-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I6cRXW1dCST65CGxONNHQMsdG7ZaRCS8dPQc4L8rZ4mVsgszP45eZx99DiGFRvwl +upfWEEwWyQ6UyIZWYJwCw== 0000950135-99-002574.txt : 19990513 0000950135-99-002574.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950135-99-002574 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED ASSET MANAGEMENT CORP CENTRAL INDEX KEY: 0000796370 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 042714625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09215 FILM NUMBER: 99618250 BUSINESS ADDRESS: STREET 1: ONE INTERNATIONAL PL CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173308900 MAIL ADDRESS: STREET 1: ONE INTERNATIONAL PLACE, FLOOR 44 STREET 2: 100 OLIVER STREET CITY: BOSTON STATE: MA ZIP: 02110 10-Q 1 UNITED ASSET MANAGEMENT 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number 1-9215 ----------------------------------------- UNITED ASSET MANAGEMENT CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-2714625 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) ONE INTERNATIONAL PLACE BOSTON, MASSACHUSETTS 02110 (Address of principal executive offices) Registrant's telephone number, including area code: (617) 330-8900 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No --- --- The number of shares outstanding of the registrant's common stock as of May 10, 1999 was 58,828,454. ================================================================================ 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements. (Pages F-1 to F-5) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Pages F-5 to F-9) Item 3. Quantitative and Qualitative Disclosures About Market Risk. (Pages F-9 to F-10) PART II OTHER INFORMATION Item 1. Legal Proceedings. The Company and certain of the Company's subsidiaries are subject to legal proceedings arising in the ordinary course of business. On the basis of information presently available and advice received from legal counsel, it is the opinion of management that the disposition or ultimate determination of such legal proceedings will not have a material adverse effect on the Company's consolidated financial position, its consolidated results of operations or its consolidated cash flows. Item 2. Changes in Securities. During the first quarter of 1999, UAM issued an aggregate of 278,057 shares of its Common Stock upon the exercise of warrants. This issuance was exempt from registration under Section 4(2) of the Securities Act of 1933. UAM had originally issued the warrants as consideration for its acquisitions of certain of its subsidiaries. The exercise prices of the warrants ranged from $14.50 to $23.00 per share. During the first quarter of 1999, UAM issued 50,000 shares of its Common Stock in exchange for 50,000 Exchangeable Preferred Shares of Integra Capital Management Corporation, a subsidiary of UAM. This issuance was exempt from registration under Section 4(2) of the Securities Act of 1933. UAM had originally issued the Exchangeable Preferred Shares as consideration for its acquisition of Integra. On February 18, 1999, UAM filed a registration statement on Form S-3 to register these 50,000 shares of its Common Stock for resale. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 10.1 - United Asset Management Corporation Amended and Restated 1994 Stock Option Plan [as further amended and restated as of March 31, 1999]. 3 Exhibit 10.2 - Amended and Restated Consulting Agreement by and between United Asset Management Corporation and David I. Russell as of January 1, 1999. Exhibit 11 - Calculation of Earnings Per Share (Page F-11). Exhibit 27 - Financial Data Schedule. (b) There have been no reports on Form 8-K filed by the Company during the quarter ended March 31, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED ASSET MANAGEMENT CORPORATION May 11, 1999 /s/ William H. Park - --------------------------- ------------------------------ (Date) William H. Park Executive Vice President and Chief Financial Officer 4 PART I. FINANCIAL INFORMATION Item 1. Financial Statements UNITED ASSET MANAGEMENT CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------- Three Months Ended March 31, 1999 1998 - -------------------------------------------------------------------------------- Revenues $217,695,000 $241,820,000 - -------------------------------------------------------------------------------- Operating expenses: Compensation and related expenses 109,069,000 119,554,000 Amortization of cost assigned to contracts acquired 26,088,000 26,833,000 Other operating expenses 39,146,000 45,063,000 - -------------------------------------------------------------------------------- 174,303,000 191,450,000 - -------------------------------------------------------------------------------- Operating income 43,392,000 50,370,000 - -------------------------------------------------------------------------------- Non-operating expenses: Interest expense, net 15,834,000 10,837,000 Other amortization 1,159,000 898,000 - -------------------------------------------------------------------------------- 16,993,000 11,735,000 - -------------------------------------------------------------------------------- Income before income tax expense 26,399,000 38,635,000 Income tax expense 11,298,000 16,537,000 - -------------------------------------------------------------------------------- Net income $ 15,101,000 $ 22,098,000 ================================================================================ Basic earnings per share $.25 $.32 Diluted earnings per share $.25 $.31 Dividends declared per share $.20 $.20 ================================================================================
See Notes to Condensed Consolidated Financial Statements. F-1 5 UNITED ASSET MANAGEMENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------------------- March 31, December 31, 1999 1998 (Unaudited) - ----------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 126,069,000 $ 153,616,000 Investment advisory fees receivable 156,941,000 169,061,000 Other current assets 11,956,000 12,419,000 - ----------------------------------------------------------------------------------------- Total current assets 294,966,000 335,096,000 Fixed assets, net 41,071,000 42,148,000 Cost assigned to contracts acquired, net 911,647,000 931,815,000 Other assets 130,194,000 130,452,000 - ----------------------------------------------------------------------------------------- Total assets $1,377,878,000 $1,439,511,000 ========================================================================================= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 117,889,000 $ 143,559,000 Accrued compensation 80,180,000 108,222,000 - ----------------------------------------------------------------------------------------- Total current liabilities 198,069,000 251,781,000 Senior notes payable 734,000,000 687,521,000 Subordinated notes payable 197,355,000 202,840,000 Deferred income taxes 30,271,000 27,525,000 - ----------------------------------------------------------------------------------------- Total liabilities 1,159,695,000 1,169,667,000 - ----------------------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity: Common stock, par value $.01 per share 703,000 703,000 Capital in excess of par value 361,561,000 360,781,000 Retained earnings 136,176,000 140,751,000 Accumulated other comprehensive income (10,248,000) (10,132,000) - ----------------------------------------------------------------------------------------- 488,192,000 492,103,000 Less treasury shares at cost (270,009,000) (222,259,000) - ----------------------------------------------------------------------------------------- Total stockholders' equity 218,183,000 269,844,000 - ----------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,377,878,000 $1,439,511,000 =========================================================================================
See Notes to Condensed Consolidated Financial Statements. F-2 6 UNITED ASSET MANAGEMENT CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------------- Three Months Ended March 31, 1999 1998 - -------------------------------------------------------------------------------------- Cash flow related to operating activities: Net income $ 15,101,000 $ 22,098,000 Adjustments to reconcile net income to net cash flow from operating activities: Amortization of cost assigned to contracts acquired 26,088,000 26,833,000 Depreciation 3,618,000 3,072,000 Amortization of goodwill and other 1,968,000 1,639,000 - -------------------------------------------------------------------------------------- Net income plus amortization and depreciation 46,775,000 53,642,000 Changes in assets and liabilities: Decrease in investment advisory fees receivable 13,401,000 18,598,000 Increase in other current assets (1,445,000) (934,000) Decrease in accounts payable and accrued expenses (24,243,000) (13,663,000) Decrease in accrued compensation (28,031,000) (64,110,000) Increase in deferred income taxes 474,000 746,000 - -------------------------------------------------------------------------------------- Net cash flow from (used in) operating activities 6,931,000 (5,721,000) - -------------------------------------------------------------------------------------- Cash flow related to investing activities: Cash additions to cost assigned to contracts acquired (4,997,000) (22,883,000) Change in other assets (3,785,000) (16,878,000) - -------------------------------------------------------------------------------------- Net cash flow used in investing activities (8,782,000) (39,761,000) - -------------------------------------------------------------------------------------- Cash flow related to financing activities: Purchase of treasury shares (71,159,000) (50,288,000) Additions to notes payable, net 47,329,000 47,784,000 Issuance or reissuance of equity securities 11,274,000 12,895,000 Dividends paid (12,290,000) (13,888,000) - -------------------------------------------------------------------------------------- Net cash flow used in financing activities (24,846,000) (3,497,000) - -------------------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash flow (850,000) (193,000) - -------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (27,547,000) (49,172,000) Cash and cash equivalents at beginning of quarter 153,616,000 173,638,000 - -------------------------------------------------------------------------------------- Cash and cash equivalents at end of quarter $ 126,069,000 $ 124,466,000 ======================================================================================
See Notes to Condensed Consolidated Financial Statements. F-3 7 UNITED ASSET MANAGEMENT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position of the Company and its subsidiaries at March 31, 1999 and their results of operations and cash flows for the three months ended March 31, 1999 and 1998. These Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Note 2 Accumulated depreciation of fixed assets was $58,827,000 and $55,209,000 at March 31, 1999 and December 31, 1998, respectively. The accumulated amortization of cost assigned to contracts acquired was $624,802,000 and $598,621,000 at March 31, 1999 and December 31, 1998, respectively. Note 3 The Company has a systematic program to repurchase shares of its common stock to meet the requirements for future issuance of shares upon the exercise of stock options and warrants. During the three-month period ended March 31, 1999, the Company repurchased 3,057,000 shares of its common stock at a cost of $71,159,000, including certain shares repurchased under the terms of the Company's systematic program. In addition, exercises of warrants and stock options, as well as the issuance of stock to former owners of affiliates in connection with purchase price commitments, resulted in the Company extinguishing subordinated notes, receiving cash proceeds and issuing stock as follows: Three Months Ended March 31, 1999 -------------- Subordinated notes extinguished $ 5,136,000 Cash proceeds received $ 10,449,000 Treasury shares reissued 907,838 As of March 31, 1999, the Company held 10,942,041 treasury shares. Warrants for the purchase of 8,089,000 shares and stock options for the purchase of 8,393,000 shares were outstanding at weighted average exercise prices of $23.88 and $22.71, respectively. F-4 8 Note 4 The components of comprehensive income for the three months ended March 31, 1999 and 1998, respectively, are set forth below:
Three Months Ended ------------------ March 31, 1999 March 31, 1998 -------------- -------------- Net income $ 15,101,000 $ 22,098,000 Other comprehensive income: Foreign currency translation adjustment 91,000 478,000 Unrealized gain on marketable securities, net 102,000 -- Less: reclassification adjustment for gains realized in net income (309,000) -- ------------ ------------ Comprehensive income $ 14,985,000 $ 22,576,000 ============ ============
Note 5 The Company operates in one business segment, that is, as investment advisors, managing both domestic and international investment portfolios for corporate, government and union benefit plans, mutual funds, individuals, endowments, and foundations. Although each affiliated firm operates under its own name with its own investment philosophy and approach, the firms' regulatory environments and the economic characteristics of their products, services, client bases and manner of distribution are similar. Therefore, the affiliated firms are aggregated as one business segment. Revenues and long-lived assets shown below are classified according to the affiliate's geographic location. Revenues are derived primarily from fees for investment advisory services provided to institutional and other clients. These fees are generally a function of the overall fee rate charged to each account and the level of assets under management by the affiliated firms.
