UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant toss. 240.14a-11(c) ofss. 240.14a-12.
DST SYSTEMS, INC.
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(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[DST LOGO]
DST SYSTEMS, INC.
NOTICE AND PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 11, 2004
YOUR VOTE IS IMPORTANT!
Please vote by telephone or the Internet as described on the Voting Card
or mark, date and sign the card and promptly return it in the envelope provided
MAILING OF THIS NOTICE AND PROXY STATEMENT, THE ACCOMPANYING VOTING CARD AND THE
2003 ANNUAL REPORT COMMENCED ON OR ABOUT MARCH 31, 2004.
DST SYSTEMS, INC.
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105
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PROXY STATEMENT
AND
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 2004
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You are hereby notified of and cordially invited to attend the Annual
Meeting of Stockholders of DST Systems, Inc., a Delaware corporation ("DST"), to
be held at the offices of DST Systems, Inc., 333 West 11th Street, 3rd Floor,
Kansas City, Missouri, at 10:30 a.m., Central Time, on Tuesday, May 11, 2004, to
consider and vote upon the following matters:
1. Election of two directors;
2. Amendment of the DST Certificate of Incorporation to Increase Authorized
Capital Stock; and
3. Such other matters which are now unknown to DST as may properly be brought
before the Annual Meeting or any adjournment thereof.
The Board of Directors has set the close of business on March 12, 2004 as
the record date for determining which stockholders are entitled to notice of and
to vote at this meeting or any adjournment thereof. A list of such stockholders
will be available during the Annual Meeting for examination by any stockholder
for any purpose germane to the meeting and will be available during regular
business hours at the corporate offices of DST, 333 West 11th Street, Kansas
City, Missouri, for the 10-day period prior to the Annual Meeting.
It is important that your shares be represented at the meeting. Please vote
your shares, regardless of whether you plan to attend the Annual Meeting. You
may cast your votes by telephone or through the Internet as described on the
Voting Card. Alternatively, please date the Voting Card, sign it and promptly
return it in the envelope provided, which requires no postage if mailed in the
United States.
If you own shares registered in the name of a broker, you should receive a
card from the broker on which you may direct the broker to vote such shares.
Please promptly complete the card and return it to the broker.
Any stockholder or stockholder's representative who may need special
assistance or accommodation to participate in the Annual Meeting because of a
disability should contact DST's Corporate Secretary at the above address, or by
phone at (816) 435-4636. To provide DST sufficient time to arrange for
reasonable assistance, please submit all such requests by May 1, 2004.
By Order of the Board of Directors,
Randall D. Young
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
The date of this Notice is March 31, 2004.
DST SYSTEMS, INC.
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105
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PROXY STATEMENT
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CONTENTS
PAGE
Voting.................................................................... 1
Principal Stockholders and Stockholdings of Management.................... 3
Proposal 1 - Election of Two Directors................................... 6
Proposal 2 - Amendment of DST Certificate of Incorporation
to Increase Authorized Capital Stock .................................. 7
The Board of Directors.................................................... 9
Audit Matters............................................................. 13
Director Nomination Matters............................................... 15
Executive Compensation Matters............................................ 16
Other Matters............................................................. 28
PROXY STATEMENT
This proxy statement is being mailed on or about March 31, 2004, to holders
at the close of business on March 12, 2004 (the "Record Date") of a total of
shares (the number outstanding as of the Record Date) of the
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common stock of DST Systems, Inc. ("DST Common Stock"). DST Common Stock has a
par value of $.01 per share, and is the only outstanding class of voting
securities of DST. Stockholders on the Record Date are entitled to vote on the
proposals to be presented by the DST Board of Directors (the "DST Board") at the
Annual Meeting of Stockholders to be held at 10:30 a.m. Central Time, on
Tuesday, May 11, 2004, at the principal executive offices of DST Systems, Inc.
("DST"), 333 West 11th Street, 3rd Floor, Kansas City, Missouri 64105 ("Annual
Meeting"). The DST Board is soliciting your vote on the proposals and is also
furnishing you with the Annual Report to Stockholders and Form 10-K of DST for
the year ended December 31, 2003 ("Annual Report").
VOTING
PROPOSALS. At the Annual Meeting the DST Board intends to present the election
of two directors and amendment of DST's Certificate of Incorporation (the "DST
Certificate") to increase the authorized capital stock. The DST Board knows of
no other matters that will be presented or voted on at the Annual Meeting.
Stockholders do not have any dissenters' rights of appraisal in connection with
the proposals.
QUORUM. In order for any proposal to be approved at the Annual Meeting, a quorum
of DST stockholders must be present at the meeting, either in person or through
a proxy, regardless of whether such stockholders vote their shares. The presence
in person or by proxy of the holders of a majority of the shares of DST Common
Stock outstanding on the Record Date constitutes a quorum. All shares of DST
Common Stock held through a broker or other nominee that votes at least some of
the shares are generally considered present at the Annual Meeting.
TABULATION OF VOTES. Each stockholder may cast one vote for each share of DST
Common Stock held by such stockholder on the Record Date on all matters to be
voted on at the Annual Meeting except that stockholders may vote cumulatively
for directors. In other words, each stockholder may cast a number of votes equal
to the number of shares of DST Common Stock held by such stockholder on the
Record Date multiplied by the number of directors to be elected, and the
stockholder may cast all such votes for a single nominee or distribute them
among the nominees as the stockholder chooses. This Proxy Statement solicits
discretionary authority to vote cumulatively for the election of directors, and
the accompanying form of proxy as well as a telephone or Internet vote grants
such authority. The directors are elected by a plurality of the shares voted by
the stockholders. The plurality is determined by reference to the number of
votes for each director nominee, and where, as here, there are two vacancies for
director, the two nominees with the highest number of affirmative votes are
elected. Votes respecting the election of directors may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Broker non-votes (which occur when a broker has not
received directions from customers, and the broker cannot or does not vote the
customers' shares) will have no effect on a proposal to elect directors.
A majority of the outstanding shares on the Record Date is required to
amend the DST Certificate to increase the authorized capital stock. The
percentage of shares that have been voted for such proposal is determined by
dividing the affirmative votes by the total number of outstanding shares on the
Record Date.
On any proposal other than the election of directors, the percentage of
shares required to be voted for the proposal depends on the proposal. For most
proposals, the affirmative vote of a majority of the shares represented at the
meeting in person or by proxy and entitled to vote on the subject matter is
required for the adoption of the proposal. The percentage of shares that have
been affirmatively voted for a proposal is determined by dividing the
affirmative votes by the total of the number of shares voted for the proposal,
the number of shares voted against the proposal, the number of shares abstained
from voting on the proposal, and broker non-votes. In other words, abstentions
and broker non-votes will have the effect of votes against a proposal.
HOW STOCKHOLDERS VOTE. Stockholders holding DST Common Stock on the Record Date
in their own names ("Record Holders"), persons who participate in certain
benefit plans* of DST or its subsidiaries and indirectly hold DST Common Stock
on the Record Date through such plans ("Plan Participants"), and investors
holding DST Common Stock on the Record Date through a broker or other nominee
("Broker Customers") may vote such stock as follows:
DST COMMON STOCK HELD OF RECORD. Record Holders may only vote their shares
of DST Common Stock if they or their proxies are present at the Annual Meeting.
Record Holders, through the Voting Card or through Internet or telephone voting,
may appoint as their proxy the Proxy Committee, which consists of officers of
DST whose names are listed on the Voting Card. The Proxy Committee will vote as
specified by the stockholders (either on the Voting Card or through Internet or
telephone voting) all shares of DST Common Stock for which it is the proxy. A
Record Holder desiring to name as proxy someone other than the Proxy Committee
may do so by crossing out the names of the Proxy Committee members on the Voting
Card and inserting the full name of such other person. In that case, the Record
Holder must sign the Voting Card and deliver it to the person named, and the
person named must be present and vote at the Annual Meeting. If a stockholder
does not specify when voting (either on the Voting Card or through Internet or
telephone voting) how the shares of DST Common Stock represented thereby are to
be voted, the Proxy Committee intends to vote such shares (a) for the election
of the persons nominated by the DST Board to be directors ("Board Nominees"),
(b) for amendment of the DST Certificate to increase authorized capital stock,
and (c) in accordance with the discretion of the Proxy Committee upon such other
matters as may properly come before the Annual Meeting.
DST COMMON STOCK HELD UNDER THE PLANS. Plan Participants may, by using the
Voting Card, Internet or telephone voting, instruct the trustee of the Plans how
to vote the shares allocated to the respective participant accounts. The trustee
will vote all shares allocated to the accounts of Plan Participants as
instructed by such participants. With respect to any shares of DST Common Stock
not allocated to Plan accounts or for which Plan Participants have not given
instructions to the trustee, the trustee must vote such shares in the same
proportion as those shares for which it received instructions. The trustee may
vote Plan shares either in person or through a proxy. The trustee intends to
vote in the same manner as the Proxy Committee upon other matters as may
properly come before the Annual Meeting.
DST COMMON STOCK HELD THROUGH A BROKER OR OTHER NOMINEE. Each broker or
nominee must solicit from the Broker Customers directions on how to vote the
shares, and the broker or nominee must then vote such shares in accordance with
such directions. Brokers or nominees are to forward soliciting materials to the
Broker Customers, and, if requested, DST will reimburse their reasonable
expenses in forwarding the materials. Whether brokers may vote the shares of
Broker Customers when they have not received directions depends on the proposal
and on the rules and procedures of the New York Stock Exchange ("NYSE"), which
is the exchange that lists DST Common Stock for trading.
REVOKING PROXY AUTHORIZATIONS OR INSTRUCTIONS. Until the polls close (or, in the
case of Plan Participants, until the trustee of the Plans votes), votes of
Record Holders and Broker Customers and instructions of Plan Participants to the
Plan trustee may be recast (a) by an Internet or telephone vote subsequent to
the date shown on a previously executed and delivered Voting Card or to the date
of a prior Internet or telephone vote or (b) with a later-dated, properly
executed and delivered Voting Card. Otherwise, stockholders may not revoke their
votes, even by attending the Annual Meeting, unless (a) for Record Holders, they
deliver written revocation to the Corporate Secretary of DST at any time before
the Chairman of the Annual Meeting closes the polls; (b) for Plan Participants,
they follow the revocation procedures of the trustee; or (c) for Broker
Customers, they follow the revocation procedures of the broker or nominee.
ATTENDANCE AND VOTING IN PERSON AT THE ANNUAL MEETING. Attendance at the Annual
Meeting is limited to Record Holders or their properly appointed proxies,
beneficial owners of DST Common Stock having evidence of such ownership, and
guests of DST. Plan Participants and Broker Customers, absent special direction
to DST from the trustee, broker or nominee, may only vote by instructing the
trustee, broker or nominee and may not cast a ballot at the Annual Meeting.
Record Holders who have not appointed a proxy, or who have revoked the
appointment of a proxy, may vote by casting a ballot at the Annual Meeting.
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*The Employee Stock Ownership Plan of DST Systems, Inc. ("DST ESOP"), the DST
Systems, Inc. 401(k) Profit Sharing Plan ("DST 401(k)"), and the lock\line, LLC
401(k) Plan (each, a "Plan").
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
As of the Record Date, DST had outstanding shares of DST Common
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Stock. The following table sets forth information as of the Record Date
concerning the beneficial ownership of DST Common Stock by: (i) stockholders who
have publicly filed a report acknowledging ownership of more than 5% of the
outstanding DST Common Stock; (ii) the directors and certain executive officers
of DST; and (iii) all of DST's executive officers and directors as a group.
Except as otherwise noted, the holders have sole power to vote and dispose of
the shares. For purposes of incorporating a DST subsidiary in a foreign country,
each of several DST officers holds a single share of such subsidiary's stock.
Such holdings constitute less than 1% of the subsidiary's stock. No officer or
director of DST owns any equity securities of any other subsidiary of DST.
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SHARES OF PERCENT
NAME AND ADDRESS DST COMMON OF CLASS(2)
STOCK(1)
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George L. Argyros (3) 9,479,240
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Janus Capital Group Inc. ("Janus") (4) 7,424,052
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A. Edward Allinson (5) 63,422 *
DST Director
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Michael G. Fitt (6) 52,325 *
DST Director
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Donald J. Kenney (7) 263,770 *
President and Chief Executive Officer ("CEO") of EquiServe, Inc. ("EquiServe") (8)
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Thomas A. McCullough (9) 901,249
Executive Vice President and Chief Operating Officer ("COO") of DST, DST Director
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Thomas A. McDonnell (10) 1,794,248
President and CEO of DST, DST Director
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William C. Nelson (11) 56,890 *
DST Director
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Travis E. Reed (12) 14,675 *
DST Director
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Charles W. Schellhorn (13) 670,038 *
President and CEO of DST Output, LLC ("DST Output", formerly DST Output, Inc.) during 2003 (14);
President of Argus Health Systems, Inc. ("Argus") (15)
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M. Jeannine Strandjord (16) 40,641 *
DST Director
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J. Michael Winn (17) 290,493 *
Managing Director of DST International Limited ("DSTi") (18)
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All Executive Officers and Directors as a Group (16 Persons) (19) 5,470,739
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* Less than 1% of the outstanding DST Common Stock.
