturing information and data
in whatever form, applications, use and maintenance information and technical
specifications and plans for products, procedures and processes other than
Confidential Business Information.
Section 4.12 TITLE TO ASSETS; CONDITION AND SUFFICIENCY OF ASSETS.
4.12.1 As of the Closing, OMS shall have good and valid title to,
or a valid and binding leasehold interest or license, or its reasonable
equivalent outside of the United States, (subject to the terms of the relevant
lease or license) in, the Business Assets free and clear of any Encumbrances
other than and subject to Permitted Encumbrances, except as disclosed in Section
4.12.1 of DST's Disclosure Schedule, and the Additional Assets, free and clear
of any Encumbrances.
4.12.2 Except as disclosed in Section 4.12.2 of DST's Disclosure
Schedule, the Business Assets, the Business Contracts, the Leased Real Property,
the OMS Intellectual Property, the Business Records, the Confidential Business
Information of the Business, the Technology of the Business, together with the
Ancillary Agreements, and the Business Employees constitute, and upon
consummation of the transactions contemplated hereby will constitute, all of the
rights, assets, properties and interests which are necessary and sufficient for
the continued operation and conduct of the Business as the Business is currently
being operated and conducted.
Section 4.13 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.13 of
DST's Disclosure Schedule, and except as would not have a Material Adverse
Effect on the Business or OMS, to DST's knowledge:
4.13.1 the Business, the DST Entities (with respect to the
Business), OMS and the Business Assets are in compliance with, and have at all
times complied with, all applicable Environmental Laws, and there are no facts,
circumstances or conditions, including requirements of current Environmental
Laws that have been adopted but are not yet effective, for which reserves or
accruals would be required under GAAP, as consistently applied by DST;
4.13.2 the Business, the DST Entities (with respect to the
Business), OMS and the Business Assets are not subject to any existing, pending,
or threatened Action or Claim by any Person under any Environmental Laws; and
4.13.3 the Environmental Permits that are required for the conduct
of the Business as it is conducted by the DST Entities, OMS and the Business
Assets are valid, in full force and effect and enforceable according to their
terms, no proceeding is pending or threatened, to revoke, modify or terminate
such permits, and the DST Entities, OMS and the Business Assets are in
compliance with, and have at all times complied with, all such Environmental
Permits.
4.13.4 Section 4.13 of DST's Disclosure Schedule sets forth all
unresolved, material findings from any internal and external environmental
audits and reports (in each case, relevant to the Business, the DST Entities
(with respect to the Business), OMS or any of the Business Assets) known to DST.
Section 4.14 LITIGATION.
4.14.1 There is no material Action pending or threatened in writing
or, to DST's knowledge, otherwise threatened, against DST, OMS or any of the DST
Entities or any executive officer or director thereof in each case that (a)
relates to the Business, the Business Assets, Additional Assets or Business
Liabilities or the DST Entities (with respect to the Business) or OMS or (b) as
of the date hereof, seeks, or could reasonably be expected, to prohibit or
restrain the ability of DST or OMS to enter into this Agreement or to timely
consummate any of the transactions contemplated hereby (including the
Reorganization) or the ability of DST or any of its Affiliates to enter into any
of the Ancillary Agreements to which it is a party or to timely consummate any
of the transactions contemplated thereby and, to the knowledge of DST, there is
no reasonable basis for any such Action.
4.14.2 There is no Action pending that was instituted by OMS, DST
or any of the DST Entities with respect to the Business claiming an amount in
excess of $100,000, and none of OMS, DST or any of the DST Entities has made any
Claim or threatened to make any such Claim or commence any such Action involving
an amount in excess of $100,000.
4.14.3 There are no material judgments, decrees, written
agreements, memoranda of understanding or orders of any Governmental Authority
outstanding against OMS, DST or any of the DST Entities relating to the Business
or any Business Assets, Additional Assets or Business Liabilities which could
reasonably be expected to prevent, prohibit, materially delay or enjoin the
consummation of the transactions contemplated hereby.
Section 4.15 EMPLOYEE BENEFIT PLANS.
4.15.1 As of the Closing, OMS will not sponsor, maintain,
contribute to, or have any Liability under, for or with respect to, any Employee
Benefit Plans (including Multiemployer Plans) or any Employment Agreements,
except as provided under the Ancillary Agreements. From and after the Closing,
Janus or its Subsidiaries or Affiliates will not directly or indirectly have or
incur any Liabilities, whether by virtue of the transactions contemplated by
this Agreement or otherwise, with respect to or in connection with (i) any
Employee Benefit Plans (including Multiemployer Plans) or any Employment
Agreements, except as provided under the Ancillary Agreements; and (ii) the
Business Employees or any other individuals who do or did at any time provide
employment or employment-type services for or with respect to OMS or any of the
DST Entities, which arose or were incurred at any time prior to the Closing.
4.15.2 There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would be a liability
of DST or its ERISA Affiliates following the Closing.
4.15.3 DST, the DST Entities and OMS have no liability for life,
health, medical or other welfare benefits to former employees or beneficiaries
or dependents thereof, except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to DST
or its ERISA Affiliates.
4.15.4 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting,
funding or delivery of, or increase the amount or value of, any payment or
benefit to any employee, officer or director of DST, the DST Entities or OMS, or
result in any limitation on the right of DST, the DST Entities or OMS to amend,
merge, terminate or receive a reversion of assets from any Employee Benefit Plan
or related trust or any Material Employment Agreement or related trust. Without
limiting the generality of the foregoing, no amount paid or payable (whether in
cash, in property, or in the form of benefits) by DST, the DST Entities or OMS
in connection with the transactions contemplated hereby (either solely as a
result thereof or as a result of such transactions in conjunction with any other
event) will be an "excess parachute payment" within the meaning of Section 280G
of the Code.
4.15.5 None of DST or its ERISA Affiliates nor any other person,
including any fiduciary, has engaged in any "prohibited transaction" (as defined
in Section 4975 of the Code or Section 406 of ERISA), which could subject any of
the Employee Benefit Plans or their related trusts, DST or its ERISA Affiliates,
or any person that DST, the DST Entities or OMS has an obligation to indemnify,
to any material tax or penalty imposed under Section 4975 of the Code or Section
502 of ERISA.
4.15.6 There are no pending or threatened claims (other than claims
for benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted, and, to DST's knowledge, no set of circumstances exists
which may reasonably give rise to a claim or lawsuit, against the Plans, any
fiduciaries thereof with respect to their duties to the Plans or the assets of
any of the trusts under any of the Plans which could reasonably be expected to
result in any material liability of DST, the DST Entities or OMS to the Pension
Benefit Guaranty Corporation, the Department of Treasury, the Department of
Labor, any Multiemployer Plan, any Plan, any participant in a Plan, or any other
party.
4.15.7 All Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (i) have been maintained in accordance
with all applicable requirements, (ii) if they are intended to qualify for
special tax treatment meet all requirements for such treatment, and (iii) if
they are intended to be funded and/or book reserved are fully funded and/or book
reserved, as appropriate, based upon reasonable actuarial assumptions.
Section 4.16 CONTRACTS. Section 4.16 of DST's Disclosure Schedule contains
a complete list, as of the date hereof, of all Contracts (other than this
Agreement and the Ancillary Agreements and, except as noted below, Employment
Agreements) to which OMS is, or will be at Closing, a party or bound, or that
otherwise relate to the Business, a Business Asset, an Additional Asset or a
Business Liability, and that fall within any of the following categories:
(a) each customer agreement which involves the receipt or payment
in 2002 or annually thereafter of more than $1,000,000;
(b) each Contract providing for aggregate payment of, or the
performance of services, or delivery of goods or materials with a value of, more
than $1,000,000 in any 12 month period by or to any DST Entity (with respect to
the Business) or OMS;
(c) each Contract providing for the sale, lease or other
disposition of any of the Business Assets other than in the Ordinary Course of
Business;
(d) each Contract for the purchase of any assets in excess of
$1,000,000;
(e) each joint venture or partnership agreement and each Contract
providing for the formation of a joint venture, long-term alliance or
partnership or involving an equity investment by any DST Entity (with respect to
the Business) or OMS;
(f) each Contract (including an Employment Agreement) (a) that by
its express terms affects or limits the freedom in any material way of the
Business, or OMS or the DST Entities (with respect to which obligations or
limitations shall remain in effect following the Closing of the Business) to
compete in any line of business or with any Person or in any geographic area or
(b) that imposes non-solicitation, exclusive dealing or other similar
obligations on the Business or OMS or the DST Entities (with respect to the
Business), which obligations or limitations shall remain in effect following the
Closing;
(g) each Contract relating to any outstanding commitment for
capital expenditures in excess of $1,000,000;
(h) each Contract (or group of related Contracts) under which any
DST Entity (with respect to the Business) or OMS has created, incurred, assumed,
or guaranteed any Indebtedness or that relates to the lending or advancing of
amounts or investment in any other Person, in each case, in excess of $1,000,000
by any of the DST Entities (with respect to the Business) or OMS or providing
for the creation of any Encumbrance securing an obligation likely to exceed
$1,000,000 upon any Business Asset or Additional Asset;
(i) each lease, sublease or similar agreement under which any DST
Entity (with respect to the Business) or OMS is a lessee or sublessee of
tangible personal property used or held for use in the Business, for an annual
rent in excess of $1,000,000;
(j) each joint research and development agreement involving
expenditures by the Business in excess of $1,000,000 in any calendar year;
(k) each Real Property Lease;
(l) each Contract relating to material Licensed Intellectual
Property;
(m) any Contract concerning the marketing or distribution by third
parties of any products or services of the Business (including any Contract
requiring the payment of any sales or marketing or distribution commissions or
granting to any Person rights to market, distribute or sell such products or
services) involving sales of products of more than $1,000,000 annually;
(n) any other Contract which was entered into other than in the
Ordinary Course of Business involving payments to or from third parties in
excess of $500,000;
(o) to the knowledge of DST, any Contract which is otherwise
material to the Business.
DST has made available to Janus or its representatives correct and complete
copies of all such Contracts with all amendments thereof. Each such Contract is,
and will at Closing be, valid, binding and enforceable against OMS and, to DST's
knowledge, the other parties thereto in accordance with its terms, and is, and
will at Closing be in full force and effect, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally, including the effect of statutory and other laws regarding fraudulent
conveyances and preferential transfers and subject to the limitations imposed by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding at law or in equity). None of DST, the DST Entities
or OMS is, or as of the Closing will be, in material default under or in
material breach of or is, or as of the Closing will be, otherwise materially
delinquent in performance under any such Contract, and, to DST's knowledge no
event has occurred, or will as of the Closing occur, that, with notice or lapse
of time, or both, would constitute such a default. To DST's knowledge each of
the other parties thereto has performed in all material respects all of the
obligations required to be performed by it under, and is not in material default
under, any such Contract and, to DST's knowledge no event has occurred that,
with notice or lapse of time, or both, would constitute such a default. To DST's
knowledge there are no material disputes pending or threatened in writing with
respect to any such Contracts. None of DST, the DST Entities or OMS, or to DST's
knowledge, any other party to any such Contract has exercised any option granted
to it to terminate or shorten or extend the term of such Contract, and none of
DST, the DST Entities or OMS, has given written or oral notice or received
written or, to DST's knowledge, oral notice to such effect. Subject to the
rights of other parties thereto to terminate such agreements pursuant to the
terms thereof in the ordinary course, and any amendments which may be agreed to
by OMS following the Closing, to the knowledge of DST, all of such Contracts
will continue to be valid, binding, enforceable and in full force and effect on
substantially identical terms following the consummation of the transactions
contemplated hereby, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally, including the
effect of statutory and other laws regarding fraudulent conveyances and
preferential transfers and subject to the limitations imposed by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding at law or in equity), subject to obtaining any Required Consents
disclosed in Section 4.16 of DST's Disclosure Schedule, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Business or OMS.
Section 4.17 LABOR AND EMPLOYMENT MATTERS
4.17.1 There are no collective bargaining agreements, union
contracts or similar agreements or arrangements in effect that cover any
Business Employee (each, a "COLLECTIVE BARGAINING AGREEMENT"). Except as set
forth in Section 4.17.1 of DST's Disclosure Schedule, to DST's knowledge, with
respect to any Business Employee, (a) there is no labor strike, dispute,
slowdown, lockout or stoppage pending or threatened against OMS or with respect
to any Business Employees, and OMS has not experienced any labor strike,
dispute, slowdown, lockout or stoppage since December 31, 2000; (b) there is no
unfair labor practice charge or complaint against any of OMS and (with respect
to the Business) the DST Entities pending or, to DST's knowledge, threatened
before the National Labor Relations Board or before any similar state or foreign
agency; (c) there is no grievance or arbitration arising out of any Collective
Bargaining Agreement or other grievance procedure; and (d) no charges are
pending before the Equal Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices.
4.17.2 Except as set forth in Section 4.17.2 of DST's Disclosure
Schedule, at no time within one year prior to the date hereof have DST or any of
its Affiliates effectuated any of the following with respect to any Business
Employee: (a) a "plant closing" (as defined in the WARN Act) affecting any site
of employment or one or more facilities or operating units within any site of
employment or facility; (b) a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility; nor have any of the DST Entities
or OMS been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state or
local law; or (c) any other event, which under the Laws of any jurisdiction
outside of the United States of America, would require notification and/or
consultation with employee representatives, affected parties or government
agencies, a "social plan," or similar employer action as a result of, or in
connection with, employee terminations or business restructurings.
4.17.3 Except as set forth in Section 4.17.3 of DST's Disclosure
Schedule, the DST Entities (with respect to the Business) and OMS are in
compliance in all material respects with all Laws, regulations and orders
relating to the employment of labor, including all such Laws, regulations and
orders relating to wages, hours, the WARN Act and any similar state or local
"mass layoff" or "plant closing" Law, collective bargaining, discrimination,
civil rights, safety and health, workers' compensation and the collection and
payment of withholding and/or social security taxes and any similar tax.
Section 4.18 FINANCIAL STATEMENTS.
4.18.1 Section 4.18.1 of DST's Disclosure Schedule contains true,
correct and complete copies of the audited financial statements of the Business
consisting of statements of income for the years ended as of December 31, 2002,
2001 and 2000 and balance sheets as of December 31, 2002 and 2001. Such audited
financial statements (the "BUSINESS FINANCIAL STATEMENTS") present fairly the
financial condition of the Business as of the dates thereof and its statements
of income and cash flows and changes in equity for the periods then ended and
have been prepared in accordance with GAAP applied on a consistent basis (except
as may be disclosed in the notes thereto).
4.18.2 Section 4.18.2 of DST's Disclosure Schedule contains true,
correct and complete copies of the unaudited financial statements of the
Business for the six-month period ended on June 30, 2003 (the "INTERIM BUSINESS
FINANCIAL STATEMENTS"). The Interim Business Financial Statements present fairly
the financial condition of the Business as of such date, and the consolidated
results of its operations and cash flows for the period then ended and have been
prepared in accordance with GAAP applied on a consistent basis (except as may be
disclosed in the notes thereto).
4.18.3 Except (a) as disclosed or reserved against in the balance
sheet portion of the Business Financial Statements for the period ended December
31, 2002 or (b) as incurred after December 31, 2002 (1) in the Ordinary Course
of Business and (2) without violation of Section 6.4, or (c) as set forth in
Section 4.18.3 of DST's Disclosure Schedule, the Business, the Business Assets,
the Additional Assets and OMS are not subject to, and the Business Liabilities
do not include, any Liabilities.
Section 4.19 PERMITS; COMPLIANCE.
4.19.1 To DST's knowledge, each of the DST Entities (with respect
to the Business) and OMS is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted and as it
will be conducted through to the Closing (collectively, the "PERMITS"). There is
no material Action pending, or, to DST's knowledge, threatened, regarding any of
the Permits and each such Permit is in full force and effect. To DST's
knowledge, the DST Entities (with respect to the Business) and OMS are not in
conflict with, or in material default (or would be in default with the giving of
notice, the passage of time, or both) with, or in violation of, any of the
Permits.
Section 4.20 REAL ESTATE.
4.20.1 As of the date hereof and the Closing Date, OMS does and
will not own any real property. Section 4.20 of DST's Disclosure Schedule sets
forth a list, complete and accurate in all respects, of all real property that
is, as of the date hereof, and will be as of the Closing, leased or subleased to
OMS and used in the operation of the Business. DST has provided Janus with true
and correct copies of all leases for the Leased Real Property.
4.20.2 Each Real Property Lease is and will be at the Closing
valid, binding and enforceable against OMS and, to DST's knowledge, the other
parties thereto in accordance with its terms, and is in full force and effect,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally, including the effect of statutory and
other laws regarding fraudulent conveyances and preferential transfers and
subject to the limitations imposed by general equitable principles (regardless
of whether such enforceability is considered in a proceeding at law or in
equity).