Three Months Ended ------------------ March 31, 1999 March 31, 1998 -------------- -------------- Domestic revenues $198,005,000 $ 220,369,000 Foreign revenues $ 19,690,000 $ 21,451,000 Domestic long-lived assets $921,514,000 $1,002,132,000 Foreign long-lived assets $161,398,000 $ 177,492,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The revenues of UAM's affiliated firms are derived primarily from fees for investment advisory services provided to institutional and other clients. Investment advisory fees are generally a function of the overall fee rate charged to each account and the level of assets under management by the affiliated firms. Assets under management can be affected by the addition of new client accounts or client contributions to F-5 9 existing accounts, withdrawals of assets from or terminations of client accounts, and investment performance, which may depend on general market conditions. UAM's assets under management were $195.8 billion as of March 31, 1999, compared to $201.4 billion at the start of the year. During the quarter, net client cash flow reduced assets under management by $6.5 billion, offsetting $900 million added to these assets through investment performance. AMORTIZATION OF COST ASSIGNED TO CONTRACTS ACQUIRED AND OPERATING CASH FLOW (NET INCOME PLUS AMORTIZATION AND DEPRECIATION) Cost assigned to contracts acquired, net of accumulated amortization, represented approximately 66% of the Company's total assets as of March 31, 1999. Amortization of cost assigned to contracts acquired, which is a noncash charge, represented 15% of the Company's operating expenses for the three months ended March 31, 1999. Recording the cost assigned to contracts acquired as an asset, with the resulting amortization as an operating expense, reflects the application of generally accepted accounting principles to acquisitions by UAM of investment management firms in transactions accounted for as purchases. The principal assets acquired are the investment advisory contracts which evidence the firms' ongoing relationships with their clients. Although the contracts acquired are typically terminable on 30-days notice, analyses conducted by independent consultants retained by UAM and the experience of UAM's firms to date have indicated that: 1) contracts are usually relatively long-lived; 2) the duration of contracts can be reasonably estimated; and 3) the value of the cost assigned to contracts acquired can be estimated based on the present value of its projected income stream. The cost assigned to contracts acquired is amortized on a straight-line basis over the estimated weighted average useful life of the contracts of individual firms acquired. These lives are estimated through statistical analysis of historical patterns of terminations and the size and age of the contracts acquired as of the acquisition date. When actual terminations differ from the statistical patterns developed, or upon the occurrence of certain other events, the Company updates the lifing analyses discussed above. If the update indicates that any of the estimates should be shortened, the remaining cost assigned to contracts acquired will be amortized over the shorter life commencing in the year in which the new estimate is determined. The Company regularly performs reviews for potential impairment of the value of contracts. If the review indicates that the carrying value of the contracts is impaired, the asset is adjusted to its estimated fair value. Cost assigned to contracts acquired is amortized as an operating expense. It does not, however, require the use of cash and therefore, management believes that it is important to distinguish this expense from other operating expenses in order to evaluate the performance of the Company. Amortization of cost assigned to contracts acquired per share referred to below has been calculated by dividing total amortization by the same number of shares used in the diluted earnings-per-share calculation. For purposes of this discussion, Operating Cash Flow is defined as net income plus amortization and depreciation, as reflected in the Company's Condensed Consolidated Statement of Cash Flows. Management uses Operating Cash Flow not to the exclusion of net income, but rather as an additional important measure of the Company's performance. F-6 10 OPERATING RESULTS THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 Revenues were $217,695,000 for the three months ended March 31, 1999 compared to $241,820,000 for the first quarter of 1998. Revenues declined due to the effect of negative net client cash flow as well as the effect of Heitman Financial Ltd. selling its non-retail property management operation during the third quarter of 1998. Partially offsetting this decrease was the impact of positive market performance which generated higher fee revenues. Compensation and related expenses together with other operating expenses were $148,215,000 compared to $164,617,000 in 1998, primarily reflecting lower operating expenses and compensation earned by employees of existing affiliated firms in accordance with revenue sharing plans. Amortization of cost assigned to contracts acquired was $26,088,000 compared to $26,833,000 in 1998. The decrease was the result of various factors including certain cost assigned to contracts acquired being fully amortized at the end of 1998, partially offset by the recording of additional purchase price commitments associated with prior year acquisitions. Interest expense increased to $17,210,000 from $12,129,000, primarily due to the increase in the Company's debt level resulting from stock repurchases, as well as an increase in the Company's borrowing rates. Income before income tax expense was $26,399,000 compared to $38,635,000 in 1998, reflecting the circumstances described above. The Company's annual effective tax rate approximated 43% for both of the three-month periods ended March 31, 1999 and 1998. Net income was $15,101,000 compared to $22,098,000 reflecting the net results of the events discussed above. Diluted earnings per share were $.25 for the first quarter of 1999 compared to $.31 in the first quarter of 1998, reflecting the effect of the Company's common stock repurchased and the Company's lower average common stock price, partially offset by the impact of the issuance of shares of common stock and the hypothetical exercise of warrants and stock options on the calculation of earnings per share under the treasury stock method. Amortization of cost assigned to contracts acquired per share increased to $.43 in the first quarter of 1999 from $.37 in 1998. Operating Cash Flow was $46,775,000 in the first quarter of 1999 compared to $53,642,000 in 1998 due to the circumstances discussed above. CHANGES IN FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES The Company generated $46,775,000 of Operating Cash Flow for the three months ended March 31, 1999. This Operating Cash Flow and additional borrowings under the Company's line of credit were primarily used to repurchase shares of the Company's common stock and to pay dividends to shareholders. The Company invests its excess cash in deposits with major banks, money market funds or in securities, principally commercial paper of companies with strong credit ratings in F-7 11 diversified industries. As of March 31, 1999, the Company had drawn down $334,000,000, leaving $416,000,000 available under its $750,000,000 Reducing Revolving Credit Agreement. Management believes that the Company's existing capital, together with Operating Cash Flow and borrowings available under its revolving line of credit, will provide the Company with sufficient resources to meet its present and reasonably foreseeable future cash needs. Management expects that the principal uses of financial resources will be to repurchase shares of the Company's common stock, to provide further support for investing in the growth initiatives of existing affiliates, to pay shareholder dividends, to acquire additional investment management firms, and to fund commitments due or potentially due to former owners of affiliated firms. Increases or decreases in interest rates affect UAM's costs of operations chiefly through raising or lowering the interest expense related to the Company's variable-rate debt outstanding. To mitigate the risks associated with increases in interest rates, UAM has entered into and plans to continue to enter into interest-rate protection agreements. Rates of interest on the Senior Notes and existing subordinated debt are fixed. Increases and decreases in interest rates may also affect market prices of assets managed by the Company's affiliated firms. Changes in such prices may affect the affiliated firms' revenues, and therefore UAM's consolidated revenues. YEAR 2000 AND OTHER SYSTEM-RELATED ISSUES The "Year 2000 issue" is the result of computer programs and other electronic systems that use two digits rather than four to define the applicable year. These programs and systems may not be able to process dates beyond 1999, which may cause system failures or create erroneous results. The Company and its affiliates have retained a consulting firm since 1997 to help develop and implement a program to assess their Year 2000 readiness. The Company and its affiliates have substantially completed inventories of their computer hardware and software programs and have conducted surveys of all of their software and hardware vendors. As part of this program, the Company and its affiliates are testing, modifying, upgrading or replacing their computer software applications and systems, and seek to be substantially Year 2000 compliant by June 30, 1999. The Company and its affiliates also addressing Year 2000 issues related to non-information technology (non-IT) systems, including embedded software and equipment (e.g. elevators, telephone systems, etc.), and addressing the compliance of key business partners. The Company and its affiliates have substantially completed an assessment of its non-IT systems and service providers and fare in the process of gaining assurances that they will be Year 2000 compliant, and seeks to have these assurances by June 30, 1999. The Company and its affiliates are in the process of developing contingency plans in the event that the IT or non-IT systems or any of their key service providers are not Year 2000 compliant by the end of 1999. The contingency plans, which are expected to be substantially complete by the end of 1999, will address how to mitigate risks associated with the worst reasonably likely failures of systems at critical dates in both the short term and the long term. Any Year 2000 compliance problem of the Company, any of its affiliated firms, any of its vendors and any other company with which it conducts business could have a material adverse effect on the Company's consolidated financial position, consolidated results of operations or consolidated cash flows. To date, the Company and its affiliates have incurred expenses in the amount of approximately $1,400,000 and expect to incur an additional $1,100,000 related to this issue. These costs, which principally represent consulting fees, are being expensed as incurred. The Company has performed, and expects to continue to perform, modifications, upgrades and replacements of its computer software applications and systems through the Company's ongoing maintenance program. Therefore, the Company has not incurred, and does not expect to incur, significant incremental expenses for such modifications, upgrades and replacements. The Company does not segregate payroll or other internal costs specifically devoted to its efforts to address Year 2000 issues, but does not believe these costs to be significant. The expenses of the Company's affiliated firms related to the Year 2000 issues are funded out of the share of revenues that is reserved for the affiliates under revenue sharing agreements and do not affect the share of revenues retained by the Company. The total cost associated with becoming Year 2000 compliant is not expected to be material to the Company's consolidated financial position, consolidated results of operations or consolidated cash flows. F-8 12 The Company's affiliates that are registered with the Securities and Exchange Commission (SEC) as investment advisers or broker-dealers are required to disclose their Year 2000 readiness in Forms ADV-Y2K or BD-Y2K which will be filed with the SEC and made available to clients. The estimates and conclusions herein contain forward-looking statements and are based on management's best estimates of future events. These statements should be read in conjunction with the Company's disclosures under the heading "Forward-looking Statements" detailed below. On January 1, 1999, 11 European Union member states adopted the "Euro" as their common national currency. This currency will replace existing national currencies in all participating countries over a period ending July 1, 2002. During this period, both the Euro and existing national currencies will be accepted. The Company and its affiliates have established plans to address the operational and information system issues related to the Euro conversion and do not expect any costs incurred to have a material adverse effect on the Company's consolidated results of operations or its consolidated cash flows. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements." These statements include descriptions of UAM's operational plans, expectations about future earnings and other results of operations, views of future industry or market conditions, and other statements that include words like "may," "expects," "believes," and "intends," and that describe opinions about future events. Investors should not rely on these statements as though they were guarantees. These statements are current only when they are made. UAM's management has no obligation to revise or update these statements based on future developments. Known and unknown risks may cause UAM's actual results and performances to be materially different from those expressed or implied by these statements. Some of these risks are that: most of UAM's revenues are based on the market value of managed assets and, therefore, will rise and fall with changes in the economy and financial markets; the investment management business is highly competitive; the investment management business is susceptible to internal shifts and frequently requires firms to adapt; and UAM's affiliated firms depend significantly on key employees. These and other risk factors are identified and more thoroughly explained in Exhibit 99.1 to UAM's Annual Report on Form 10-K filed on March 25, 1999 with the SEC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information provided below updates that which was previously presented in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company's Form 10-K for the year ended December 31, 1998. F-9 13 The Company had $334,000,000 outstanding under its $750,000,000 Reducing Revolving Credit Agreement (the Credit Agreement) as of March 31, 1999. Interest rates available for amounts outstanding under the Credit Agreement are currently: prime, 1.875% over LIBOR or a money market bid option. In addition, an annual commitment fee, payable on the daily average unused portion of the Credit Agreement, is currently .375%. The effective interest rate on the outstanding borrowings at March 31, 1999 was 6.5% compared to 6.12% at March 31, 1998. At March 31, 1999, the Company also had $197,355,000 of subordinated notes outstanding which mature at various dates through March 2005 and have interest rates ranging from 5.5% to 7.5%. F-10 14 UNITED ASSET MANAGEMENT CORPORATION Exhibit 11 CALCULATION OF EARNINGS PER SHARE (In thousands, except per-share amounts) (Unaudited)
- ---------------------------------------------------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount - ---------------------------------------------------------------------------------------------- For the three-month period ended March 31, 1999 Basic Earnings per Share Income available to common shareholders $15,101,000 60,573,000 $ .25 ======= Effect of Dilutive Securities (1) -- 658,000 ----------- ---------- Diluted Earnings per Share Income available to common shareholders + assumed conversions $15,101,000 61,231,000 $ .25 =========== =========== ======= ============================================================================================== For the three-month period ended March 31, 1998 Basic Earnings per Share Income available to common shareholders $22,098,000 69,542,000 $ .32 ======= Effect of Dilutive Securities (1) -- 2,345,000 ----------- ---------- Diluted Earnings per Share Income available to common shareholders + assumed conversions $22,098,000 71,887,000 $.31 =========== =========== ======= ==============================================================================================
(1) Options on 3,842,000 and 1,815,000 shares of common stock and warrants on 3,018,000 and 1,530,000 shares of common stock were outstanding during the three-month periods ended March 31, 1999 and 1998, respectively, but were not included in computing diluted earnings per share because their effects were antidilutive. F-11 EX-10.1 2 1994 STOCK OPTION PLAN 1 EXHIBIT 10.1 UNITED ASSET MANAGEMENT CORPORATION AMENDED AND RESTATED 1994 STOCK OPTION PLAN [AS FURTHER AMENDED AND RESTATED AS OF MARCH 31, 1999] PREAMBLE -------- The plan (the "Plan") comprises three subplans: Subplan A covers options to be granted to any key employees, including officers, and any non-employees (other than directors) who provide important services to United Asset Management Corporation, a Delaware corporation ("UAM") or any of its subsidiaries or parents. Subplan B covers options to be granted to employees of UAM or of its subsidiaries who are subject to the income tax laws of the United Kingdom, to the extent that such options can be granted with favorable income tax treatment under such United Kingdom laws. Subplan C covers options to be granted to non-employee directors of UAM. Subject to the adjustments provided in the Plan, the aggregate number of shares of Common Stock of UAM which may be issued and sold pursuant to incentive stock options (as defined below) granted under Subplan A or Options (as defined below) granted under Subplan B of the Plan shall not exceed 11,900,000 shares of Common Stock (as defined below), which may be either authorized but unissued shares or treasury shares.* Except as provided below, the aggregate number of shares of Common Stock which may be issued and sold pursuant to non-incentive stock options (as defined below) granted under Subplan A or Subplan C of the Plan shall not exceed the number of shares specified in the preceding sentence (subject to the adjustments provided in the Plan), less (1) the number of shares issued pursuant to Subplan A incentive stock options and Subplan B Options and (2) the number of shares underlying outstanding Subplan A incentive stock options and Subplan B Options. Notwithstanding the foregoing, additional shares of Common Stock may be issued and sold pursuant to non-incentive stock options granted under Subplan A or Subplan C in amounts up to the number of additional shares reserved for such purpose from time to time under one or more written resolutions adopted by the Committee (as defined below). The additional shares of Common Stock that the Committee may reserve for non-incentive stock options pursuant to the preceding sentence shall meet the following requirements: (1) all such additional shares must have been reacquired by UAM for not more than their fair market value at the time of reacquisition and (2) as of the date of the Committee's resolution to reserve the additional shares, the cumulative amount received in cash by UAM upon the exercise of options granted under the Plan shall not be less than the aggregate amount paid for the reacquired shares that are included in such resolution or in any prior resolution to reserve additional shares. If any option granted under the Plan shall terminate or expire without being fully exercised, the shares which have not been purchased will again become available for purposes of the Plan. - ----------------- * Of these 11,900,000 total shares, 6,400,000 were originally reserved under the Plan by action of the shareholders in 1994 and 5,500,000 have been reserved under the amended and restated Plan by action of the shareholders in 1997. 2 SUBPLAN A--U.S. SUBPLAN PORTION OF THE -------------------------------------- AMENDED AND RESTATED 1994 STOCK OPTION PLAN ------------------------------------------- [AS FURTHER AMENDED AND RESTATED MARCH 31, 1999] ------------------------------------------------ 1. PURPOSE OF SUBPLAN A The purpose of this Subplan A is to encourage key employees, including officers, of UAM and any present or future subsidiary and parent of UAM (hereinafter collectively referred to as the "Company") as well as non-employees (other than directors of UAM) who provide important services to the Company to acquire shares of common stock of UAM, $.01 par value per share (the "Common Stock"), and thereby increase their proprietary interest in the Company's success and provide an added incentive to remain in the employ of the Company. For purposes of this Subplan A, the words parent and subsidiary shall be interpreted in accordance with Section 422 and Section 424 of the Internal Revenue Code of 1986, as from time to time amended (the "Code"). It is intended that options granted under this Subplan A shall constitute either "incentive stock options" within the meaning of Section 422 of the Code, or "non-incentive stock options", as determined by the Committee named in Section 3 of this Subplan in its sole discretion and indicated on each form of option grant (the "Option Grant"), and the terms of this Subplan and the Option Grants shall be construed accordingly. 2. SHARES RESERVED UNDER SUBPLAN A Subject to the adjustment provided in Section 9, the aggregate number of shares of Common Stock which may be issued and sold pursuant to options granted under this Subplan A of the Plan shall be determined in accordance with the Preamble above. 3. ADMINISTRATION Except to the extent otherwise provided in Subplan B, the Plan shall be administered by a committee (the "Committee") consisting of not less than three (3) members of the Board of Directors of UAM (the "Board"). Each of the members of the Committee shall be a person who in the opinion of counsel to the Company is (i) a "non-employee" as such term is used in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and (ii) an "outside director" as such term is used in Treasury regulation Section 1.162-27(e) (3) under Section 162(m) of the Code. The Committee shall be appointed by, and shall serve at the pleasure of, the Board of Directors. A majority of the members present at any meeting at which a quorum is present, and any acts approved in writing by all the members of the Committee without a meeting, shall constitute the acts of the Committee. The Committee shall have the powers granted to it in Sections 3, 4, 5, 7 and 8 of this Subplan A. The Committee is authorized to interpret this Subplan A and, subject to the provisions of the Subplan, to prescribe, amend, and rescind rules and regulations relating thereto. The Committee is further authorized, subject to the express provisions of this Subplan A, to alter or amend the form of Option Grant attached hereto as Exhibit A and to make all other determinations necessary or advisable in the administration of the Subplan. The interpretation and administration by the Committee of any provisions of this 1 3 Subplan A and the Option Grant shall be final and conclusive on all persons having any interest therein. Notwithstanding any other provision of this Plan, if the Committee determines that a person to whom an option may be granted under this Subplan A will neither be a "covered employee" within the meaning of Section 162(m) of the Code nor an employee subject to the short-swing profits rules of Section 16(b) of the Act at any time from the date of grant until the end of the term of any option which could be granted under this Subplan A at the time of such determination, such options may be granted to such person by a committee consisting of any number of members of the Board, any or all of whom would not then be eligible to serve on the Committee. With respect to all options referred to in this paragraph, the committee referred to in this paragraph shall have all powers otherwise granted to the Committee in Sections 3, 4, 5, 7 and 8 of this Subplan A, but the committee referred to in this paragraph shall not otherwise administer this Subplan A. No members of the Committee or of any committee referred to in the preceding paragraph or of the Board shall be held liable for any action or determination made in good faith with respect to the Plan, this Subplan A, or any option granted hereunder. 