1 Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), share amounts shown for DST's executive
officers and directors include shares of DST Common Stock they may acquire
upon the exercise of options which are exercisable at the Record Date or
will become exercisable within 60 days of such date and shares of DST
Common Stock they hold indirectly under the Plans or otherwise. An
executive officer has disclaimed beneficial ownership of certain shares
which are owned by a family member. The amounts shown do not include shares
of DST Common Stock to be issued at a future date under the DST Systems,
Inc. 1995 Stock Option and Performance Award Plan ("Stock Award Plan") as
deferred compensation ("Adjustment Awards") in connection with the
elimination of the reload feature of options to purchase DST Common Stock,
which compensation is further described in the DST Compensation Committee
Report on Executive Compensation ("Compensation Report"). The number of
shares of DST Common Stock to be received as Adjustment Awards is shown in
the footnotes below, and the right to receive such shares is qualified (i)
for executive officers as described in the Compensation Report and (ii) for
members of the DST Board who are
not employees of DST or its affiliates ("Non-Management Directors") as
described in the Compensation of Non-Management Directors section of this
Proxy Statement.
2 The percentage for each person or group is based on the number of shares
outstanding as of the Record Date plus securities of such stockholder(s)
deemed outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act.
3 Mr. Argyros formerly served as a director of DST. Mr. Argyros' address is
949 South Coast Drive, Suite 600, Costa Mesa, California 92626. The number
of shares of DST Common Stock is based on information in a Form 4 for
November 2001 filed by Mr. Argyros, and on information provided by Mr.
Argyros' investment manager to DST on February 10, 2004. The shares consist
of 4,679,152 shares held by Mr. Argyros, 900 shares held by the Leon and
Olga Argyros 1986 Trust, 536,502 shares held by the Argyros Foundation,
3,903,004 shares held by HBI Financial, Inc., 357,996 shares held by SVI,
Inc., and 1,686 shares held by GLA Financial Corporation. Mr. Argyros
disclaims beneficial ownership of the shares held by the Argyros Foundation
and the Leon and Olga Argyros 1986 Trust.
4 The address of Janus is 100 Fillmore Street, Suite 300 Denver, Colorado
80206-4923. The number of shares of DST Common Stock is based on Amendment
No. 5 filed December 10, 2003, to Schedule 13D filed July 10, 2000. Janus
has given the Proxy Committee an irrevocable proxy to vote such shares.
5 Mr. Allinson's beneficial ownership includes 19,750 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date. Mr. Allinson has a right to receive
1,984 shares as an Adjustment Award no earlier than November 28, 2006.
6 Mr. Fitt's beneficial ownership includes 21,750 shares that may be acquired
through options that are exercisable or will become exercisable within 60
days of the Record Date, and 28,075 shares held in a trust. Mr. Fitt has a
right to receive 1,599 shares as an Adjustment Award no earlier than
November 28, 2006.
7 Mr. Kenney's beneficial ownership includes 250,000 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date. Mr. Kenney has a right to receive 7,143
shares as an Adjustment Award, and the first of five annual installments of
such shares will issue November 28, 2004.
8 EquiServe is a wholly-owned subsidiary of DST.
9 Mr. McCullough's beneficial ownership includes 640,851 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date. Mr. McCullough has a right to receive
25,136 shares as an Adjustment Award, and the first of five annual
installments of such shares will issue November 28, 2004.
10 Mr. McDonnell's beneficial ownership includes 1,156,562 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 42,090 shares allocated to his
account in the DST ESOP. Mr. McDonnell has a right to receive 45,071 shares
as an Adjustment Award, and the first of five annual installments of such
shares will issue November 28, 2004.
11 Mr. Nelson's beneficial ownership includes 40,744 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 200 shares held in an individual
retirement account. Mr. Nelson has a right to receive 1,131 shares as an
Adjustment Award no earlier than November 28, 2006.
12 Mr. Reed's beneficial ownership includes 10,000 shares that may be acquired
through options that are exercisable or will become exercisable within 60
days of the Record Date, 2,500 shares held in a trust, and 675 shares held
by Glendon Triverton, Inc. of which Mr. Reed is the president and sole
shareholder. Mr. Reed has a right to receive 429 shares as an Adjustment
Award no earlier than November 28, 2006.
13 Mr. Schellhorn's beneficial ownership includes 472,314 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 27,917 shares allocated to his
account in the DST ESOP. Mr. Schellhorn has a right to receive 13,907
shares as an Adjustment Award, and the first of five annual installments of
such shares will issue November 28, 2004.
14 DST Output is a wholly-owned subsidiary of DST.
15 DST is a 50% owner of Argus.
16 Ms. Strandjord's beneficial ownership includes 14,150 shares that may be
acquired through options that are exercisable or will become exercisable
within 60 days of the Record Date and 1,000 shares held in a trust. Ms.
Strandjord has a right to receive 1,540 as an Adjustment Award no earlier
than November 28, 2006.
17 Mr. Winn's beneficial ownership includes 290,000 shares that may be
acquired through options that are exercisable within 60 days of the Record
Date. Mr. Winn has a right to receive 6,571 shares as an Adjustment Award,
and the first of five annual installments of such shares will issue no
earlier than November 28, 2004.
18 DSTi is a wholly-owned subsidiary of DST.
19 The beneficial ownership of all executive officers and directors as a group
includes 3,902,559 shares that may be acquired by the executive officers
and directors through options that are exercisable or will become
exercisable within 60 days of the Record Date. It also includes 129,770
shares allocated to the DST ESOP accounts of executive officers and the
spouse of an executive officer and 39,069 shares otherwise held indirectly.
Individuals in the group have disclaimed beneficial ownership as to a total
of 5,493 of the shares. The holdings of Mr. Schellhorn, who was an
executive officer during 2003, are included in these numbers. The executive
officers and directors as a group have a right over varying applicable
periods to receive 136,875 shares as Adjustment Awards.
PROPOSAL 1
ELECTION OF TWO DIRECTORS
The DST By-laws classify the DST Board into three classes and stagger the
three-year terms of each class to expire in consecutive years. The term of
office of one class of directors expires each year in rotation so that at each
annual meeting of stockholders one class is up for election for a full
three-year term. The terms of the two Board Nominees identified below are
expiring at this Annual Meeting. Directors elected at the Annual Meeting will
hold office for a three-year term expiring in 2007 or until their successors are
elected and qualified.
The Board Nominees are A. Edward Allinson and Michael G. Fitt. They are
currently directors of DST, have indicated that they are willing and able to
continue serving as directors if elected, and have consented to being named as
nominees in this Proxy Statement. If any of the Board Nominees should for any
reason become unavailable for election, the Proxy Committee will vote for such
other nominee as may be proposed by the Nominating Committee of the DST Board
or, alternatively, the DST Board may reduce the number of directors to be
elected at the meeting.
A. EDWARD ALLINSON, age 69, has served as a director of DST from 1977 to
November 1990 and from September 1995 to present. He was Executive Vice
President of State Street Bank and Trust Company ("State Street Bank") and
Executive Vice President of State Street Corporation ("State Street"), the
parent company of State Street Bank, from March 1990 through December 1999.
State Street is a financial services corporation that provides banking, trust,
investment management, global custody, administration and securities processing
services. From December 1999 through his retirement in October 2000, Mr.
Allinson served as CEO and Chairman of the Board of EquiServe Limited
Partnership, a stock transfer agent for publicly listed corporations. EquiServe
Limited Partnership has become EquiServe, Inc., a wholly-owned subsidiary of
DST. Mr. Allinson is also a director of Kansas City Southern ("KCS") and Boston
Financial Data Services, Inc. ("BFDS"), a joint venture of State Street and DST.
BFDS performs shareowner accounting services for mutual fund companies and
remittance and proxy processing, teleservicing and class action administration
services.
MICHAEL G. FITT, age 72, has served as a director of DST since September
1995. He was CEO and Chairman of GE Employers Reinsurance Corporation ("ERC"), a
reinsurance company, from 1980 through 1992 and its President from 1979 through
October 1991. He retired from ERC in 1992. Mr. Fitt is also a director of KCS.
THE DST BOARD RECOMMENDS THAT YOU VOTE "FOR"
THE BOARD NOMINEES
PROPOSAL 2
AMENDMENT OF THE DST CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED CAPITAL STOCK
On February 26, 2004, the DST Board unanimously approved amending Section 4
of the DST Certificate to increase the number of authorized shares of DST Common
Stock from 300,000,000 shares to 400,000,000 shares, subject to stockholder
approval. As of the Record Date, DST had shares of DST Common Stock
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outstanding. Prior to the Record Date, DST had:
1. Reserved 53,713,444 shares ("Reserved Shares") for issuance under:
(i) tax qualified retirement plans;
(ii) the Stock Award Plan and the DST Systems, Inc. 2000 Employee
Stock Purchase Plan ("ESPP"), both of which are shareholder
approved;
(iii)several option plans of USCS International, Inc., a company DST
acquired with shareholder approval on December 21, 1998; and
(iv) the terms of the $840 million aggregate principal amount of
convertible senior debentures (the "Debentures") issued in August
2003, in the event of circumstances described in the Annual
Report that trigger conversion into shares of DST Common Stock*;
and
2. Retired 32,300,000 shares of DST Common Stock ("Retired Shares") in
connection with the financing of a share exchange transaction
described in the Annual Report (the "Janus Transaction") that DST
completed on December 1, 2003 under a Share Exchange Agreement dated
August 25, 2003 among DST, Janus and DST Output Marketing Services,
Inc.
At the time of any future financing or acquisition transaction, stock
dividend or split, employee benefit plan or general corporate use of shares
("Potential Event"), DST would consider the Retired Shares and any remaining
Reserved Shares unavailable for use in connection with such Potential Event.
If the amendment is approved, the DST Board, when and if it deems an
issuance for Potential Events or otherwise to be in the best interests of DST
and its stockholders, will have greater flexibility to issue the appropriate
number of shares. Such an issuance would occur without the expense and delay of
a special stockholders' meeting unless stockholder approval is required by
applicable law or by NYSE rules.
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* Reserved Shares include 17,113,488 shares of DST Common Stock issuable upon
conversion of Debentures, assuming a conversion rate of 20.3732 shares per
$1,000 principal amount of the Debentures and a cash payment in lieu of any
fractional share interest. The conversion rate is subject to adjustment, and,
accordingly, the number of shares of DST Common Stock issuable upon conversion
may increase or decrease from time to time.
Except for shares that could issue in connection with the Debentures and
under certain DST employee benefit plans, DST currently has no arrangements or
understandings for the issuance of additional shares of DST Common Stock.
An issuance of additional shares of DST Common Stock could dilute the
voting power of stockholders and could deter or render more difficult a merger,
tender offer, proxy contest or an extraordinary corporate transaction opposed by
the DST Board. DST has no knowledge that any person intends to effect such a
transaction.
THE DST BOARD RECOMMENDS THAT YOU VOTE "FOR"
THE DST CERTIFICATE AMENDMENT TO INCREASE AUTHORIZED CAPITAL STOCK
THE BOARD OF DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN FUTURE YEARS. In addition to the Board Nominees,
who are described under the section Proposal 1 herein, the following individuals
are also on the DST Board for a term ending on the date of the annual meeting of
stockholders in the year indicated.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2005
THOMAS A. MCDONNELL, age 58, has served DST as a director since 1971, as
CEO since October 1984, and as President since January 1973 (except for a
30-month period from October 1984 to April 1987). He served as Treasurer of DST
from February 1973 to September 1995 and as Vice Chairman of the Board from June
1984 to September 1995. He is a director of BHA Group Holdings, Inc., Blue
Valley Ban Corp., Commerce Bancshares, Inc., Computer Sciences Corporation,
Euronet Worldwide, Inc. ("Euronet"), Garmin Ltd., and KCS.
M. JEANNINE STRANDJORD, age 58, has served as a director of DST since
January 1996. Since September 15, 2003, she has served as Senior Vice President
and Chief Integration Officer for Sprint Corporation ("Sprint"), a
telecommunications company. Prior to holding such office, she served since
January 1, 2003 as Senior Vice President of Financial Services for Sprint and
between November 1998 and December 2002 as Senior Vice President of Finance for
Sprint's Global Markets Group. She had previously served from 1985 to 1990 as
Vice President of Finance and Distribution at AmeriSource, Inc., a Sprint
subsidiary, and from 1990 to November 1998 as Senior Vice President and
Treasurer for Sprint. She is a director of Euronet and six registered investment
companies which are part of American Century Funds.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2006
THOMAS A. MCCULLOUGH, age 61, has served as a director of DST since 1990.
