Exhibit 10.3

 

WADDELL & REED FINANCIAL, INC.

1998 NON-EMPLOYEE DIRECTOR STOCK AWARD PLAN

As Amended and Restated

 

Waddell & Reed Financial, Inc. previously established the Waddell & Reed
Financial, Inc. 1998 Non-Employee Director Stock Award Plan (formerly named the
Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan), as
amended effective April 28, 1999 and as further amended effective on each of
December 12, 2002 and October 14, 2004 (as amended, the “Original Plan”). 
Pursuant to the powers reserved in Section 8.1 of the Original Plan, the
Original Plan is amended and restated effective October 19, 2005 as follows (the
Original Plan, as amended and restated hereby, the “Plan”).

ARTICLE 1

Purposes of the Plan

 

Section 1.1.  Purposes.  The purposes of the Plan are to attract and retain
highly qualified Non-Employee Directors and to promote the long-term growth of
the Company by providing a vehicle for Non-Employee Directors to increase their
proprietary interest in the Company.

ARTICLE 2

Definitions

 

Section 2.1.  Definitions.  Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:

“Accounting Firm” has the meaning assigned such term in Section 11.1(b).

“Acquisition” has the meaning assigned such term in Section 9.3.

“Acquisition Consideration” means the kind and amount of shares of capital stock
of the surviving or new corporation, cash, securities, evidence of indebtedness,
other property or any combination thereof receivable in respect of one Share
upon consummation of an Acquisition.

“Annual Compensation” means the annual cash retainer and meeting fees payable by
the Company to a Non-Employee Director for services as a director (and, if
applicable, as a member or chairman of a committee of the Board) of the Company,
as such amount may be determined from time to time.  For purposes of an election
to convert Annual Compensation into Awards pursuant to the Plan, meeting fees
will be deemed to be earned at the beginning of the year for all scheduled
meetings during the year, whether or not the Awardee later attends such
meetings.

“Annual SORP Exercise Date” has the meaning assigned such term in Section 6.5.

“Award” means the grant of an Option or Restricted Stock to a Participant
pursuant to the terms, conditions and limitations that the Committee may
establish in order to fulfill the objectives of the Plan.

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“Award Grant Date” means the date on which an Award of Options or Restricted
Stock, as the context applies, is made under the Plan which, unless the
Committee determines otherwise, shall be the first Business Day in January of
the calendar year in which Annual Compensation will be earned.

“Award Agreement” means a written agreement by and between the Company and a
Participant evidencing an award of Options or Restricted Stock, as applicable,
under the Plan.

“Awardee” means a Participant to whom an outstanding Award has been granted or,
in the event of such Participant’s death prior to the expiration of an Option or
the lapse of restrictions encumbering Restricted Stock, such Participant’s
Beneficiary.

“Beneficiary” means any person or persons designated by a Participant, in
accordance with procedures established by the Committee or Plan Administrator,
to receive benefits hereunder in the event of the Participant’s death.  If any
Participant fails to designate a Beneficiary or designates a Beneficiary who
fails to survive the Participant, the Beneficiary shall be the Participant’s
surviving spouse, or, if none, the Participant’s surviving descendants (who
shall take per stirpes) and if there are no surviving descendants, the
Beneficiary shall be the Participant’s estate.

“Board” means the Board of Directors of the Company.

“Business Day” means a day on which the New York Stock Exchange or other
principal national securities exchange or over-the-counter market on which the
Shares are then traded is open for business.

“Change in Control” means the occurrence of any of the following:

                (a)           when any “person,” as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company or a
Subsidiary thereof or any Company employee benefit plan), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company’s then outstanding securities;

                (b)           the effective date of any transaction or event
relating to the Company that is required to be described pursuant to the
requirements of Item 6(e) of Schedule 14A of the Exchange Act;

                (c)           when, during any period of two consecutive years
during the existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board, cease for any reason other than death to
constitute at least a majority thereof, unless each director who was not a
director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the directors at the beginning of such
period; or

                (d)           the effective date of a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a Subsidiary thereof through the purchase of assets, by merger,
or otherwise.