4. OPTION GRANTS Options to purchase shares of Common Stock under this Subplan A may be granted to key employees (including officers and directors who are employees) of the Company and to non-employees who provide important services to the Company. The term "Employee" will include, for purposes of this Subplan A key employees as well as such non-employees who provide important services to the Company. In selecting the Employees to whom options will be granted and in deciding how many shares of Common Stock will be subject to each option, the Committee shall give consideration to the importance of an Employee's duties, to his experience with the Company, to his future value to the Company, to his present and potential contribution to the success of the Company, and to such other factors as the Committee may deem relevant. Subject to the express provisions of the Plan and the form of Option Grant incorporated herein by reference as from time to time altered or amended, the Committee shall have authority to determine with respect to each Option Grant the number of installments, the number of shares of Common Stock in each installment, and the exercise dates, and, to the extent not inconsistent with the applicable provisions of the Code, if any, may specify additional restrictions and conditions for any Option Grant. Each incentive stock option shall expire not later than ten years from the date of the grant of such option. Except as provided in Section 7 of this Subplan A, no incentive stock option may be granted to any Employee who, at the time such option is granted owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company within the meaning of Section 422 of the Code. Non-employees who provide services to the Company shall not be eligible to receive incentive stock options under the Plan. The date of grant of an option under this Subplan A shall be the date the Committee votes to grant the option, but no optionee shall have the right to exercise his option until the Company has executed and delivered the Option Grant to such optionee. Each option granted under this 2 4 Subplan A shall be evidenced by and subject to the terms and conditions of the Option Grant which is incorporated into the Plan by reference as from time to time altered or amended. No incentive stock option may be transferred by the optionee, other than by will or the laws of descent and distribution. An incentive stock option can be exercised during such individual's life only by him. Notwithstanding the foregoing, the Committee may grant non-incentive stock options under this Subplan A or under Subplan C that are transferable (subject to any terms and conditions imposed by the Committee) by the optionee, either directly or in trust, to one or more members of the optionee's family. Following any transfer permitted pursuant to this paragraph, of which the optionee has notified the Committee in writing, such option may be exercised by the transferee(s), subject to all terms and conditions of the Option Grant. For these purposes, the members of the optionee's family are only the optionee's: (i) spouse; (ii) lineal descendants; (iii) lineal ancestors; and (iv) siblings and spouses and children of such siblings. 5. OPTION PRICE The price per share at which each option granted under this Subplan A may be exercised shall be determined by the Committee subject to the provisions of this Section 5. In the case of an incentive stock option, the exercise price shall not be less than the fair market value per share on the date of the grant, as determined by the Committee in accordance with applicable provisions of the Code then in effect. In the case of a non-incentive stock option, the exercise price shall not be less than 50% of the fair market value per share on the date of grant, as so determined. In no event shall the option price per share for any option under the Plan be less than the par value per share. 6. LIMITATION ON AMOUNT The aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year under all plans of the Company shall not exceed $100,000. To the extent that the aggregate value of such options (determined in the order in which they were granted) exceeds such amount, such options shall be treated as non-incentive stock options. The maximum number of shares with respect to which any options may be granted under the Plan (including this Subplan A) to any individual during any single calendar year shall be 300,000 shares. 7. SPECIAL RULE FOR 10 PERCENT SHAREHOLDERS The Committee may grant incentive stock options under this Subplan A to Employees who own more than 10 percent of the combined voting stock of the Company if (i) at the time of the Option Grant the price per share at which the option may be exercised is at least 110 percent of the fair market value of the stock subject to the option and (ii) such option is not exercisable after the expiration of five years from the date such option is granted. 8. NON-INCENTIVE STOCK OPTIONS 3 5 Notwithstanding the provisions of Sections 4, 5, 6 and 7 of this Subplan A, the Committee may grant options which in one or more respects do not meet the requirements for incentive stock options established by Section 422 of the Code. The Committee shall indicate on each Option Grant whether an incentive stock option within the meaning of Section 422 of the Code or a non-incentive stock option is thereby granted. Except as otherwise provided in this Subplan A, the Committee, in its sole discretion, shall establish the terms and conditions for each non-incentive stock option which it grants. Such terms and conditions may, but need not, include some or all of the provisions of Sections 4, 5, 6 and 7 of this Subplan A with respect to incentive stock options. If the Committee grants an option which in all respects meets the requirements for incentive stock options it may nonetheless designate such option a non-incentive stock option on the Option Grant. 9. ADJUSTMENT OF SHARES RESERVED UNDER THE PLAN The aggregate number and kind of shares reserved under the Plan, the maximum number of shares as to which options may be granted to any individual and the option price per share shall be appropriately adjusted by the Board in the event of any recapitalization, stock split, stock dividend, combination of shares, or other similar change in the capitalization of the Company, but no adjustment in the option price shall be made which would reduce the option price per share to less than the par value per share, and any adjustment in the option price for options granted under Subplan B of the Plan shall be subject to the requirements of Rule 5 of Subplan B. 10. DISSOLUTION OR REORGANIZATION (A) VESTING PROVISIONS (1) Notwithstanding anything to the contrary in this Subplan A, or in the Option Grant, an optionee may purchase the full amount of shares of Common Stock for which options have been granted to such optionee (the "optioned shares") and for which the options have not been exercised, upon the occurrence of any of the following events (individually and collectively a "Change of Control" over the Company): (a) STOCK TRANSFER OF 20% OR MORE. The acquisition by any individual, entity or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 20 percent or more of either (i) the then outstanding shares of the Common Stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the directors (the "Outstanding Company Voting Securities"); provided, however, that no change in such beneficial ownership percentage that results solely from a change in the aggregate number of outstanding shares of Common Stock or Outstanding Company Voting Securities shall constitute a Change of Control; provided further, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege); (B) any acquisition by the 4 6 Company or by any corporation controlled by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a consolidation or merger, if, following such consolidation or merger, the conditions described in clauses (i), (ii), and (iii) of paragraph (c) below are satisfied; or (b) CHANGE IN INCUMBENT BOARD OF 50% OR MORE. Individuals who, as of November 19, 1998 (the "Effective Date"), constitute the Board (the "Incumbent Board") ceasing for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote or resolution of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) MERGER WITHOUT CONTINUITY OF OWNERSHIP IN EXCESS OF 60%. Adoption by the Board of a resolution approving an agreement of consolidation of the Company with or merger of the Company into another corporation or business entity in each case, unless, following such consolidation or merger, (i) more than 60 percent of, respectively, the then outstanding shares of common stock of the corporation resulting from such consolidation or merger and/or the combined voting power of the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Stock and Outstanding Company Voting Securities immediately prior to such consolidation or merger in substantially the same proportions as their ownership, immediately prior to such consolidation or merger, of the Common Stock and/or Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation or other business entity resulting from such consolidation or merger and any Person beneficially owning, immediately prior to such consolidation or merger, directly or indirectly, 35 percent or more of the Common Stock and/or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such consolidation or merger or the combined voting power of the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of its directors (or other persons having the general 5 7 power to direct the affairs of such entity) and (iii) at least a majority of the members of the board of directors (or other group of persons having the general power to direct the affairs of the corporation or other business entity) resulting from such consolidation or merger were members of the Incumbent Board at the time of the execution of the initial agreement providing for such consolidation or merger; provided that any right which shall vest by reason of the action of the Board pursuant to this paragraph (c) shall be divested, with respect to any such right not already exercised, upon (A) the rejection of such agreement of consolidation or merger by the stockholders of the Company or (B) its abandonment by either party thereto in accordance with its terms; or (d) SALE OF ASSETS OR DISSOLUTION. Adoption by the requisite majority of the whole Board, or by the holders of such majority of stock of the Company as is required by law or by the Certificate of Incorporation or By-Laws of the Company as then in effect, of a resolution or consent authorizing (i) the dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation or other business entity with respect to which, following such sale or other disposition, (A) more than 60 percent of, respectively, the then outstanding shares of common stock of such corporation and/or the combined voting power of the outstanding voting securities of such corporation or other business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Common Stock and/or Outstanding Company Voting securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation or other business entity and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 35 percent or more of the Common Stock and/or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35 percent or more of, respectively, the then outstanding shares of common stock of such corporation and/or the combined voting power of the then outstanding voting securities of such corporation or other business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) and (C) at least a majority of the members of the board of directors (or other group of persons having the general power to direct the affairs of such corporation or other entity) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; provided that any right which shall vest by reason of the action of the Board or the stockholders pursuant to this paragraph (d) shall be divested, with respect to any such right not already exercised, upon the abandonment by the 6 8 Company of such dissolution, or such sale or other disposition of assets, as the case may be. (2) Notwithstanding subsection (1) hereof, holder(s) of any unexercised option(s) that meet the requirements for incentive stock options under Section 422 of the Code (the rights being "ISO Rights", and such holder being an "ISO Optionee"), may elect at any time to waive the applicability of subsections (1) hereof to such ISO Optionee's ISO Rights. (3) Notwithstanding subsections (1) or (2) hereof, after a Change of Control, and upon adoption of a plan of dissolution, liquidation, merger, consolidation, or reorganization of the Company (the "Event"), the Board may decide to terminate each outstanding option granted under this Subplan A. If the Board so decides, such option(s) shall terminate as of the effective date of the Event, but the Board shall suspend the exercise of all outstanding options a reasonable time prior to the Event, giving each optionee not less than fourteen days' prior written notice of the date of suspension, prior to which an optionee may purchase in whole or in part the shares available to him as of the date of receipt of the notice. If the Event is not consummated, the suspension shall be removed and all options shall continue in full force and effect, subject to the terms of their respective option grants. (B) Expired Options Nothing herein shall allow the optionee to purchase optioned shares, the options for which have expired. 