He has served as Executive Vice President of DST since April 1987 and as COO
since May 2001. His responsibilities include full-service mutual fund
processing, remote service mutual fund client servicing, Automated Work
Distributor products, information systems, securities transfer, product sales
and marketing, and DST's Winchester Data Center. From September 2000 through
2003, he served as CEO, and since September 2000 he has served as Chairman, of
BFDS. He is also a BFDS director.
WILLIAM C. NELSON, age 66, has served as a director of DST since January
1996. In March 2001, he became Chairman of George K. Baum Asset Management,
which provides investment services to individual investors, companies, and
charitable organizations. In March 2000, Mr. Nelson retired from his positions
as President, Kansas City Region, of Bank of America, N.A. and as Chairman of
Bank of America Mid-West. Mr. Nelson had served since June 1988 as an executive
officer of banks acquired by Bank of America. He is a director of Great Plains
Energy, Inc.
TRAVIS E. REED, age 69, has served as a director of DST since July, 2002.
Mr. Reed is founder of Reed Investment Corporation, which purchases equity
interests in various businesses, and has served as its President since 1977.
POLICY ON DIRECTOR ATTENDANCE AT ANNUAL STOCKHOLDER MEETINGS. DST directors
shall, whenever reasonably practicable, attend annual stockholders' meetings.
Each director attended the 2003 annual stockholders' meeting.
NON-MANAGEMENT DIRECTOR INDEPENDENCE. The Non-Management Directors constitute a
majority of the DST Board, and the DST Board has determined each of them to be
independent under NYSE standards. In determining the independence of each
Non-Management Director, the DST Board applied categorical standards of
independence contained in the DST Systems, Inc. Corporate Governance Guidelines
(the "Guidelines"), available at WWW.DSTSYSTEMS.COM. The standards assist the
Board in determining that a director has no material relationship with DST,
either directly or as a partner, shareholder or officer of an organization that
has a relationship with DST. Under the standards, the DST Board presumes
independence if the director has not during the preceding three years: (a) been
a DST employee, (b) been affiliated with or employed by a present or former
auditor of DST, (c) been employed as an executive officer by any company on
whose compensation committee a DST executive officer concurrently served, (d)
had any immediate family member who did not satisfy the foregoing criteria, (e)
received, and had no immediate family member who received, more than $100,000 in
any year in
direct compensation from DST,* (f) been an executive officer or an employee, and
had no immediate family member who had been an executive officer, of a company
that made payments to, or received payments from, DST for property or services
in any of the last three years in an amount which, in any single fiscal year,
exceeds the greater of $1 million, or 2% of such other company's consolidated
gross revenues,* (g) been, and had no immediate family member who had been, an
executive officer of a charitable organization, to which the Company contributed
more than the greater of 2% of such charitable organization's consolidated gross
revenues or $1 million; and (h) served, and had no immediate family member who
served, as an executive officer or general partner of an entity that received an
investment from DST or any of its subsidiaries, unless such investment was less
than the greater of $1 million or 2% of such entity's total invested capital.*
In determining independence, the DST Board concluded that each of the
Non-Management Directors has no material relationship with DST under these
standards.
DST BOARD MEETINGS AND STANDING COMMITTEES
MEETINGS. The DST Board met eight times in 2003. The DST Board has
established three standing committees: the DST Audit Committee, the DST
Corporate Governance/Nominating Committee (the "DST Nominating Committee") and
the DST Compensation Committee. During 2003, the DST Audit Committee held four
meetings, the DST Nominating Committee held one meeting, and the DST
Compensation Committee held eight meetings. Each director attended at least
87.5% of the aggregate number of 2003 meetings of the DST Board and of 2003
meetings of DST Board committees on which such director served.
DST AUDIT COMMITTEE. The DST Audit Committee is comprised of directors who
meet NYSE independent standards. Under the Guidelines, a director will be
considered independent for purposes of serving on the DST Audit Committee only
if the Director also has not, other than in his or her capacity as a member of
any DST Board committee or the DST board, accepted any consulting, advisory, or
other compensatory fee from DST and is not an affiliated person of DST or any
subsidiary of DST, as defined by the rules of the Securities and Exchange
Commission ("SEC"). Functions performed by the DST Audit Committee include
appointing and approving the fees of the independent auditor, reviewing audited
financial statements and certain other public disclosures, and assisting the DST
Board in oversight of the internal audit function, legal and regulatory
compliance, and integrity of financial statements and certain internal controls.
The charter of the DST Audit Committee adopted by the DST Board is attached to
this Proxy Statement as Appendix A and is available at WWW.DSTSYSTEMS.COM.
Members of the DST Audit Committee are Ms. Strandjord and Messrs. Allinson,
Fitt, Nelson and Reed. The DST Board has determined that Mrs. Strandjord is an
"audit committee financial expert" as that term is defined in applicable
securities laws and regulations, and other members of the DST Audit Committee
may also qualify as audit committee financial experts under such laws and
regulations. The DST Board appoints the members of the DST Audit Committee to
serve staggered three-year terms. The DST Audit Committee Report is set forth
herein. No member of the DST Audit Committee serves on other public company
board of director audit committees.
DST COMPENSATION COMMITTEE. Functions of the DST Compensation Committee
include making determinations with respect to salaries and bonuses of and other
compensation arrangements with DST executive officers and the CEO, performing
certain administrative duties under DST compensation and benefit plans,
including the Stock Award Plan, and recommending to the DST Board fees to be
paid Non-Management Directors. The charter of the DST Compensation Committee is
available at WWW.DSTSYSTEMS.COM. Members of the DST Compensation Committee are
Ms. Strandjord and Messrs. Fitt, Nelson and Reed. The DST Board appoints the
members of the DST Compensation Committee to serve one-year terms. The DST
Compensation Committee Report on Executive Compensation is set forth herein.
-----------
*The Guidelines set forth certain circumstances in which independence can be
presumed although these circumstances exist.
DST NOMINATING COMMITTEE. The DST Nominating Committee is comprised of
directors who meet NYSE independence standards. Functions performed by the DST
Nominating Committee include identifying and recommending to the DST Board
nominees to serve on the DST Board, evaluating independence and other
qualifications of DST Board and DST Board committee members, recommending
corporate governance guidelines to the DST Board, overseeing evaluations of the
DST Board and of DST management, and reviewing and performing certain
administrative duties with respect to DST's Business Ethics and Legal Compliance
Policy. The charter of the DST Nominating Committee is available at
WWW.DSTSYSTEMS.COM. Members of the DST Nominating Committee are Ms. Strandjord
and Messrs. Allinson, Fitt, Nelson and Reed. The DST Board appoints the members
of the DST Nominating Committee to serve one-year terms. The DST Nominating
Committee will consider nominees for director timely proposed by stockholders in
a written proposal notice as described in the "Other Matters" section of this
Proxy Statement.
STOCKHOLDER COMMUNICATION WITH DIRECTORS. Stockholders may send written
communications to the DST Board, any director, or any director group, including
all Non-Management Directors or all members of a DST Board committee, in care of
Clarence M. Kelley and Associates, Inc., Attention: Patrick Quinn/DST, 3217
Broadway, 4th Floor, Kansas City, MO 64111. Clarence M. Kelley and Associates,
Inc. will forward the communication directly to the director or director group
to which it is directed by the stockholder. Clarence M. Kelley and Associates,
Inc is a third party vendor not affiliated with DST. Non-Management Directors
meet regularly in executive session without management participation. The
Presiding Director for such sessions is Michael G. Fitt. Stockholders may
communicate directly with the Presiding Director, or the Non-Management
Directors as a group, using the procedure set forth in this paragraph.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN BUSINESS
RELATIONSHIPS. Thomas A. McCullough, Director and Executive Vice President and
COO, serves on the board of directors of BFDS and as a member of that board's
Executive Committee. From September 2000 through 2003, Mr. McCullough served as
CEO, and since September 2000 he has served as Chairman, of BFDS. Although the
BFDS Board of Directors Executive Committee performs certain functions
equivalent to those of a compensation committee, Mr. McCullough does not receive
compensation from BFDS for serving as an officer or director of BFDS. BFDS uses
DST's mutual fund system and services as a remote client of DST. A. Edward
Allinson is both a BFDS director and a DST director. Certain subsidiaries of DST
provide printing, mailing and other services to BFDS. For 2003, DST and its
subsidiaries had revenues of $127,769,785 from BFDS and its subsidiaries.
COMPENSATION OF NON-MANAGEMENT DIRECTORS. Non-Management Directors receive a fee
of $5,000 for each meeting of the DST Board that they attend in person and a fee
of $1,000 for each DST Board meeting designated as telephone conference.
Non-Management Directors who are members of a DST Board committee receive a fee
of $2,000 for each meeting of the committee that they attend in person and a fee
of $500 for each committee meeting designated as a telephone conference.
Non-Management Directors are reimbursed for their reasonable travel expenses in
attending a meeting.
Each Non-Management Director also receives an annual retainer of $40,000.
The chairperson of the DST Audit Committee receives an additional $10,000 annual
retainer. The chairpersons of the DST Compensation Committee and the DST
Nominating Committee each receive an additional $5,000 retainer. DST pays less
than ten dollars per month in premiums for a term life insurance policy for each
director.
Non-Management Directors may defer their compensation under the Directors'
Deferred Fee Plan, a non-qualified deferred compensation plan adopted September
19, 1995. Under the plan, directors who receive fees from DST may make an annual
election to defer all or a part of any fees earned during the next calendar
year. Each participant's account will be credited with the amount of fees
deferred. The account will be adjusted monthly by a rate of return on a
hypothetical investment selected by the participant among certain
participant-elected investment choices allowed by the plan, or, if investment
choices are not elected as to all or a portion of the account, by an interest
factor equal to a rate of return selected by the DST Board as provided in the
plan. The benefits become distributable after termination of service as a
director or in certain other circumstances as approved by the DST Compensation
Committee. Fees to some directors previously deferred under an earlier plan,
which terminated effective August 31, 1995, continue to be deferred and adjusted
and will be distributed in accordance with such earlier plan.
Each Non-Management Director is eligible to receive under the Stock Award
Plan grants of DST Common Stock ("Automatic Stock Grants") and options to
purchase DST Common Stock ("Automatic Options"). The Automatic Stock Grants and
Automatic Options may be made when the director first takes a position on the
DST Board and on the date of each annual stockholders' meeting if he or she will
continue to serve as a director immediately following such meeting. The Stock
Award Plan gives the DST Compensation Committee the discretion to determine from
time to time the size of the grants. Any Automatic Options would become
exercisable as follows: 50% on the day preceding the date of the first annual
stockholders' meeting after the date of grant of the option; an additional 25%
on the day preceding the date of the second annual stockholders' meeting after
the date of grant of the option; and the remaining 25% on the day preceding the
third annual stockholders' meeting after the date of grant of the option,
subject to earlier exercisability upon death, disability, retirement from the
DST Board (after age 60 and five years service on the DST Board), or change in
control of DST (as defined in the Stock Award Plan).
In 2003, each Non-Management Director received an Automatic Stock Grant of
500 shares and Automatic Options for 5,000 shares. For 2004, the DST Board has
determined, and Non-Management Directors have agreed, that they will forego the
Automatic Stock Grants and Automatic Options and that each director will receive
as of the Annual Meeting (if such director continues to serve as a
Non-Management Director immediately following such meeting) an equity award in
the form of restricted DST Common Stock, the fair market value of which equals
$130,000. The restrictions lapse three years from the date of grant, or, if
earlier, upon retirement from service as a Non-Management Director on or after
age 59 1/2, disability, or death. The restrictions also lapse prior to the end
of the three year period if the Non-Management Director resigns (a) pursuant to
a requirement of the director's employer, or (b) upon the advice of DST counsel
as a result of legal, regulatory, or other requirements that are not related to
the Non-Management Director's failure to perform duties to DST or its
stockholders.
Beginning February 28, 2001, and continuing through September 30, 2003,
Non-Management Directors were eligible to receive grants of options to purchase
DST Common Stock ("Matching Options") under the Matching Stock Option Grant
Program. The program was under the Stock Award Plan and allowed Non-Management
Directors to become eligible for grants of Matching Options if they acquired and
held DST Common Stock. The acquisitions of DST Common Stock upon which Matching
Options were granted were through exercises of non-reloadable options and open
market purchases. Each grant was at the discretion of the DST Compensation
Committee which considered the history of the Non-Management Director's
acquisition and retention of DST Common Stock from the date the program applied
to Non-Management Directors through the date the grant was considered. The
number of Matching Options granted was based on the number of shares of DST
Common Stock acquired ("Newly Acquired Shares"). The Matching Options become
exercisable in three years and have a term of ten years if the Newly Acquired
Shares upon which the matching grant was based are held for three years,
otherwise the options become exercisable in seven years and have a term of seven
years and sixty days. The options terminate earlier if a director ceases DST
Board membership for reasons other than death, disability or retirement from the
DST Board.