 

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“Code” means the Internal Revenue Code of 1986, as amended, and any successor
statute thereto.

“Committee” means the Compensation Committee of the Board.

“Company” means Waddell & Reed Financial, Inc., a Delaware corporation, and its
successors.

“Conversion Election Form” means a form, substantially in the form attached
hereto as Exhibit A, pursuant to which a Non-Employee Director elects to convert
Annual Compensation to an Award pursuant to Section 5.1.

“Disability” means total and permanent disability as determined under the
Company’s long-term disability program, whether or not the Participant is
covered under such program.  If no such program is in effect, the Disability of
a Participant shall be determined in good faith by the Board (excluding the
Participant).

“Election Date” means the date established by the Plan as the date by which a
Participant must submit a valid Conversion Election Form to the Plan
Administrator in order to participate in the Plan for a calendar year.  For each
calendar year, the Election Date is December 31 of the preceding calendar year;
provided, however, that the Election Date for the first year in which a
Non-Employee Director becomes eligible to participate in the Plan shall be the
30th day following the date on which such individual becomes a Non-Employee
Director.

“Excess Parachute Payment” has the meaning assigned such term in
Section 11.1(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” means, unless otherwise determined in good faith by the
Committee or required by applicable law, as of any given date, the closing sale
price of a Share on such date on the New York Stock Exchange or other principal
national securities exchange or over-the-counter market on which the Shares are
then traded or, if there is no sale on that day, then on the last previous
Business Day on which a sale was reported.

“Gross-Up Payment” has the meaning assigned such term in Section 11.1(a).

“Non-Employee Director” means a director of the Company who is not an employee
of the Company or of any Subsidiary.

“Option” means an option to purchase Shares granted pursuant to Article 6.

“Participant” means any Non-Employee Director who is participating in the Plan.

“Potential Change in Control” means the occurrence of any of the following:

                (i)            the entering into of an agreement by the Company,
the consummation of which would result in a Change in Control; or

 

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                (ii)           the acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group (other than the Company or a
Subsidiary or any Company employee benefit plan) of securities of the Company
representing 5% or more of the combined voting power of the Company’s
outstanding securities and the adoption by the Board of a resolution to the
effect that a Potential Change in Control of the Company has occurred for
purposes of this Plan.

“Plan” means the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock
Award Plan, as Amended and Restated, as set forth herein and as may be amended,
modified or supplemented from time to time.

“Plan Administrator” means the Committee or its delegee of administrative duties
under the Plan pursuant to Section 3.2.

“Restricted Stock” means Shares that are subject to certain restrictions and/or
a risk of forfeiture granted pursuant to Article 6.

“Shares” means shares of the Company’s Class A common stock, par value $.01.

“SORP” has the meaning assigned such term in Section 6.5.

“SORP Option” has the meaning assigned such term in Section 6.5.

“Subsidiary” means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company if each of the corporations (other
than the last corporation in the unbroken chain) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in the chain.

“Tax Counsel” has the meaning assigned such term in Section 11.1(a).

ARTICLE 3

Administration of the Plan

 

                Section 3.1.  Administrator of the Plan.  The Plan shall be
administered by the Committee, except as may be delegated pursuant to
Section 3.2.

 

                Section 3.2.  Authority of Committee.  The Committee shall have
full power and authority to (a) interpret and construe the Plan and adopt such
rules and regulations as it shall deem necessary and advisable to implement and
administer the Plan, and (b) designate persons other than members of the
Committee or the Board to carry out its responsibilities, subject to such
limitations, restrictions and conditions as it may prescribe, such
determinations to be made in accordance with the Committee’s business judgment
as to the best interests of the Company and its stockholders and in accordance
with the purposes of the Plan.  The Committee may delegate administrative duties
under the Plan to one or more agents as it shall deem necessary or advisable.