11. AMENDMENT AND TERMINATION OF PLAN AND SUBPLAN A The Board may amend, suspend, or terminate the Plan and/or this Subplan A, including the form of Option Grant incorporated herein by reference. No such action, however, may, without approval or ratification by the shareholders, increase the maximum number of shares reserved under the Plan except as provided in Section 9 of this Subplan A, Rule 5 of Subplan B, or Section 8 of Subplan C, alter the class or classes of individuals eligible for options, or make any other change which, pursuant to the Code or regulations thereunder or Section 16(b) of the Act and the rules and regulations promulgated thereunder, requires action by the shareholders. No such action may, without the consent of the holder of the option, alter or impair any option previously granted. In any event, the Plan shall terminate 10 years from the date of adoption of the amended and restated Plan by the Board of Directors, or if earlier, from the date of its approval by the shareholders. Any shares remaining under the Plan at the time of termination which are not subject to outstanding options and any shares which thereafter become available because of the expiration or termination of an option shall cease to be reserved for purposes of the Plan. 12. RIGHT TO TERMINATE EMPLOYMENT Nothing contained herein or in any Option Grant executed pursuant hereto shall restrict the right of the Company to terminate the employment of any optionee at any time. 7 9 13. DATE OF ADOPTION The date of adoption of this amended and restated Plan by the Board is January 20, 1997, as further amended by action of the board effective on November 19, 1998, December 29, 1998, and March 31, 1999. 14. DATE OF APPROVAL The date of approval of this amended and restated Plan by the shareholders and the Plan's effective date is May 15, 1997. 8 10 SUBPLAN B--UK SUBPLAN PORTION OF THE ------------------------------------ AMENDED AND RESTATED 1994 STOCK OPTION PLAN ------------------------------------------- [AS FURTHER AMENDED AND RESTATED MARCH 31, 1999] ------------------------------------------------ RULES OF THE UNITED ASSET MANAGEMENT CORPORATION EMPLOYEE SHARE OPTION SCHEME 1. DEFINITIONS In this Scheme (hereinafter sometimes referred to as the "UK Subplan"), unless the context otherwise requires, the following words and expressions shall have the following meanings: "Act" the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder "Adoption Date" the date on which the Scheme is adopted by the Company "Associated Company" the meaning given to that term in Section 416 of the U.K. Income and Corporation Taxes Act 1988 "Auditors" the auditors for the time being of the Company (acting as experts and not as arbitrators) "Board" the board of directors of the Company "Change of Control" the meaning given to that term in Rule 6.1 of this Scheme "Code" the U.S. Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder "Committee" the committee established by the Board pursuant to Rule 10.4 "Company" United Asset Management Corporation "Control" the meaning given to that word by Section 840 of the U.K. Income and Corporation Taxes Act 1988 "Date of Grant" the date on which an Option is, was or is to be granted under the Scheme "Effective Date" 19 November 1998 "Eligible Employee" any employee of any Participating Company who is subject to the income tax laws of the United Kingdom and who is normally required to devote to his duties not less than 20 9 11 hours per week (excluding meal breaks) (in the case of an employee who is also a director of any Participating Company, 25 hours per week (excluding meal breaks)) and is not precluded by paragraph 8 of Schedule 9 from participating in the Scheme "Event" the dissolution, liquidation, merger, consolidation, or reorganization of the Company "Group" that group comprising all of the Participating Companies "Incumbent Board" the individuals who, as of the Effective Date, constitute the Board "Issued Company Voting the then issued voting securities of the Company Securities" entitled to vote generally in the election of the Board "Market Value" on any day the closing sales price in U.S. Dollars of a Share as derived from the consolidated tape of The New York Stock Exchange for such day or, if such day, as not a trading day or if no Shares sold on such day, such closing sales price on the next previous trading day on which a sale occurred "Option" a right to purchase Shares under the Scheme "Option the certificate embodying an Option granted in Certificate" accordance with these Rules "Option Holder" an individual to whom an Option has been granted pursuant to the Scheme "Participating the Company and any other corporation which it Company" Controls "Person" any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Act "Plan" the United Asset Management Corporation 1994 Stock Option Plan, of which this Scheme is an integral part "Price" the price determined by the Committee in U.S. Dollars at which each Share subject to an Option may be acquired on the exercise of that Option, which price shall be, subject to Rule 5, not less than the higher of: 10 12 (i) the par value (if any) of a Share and (ii) the Market Value of a Share on the Date of Grant of that Option "Relevant Emoluments" the meaning given to that term in sub-paragraph (2) of paragraph 28 of Schedule 9 by virtue of subparagraph (4) of that paragraph "Rules" the terms of the Scheme, as expressed herein and as amended from time to time "Schedule 9" Schedule 9 to the U.K. Income and Corporation Taxes Act 1988 "Scheme" this U.K. Subplan, as set forth in these Rules as amended from time to time "Share" a share of common stock, U.S. $.01 par value, in the capital of the Company which satisfies the conditions specified in paragraphs 10 to 14 inclusive of Schedule 9 and which may either be an authorized but unissued share or a treasury share "Sterling Value" in respect of an Option, the sterling equivalent of the appropriate Price, calculated by reference to the U.S. Dollar/Sterling exchange rate prevailing on the Date of Grant of that Option "Subplan A" the portion of the Plan applicable to key employees of, and non-employees (other than directors of the Company) who provide important services to, a Participating Company "Subplan C" the portion of the Plan applicable to non-employee directors of the Company "Subsisting Option" an Option which has neither lapsed nor been exercised or released, given up, or surrendered by its holder "UK Subplan" the portion of the Plan comprising the Scheme as set forth in these Rules "Year of Assessment" year beginning on any 6th April and ending on the following 5th April Where the context permits the singular shall include the plural and vice versa and the masculine shall include the feminine. References to any Act or statute shall include any statutory 11 13 modification, amendment or re-enactment thereof. Headings are for ease of reference only and shall not affect the construction or interpretation of these Rules. 2. GRANT OF OPTION 2.1 Subject to the terms of these Rules, the Committee may at its absolute discretion, from time to time, grant Options to any Eligible Employees under the Scheme by issuing Option Certificates to them, complying with Rule 2.2 below. 2.2 Each Option Certificate shall be under seal and shall specify: i. the Date of Grant of the relevant Option; ii. the number of Shares for which the Option is granted (which shall not be so large that the grant of an Option for that number of Shares would cause the applicable limits specified in Rule 3 to be exceeded); iii. the Price at which the relevant Shares can be acquired; and iv. any conditions on the Option imposed by the Committee, including (without limitation) any vesting schedule. In addition each Option Certificate shall indicate that Options cannot be transferred, assigned or charged and that any purported transfer, assignment or charge shall cause the relevant Option to lapse forthwith. Each Option Certificate shall be accompanied by a "form of acceptance" (as described in Rule 4.3) which shall indicate that the Option to which it relates will automatically lapse if the Option holder does not sign and return such form to the Company within 3 months of the Date of Grant. 3. LIMITATIONS 3.1 Subject to adjustment as provided in Rule 5, the aggregate number of Shares in respect of which Options may be granted under the Scheme on any Date of Grant or which may be issued and sold pursuant to such Options shall not exceed 6,985,367 Shares, less (i) any Shares then subject to any outstanding incentive stock option granted under Subplan A of the Plan or previously issued pursuant to any such incentive stock option and (ii) any shares that are then subject to any outstanding non-incentive stock option granted under Subplan A or Subplan C or previously issued pursuant to any such non-incentive stock option and are not reacquired shares (as described in the Preamble to the Plan). If any Option granted under the Plan shall lapse or shall be released, given up or surrendered without being fully exercised, the Shares which have not been purchased under the Option shall again become available for purposes of the Plan. 12 14 3.2 No Option shall be granted to an Eligible Employee if immediately following such grant he would hold Subsisting Options with an aggregate Sterling Value exceeding (pound)30,000. For the purposes of this Rule 3.2. Options shall include all Options granted under this Scheme and all options granted under any other scheme approved under Schedule 9 and established by the Company or any Associated Company. 3.3 The maximum number of Shares with respect to which any options may be granted under the Plan (including this UK Subplan) to any individual during any single calendar year shall be 100,000 Shares. 4. EXERCISE OF OPTIONS 4.1 Any Option which has not lapsed may be exercised only after the earliest of the following events: i. the first anniversary of the Date of Grant; ii. the death of the Option holder; iii. the Option holder ceasing to be an employee of any Participating Company by reason of injury, disability, redundancy or retirement or, at the discretion of the Committee, for any other reason; iv. a Change of Control of the Company, but only in respect of an Option granted after April 1, 1999. Provided always that when granting an Option the Committee may provide that the Option or any part of it shall not become exercisable under sub Rules 4.1 (i), (ii) or (iii) above until after such time(s) as the Committee determine and any such restriction on the Option's exercisability shall be set forth in the Option Certificate for that Option. For the avoidance of doubt, once an Option has become exercisable under Rule 4.1 (iv), it shall be exercisable in full. 4.2 Once an Option has become exercisable under Rule 4.1 above, it may be exercised either in whole or in part at any time unless or until it shall lapse under Rule 4.3 below, but subject in all cases to Rule 7 below. 