On December 16, 2003, Non-Management Directors received under the Stock
Award Plan deferred compensation in connection with the elimination of the
reload feature of certain options granted to Non-Management Directors to
purchase DST Common Stock. The elimination of the reload feature is described in
the Compensation Report in this Proxy Statement. The deferred compensation is a
right to receive on November 28, 2011 one share of DST Common Stock for each
thirty-five shares of DST Common Stock covered by options with a reload feature
held on November 28, 2003, with DST having a right (but no obligation) to
purchase each share of stock for $37.25; provided, however, that the stock will
be issued on November 28, 2006 and will not be subject to purchase by DST if the
Non-Management Director has continuously served on the DST Board through such
date. The award will be forfeited if there is a termination from DST Board
service for cause prior to the issuance date and will early issue upon a change
of control, retirement from the DST Board on or after age 60, disability, or
death.
AUDIT MATTERS
DST AUDIT COMMITTEE REPORT
The DST Audit Committee reviewed and discussed DST's consolidated financial
statements with management and DST's independent accountants. The DST Audit
Committee received management's representation and the opinion of the
independent accountants that DST's consolidated financial statements were
prepared in accordance with generally accepted accounting principles. The DST
Audit Committee also discussed with DST's independent accountants matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), as amended.
DST's independent accountants provided the DST Audit Committee with the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the DST
Audit Committee discussed with the independent accountants the independence of
their firm.
Based upon such review and discussions, the DST Audit Committee recommended
that the DST Board include the audited consolidated financial statements in
DST's Annual Report on Form 10-K for the year ended December 31, 2003 for filing
with the SEC.
THE DST AUDIT COMMITTEE
A. Edward Allinson
Michael G. Fitt
William C. Nelson
Travis E. Reed
M. Jeannine Strandjord
DST'S INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP ("PwC") served as
DST's independent accountants as of and for the year ended December 31, 2003. As
such, PwC performed professional services in connection with the audit of the
consolidated financial statements of DST and the review of reports filed with
the SEC. In addition, PwC reviewed control procedures of the mutual fund
processing system of DST and provided certain other accounting, auditing and tax
services to DST and certain of its subsidiaries.
PwC fees during 2003 and 2002 were as follows:
AUDIT FEES. Fees for financial statement audits were approximately
$1,968,763 during 2003 and $977,537 during 2002. Of the 2003 amount,
approximately $ 796,554 was related to the audit of DST Output Marketing
Services, Inc., all the shares of which were transferred to Janus in the Janus
Transaction and audit work relating to and in connection with the Janus
Transaction.
AUDIT RELATED FEES. Audit related fees were approximately $873,207 during
2003 and $550,352 during 2002. Of the 2003 amount, approximately $667,741 was
related to attest services relating to Statement of Auditing Standards No. 70
reports and other controls reviews and approximately $60,614 was for financial
statement audits of employee benefit plans. Of the 2002 amount, approximately
$426,753 was related to attest services relating to Statement of Auditing
Standards No. 70 reports and other controls reviews, approximately $52,200 was
for financial statement audits of employee benefit plans, and approximately
$71,399 was related to transaction due diligence. The DST Audit Committee has
considered whether the provision of these services is compatible with
maintaining the independence of PwC.
TAX FEES. Tax fees were approximately $2,814,315 during 2003 and $1,176,036
during 2002. Of the 2003 amount, approximately $295,607 was for tax compliance
services, approximately $845,713 was related to expatriate and other employee
tax preparation services, approximately $1,111,026 was for assistance with the
structuring of the Janus Transaction and the issuance of a tax opinion in
connection with such transaction, and approximately $561,969 was for other tax
planning and advice. Of the 2002 amount, approximately $334,935 was for tax
compliance services, approximately $133,116 was related to expatriate and other
employee tax preparation services, and approximately $707,975 was for tax
planning and advice. The DST Audit Committee has considered whether the
provision of these services is compatible with maintaining the independence of
PwC.
ALL OTHER FEES. There were no fees related to all other services during
2003, but such fees were approximately $130,665 during 2002. Approximately
$101,323 of such amount was for non-attest services related to other controls
reviews and approximately $29,342 was for consulting services related to a
capital investment. The DST Audit Committee has considered whether the provision
of these services is compatible with maintaining the independence of PwC.
The DST Audit Committee has established procedures that prohibit the
Committee from engaging an independent auditor to perform any service that the
independent auditor is prohibited by the securities laws from providing. Such
procedures require the Committee to pre-approve the auditor's annual audit of
DST's consolidated financial statements. They allow the Committee or the
Committee Chairman to pre-approve or reject any other audit or non-audit
services. The Committee has directed that the Chairman, with the assistance of
DST's Chief Financial Officer ("CFO"), present and describe at regularly
scheduled Committee meetings all such pre-approved services. The Committee has
established maximum periods in advance of the commencement of audit or non-audit
services that such services should be presented for pre-approval. The Committee
regularly examines whether the fees for auditor services exceed estimates. The
Committee procedures recognize that pre-approval is not required under
securities law regulations for certain non-audit services the aggregate amount
of which does not exceed certain amounts paid by DST to its independent auditor
("DeMinimis Waiver"), and the procedures require the Chairman or the Committee
to approve prior to completion of the audit any services subject to the
DeMinimis Waiver. No such waiver has been applied to a non-audit service.
The DST Audit Committee has appointed PwC to serve as independent
accountants to audit the consolidated financial statements of DST as of and for
the year ended December 31, 2004. Although the DST Audit Committee has selected
PwC, it nonetheless may, in its discretion, retain another independent
accounting firm at any time during the year if it concludes that such change
would be in the best interest of DST and its stockholders.
Representatives of PwC will be present at the Annual Meeting. They will
have the opportunity to make a statement if they desire and will be available to
respond to appropriate questions.
DIRECTOR NOMINATION MATTERS
In making its nominations to the DST Board, the DST Nominating Committee
identifies candidates who meet the current challenges and needs of the DST
Board. The DST Nominating Committee uses multiple sources for identifying and
evaluating nominees for directors including referrals from members of the DST
Board and management, and it may seek input from third party executive search
firms. No such firm was used to recommend the Board Nominees. The DST Nominating
Committee will also consider nominees for director timely proposed by
stockholders in a written proposal notice as described in the "Other Matters"
section of this Proxy Statement. The DST Nominating Committee evaluates
stockholder nominees for director in the same method it evaluates other
nominees, except that the DST Nominating Committee will consider and give such
weight as it deems appropriate to input about a nominee received by DST
management or incumbent DST directors.
In recommending a director nominee (including the re-election of an
incumbent director), the DST Nominating Committee considers, among other things,
whether the nominee meets the standards and has the qualities and experience to
fulfill the responsibilities set forth in the Guidelines, the nominee's
reputation and affiliations, the nominee's commitment to prepare for and
regularly attend meetings of the DST Board and any DST Board committees on which
such nominee may serve, and whether, if applicable, the nominee meets the NYSE
independence standards and has qualifications and attributes necessary under
NYSE listing standards and applicable laws and regulations for service on DST
Board committees. Additionally, in recommending an incumbent director for
re-election, the DST Nominating Committee considers the nominee's prior service
on the DST Board, continued commitment to DST Board service and any changes in
employment or other status that are likely to affect such nominee's
qualifications to serve. Selection and nomination of directors need not be
subject to the processes of the DST Nominating Committee if DST is legally
required by contract or otherwise to provide third parties with the ability to
nominate directors.
EXECUTIVE COMPENSATION MATTERS
DST COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PRINCIPLES. The DST Compensation Committee determined the base
salaries for DST executive officers (the "DST Officers") on the basis that such
salaries be fair, reasonable and competitive. The DST Compensation Committee
based other components of the compensation packages for the DST Officers on the
principles that their compensation should be competitive and that they should be
encouraged to have long-term ownership in DST and should be rewarded if DST
stockholders experience a certain level of increase in earnings per share of DST
Common Stock.
OVERVIEW OF 2003 COMPENSATION. The compensation of DST Officers for 2003
consisted of base salary and awards issued pursuant to the Stock Award Plan. The
Stock Award Plan allows the granting of restricted stock, stock options, cash
bonuses and other forms of incentive compensation to DST Officers. For 2003, the
awards granted to DST Officers under the Stock Award Plan included options to
purchase DST Common Stock, cash and restricted DST Common Stock ("Restricted
Stock") issued in 2004 for 2003 bonuses under the DST Systems, Inc, Executive
Incentive Plan (the "Executive Incentive Plan", which was adopted pursuant to,
and as an implementation of, the Stock Award Plan), and reload option feature
elimination deferred compensation. The DST Officers also participated during
2003 in certain other benefits available generally to DST officers and employees
so that their base compensation packages for 2003 were competitive.
DETERMINATION OF 2003 COMPENSATION. In determining target levels of base
salary and of total cash compensation and the types of awards to grant, the DST
Compensation Committee considered the recommendations of an independent
compensation consultant and analyzed data provided by the consultant. The
consultant updated earlier surveys of comparable position compensation data and
of proxy statement executive compensation data. The proxy statement data were
from thirteen companies, all of which are in the Peer Group shown in the Stock
Performance Graph contained in this Proxy Statement, and which the compensation
consultant and the DST Compensation Committee believed were comparable in size,
scope or complexity to DST or were in industries or businesses in which DST
competes for customers or from which it would typically recruit executives. The
DST Compensation Committee focused on the information in the surveys about
officers with positions and responsibilities similar to each DST Officer.
The DST Compensation Committee took the following actions with respect to
each component of the compensation packages:
BASE SALARIES. With the advice of the independent compensation consultant, the
DST Compensation Committee has set the target for the base salary of each DST
Officer to be in approximately the 50th percentile of compensation levels for
comparable positions shown in the surveys. The DST Compensation Committee has
increased base salaries of certain DST Officers whose base salaries fell below
the 50th percentile based on the updated survey data. The DST Compensation
Committee has also examined the responsibilities of individual DST Officers in
relation to the market and to each other and has made adjustments where it
deemed appropriate. In some instances, base salaries vary from the 50th
percentile of survey compensation levels.
CASH BONUSES AND RESTRICTED STOCK. The bonuses for DST Officers other than Mr.
Winn were made under the Executive Incentive Plan. For all participants in the
plan, bonuses are based on a percentage of salary. For all participants in the
plan other than employees of EquiServe, DST's Customer Management and Output
Solutions business segments, and DST lock\line, Inc. ("lock\line") the 2003
bonuses under such plan depended 50% on the achievement of three-year cumulative
threshold, target or maximum consolidated diluted DST earnings per share goals
("DST Cumulative Goals") and 50% on the achievement of 2003 threshold, target or
maximum consolidated diluted DST earnings per share goals ("DST 2003 Goals"). In
determining whether such goals were achieved, the DST Compensation Committee
excluded the effects of (i) the Janus Transaction described under Proposal 2 in
this Proxy Statement, (ii) the financing of the Janus Transaction, and (iii) the
reload option feature elimination costs. For participants in the plan who are
employees of EquiServe, the bonuses depended 50% on the achievement of DST 2003
Goals and 50% on the achievement of 2003 EquiServe threshold, target or
management pre-tax income goals. For participants in the plan who are employees
of the Customer Management or Output Solutions segments, the bonuses depended
50% on the achievement of DST Cumulative Goals and 50% on the achievement of
2003 segment threshold, target or maximum pre-tax income goals. For participants
in the plan who are employees of
lock\line, the bonuses depended on the achievement of 2003 lock\line threshold,
target or maximum pre-tax income goals. The DST Compensation Committee
established all such goals (collectively, the "Goals").
The DST Compensation Committee determined the percentage of each DST
Officer's salary (other than Mr. Winn) to be awarded as a bonus for 2003 at each
level of Goals met by DST. The range of minimum percentages of base salary which
could be awarded to officers other than Mr. McDonnell for 2003 if Goals were met
was from 40% to 75%, and the range of maximum percentages was 120% to 225%. In
establishing the ranges, the DST Compensation Committee set the target for each
DST Officer's combined base salary and incentive compensation to be in the 75th
percentile of the updated survey information if DST met target Goals and in the
90th percentile of the updated survey data if DST met maximum Goals.
Under the Executive Incentive Plan for all DST Officers other than Mr.