4.20.3 As of the Closing, OMS will not be in material default
under, in material breach of or otherwise materially delinquent in performance
under any Real Property Lease and, to DST's knowledge, no event has occurred, or
as of the Closing will occur, which, with due notice or lapse of time, or both,
would constitute such a default; and
4.20.4 There are no material leases or subleases to which OMS will
be a party or bound at Closing, as lessor, and third parties, as lessees, with
respect to any of the Real Property, except as disclosed in Section 4.20 of
DST's Disclosure Schedule.
4.20.5 To DST's knowledge, there does not exist any actual,
threatened or contemplated condemnation or eminent domain proceedings that
affect any material Real Property.
4.20.6 To DST's knowledge, the current use and occupancy of the
Real Property and the improvements located thereon are not in violation of any
material recorded covenants, conditions, restrictions, reservations, easements
or agreements affecting the Real Property.
4.20.7 To DST's knowledge, no part of any material improvement
located on the Real Property which is material to its operation is dependent for
its access, operation or utility on any land, building or other improvements not
included in the Real Property, and all the material Real Property has sufficient
access to public roads, except as disclosed in Section 4.12.1 of DST's
Disclosure Schedule.
Section 4.21 INTERCOMPANY SERVICES. Except for the Ancillary Agreements and
except as set forth in Section 4.21 of DST's Disclosure Schedule, there are no
Contracts pursuant to which any goods, services, materials or supplies are
provided (i) by OMS, the Business, or the Business Assets, on the one hand, to
DST or any of its Affiliates (other than OMS), on the other hand, or (ii) by DST
or any of its Affiliates (other than OMS), on the one hand, to OMS, the
Business, or the Business Assets, on the other hand (each, an "INTERCOMPANY
ARRANGEMENT").
Section 4.22 RELATIONSHIPS WITH CUSTOMERS. Except as set forth in Section
4.22 of DST's Disclosure Schedule, since December 31, 2002, neither DST nor any
of its Subsidiaries has received any written communication in which any customer
of the Business who accounted for annual sales in excess of $1,000,000 during
DST's immediately preceding fiscal year states an intention to terminate or
materially reduce its purchases from the Business.
Section 4.23 GUARANTIES. Except as set forth in Section 4.23 of DST's
Disclosure Schedule, OMS is not directly or indirectly (a) liable, by guarantee
or otherwise, upon or with respect to, (b) obligated to provide funds with
respect to, or to guarantee or assume, any Indebtedness or other obligation of
any Person.
Section 4.24 CERTAIN OTHER TAX MATTERS. Neither DST nor any of its
Subsidiaries or Affiliates has taken or agreed to take any action, has failed to
take any action or knows of any fact, agreement, plan or other circumstance, in
each case that could reasonably be expected to prevent DST from receiving either
of the opinions described in clause (a) of Section 8.1.3.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF JANUS
Janus hereby represents and warrants to DST as follows:
Section 5.1 ORGANIZATION AND STANDING. Janus is (a) a corporation duly
organized, validly existing and duly qualified or licensed and in good standing
under the Laws of the state or jurisdiction of its organization with full
corporate power and authority to own, lease, use and operate its properties and
to conduct its business, and (b) duly qualified or licensed to do business and
is in good standing in any other jurisdiction in which the nature of the
business conducted by it or the property it owns, leases or operates requires it
to so qualify, be licensed or be in good standing, except where the failure to
be so qualified, licensed or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Janus.
Section 5.2 CORPORATE POWER AND AUTHORITY. Janus has all requisite
corporate power and authority to enter into and deliver this Agreement and to
consummate the transactions contemplated hereby. Janus has all requisite
corporate power and authority to execute and deliver the Ancillary Agreements
and the other agreements, documents and instruments to be executed and delivered
by it in connection with this Agreement or the Ancillary Agreements and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of this Agreement by Janus and the consummation by Janus of the
transactions contemplated hereby, including the exchange and delivery to DST of
the Janus DST Shares, and the execution, delivery and performance of the
Ancillary Agreements and the other agreements, documents and instruments to be
executed and delivered in connection with this Agreement or the Ancillary
Agreements by Janus and the consummation of the transactions contemplated
thereby, have been duly authorized by all necessary action on the part of Janus.
This Agreement has been duly executed and delivered by Janus and constitutes the
legal, valid and binding obligation of Janus, enforceable against Janus in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally, including the
effect of statutory and other laws regarding fraudulent conveyances and
preferential transfers and subject to the limitations imposed by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding at law or in equity). The Ancillary Agreements and the other
agreements, documents and instruments to be executed and delivered by Janus in
connection with this Agreement or the Ancillary Agreements at the Closing will
be duly executed and delivered by Janus and will constitute the legal, valid and
binding obligations of Janus, enforceable against Janus in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally, including the effect of
statutory and other laws regarding fraudulent conveyances and preferential
transfers and subject to the limitations imposed by general equitable principles
(regardless of whether such enforceability is considered in a proceeding at law
or in equity).
Section 5.3 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and
delivery by Janus of this Agreement, the Ancillary Agreements and the other
agreements, documents and instruments to be executed and delivered by Janus in
connection with this Agreement and the Ancillary Agreements, nor the
consummation of the transactions contemplated hereby and thereby, will:
5.3.1 conflict with, or result in a breach of any provision of, the
organizational documents of (a) Janus or (b) any Affiliate of Janus which is a
party to the Ancillary Agreements or any other agreements and instruments to be
executed and delivered in connection therewith;
5.3.2 violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event that, with the giving of
notice, the passage of time or otherwise, would constitute a default) under, or
entitle any Person (with the giving of notice, the passage of time or otherwise)
to terminate, accelerate, modify or call a default under, or give rise to any
obligation to make a payment under, or to any increased, additional or
guaranteed rights of any Person under, or result in the creation of any
Encumbrance upon any of the Janus DST Shares or any of the other properties or
assets of Janus under any of the terms, conditions or provisions of (a) any
organizational documents of Janus, (b) any Contract to which Janus is a party or
to which any of its properties or assets may be bound, or (c) any permit,
registration, approval, license or other authorization or filing to which Janus
is subject or to which any of its properties or assets may be subject;
5.3.3 violate any order, writ, or injunction, or any material
decree, or material Law applicable to Janus or any of its properties or assets;
5.3.4 require any action, consent or approval of, or review by, or
registration or filing by Janus with, any Governmental Authority, other than (a)
actions required by the HSR Act, and (b) actions required to obtain the DST
Stockholder Approval, including the filing of the DST Proxy Statement; or
5.3.5 require any action, consent or approval of any
non-governmental third party, except for the Janus Consent;
except in the case of Sections 5.3.2 or 5.3.5 for any of the items specified
therein (other than Encumbrances upon the Janus DST Shares) that would not,
individually or in the aggregate, result in a Material Adverse Effect on Janus
or materially impair the ability of Janus to timely consummate the transactions
contemplated hereby.
Section 5.4 JANUS DST SHARES. As of the date hereof, Janus owns a total of
39,724,052 shares of DST Common Stock. As of the Closing, Janus will have good
and valid title to the Janus DST Shares, free and clear of all Encumbrances.
Upon delivery to DST of the certificates representing the Janus DST Shares at
the Closing, DST will acquire good and valid title to such shares, free and
clear of any Encumbrances, other than Encumbrances created by DST or any of its
Subsidiaries.
Section 5.5 BOARD AND STOCKHOLDER APPROVAL. The Board of Directors of
Janus, by resolutions duly adopted by unanimous vote at a meeting duly called
and held and not subsequently rescinded or modified, has (a) determined that the
transactions contemplated by this Agreement and the Ancillary Agreements are
fair to and in the best interests of Janus, (b) approved this Agreement, and (c)
authorized all necessary actions of the officers of Janus to consummate the
transactions contemplated in this Agreement and in the Ancillary Agreements. No
vote of the stockholders of Janus is required to approve the transactions
contemplated by this Agreement.
Section 5.6 LITIGATION. As of the date hereof, there is no material Action
pending or threatened in writing, or, to Janus' knowledge, otherwise threatened,
against Janus that seeks, or could reasonably be expected, to prohibit or
restrain the ability of Janus to enter into this Agreement or to timely
consummate any of the transactions contemplated hereby and, to the knowledge of
Janus, there is no reasonable basis for any such Action.
Section 5.7 NO MATERIAL ADVERSE EFFECT. No event, occurrence or development
exists that would reasonably be expected to have a material adverse effect on
the ability of Janus to timely consummate the transactions contemplated hereby.
Section 5.8 INVESTMENT REPRESENTATION. Janus is acquiring the OMS Shares
for investment and not with a view toward or for sale in connection with any
distribution thereof, or with any present intention of distributing or selling
such stock. Janus agrees that the OMS Shares may not be sold, transferred,
offered for sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act, except pursuant to an exemption from such
registration available under the Securities Act.
Section 5.9 CERTAIN TAX MATTERS. Neither Janus nor any of its Subsidiaries
or Affiliates has taken or agreed to take any action, has failed to take any
action or knows of any fact, agreement, plan or other circumstance, in each case
that could reasonably be expected to prevent Janus from receiving either of the
opinions described in clause (b) of Section 8.1.3.
Section 5.10 GOVERNMENTAL ACTIONS. There are no material judgments,
decrees, written agreements, memoranda of understanding or orders of any
Governmental Authority outstanding against Janus which could reasonably be
expected to prevent, prohibit, materially delay or enjoin the consummation of
the transactions contemplated hereby.
ARTICLE VI.
COVENANTS AND AGREEMENTS
Section 6.1 PROXY STATEMENT.
6.1.1 DST shall use its reasonable commercial efforts to promptly
prepare and file with the SEC a preliminary form of the proxy statement to be
sent to the DST stockholders in connection with the DST Stockholders Meeting
(the "DST PROXY STATEMENT"). DST shall use its reasonable commercial efforts to
have the DST Proxy Statement cleared by the SEC as promptly as practicable after
such filing. DST shall provide Janus and its legal counsel with reasonable
opportunity to comment upon the form and substance of the DST Proxy Statement
(including any amendments or supplements thereto) prior to filing such proxy
statement, amendment or supplement with the SEC, and DST shall use its
reasonable commercial efforts to incorporate Janus' reasonable comments into the
DST Proxy Statement (including any amendments or supplements thereto). DST will
advise Janus, promptly after it receives notice thereof, of any request by the
SEC for amendment of the DST Proxy Statement or comments thereon which relate to
the Business and/or the transactions contemplated by this Agreement and the
Ancillary Agreements and shall provide to Janus copies of any comments received
from the SEC in connection therewith and shall use its reasonable commercial
efforts to consult with Janus in responding to the SEC.
6.1.2 DST and Janus each agrees, as to itself and its Affiliates,
that none of the information supplied or to be supplied by it or its Affiliates
for inclusion or incorporation by reference in the DST Proxy Statement, and any
amendment or supplement thereto will, at the time filed with the SEC, at the
date of mailing to stockholders and at the time of the DST Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time prior to the date of the DST Stockholders Meeting any
information relating to DST or Janus, or any of their respective Affiliates,
officers or directors, should be discovered by DST or Janus which should be set
forth in an amendment or supplement to the DST Proxy Statement, so that such
document would not include any misstatement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other party and, to the extent required by applicable law, an
appropriate amendment or supplement describing such information shall be filed
promptly with the SEC and, to the extent required by law, disseminated to the
DST stockholders.
6.1.3 DST will use its reasonable commercial efforts to cause the
DST Proxy Statement to be mailed to its stockholders as promptly as practicable
after the date on which the DST Proxy Statement is cleared by the SEC.
Section 6.2 STOCKHOLDER MEETING; BOARD RECOMMENDATION. DST will take
reasonable commercial efforts to convene, and shall convene, a meeting of the
stockholders of DST at which the stockholders of DST shall consider approval of
this Agreement and the transactions contemplated hereby (the "DST STOCKHOLDERS
MEETING") as promptly as practicable. The Board of Directors of DST shall
recommend to the DST stockholders the approval of the matters to be submitted to
the stockholders at the DST Stockholders Meeting, which recommendation shall be
set forth in the DST Proxy Statement, and shall use its reasonable commercial
efforts to solicit such approval. Janus shall vote all shares of DST Common
Stock beneficially owned by Janus at the time of the DST Stockholders Meeting in
favor of approval of this Agreement and the transactions contemplated hereby at
the DST Stockholders Meeting.
Section 6.3 ACCESS AND INFORMATION.
6.3.1 Prior to the Closing, except to the extent prohibited by
applicable Law, DST will permit (and will cause OMS and each of the DST Entities
to permit) representatives of Janus to have reasonable access during normal
business hours and upon reasonable notice to all premises, properties,
personnel, books, records, Contracts, commitments, reports of examination and
documents of or pertaining to the Business, the DST Entities (to the extent
relating to the Business), OMS, the Business Assets, the Additional Assets and
the Business Liabilities, as may be necessary to permit Janus to, at its sole
expense, make, or cause to be made, such investigations thereof as Janus
reasonably deems necessary or advisable in connection with the consummation of
the transactions contemplated by this Agreement, and DST shall (and shall cause
OMS and the DST Entities to) reasonably cooperate with any such investigations.
No investigation by Janus or its representatives or advisors prior to or after
the date of this Agreement (including any information obtained by Janus pursuant
to this Section 6.3) shall diminish, obviate or cure any breach of any
representation, warranty, covenant or agreement contained in this Agreement or
any Ancillary Agreement nor shall the conduct or completion of any such
investigation be a condition to any of Janus' obligations under this Agreement.
Section 6.4 CONDUCT OF BUSINESS. DST covenants and agrees that, from and
after the date hereof until the Closing, except as otherwise expressly
contemplated by this Agreement, it shall, and shall cause OMS and the DST
Entities to, conduct the Business and the businesses of OMS and the DST Entities
(with respect to the Business) only in the Ordinary Course of Business. DST
shall, and shall cause its Subsidiaries to, use reasonable commercial efforts to
preserve the Business', DST Entities' (to the extent related to the Business)
and OMS's, operations, physical facilities, working conditions and their
respective business relationships with customers, suppliers, licensors,
licensees, contractors and other persons with whom the Business or any of the
DST Entities (to the extent related to the Business) or OMS have significant
business relations. DST shall not, and shall cause its Subsidiaries not to,
knowingly take any action that would cause its representations and warranties to
be untrue in any material respect.
Section 6.5 CLOSING DOCUMENTS. DST shall, prior to or at the Closing,
execute and deliver, or cause to be executed and delivered, to Janus, the
documents or instruments described in Sections 2.3 and 8.2 to be delivered by
DST or its Affiliates prior to or at the Closing. Janus shall, prior to or at
the Closing, execute and deliver, or cause to be executed and delivered to DST,
the documents or instruments described in Sections 2.4 and 8.3 to be delivered
by Janus prior to or at the Closing.
Section 6.6 EFFORTS TO CONSUMMATE; FURTHER ASSURANCES.
6.6.1 Subject to the terms and conditions of this Agreement, each
party hereto shall use reasonable commercial efforts to take, or to cause to be
taken, all actions and to do, or to cause to be done, all things necessary,
proper or advisable as promptly as practicable to satisfy the conditions set
forth in Article VIII and to consummate the transactions contemplated hereby.
Each party shall cooperate in all reasonable respects with the other party
hereto in assisting such party to comply with this Section 6.6.
6.6.2 Subject to the terms and conditions hereof (including, to the
extent applicable, Section 6.7) from time to time whether before, at or for a
period of two years following the Closing, each of Janus and DST shall, and
shall cause their respective Affiliates to, make reasonable commercial efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable, including as required by
applicable Laws, to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including applying for, obtaining,
or causing to be obtained, authorizations, approvals, orders, licenses, permits,
franchises or consents of all third parties or Governmental Authorities
necessary for the consummation of the transactions contemplated by this
Agreement, including the Required Consents. In the event that any Business
Contract (including any Real Property Lease) is not transferable indirectly to
Janus through the transfer of the OMS Shares, DST shall, and shall cause the
appropriate DST Entity to, use its reasonable commercial efforts to maintain
such Contract, Permit or other Business Asset for the benefit of OMS (including
the benefit of enforcement of any rights of DST or any of its Affiliates against
any third party thereto arising out of breach or cancellation by the third party
thereto or otherwise), or otherwise make arrangements reasonably requested by
Janus designed to provide to OMS such benefit; provided, that OMS shall be
responsible for performing the obligations of DST and the appropriate DST Entity
under any such Contract or Permit or with respect to such other Business Asset,
in each case, that OMS would have been responsible for had they been
transferable directly to OMS, and only to the extent that the corresponding
benefits thereunder are provided to OMS. Prior to Closing, DST shall use its
reasonable commercial efforts to obtain estoppel certificates, in form and
substance reasonably satisfactory to Janus, duly executed by Janus or OMS and
the landlord for each item of Leased Real Property and the landlord consents
referred to in Section 4.4 of the DST Disclosure Schedule.