4.3 An Option shall lapse on the earliest of the following events: i. the expiry of three months from the Date of Grant, unless the Option holder has previously given notice to the Company of his acceptance of the Scheme's Rules using the form of acceptance supplied to him with the relevant Option Certificate; 13 15 ii. subject to a shorter period specified in the Option Certificate, the tenth anniversary of the Date of Grant; iii. subject to a shorter period specified in the Option Certificate, the first anniversary of the Option holder's death; iv. the Option holder ceasing to be an employee of any Participating Company by reason of gross misconduct; v. subject to a shorter period specified in the Option Certificate, the expiry of three months after the date on which the Option holder ceases to be an employee of any Participating Company otherwise than by reason of death or gross misconduct in circumstances in which sub-clause (iv) applies; vi. the Option holder being adjudicated bankrupt; and vii. the first date upon which the Option holder purports to transfer, assign or charge the Option. 5. VARIATION OF SHARE CAPITAL In the event of any capitalization or rights issue or any stock split or stock dividend or any consolidation, sub-division or reduction of capital by the Company, the number of Shares subject to any Option and the Price payable for each of those Shares shall be adjusted in such manner as the Auditors confirm to be fair and reasonable provided that: i. the aggregate amount payable on the exercise of any Option in full is not increased; ii. the Price of a Share is not reduced below its par value if any; iii. no adjustments shall be made without the prior approval of the Board of Inland Revenue; and iv. following the adjustment the Shares continue to satisfy the conditions specified in paragraphs 10 to 14 inclusive of Schedule 9. 6. CHANGE OF CONTROL 6.1 A Change of Control shall be the occurrence of any of the following events: i. STOCK TRANSFER OF 20% OR MORE the acquisition by a Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 20 percent or more of either (a) the then issued Shares of the Company or (b) the combined voting power of the Issued 14 16 Company Voting Securities; provided, however, that no change in such beneficial ownership percentage that results solely from a change in the aggregate number of outstanding Shares or Issued Company Voting Securities shall constitute a Change of Control; provided further, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege); (B) any acquisition by the Company or any Associated Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Associated Company; or (D) any acquisition by any corporation pursuant to a consolidation or merger, if, following such consolidation or merger, the conditions described in clauses (a), (b), and (c) of Rule 6.1(iii) below are satisfied; or ii. CHANGE IN INCUMBENT BOARD OF 50% OR MORE the Incumbent Board ceasing for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote or resolution of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or iii. MERGER WITHOUT CONTINUITY OF OWNERSHIP IN EXCESS OF 60% the adoption by the Board of a resolution approving an agreement of consolidation of the Company with or merger of the Company into another corporation or business entity in each case, unless, following such consolidation or merger, (a) more than 60 percent of, respectively, the then issued shares of common stock of the corporation resulting from such consolidation or merger and/or the combined voting power of the then issued voting securities of such corporation or business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Shares and Issued Company Voting Securities immediately prior to such consolidation or merger in substantially the same proportions as their ownership, immediately prior to such consolidation or merger, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation or other business entity resulting from such consolidation or merger and any Person beneficially owning, immediately prior to such consolidation or merger, directly or indirectly, 35 percent or more of the 15 17 Shares and/or Issued Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35 percent or more of, respectively, the then issued shares of common stock of the corporation resulting from such consolidation or merger or the combined voting power of the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of its directors (or other persons having the general power to direct the affairs of such entity) and (c) at least a majority of the members of the board of directors (or other group of persons having the general power to direct the affairs of the corporation or other business entity) resulting from such consolidation or merger were members of the Incumbent Board at the time of the execution of the initial agreement providing for such consolidation or merger; provided that any right which shall vest by reason of the action of the Board pursuant to this paragraph (iii) shall be divested, with respect to any such right not already exercised upon (A) the rejection of such agreement of consolidation or merger by the shareholders of the Company or (B) its abandonment by either party thereto in accordance with its terms; or iv. SALE OF ASSETS OR DISSOLUTION the adoption by the requisite majority of the whole Board, or by the holders of such majority of stock of the Company as is required by law or by the certificate of incorporation or by-laws of the Company as then in effect, of a resolution or consent authorizing (a) the dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation or other business entity with respect to which, following such sale or other disposition, (A) more than 60 percent of, respectively, the then issued shares of common stock of such corporation and/or the combined voting power of the issued voting securities of such corporation or other business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Shares and/or Issued Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Shares and/or Issued Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation or other business entity and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 35 per cent or more of the Shares and/or Issued Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35 percent or more of, respectively, the then issued shares of common stock of such corporation and/or the combined power of the then outstanding voting securities of such corporation or other business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) and (C) at least a majority of the members of the board of directors (or other group of 16 18 persons having the general power to direct the affairs of such corporation or other entity) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; provided that any right which shall vest by reason of the action of the Board or the stockholders pursuant to this paragraph (iv) shall be divested, with respect to any such right not already exercised, upon the abandonment by the Company of such dissolution, or such sale or other disposition of assets, as the case may be. 6.2 In the event of a Change of Control of the Company, notwithstanding any decision of the Board restricting the Option's exercisability under Rule 4.1, all Options shall be exercisable in full or in part at the Option holder's discretion provided that one of the events referred to in Rule 4.1(i) to (iv) has occurred. 6.3 Notwithstanding Rule 4.1, after a Change of Control, and upon the adoption of a plan for an Event, the Board may elect to terminate each Subsisting Option. If the Board so elects, such Option shall terminate as of the effective date of the Event, but the Board shall suspend the exercise of all Subsisting Options a reasonable time prior to the Event, giving each Option holder not less than fourteen days written notice of the date of suspension, prior to which an Option holder may purchase in whole or in part the Shares available to him as of the date of receipt of the notice. If the Event is not consummated, the suspension shall be removed and all Options shall continue in full force and effect, subject to the terms of their respective Option Certificates. 6.4 For the avoidance of doubt, nothing in this Rule 6 shall entitle an Option holder to exercise an Option which has previously lapsed. 7. MANNER OF EXERCISE OF OPTIONS 7.1 No Option may be exercised by an individual at any time when he is precluded by paragraph 8 of Schedule 9 from participating in the Scheme. 7.2 An Option shall be exercised by the Option holder, or as the case may be his personal representative, giving notice to the Company in writing of the number of Shares in respect of which he wishes to exercise the Option and making arrangements reasonably acceptable to the Committee for payment of the appropriate amount, and submitting the relevant Option Certificate. Any such notice shall be effective on the date of its receipt by the Company. 7.3 Shares shall be allocated and issued pursuant to a notice of exercise within 30 days of the date of exercise. 8. RIGHTS ATTACHING TO SHARES All Shares allocated pursuant to the exercise of an Option shall rank pari passu in all respects with all other Shares in issue at the date of such allocation. 17 19 9. AVAILABILITY OF SHARES The Company shall at all times procure that it can secure the issue or the transfer of sufficient Shares to permit the exercise of all Subsisting Options. 10. LOSS OF OFFICE If any Option holder shall cease to be an employee of a Participating Company within the Group for any reason, he shall not be entitled by way of compensation for loss of office or otherwise howsoever to any sum or other benefit to compensate him for any loss of any right under the Scheme, and in returning the form of acceptance referred to in Rule 4.3 he shall be deemed to have agreed to this. 11. ADMINISTRATION AND AMENDMENT 11.1 No member of the Committee or the Board shall be held liable for any action or determination made in good faith with respect to the Plan, the UK Subplan, these Rules or any Option granted hereunder. 11.2 The cost of establishing and operating the Scheme shall be borne by the Participating Companies in such proportions as the Board shall determine. 11.3 The Board may from time to time suspend or terminate the Plan and/or the UK Subplan or amend these Rules or the form of Option Certificate, provided that: i. no such action may, without approval or ratification by the Company's shareholders, increase the maximum number of Shares reserved under the UK Subplan (except as provided in Rule 5) or under the Plan (except as otherwise expressly provided in the Plan), alter the class or classes of employees eligible for Options, or make any other such change which, pursuant to Section 16(b) of the Act and the rules and regulations promulgated thereunder, requires action by the Company's shareholders; ii. except as provided in Rule 11.5, no such action may detrimentally affect an Option holder as regards an Option granted prior to the taking of such action; and iii. no amendment to these Rules shall have effect until approved by the Board of the Inland Revenue. 11.4 The Scheme shall be administered by the Committee, the members of which shall be appointed by and shall serve at the pleasure of the Board (subject to the restrictions of this Rule 11.4). Notwithstanding the foregoing, until and unless the Board shall have constituted the Committee pursuant to this Rule 10.4, the committee serving from time to time as administrator of the Plan generally shall also serve as the Committee for purposes 18 20 of the UK Subplan. Actions taken by a majority of the members present at any meeting of the Committee at which a quorum is present, and any acts approved in writing by all members of the Committee without a meeting, shall constitute the acts of the Committee. The Committee shall have all powers of administration granted under these Rules, except such powers as are expressly reserved to the Board. The Committee is authorized to interpret these Rules and, subject to the provisions of Rule 11.3, to prescribe, amend, and rescind rules and regulations relating thereto. The Committee is further authorized. subject to the express provisions of the Plan and these Rules, to alter or amend the form of Option Certificate pursuant to which Options may be granted under the Scheme from time to time and to make all determinations necessary or advisable in the administration of the Scheme. The interpretation and administration by the Committee of any provisions of the Plan and the UK Subplan, including these Rules, and any Option Certificate issued pursuant to the Scheme shall be final, binding and conclusive on all persons having any interest therein. 