Winn, incentive compensation awarded for DST exceeding the threshold Goal is to
consist of a combination of cash and an equity award. If the threshold Goal is
met but not exceeded, all of the incentive bonus is to be paid in cash; for that
portion of the bonus attributable to performance above the threshold Goal, 50%
of the bonus is paid in cash and 50% is paid in the form of an equity award.
The DST Compensation Committee selected Restricted Stock as the equity
award for 2003. The number of shares of Restricted Stock was determined by
dividing the dollar amount of the portion of the bonus to be paid in Restricted
Stock by the average of the highest and lowest reported sales of DST Common
Stock on the NYSE on the date of the grant. Restricted Stock is subject to
forfeiture if the DST Officer's employment is terminated (for reasons other than
retirement, disability, death or termination of employment by DST without cause)
prior to the first day of the fourth fiscal year after the plan year for which
the incentive award was granted, on which day the restrictions are released. The
restrictions are earlier released upon retirement on or after age 60,
disability, death, termination of employment without cause by DST or change in
control of DST (as defined in the Executive Incentive Plan).
The Executive Incentive Plan provides that no participant may receive an
incentive award greater than 300% of such participant's base salary as of the
beginning of the plan year. Additionally, the aggregate value of all incentive
awards for a calendar year under the Executive Incentive Plan may not exceed 10%
of DST's pre-tax income for that year.
As described in the section Other Compensation Plans and Arrangements
herein, Mr. Winn received a cash bonus for 2003 based on a percentage of his
salary. The amount of the bonus depended 50% on the achievement of three-year
cumulative threshold, target or maximum DSTi pre-tax income goals and 50% on the
achievement of 2003 threshold, target or maximum DSTi pre-tax income goals.
UPFRONT OPTIONS.
The DST Compensation Committee believes that options encourage equity
ownership in DST by DST Officers. In April 2001, following DST's acquisition of
a controlling equity interest in EquiServe, Mr. Kenney received an upfront grant
of options ("Kenney Upfront Options") to purchase DST Common Stock to replace
for three years (2001, 2002, and 2003) the annual option grant that the DST
Compensation Committee has traditionally granted DST Officers. The number of
Kenney Upfront Options was based on the terms of an EquiServe offer of
employment to Mr. Kenney, and the DST Compensation Committee believes the number
reflects Mr. Kenney's level of responsibility.
On November 1, 2002, and again for Mr. McDonnell on January 14, 2003, the
DST Officers received an upfront grant of options ("Upfront Options") to
purchase DST Common Stock. The DST Compensation Committee intends the grants to
be in lieu of three years (2003, 2004 and 2005) of annual option grants for DST
Officers other than Mr. Kenney and two years (2004 and 2005) of annual option
grants for Mr. Kenney. DST Officers were incented to increase the value of DST
Common Stock because accelerated vesting and the term of the Upfront Options
were tied to achieving a DST earnings per share goal. The DST Compensation
Committee determined the number of Upfront Options by considering the
responsibility levels of DST Officers and utilizing survey data provided by an
independent compensation consultant.
OTHER AWARDS.
Certain options granted to DST Officers prior to November 28, 2003 had a
reload feature, which means replacement options were to be granted on the
underlying options if the following conditions occurred: (a) the underlying
options were exercised by surrendering shares of DST Common Stock, (b) by the
date of exercise of the underlying options the fair market value of the DST
Common Stock had increased by a certain percentage over the exercise price, (c)
upon exercise of the underlying options the optionee had been continuously
employed by DST or an affiliate of DST as described in the Stock Award Plan
since the option grant date, and (d) for underlying options granted after
September 2002, DST had not made certain changes to the accounting treatment of
options and reload options. Under a proposed change in accounting standards, DST
would be required to treat all replacement option grants as new grants,
incurring a separate compensation charge for each grant. In anticipation of such
change, the DST Compensation Committee determined to eliminate the reload
feature of non-qualified options outstanding on November 28, 2003. In connection
with such elimination, the DST Compensation Committee granted each DST Officer
who held options with the reload feature on November 28, 2003 deferred
compensation under the Stock Award Plan consisting of the right to receive, at a
future date, Adjustment Awards in the form of one share of DST Common Stock for
each thirty-five shares covered by the officer's options to purchase DST Common
that had a reload feature. In determining this ratio, the DST Compensation
Committee consulted with an independent compensation consultant to estimate the
value of the reload feature. The DST Common Stock is to issue on November 28,
2011 with DST having at the time of issuance a right (but no obligation) to
purchase each share of such stock for $37.25. The stock will be issued earlier
(on November 28, 2006 for some DST Officers and in twenty percent increments
each November 28 beginning in 2004 for other DST Officers) and will not be
subject to purchase by DST if the DST Officer is continuously employed through
the early issuance date. The award will be forfeited upon termination for cause
prior to the issuance date and will issue upon a change of control (as defined
in the Stock Award Plan), retirement on or after age 60, disability or death.
COMPENSATION OF THE CEO. The DST Compensation Committee determined Mr.
McDonnell's base salary of $575,000 in the same manner it determined the
salaries of other DST Officers. McDonnell's base salary is currently below the
50th percentile of survey compensation levels. The number of Upfront Options Mr.
McDonnell received in 2002 and 2003, in part for his 2003 compensation, was
determined as described above. The terms of the Upfront Options are the same as
those awarded the other DST Officers.
Under the Executive Incentive Plan, Mr. McDonnell's threshold, target and
maximum incentive awards for 2003 were set at 90%, 180% and 270% of his base
salary, respectively, if DST attained its threshold, target or maximum Goals.
The number of shares of Restricted Stock Mr. McDonnell received for the equity
compensation of his 2003 compensation under the Executive Incentive Plan was
determined as described above. The restrictions are the same as those on DST
Common Stock granted to other executive officers. The number of shares of DST
Common Stock Mr. McDonnell has the right to receive as the result of the
Adjustment Award granted to him during 2003 was determined as described above.
Mr. McDonnell is scheduled to receive the DST Common Stock in annual twenty
percent increments beginning November 28, 2004.
DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal Revenue Code
contains a limitation ("162(m) Limitation") of a public company's deductions for
federal income tax purposes of compensation expenses in excess of $1 million
paid to the executive officers named in the company's summary compensation
table, which are the CEO and the four DST executive officers other than the CEO
receiving the highest totals of salary and cash bonus for 2003 ("Named
Officers"). Performance-based compensation which meets the requirements of
Section 162(m) is excluded from the compensation subject to the 162(m)
Limitation. The DST Compensation Committee believes DST has taken the steps
required to exclude from calculation of the 162(m) Limitation any
performance-based awards granted under the Stock Award Plan to the Named
Officers.
THE DST COMPENSATION COMMITTEE
Michael G. Fitt
William C. Nelson
Travis E. Reed
M. Jeannine Strandjord
STOCK PERFORMANCE GRAPH
The following graph shows the changes in value since December 31, 1998 of
an assumed investment of $100 in: (i) DST Common Stock; (ii) the stocks that
comprise the S&P 400 MidCap index1; and (iii) the stocks that comprise a peer
group of companies ("Peer Group")2. The table following the graph shows the
dollar value of those investments as of December 31, 2003. The value for the
assumed investments depicted on the graph and in the table has been calculated
assuming that cash dividends, if any, are reinvested at the end of each quarter
in which they are paid.
[OBJECT OMITTED]
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DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, DECEMBER 31, 2003
2002
DST Common Stock 100 133.73 234.83 174.72 124.60 146.37
Value
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S&P 400 MidCap 100 114.72 134.81 133.99 114.54 155.34
Index Value
------------------------------------------------------------------------------------------------------------------------------------
Peer Group Value 100 124.58 158.81 179.56 130.39 144.88
------------------------------------------------------------------------------------------------------------------------------------
1 Standard & Poor's Corporation, an independent company, prepares the S&P 400
MidCap Index.
2 DST selected the Peer Group based on information on comparable companies in
DST's industry developed by independent compensation consultants with the
input of the CFO. The companies in the Peer Group are: Acxiom Corporation;
Affiliated Computer Services; Alliance Data Systems Corporation; Automatic
Data Processing, Inc.; Bisys Group, Inc.; Concord EFS, Inc.; CSG Systems
Intl. Inc.; First Data Corporation; Fiserv, Inc.; NCR Corporation; SEI
Investments Co.; SunGard Data Systems, Inc.; and TeleTech Holdings Inc.
SUMMARY COMPENSATION TABLE
The following table sets forth for the calendar years indicated the total
compensation paid to or for the account of the Named Officers.
--------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
----------------------------------------------------------------------------------------------
OTHER RESTRICTED NUMBER OF
ANNUAL STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS ($)(3) UNDERLYING COMPENSATION ($)(5)
($) ($) ($) OPTIONS/SARS
--------------------------------------------------------------------------------------------------------------------------------
Thomas A. McDonnell 2003 575,000 941,850 51,116(2) 428,081 11,925(4) 1,892,876
DST President and CEO 2002 575,000 977,500 83,283 487,164 767,570 111,151
2001 575,000 920,000 ---- ---- 623,860 108,300
--------------------------------------------------------------------------------------------------------------------------------
Thomas A. McCullough 2003 475,000 648,375 ---- 294,683 ---- 1,075,602
DST Executive Vice President and 2002 475,000 665,000 ---- 331,427 480,161 81,368
COO 2001 475,000 617,500 ---- 304,825 259,720 79,058
--------------------------------------------------------------------------------------------------------------------------------
Charles W. Schellhorn 2003 360,000 327,600 ---- 148,896 ---- 599,658
DST Output President during 2003; 2002 340,000 340,000 ---- 169,429 150,000 48,156
Argus President 2001 340,000 340,000 ---- 167,830 252,055 49,029
--------------------------------------------------------------------------------------------------------------------------------
Donald J. Kenney 2003 371,000 253,207 ---- 68,297 ---- 296,577
EquiServe President and CEO 2002 350,000 203,220 ---- 28,776 100,000 14,126
2001 262,500 337,500 ---- ---- 150,000 2,125
--------------------------------------------------------------------------------------------------------------------------------
J. Michael Winn(1) 2003 357,160 503,596 ---- ---- ---- 338,087
DSTi Managing Director 2002 289,800 460,782 ---- ---- 150,000 64,443
2001 240,009 381,614 ---- ---- 0 54,702
--------------------------------------------------------------------------------------------------------------------------------
1 Amounts for Mr. Winn are converted from pounds to dollars on December 31 of
the applicable year. The bonus amount for 2003 includes the minimum amount
of the deferred portion of the 2003 bonus, which is $128,578. The total
amount of the deferred bonus, which could grow by $64,288, is based on
DSTi's pre-tax earnings for 2004 as explained in the section "Winn Personal
Retirement and Bonus Arrangements" herein. The bonus amount for each of
2002 and 2001 includes the portion of the bonus for such year which was
deferred and paid based on DSTi's pre-tax earnings in the following year.
2 This includes compensation of $39,953 to Mr. McDonnell for his 2003
personal use of aircraft in which DST has a fractional interest.
3 The Restricted Stock Grant Table following this table gives additional
information about the restricted stock awards.
4 This is the number of Upfront Options granted January 14, 2003 in lieu of
2003, 2004 and 2005 annual option grants for Mr. McDonnell, as described in
the Compensation Report.
5 Although the compensation for eliminating the reload feature of stock
options is deferred, and the DST Common Stock to be received as deferred
compensation has not yet issued, the All Other Compensation amount includes
an amount that is the product of the number of shares to be received at a
future date as an Adjustment Award and the closing price of the DST Common
Stock on December 16, 2003, which is the date the DST Compensation
Committee determined the deferred compensation. The respective deferred
compensation amounts for Messrs. McDonnell, McCullough, Shellhorn, Kenney
and Winn are $1,783,009, $994,380, $550,161, $282,577 and $259,949. All
other compensation for Messrs. McDonnell, McCullough, Schellhorn, and
Kenney for 2003 includes (i) employer matching contributions to their
respective accounts under the DST 401(k) of $6,000, and (ii) employer
discretionary profit sharing contributions to their respective accounts
under the DST 401(k) of $8,000. All other compensation for Messrs.
McDonnell, McCullough and Schellhorn for 2003 also includes respective
contributions of $95,867, $67,222, and $35,497 to their accounts under the
DST Systems, Inc. Supplemental Executive Retirement Plan ("Executive
Retirement Plan"). All other compensation for Mr. Winn for 2003 is
comprised of a contribution of $59,427 to his qualified retirement plan
account, a payment of $17,700 for amounts Mr. Winn could not contribute to
such account as a result of statutory limits, and $1,011 in term life
insurance premiums.