 

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                Section 3.3.  Effect of Committee Determinations.  No member of
the Committee or the Board or the Plan Administrator shall be personally liable
for any action or determination made in good faith with respect to the Plan or
any Award or to any settlement of any dispute between a Participant and the
Company.  Any decision or action taken by the Committee, the Board or the Plan
Administrator with respect to an Award or the administration or interpretation
of the Plan shall be conclusive and binding upon all persons.

 

ARTICLE 4

Participation

 

                Section 4.1.  Election to Participate.  Each Non-Employee
Director is automatically eligible to participate in the Plan.  A Non-Employee
Director may participate in the Plan for a calendar year by delivering a
properly completed and signed Conversion Election Form to the Plan Administrator
on or before the Election Date.  The Non-Employee Director’s participation in
the Plan will be effective as of the date the Plan Administrator receives the
Non-Employee Director’s Conversion Election Form.  A Non-Employee Director shall
not be entitled to any benefit hereunder unless such Non-Employee Director has
properly completed a Conversion Election Form.

 

                Section 4.2.  Irrevocable Election.  A Participant may not
revoke or change his or her Conversion Election Form for a calendar year.

 

                Section 4.3.  No Right to Continue as a Director.  Nothing
contained in the Plan shall be deemed to give any Non-Employee Director the
right to be retained as a director of the Company.

 

ARTICLE 5

Plan Benefits

 

                Section 5.1.  Conversion of Annual Compensation.  A Non-Employee
Director may elect to convert up to 100% of his or her Annual Compensation (in
increments of 10% (but not less than 50%) or $10,000) to Awards in accordance
with the terms of the Plan.

 

                Section 5.2.  Time of Conversion Election.  A Non-Employee
Director who wishes to convert Annual Compensation for a calendar year to Awards
pursuant to Article 6 must irrevocably elect to do so on or prior to the
Election Date for such calendar year, by delivering a valid Conversion Election
Form to the Plan Administrator.  The Conversion Election Form shall indicate the
percentage or dollar amount of Annual Compensation to be converted.

 

                Section 5.3.  Responsibility for Investment Choices.  Each
Participant is solely responsible for any decision to convert Annual
Compensation to Awards under the Plan and accepts all investment risks entailed
by such decision, including the risk of loss and a decrease in the value of the
amounts he or she elects to convert.

 

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ARTICLE 6

Terms and Conditions of Awards

 

If a Participant remains in service as a Non-Employee Director of the Company
through the Award Grant Date for Annual Compensation converted pursuant to
Section 5.1, the Participant shall be granted Awards subject to the following
terms and conditions:

Section 6.1.  Exercise Price of Awards.  The exercise price per Share, if any,
under each Option granted pursuant to this Article 6 shall be indicated in the
Award Agreement.  The exercise price per Share of any Option granted hereunder
shall be 100% of the Fair Market Value per Share on the Award Grant Date.

Section 6.2            Number of Shares Subject to Awards. 

(a)           Number of Options.  The number of Shares subject to an Option
granted pursuant to this Article 6 shall be the number of whole Shares equal to
A divided by B, where:

A =         the dollar amount which the Participant has elected to convert to
Options pursuant to Section 5.1; and

B =          the per Share value of an Option on the Award Grant Date, as
determined by the Committee using an option valuation model selected by the
Committee in its discretion (such value to be expressed as a percentage of the
Fair Market Value per Share on the Award Grant Date).

In determining the number of Shares subject to an Option, (i) the Committee may
designate the assumptions to be used in the selected option valuation model, and
(ii) any fraction of a Share will be rounded down to the next whole number of
Shares.

(b)           Number of Shares of Restricted Stock.  The number of Shares
subject to an Award of Restricted Stock granted pursuant to this Article 6 shall
be the number of whole Shares equal to A divided by B, where:

A =         the dollar amount which the Participant has elected to convert to
Restricted Stock pursuant to Section 5.1; and

B =          the Fair Market Value of a Share on the Award Grant Date.

In determining the number of Shares subject to an Award of Restricted Stock, any
fraction of a Share will be rounded down to the next whole number of Shares.

 

Effective January 1, 2004, a Participant will only be entitled to convert Annual
Compensation into Options and/or Restricted Stock as determined by the
Committee.