6.6.3 Subject to the terms and conditions hereof (including, to the
extent applicable, 6.7), from time to time, whether before, at or for a period
of two years following the Closing, each of Janus and DST shall, and shall cause
their respective Affiliates to, make reasonable commercial efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable, including as required by applicable
Laws, to assure fully to OMS (and, following the Closing, Janus and its
Subsidiaries) and its and their successors or permitted assigns, all of the
Business Assets, Additional Assets, Business Contracts and Business Liabilities
intended to be conveyed to, owned by, or assumed by OMS under this Agreement and
the Ancillary Agreements and to assure fully to DST, and its respective
successors and permitted assigns, the maintenance by DST of the Excluded Assets
and the assumption by OMS of the Business Liabilities intended to be assumed by
OMS under this Agreement and the Ancillary Agreements, and to otherwise make
effective as promptly as practicable the transactions contemplated hereby and
thereby (including (i) transferring back to DST any Excluded Asset, Excluded
Liability or item relating to or included in the Retained Business,
respectively, which Excluded Asset, Excluded Liability or item relating to or
included in the Retained Business was transferred to Janus indirectly through
the acquisition of the OMS Shares at the Closing and (ii) transferring to OMS
any asset or liability contemplated by this Agreement to be a Business Asset,
Additional Asset, Business Contracts or a Business Liability, respectively,
which asset or liability was not transferred to OMS at or prior to the Closing.
6.6.4 In furtherance and without limitation to the foregoing, for a
period of two years following the Closing, DST shall, and shall cause its
Affiliates to, make reasonable commercial efforts to cause the Permits to be
transferred to OMS or, if any such Permits are not transferable, DST shall
assist OMS in obtaining new Permits so that it may operate the Business as of
the Closing Date in compliance with applicable Laws, including Environmental
Laws.
6.6.5 In furtherance and without limitation to the foregoing, for a
period of two years following the Closing, each of Janus and DST shall, and
shall cause their respective Affiliates to, make reasonable commercial efforts
to make or cause to be made all filings and applications required of each of
them or such Affiliates under the Environmental Laws or the Environmental
Permits as promptly as practicable, and, in any event, within 20 Business Days
after the date of this Agreement.
Section 6.7 CERTAIN COVENANTS.
6.7.1 Each of Janus and DST shall (a) promptly make or cause to be
made all filings required of each of them or any of their respective
Subsidiaries or Affiliates under the HSR Act with respect to the transactions
contemplated hereby after the date of this Agreement, (b) use reasonable
commercial efforts to comply at the earliest practicable date with any request
under the HSR Act for additional information, documents, or other materials
received by each of them or any of their respective Subsidiaries from the FTC,
the Antitrust Division or any other Governmental Authority in respect of such
filings or such transactions, and (c) cooperate with each other in connection
with any such filing (including, to the extent permitted by applicable Law,
providing copies of all such documents to the non-filing parties prior to filing
and considering all reasonable additions, deletions or changes suggested in
connection therewith) and in connection with resolving any investigation or
other inquiry of any of the FTC, the Antitrust Division or other Governmental
Authorities under any Antitrust Laws with respect to any such filing or any such
transaction. Each such party shall use reasonable commercial efforts to furnish
to each other all information required for any application or other filing to be
made pursuant to any applicable Law in connection with the transactions
contemplated by this Agreement. Each such party shall promptly inform the other
parties hereto of any oral communication with, and provide copies of written
communications with, any Governmental Authority regarding any such filings or
any such transaction. No party hereto shall independently participate in any
formal meeting with any Governmental Authority in respect of any such filings,
investigation, or other inquiry without giving the other parties hereto prior
notice of the meeting and, to the extent permitted by such Governmental
Authority, the opportunity to attend and/or participate. Subject to applicable
Law, the parties hereto will consult and cooperate with one another in
connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto relating to proceedings under the HSR Act.
6.7.2 Each of Janus and DST shall use reasonable commercial efforts
to resolve such objections, if any, as may be asserted by any Governmental
Authority with respect to the transactions contemplated by this Agreement under
the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the
Federal Trade Commission Act, as amended, and any other United States federal or
state or foreign statutes, rules, regulations, orders, decrees, administrative
or judicial doctrines or other Laws that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade (collectively, the "ANTITRUST LAWS"). Each of Janus and DST shall use
reasonable commercial efforts to take such action as may be required to cause
the expiration of the notice periods under the HSR Act with respect to such
transactions as promptly as possible after the execution of this Agreement.
6.7.3 In the event that following the Closing, DST or any of its
Affiliates receives any payments in respect of receivables, which were reflected
on the Closing Date Balance Sheet, DST shall, or shall cause the applicable
Affiliate to, deliver such payment to OMS promptly after such receipt.
Section 6.8 NOTIFICATION BY THE PARTIES. Each party hereto shall use its
reasonable commercial efforts to as promptly as practicable inform the other
parties hereto in writing if, prior to the consummation of the Closing, it
obtains knowledge that any of the representations and warranties made by such
party in this Agreement ceases to be accurate and complete in any material
respect (except for any representation and warranty that is qualified hereunder
as to materiality or Material Adverse Effect, as to which such notification
shall be given if the notifying party obtains knowledge that such representation
and warranty ceases to be accurate and complete in any respect). Each party
hereto shall also use its reasonable commercial efforts to promptly inform the
other parties hereto in writing if, prior to the consummation of the Closing, it
becomes aware of any fact or condition that constitutes, in its reasonable
judgment, a breach of any covenant of such party as of the date of this
Agreement or that would reasonably be expected to cause any of its covenants to
be breached as of the Closing Date. Any such notification shall not be deemed to
have cured any breach of any representation, warranty, covenant or agreement
made in this Agreement for any purposes of this Agreement.
Section 6.9 ADDITIONAL COVENANTS. Neither DST nor OMS shall, and DST shall
cause the DST Entities not to, take any actions which will prevent or materially
impede or delay DST (or its respective Subsidiaries) from making the
representations and warranties to be made under this Agreement. DST shall, and
shall cause its Subsidiaries (including OMS) to take all actions necessary and
appropriate to ensure that when the OMS Shares are delivered to Janus at the
Closing, the Business Assets will be free and clear of any Encumbrances (other
than the Permitted Encumbrances) and any Liabilities (other than Business
Liabilities), and the Additional Assets will be free and clear of any
Encumbrances and any Liabilities.
Section 6.10 [RESERVED].
Section 6.11 INSURANCE POLICIES.
6.11.1 DST shall, and shall cause the DST Entities and OMS to, use
their reasonable commercial efforts to maintain all Insurance Policies (or
comparable policies providing substantially similar coverage with respect to
OMS, the Business, the Business Assets and the Business Liabilities) in full
force and effect at all times up to and including the Closing Date and shall pay
all premiums, deductibles and retro-adjustment billings, if any, with respect
thereto covering all periods, and ensuring coverage of the Business, up to and
including the Closing Date.
Section 6.12 CONFIDENTIALITY; ACCESS TO RECORDS AFTER CLOSING.
6.12.1 The parties hereto agree that the provisions of the
Confidentiality Agreement shall remain in full force and effect (and OMS agrees
to be bound thereby to the same extent as DST as if a party thereto); provided,
that as of the Closing Date, the Confidentiality Agreement shall be deemed to
have terminated without further action by the parties. If the transactions
contemplated hereby are consummated, (a) Janus and OMS shall hold, and shall
cause their respective officers, directors, employees, representatives,
consultants, advisors and agents, to hold, and (b) DST shall not use (or take
any action to use) in any manner detrimental to OMS and shall hold, and shall
cause the DST Entities and their respective officers, directors, employees,
representatives, consultants, advisors and agents, to not use (or take any
action to use) in any manner detrimental to OMS and to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of Law or regulation (including the Securities Act and
Exchange Act), all documents and information obtained by such Persons in
connection with the transactions contemplated hereby or otherwise obtained
hereunder ("CONFIDENTIAL INFORMATION," which term shall, after Closing, with
respect to DST's obligations hereunder, include and, with respect to Janus' and
OMS's obligations hereunder, not include, documents and information relating to
the Business, the Business Assets, the Additional Assets and the Business
Liabilities), except to the extent that such Confidential Information has been
or has become (a) generally available to the public other than as a result of
disclosure by any party hereunder or an officer, director, employee,
representative, consultant, advisor or agent, of a party hereunder, (b)
available to the public on a nonconfidential basis from a source other than an
officer, director, employee, representative, consultant, advisor or agent of a
Person entitled to the protection offered hereby, (c) except in the case of any
documents and information relating to the Business, the Business Assets, the
Additional Assets and the Business Liabilities, known to the Person receiving
such Confidential Information before the date of disclosure of such Confidential
Information to such Person. Nothing herein shall preclude Janus, OMS, DST or the
DST Entities or any of their respective officers, directors, employees,
representatives, consultants, advisors or agents, receiving Confidential
Information from using and/or disclosing information rightfully received from a
third party to the extent rightfully permitted by the third party. Nothing
contained in this Section 6.12.1 shall preclude the disclosure of Confidential
Information, on the condition that it remains confidential, to auditors,
attorneys, lenders, financial advisors and other officers, directors, employees,
representatives, consultants, advisors and agents, nor shall it prevent Janus'
or OMS's disclosure after the Closing of any information (including Confidential
Information) relating to the Business or which constitutes a Business Asset or
Additional Asset or DST's or the DST Entities' disclosure of any information
(including Confidential Information) relating to the Retained Business or which
constitutes an Excluded Asset.
6.12.2 DST recognizes that, after the Closing, it may have
documents, books, records, work papers and information, whether in written,
magnetic, electronic or optical form (collectively, "RECORDS") which relate to
the Business with respect to the period or matters arising prior to the Closing,
including Records pertaining to the Business Assets, the Additional Assets, the
Business Liabilities and OMS' respective employees, assets and liabilities (the
"BUSINESS RECORDS") or other Records relating to the Business. DST will use, and
will cause its respective Affiliates to use, reasonable commercial efforts not
to use (or take any action to use) Business Records and Confidential Business
Information of the Business, except as provided for in this Agreement or the
Ancillary Agreements, or, prior to the Closing, as required in the Ordinary
Course of Business, and to preserve the confidentiality of any information
contained in the Business Records and Confidential Business Information of the
Business and (for so long as it remains non-public including after termination
or expiration of this Agreement) to keep such information confidential, subject
to any provisions of confidentiality in the Ancillary Agreements. DST further
recognizes that Janus or its Affiliates may need access to such Business Records
and other Records after the Closing. Upon Janus' or OMS' reasonable request DST
shall provide Janus or OMS and their respective employees, representatives and
agents access to, and the right to photocopy (at Janus' or OMS' expense), during
normal business hours on reasonable advance notice, such reasonably requested
Records. DST shall use reasonable commercial efforts to maintain all such
Records for the same length of time that DST maintains its own Records, or, at
DST's discretion (at DST's expense) or (at any time) at Janus' or OMS's
reasonable request (at Janus' or OMS's expense), transfer any such Records to
Janus or OMS.
6.12.3 Notwithstanding any provision herein to the contrary, from
and after the Closing, Records pertaining to Taxes shall be governed solely by
the Tax Sharing Agreement.
Section 6.13 RELEASE OF RESTRICTIONS; INTERCOMPANY ACCOUNTS.
6.13.1 DST shall use its reasonable commercial efforts to obtain at
or before the Closing the written release and waiver from all appropriate
Persons of (i) any and all Encumbrances (other than Permitted Encumbrances)
imposed on the Business, the Business Assets and the OMS Shares), (ii) any and
all Encumbrances imposed on any of the Additional Assets, and (iii) any and all
guaranties granted or required to be granted by OMS in respect of any
Indebtedness (including the Credit Facilities) or other obligations of DST or
any of its Affiliates (other than OMS) (all such encumbrances and guaranties,
the "RESTRICTIONS").
6.13.2 Prior to the Closing, all intercompany receivables or
payables and loans then existing between DST and its Affiliates (other than
OMS), on the one hand, and OMS, on the other hand, shall be settled by way of
capital contribution, dividend or otherwise and all Intercompany Arrangements
shall be terminated, except for those arrangements contemplated by the Ancillary
Agreements.
Section 6.14 OPTIONS TO PURCHASE DST STOCK HELD BY BUSINESS AND FORMER
BUSINESS EMPLOYEES ACCOUNTS. DST or its relevant Affiliate shall take all steps
necessary or appropriate to cause all unexercised options to purchase shares of
DST's or its Affiliates' stock held by Business Employees or Former Business
Employees that are outstanding as of the Closing Date (the "DST Options") not to
terminate due to or on account of (directly or indirectly) the Closing, and
shall cause the DST Options to become fully vested in such Business Employees or
Former Business Employees effective as of the Closing. DST shall cause the DST
Options to remain outstanding and exercisable pursuant to the terms of such
Options until the normal expiration date of the DST Options as set forth on the
grant or award agreement or certificate with respect to such DST Options (i.e.,
with deemed continuous employment with DST or its Affiliates until the
expiration date of the Options), unless such treatment is otherwise not
permitted by applicable law.
Section 6.15 COOPERATION WITH RESPECT TO FINANCIAL REPORTING. After the
date of this Agreement, until the third anniversary of the date hereof, DST
shall, and shall cause the DST Entities and OMS to, reasonably cooperate with
Janus (at Janus' expense) in connection with Janus' preparation of historical
financial statements of the Business as required for Janus' filings under the
Exchange Act following the Closing. After the Closing, until the third
anniversary of the date hereof, Janus shall, and shall cause OMS to, reasonably
cooperate with DST (at DST's expense) in connection with DST's preparation of
pro forma and historical financial statements of the Business as may be required
for DST's filings under the Exchange Act following the Closing.
Section 6.16 NON-SOLICITATION OF EMPLOYEES. For a period of three years
from and after the Closing Date, DST and Janus shall not, and shall cause each
of their respective Subsidiaries not to, directly or indirectly, solicit the
employment of any employee of the other or of its Subsidiaries following the
Closing, without the other's prior written consent; PROVIDED, HOWEVER, that the
foregoing provisions shall not apply to (i) a general advertisement or
solicitation program that is not specifically targeted at such persons or (ii)
the solicitation of any employee after such time that such employee's employment
has been terminated.
Section 6.17 [*** Note: approximately two and one half pages of text are
omitted]
Section 6.18 [RESERVED].
Section 6.19 NO SOLICITATION. From the date hereof until the Closing or the
earlier termination of this Agreement, other than in the Ordinary Course of
Business, DST shall not, nor shall it authorize or permit any of the DST
Entities or OMS to, solicit the submission of any offers or proposals for the
Business, OMS, the Business Assets or the Business Liabilities from any third
party or otherwise directly or knowingly indirectly pursue any offer or proposal
so received. From the date hereof until the Closing or the earlier termination
of this Agreement, Janus shall not, nor shall it authorize or permit any of its
Subsidiaries to, solicit the submission of offers or proposals for the sale of
the Janus DST Shares, from any third party or otherwise directly or knowingly
indirectly pursue any offer or proposal so received.
Section 6.20 USE OF NAMES. Within 30 days after the Closing, (a) Janus
shall cause OMS to change its corporate name to a name that does not include the
name of DST or of any of its Subsidiaries and (b) Janus shall have no right to
use the name of DST or of any of its Subsidiaries, except that, for a period
ending 45 days after the Closing, Janus shall have the right to use any
catalogues, sales and promotional materials and printed forms that use such name
and are included in the Intellectual Property as of the Closing, or that have
been ordered prior to the Closing for use in the Business; PROVIDED, HOWEVER,
that (a) promptly after the Closing Date, Janus shall make all filings with the
appropriate Governmental Authorities to effectuate such name change, (b) Janus
shall use its reasonable commercial efforts to minimize the usage of the names
referred to in Section (a) hereof, and to discontinue it as soon as practicable
after the Closing and (c) notwithstanding anything to the contrary in this
Section 6.20, to the extent any approvals of Governmental Authorities are
necessary to effectuate the said name change, the time limits specified in this
Section 6.20 shall be extended by the time period necessary to obtain such
approvals, so long as Janus begins the process of seeking such approval within
30 days after the Closing.
Section 6.21 [RESERVED].
Section 6.22 DST SHARE VALUE DETERMINATION PERIOD. During the twenty-day
period used to calculate the DST Share Value, DST agrees that it shall not, and
shall cause its Subsidiaries not to, directly or indirectly, sell or offer to
sell any shares of DST Common Stock (or any securities convertible into, or
whose value is determined by reference to, any such shares), or solicit or
induce other Persons to sell or offer to sell any shares of DST Common Stock (or
any securities convertible into, or whose value is determined by reference to,
any such shares); PROVIDED that the foregoing shall not apply to transactions
with participants in DST's employee stock option or stock purchase plans in a
manner consistent with past practice under such employee stock option or stock
purchase plans. During the twenty-day period used to calculate the DST Share
Value, Janus agrees that it shall not and shall cause its Subsidiaries (other
than Subsidiaries involved in the investment advisory business, to the extent of
its activities in connection with the investment advisory business (in such
capacity, the "IAB SUBSIDIARIES")) not to, purchase or offer to purchase any
shares of DST Common Stock (or any securities convertible into, or whose value
is determined by reference to, any such shares), or solicit or induce other
Persons (other than in connection with investment advisory business of the IAB
Subsidiaries) to purchase or offer to purchase any shares of DST Common Stock
(or any securities convertible into, or whose value is determined by reference
to, any such shares).