11.5 Any notice or communication to be given by or on behalf of the Company to any Eligible Employee may be given by personal delivery or by sending the same by ordinary post to his last known address in which case it shall be deemed to have been received on the day after it was posted. Any notice, document, option, share certificate or other communication sent by post shall be sent at the risk of the Eligible Employee involved. 11.6 Unless otherwise provided any notice or other communication to be given by an Eligible Employee to the Company shall be regarded as having been properly given if sent or delivered to the company secretary of the Participating Company by whom he is employed at that company's registered office, any such communication being effective only upon receipt. 11.7 The Scheme shall at all times be read in accordance with the provisions of the U.K. Income and Corporation Taxes Act 1988 and insofar as any of its Rules shall be inconsistent with any of the said provisions and/or with any requirements of the Board of Inland Revenue necessary for its approval or continued approval under the said Act they shall be deemed automatically varied or deleted in such a way as to ensure compliance with the same. 19 21 SUBPLAN C--NON-EMPLOYEE ("ELIGIBLE") DIRECTOR PORTION OF THE ------------------------------------------------------------ AMENDED AND RESTATED 1994 STOCK OPTION PLAN ------------------------------------------- [AS FURTHER AMENDED AND RESTATED MARCH 31, 1999] ------------------------------------------------ 1. PURPOSE OF SUBPLAN C The purpose of this Subplan C is to grant options to purchase shares of the common stock, $.01 par value (the "Common Stock"), of United Asset Management Corporation (the "Company") to Eligible Directors (as defined in Section 4 of this Subplan) of the Company at market value on the date of grant, and to permit the granting of stock options to Eligible Directors at an exercise price less than market value at the date of grant as an alternative to the payment of Directors' fees in cash. The Company believes that the granting of such options will serve to enhance the Company's ability to attract and retain the services of such persons, to provide additional incentives to them and to encourage the highest level of performance by them by offering them a proprietary interest in the Company's success. The Company also believes that the Plan will encourage directors to make greater equity investment in the Company, more closely aligning the interests of the directors and the stockholders. 2. SHARES RESERVED UNDER SUBPLAN C Subject to the adjustment provided in Section 8, the aggregate number of shares of Common Stock which may be issued and sold pursuant to options granted under this Subplan C of the Plan shall not exceed 800,000 shares (or, if less, the then remaining aggregate number of shares determined in accordance with the Preamble to the Plan), which may be either authorized but unissued shares or treasury shares. If any option granted under the Plan shall terminate or expire without being fully exercised, the shares which have not been purchased will again become available for purposes of the Plan. 3. ADMINISTRATION This Subplan C shall be interpreted and administered by a committee (the "Committee") consisting of not less than three (3) members of the Board of Directors of the Company (the "Board") appointed pursuant to Section 3 of Subplan A of the Plan. The interpretation and administration by the Committee of any provisions of the Plan and any option granted thereunder shall be final and conclusive on all persons having any interest therein. No members of the Committee or the Board shall be held liable for any action or determination made in good faith with respect to the Plan or any option granted thereunder. 4. OPTION GRANTS "Eligible Directors" shall mean directors of the Company who are directors on the date of grant and who are not officers or employees of the Company. All options granted under this Subplan C shall be non-incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 20 22 (a) REGULAR OPTIONS Each Eligible Director who is such on the 30th day following the date on which each Annual Meeting of the Stockholders of the Company (the "Annual Meeting") is held during the term of the Plan shall on such 30th day be granted a stock option to purchase 14,000 shares of Common Stock. Each such option is defined herein as a "Regular Option." The date of grant of an option to an Eligible Director under this Subplan C shall be the applicable day referred to immediately above. (b) DISCOUNTED OPTIONS (i) Subject to such other rules as the Committee may adopt from time to time, during the term of the Plan, options to purchase Common Stock at a discount from fair market value on the date of grant ("Discounted Options") shall be granted to any Eligible Director who, no later than June 30, with respect to the six-month period following such date, and no later than December 31, with respect to the six-month period following such date (each six month period, a "Semi-Annual Period"), has filed with the Company an irrevocable election to receive a stock option in lieu of all or a specified portion (expressed in terms of a percentage of the Semi-Annual Fee) of the Semi-Annual Fee (as defined in Subsection 4(b) (iii)) earned or expected to be earned by such Director for the Semi-Annual Period specified in the election. (ii) Discounted Options shall be granted to an electing Eligible Director on the first day (July 1 or January 1) of each applicable Semi-Annual Period. A separate election must be made for each Semi-Annual Period, although a Director may specify that a particular election shall apply to future Semi-Annual Periods unless amended or revoked; provided, however, that no amendment or revocation may be made with respect to a Semi-Annual Period after the applicable election date for such Semi-Annual Period. The Director shall not be entitled to receive in cash any portion of the Semi-Annual Fee for which an election has been made to receive an option. (iii) Option Formula. The number of shares of Common Stock subject to each Discounted Option granted to any Eligible Director for a Semi-Annual Period shall be equal to the nearest number of whole shares of Common Stock, with cash payment for fractional shares, determined in accordance with the following formula: Semi-Annual Fee = Number of Shares ----------------------- Fair Market Value minus Discounted Option Price 21 23 "Discounted Option Price" and "Fair Market Value" shall be defined as set forth in Section 5 below. "Semi-Annual Fee" shall mean the quarterly retainer fees which the Director will be entitled to receive during a Semi-Annual Period for serving as a Director pursuant to the policy in effect for each year during the term of the Plan, but expressly excluding fees paid for attendance at or participation in meetings of the Board or any committee thereof; provided, however, that if a Director elects to receive a stock option in lieu of only a portion of the Semi-Annual Fee, the Semi-Annual Fee for purposes of the foregoing formula shall equal the portion of the Semi-Annual Fee so elected. For purposes of this Subplan C, "Semi-Annual Fee" shall also not include expenses reimbursed by the Company for attendance at or participation in meetings of the Board or any committee of the Board or fees for any other services to be provided to the Company. 5. OPTION PRICE (a) REGULAR OPTION The price per share at which each Regular Option granted under this Subplan C to an Eligible Director may be exercised ("Regular Option Price") shall be the fair market value of the Common Stock as determined by the closing sales price of such Common Stock on the consolidated tape of the principal exchange on which such Common Stock is traded on the date of grant, or if there are no sales on such date, on the trading day next preceding the date of grant on which a sale took place, or, if the Common Stock is not so traded, then as determined by a principal market maker for such Common Stock selected by the Committee ("Fair Market Value"). (b) DISCOUNTED STOCK OPTIONS The price per share at which each Discounted Option granted under this Subplan C to an Eligible Director may be exercised (the "Discounted Option Price," the Regular Option Price and the Discounted Option Price being sometimes hereinafter referred to as the "Option Price") shall be seventy-five percent (75%) of the Fair Market Value of the Common Stock on the date the Discounted Option is granted. (c) In no event shall the Option Price per share for any option under this Subplan C be less than the par value per share. 6. TERMS OF GRANT Each option granted under this Subplan C shall be evidenced by and subject to the terms and conditions of an Option Grant attached hereto as Exhibit A. Each Option Grant executed and delivered to an Eligible Director shall contain the following terms and conditions. Each option shall expire five years from the date of grant of such option, and shall be exercisable in full beginning on or after the date which is six months after the date of grant thereof; provided, however, that any option granted between March 31, 1999 and August 31, 1999, inclusive, shall be exercisable in full beginning on or after the date on which the Option Grant representing such option is delivered to the optionee. Each Eligible Director to whom an option is granted may 22 24 exercise such option from time to time, in whole or in part, during the period that it is exercisable, by payment of the Option Price of each share purchased. The Option Price of each share purchased shall be paid in cash, or by delivery or deemed delivery of other shares of the Company's Common Stock owned by the Eligible Director with an aggregate Fair Market Value equal to the product of the Option Price multiplied by the number of the shares to be purchased, or by withholding by the Company of the number of shares of its Common Stock otherwise issuable upon exercise of the installment with an aggregate Fair Market Value equal to the product of the Option Price multiplied by the number of the shares (including such withheld shares) to be purchased, or by delivery of irrevocable instructions to a broker promptly to pay to the Company the exercise price of the shares to be purchased, or in any combination of the forms of payment. A deemed delivery of shares shall mean the offset by the Company of a number of shares to be purchased against an equal number of shares of the Company's Common Stock owned by the Eligible Director. If, however, the applicable Committee established pursuant to Section 3 of this Subplan C determines in good faith that an exercise of an option through the delivery or deemed delivery or withholding of shares of the Company's Common Stock or through delivery of irrevocable instructions to a broker is not in the best interest of the Company, the Committee may withhold the right to so exercise the option and require payment of the purchase price in cash. The shares of Common Stock issued upon exercise of an option granted under this Subplan C will be acquired for investment and not with a view to distribution thereof unless there shall be an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), with respect thereto. In the event that the Company, upon the advice of counsel, deems it necessary to list upon official notice of issuance shares to be issued pursuant to the Plan on a national securities exchange or to register under the 1933 Act or other applicable federal or state statute any shares to be issued pursuant to the Plan, or to qualify any such shares for exemption from the registration requirements of the 1933 Act under the Rules and Regulations of the Securities and Exchange Commission or for similar exemption under state law, then the Company shall notify each Eligible Director to that effect and no shares of Common Stock subject to an option shall be issued until such registration, listing or exemption has been obtained. The Company shall make prompt application for any such registration, listing or exemption pursuant to federal or state law or rules of such securities exchange which it deems necessary and shall make reasonable efforts to cause such registration, listing or exemption to become and remain effective. Nothing in this Subplan C or in the Option Grant will confer upon any Eligible Director the right to continue as a director of the Company. The shares of Common Stock issued on exercise of the option shall be subject to any restrictions on transfer then in effect pursuant to the Certificate of Incorporation or Bylaws of the Company. Options granted under this Subplan C shall be transferable (subject to any terms and conditions imposed by the Committee) by the optionee, either directly or in trust, to one or more members of the optionee's family. Following any transfer permitted pursuant to this paragraph, of which the optionee has notified the Committee in writing, such option may be exercised by the transferee(s), subject to all terms and conditions of the Option Grant. For these purposes, the members of the optionee's family are only the optionee's: (i) spouse; (ii) lineal descendants; (iii) lineal ancestors; and (iv) siblings and spouses and children of such siblings. 