 

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Section 6.3            Term of Awards.

(a)           Exercise of Options.  All Options shall be fully nonforfeitable,
but shall be exercisable only at the time provided in this Section 6.3 and
Section 6.4 below.  Each Option shall be first exercisable, cumulatively, as to
10% of the total Shares subject to the Option commencing on each of the first
through tenth annual anniversaries of the Award Grant Date.  An Awardee’s death,
Disability, retirement or other termination of his or her status as a
Non-Employee Director shall not shorten the term of any outstanding Option.  In
no event shall the period of time over which the Option may be exercised exceed
11 years from the Award Grant Date.  An Option, or portion thereof, may be
exercised in whole or in part only with respect to whole Shares.  Options may be
exercised in whole or in part at any time during the exercise period by giving
written notice of exercise to the Company specifying the number of Shares to be
purchased, accompanied by payment in full of the exercise price, in cash, by
check or such other instrument as may be acceptable to the Committee (including
instruments providing for “cashless exercise”).  Payment in full or in part may
also be made in the form of unrestricted Shares already owned by the Awardee
(based on the Fair Market Value of the Shares on the date the Option is
exercised).  An Awardee shall have rights to dividends and other stockholder
rights with respect to Shares subject to an Option only after the Awardee has
given written notice of the exercise and has paid in full for such Shares.

(b)           Terms of Restricted Stock Awards.

                (i)            Grant and Restrictions.  Restricted Stock shall
be subject to such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances (including
based on achievement of performance goals and/or future service requirements),
or in such installments or otherwise, as the Committee may determine at the
Award Grant Date or thereafter.  Except to the extent restricted under the terms
of the Plan or any related Award Agreement, an Awardee granted Restricted Stock
shall have all of the rights of a stockholder with respect to such Restricted
Stock, including the right to vote the Restricted Stock and the right to receive
dividends thereon.  During the applicable restricted period, subject to
Section 6.6, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Awardee.

                (ii)           Forfeiture.  Subject to Section 6.4, upon
termination of an Awardee’s status as a Non-Employee Director, Restricted Stock
that is at the time of such termination subject to restrictions shall be
forfeited and reacquired by the Company.

                (iii)          Book-Entry Accounts; Certificates for Restricted
Stock.  An account for each Awardee who is awarded Restricted Stock shall be
maintained by the Company’s transfer agent or such other administrator
designated by the Committee for the deposit of such Restricted Stock, or, in the
sole discretion of the Committee, each Awardee may be issued a stock certificate
registered in the name of the Awardee with respect to such Restricted Stock. 
The Committee shall specify that such certificates bear an appropriate legend
referring to the terms, conditions and restrictions applicable to the Restricted
Stock, that the Company or transfer agent retain physical possession of such
certificates, and that the Awardee deliver a stock power to the

 

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Company or transfer agent, as applicable, endorsed in blank, relating to the
Restricted Stock.  Any such legend shall be substantially in the following form:

“The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of the
Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as
Amended and Restated (the “Plan”) and a Restricted Stock Award Agreement entered
into between the registered owner and Waddell & Reed Financial, Inc. (the
“Agreement”).  Copies of the Plan and Agreement are on file in the offices of
Waddell & Reed Financial, Inc., 6300 Lamar Avenue, Overland Park, Kansas 66202.”

                (iv)          Dividends and Splits.  Unless otherwise determined
by the Committee, Shares distributed in connection with a stock split or stock
dividend, and other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the Restricted Stock
with respect to which such Shares or other property has been distributed.