Section 6.23 WAIVER. In consideration of the transactions contemplated
hereby, as of the Closing, DST, on behalf of itself and each of its Subsidiaries
and Affiliates (other than OMS) and their respective heirs, executors,
successors and assigns (the "WAIVING PARTIES"), releases, waives and forever
discharges, in all capacities, including as stockholders of OMS, from and after
the Closing any and all Claims, known or unknown, that the Waiving Parties ever
had, now have or may have against OMS and its officers, directors, employees or
agents in connection with or arising out of any act or omission of OMS or its
officers, directors, employees, advisers or agents, in such capacity, at or
prior to the Closing; PROVIDED, HOWEVER, that nothing in this Section 6.23 shall
be deemed a waiver by the Waiving Parties of any rights under this Agreement or
any of the other agreements contemplated in connection herewith.
Section 6.24 CERTAIN TAX MATTERS.
6.24.1 Each party hereto shall use its respective reasonable
commercial efforts to enable each of Janus and DST to receive each of the
opinions described in clauses (a) and (b) of Section 8.1.3, and will not
knowingly take any action, cause any action to be taken, fail to take any
reasonable action or cause any reasonable action to fail to be taken, which
action or failure to act would reasonably be expected to prevent DST or Janus
from receiving either of such opinions.
Section 6.25 DST SHARES RETAINED BY JANUS.
6.25.1 From and after the Closing Date until the tenth anniversary
of the Closing, Janus shall not, and shall cause each of its Subsidiaries (other
than the IAB Subsidiaries) not to, directly own or acquire or agree to acquire
(other than in the course of the investment advisory business of the IAB
Subsidiaries) any shares of DST Common Stock, which will have the effect of
increasing the number of shares of DST Common Stock that Janus and its
Subsidiaries (other than the IAB Subsidiaries) will own, in the aggregate,
following the Closing above 7,424,052 shares (the "SHARE LIMIT"), appropriately
adjusted for any stock dividend, stock spit, reverse stock split, share
combination, reclassification, recapitalization or similar transaction with
respect to the DST Common Stock; PROVIDED that in the event that Janus or any of
its Subsidiaries acquires and thereafter owns shares of DST Common Stock in
connection with any merger, consolidation or other business combination with, or
purchase of all or substantially all of the assets of or equity interests in,
any Person, then the Share Limit shall be deemed to be equal to 7,424,052 shares
plus the number of shares acquired and thereafter owned in connection with such
transaction; PROVIDED, FURTHER, that this Section 6.25.1 shall not be binding
upon or apply to any Person who merges, consolidates, or otherwise becomes
affiliated with Janus or any of its Affiliates or successors under any
reorganization, merger, consolidation, recapitalization, or purchase or other
acquisition of all or substantially all of the assets of or equity interests of
Janus, or any comparable business combination transaction, whether in one
transaction or in a series of related transactions, as a result of which the
individuals and entities who were the beneficial owners (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of the outstanding capital stock
of Janus entitled to vote generally in the election of directors immediately
prior to such transaction cease to beneficially own, directly or indirectly, at
least a majority of the outstanding shares of the capital stock entitled to vote
generally in the election of directors of the Person surviving or resulting from
such transaction (including, without limitation, a Person which as a result of
such transaction owns Janus or all or substantially all of Janus' assets either
directly or through one or more Subsidiaries) immediately following consummation
of such transaction or series of related transactions.
6.25.2 From and after the Closing Date until the tenth anniversary
of the Closing, Janus shall not, and shall cause each of its Subsidiaries (other
than the IAB Subsidiaries) not to, sell or otherwise dispose of any shares of
DST Common Stock, to any of the Persons listed on Section 6.25.2 of DST's
Disclosure Schedule (other than in the course of the investment advisory
business of the IAB Subsidiaries), except for sales made on the New York Stock
Exchange, or on any other national securities exchange on which the DST Common
Stock is listed, or if not so listed and such DST Common Stock is admitted for
trading on the Nasdaq National Market or the Nasdaq Smallcap Market, on such
Nasdaq Market, or if not so listed, on any other exchange or inter-dealer
quotation system in which the purchasers and sellers are anonymous with respect
to one another.
Section 6.26 FINANCING. DST will use its reasonable best efforts to secure
as promptly as practicable, the financing necessary to permit the funding of at
least one hundred fifty million dollars ($150,000,000) of the Cash Amount at an
initial interest rate of four percent (4%) per annum or less (which rate may be
fixed or floating) and a maturity of not less than three hundred sixty four
(364) days and otherwise on reasonable and customary terms and conditions for a
financing of comparable size and form (the "FINANCING"). As of the date hereof,
DST does not know of any fact, agreement, plan or other circumstance, in each
case that could reasonably be expected to prevent DST from obtaining the
Financing or satisfying the condition set forth in Section 8.3.3.
ARTICLE VII.
TAX MATTERS
Notwithstanding anything to the contrary in this Agreement, from and after the
Closing, except as expressly provided in the Tax Sharing Agreement, (a) the
parties' sole and exclusive representations, warranties, covenants, agreements
or other obligations (including indemnities or any obligations) arising pursuant
to this Agreement, by Laws or otherwise with respect to tax matters (interpreted
it its broadest sense) including the tax consequences of the transactions
contemplated in this Agreement and any other subject matters referred to in the
Tax Sharing Agreement shall be as set forth therein; and (b) no other
representation, warranty, covenant, agreement or obligation (including
indemnities or any obligations) arising pursuant to this Agreement, by Laws or
otherwise shall be deemed to apply to such matters.
ARTICLE VIII.
CONDITIONS TO CLOSING
Section 8.1 MUTUAL CONDITIONS. The respective obligations of each party
hereto to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or, if legally permitted, waiver at or prior to the
Closing of the following conditions:
8.1.1 the DST Stockholders Approval shall have been obtained;
8.1.2 No Governmental Authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order of any nature that
prohibits, enjoins or restrains the consummation of the transactions
contemplated by this Agreement;
8.1.3 DST shall have received an opinion of each of Sonnenschein
Nath & Rosenthal and PricewaterhouseCoopers LLP, and (b) Janus shall have
received an opinion of each of Wachtell, Lipton, Rosen & Katz and Ernst & Young
LLP, in each case in form and substance substantially as set forth as Exhibits
B-1 through B-4, dated as of the Closing Date;
8.1.4 The consents and approvals of Governmental Authorities
required under the HSR Act shall have been obtained (or any applicable waiting
period thereunder shall have expired or been terminated); and
8.1.5 Each of the Ancillary Agreements, except as provided in the
letter agreement between the parties dated August 25, 2003 accompanying the
Ancillary Agreements, shall be executed and entered into by each of the parties
thereto.
Section 8.2 CONDITIONS TO JANUS' OBLIGATIONS. The obligations of Janus to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment or waiver by Janus prior to or at the Closing of each of the
following conditions:
8.2.1 The representations and warranties of DST and its Affiliates
set forth in Article IV of this Agreement or in any agreement or certificate
delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct as of the date hereof
and as of the Closing (except that representations and warranties made as of a
specified date, shall be true and correct only as of such specified date), and
Janus shall have received a certificate, dated the Closing Date, signed on
behalf of DST by an appropriate officer of DST to such effect; PROVIDED,
HOWEVER, that for purposes of this paragraph, such representations and
warranties shall be deemed to be true and correct unless the failure or failures
of such representations and warranties to be so true and correct, either
individually or in the aggregate, and without giving effect to any qualification
as to materiality or Material Adverse Effect set forth in such representations
or warranties, has had or is reasonably likely to have a Material Adverse Effect
on the Business or OMS. For the avoidance of doubt, the preceding proviso shall
have no effect upon DST's obligations under Article X.
8.2.2 DST and OMS shall have performed in all material respects
each obligation and agreement to be performed by it, and shall have complied in
all material respects with each covenant required by this Agreement to be
performed or complied with by it at or prior to the Closing, and Janus shall
have received a certificate, dated the Closing Date, signed on behalf of DST by
an appropriate officer of DST to such effect.
8.2.3 Prior to or at the Closing, DST shall have obtained the
Required Consents other than the Estoppel Certificates and the landlord consents
referred to in Section 6.6.2 and those required consents the failure of which to
obtain will not have a Material Adverse Effect on the Business or OMS following
the Closing.
8.2.4 Janus shall have obtained the Janus Consent; provided that
Janus shall have used its reasonable commercial efforts to obtain the Janus
Consent.
8.2.5 Since the date hereof, there shall not have been any Material
Adverse Effect with respect to the Business or OMS.
8.2.6 Prior to or at the Closing, DST shall have delivered to Janus
the items to be delivered pursuant to Section 2.3.
8.2.7 Prior to or at the Closing, the Reorganization shall have
been completed.
8.2.8 Prior to or at the Closing, DST shall have delivered to Janus
a schedule setting forth the name of each Business Employee, along with the
Employee's job title and reporting position, current salary and bonus
opportunity, and years of service, and designating the Employee's status as
exempt or non-exempt under the Fair Labor Standards Act, whether the Employee's
years of service are continuous or broken, and whether the Employee is full-time
or part-time, which schedule shall be in form reasonably satisfactory to Janus.
Section 8.3 CONDITIONS TO DST'S AND OMS'S OBLIGATIONS. The obligations of
DST and OMS to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver at or prior to the Closing of each of
the following conditions:
8.3.1 The representations and warranties of Janus set forth in
Article V of this Agreement or in any agreement or certificate delivered
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby shall be true and correct as of the date hereof and as of
the Closing (except that representations and warranties made as of a specified
date shall be true and correct only as of such specified date), and DST shall
have received a certificate, dated the Closing Date, signed on behalf of Janus
by an appropriate officer of Janus to such effect; PROVIDED, HOWEVER, that for
purposes of this paragraph, such representations and warranties shall be deemed
to be true and correct unless the failure or failures of such representations
and warranties to be so true and correct, either individually or in the
aggregate, and without giving effect to any qualification as to materiality or
Material Adverse Effect set forth in such representations or warranties, has had
or is reasonably likely to have a material adverse effect on the ability of
Janus to consummate the transactions contemplated hereby. For the avoidance of
doubt, the preceding proviso shall have no effect upon Janus' obligations under
Article X.
8.3.2 Janus shall have performed in all material respects each
obligation and agreement to be performed by it, and shall have complied in all
material respects with each covenant required by this Agreement to be performed
or complied with by it at or prior to the Closing, and DST shall have received a
certificate, dated the Closing Date, signed on behalf of Janus by an appropriate
officer of Janus to such effect.
8.3.3 DST shall have entered into customary agreements providing
for the receipt by DST of the Financing (it being understood that DST may not
assert this condition in the event that it has breached its obligation under
Section 6.26, including if such Financing is available to DST from Janus or
other sources on terms and conditions consistent with those set forth in Section
6.26).
8.3.4 DST shall have received Credit Facilities Consents; provided
that DST shall have used its reasonable commercial efforts to obtain the Credit
Facilities Consent.
8.3.5 Prior to or at the Closing, Janus shall have delivered to DST
the items to be delivered pursuant to Section 2.4.
Section 8.4 FRUSTRATION OF CLOSING CONDITIONS. None of DST, OMS or Janus
may rely on the failure of any condition set forth in this Article VIII to be
satisfied if such failure was caused by such party's failure to act in good
faith or to use its reasonable commercial efforts to cause the Closing to occur
as required by Section 6.6.1.
ARTICLE IX.
TERMINATION
Section 9.1 TERMINATION. This Agreement may be terminated at any time prior
to the consummation of the Closing under the following circumstances:
9.1.1 by mutual written consent of DST and Janus;
9.1.2 by either Janus or DST upon written notice to the other if
the Closing shall not have been consummated on or before January 30, 2004;
PROVIDED that the right to terminate this Agreement under this Section 9.1.2
shall not be available to a party if such party's or such party's Affiliate's
willful act or willful failure to act has been the cause of or resulted in the
failure of the Closing to be consummated on or before the January 30, 2004;
9.1.3 by either DST or Janus upon written notice to the other if
the DST Stockholder Approval shall not have been obtained by reason of the
failure to obtain the Required Vote, upon the taking of such vote at a duly held
meeting of the stockholders of DST or at any adjournment thereof; provided that
the right of DST to terminate this Agreement under this Section 9.1.3 shall not
be available to DST if its breach of Section 6.1 or 6.2 has been the cause of,
or resulted in, such failure;
9.1.4 by Janus upon written notice to DST, if any of the conditions
to the Closing set forth in Section 8.2 shall have become incapable of
fulfillment by the January 30, 2004 and shall not have been waived in writing by
Janus;
9.1.5 by either DST or Janus upon written notice to the other that
the conditions set forth in Section 8.1.3 have become incapable of fulfillment
by January 30, 2004 due to changes in the law, regulations or interpretations of
the Internal Revenue Service.
9.1.6 by DST upon written notice to Janus, if any of the conditions
to the Closing set forth in Section 8.3 shall have become incapable of
fulfillment by the January 30, 2004 and shall not have been waived in writing by
DST; or
9.1.7 by Janus, if DST shall not have obtained the Credit
Facilities Consent or the Financing within ninety (90) days from the date of
this Agreement.
9.1.8 by either Janus or DST upon written notice to the other, if
there shall be in effect a final, non-appealable order of a court or government
administrative agency of competent jurisdiction permanently prohibiting the
consummation of the transactions contemplated hereby
9.1.9 by DST, if Janus shall not have obtained the Janus Consent
within ninety (90) days from the date of this Agreement.
Section 9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 9.1, this Agreement, except for the provisions of
(i) Section 6.12.1 relating to the obligation of the parties to keep
confidential certain information obtained by it, (ii) Article XI, and (iii) this
Section 9.2, shall become void and have no effect, without any liability on the
part of any party hereto or its directors, officers or stockholders.
Notwithstanding the foregoing, (a) nothing in this Section 9.2 shall relieve any
party hereto of liability for a willful breach of any of its obligations under
this Agreement, and (b) if it shall be finally judicially determined that
termination of this Agreement was caused by an intentional and deliberate breach
of this Agreement, then, in addition to other remedies at Law or equity for
breach of this Agreement, the party so found to have intentionally and
deliberately breached this Agreement shall indemnify and hold harmless the other
parties hereto for their respective out-of-pocket costs, including the
reasonable fees and expenses of their counsel, accountants, financial advisors
and other experts and advisors, as well as reasonable fees and expenses incident
to the negotiation, preparation and execution of this Agreement and related
documentation.
ARTICLE X.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
Section 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties provided for in this Agreement or in any
agreement or certificate delivered pursuant to the provisions hereof or in
connection with the transactions contemplated hereby shall survive the Closing
until the second anniversary of the Closing; provided that the representations
and warranties set forth in Sections 4.1.1, 4.2 and 4.12 and in Sections 5.1 and
5.4 shall survive indefinitely and the representations and warranties set forth
in Sections 4.3 and 5.2 shall survive until the third anniversary of the
Closing; provided further that any representations and warranties shall survive
with respect to, and to the extent of, any claim for indemnification made in
accordance with this Article X prior to the applicable termination date.
Section 10.2 INDEMNIFICATION BY DST.
10.2.1 Subject to the limitations set forth in this Article X,
subsequent to the Closing, DST shall indemnify, defend and hold harmless Janus
and its respective Subsidiaries (including, following the Closing, OMS), and
Affiliates, and their respective officers, directors, employees, agents and
representatives, and each of their heirs, executors, successors and assigns
(collectively, the "REPRESENTATIVES"), against and in respect of any and all
Damages arising out of, resulting from or incurred in connection with or
relating to:
10.2.1.1 any breach of a representation or warranty made by DST or
OMS in this Agreement or any Schedule hereto or other agreement or document
delivered in connection herewith;
10.2.1.2 any breach of any agreement or covenant of DST or OMS
contained in this Agreement;
10.2.1.3 the Excluded Liabilities, the Excluded Assets, the
Retained Business and any legal, administrative or arbitration proceeding, suit
or action of any nature with respect thereto; or
10.2.1.4 any Restrictions;
10.2.1.5 the claim described in Section 4.17.1 of DST's Disclosure
Schedule; or
10.2.1.6. the failure of DST to obtain the consents referred to in
Section 4.4 of the DST Disclosure Schedule.
