UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO ANNUAL REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________
to __________
Commission file number 1-14036
DST SYSTEMS, INC.
(Exact name of Company as specified in its charter)
Delaware 43-1581814
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
333 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (816) 435-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $0.01 Per Share Par Value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]
Aggregate market value of the voting and non-voting stock held by
non-affiliates of the Company as of February 27, 1998:
Common Stock, $.01 par value - $1,519,931,108
Number of shares outstanding of the Company's common stock
as of February 27, 1998:
Common Stock, $.01 par value - 49,009,168
Documents incorporated by reference:
Portions of the following documents are incorporated herein by reference into
Part of the Form 10-K/A as indicated:
Part of Form 10-K/A into
Document which document incorporated
- --------------------------------------------------------------------------------
Company's Definitive Proxy Statement for the Part III
1998 Annual Meeting of Stockholders, which will be
filed no later than 120 days after December 31, 1997
- --------------------------------------------------------------------------------
<PAGE>
Purpose of amendment
All information remains unchanged from the Form 10-K filed with the Securities
and Exchange Commission on March 16, 1998 except certain of the Boston Financial
Data Services, Inc. condensed financial information included in Note 7-
Investments as provided under Part II Item 8-Financial Statements and
Supplementary Data and Section 1.16 of The Employee Stock Ownership Plan and
Trust Agreement as provided under Part IV Item 14 Exhibit 10.6.1. An error
occurred in Note 7 and Exhibit 10.6.1 when converting the printed text to the
Edgar version, which resulted in numbers in Note 7 appearing in the wrong
column and Exhibit 10.6.1 contained a typographical error. These errors are
hereby corrected within this Form 10-K/A.
DST SYSTEMS, INC.
1997 FORM 10-K/A ANNUAL REPORT
Table of Contents
Cautionary Statement With Respect To Forward-Looking Comments........ 2
PART I
Item 1. Business ............................................................ 2
Item 2. Properties...........................................................12
Item 3. Legal Proceedings....................................................12
Item 4. Submission of Matters to a Vote of Security Holders..................12
Executive Officers of the Company...................................13
PART II
Item 5. Market for the Company's Common Stock and
Related Stockholder Matters.........................................14
Item 6. Selected Consolidated Financial Data.................................14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........25
Item 8. Financial Statements and Supplementary Data..........................26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................50
PART III
Item 10. Directors and Executive Officers of the Company......................50
Item 11. Executive Compensation...............................................50
Item 12. Security Ownership of Certain Beneficial Owners and Management.......50
Item 13. Certain Relationships and Related Transactions.......................50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....51
Signatures...........................................................57
DST(TM), OTI(TM), Securities Transfer System(TM), STS(TM), TA2000(R), Portfolio
Accounting System(TM), PAS(TM), Global Portfolio System(R), GPS(R),
OpenPerformanceSystem(TM), OPS(TM), Integrated Pharmacy Network System(TM),
IPNS(R), Automated Work Distributor(TM), AWD(R), TRAC-2000(R), GPS2000(TM),
HiPortfolio/2(TM), Impart/2(TM), Uptix(TM), Paladign(TM), FAST2000(TM), FAN(R),
FanMail(R), Vision Mutual Fund Gateway(R), EnCorr(R), PowerStore(R), Customer
Service Workstation(R), Financial Asset Network(R) referred to in this Report
are included among the Company's trademarks. DirecTV(TM) referred to in this
Report is a trademark of Hughes Electronics, Inc. Fund/Serv(TM) and
Networking(TM) referred to in this Report are trademarks of National Securities
Clearing Corporation. Windows NT(R) and Windows(R) referred to in this Report
are trademarks of Microsoft Corporation. OS/2(R) and AS/400(R) referred to in
this Report are trademarks of IBM Corporation UNIX(R) referred to in this Report
is a trademark of X/Open Company, Ltd.