Section 6.4            Accelerated Exercisability and Lapse of Restrictions. 
Notwithstanding the normal exercisability schedule and forfeiture provisions set
forth in Sections 6.3(a) and 6.3(b)(ii), any and all outstanding Options shall
become immediately exercisable, and restrictions on any Award of Restricted
Stock shall lapse and the Shares subject to such Award shall be deemed fully
vested and nonforfeitable, upon the first to occur of (a) the death of the
Awardee, (b) the Disability of the Awardee, (c) the occurrence of a Change in
Control or, if and to the extent so determined by the Committee in writing at or
after grant (subject to any right of approval expressly reserved by the
Committee at the time of such determination), a Potential Change in Control,
(d) the determination by the Committee that a particular Award, in whole or in
part, shall become fully exercisable and/or nonforfeitable, or (e) as otherwise
provided by the Committee by rule or regulation or in any Award Agreement, or as
determined in any individual case, that restrictions or forfeiture conditions
relating to Restricted Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes.  Upon acceleration, an Option will
remain exercisable for the remainder of its original term.

Section 6.5            Award Agreement.  Each Award granted under the Plan shall
be evidenced by an Award Agreement, which shall be executed by an authorized
officer of the Company.  The Award Agreement shall contain provisions regarding
(a) the number of Shares subject to the Award, (b) the exercise price per Share,
if any, of the Award and the means of payment therefor, (c) the term of the
Award, and (d) such other terms and conditions not inconsistent with the Plan as
may be determined from time to time by the Committee.  The Committee, in its
discretion, may include in the grant of any Option under the Plan, a stock
option restoration program (“SORP”) provision.  A SORP provision shall provide,
without limitation, that, if payment of the exercise price of an Option is made
in the form of Shares, and the exercise of such Option occurs on the Annual SORP
Exercise Date, an additional option to purchase Shares (a “SORP Option”) will
automatically be granted to the Awardee effective as of the Annual SORP Exercise
Date.  A SORP Option shall (i) have an exercise price equal to 100% of the Fair
Market Value of the Shares on the Annual SORP Exercise Date, (ii) have a term
equal to that of the originally exercised Option giving rise to the SORP Option,
not to exceed a maximum term of ten years and two days from the

 

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issuance date of the SORP Option (subject to any forfeiture provision or shorter
limitation on exercise required under the Plan), (iii) have an initial vesting
date no earlier than six months after the date of its issuance, and (iv) cover a
number of Shares equal to the number of Shares used to pay the exercise price of
the originally exercised Option, plus the number of Shares (if any) withheld for
income taxes and employment taxes (plus any selling commissions) with respect to
such original exercise. “Annual SORP Exercise Date” shall mean August 1, or if
August 1 is not a Business Day, “Annual SORP Exercise Date” shall mean the next
succeeding Business Day.  Notwithstanding the foregoing, the Committee may delay
the Annual SORP Exercise Date to the extent it determines necessary to comply
with regulatory or administrative requirements.

Section 6.6            Transferability of Awards.  No Award shall be assignable
or transferable by the Awardee; provided, however, that an Award Agreement may
provide that Options are transferable by will or the laws of descent and
distribution; and provided, further, that the Committee may (but need not)
permit other transfers of an Award where the Committee concludes that such
transferability (a) does not result in accelerated taxation, and (b) is
otherwise appropriate and desirable, taking into account any state or Federal
securities laws applicable to Awards and the purposes of the Plan.

ARTICLE 7
Shares Subject to the Plan

Section 7.1            Shares Subject to the Plan.  Subject to adjustment as
provided in Article 9, the total number of Shares reserved and available for
issuance in connection with Awards under the Plan shall not exceed 1,200,000
Shares.  Shares delivered under the Plan may be newly issued Shares or
previously issued and reacquired Shares.  To the extent that Shares subject to
an outstanding Award are not issued or delivered by reason of the expiration,
termination, cancellation or forfeiture of such Award or by reason of the
delivery of Shares to pay all or a portion of the exercise price of an Award,
then such Shares shall again be available for issuance under the Plan.

In the case of Options exercised with payment in Shares under a SORP provision,
the number of Shares transferred by the Awardee in payment of the exercise price
plus the number of Shares withheld for income and employment taxes (plus any
selling commissions) on such exercise will be netted against the number of
Shares issued to the Awardee in the exercise, and only the net number shall be
charged against the 1,200,000 limitation set forth above.