10.2.2 Notwithstanding the foregoing and subject to the following
sentence, in the case of (i) Damages incurred as a result of a breach set forth
in Section 10.2.1.1 or 10.2.1.2 and (ii) Other Tax Liabilities (as defined in
the Tax Sharing Agreement) for which DST would otherwise be liable pursuant to
Section 3.a(ii) of the Tax Sharing Agreement, DST shall not be liable for
indemnification hereunder or under Section 3.a(ii) of the Tax Sharing Agreement
unless and until the aggregate amount of such Damages, together with any such
Other Tax Liabilities, exceeds five million dollars ($5,000,000) (the "DST
BASKET"), in which event Janus shall be entitled to indemnification for all
Damages and Other Tax Liabilities in excess of the DST Basket; PROVIDED, that
DST's aggregate liability with respect to Section 10.2.1.1 or 10.2.1.2 hereof
and Section 3.a(ii) of the Tax Sharing Agreement shall in no event exceed one
hundred fifteen million dollars ($115,000,000) (the "DST CAP"). Neither the DST
Basket nor the DST Cap shall apply to Income Tax Liabilities (as defined in the
Tax Sharing Agreement), Damages under Section 10.2.1.3, 10.2.1.4, 10.2.1.5 or
10.2.1.6 above or Damages incurred as a result of a breach of representations or
warranties contained in Sections 4.1, 4.2, 4.3, 4.12 or 4.15, or a breach of any
agreement or covenant (other than the covenants contained in Section 6.6 and
Section 10.2) of DST or any of its Affiliates (other than OMS) contained in this
Agreement to be performed after Closing. It is understood that to the extent a
matter constitutes both a breach of a representation or warranty and an Excluded
Liability, the matter shall be treated as an Excluded Liability and the DST
Basket and DST Cap shall not apply thereto.
10.2.3 In order to prevent duplication of recovery under this
Agreement with respect to any particular Damage: (a) Janus will not be entitled
to indemnification under this Article X for any Damages to the extent such
Damages have reduced the amount of Business Assets or increased the amount of
Business Liabilities, in each case which are set forth on the Closing Date
Balance Sheet and included in the calculation of Adjusted Shareholders Equity,
and (b) no party will be entitled to indemnification for any particular Damages
(or application of particular Damages against the applicable basket) under any
provision of this Agreement to the extent such party has already been
indemnified for such Damages (or such Damages have already been applied against
the applicable basket) under another provision of this Agreement.
Section 10.3 INDEMNIFICATION BY JANUS.
10.3.1 Subject to the limitations set forth in this Article X,
subsequent to the Closing, Janus shall indemnify, defend and hold harmless DST
and its Representatives, against and in respect of any and all Damages arising
out of, resulting from or incurred in connection with or relating to:
10.3.1.1 any breach of a representation or warranty made by Janus
in this Agreement or any Schedule hereto or other agreement or document
delivered in connection herewith;
10.3.1.2 any breach of any agreement or covenant of Janus contained
in this Agreement;
10.3.1.3 any Business Liability; or
10.3.1.4 Janus' operation of the Business after Closing, but not to
the extent resulting from DST's or any of its Affiliates' (including OMS's)
actions or operations prior to Closing.
10.3.2 Notwithstanding the foregoing and subject to the following
sentence, in the case of Damages incurred as a result of a breach set forth in
Section 10.3.1.1 or 10.3.1.2, Janus shall not be liable for indemnification
hereunder unless and until the aggregate amount of such Damages exceeds five
million dollars ($5,000,000) (the "JANUS BASKET"), in which event DST shall be
entitled to indemnification for all Damages in excess of the Janus Basket;
PROVIDED, HOWEVER, that Janus' aggregate liability with respect to Section
10.3.1.1 or 10.3.1.2 shall in no event exceed one hundred fifteen million
($115,000,000) (the "JANUS CAP"). Neither the Janus Basket nor the Janus Cap
shall apply to Damages under Section 10.3.1.3 or 10.3.1.4 above or Damages
incurred as a result of a breach of representations or warranties contained in
Sections 5.1, 5.2 or 5.4 or a breach of any agreement or covenant of Janus
contained in this Agreement to be performed after Closing. It is understood that
to the extent a matter constitutes a Business Liability but also constitutes a
breach of a representation or warranty by DST or OMS, the matter shall not be
treated as a Business Liability for purposes of Section 10.3.
Section 10.4 DEFINITION OF DAMAGE; DETERMINATION OF INDEMNIFICATION. For
purposes of this Article X, "DAMAGES" shall mean, collectively, any and all
claims, damages, settlement amounts, penalties, or losses, whatsoever (other
than consequential damages), together with out-of-pocket costs and expenses,
including reasonable fees and disbursements of counsel, accountants, consultants
or experts and expenses of investigation incurred by a party entitled to
indemnification hereunder as a result of a matter giving rise to a claim for
indemnification hereunder, such amounts to be (a) determined net of (1) the
insurance proceeds which the indemnified party actually receives in respect of
such matter and (2) indemnity payments which the indemnified party actually
receives from parties other than the indemnifying party hereunder in respect of
such matter, (b) increased by any Tax (or increased by any reduction in any Tax
Benefit) actually borne by the indemnified party that would not have been borne
but for such Damages or the payment of any indemnity in respect thereof and (c)
decreased by any Tax Benefit (or decreased by any reduction in any Tax) actually
realized by the indemnified party that would not have been realized but for such
Damages or the payment of any indemnity in respect thereof. For purposes of this
paragraph, the indemnified party will be deemed to recognize a Tax Benefit with
respect to a taxable year if, and to the extent that, the indemnified party's
cumulative liability for Taxes through the end of such taxable year, calculated
by excluding any Tax items attributable to the Damages and the receipt of
indemnity payments therefor from all taxable years, exceeds the indemnified
party's actual cumulative tax liability for Taxes through the end of such
taxable year, calculated by taking into account any Tax items attributable to
the Damages and the receipt of indemnity payments therefor for all taxable years
(to the extent permitted by relevant Tax law and treating such Tax items as the
last items taken into account for any taxable year). When, as, and if the
indemnified party recognizes any Tax Benefit attributable to Damages after the
making of indemnification payments therefor, and to the extent such Tax Benefit
has not reduced the amount of such indemnification payments, the indemnified
party will promptly after recognition thereof pay in cash the amount of such
recognized Tax Benefit to an account specified by the indemnifying party.
Notwithstanding the foregoing, no indemnified party shall have any duty to
mitigate or seek any other sources of recovery.
Section 10.5 NOTICE.
10.5.1 If any matter shall arise which may involve or give rise to
a claim by Janus against DST under the provisions of Section 10.2 or by DST
against Janus under the provisions of Section 10.3 (an "INDEMNITY CLAIM"), Janus
or DST, as the case may be, shall give prompt written notice (a "NOTICE OF
CLAIM") of such Indemnity Claim, a description in reasonable detail of the
factual basis thereof (to the extent such information is available), and the
amount of indemnity sought (if then known or reasonably determinable) to DST (if
a claim by Janus) or to Janus (if a claim by DST); PROVIDED, that the failure to
give timely notice will not relieve DST (if a claim by Janus) or Janus (if a
claim by DST) from the obligation to indemnify against such claim except to the
extent that DST (if a claim by Janus) or Janus (if a claim by DST) establishes
by competent evidence that it is materially prejudiced thereby.
10.5.2 If DST does not, within 45 days after receipt of a Notice of
Claim, notify Janus in writing that DST disputes the applicable Indemnity Claim,
in whole or in part, then DST shall promptly pay to Janus by wire transfer of
immediately available funds to an account designated by Janus the amount of the
Indemnity Claim. If DST within 45 days after receipt of a Notice of Claim
notifies Janus in writing that DST disputes the applicable Indemnity Claim, in
whole or in part, then the provisions of Section 10.5.4 shall apply. If a Notice
of Claim is made by Janus under Section 10.5.1 hereof and if it is agreed or
determined (pursuant to Section 10.5.4 or by a court of competent jurisdiction)
that DST is obligated to indemnify Janus, such indemnification shall be paid
promptly by wire transfer of immediately available funds to an account
designated by Janus.
10.5.3 If Janus does not, within 45 days after receipt of a Notice
of Claim, notify DST in writing that Janus disputes the applicable Indemnity
Claim, in whole or in part, then Janus shall promptly pay to DST by wire
transfer of immediately available funds to an account designated by DST the
amount of the Indemnity Claim. If Janus within 45 days after receipt of a Notice
of Claim notifies DST in writing that Janus disputes the applicable Indemnity
Claim, in whole or in part, then the provisions of Section 10.5.4 shall apply.
If a Notice of Claim is made by DST under Section 10.5.1 hereof and if it is
agreed or determined (pursuant to Section 10.5.4 or by a court of competent
jurisdiction) that Janus is obligated to indemnify DST, such indemnification
shall be paid promptly by wire transfer of immediately available funds to an
account designated by DST.
10.5.4 In the event that the indemnifying party disputes the
existence and/or amount of a claim for indemnification set forth in a Notice of
Claim, it will be entitled to deliver a notice to the indemnified party
disputing its validity or the amount thereof (the "CLAIM DISPUTE NOTICE"). The
Claim Dispute Notice will be given within 45 days of receipt of the Notice of
Claim to which the Claim Dispute Notice relates. Upon receiving such Claim
Dispute Notice, the indemnified party shall provide the indemnifying party with
access to such books and records as may be reasonably requested by the
indemnifying party for purposes of verifying such claim. The indemnified party
and the indemnifying party shall in good faith meet promptly after such review
so as to come to a settlement of the matter. In the event a settlement is not
achieved within 30 days after the date of the Claim Dispute Notice, the
indemnified party may pursue whatever legal remedies may be available.
Section 10.6 THIRD PARTY CLAIM.
10.6.1 If Janus' Indemnity Claim involves any Action brought or
made by any third party (a "THIRD PARTY CLAIM"), then DST may elect (by written
notice to Janus delivered within thirty (30) days of notice by Janus to DST
pursuant to Section 10.5.1) to assume at its expense the defense of such Third
Party Claim using counsel reasonably acceptable to Janus; PROVIDED that DST may
not so elect if Janus has been pursuing the defense thereof for at least six
months and DST's assumption of such defense would materially prejudice Janus or
the defense. If DST does not so elect to assume such defense, then such Third
Party Claim shall be defended by Janus in such manner as it reasonably deems
appropriate (and the costs, fees and expenses of Janus for such defense shall
constitute Damages), including entering a reasonable settlement thereof in which
event the settlement plus Janus' costs, fees and expenses with respect thereto
shall be the Damage; PROVIDED that Janus shall not enter into any settlement of
such Third Party Claim without the prior written consent of DST, which consent
shall not be unreasonably withheld, unless DST and its Affiliates have no
liability therefor, are not required to admit any liability and will not be
bound by any restrictions or limitations on its or their conduct thereafter, and
no negative precedent for future claims, actions or litigation against DST and
its Affiliates will be established, in which case no consent shall be required.
If the Third Party Claim has been assumed by DST, DST shall cooperate with Janus
in connection with such defense and shall permit Janus to participate therein;
PROVIDED, that DST shall not be liable to Janus under the provisions hereof for
any legal or other expenses incurred by Janus in connection with Janus'
participation in the defense of such Third Party Claim after DST has elected to
assume the defense thereof so long as DST is diligently contesting such Third
Party Claim in good faith, unless Janus determines in good faith that an actual
or potential conflict of interest exists between Janus and DST or that there are
different or additional defenses available to Janus that are not available to
DST, in which case Janus may engage separate counsel (the fees and costs of
which shall be borne by DST). DST may not enter into any settlement of a Third
Party Claim without the prior written consent of Janus, which will not be
unreasonably withheld.
10.6.2 If DST's Indemnity Claim involves a Third Party Claim, then
Janus may elect (by written notice to DST delivered within thirty (30) days of
notice by DST to Janus pursuant to Section 10.5.1) to assume at its expense the
defense of such Third Party Claim using counsel reasonably acceptable to DST;
PROVIDED that Janus may not so elect if DST has been pursuing the defense
thereof for at least six months and Janus' assumption of such defense would
materially prejudice DST or the defense. If Janus does not so elect to assume
such defense, then such Third Party Claim shall be defended by DST in such
manner as it reasonably deems appropriate (and the costs, fees and expenses of
DST for such defense shall constitute Damages), including entering a reasonable
settlement thereof in which event the settlement plus DST's costs, fees and
expenses with respect thereto shall be the Damage; PROVIDED that DST shall not
enter into any settlement of such Third Party Claim without the prior written
consent of Janus, which consent shall not be unreasonably withheld, unless Janus
and its Affiliates have no liability therefor, are not required to admit any
liability and will not be bound by any restrictions or limitations on its or
their conduct thereafter, and no negative precedent for future claims, actions
or litigation against Janus and its Affiliates will be established, in which
case no consent shall be required. If the Third Party Claim has been assumed by
Janus, Janus shall cooperate with DST in connection with such defense and shall
permit DST to participate therein; PROVIDED, that Janus shall not be liable to
DST under the provisions hereof for any legal or other expenses incurred by DST
in connection with DST's participation in the defense of such Third Party Claim
after Janus has elected to assume the defense thereof so long as Janus is
diligently contesting such Third Party Claim in good faith, unless DST
determines in good faith that an actual or potential conflict of interest exists
between DST and Janus or that there are different or additional defenses
available to DST that are not available to Janus, in which case DST may engage
separate counsel (the fees and costs of which shall be borne by Janus). Janus
may not enter into any settlement of a Third Party Claim without the prior
written consent of DST, which will not be unreasonably withheld.
Section 10.7 EXCLUSIVITY. Following the Closing, except in the case of
common law fraud or with respect to matters for which the remedy of specific
performance, injunctive relief or other non-monetary equitable remedies are
available, the sole and exclusive remedy of the parties with respect to any and
all claims arising from any breach of this Agreement or any of the other matters
addressed in Section 10.2 or 10.3 shall be pursuant to the indemnification
provisions set forth in this Article X; PROVIDED that all matters relating to
Taxes shall be addressed in the Tax Sharing Agreement.
ARTICLE XI.
MISCELLANEOUS
Section 11.1 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile (with confirming copy sent by one of the other delivery methods
specified herein), by overnight courier or sent by certified, registered or
express air mail, postage prepaid, and shall be deemed given when so delivered
personally, or when so received by facsimile or courier, or, if mailed, three
calendar days after the date of mailing, as follows:
If to DST: DST Systems, Inc.
333 West 11th Street,
Kansas City Missouri, 64105
Facsimile: (816) 435-8630
Attention: Randall D. Young Esq.
with copies to: Sonnenschein Nath & Rosenthal LLP
4520 Main Street, Suite 1100
Kansas City, MO 64111
Facsimile: (816) 531-7545
Attention: John F. Marvin, Esq.
If to Janus: Janus Capital Group Inc.
100 Fillmore Street,
Denver, Colorado 80206
Facsimile: (303) 394-7714
Attention: Thomas A. Early, Esq.
and with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: (212) 403-2000
Attention: Craig M. Wasserman, Esq.
or to such other address and with such other copies as any party hereto shall
notify the other parties hereto (as provided above) from time to time.
Section 11.2 EXPENSES. Regardless of whether the transactions provided for
in this Agreement are consummated, except as otherwise expressly provided
herein, each of the parties hereto shall pay its own expenses incident to this
Agreement and the transactions contemplated herein (including legal fees,
accounting fees, investment banking fees and filing fees).
Section 11.3 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be governed by, and construed in accordance with, the internal Laws of the State
of Delaware, without reference to the choice of law principles thereof. Each of
the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of Delaware and the United States District Court for any
district within such state for the purpose of any Action or judgment relating to
or arising out of this Agreement or any of the transactions contemplated hereby
and to the laying of venue in such court. Service of process in connection with
any such Action may be served on each party hereto by the same methods as are
specified for the giving of notices under this Agreement. Each party hereto
irrevocably and unconditionally waives and agrees not to plead or claim any
objection to the laying of venue of any such Action brought in such courts and
irrevocably and unconditionally waives any claim that any such Action brought in
any such court has been brought in an inconvenient forum.
Section 11.4 WAIVER OF JURY TRIAL. EACH PARTY HERETO ACKNOWLEDGES AND
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR ANY
ANCILLARY AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND,
THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT. EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (A) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH
ACTION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES
THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 11.4.
Section 11.5 ASSIGNMENT; SUCCESSORS AND ASSIGNS; NO THIRD PARTY RIGHTS.
This Agreement and the Ancillary Agreements may not be assigned by any party
hereto without the prior written consent of the other parties hereto, and any
attempted assignment shall be null and void. This Agreement and the Ancillary
Agreements shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as provided in
Section 10.2 or 10.3, this Agreement shall be for the sole benefit of the
parties hereto, and their respective successors and permitted assigns and is not
intended, nor shall be construed, to give any Person, other than the parties
hereto and their respective successors and permitted assigns any legal or
equitable right, benefit, remedy or claim hereunder. Nothing in this Agreement
shall prevent any party and its successors and permitted assigns from
consolidating with or merging with or into, or transferring, in one transaction
or a series of related transactions, substantially all of its assets to, any
Person or Persons; PROVIDED, HOWEVER, that the purchaser of substantially all of
the assets of the party or its successor or permitted assign shall agree with
the other party to be bound by all of the transferring party's obligations
hereunder.