RESTRICTED STOCK GRANT TABLE
Mr. Winn has not received Restricted Stock as part of his compensation. The
other Named Officers each received Restricted Stock for a portion of their 2003
award under the Executive Incentive Plan, and the number of shares granted to
each of them equals the dollar amount of the portion of his bonus to be paid in
Restricted Stock divided by the average of the highest and lowest reported sale
prices of DST Common Stock on the NYSE on the date of grant. The restrictions on
and the transferability of the stock are described in the Compensation Report
and in the section Other Compensation Plans and Arrangements. Holders of the
Restricted Stock have the right to vote such stock and to receive any dividends
or other distributions with respect to such stock.
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RESTRICTED STOCK SHARES OF NUMBER OF SHARES
HELD AT END OF LAST RESTRICTED SHOWN IN THIS TABLE DATE RESTRICTIONS WILL LAPSE IF SHARES
COMPLETED FISCAL YEAR STOCK GRANTED ON WHICH SHOWN IN THIS TABLE ARE NOT FORFEITED AND
AND 12/31/03 IN 2004 FOR RESTRICTIONS HAVE NUMBER OF SHARES
MARKET VALUE 2003 LAPSED
COMPENSATION
----------------------- ---------------------------------------------
NAMED OFFICER TOTAL MARKET 1/1/2005 1/1/2006 1/1/2007
SHARES VALUE
($)
---------------------------------------------------------------------------------------------------------------------------------
Thomas A. McDonnell 17,505 731,009 9,778 0 ___ 17,505 9,778
---------------------------------------------------------------------------------------------------------------------------------
Thomas A. McCullough 19,165 800,330 6,731 0 7,256 11,909 6,731
---------------------------------------------------------------------------------------------------------------------------------
Charles W. Schellhorn 10,083 421,067 3,401 0 3,995 6,088 3,401
---------------------------------------------------------------------------------------------------------------------------------
Donald J. Kenney 1,034 43,180 1,560 0 _____ 1,034 1,560
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information about the options to acquire DST
Common Stock granted the Named Officers during 2003.
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NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR(1) ($/SH)(2) DATE(2) PRESENT VALUE($)(3)
------------------------------------------------------------------------------------------------------------------------------------
Thomas A. McDonnell 11,925 .014 $37.62 1/14/13 220,136
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Thomas A. McCullough --- --- --- --- ---
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Charles W. Schellhorn --- --- --- --- ---
------------------------------------------------------------------------------------------------------------------------------------
Donald J. Kenney --- --- --- --- ---
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J. Michael Winn --- --- --- --- ---
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1 Options for a total of 843,568 shares of DST Common Stock were granted in
2003.
2 The options granted to Mr. McDonnell are Upfront Options that became
exercisable February 26, 2004 as a result of DST meeting an earnings per
share goal set by the DST Compensation Committee in 2002. The term of the
options is ten years from the grant date. The options terminate early for
reasons of termination of employment, disability or death.
The exercise price of Mr. McDonnell's Upfront Options is equal to the
average of the high and low price of DST Common Stock on the NYSE as of the
date of the grant, and Mr. McDonnell may pay the exercise price in cash or,
subject to certain restrictions, with DST Common Stock. He may satisfy
their minimum statutory tax withholding obligations by authorizing DST to
withhold shares of DST Common Stock which would otherwise have been
issuable on exercise, and, subject to certain restrictions, he may have
additional shares withheld for withholding above the minimum requirement.
Change in control of DST is defined in the Stock Award Plan, and in such
event certain limited rights related to the options and defined in the
Stock Award Plan also become immediately exercisable.
3 In accordance with SEC rules, the Black-Scholes option pricing model was
chosen to estimate the Grant Date Present Value of the Upfront Options.
DST's use of this model should not be construed as an endorsement of its
accuracy at valuing options. All stock option models require a prediction
about the future movement of the stock price. The options were valued based
on the assumption that Mr. McDonnell will hold the option for a period of
seven years. Assumption of volatility was 41.44% (based on the historical
average weekly fair market value of DST Common Stock since October 1995),
and assumption of the risk free rates of return rate was 3.66% (United
States Government Zero Coupon Bonds on date of grant with a seven year
maturity). The determination assumed a dividend yield of 0%. No adjustments
were made for non-transferability or risk of forfeiture of the options. The
real value of the options depends upon the actual performance of DST Common
Stock during the applicable period and upon the date the options are
exercised.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table gives aggregated information about the Named Officers'
exercises during 2003 of options to purchase DST Common Stock and shows the
number and value of their exercisable and unexercisable options at December 31,
2003, which was DST's fiscal year end.
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NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON REALIZED AT AT
EXERCISE DECEMBER 31, 2003 DECEMBER 31, 2003 ($)
-----------------------------------------------------------------------------------------------------------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------------------------
THOMAS A. MCDONNELL --- --- 492,312 1,085,180 241,668 4,183,593
-----------------------------------------------------------------------------------------------------------------------------------
THOMAS A. MCCULLOUGH --- --- 271,431 608,320 1,364,059 2,930,125
-----------------------------------------------------------------------------------------------------------------------------------
CHARLES W. SCHELLHORN --- --- 284,765 280,190 1,253,356 1,598,250
-----------------------------------------------------------------------------------------------------------------------------------
DONALD J. KENNEY --- --- 100,000 150,000 0 1,065,500
-----------------------------------------------------------------------------------------------------------------------------------
J. MICHAEL WINN --- --- 140,000 150,000 1,911,744 1,598,250
-----------------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS. All of the Named Officers other than Mr. Kenney have
employment agreements. An agreement between DST and Mr. McDonnell (the
"McDonnell Agreement") and an agreement between DST and Mr. McCullough (the
"McCullough Agreement") each dated as of January 1, 2001 provide for employment
at the base salary set by the DST Compensation Committee, subject to upward
adjustment, and are effective through December 31, 2005, unless earlier
terminated as provided in the agreement. An agreement between DST and Mr.
Schellhorn dated as of April 1, 1992 and amended as of October 9, 1995 (the
"Schellhorn Agreement"), provides for Mr. Schellhorn's employment at his base
salary in effect at the date of execution of his agreement subject to adjustment
from time to time by agreement of the parties.
The McDonnell and McCullough Agreements provide for certain fringe
benefits. They also provide for the early lifting of restrictions on certain
Restricted Stock. The McDonnell Agreement provides that Mr. McDonnell shall hold
such stock through the term of his agreement and shall not dispose of it except
for the purpose of exercising options to purchase DST Common Stock. The
agreements set the percentage of the salaries of Messrs. McDonnell and
McCullough to be awarded as bonuses at each level of Goals set under the
Executive Incentive Plan. Mr. McDonnell's percentages at threshold, target and
maximum Goals, respectively, for 2003 were 90%, 180% and 270%, for 2004 are 95%,
190% and 285%, and for 2005 are 100%, 200% and 300%. Mr. McCullough's
percentages at threshold, target and maximum Goals, respectively, for 2003 were
75%, 150%, and 225%, for 2004 are 80%, 160% and 240%, and for 2005 are 85%, 170%
and 255%.
Under each of the McDonnell, McCullough and Schellhorn Agreements
(collectively, the "DST Employment Agreements"), employment may be terminated by
the officer on at least 30 days' notice to DST and by DST with or without cause.
If DST terminates the employment without cause, the McDonnell and McCullough
Agreements provide severance pay equal to 24 months' base salary and 24 months'
reimbursement of costs of obtaining comparable life and health insurance
benefits unless another employer provides such benefits, and the Schellhorn
Agreement provides for such severance pay based on a 12 month period. Each DST
Employment Agreement contains certain non-compete limitations in effect for a
three-year period after the executive's termination of employment.
The DST Employment Agreements provide that the officers are eligible to
participate in any DST incentive compensation plan and to receive other benefits
DST generally makes available to its executive officers. The DST Employment
Agreements also govern the officers' employment after a "change in control"* of
DST. If a change in control occurs during the term of any of the DST Employment
Agreements, the officer would be entitled to the following: (a) continuation of
the officer's employment, executive capacity, salary, incentive compensation and
benefits for a three-year period at levels in effect on the "control change
date"*; (b) with respect to unfunded employer obligations under benefit plans,
to a discounted cash payment of amounts to which the officer is entitled; (c) if
the officer's employment is terminated after the control change date other than
"for cause"*, to payment of his base salary through termination plus a
discounted cash severance payment based on his salary for the remainder of the
three-year period and to continuation of benefits to the end of that period; (d)
if the officer resigns after a change in control upon "good reason"* and advance
written notice, to receive the same payments and benefits as if his employment
had been terminated other than for cause; and (e) the placement in trust of
funds to secure the obligations to pay any legal expense of the officer in
connection with disputes arising with respect to the agreement. Each of the DST
Employment Agreements provide for the relief in certain circumstances if amounts
received by the executive constitute "Parachute Payments" under Section 4999 of
the Internal Revenue Code.
Mr. Winn, the Managing Director of DSTi, is subject to an employment
agreement dated as of June 23, 1993. DSTi may terminate the agreement without
notice "for cause"*, and either DSTi or Mr. Winn may terminate the agreement for
any other reason by giving notice of not less than twelve months. The agreement
permits DSTi to place Mr. Winn in an executive capacity other than Managing
Director. It provides that Mr. Winn shall receive pension contributions, medical
insurance, and certain fringe benefits and that Mr. Winn's base salary shall be
reviewed annually and is subject to increase by the board of directors of DSTi.
The agreement contains certain non-compete limitations in effect for one year
after Mr. Winn's termination of employment. Mr. Winn's bonus arrangements are
discussed in the section Winn Personal Retirement and Bonus Arrangements herein.
-----------
*Each of the employment agreements define these terms.
OTHER COMPENSATION PLANS AND ARRANGEMENTS. In addition to certain compensatory
plans and arrangements generally available to employees, the Named Officers
participate as indicated in the following plans and arrangements:
STOCK AWARD PLAN. All of the Named Officers have received awards under the
Stock Award Plan. Stockholders from time to time have approved the plan and
certain amendments to it and have approved and reapproved the performance-based
criteria described in the plan as required for certain exclusions from the
162(m) Limitation. The Stock Award Plan provides for the automatic, periodic
grant of stock options to Non-Management Directors and gives the DST
Compensation Committee the discretion to award incentives to selected DST
employees and Non-Management Directors in the form of options, reload options,
restricted stock, stock appreciation rights, limited rights, performance shares,
performance units (including performance-based cash awards), dividend
equivalents, stock, or any other right, interest or option relating to shares of
DST Common Stock granted pursuant to the Stock Award Plan.
In the event of a change in control of DST (as defined in the Stock Award
Plan), vesting of awards (including options) will be automatically accelerated
and all conditions on awards shall be deemed satisfactorily completed without
any action required by the DST Compensation Committee so that such award may be
exercised or realized in full on or before a date fixed by the DST Compensation
Committee. Subject to the terms of the Stock Award Plan, the DST Compensation
Committee has discretion with respect to the terms of any agreements documenting
such awards.
DST SYSTEMS, INC. EXECUTIVE PLAN ("EXCESS ERISA PLAN"). Messrs. McDonnell,
McCullough and Schellhorn participated in the Excess ERISA Plan, a non-qualified
deferred compensation plan terminated effective December 31, 1995. Account
balances for each participant remain subject to the terms of the Excess ERISA
Plan. Prior to termination of the Excess ERISA Plan, DST credited each
participant's account with the value of contributions DST would have made to the
various qualified plans maintained by DST without regard to statutory
contribution limits and eligibility requirements, less the amount actually
contributed to such qualified plans on the participant's behalf. The accounts,
which became fully vested upon termination of the Excess ERISA Plan, become
distributable after termination of employment or in certain instances as
approved by the DST Compensation Committee.
EXECUTIVE RETIREMENT PLAN. Credits have been made to the accounts of
Messrs. McDonnell, McCullough, and Schellhorn under an Executive Retirement Plan
adopted by the DST Compensation Committee. The credits equal the value of
contributions DST would have made to various qualified plans maintained by DST
and of forfeiture amounts that would have been credited to such accounts but for
the application of certain statutory contribution limits. The accounts are
adjusted annually by a rate of return on a hypothetical investment selected by
the participant among certain participant-elected investment choices allowed by
the plan, or, if investment choices are not elected as to all or a portion of
the account, by an interest factor equal to a rate of return selected by DST as
provided in the plan. The accounts vest based on years of service or upon a
change in control, as defined in the plan.
EXECUTIVE INCENTIVE PLAN. Messrs. McDonnell, McCullough, Kenney and
Schellhorn have received awards under the Executive Incentive Plan. Incentive
awards issued under the Executive Incentive Plan are subject to restrictions and
limitations imposed under the terms of the Stock Award Plan. Participants in the
Executive Incentive Plan are all DST officers, DST employees holding the
managerial title of director and such employees of more than 50% subsidiaries or
at least 50% owned affiliates as hold officer or managerial director positions
and have been designated as participants by the DST Compensation Committee. If
for a given plan year DST achieves targeted diluted earnings per share, segment
pre-tax earnings or other goals set by the DST Compensation Committee,
participants may receive awards based on percentages of annual base salaries.