1
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING COMMENTS
The discussions set forth in this Annual Report on Form 10-K/A contain
statements concerning potential future events. Such forward-looking statements
are based upon assumptions by the Company's management, as of the date of this
Annual Report, including assumptions about risks and uncertainties faced by the
Company. Readers can identify these forward-looking statements by their use of
such verbs as expects, anticipates, believes or similar verbs or conjugations of
such verbs. If any of management's assumptions prove incorrect or should
unanticipated circumstances arise, the Company's actual results could materially
differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's Current
Report on Form 8-K dated March 22, 1996, which is hereby incorporated by
reference. This report has been filed with the United States Securities and
Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can
be obtained by contacting the SEC's Public Reference Branch. Readers are
strongly encouraged to obtain and consider the factors listed in the March 22,
1996 Current Report and any amendments or modifications thereof when evaluating
any forward-looking statements concerning the Company. The Company will not
update any forward-looking statements in this Annual Report to reflect future
events or developments.
PART I
ITEM 1. BUSINESS
This discussion of the Company's business should be read in conjunction with,
and is qualified by reference to, Management's Discussion and Analysis of the
Company's Financial Condition and Results of Operations ("MD&A") under Item 7
herein. In addition, pursuant to rule 12b-23 under the Securities Exchange Act
of 1934, as amended, the information set forth under the headings "Introduction"
and "Seasonality" in the MD&A and the geographic information included in Item 8,
Note 15 are incorporated herein by reference in partial response to this Item 1.
The Company was originally established in 1969. Through a reorganization in
August 1995, the Company is now a corporation organized in the State of
Delaware. The Company operates in one segment.
RECENT DEVELOPMENTS IN THE COMPANY'S BUSINESS
The recent business developments of the Company and the Company's subsidiaries
follow.
Securities Transfer Developments
On February 10, 1998, Boston EquiServe, LLP ("Boston EquiServe"), a 50% owned
joint venture between Boston Financial Data Services, Inc. ("BFDS") (a 50% owned
joint venture of the Company and State Street Corporation) and Bank of Boston
Corporation, announced an agreement to merge with First Chicago Trust Company of
New York ("First Chicago") which would create the largest securities transfer
agent in the United States, processing approximately 25 million accounts. The
merger of the two businesses, to be named EquiServe, LLP ("EquiServe"), is
expected to be completed in the second quarter of 1998.
DST is currently developing a new securities transfer system ("Fairway") to be
used by Boston EquiServe to process all of its accounts. In conjunction with the
merger, DST entered into a memorandum of understanding with Boston EquiServe and
First Chicago to complete development of the system for the exclusive use by
EquiServe to process all of its accounts. The Company has also agreed with
EquiServe to provide data processing services for EquiServe to use Fairway. The
terms and conditions of this memorandum of understanding will be set forth in a
definitive agreement, the completion of which is a condition to the closing of
the merger agreement between Boston EquiServe and First Chicago. Upon acceptance
of defined components of Fairway, DST will contribute Fairway and its
non-EquiServe stock transfer processing business (approximately 2 million
accounts) to EquiServe for a direct ownership interest in EquiServe. DST will
also continue to hold an indirect ownership interest in EquiServe through BFDS.
2
DBS Systems Corporation
In October 1997, the Company purchased the remaining 20% minority interest in
DBS Systems Corporation ("DBS") for $13.2 million in cash. The $11.6 million
excess of the purchase price over the net assets acquired has been assigned a
useful life of 12 years. On a pro forma basis, the acquisition did not have a
material impact on the Company's historical results of operations or financial
position.
DST Catalyst, Inc.
In August 1997, the Company formed DST Catalyst, Inc. by purchasing an 81%
interest in the international information technology subsidiary of the Chicago
Stock Exchange and the consulting practice of Catalyst Institute. DST Catalyst,
Inc. provides software and services to support automated securities exchange
activities and broker order interfaces primarily outside the United States. On
a pro forma basis, the acquisition did not have a material impact on the
Company's historical results of operations or financial position.
NARRATIVE DESCRIPTION OF BUSINESS
The Company provides sophisticated information processing and computer software
services and products, primarily to mutual funds, insurance companies, banks and
other financial services organizations. Set forth below is information regarding
the Company's sources of revenue.