Section 11.6 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original agreement, but all of which together
shall constitute one and the same instrument.
Section 11.7 TITLES AND HEADINGS. The headings and table of contents in
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
Section 11.8 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits attached hereto or delivered in connection herewith), the Ancillary
Agreements and the Confidentiality Agreement constitute the entire agreement
among the parties hereto with respect to the matters covered hereby and thereby,
and supersede all previous written, oral or implied understandings among them
with respect to such matters. Section 11.9 AMENDMENT AND MODIFICATION. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 11.10 PUBLICITY; PUBLIC ANNOUNCEMENTS. Unless otherwise required by
applicable Laws or the requirements of any national securities exchange (and, in
that event, only if time does not permit), at all times prior to the earlier of
the consummation of the Closing or termination of this Agreement pursuant to
Article IX, DST and Janus shall consult with each other before issuing, and give
each other a reasonable opportunity to review and comment upon, any press
release with respect to the transactions contemplated hereby and shall not issue
any such press release without each other's consent, which consent shall not be
unreasonably withheld or delayed. The parties agree that the initial press
release to be issued with respect to this Agreement and the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by the
parties.
Section 11.11 WAIVER. Any of the terms or conditions of this Agreement may
be waived at any time by the party or parties hereto entitled to the benefit
thereof, but only by a writing signed by the party or parties waiving such terms
or conditions.
Section 11.12 SEVERABILITY. If any term, provisions, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
Section 11.13 NO STRICT CONSTRUCTION. Janus and DST each acknowledge that
this Agreement has been prepared jointly by the parties hereto and shall not be
strictly construed against any party hereto.
Section 11.14 KNOWLEDGE. To the extent that any representation is made to
"DST'S KNOWLEDGE" (or similar words), such knowledge shall refer to the actual
knowledge of the individuals listed in Section 11.14 of DST's Disclosure
Schedule under the heading "DST's knowledge," without assuming any investigation
by such individual. To the extent that any representation is made to "JANUS'
KNOWLEDGE" (or similar words), such knowledge shall refer to the actual
knowledge of the individuals listed in Section 11.14 of Janus' Disclosure
Schedule, without assuming any investigation by such individual.
Section 11.15 AFFILIATE STATUS. To the extent that a party hereto is
required hereunder to take certain action with respect to entities designated
herein as such party's Affiliates, such obligation shall apply to such entities
only during such period of time that such entities are Affiliates of such party.
Section 11.16 TAX CONSEQUENCES. Each party hereto acknowledges and agrees
that no party has made, or is making in this Agreement, expressly or impliedly,
any representation or warranty regarding the tax effects or tax consequences, if
any, of the transactions contemplated in this Agreement or in the Ancillary
Agreements and that each party has consulted with and is relying upon its own
tax advisors with respect to such effects and consequences.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DST SYSTEMS, INC.
By: /S/ KENNETH V. HAGER
---------------------------------------------------
Name: Kenneth V. Hager
Title: Vice President, Chief Financial Officer
and Treasurer
DST OUTPUT MARKETING SERVICES, INC.
By: /S/ KENNETH V. HAGER
---------------------------------------------------
Name: Kenneth V. Hager
Title: Vice President
JANUS CAPITAL GROUP INC.
By: /S/ LOREN STARR
---------------------------------------------------
Name: Loren Starr
Title: Sr. Vice President and CFO
EXHIBIT A - [***]
[***]
[***] "BUSINESS PRODUCTS AND SERVICES" SHALL MEAN:
RAPID FULFILLMENT
-----------------
Rapid Fulfillment is digital printing or electronic delivery of materials that
are (i) printed in connection with the acquisition of a new customer by a client
of the Business or in response to an inquiry from an existing customer of a
client of the Business, and (ii) usually individually personalized with
client-supplied name, address and demographic information utilizing a
proprietary compilation software application and distributed production sites
owned by OMS in New York and Chicago and sites owned by DST and its Affiliates.
Rapid Fulfillment services may also include Integrated Fulfillment Services.
INTEGRATED FULFILLMENT
-----------------------
Integrated Fulfillment is the combination of pick and pack services with Rapid
Fulfillment, eLLITE Suite and On-demand services. Pick and pack is the pulling
of externally supplied and internally pre-printed materials from inventory and
insertion into a mailing with On-demand materials.
RAPID PUBLISHER
----------------
Rapid Publisher is a Web-enabled database publishing solution used by clients
that offer 403(b) and 401(k) plan administration to their customers. The service
utilizes a licensed software application that allows the client to customize
participant communication materials based upon the specific plan, and
personalize the materials to the specific plan participant.
RAPID COMPLIANCE
-----------------
This service consists of the production of prospectuses, supplements, annual
reports and semi-annual reports supplied by customers or third parties for
printing and mailing and electronic delivery to meet the regulatory requirements
of the 401(k), 403(b), non-variable annuity and mutual fund markets.
RAPID CONFIRM
-------------
Rapid Confirm utilizes the Mail Net software application for
distribution of brokerage trade confirmations, margin notices and address
changes to distributed print production sites, including those of DST
Affiliates, for printing and mailing at those sites for brokerage firm
customers.
RAPID PROXY
-----------
This product utilizes offset and On-demand capabilities to combine documents
such as proxy statements, annual reports, proxy voting cards, business reply
envelopes and other materials selected by the client, and bound into a single
book that can be personalized to the recipient.
ELLITE SUITE
-------------
A service that utilizes the eLLITE software application to support order
management, inventory management, fulfillment management and document management
of documents such as mutual fund fact sheets, prospectuses and other pre-sale
and post-sale materials, none of which are personalized documents such as
statements.
RAPID PORTFOLIO SERVICES
-------------------------
This service consists of the printing of portfolio reports for high net worth
individuals in digital four color format and bound using one of the following:
perfect bind, spiral or tape (but for purposes of clarity, portfolio reports
bound by other methods, e.g. stapling, are excluded from the definition of this
service).
COMMERCIAL PRINTING SERVICES
----------------------------
These services consist of graphics design; plate production; offset printing of
Static, Nonrecurring documents utilizing sheet press printing machines; bindery
services; envelope printing utilizing jet press machinery; and procurement of
the foregoing services from third party commercial printers and resale of such
services to clients.
For purposes of the foregoing, the following additional definitions shall apply:
"ON-DEMAND" means the printing of Static, documents that were historically
offset printed. Documents can be printed On-demand from files stored in
electronic databases because the contents of such documents are not altered
by the printer except for the recipient's name, address and limited
demographic information that is sometimes used to personalize the document.
On-demand documents are prepared in print ready formats and do not require
the use of software that formats the document except to the extent
necessary to facilitate the insertion of certain variable demographic data
unique to a transaction, external event or other action of the recipient.
By way of example, account applications and prospectuses are printed
On-demand, whereas, mutual fund account statements are not.
"STATIC" means that the information in the document does not change or
fluctuate based upon the occurrence of any transaction, recent event, or
action taken by the ultimate recipient of the document, except that the
name, address and other personal demographic information of the recipient
may be different in each document. By way of illustration, an account
application or a prospectus is a Static document, while a mutual fund
account statement is not Static because the information varies from
document to document based upon various factors such as financial
performance and actions of the recipient during the period reflected in the
statement.
"NONRECURRING" means that the event giving rise to the printing of the
document is of a type that does not usually occur on a repetitive basis
when the use of the document by the specific end user is considered. By way
of illustration, a Nonrecurring event is the submission by a client to its
customer or potential customer of a set of brochures, account applications
or other pre-sale marketing materials or fact sheets, or the fulfillment of
orders for technical materials that are requested by purchasers or
potential purchasers of a client's goods or services, such as engineering
schematics or instructions. In such cases, the end user does not typically
need or receive such a document more than once. In contrast, "Nonrecurring"
does not include documents of a type that are printed for events or reports
such as periodic account statements and confirmations of transactions in
mutual fund, brokerage, or other financial accounts, monthly billing for
television or utility services, the utilization of insurance benefits or
tax reports.
[***]
APPENDIX B
IRREVOCABLE AND CONTINUING PROXY
Pursuant to the terms of that certain Share Exchange Agreement, dated as of
August 25, 2003 (the "Agreement"), by and among DST Systems, Inc., a Delaware
corporation ("DST"), DST Output Marketing Services, Inc., a New York corporation
("OMS"), and the undersigned Janus Capital Group Inc., a Delaware corporation
("Janus"), Janus hereby irrevocably appoints the DST Proxy Committee as it shall
be constituted from time to time by the Board of Directors of DST, with full
power of substitution, as its attorney-in-fact and proxy to attend meetings,
vote, execute and deliver written consents and in all other ways act in its
place with respect to the exercise of all voting rights with respect to seven
million four hundred twenty-four thousand and fifty-two (7,424,052) shares of
common stock, par value $0.01 per share, of DST owned by Janus as of the date
hereof, appropriately adjusted for any stock dividend, stock split, reverse
stock split, share combination, reclassification, recapitalization or similar
transaction with respect to the common stock of DST (the "Shares"), until the
termination of this proxy as provided below.
Janus hereby represents, warrants and covenants that (i) this proxy is
irrevocable and is coupled with an interest, (ii) Janus shall take all action
reasonably requested by the DST Proxy Committee and/or DST to effect the intent
of this proxy and (iii) the DST Proxy Committee is hereby authorized to do all
such things and take all such actions as necessary to carry out the rights
granted hereunder. Janus further confirms that this proxy may be exercised by
the DST Proxy Committee with respect to each matter presented to the
Stockholders of DST.
THIS PROXY SHALL TERMINATE UPON ANY TRANSFER OF THE SHARES (INCLUDING
PURSUANT TO ANY PLEDGE OR LOAN OF THE SHARES OR ANY SIMILAR TRANSACTION), WITH
RESPECT TO THE SHARES TRANSFERRED, EXCEPT WITH RESPECT TO ANY SHARES AS TO WHICH
JANUS OR ANY AFFILIATE OF JANUS SHALL HAVE RETAINED VOTING RIGHTS.
Dated: August 25, 2003
JANUS CAPITAL GROUP INC.
By: ________________________________
Name: _____________________________
Title: ______________________________
APPENDIX C
August 25, 2003
Board of Directors
DST Systems, Inc.
333 West 11th Street, 5th Floor
Kansas City, MO 64105
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to DST Systems, Inc. ("DST") of the consideration to be exchanged in a
Transaction (as defined below) pursuant to a Share Exchange Agreement
("Agreement") to be entered into between DST, DST Output Marketing Services,
Inc. ("OMS") and Janus Capital Group Inc. ("Janus"). The Agreement provides for,
among other things, a transaction ("Transaction") whereby (a) DST shall assign,
transfer, convey and deliver to Janus and Janus shall accept and acquire from
DST all of the OMS common shares ("OMS Shares"), subsequent to a Reorganization
(as defined in the Agreement), in exchange for 32.3 million shares of DST common
stock owned by Janus ("Janus DST Shares") and (b) Janus shall assign, transfer,
convey and deliver to DST and DST shall accept and acquire from Janus the Janus
DST Shares in exchange for the OMS Shares.
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a customary
part of its investment banking business, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private placements and
valuations for estate, corporate and other purposes. We are currently acting as
financial advisor to DST in connection with the Transaction, for which DST will
pay us a fee for such services that is not contingent upon the consummation of
the Transaction. DST has also agreed to indemnify us against certain liabilities
that may arise in connection with this engagement. In addition, U.S. Bancorp
Piper Jaffray participated as a syndicate member in DST's August 12, 2003 sale
of $840,000,000 convertible notes. U.S. Bancorp Piper Jaffray was not a manager
or co-manager of this offering and its participation in the selling group
approximated three percent (3%) of the notes sold. U.S. Bancorp Piper Jaffray
will receive the same pro rata compensation as other selling group members.
Furthermore, in the ordinary course of our business, we and our affiliates may
actively trade securities of DST for our own account or the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary or appropriate under the circumstances. Among
other things, we have:
1. Reviewed a draft dated as of August 21, 2003 of the Agreement;
2. Reviewed certain publicly available business and financial information
relating to DST and Janus Capital Group that U.S. Bancorp Piper Jaffray
deemed to be relevant, including Annual Reports on Form 10-K for the fiscal
years ended December 31, 2002, 2001 and 2000, and Quarterly Reports on Form
10-Q for the quarters ended June 30 and March 31, 2003, and September 30,
2002;
3. Reviewed draft audited financial statements for OMS subsequent to the
Reorganization, but excluding the Additional Assets (as defined in the
Agreement), (such entity is defined herein as "OMS Post Reorganization")
for the years ended 2001 and 2002;
4. Reviewed interim financial statements for the six months ended June 30,
2003 for OMS Post Reorganization;
5. Reviewed financial projections prepared by the management of DST for the
years ending December 31, 2003 through December 31, 2005 for the following
scenarios:
- Base Case DST that excludes the impact of the Transaction;
- Proforma DST that includes the impact of the Transaction;
- Standalone OMS Post Reorganization.
6. Reviewed valuation of the OMS Post Reorganization operations prepared by
Standard & Poor's Corporate Value Consulting dated June 13, 2003;
7. Completed general business and financial due diligence with certain members
of DST and OMS management teams. Topics discussed included, but were not
limited to, the background and rationale for the Transaction, financial
condition, operating performance, balance sheet characteristics and
prospects of DST and OMS Post Reorganization;
8. Completed site visits to DST's headquarters in Kansas City, Missouri and
operations in Kansas City, Missouri and Chicago, Illinois;
9. Reviewed financial, market performance and other data of publicly traded
companies deemed relevant by U.S. Bancorp Piper Jaffray for comparison with
similar data from DST and OMS Post Reorganization; and
10. Reviewed additional information and analyses as deemed necessary by U.S.
Bancorp Piper Jaffray, including assessment of general economic, industry
and financial market conditions.
In conducting our review and in rendering our opinion, we have, with your
consent, relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us by DST or otherwise
made available to us, and have not attempted to independently verify, and have
not assumed responsibility for the independent verification, of such
information. We have assumed, in reliance upon the assurances of DST's
management, that the information provided to us has been prepared on a
reasonable basis in accordance with industry practice, and, with respect to
financial planning data and other business outlook information, reflects the
best currently available estimates and judgment of the management of DST and
OMS, and that management of DST and OMS is not aware of any information or facts
that would make the information provided to us incomplete or misleading. We have
assumed that there have been no material changes in the assets, financial
condition, results of operations, business or prospects of DST and OMS Post
Reorganization since the date of the last financial statements made available to
us. We have also assumed that DST and OMS Post Reorganization is not party to
any material pending transactions, other than the Transaction, anticipated
amendment to the DST credit facility and other transactions in the ordinary
course of business.
In arriving at our opinion, we have assumed that all the necessary regulatory
approvals and consents required for the Transaction will be obtained and that no
limitations, restrictions or conditions will be imposed that would have a
material adverse effect on DST or the contemplated benefits to DST of the
Transaction or will otherwise change the consideration for DST. We have assumed
that the Transaction will qualify as a tax-free exchange under the United States
Internal Revenue Code. We have also assumed that the final form of the Agreement
will be substantially similar to the last draft reviewed by us, without
modification of material terms or conditions.
In arriving at our opinion, we have not performed nor been furnished any
appraisals or valuations of the specific assets or liabilities of DST other than
the valuation of OMS Post Reorganization prepared by Standard & Poor's Corporate
Value Consulting dated June 13, 2003. We express no opinion regarding the
liquidation value of DST or OMS. The analyses we performed in connection with
this opinion were going concern analyses. We were not requested to opine, and no
opinion is hereby rendered, as to whether any analyses of an entity, other than
as a going concern, is appropriate in the circumstances and, accordingly, we
have performed no such analyses. The Board of Directors did not request that we
solicit, and we did not solicit, any expression of interest from any other
parties with respect to any alternative transaction.
We have undertaken no independent analysis of any pending or threatened
litigation, material claims, possible unasserted claims or other contingent
liabilities, to which DST or its affiliates is a party or may be subject, or of
any other governmental investigation of any possible unasserted claims or other
contingent liabilities to which either DST or its affiliates is a party or may
be subject. At DST's direction and with its consent, our opinion makes no
assumption concerning, and therefore does not consider, the potential effects of
any such litigation, claims or investigations or possible assertions of claims,
outcomes or damages arising out of any such matters.
This opinion is necessarily based upon the information available to us, facts
and circumstances and economic, market and other conditions as they exist, and
are subject to evaluation on the date hereof. Events occurring after the date
hereof could materially affect the assumptions used in preparing this opinion.