Under the Executive Incentive Plan, equity awards which may be granted as part
of compensation, if goals set by the DST Compensation Committee are met, consist
of either options to purchase DST Common Stock ("Equity Award Options") or
Restricted Stock, at the discretion of the DST Compensation Committee.
Restricted Stock is described in the Compensation Report herein. The
Restricted Stock is not transferable during the period of restriction except to
family members or trusts for family members, and the stock remains subject to
the restrictions after such permitted transfers. Equity Award Options become
exercisable on the last day of the third calendar year following the calendar
year of which the bonus allocated to the option was earned, subject to becoming
exercisable earlier on retirement, death, disability, termination of employment
without cause by DST, or change of control of DST
(as defined in the Stock Award Plan). The options terminate early upon voluntary
termination of employment by the DST Officer or termination of employment with
cause by DST. The Equity Award Options are not transferable. In the event of
retirement after age 60, termination because of disability or without cause, or
a change in control, as defined in the Executive Incentive Plan, the
restrictions on the Restricted Stock are released and the Equity Award Options
are exercisable.
EQUISERVE, INC. DEFERRED COMPENSATION PLAN ("DEFERRED COMPENSATION PLAN").
Mr. Kenney participates in this plan. Within the parameters of the plan,
participants can elect to defer participant-designated percentages of base
salary and bonus. Prior to 2002, the plan also provided for matching
contributions and/or discretionary contributions to be made at the sole
discretion of EquiServe. Participant accounts are credited with earnings based
on hypothetical investments in certain mutual funds designated by the
participant. Participants are fully vested in salary deferral contributions and
vest in employer contributions based on years of service or upon death,
disability, retirement or a change in control, as defined in the plan. The
account balance can be withdrawn upon termination of employment, death, or
disability, at a fixed date pre-selected by the participant, or for healthcare
or educational needs.
OFFICER TRUSTS. DST has established trusts that are intended to secure the
rights of its officers, directors, employees, and former employees under the
employment continuation commitments of certain employment agreements, the
Directors' Deferred Fee Plan, the Executive Incentive Plan, the Excess ERISA
Plan and the Executive Retirement Plan. The function of each trust is to receive
contributions by DST and, in the event of a change in control of DST where DST
fails to honor covered obligations to a beneficiary, the trust shall distribute
to the beneficiary amounts sufficient to discharge DST's obligation to such
beneficiary. The trusts require DST to be solvent as a condition of making
distributions. The trusts are revocable until a change in control of DST (as
defined in the trusts) and terminate automatically if no such change in control
occurs prior to December 31, 2004, unless the trusts are extended prior to such
date. EquiServe has established a similar trust to secure the rights of its
eligible employees under the Deferred Compensation Plan. The function of the
trust is to receive contributions by EquiServe and to honor covered obligations
to beneficiaries. The trust requires EquiServe to be solvent as a condition of
making distributions. The trust securing the Deferred Compensation Plan is
irrevocable unless amended by EquiServe and the trustee per the terms of the
trust.
WINN PERSONAL RETIREMENT AND BONUS ARRANGEMENTS. Under a qualified
retirement plan available to all DSTi employees, DSTi makes a contribution up to
a statutory limit to Mr. Winn's personal retirement account. DSTi makes a
supplemental payment to Mr. Winn of 20% of his annual salary less the amount
contributed to the qualified plan account. If DSTi achieves annual threshold,
target or maximum levels of pre-tax earnings, then Mr. Winn receives a cash
bonus based on a percentage of his salary. The percentage amount depends on the
level of pre-tax earnings achieved over a one-year period and cumulatively over
a three-year period. If DSTi achieves the threshold level, Mr. Winn earns a
bonus equal to 50% of his salary. If DSTi achieves the target level, the bonus
equals his salary. If DSTi achieves the maximum level, the bonus equals 150% of
his salary. Payment of 30% of the bonus is deferred for one year. The deferred
portion may be reduced by 20% if DSTi's pre-tax earnings do not exceed the
threshold level for the following year. It may grow by 20% if DSTi's pre-tax
earnings meet or exceed the maximum level for the following year.
OTHER MATTERS
GENERAL INFORMATION. DST will bear the cost of the Annual Meeting, including the
cost of mailing the proxy materials. Proxies may also be solicited by telephone,
in person or otherwise by directors, officers and employees not specifically
engaged or compensated for that purpose. DST has retained D.F. King & Co., Inc.
to assist in the solicitation of proxies at a cost not expected to exceed $5,000
plus expenses. In addition, DST may reimburse brokerage firms and other persons
representing beneficial owners of DST Common Stock for their expenses in
forwarding this Proxy Statement, the Annual Report and other DST soliciting
materials to the beneficial owners.
STOCKHOLDER PROPOSALS. Stockholders may as described below submit proposals for
consideration at a stockholders' meeting. No stockholder proposals are being
considered at this Annual Meeting.
INCLUSION OF STOCKHOLDER PROPOSALS IN THE 2005 ANNUAL MEETING PROXY
STATEMENT. If a stockholder desires to have a proposal included in DST's Proxy
Statement for the annual meeting of stockholders to be held in 2005, the
Corporate Secretary of DST must receive such proposal on or before December 1,
2004, and the proposal must comply with the applicable SEC laws and rules and
must be allowed by, and comply with, the procedures set forth in, the DST
By-laws. DST will require any proposed nominee for election as a director or
stockholder proposing a nominee to furnish a consent of the nominee and may
reasonably require other information to determine the eligibility of a proposed
nominee to serve as a director or to properly complete any proxy or information
statement used for the solicitation of proxies.
TIMELY NOTICE TO DST OF NOMINATIONS FOR DIRECTOR AND OTHER STOCKHOLDER
PROPOSALS. The DST By-laws provide that a stockholder proposal (other than a
proposal requested to be set forth in the Proxy Statement, as noted above) may
not be made at an annual meeting unless the proposal has been timely delivered
to the DST Nominating Committee (for proposals to nominate directors) or to the
Corporate Secretary (for other proposals). Only a stockholder who owns
beneficially at least one percent of outstanding DST Common Stock may propose to
nominate a director. A proposal is timely if delivered not less than 90 days nor
more than 120 days prior to the anniversary of the last DST annual meeting;
provided, however, that in the event that the DST Board designates the annual
meeting to be held at a date other than the second Tuesday in May and publicly
announces the date of the meeting less than 60 days prior to its occurrence, the
stockholder must deliver written proposal not later than 15 days following the
date of such public announcement and not more than 120 days prior to the annual
meeting. Public announcement is disclosure in any press release issued by DST,
published on the DST website, or included in a documents publicly filed by DST
with the SEC. Proposals (other than proposals submitted for inclusion in the
proxy statement) to be timely for the 2005 annual meeting if it occurs on May
10, 2005 must be delivered no earlier than January 11, 2005 and no later than
February 10, 2005.
CONTENTS OF NOTICE OF PROPOSAL. A stockholder proposal must be in the form
of a written notice of proposal. The required contents of the notice depend on
whether the proposal pertains to nominating a director or to other business. A
stockholder's notice pertaining to the nomination of a director shall set forth:
(a) as to each nominee whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of the nominee, (ii) the principal occupation or employment of the
nominee, (iii) the class and number of shares of capital stock of DST that are
beneficially owned by the nominee, and (iv) any other information concerning the
nominee that would be required, under the rules of the SEC, in a proxy statement
soliciting proxies for the election of such nominee; (b) as to the stockholder
giving the notice, (i) the name and address of the stockholder, and (ii) the
class and number of shares of capital stock of DST that are beneficially owned
by the stockholder and the name and address of record under which such stock is
held; and (c) the signed consent of the nominee to serve as a director if
elected.
A stockholder's notice concerning business other than nominating a director
shall set forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (b) the
name and address of the stockholder proposing such business, (c) the class and
number of shares of capital stock of DST that are beneficially owned by the
stockholder and the name and address of record under which such stock is held,
and (d) any material interest of the stockholder in such business. The Chairman
of the annual meeting has the power to determine whether the proposed business
is an appropriate subject for and was properly brought before the meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the
Exchange Act requires DST's directors and certain of its officers, and each
person, legal or natural, who owns more than 10% of DST Common Stock (each, a
"Reporting Person"), to file reports of such ownership with the SEC, the NYSE,
and DST. Based solely on review of the copies of such reports furnished to DST,
and written representations relative to the filing of certain forms, no person
other than Thomas A. McDonnell, the Chief Executive Officer, was late in filing
such a report for fiscal year 2003. On February 27, 2003, Mr. McDonnell reported
the January 14, 2003 grant of Upfront Options.
AVAILABILITY OF ANNUAL REPORT. The Annual Report includes the Form 10-K for the
year ended December 31, 2003 (without exhibits) as filed with the SEC. DST will
furnish without charge upon written request a copy of the Form 10-K. The Form
10-K includes a list of all exhibits thereto. DST will furnish copies of
exhibits listed in the Form 10-K upon written request to DST Corporate
Secretary, 333 W. 11th Street, Kansas City, Missouri, 64105. The requestor must
pay DST's reasonable expenses in furnishing such exhibits. Each such request for
the Form 10-K or exhibits must identify the person making such request as a
beneficial owner of DST Common Stock entitled to vote at the Annual Meeting. The
Form 10-K is available at WWW.DSTSYSTEMS.COM and the Form 10-K including
exhibits filed therewith is available at WWW.SEC.GOV.
HOUSEHOLDING FOR BROKER CUSTOMERS. Pursuant to the rules of the SEC, services
that deliver DST's communications to Broker Customers may deliver to multiple
stockholders sharing the same address a single copy of DST's Annual Report and
Proxy Statement. DST will promptly deliver upon written or oral request a
separate copy of the Annual Report and/or Proxy Statement to any stockholder at
a shared address to which a single copy of the documents was delivered. Written
requests may be made to the DST Corporate Secretary, 333 West 11th Street,
Kansas City, Missouri 64105, and oral requests may be made by calling the DST
Corporate Secretary's Office at (816) 435-4636. To receive separate copies of
the Proxy Statement or Annual Report in the future, or to receive only one copy
per household, Broker Customers should contact their bank, broker or other
nominee holder of record.
By Order of the Board of Directors,
Randall D. Young
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Kansas City, Missouri
March 31, 2004
APPENDIX A
DST SYSTEMS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. COMMITTEE PURPOSES
The Committee's primary purposes are to:
o Assist Board oversight of the integrity of the Company's financial
statements and systems of internal controls regarding finance,
accounting, and legal compliance.
o Exercise its direct responsibility for the appointment, compensation,
and retention of the Company's independent auditor in performing all
services for the Company and its subsidiaries and assist Board
oversight of such auditor's qualifications, independence, and
performance.
o Assist Board oversight of the performance of the Company's internal
audit function.
o Assist Board oversight of the Company's compliance with legal and
regulatory requirements.
o Prepare the report that the Securities and Exchange Commission rules
require be included in the Company's annual proxy statement.
II. COMMITTEE DUTIES AND RESPONSIBILITIES
The Committee has duties and responsibilities with respect to the Company's
financial disclosures, internal audit function and relationship with
independent auditors and with respect to various other matters.
A. DISCLOSURES.
The Committee shall:
1. Discuss the Company's annual audited financial statements with
management and the independent auditor prior to filing and
distribution, including disclosures under Management's Discussion and
Analysis of Financial Condition and Results of Operation, and
recommend to the Board whether such statements be included in the
Company's Annual Report on Form 10-K.
2. Review such portions of the Company's periodic reports as it deems
appropriate to oversee the integrity of the Company's disclosures.
3. Receive and have an opportunity to discuss the Company's quarterly
financial statements with management and the independent auditor both
prior to filing and at regularly scheduled Committee meetings
subsequent to filing, including disclosures under Management's
Discussion and Analysis of Financial Condition and Results of
Operation.
4. Review in conjunction with management and with the independent
auditor:
a. All critical accounting policies and practices used in auditing
the Company's financial statements and major issues regarding
accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles.
b. Significant financial reporting issues and judgments made in
connection with the preparation of the financial statements.
c. All alternative treatments of financial information within
generally accepted accounting principles ("GAAP") that the
independent auditor has discussed with management, ramifications
of the use of such alternative disclosures and treatments, and
the treatment preferred by the independent auditor.
d. The effect of regulatory and accounting initiatives and
off-balance sheet structures on the Company's financial
statements.
e. Other material written communications between the independent
auditor and management including, but not limited, to any
management or internal control letter, any schedule of unadjusted
differences, and accounting adjustments proposed or noted by the
independent auditor that were passed.
f. Certain matters required to be communicated to audit committees
in accordance with Statement of Auditing Standards No. 61.
g. The integrity of the company's financial reporting processes and
controls.
h. Major issues as to the adequacy of internal controls and any
special audit steps adopted in light of material control
deficiencies.