<TABLE>
<CAPTION>
SOURCES OF REVENUE
YEARS ENDED DECEMBER 31,
1995 1996 1997
---------------- ---------------- ----------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
U. S. Revenues
Mutual Fund and
Investment Management
Data Processing Services $ 221.5 45.8% $ 257.8 44.4% $ 285.4 43.9%
Output Services 60.2 12.4 77.7 13.4 84.5 13.0
------- ------ ------- ------ ------- ------
281.7 58.2 335.5 57.8 369.9 56.9
Other Output Processing 81.4 16.8 90.5 15.6 97.4 15.0
Other 60.1 12.4 70.4 12.1 82.5 12.6
------- ------ ------- ------ ------- ------
Total U.S. revenues 423.2 87.4 496.4 85.5 549.8 84.5
International revenues 60.9 12.6 84.4 14.5 100.9 15.5
------- ------ ------- ------ ------- ------
Total Revenues $ 484.1 100.0% $ 580.8 100.0% $ 650.7 100.0%
======= ====== ======= ====== ======= ======
</TABLE>
The Company's revenue growth is attributable to the growth of the mutual fund
industry and the implementation of the Company's business strategy. The primary
components of the Company's ongoing business strategy are: (i) enhancement of
the Company's technology base and development of new services and products to
strengthen its position as the leading provider of information processing
services to the United States mutual fund market; (ii) expansion into markets
where the Company can provide similar information processing and computer
software services and products; and (iii) formation of strategic alliances and
joint ventures with and acquisitions of established companies operating in the
Company's target markets, both in the United States and internationally.
The growing volume and complexity of transactions in the financial services
market and other markets have resulted in increasing demand for more
sophisticated systems to process information in a timely and accurate manner.
Computer technology has provided an effective means of addressing this demand,
but requires significant capital investment and expertise. As a result, many
organizations have relied on outside providers, such as the Company. The Company
expects the information processing needs of these organizations to continue to
grow in volume and complexity and believes that this will present the Company
with significant opportunities for its services and products.
3
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
OTHER OPERATING AND FINANCIAL DATA 1995 1996 1997
- ---------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT MARKET VALUES (IN THOUSANDS) (1)
Computer Sciences Corporation (2) $ 354,466 $ 360,400
State Street Corporation $ 134,375 192,992 347,509
Euronet Services, Inc. (3) $ 1,167 $ 9,136
OTHER OPERATING DATA
Mutual fund shareowner accounts processed (millions)
U.S. 36.5 41.1 45.0
Canada 0.1 0.3 0.9
United Kingdom 0.2 0.4 1.0
TRAC-2000 mutual fund accounts (millions) (4) 1.4 1.3 1.9
TRAC-2000 participants (thousands) 588 560 696
Portfolio Accounting System portfolios 1,526 1,725 1,925
Automated Work Distributor workstations 10,700 19,700 35,100
Output Technologies pages printed (millions) 936 1,230 1,440
Argus pharmaceutical claims processed (millions) 129 129 145
</TABLE>
(1) Based upon the closing price on the last trading day of the applicable
period at the exchange where principally
traded.
(2) On August 1, 1996, Continuum merged with Computer Sciences Corporation
("CSC") in a tax-free share exchange and as a result became a wholly owned
subsidiary of CSC. DST, which prior to the merger owned approximately 23%
of Continuum, received in the exchange CSC common stock with a value of
$295 million based upon the closing price of CSC common stock on August 1,
1996.
(3) Euronet Services, Inc. finalized its initial public offering in March 1997
(4) Included in TA2000 mutual fund shareowner accounts processed.
United States Mutual Fund and Investment Management
Most of the Company's mutual fund clients are "open-end" mutual fund companies,
which obtain funds for investment by making a continuous offering of their
shares. Purchases and sales (referred to as "redemptions") of open-end mutual
fund shares are typically effected between shareowners and the fund, rather than
between shareowners. These transactions are based on the net asset value of the
mutual funds on the date of purchase or redemption, which requires that the
assets of the fund and the interests of its shareowners be valued daily.
Accordingly, the timely and accurate accounting and recordkeeping of shareowner
and fund investment activity is a critical function.
In addition, as investors have been attracted to the wide array of investment
products with increasingly specialized features offered by mutual funds, the
mutual fund market has seen a significant increase in the number of mutual fund
shareowner accounts, in the volume of transactions and in the complexity of the
recordkeeping. The Company has made significant investments in computer capacity
and systems to handle the increasing volumes, to maintain its leadership
position and to improve quality and productivity.
The Company typically enters into multi-year written agreements with its
clients. The Company has long-term relationships with its mutual fund clients
and most of the shareowner accounts serviced by the Company are at mutual fund
organizations that have been clients of the Company for more than five years.