Except as provided in the engagement letter between DST and us, we have not
undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof and we do not have any obligation to
update, revise or reaffirm this opinion. We express no opinion herein as to the
prices at which DST common shares have traded or may trade at any future time.
This opinion is furnished pursuant to our engagement letter dated July 24 ,
2003. This opinion is directed to the Board of Directors of DST in connection
with its consideration of the Transaction. This opinion may not be published or
otherwise used, nor may any public references to U.S. Bancorp Piper Jaffray be
made except in accordance with our engagement letter. This opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Transaction. In connection with this opinion, we were
not requested to opine as to, and this opinion does not address, the basic
business decision of DST to proceed with or effect the Transaction or to
consider, alternative transactions that may have been available to DST.
Based upon and subject to the foregoing, and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the
consideration to be exchanged in the Transaction is fair, from a financial point
of view, to DST.
Sincerely,
U.S. BANCORP PIPER JAFFRAY INC.
/s/ U.S. Bancorp Piper Jaffrey
APPENDIX D
DST OUTPUT MARKETING
SERVICES
CONDENSED COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003
DST OUTPUT MARKETING SERVICES
CONDENSED COMBINED BALANCE SHEET
--------------------------------------------------------------------------------
JUNE 30, DECENBER 31,
(IN THOUSANDS OF DOLLARS) 2003 2002
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 3 $ 3
Accounts receivable
(net of allowance of $680 and $711) 12,969 10,369
Related party receivable - 16
Inventories 1,537 1,411
Deferred income taxes 381 378
Other current assets 1,455 1,154
-------- -------
16,345 13,331
Properties 5,004 6,097
Deferred income taxes 896 342
Affiliate receivable - 3,286
Other assets 183 183
-------- --------
Total assets $ 22,428 $ 23,239
======== ========
LIABILITIES AND INVESTED EQUITY
Current liabilities
Accounts payable $ 2,948 $ 2,792
Accrued compensation and benefits 1,632 1,971
Income taxes payable 202 1,763
Customer deposits 1,511 2,371
Other accrued liabilities 3,710 3,441
-------- --------
10,003 12,338
Affiliate payable 392 -
-------- --------
10,395 12,338
-------- --------
Commitments and contingencies
Invested equity 12,033 10,901
-------- --------
Total liabilities and invested equity $ 22,428 $ 23,239
======== ========
The accompanying notes are an integral part of these financial statements.
D-1
DST OUTPUT MARKETING SERVICES
CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
--------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2003 2002
Total revenues $ 44,524 $ 56,065
Operating costs 37,681 46,347
Selling, general and administrative costs 3,597 4,614
Depreciation and amortization 1,808 2,173
-------- --------
Income from operations 1,438 2,931
Interest expense (1) (83)
Other income (expense), net 97 (1,133)
-------- --------
Income before income taxes 1,534 1,715
Income taxes 606 705
-------- --------
Net income $ 928 $ 1,010
======== ========
The accompanying notes are an integral part of these financial statements.
D-2
DST OUTPUT MARKETING SERVICES
CONDENSED COMBINED STATEMENT OF CHANGES IN INVESTED EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
--------------------------------------------------------------------------------
TOTAL
INVESTED
EQUITY
(IN THOUSANDS OF DOLLARS) --------
DECEMBER 31, 2002 $ 10,901
Transfers from parent 204
Net income 928
--------
JUNE 30, 2003 $ 12,033
========
The accompanying notes are an integral part of these financial statements.
D-3
DST OUTPUT MARKETING SERVICES
CONDENSED COMBINED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
--------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2003 2002
CASH FLOWS - OPERATING ACTIVITIES
Net income $ 928 $ 1,010
--------- ---------
Depreciation and amortization 1,808 2,173
Deferred taxes (559) (601)
Increase in accounts receivable (2,584) (2,730)
Decrease (increase) in inventories
and other current assets (426) 70
Decrease in other assets - 10
Decrease in accounts payable and
accrued liabilities (1,995) (466)
Increase (decrease) in accrued
compensation and benefits (339) 400
--------- ---------
Total adjustments to net income (4,095) (1,144)
--------- ---------
Net (3,167) (134)
--------- ---------
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (715) (166)
--------- ---------
Net (715) (166)
--------- ---------
CASH FLOWS-FINANCING ACTIVITIES
Distributions to (from) DST 204 758
Increase (decrease) in affiliate
receivable/payable 3,678 (458)
--------- ---------
Net 3,882 300
--------- ---------
Net increase (decrease) in cash
and cash equivalents - -
Cash and cash equivalents, beginning
of period 3 3
--------- ---------
Cash and cash equivalents, end of period $ 3 $ 3
--------- ---------
The accompanying notes are an integral part of these financial statements.
D-4
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003 and 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
The interim Condensed Combined Financial Statements of DST Output Marketing
Services ("OMS" or the "Company") as of June 30, 2003 and for the six
months ended June 30, 2003 and June 30, 2002 included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the United States Securities and Exchange Commission
("SEC"). Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been considered or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Condensed Combined
Financial Statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended December 31,
2002.
In the opinion of management, the accompanying unaudited interim condensed
combined financial statements contain all adjustments (consisting of normal
interim closing procedures) necessary for a fair statement of the interim
results of the Company at June 30, 2003 and the results of operations of
the six months ended June 30, 2003 and 2002, and cash flows for the six
months ended June 30, 2003 and 2002.
The results of operations for the six months ended June 30, 2003 are not
necessarily indicative of the results to be expected for the full year
2003.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations and has presented the
required Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, as amended by SFAS No. 148,
ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE ("SFAS
123"), pro forma disclosure in the table below.
D-5
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003 and 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
The Company participates in certain DST Systems, Inc. ("DST") stock based
compensation plans. The Company applies APB 25 and related interpretations
in accounting for its plans, and accordingly, no compensation cost has been
recognized for the Company's fixed stock based compensation. Had
compensation cost been determined consistent with SFAS 123, the Company's
net income would have been reduced to the following pro forma amounts:
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2003 2002
Net income As reported $ 928 $ 1,010
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of relaxed tax effects (288) (352)
-------- --------
Net income Pro forma $ 640 $ 658
======== ========
The Company uses the Black-Scholes option pricing model which requires the
Company to make certain assumptions in order to estimate fair value.
2. COMMITMENTS AND CONTINGENCIES
The Company has a letter of credit of $305 for the period ended June 30,
2003. The letter of credit is secured by DST's debt facility.
From time to time, the Company enters into agreements with unaffiliated
parties containing indemnification provisions, the terms of which vary
depending on the negotiated terms of each respective agreement. The amount
of such obligations is not stated in the agreements. The Company's
liability under such indemnification provisions may be subject to time and
materiality limitations, monetary caps and other conditions and defenses.
The Company has entered into purchase and service agreements with its
vendors and consulting agreements with providers of consulting services to
the Company pursuant to which the Company has agreed to indemnify certain
of such vendors and consultants, respectively, against third party claims
arising from the Company's use of the vendor's product or the services of
the vendor or consultant.
At June 30, 2003, the Company had not accrued any liability on the
aforementioned indemnifications as amounts are not deemed material.
D-6
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2003 and 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
The Company is involved in various legal proceedings arising in the normal
course of business. While the ultimate outcome of these legal proceedings
cannot be predicted with certainty, it is the opinion of management, after
consultation with legal counsel, that the final outcome in such
proceedings, in the aggregate, would not have a material adverse effect on
the combined financial condition or results of operations of the Company.
D-7
APPENDIX E
DST OUTPUT MARKETING
SERVICES
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
PRICEWATERHOUSECOOPERS LLP
-------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
1055 Broadway, 10th Floor
Kansas City MO 64105-1595
Telephone (816) 472 7921
Facsimile (816) 218 1890
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of DST Systems, Inc.
In our opinion, the accompanying combined balance sheet and the related combined
statements of income, of changes in invested equity and of cash flows present
fairly, in all material respects, the financial position of DST Output Marketing
Services (the "Company") at December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for "Out-of-Pocket" expenses to conform with Emerging
Issues Task Force Issue No. 01-14, INCOME STATEMENT CHARACTERIZATION OF
REIMBURSEMENTS RECEIVED FOR "OUT-OF-POCKET" EXPENSES INCURRED.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
July 25, 2003
E-1
DST OUTPUT MARKETING SERVICES
COMBINED BALANCE SHEET
DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2002 2001
ASSETS
Current assets
Cash and cash equivalents $ 3 $ 3
Accounts receivable
(net of allowance of $711 and $974) 10,369 10,107
Related party receivable 16 9
Inventories 1,411 1,280
Deferred income taxes 378 460
Other current assets 1,154 1,159
--------- ---------
13,331 13,018
Properties 6,097 9,923
Deferred income taxes 342 -
Affiliate receivable 3,286 -
Other assets 183 143
--------- ---------
Total assets $ 23,239 $ 23,084
========= =========
LIABILITIES AND INVESTED EQUITY
Current liabilities
Accounts payable $ 2,792 $ 3,884
Related party payable - 160
Accrued compensation and benefits 1,971 2,043
Income taxes payable 1,763 1,582
Customer deposits 2,371 4,076
Other accrued liabilities 3,441 2,918
--------- ---------
12,338 14,663
Deferred income taxes - 638
Affiliate payable - 7,244
--------- ---------
12,338 22,545
--------- ---------
Commitments and contingencies (Note 10)
Invested equity 10,901 539
--------- ---------
Total liabilities and invested equity $ 23,239 $ 23,084
========= =========
The accompanying notes are an integral part of these financial statements.
E-2
DST OUTPUT MARKETING SERVICES
COMBINED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2002 2001 2000
Total revenues (includes related
party revenues of $15,497,
$14,869 and $13,796) $ 105,698 $ 112,032 $ 120,986
Operating costs 86,670 92,126 97,677
Selling, general and
administrative costs 9,174 10,517 12,475
Depreciation and amortization 5,249 4,550 3,966
--------- --------- ---------
Income from operations 4,605 4,839 6,868
Interest income 2 1 60
Interest expense (113) (816) (821)
Other (expense), net - (104) (230)
--------- --------- ---------
Income before income taxes 4,494 3,920 5,877
Income taxes 1,846 1,559 2,501
--------- --------- ---------
Net income $ 2,648 $ 2,361 $ 3,376
========= ========= =========
The accompanying notes are an integral part of these financial statements.
E-3
DST OUTPUT MARKETING SERVICES
COMBINED STATEMENT OF CHANGES IN INVESTED EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------
TOTAL
INVESTED
(IN THOUSANDS OF DOLLARS) EQUITY
--------
DECEMBER 31, 1999 $ 932
Capital contributions 301
Distributions (3,133)
Net income 3,376
--------
DECEMBER 31, 2000 1,476
Distributions (3,298)
Net income 2,361
--------
DECEMBER 31, 2001 539
Capital contributions 9,000
Distributions (1,286)
Net income 2,648
--------
DECEMBER 31, 2002 $ 10,901
========
The accompanying notes are an integral part of these financial statements.
E-4
DST OUTPUT MARKETING SERVICES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2002 2001 2000
CASH FLOWS - OPERATING ACTIVITIES
Net income $ 2,648 $ 2,361 $ 3,376
--------- --------- ---------
Depreciation and amortization 5,249 4,550 3,966
Deferred taxes (898) (66) 1,441
Decrease (increase) in accounts receivable (269) 2,348 (1,921)
Decrease (increase) in inventories and other
current assets (171) 992 (364)
Decrease in accounts payable and accrued liabilities (3,233) (2,244) (1,308)
Increase (decrease) in accrued compensation and
benefits (72) (955) 3
Other, net 5 21 (3)
--------- --------- ---------
Total adjustments to net income 611 4,646 1,814
--------- --------- ---------
Net 3,259 7,007 5,190
--------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (450) (1,569) (8,085)
Proceeds from sale of fixed assets 2 11 875
Other, net 5 22 59
--------- --------- ---------
Net (443) (1,536) (7,151)
--------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
Distributions to DST (1,286) (3,298) (3,133)
Increase (decrease) in affiliate receivable/payable (1,530) (2,371) 5,030
--------- --------- ---------
Net (2,816) (5,669) 1,897
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents - (198) (64)
Cash and cash equivalents, beginning of year 3 201 265
--------- --------- ---------
Cash and cash equivalents, end of year $ 3 $ 3 $ 201
========= ========= =========
The accompanying notes are an integral part of these financial statements.
E-5
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
1. BUSINESS AND BASIS OF PRESENTATION
BUSINESS
DST Output Marketing Services ("OMS" or the "Company") is a business
consisting of the Graphics Design and sheet-fed printing business
("Graphics") and the laser printing and fulfillment operations of the
Marketing Services Division of DST Systems, Inc. ("DST").
BASIS OF PRESENTATION
The combined financial statements have been derived from the financial
statements and accounting records of DST based on the historical assets,
liabilities and related operations of DST Output Marketing Services, Inc.,
DST Output of Illinois, Inc., the Graphics division of DST Output Graphic
Resources, Inc. and the Graphics division of DST Output of California, Inc.
DST is the ultimate parent of each of these entities. Since certain of
these operations are divisions, DST's investment in the Company is shown in
lieu of shareholder's equity in the combined financial statements. All
significant intercompany balances and transactions have been eliminated.
Management believes the assumptions underlying the combined financial
statements are reasonable. However, the combined financial statements
included herein may not necessarily reflect the Company's results of
operations, financial position and cash flows in the future or what its
results of operations, financial position and cash flows would have been
had the Company operated as a stand-alone entity during the periods
presented.
The historical financial statements of the entities comprising OMS include
charges from DST for costs such as rent and utility costs, insurance,
employee benefits and payroll processing, and information technology. The
historical amounts charged to the entities comprising OMS were based on
direct identification through the Company's cost accounting records, and
for Graphics, these costs were allocated based on various methods including
square footage, headcount and percentage of revenue. Additionally for
purposes of the combined financial statements, costs of $56 have been
recorded for the years ended December 31, 2002, 2001 and 2000,
respectively, which primarily represent costs associated with additional
information technology provided by DST. The Company's management believes
the methods used for assessing direct charges and allocations are
reasonable.
DST uses a centralized approach to cash management and the finance of its
operations. Cash deposits and payments for the Company are received or
distributed by DST on a regular basis and are netted against the affiliate
receivable/payable account. As a result, none of DST's cash, or cash
equivalents at the corporate level have been allocated to the Company in
the combined financial statements. Cash in the combined financial
statements represents amounts held by the Company's operations.
The Company maintains a borrowing/lending arrangement with an affiliate.
The Company pays or earns interest on its average outstanding balance based
on the prime rate and the average federated rate, respectively. For the
years ended December 31, 2002, 2001 and 2000, interest expense under this
arrangement was $113, $816 and $821, respectively, and interest earned was
$2, $1 and $60, respectively. At December 31, 2002 and 2001, the Company
had $3,286 and $(7,244), respectively, of net affiliate
receivables/(payables) attributable to this arrangement.
E-6
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues are recognized upon completion of the services
provided. Allowances for billing adjustments are estimated when revenues
are recognized and are recorded as reductions in revenues. The allowance
for doubtful accounts represents an amount considered by management to be
adequate to cover potential losses. Effective January 1, 2002, the Company
adopted Emerging Issues Task Force ("EITF") Issue No. 01-14, INCOME
STATEMENT CHARACTERIZATION OF REIMBURSEMENTS RECEIVED FOR "OUT-OF-POCKET"
EXPENSES INCURRED ("EITF No. 01-14), formerly EITF Topic No. D-103. In
accordance with EITF No. 01-14, the Company records the reimbursements
received for out-of-pocket expenses as revenue on an accrual basis.
CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs for the development of internal use software,
including coding and software configuration costs and costs of upgrades and
enhancements in accordance with Statement of Position ("SOP") 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE. These costs are amortized under the Company's current policy
on a straight-line basis, depending on the nature of the project, generally
over a three to ten year period. For the years ended December 31, 2002,
2001 and 2000, the Company capitalized $0, $1,202 and $1,942, respectively,
of costs related to such development.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out basis. Inventories are comprised primarily of
paper and envelope stocks.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost with major additions and
improvements capitalized. Cost includes the amount of interest cost
associated with significant capital additions. Production equipment, data
processing equipment, data processing software, furniture, fixtures and
other equipment are depreciated using straight-line and accelerated methods
over the estimated useful lives, principally three to five years. Leasehold
improvements are depreciated using the straight-line method over the lesser
of the term of the lease or life of the improvements.
LONG-LIVED ASSETS
Long-lived assets are assessed for impairment whenever events or
circumstances indicate the carrying value may not be fully recoverable by
comparing the carrying value to future undiscounted cash flows. To the
extent there is impairment, analysis is performed based on several
criteria, including, but not limited to, revenue trends, discounted
operating cash flows and other operating factors to determine the
impairment amount.
E-7
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
INCOME TAXES
The Company files a consolidated federal income tax return, as well as
consolidated or unitary returns in certain states, with DST and other
affiliates. The tax provisions of DST and the Company are prepared on a
separate return basis.