23 25 7. TERMINATION OF DIRECTORSHIP An Eligible Director's right to participate in this Subplan C shall automatically terminate if and when such Director becomes an employee of the Company. Options granted to an Eligible Director shall cease to be exercisable 6 months after the date such Director ceases to be a director for any reason other than death. If an Eligible Director ceases to be a director on account of his death, any option previously granted to him, whether or not exercisable at the date of death, may be exercised by his executor, administrator or the person or persons to whom his rights under the option shall pass by will or the applicable laws of descent and distribution, at any time within 12 months after the date of death, but in no event after the expiration of the option. 8. ADJUSTMENT OF SHARES RESERVED UNDER THE PLAN The aggregate number and kind of shares that may be issued under this Subplan C, the maximum number of shares as to which options may be granted to any individual and the Option Price per share shall be appropriately adjusted by the Board in the event of any recapitalization, stock split, stock dividend, combination of shares, or other similar change in the capitalization of the Company, but no adjustment in the Option Price shall be made which would reduce the Option Price per share to less than the par value per share. 9. DISSOLUTION OR REORGANIZATION Prior to a dissolution, liquidation, merger, consolidation, or reorganization of the Company (the "Event"), the Board may decide to terminate each outstanding option. If the Board so decides, such option shall terminate as of the effective date of the Event, but the Board shall suspend the exercise of all outstanding options a reasonable time prior to the Event, giving each optionee not less than fourteen days written notice of the date of suspension, prior to which an optionee may purchase in whole or in part the shares available to him as of the date of receipt of the notice. If the Event is not consummated, the suspension shall be removed and all options shall continue in full force and effect subject to the terms of their respective Option Grants. 10. AMENDMENT AND TERMINATION OF SUBPLAN C The Board may amend, suspend, or terminate this Subplan C, including the form of Option Grant incorporated herein by reference. No such action, however, may, without approval or ratification by the shareholders, increase the maximum number of shares reserved under this Subplan C except as provided in Section 8, alter the class or classes of individuals eligible for options, or make any other change which, pursuant to the Code or regulations thereunder or Section 16(b) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, requires action by the shareholders. No such action may, without the consent of the holder of the option, alter or impair any option previously granted. 24 EX-10.2 3 AMENDED CONSULTING AGREEMENT 1 EXHIBIT 10.2 AMENDED AND RESTATED CONSULTING AGREEMENT THIS CONSULTING AGREEMENT was originally made as of the 1st day of January, 1993, and is now amended and restated as of the 1st day of January, 1999, by and between UNITED ASSET MANAGEMENT CORPORATION, a Delaware corporation, having its principal office at One International Place, Boston, Massachusetts 02110-2607 (the "Company") and DAVID I. RUSSELL (the "Consultant"). W I T N E S S E T H : WHEREAS, the Company desires to expand its operations in the United Kingdom and Continental Europe; WHEREAS, the Consultant possesses knowledge regarding certain European financial markets, and is familiar with the Company and its goals for expansion in the United Kingdom and Continental Europe; WHEREAS. The Company desires to retain the services of the Consultant to advise and assist the Company with research and negotiations regarding potential acquisition candidates of partners located in Europe; NOW THEREFORE, in consideration of the mutual agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Consultant hereby agree as follows: 1. TERM. The Company shall retain the Consultant to provide, and the Consultant hall provide, his services as described under Section 5 below (the "Services"), for a one-year period (the "Term"), with such Services to be performed as reasonably requested by the Company. The Term shall be automatically renewed for an additional Term of one year on December 31 of each year, unless earlier terminated by written notice by either party within 30 days of the end of each year. 2. CONSULTING FEE. With the expectation that the Consultant shall perform services an average of 2 1/2 days week during the Term, the Company shall pay the Consultant a consulting fee at the rate of $225,000 per year. 2 3. EXPENSES. The Company shall reimburse the Consultant for office expenses incurred during the Term in accordance with applicable budgets approved by the Company's Board of Directors from time to time, and shall reimburse the Consultant for one-hundred (100%) of his reasonable travel and living expenses and other reasonable expenses actually incurred by him in connection with Services he is performing for the Company. Services and expenses shall be invoiced on a quarterly basis to the attention of the Company's Chief Financial Officer. Invoices for such services and expenses shall be paid by the Company within 30 days of actual receipt by the Company. 4. TERMINATION. Either party may terminate this Agreement at any time upon 90 days' written notice to the other. In the event of any termination for any reason, the Consultant shall be paid consulting fees pro rated to the effective date of termination. All out-of-pocket expenses reasonably incurred up to the effective date of termination shall in such event also be reimbursed by the Company. 5. SCOPE OF WORK. It is agreed that the Consultant shall: (a) Attend meetings and contribute advice, guidance, knowledge, consultancy and direction regarding possible acquisition candidates or partners located in the United Kingdom and Continental Europe (the "European Candidates"). (b) Conduct research regarding the European Candidates. (c) Make initial contacts with the European Candidates in order to introduce the Company to the European Candidates and to learn more about them. (d) Maintain a steady interaction with the European Candidates. (e) Assist with travel arrangements for Company travel relating to the European Candidates. (f) Assist in negotiations with European Candidates. (g) Such other consulting or other services as the Company may reasonably request from time to time relating to the development of the Company's business in the United Kingdom and Continental Europe and such other locations as the Company and the Consultant agree. 6. RELATIONSHIP BETWEEN CONSULTANT AND COMPANY. The relationship of the Consultant to the Company is that of an independent contractor, not that of an agent or employee, and each party hereto agrees that it shall not represent such relationship as being 2 3 Otherwise to third parties. Nothing contained in this Agreement shall constitute or be construed to be or create a partnership, joint venture or lease between the Company and the Consultant. The Consultant shall not have the authority to bind the Company unless expressly authorized to do so in a particular instance by vote of the Company's Board of Directors. 7. BINDING AGREEMENT. The terms, covenants, conditions, provisions and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 8. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement between the parties hereto, and no prior oral or written, and no contemporaneous oral, representations or agreements between the parties with respect to the subject matter of this Agreement shall be of any force and effect. Any additions, amendments or modifications to this Agreement shall be of no force and effect unless in writing and signed by both the Consultant and the Company. 9. GOVERNING LAW. This Agreement shall be construed in accordance with and governed for all purposes by the laws and public policy of The Commonwealth of Massachusetts applicable to contracts executed and wholly performed within such Commonwealth. In enforcing such governing laws and public policy, a court of competent jurisdiction shall afford all relief which a Massachusetts court would afford under the circumstances. Executed as an instrument under seal as of the date first written above. CONSULTANT /s/ David I. Russell --------------------------------------- David I. Russell UNITED ASSET MANAGEMENT CORPORATION By: /s/ Frank H. Kettle ------------------------------------ Franklin H. Kettle, Executive Vice President 3 EX-11 4 CALCULATION OF EARNINGS PER SHARE 1 UNITED ASSET MANAGEMENT CORPORATION Exhibit 11 CALCULATION OF EARNINGS PER SHARE (In thousands, except per-share amounts) (Unaudited)
- ---------------------------------------------------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount - ---------------------------------------------------------------------------------------------- For the three-month period ended March 31, 1999 Basic Earnings per Share Income available to common shareholders $15,101,000 60,573,000 $ .25 ======= Effect of Dilutive Securities (1) -- 658,000 ----------- ---------- Diluted Earnings per Share Income available to common shareholders + assumed conversions $15,101,000 61,231,000 $ .25 =========== =========== ======= ============================================================================================== For the three-month period ended March 31, 1998 Basic Earnings per Share Income available to common shareholders $22,098,000 69,542,000 $ .32 ======= Effect of Dilutive Securities (1) -- 2,345,000 ----------- ---------- Diluted Earnings per Share Income available to common shareholders + assumed conversions $22,098,000 71,887,000 $.31 =========== =========== ======= ==============================================================================================
(1) Options on 3,842,000 and 1,815,000 shares of common stock and warrants on 3,018,000 and 1,530,000 shares of common stock were outstanding during the three-month periods ended March 31, 1999 and 1998, respectively, but were not included in computing diluted earnings per share because their effects were antidilutive. F-11 EX-27 5 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000796370 UNITED ASSET MANAGEMENT CORPORATION 1,000 US DOLLAR 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 126,069 0 156,941 0 0 294,966 99,234 (58,163) 1,377,878 198,069 931,355 0 0 703 217,480 1,377,878 0 217,695 0 148,215 26,088 0 16,993 26,399 11,298 15,101 0 0 0 15,101 .25 .25 INCLUDES COST ASSIGNED TO CONTRACTS ACQUIRED, NET OF 911,647. INCLUDES SENIOR NOTES PAYABLE OF 734,000 AND SUBORDINATED NOTES PAYABLE OF 197,355. REPRESENTS AMORTIZATION OF COST ASSIGNED TO CONTRACTS ACQUIRED.
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