ARTICLE 8

Amendment, Suspension and Termination

 

                Section 8.1.  Amendment, Suspension and Termination.  The Board
may amend, suspend or terminate the Plan or any Award Agreement at any time;
provided, however, that the Board may condition any amendment or modification on
the approval of stockholders of the Company if such approval is necessary or
deemed advisable with respect to tax, securities or other applicable laws,
policies or regulations, or securities exchange listing standards, and no such
amendment, modification or termination shall adversely affect any outstanding
Awards without the consent of the Participant.

 

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ARTICLE 9

Adjustment Provisions

 

Section 9.1            Change in Corporate Structure Affecting Shares.  If the
Company shall at any time change the number of issued Shares without new
consideration to the Company (such as by stock dividend, stock split,
recapitalization, reorganization, exchange of shares, liquidation, combination
or other change in corporate structure affecting the Shares) or make a
distribution of cash or property which has a substantial impact on the value of
issued Shares, the total number of Shares reserved for issuance under the Plan
shall be appropriately adjusted and the exercise price per Share, if any, and
the number of Shares underlying each outstanding Award shall be adjusted so that
the aggregate consideration payable to the Company and the value of each such
Award shall not be changed.  Adjustments pursuant to this Section 9.1 shall not
be made to the extent the Plan has been amended to reflect any adjustment
contemplated in this Section 9.1.

Section 9.2            Certain Reorganizations.  Notwithstanding any other
provision of the Plan, and without affecting the number of Shares reserved or
available hereunder, the Committee shall authorize the issuance, continuation or
assumption of outstanding Awards or provide for other equitable adjustments
after changes in the Shares resulting from any merger, consolidation, sale of
assets, acquisition of property or stock, recapitalization, reorganization or
similar occurrence in which the Company is the continuing or surviving
corporation, upon such terms and conditions as it may deem necessary to preserve
Awardees’ rights under the Plan.

Section 9.3            Acquisitions.  In the case of any sale of assets, merger,
consolidation or combination of the Company with or into another entity, other
than a transaction in which the Company is the continuing or surviving
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an “Acquisition”), any Awardee who holds an outstanding
Award shall have the right (subject to the provisions of the Plan and any
limitation applicable to the Award) thereafter and during the term of the Award,
to receive upon exercise or vesting thereof, the Acquisition Consideration
receivable upon the Acquisition by a holder of the number of Shares which would
have been obtained upon exercise of the Option or portion thereof or vesting of
all or a portion of the Restricted Stock subject to an Award, as the case may
be, immediately prior to the Acquisition; provided, however, the Committee, in
its sole discretion, may settle the value of any Award on the basis of the
Acquisition Consideration as of the date the Acquisition occurs, or such other
date as the Committee may determine prior to the Acquisition, in cash, stock or
other property, or any combination thereof.  To the extent any such settlement
made in the sole discretion of the Committee is made in Shares, such Shares will
be deemed to have been distributed under the Plan.

ARTICLE 10

Miscellaneous

 

Section 10.1.  Withholding.  If any Award granted under the Plan is or becomes
subject to any withholding requirement, the Committee may require the Awardee to
remit such withholding as a condition to exercising an Option or any portion
thereof, or to receiving any Shares underlying an Award of Restricted Stock or
the lapsing of restrictions thereon.

 

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Section 10.2.  Compliance with SEC Regulations.  All grants, vesting, lapsing of
restrictions, and exercises of Awards under the Plan shall be executed in
accordance with the requirements of Section 16 of the Exchange Act, and any
regulations promulgated thereunder, to the extent applicable.  To the extent
that any of the provisions contained herein do not conform with Rule 16b-3 of
the Exchange Act or any amendments thereto or any successor regulations, then
the Committee may make such modifications so as to conform the Plan and any
Awards granted thereunder to the requirements of Rule 16b-3.

Section 10.3.  Validity.  In the event that any provision of the Plan or any
related Award Agreement is held to be invalid, void or unenforceable, the same
shall not affect, in any respect whatsoever, the validity of any other provision
of the Plan or any related Award Agreement.