Deferred income tax effects of transactions reported in different periods
for financial reporting and income tax return purposes are recorded by the
liability method. This method gives consideration to the future tax
consequences of deferred income or expense items and immediately recognizes
changes in income tax laws upon enactment. The income statement effect is
generally derived from changes in deferred income taxes on the balance
sheet.
CUSTOMER DEPOSITS
The Company may require postage deposits from certain of its clients based
on contractual arrangements.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations and has presented the
required Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, as amended by SFAS No. 148,
ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE ("SFAS
123"), pro forma disclosure in the table below.
The Company participates in certain DST stock based compensation plans,
which are described separately in Note 5. The Company applies APB 25 and
related interpretations in accounting for its plans, and accordingly, no
compensation cost has been recognized for the Company's fixed stock based
compensation. Had compensation cost been determined consistent with SFAS
123, the Company's net income would have been reduced to the following pro
forma amounts:
YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Net income As reported $ 2,648 $ 2,361 $ 3,376
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects (674) (737) (467)
--------- --------- --------
Net income Pro forma $ 1,974 $ 1,624 $ 2,909
========= ========= =========
E-8
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments including cash,
accounts receivable, accounts payable and accrued liabilities and other
noncurrent liabilities, approximate fair value due to their short-term
nature.
3. LEASEHOLD IMPAIRMENT
During the year ended December 31, 2002, the Company recognized, in
depreciation and amortization, leasehold impairments of $980.
4. PROPERTIES
Properties and related accumulated depreciation and amortization are as
follows:
December 31,
----------------------
2002 2001
----------------------
Production equipment $ 9,181 $ 9,154
Data processing equipment 5,403 5,976
Furniture, fixtures and other equipment 3,892 3,868
Software 6,530 6,728
Leasehold improvements 4,197 4,049
Construction in progress 121 20
------- -------
29,324 29,795
Less accumulated depreciation and amortization 23,227 19,872
------- -------
Net properties $ 6,097 $ 9,923
======= =======
Depreciation and amortization expense for the years ended December 31,
2002, 2001 and 2000, was $5,249, $4,550 and $3,966, respectively.
E-9
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
5. INCOME TAXES
Income tax expense consists of the following components:
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
-------- -------- --------
Current
Federal $ 2,281 $ 1,393 $ 703
State and local 463 232 357
-------- -------- --------
Total current 2,744 1,625 1,060
Deferred
Federal (755) (62) 1,217
State and local (143) (4) 224
-------- -------- --------
Total deferred (898) (66) 1,441
-------- -------- --------
Total income tax expense $ 1,846 $ 1,559 $ 2,501
======== ======== ========
Differences between the Company's effective income tax rate and the U.S. federal
income tax statutory rate are as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
-------- -------- ---------
Income tax expense using the
statutory rate in effect $ 1,573 $ 1,372 $ 2,057
Tax effect of
State and local income taxes, net 208 148 378
Other 65 39 66
-------- -------- ---------
Total income tax expense $ 1,846 $ 1,559 $ 2,501
======== ======== =========
Effective tax rate 41.1% 39.8% 42.6%
Statutory federal tax rate 35.0% 35.0% 35.0%
E-10
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
The federal and state deferred tax assets (liabilities) recorded on the
Consolidated Balance Sheet are as follows:
DECEMBER 31,
-------------------
2002 2001
------- --------
Liabilities
Accumulated depreciation and amortization $ - $ 701
------- -------
Gross deferred tax liabilities - 701
------- -------
Assets
Accumulated depreciation and amortization 240 -
Book accruals not currently deductible for tax 379 450
Deferred compensation and other employee benefits 101 73
------- -------
Gross deferred tax assets 720 523
------- -------
Net deferred tax assets (liabilities) $ 720 $ (178)
======= =======
The Company files a consolidated return with its parent. The Internal
Revenue Service ("IRS") is completing its examination of the tax years
ended December 31, 1995 and 1996. There are no IRS proposed adjustments for
the Company for these periods. The IRS has recently initiated an
examination of the tax years ended December 31, 1999 and 2000.
6. INVESTED EQUITY
Certain transactions between OMS and DST are reflected as distributions to
or transfers to/from DST within the combined financial statements. Amounts
treated as distributions are recorded as a reduction to Invested Equity and
amounts treated as transfers to/from DST are recorded as a
decrease/increase to the affiliate receivable/payable component included in
the Combined Balance Sheet. Generally, increases in the affiliate
receivable/payable component result from the timing of cash requirements
throughout each year. Amounts treated as distributions to DST generally
reflect the transfer to DST of excess cash, to the extent such amounts were
not required for investing, financing or operating needs.
During 2002 and 2000, DST forgave intercompany advances of $9,000 and $301,
respectively, to OMS, which have been treated as capital contributions in
the Combined Statement of Changes in Invested Equity and are non-cash
activities for purposes of the Combined Statement of Cash Flows
E-11
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
STOCK OPTION PLANS
The Company participates in several DST stock based compensation plans,
which are described separately below.
The weighted average fair value of options granted to employees of the
Company was $10.70, $16.42 and $10.91 for 2002, 2001 and 2000,
respectively. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2002, 2001 and 2000,
respectively: expected option term of 2.9, 2.4 and 2.6 years, volatility of
44.4%, 42.0% and 38.5%, dividend yield of 0% and risk-free interest rate of
2.5%, 4.2% and 6.5%.
In September 1995, DST established the 1995 Stock Option and Performance
Award Plan, which now provides for the availability of 30,000,000 shares of
DST's common stock for the grant of awards to officers, directors and other
designated employees. The awards may take the form of an option, stock
appreciation right, limited right, performance share or unit, dividend
equivalent, or any other right, interest or option relating to shares of
common stock granted under the plan. The option exercise prices must be at
least equal to the fair market value of the underlying shares on the date
of grant. Options become exercisable and expire as determined by the
Compensation Committee of the DST Board of Directors at the date of grant.
Summary stock option activity for the Company is presented in the table
below (shares in thousands and weighted average exercise price in $):
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2002 2001 2000
------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
Outstanding at January 1 151 $ 46.38 151 $ 30.17 83 $ 22.57
Granted 125 34.59 92 56.92 110 32.61
Exercised (16) 24.23 (82) 28.06 (42) 21.57
Forfeited (8) 48.68 (10) 49.08
-------- -------- --------
Outstanding at December 31 252 $ 41.90 151 $ 46.38 151 $ 30.17
======== ======== ========
Exercisable at December 31 98 $ 46.47 51 $ 26.72 40 $ 23.76
E-12
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
Summary information concerning the Company's outstanding and exercisable
stock options as of December 31, 2002 follows:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------------------- ---------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF OPTIONS CONTRACTUAL LIFE PRICE OF OPTIONS PRICE
PER SHARE (IN THOUSANDS) (IN YEARS) PER SHARE (IN THOUSANDS) PER SHARE
---------------- ---------------- ---------------- ---------------- ---------------- --------------
$10.00 - $19.99 4 3.5 $ 11.38 4 $ 11.38
20.00 - 29.99 29 7.1 28.50 29 28.50
30.00 - 39.99 94 9.6 31.84
40.00 - 49.99 48 9.0 44.12 15 47.75
50.00 - 60.35 70 8.3 57.83 50 58.93
64.00 - 74.06 7 7.9 73.36
---------------- ---------------- ---------------- ---------------- --------------
$10.00 - $74.06 252 8.7 $ 41.90 98 $ 46.47
STOCK PURCHASE PLANS
The 2000 DST Systems, Inc. Employee Stock Purchase Plan (the "Plan")
provides the right to subscribe to 2.0 million shares of common stock to
substantially all employees of DST and participating subsidiaries, except
those whose customary employment is less than 20 hours per week or is five
months or less per calendar year, or those who are 5% or greater
stockholders of DST. The purchase price for shares under any stock offering
is to be 85% of the average market price on either the exercise date or the
offering date, whichever is lower. Approximately 10 thousand shares were
issued to employees of the Company under the Plan in 2002. At December 31,
2002, there were approximately 1.3 million shares available for future
offerings. The fair value of purchase rights granted in 2002, 2001 and 2000
was $9.06, $13.26 and $8.05, respectively. The fair value of purchase
rights granted is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used
for grants in 2002, 2001 and 2000, respectively: expected option term of
1.0, 1.0 and 0.64 year, volatility of 44.5%, 44.2% and 38.7%, dividend
yield of 0% and risk-free interest rate of 1.3%, 3.0% and 6.8%.
7. BENEFITS PLANS
DST sponsors defined contribution plans that cover the Company's employees
following the completion of an eligibility period. Company contributions
under these plans totaled $1,086, $1,229 and $1,385 in 2002, 2001 and 2000,
respectively.
The Company or DST has active and non-active non-qualified deferred
compensation plans for senior management, certain highly compensated
employees and directors. The active plans permit participants to defer a
portion of their compensation and may provide additional life insurance
benefits until termination of their employment, at which time payment of
amounts deferred is made in a lump sum or annual installments. Deferred
amounts earn interest at a rate determined by the Board of Directors or are
credited with deemed gains or losses of the underlying hypothetical
investments. Amounts deferred under the plans totaled approximately $7 and
$11 at December 31, 2002 and 2001, respectively.
E-13
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
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8. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
YEAR ENDED DECEMBER 31,
------------------------------
2002 2001 2000
-------- -------- --------
Interest paid during the year $ 113 $ 816 $ 821
Income taxes paid/(received)
during the year 2,697 (204) 1,588
9. RELATED PARTY TRANSACTIONS
The Company provides certain products and services to DST and its
affiliated entities. Other general, administrative and miscellaneous
services, including payroll processing, are provided by DST and its
affiliated entities.
The Company recognized revenues from DST and its affiliates of $15,497,
$14,869 and $13,796 in 2002, 2001 and 2000, respectively. The Company paid
DST and its affiliates $3,580, $6,181 and $14,044 in 2002, 2001 and 2000,
respectively, for products, services and leases. At December 31, 2002 and
2001, DST and its affiliates owed the Company $16 and $9, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company has future obligations under certain operating lease
agreements. The operating leases, which include facilities, data processing
and other equipment, have lease terms ranging from 1 to 14 years excluding
options to extend the leases for various lengths of time. Rental expense
from operating leases was $108, $93 and $91 for the years ended December
31, 2002, 2001 and 2000, respectively. Certain leases have clauses that
call for the annual rents to be increased during the term of the lease.
Such lease payments are expensed on a straight-line basis. The Company
leases certain facilities from unconsolidated real estate affiliates and
incurred occupancy expenses of $658, $690 and $749 for the years ended
December 31, 2002, 2001 and 2000, respectively.
The Company has a letter of credit of $305 for each of the years ended
December 31, 2002, 2001 and 2000, respectively. The letter of credit is
secured by DST's debt facility.
E-14
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
The following table sets forth the Company's contractual cash obligations
including minimum rentals for the non-cancelable term of all operating
leases:
OPERATING
LEASES
2003 $ 9,378
2004 7,281
2005 4,816
2006 4,133
2007 4,034
Thereafter 6,225
---------
Total $ 35,867
=========
From time to time, the Company enters into agreements with unaffiliated
parties containing indemnification provisions, the terms of which vary
depending on the negotiated terms of each respective agreement. The amount
of such obligations is not stated in the agreements. The Company's
liability under such indemnification provisions may be subject to time and
materiality limitations, monetary caps and other conditions and defenses.
The Company has entered into purchase and service agreements with its
vendors, and consulting agreements with providers of consulting services to
the Company, pursuant to which the Company has agreed to indemnify certain
of such vendors and consultants, respectively, against third party claims
arising from the Company's use of the vendor's product or the services of
the vendor or consultant.
At December 31, 2002, the Company had not accrued any liability on the
aforementioned indemnifications.
The Company is involved in various legal proceedings arising in the normal
course of business. While the ultimate outcome of these legal proceedings
cannot be predicted with certainty, it is the opinion of management, after
consultation with legal counsel, that the final outcome in such
proceedings, in the aggregate, would not have a material adverse effect on
the combined financial condition or results of operations of the Company.
E-15
DST OUTPUT MARKETING SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
(DOLLARS IN THOUSANDS)
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RISKS AND UNCERTAINTIES
The Company has no history operating as an independent entity, may be
unable to make the changes necessary to operate as a stand-alone entity, or
may incur greater costs as a stand-alone entity that may cause the
Company's profitability to decline. The Company's business has been
operated by DST within a segment of its broader corporate organization
rather than as a separate stand-alone entity. DST has assisted the Company
by providing corporate functions such as legal and tax functions. If the
Company were a stand-alone entity, DST may have no obligation to provide
assistance to the Company other than interim and transitional services.
Because the Company's business has never been operated as a stand-alone
entity, there can be no assurance that the Company would be able to
successfully implement the changes necessary to operate independently or
may incur additional costs as a result of operating independently. Each of
these events would cause the Company's profitability to decline.
E-16
PLEASE MARK VOTES, ESPP CERT ESOP
[ X ] AS IN THIS EXAMPLE 401K C401
-----------------------------------------------------------
DST SYSTEMS, INC.
-----------------------------------------------------------
For Against Abstain
By signing this card, you are authorizing the Proxy 1. Approval of the Share Exchange
Committee (if you own Cert and ESPP shares) and the Trustee Agreement dated August 25, 2003, [ ] [ ] [ ]
of the DST Benefit Plan(s) (if you own Benefit Plan Shares) by and among DST Systems, Inc.,
to vote your shares as you specify on the proposal presented DST Output Marketing Services,
at the Special Meeting or any adjournment thereof and to Inc. and Janus Capital Group Inc.
vote in their respective discretion on other proposals that and the transactions contemplated
may properly come thereby before such meeting. thereby
TO VOTE IN ACCORDANCE WITH THE DST BOARD OF DIRECTORS'
RECOMMENDATION, PLEASE SIGN AND DATE; YOU NEED NOT MARK
ANY BOXES. THE DST BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR THE PROPOSAL.
CONTROL NUMBER
SEE IMPORTANT INFORMATION ON THE REVERSE
SIDE OF THIS CARD
Mark box at right Mark box at right
if you plan to attend [ ] if an address change has [ ]
the Special Meeting been noted on the reverse
of Stockholders. side of this card
Please be sure to sign exactly as your name appears
on this card and to date this Voting Card.
For Cert and ESPP shares, all joint owners must sign,
and executors, administrators, trustees, officers of
corporate stockholders, guardians and attorneys-in-fact
must indicate the capacity in which they are signing.
For Benefit Plan Shares, the Plan Participant must sign.
Stockholder/
Plan
Participant
sign
here Co-owner
------------------------- Date ----------- sign here ----------------------------------- Date -----------
DST SYSTEMS, INC.
SPECIAL MEETING OF STOCKHOLDERS - ________, 2003
THE DST BOARD OF DIRECTORS SOLICITS YOUR VOTE
The DST Board is making the proposal, and it is not related to or conditioned on
the approval of any other proposals which may come before the Special Meeting.
The Cert number shown on the front of the card is the number of shares you held
in certificate form as of the close of business on the Record Date (________,
2003). The ESPP number shown on the front of the card is the number of shares
you held of record as of the close of business on the Record Date through your
DST Employee Stock Purchase Plan book entry account with DST's transfer agent.
The Proxy Committee appointed by the DST Board that will vote your Cert and ESPP
shares is comprised of Thomas A. McDonnell, Randall D. Young, and Kenneth V.
Hager. IF YOU DO NOT SPECIFY HOW YOU AUTHORIZE THE PROXY COMMITTEE TO VOTE YOUR
CERT AND ESPP SHARES, YOU AUTHORIZE IT TO VOTE FOR EACH OF THE PROPOSALS.
The ESOP, 401k and C401 numbers shown on the front of the card ("Benefit Plan
Shares") are the total number of shares you held as of the close of business on
the Record Date through your participation in any of the DST Employee Stock
Ownership Plan, the DST 401(k) Profit Sharing Plan, or the DST Systems of
California 401(k) Plan. IF YOU FAIL TO RETURN THIS VOTING CARD OR DO NOT SPECIFY
YOUR VOTE, THE TRUSTEE OF THE APPLICABLE PLAN WILL VOTE THE SHARES ALLOCATED TO
YOUR BENEFIT PLAN ACCOUNT(S) IN THE SAME PROPORTION AS THE SHARES HELD BY THE
PLAN FOR WHICH THE TRUSTEE RECEIVES VOTING INSTRUCTIONS.
You may revoke this proxy in the manner described in the Proxy Statement dated
________, 2003, receipt of which you hereby acknowledge.
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PLEASE DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR
MAKE YOUR INSTRUCTIONS BY TELEPHONE AT (877) 779-8683 OR ELECTRONICALLY AT
HTTP://WWW.EPROXYVOTE.COM/DST.
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IF YOUR ADDRESS HAS CHANGED, PLEASE NOTE THE NEW ADDRESS BELOW.
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