Shareowner Accounting and Recordkeeping
The Company's proprietary applications system for mutual fund recordkeeping and
accounting is TA2000, which performs shareowner related functions for mutual
funds, including processing purchases, redemptions, exchanges and transfers of
shares; maintaining shareowner identification and share ownership records;
reconciling cash and share activity; calculating and disbursing commissions to
broker-dealers and other distributors; processing dividends; creating and
tabulating proxies; reporting sales; and providing information for printing of
shareowner transaction data and year-end tax statements. The system processes
load, no-load, multi-class and money funds. TA2000 also performs many
specialized tasks, such as asset allocation, wrap fee calculations and broker
commissions. At December 31, 1997, the Company provided shareowner accounting
processing services for approximately 45 million U.S. mutual fund shareowner
accounts.
4
The Company offers its mutual fund shareowner services on a wide range of
levels. "Full" service processing includes all necessary administrative and
clerical support to process and maintain shareowner records, answer telephone
inquiries from shareowners, broker-dealers and others, and handle the TA2000
functions described above. "Remote" service processing is designed to allow
clients to have their own administrative and clerical staff access TA2000 at the
Winchester Data Center using the Company's telecommunications network.
Selection by a client of the level of service is influenced by a number of
factors, including cost and level of desired control over interaction with fund
shareowners. To address clients' desires to control shareowner interaction, the
Company structured its services to allow the clients' personnel to handle
customer telephone inquiries while the Company's or an affiliate's personnel
retain transaction processing functions. This service was facilitated by the
implementation of Automated Work Distributor (AWD), which images transactions
and makes them, together with the status of the transactions, electronically
available to the personnel handling the telephone calls.
The Company derives revenues from its mutual fund shareowner accounting services
through fees charged for use of the Company's proprietary software systems,
clerical processing services and other related products. These fees are
generally charged on an account and number of funds basis, for system processing
services and on an account, funds and transaction basis for clerical services.
The Company's policy is not to license TA2000.
Retirement Plan Accounting and Recordkeeping
The Company's TRAC-2000 product provides recordkeeping and administration for
defined contribution plans, including 401(k), 403b and 457 plans, Simplified
Employee Pensions and profit sharing plans that invest in mutual funds, company
stock, guaranteed investment contracts and other investment products. TRAC-2000
interfaces directly with TA2000 thereby eliminating the normal reconciliation
problems which occur when different systems are used for the participant
recordkeeping and mutual fund shareowner accounting. TRAC-2000 is offered on a
full-service basis through BFDS and on a remote basis by the Company. The
Company regards the retirement plan market as a significant growth opportunity
for its services and products because: (i) that market is relatively new and
experiencing significant expansion as more employers shift away from defined
benefit programs; (ii) mutual funds, because of their features, are increasingly
popular selections for investment by such plans; and (iii) each retirement plan
participant normally elects to use multiple mutual fund investment accounts.
Revenues from these services are based generally on the number of participants
in the defined contribution plans.
Additional Mutual Fund Services and Products
The Company has developed products to meet the changing service requirements and
distribution channels of the mutual fund market as well as the increasing
regulatory requirements affecting that market.
The Company maintains a high volume interface with Fund/Serv and Networking, two
systems developed by the National Securities Clearing Corporation for
broker-dealer distributed mutual funds. The Company has also developed systems
and communication infrastructure products that facilitate emerging channels of
mutual fund sales and distribution. One of these systems, FanMail, provides
independent financial planners with trade confirmations, account positions and
other data via public network access. A Windows-based enhancement to FanMail
called Vision Mutual Fund Gateway provides real-time inquiry capabilities for
broker-dealers and the financial planning community.
The Company has developed the Financial Access Network (FAN) to support emerging
forms of electronic distribution for mutual funds. FAN enables mutual fund
companies to transmit mutual fund literature via the Internet to shareowners and
potential investors who visit their proprietary web page. In addition, mutual
fund shareowners can review their accounts and direct mutual fund transactions,
such as purchases, redemptions and exchanges from personal computers.
Revenues from these new services and products are based generally on the number
of transactions processed.