Section 10.4.  Inurement of Rights and Obligations.  The rights and obligations
under the Plan and any related agreements shall inure to the benefit of, and
shall be binding upon the Company, its successors and assigns, and the
Non-Employee Directors and their beneficiaries.

Section 10.5.  Titles.  Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.

Section 10.6.  Governing Law.  The Plan shall be construed, governed and
enforced in accordance with the laws of the State of Delaware, except as such
laws are preempted by applicable Federal law.

Section 10.7.  Tax Status of Plan.  The Plan is not intended to be a
“nonqualified deferred compensation plan” under Section 409A of the Code and
shall be construed and administered accordingly.  If any term or provision
contained herein would otherwise cause the Plan to be characterized as a
“nonqualified deferred compensation plan” under Section 409A of the Code, then,
without further action by the Company, such term or provision shall
automatically be modified to the extent necessary to avoid such
characterization.

ARTICLE 11

Limitations on Payments

 

Section 11.1.  Limitations on Payments.

                (a)           Excess Parachute Payments.  Notwithstanding any
other provision of the Plan or any other agreement, arrangement or plan, in no
event shall the Company pay or be obligated to pay any Participant an amount
which would be an Excess Parachute Payment, except as provided in Section
11.1(f) and except as the Committee specifically provides otherwise in the
Participant’s Award Agreement.  For purposes of the Plan, the term “Excess
Parachute Payment” shall mean any payment or any portion thereof which would be
an “excess parachute payment” within the meaning of Section 280G(b)(1) of the
Code, and would result in the imposition of an excise tax under Section 4999 of
the Code, in the opinion of tax counsel selected by the Company (“Tax
Counsel”).  In the event it is determined that an Excess Parachute Payment would
result if the full acceleration of vesting and exercisability provided in
Section 6.4 were made (when added to any other payments or benefits contingent
on a change of control under any

 

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other agreement, arrangement or plan), the payments due under Section 6.4 shall
be reduced to the minimum extent necessary to prevent an Excess Parachute
Payment; then, if necessary to prevent an Excess Parachute Payment, benefits or
payments under any other plan, agreement or arrangement shall be reduced.  If it
is established pursuant to a final determination of a court or an Internal
Revenue Service administrative appeals proceeding that, notwithstanding the good
faith of the Participant and the Company in applying the terms of this Article
11, a payment (or portion thereof) made is an Excess Parachute Payment, then,
the Company shall pay to the Participant an additional amount in cash (a
“Gross-Up Payment”) equal to the amount necessary to cause the amount of the
aggregate after-tax compensation and benefits received by the Participant
hereunder (after payment of the excise tax under Section 4999 of the Code with
respect to any Excess Parachute Payment, and any state and Federal income taxes
with respect to the Gross-Up Payment) to be equal to the aggregate after-tax
compensation and benefits the Participant would have received as if Sections
280G and 4999 of the Code had not been enacted.

                (b)           Determination of Gross-Up Payments.  Subject to
the provisions of Section 11.1(c), the amount of any Gross-Up Payment and the
assumptions to be utilized in arriving at such amount, shall be determined by a
nationally recognized certified public accounting firm designated by the Company
(the “Accounting Firm”).  All fees and expenses of the Accounting Firm shall be
borne solely by the Company.  Any Gross-Up Payment, as determined pursuant to
Section 11.1(a), shall be paid by the Company to the Participant within five
Business Days after the receipt of the Accounting Firm’s determination.  Any
determination by the Accounting Firm shall be binding upon the Company and the
Participant.

                (c)           Claims Procedures.  A Participant shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment. 
Such notification shall be given no later than ten Business Days after the
Participant is informed in writing of such claim and shall apprise the Company
of the nature of the claim and the date of requested payment.  A Participant
shall not pay the claim prior to the expiration of the 30-day period following
the date on which it gives notice to the Company.  If the Company notifies such
Participant in writing prior to the expiration of the 30-day period that it
desires to contest such claim, the Participant shall:

                                (i)            provide the Company with any
information reasonably requested by the Company relating to such claim;

                                (ii)           take such action in connection
with contesting such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and reasonably
acceptable to the Participant;

                                (iii)          cooperate with the Company in
good faith in order to effectively contest such claim; and

                                (iv)          permit the Company to participate
in any proceedings relating to such claim.