5. Review earnings press releases (either prior or subsequent to the
release date and paying particular attention to any use of "pro forma"
or "adjusted" non-GAAP information) and, review, in general terms, the
types of other financial information and earnings guidance to be
provided to analysts and rating agencies, if any.
6. Review and approve Committee reports prior to their publication in any
proxy statement or other securities law filings.
B. COMPANY'S INTERNAL AUDIT FUNCTION.
The Committee shall:
1. Review the internal audit department's audit plans and significant
changes thereto.
2. Consider from time to time the organizational structure,
responsibilities, general audit approach, budget, staffing, and
qualifications of the internal audit department.
3. Receive reports directly from internal audit.
4. Review the appointment, performance, and, if necessary, replacement of
the senior internal audit executive.
C. COMPANY'S RELATIONSHIP WITH THE INDEPENDENT AUDITOR.
The Committee is directly responsible for the appointment of the Company's
independent auditor in performing all services for the Company and its
subsidiaries, subject to shareholder approval requirements of any governing
law, document, or standard. The Committee is directly responsible for the
compensation, retention and oversight of the independent auditor in
performing such services and for evaluation and termination of the
independent auditor. In this regard, the Committee shall:
1. Select and retain the independent auditor for the annual audit.
2. Have the sole authority to approve all fees and terms of audit
services performed by the Company's independent auditor.
3. Have the sole authority to approve, and adopt permissible procedures
for pre-approval of, all fees and terms of audit services other than
the annual engagement of the auditor and of all permitted non-audit
services performed by the Company's independent auditor, except that
certain permitted non-audit services may be performed without
pre-approval under certain conditions described in the securities law
regulations.
4. Review annually the written disclosures and letter required by
Independence Standard Board Statement No. 1 and discuss with the
independent auditor all relationships it has with the Company.
5. At least annually obtain and review a report by the independent
auditor describing:
a. The auditor's internal quality control procedures.
b. Any material issues raised by the most recent internal
quality-control review, or peer review, of the auditor firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or
more independent audits carried out by the auditor.
c. Any steps taken to deal with any such issues.
d. All relationships between the independent auditor and the Company
(in order to assess the auditor's independence).
6. Review the independent auditor's report and work throughout the year
and annually evaluate (after taking into account the opinions of
Company management and internal auditors) the auditor's
qualifications, performance and lead partner. In addition to assuring
the regular rotation of the lead audit partner and the audit partner
responsible for reviewing the audit as required by law, consider
whether, in order to assure continuing auditor independence, there
should be regular rotation of the independent auditor.
7. Review with the independent auditor annually and from time to time in
connection with the disclosure of financial information:
a. Any difficulties the auditor encountered in the course of the
audit work, including any restrictions on the scope of the
independent auditor's activities or on access to the requested
information.
b. Communications between the independent auditor team and the
independent auditor's national office respecting auditing or
accounting issues presented by the engagement.
c. The auditor's compliance with all legal requirements applicable
to the audit, including without limitation requirements as to the
scope of the audit, rotation of the audit partner having primary
responsibility for the audit and the audit partner responsible
for reviewing the audit and prohibitions of per se conflicts of
interest.
d. Any significant disagreements with management.
e. The responsibilities, budget and staffing of the Company's
internal audit function.
8. Set the Company's policy for hiring employees or former employees of
the independent auditor.
D. OTHER.
The Committee shall:
1. Discuss policies with respect to risk assessment and risk management
including a discussion of:
a. Guidelines and policies that govern the process by which the
Company's Chief Executive Officer and senior management assess
and manage the Company's exposure to risk.
b. The Company's major financial risk exposures and the steps
Company management has taken to monitor and control such
exposures.
2. Review at least annually with the Company's counsel any legal matters
that could have a significant impact on the Company's financial
statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
3. Review reports on internal controls over significant operations,
systems or procedures, including SAS 70 Reports.
4. Establish or ensure procedures are in place for:
a. The receipt, retention, and treatment of complaints received by
the Company regarding accounting, internal accounting controls,
or auditing matters.
b. The confidential, anonymous submission by Company employees of
concerns regarding questionable accounting or auditing matters.
5. Receive reports from Company internal and external counsel of evidence
of material violations of securities and other laws.
6. Orient new Committee members to its practices and procedures.
7. Perform such other tasks as are assigned to the Committee by the
Board, or (unless the Board otherwise directs) are deemed by the
Committee to be appropriate to its purposes.
III. ANNUAL EVALUATION OF COMMITTEE PERFORMANCE AND CHARTER
The Committee shall annually evaluate its own performance and the adequacy
of this Charter. The Committee shall submit to the Board the results of its
evaluation and any proposed Charter modifications.
IV. COMMITTEE MEMBER AND CHAIR QUALIFICATIONS
A. Each Committee member shall meet the independence requirements of the
applicable laws, regulations, and stock exchange listing standards.
B. Each Committee member shall be financially literate.
C. At least one member of the Committee shall have accounting or related
financial management expertise.
D. At least one member of the Committee shall be an Audit Committee
Financial Expert as that term is defined in the securities laws and
regulations.
E. If a Committee member simultaneously serves on the audit committees of
more than three public companies, the Board must determine that such
simultaneous service would not impair the ability of such member to
effectively serve on the Committee.
F. Certain disclosures regarding Audit Committee members shall be made to
the New York Stock Exchange and in the Company's annual meeting proxy
statement.
V. COMMITTEE MEMBER APPOINTMENT AND REMOVAL
A. Members of the Committee shall be selected as provided in the
Company's Bylaws for the term set forth therein.
B. Committee members may be removed by Board action.
VI. COMMITTEE STRUCTURE AND OPERATIONS
A. The Company's Bylaws govern the procedures for establishing number of
Committee members, which shall be at least three.
B. The Company's Bylaws govern the election of the Committee Chair, the
scheduling and notice to members of special Committee meetings, the
constitution of a quorum for the conduct of Committee business, the
member vote necessary for Committee action, and Committee
recordkeeping.
C. The Committee shall meet at least four times annually, or more
frequently as circumstances dictate.
D. The Committee shall meet privately in executive session periodically.
E. The Committee shall periodically schedule during its meetings a
separate session with each of a representative of Company management,
a representative of internal audit department, and a representative of
the independent auditor to discuss any matters that the Committee or
such representative believes should be discussed. Regardless of
whether it was scheduled in advance, a separate session shall be held
during any Audit Committee meeting at which the Committee or any such
representative requests such a session.
F. The Committee may ask representatives of Company management, directors
who are not Committee members, or others to attend meetings and to
provide pertinent information as necessary.
G. The Committee has the authority, as it deems necessary, to delegate
its responsibilities to any subcommittee of the Committee, provided
such delegation is not precluded by any applicable laws, regulations,
or stock exchange listing standards.
VII. COMMITTEE REPORTING TO THE BOARD
The Committee shall regularly report to the Board on:
A. Committee actions (other than routine or administrative actions).
B. Issues that arise with respect to:
1. The quality and integrity of the Company's financial statements.
2. The Company's compliance with legal or regulatory requirements.
3. The qualifications, performance, and independence of the
independent auditor, the evaluation of such auditor's lead
partner and the audit partner responsible for reviewing the
audit, and conclusions on whether the independent auditor itself
should be regularly rotated.
4. The performance of the Company's internal audit function.
VIII. COMMITTEE RESOURCES
The Committee has the authority to:
A. Conduct any investigation appropriate to fulfilling its
responsibilities.
B. Contact the independent auditor and any Company employee.
C. Access the Company's books and records.
D. Retain, at the Company's expense, special legal, accounting, or other
advisors it deems necessary in the performance of its duties.
E. Determine and advise the Company's Chief Financial Officer of the
funding the Company must provide for the payment of compensation to
the Company's independent auditor, use of external advisors, Committee
investigations, and ordinary administrative expenses necessary or
appropriate in carrying out Committee duties.
IX. PUBLICATION OF CHARTER
This Charter shall be posted on the Company's website and periodically be
included as an appendix to the Company's annual stockholder's meeting proxy
statement as required by applicable laws, regulations, or stock exchange
listing standards.
DST SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS - MAY 11, 2004
THE DST BOARD OF DIRECTORS SOLICITS YOUR VOTE
The DST Board is making the two proposals, and they are not related to or conditioned on the approval of any
other proposals which may come before the Annual Meeting.
The Cert number shown on the front of the card is the number of shares you held directly in certificate form or
in a book entry account with DST's transfer agent as of the close of business on the Record Date (March 12,
2004). The ESPP number shown on the front of the card is the number of shares you held as of the close of
business on the Record Date through the DST Employee Stock Purchase Plan book entry account with DST's transfer
agent. The Proxy Committee appointed by the DST Board that will vote your Cert and ESPP shares is comprised of
Thomas A. McDonnell, Kenneth V. Hager and Randall D. Young. IF YOU DO NOT SPECIFY HOW YOU AUTHORIZE THE PROXY
COMMITTEE TO VOTE YOUR CERT AND ESPP SHARES, YOU AUTHORIZE IT TO VOTE FOR EACH OF THE PROPOSALS.
The ESOP, 401k and L401 numbers shown on the front of the card ("Benefit Plan Shares") are the total number of
shares you held as of the close of business on the Record Date through your participation in any of the DST
Employee Stock Ownership Plan, the DST 401(k) Profit Sharing Plan, or the lock\line, LLC 401(k) Plan. IF YOU
FAIL TO RETURN THIS VOTING CARD OR DO NOT SPECIFY YOUR VOTE, THE TRUSTEE OF THE APPLICABLE PLAN WILL VOTE THE
SHARES ALLOCATED TO YOUR BENEFIT PLAN ACCOUNT IN THE SAME PROPORTION AS THE SHARES HELD BY THE PLAN FOR WHICH THE
TRUSTEE RECEIVES VOTING INSTRUCTIONS.
You may revoke this proxy in the manner described in the Proxy Statement dated March 31, 2004, receipt of which
you hereby acknowledge.
PLEASE DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR MAKE YOUR
INSTRUCTIONS BY TELEPHONE AT (877) 779-8683 OR ELECTRONICALLY AT HTTP://WWW.EPROXYVOTE.COM/DST.
IF YOUR ADDRESS HAS CHANGED, PLEASE NOTE THE NEW ADDRESS BELOW.
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PLEASE MARK VOTES
[X] AS IN THIS EXAMPLE.
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DST SYSTEMS, INC.
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By signing this card, you are authorizing the Proxy Committee 1. Election of Two Directors For All With- For All
(if you own Cert and ESPP Shares) and the Trustee of the DST Nominees hold Except
Benefit Plan(s) (if you own Benefit Plan Shares) to vote your
shares as you specify on the two proposals presented at the (01) A. Edward Allinson [ ] [ ] [ ]
Annual Meeting or any adjournment thereof and to vote in their
respective discretion on other proposals that may properly come (02) Michael G. Fitt [ ] [ ] [ ]
before such meeting.
To vote in accordance with all of the DST Board of Directors'
recommendations, please sign and date; you need not mark any
boxes. The DST Board of Directors recommends that you vote
FOR each of the proposals.
NOTE: IF YOU MARK "WITHHOLD", YOUR VOTES WILL NOT BE CAST
FOR EITHER OF THE NOMINEES. TO VOTE FOR ONLY ONE OF THE
NOMINEES, MARK "FOR ALL EXCEPT" AND STRIKE A LINE THROUGH
THE NAME OF THE NOMINEE FOR WHOM YOU ARE NOT VOTING.
For Against Abstain
2. Amendment of Certificate of
Incorporation to Increase
Authorized Capital Stock [ ] [ ] [ ]
SEE IMPORTANT INFORMATION ON THE REVERSE.
Mark box at right if you plan to attend the Annual
Meeting of Stockholders. [ ]
Mark box at right if an address change has been
noted on the reverse side of this card. [ ]
Please be sure to sign exactly as your name appears on
this card.
FOR CERT AND ESPP SHARES, ALL JOINT OWNERS MUST SIGN,
AND EXECUTORS, ADMINISTRATORS, TRUSTEES, OFFICERS OF
CORPORATE STOCKHOLDERS, GUARDIANS AND ATTORNEYS-IN-FACT
MUST INDICATE THE CAPACITY IN WHICH THEY ARE SIGNING.
FOR BENEFIT PLAN SHARES, THE PLAN PARTICIPANT MUST SIGN.
Stockholder/
Plan Participant
sign here Date Co-owner sign here Date
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