 

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Without limitation on the foregoing provisions of this Section 11.1(c), the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Participant to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Participant agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that
the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Participant harmless, on an after-tax basis, for
any excise tax or income tax (including interest and penalties with respect
thereto) imposed as a result of the contest; provided, further, that if the
Company directs the Participant to pay any claim and sue for a refund, the
Company shall advance the amount of the payment to the Participant, on an
interest-free basis, and shall indemnify and hold the Participant harmless, on
an after-tax basis, from any excise tax or income tax (including interest or
penalties with respect thereto) imposed with respect to the advance or with
respect to any imputed income with respect to the advance.

                (d)           Payment of Gross-Up Payments.  In the event the
Company exhausts its remedies pursuant to Section 11.1(c) and the Participant
thereafter is required to make a payment of any excise tax, the Accounting Firm
shall determine the amount of the Gross-Up Payment required and such payment
shall be promptly paid by the Company to or for the benefit of such Participant.

                (e)           Claim Refunds.  If, after the receipt by the
Participant of an amount advanced by the Company pursuant to Section 11.1(c),
the Participant becomes entitled to receive any refund with respect to such
claim, the Participant shall promptly after receiving such refund pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto).  If, after the receipt by the
Participant of an amount advanced by the Company pursuant to Section 11.1(c), a
determination is made that the Participant shall not be entitled to any refund
with respect to such claim and the Company does not notify the Participant in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

                (f)            Exception to Limitation on Payments. 
Notwithstanding the foregoing, the limitation set forth in Section 11.1(a) shall
not apply to a Participant if, in the opinion of Tax Counsel or the Accounting
Firm, the total amounts payable to the Participant hereunder and under any other
agreement, arrangement or plan as a result of a change of control (calculated
without regard to the limitation of Section 11.1(a)), reduced by the amount of
excise tax imposed on the Participant under Section 4999 of the Code with
respect to all such amounts and further reduced by the state and Federal income
taxes on amounts paid in excess of the limitation set forth in Section 11.1(a),
would exceed such total amounts payable after application of the limitation of
Section 11.1(a).  No Gross-Up Payment shall be made in such case.

 

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EXHIBIT A

 

Conversion Election Form

for Calendar Year 20  

 

Election to Convert Director Compensation to Restricted Stock pursuant to the

1998 Non-Employee Director Stock Award Plan

As Amended and Restated

 

The following constitutes the irrevocable election of the undersigned under the
Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as
Amended and Restated ( the “Plan”) with respect to the conversion to Restricted
Stock of the Annual Compensation payable to the undersigned by Waddell & Reed
Financial, Inc. (the “Company”) for services as a director (and, if applicable,
as a member or chairman of a committee of the Board) of the Company during the
calendar year identified above.  Capitalized terms used herein and not otherwise
defined have the meanings assigned such terms in the Plan.

 

                I hereby irrevocably elect to convert, as of the first Business
Day of the calendar year identified above, into an Award of Options to purchase
common stock of the Company, to be granted at an exercise price of 100% of the
Fair Market Value of the Company’s common stock on the Award Grant Date,
pursuant to the Plan for the calendar year identified above,    % [indicate any
percentage from 50% to 100% (in 10% increments)] or $           [indicate any
dollar amount in increments of $10,000] of my Annual Compensation.

 

 

I hereby irrevocably elect to convert, as of the first Business Day of the
calendar year identified above, into an Award of Restricted Stock pursuant to
the Plan for the calendar year identified above,    % [indicate any percentage
from 50% to 100% (in 10% increments)] or $           [indicate any dollar amount
in increments of $10,000] of my Annual Compensation.

 

                Executed effective as of            , 20   .

 

 

                                                                                                       

 

 

(Signature)

 

 

 

 

 

(Print Name)

 

A-1

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