5
Boston Financial Data Services, Inc. ("BFDS")
An important distribution channel for the Company's services and products is its
joint ventures. BFDS is a 50% owned joint venture with State Street Corporation
("State Street"), the parent company of State Street Bank & Trust Company. BFDS
combines use of the Company's proprietary applications and output processing
capabilities with the marketing capabilities and custodial services of State
Street to provide full-service shareowner accounting and recordkeeping services
to U.S. mutual funds. BFDS also offers remittance and proxy processing, class
action administration services, teleservicing and full-service support for
defined contribution plans using the Company's TRAC-2000 system. BFDS is the
Company's largest customer, accounting for approximately 11% of the Company's
revenues in 1997.
Automated Workflow Management
The Company's Automated Work Distributor (AWD) system is an image-based,
intelligent workflow management and customer support system. Introduced to
enhance the Company's mutual fund shareowner recordkeeping system, AWD captures
transactions at their source (such as paper, phone calls or faxes), converts
them into electronic images, stores them and electronically moves them to the
appropriate work area and person for processing. AWD integrates high-speed
scanning, character recognition, voice recognition, optical storage and
automated correspondence to automate work processes traditionally performed by
hand. AWD also performs statistical quality control sampling and provides
productivity reporting for each individual using the system.
AWD was designed to interface with a wide range of high volume application
processing systems. AWD utilizes a client server architecture that enables it to
operate on AS/400, Windows NT or UNIX servers utilizing either Windows or OS/2
client desktops. AWD interfaces with existing mainframe or other server lines of
business applications. AWD is primarily installed in investment management
firms, insurance companies and banks located in the United States, Canada,
United Kingdom, Europe, Australia, South Africa and Asia-Pacific. In addition,
Computer Sciences Corporation Financial Services Group ("CSC-FSG") has the
exclusive right to distribute the Company's AWD product to life and property and
casualty insurance companies worldwide and a non-exclusive right in the banking
industry.
The Company's Advanced Technology Group has developed a number of other products
that can be used with AWD. These products include Customer Service Work Station,
which presents all available customer information at the telephone
representative's workstation; EnCorr, which automates the creation and printing
of correspondence; and PowerStore, which enables optical media access for
stand-alone PCs, client/servers and other computer platforms.
The Company derives AWD revenues from license fees based on the number of
workstations accessing the software, fees for customized installation and
programming services and annual maintenance fees.
Output Processing
Output Technologies, Inc., a wholly owned subsidiary of the Company, performs
electronic printing, variable and selective insertion, pre-sorted mailing and
distribution of custom designed shareowner and other customer communications,
including transaction confirmations, dividend checks, account statements and
year-end tax reports. Additionally, Output Technologies offers
telemarketing/fulfillment services, computer output archival services, design
services and offset printing. Output Technologies has multiple locations
throughout the United States and Canada.
Output Technologies' strategy is to use technology to provide high volume
products and services of superior quality. Output Technologies' products enable
the Company to broaden its product offerings to its clients. Although Output
Technologies provides services to mutual fund and securities transfer clients of
the Company, significant revenues are derived from customers who are not
otherwise clients of DST.
Output Technologies holds a 20% interest in PSI Technologies Corporation
("PSI"), the developer of a Computer Output to Laser Disk (COLD) software
product for archiving documents. In conjunction with this investment, Output
Technologies exclusively markets a customized product using PSI's COLD software
to the mutual fund industry.
6
The revenues generated from Output Technologies' activities are generally
dependent on the volume of output transactions processed.
Portfolio Accounting and Investment Management Products
DST offers products that support the portfolio accounting and investment
management functions of the financial services industry. These products include
the Portfolio Accounting System (PAS), Global Portfolio System (GPS),
HiPortfolio/2 and OpenPerformanceSystem (OPS). DST offers a complete solution to
firms managing mutual funds, institutional advisory accounts, or both.
PAS is an integrated multi-currency fund accounting system that maintains
accounting records for mutual funds and unit investment trusts with U.S. and
international assets, computes daily income and expense for each portfolio and
calculates the fund's daily net asset value (NAV) which appears in the financial
media.
GPS is designed for medium and large investment management companies with
advisory accounts who want a customized solution. The system is a rules-based,
multi-currency transaction processing and portfolio accounting system with a
Windows-based graphical user interface (GUI) and a variety of reporting
alternatives. With its client server, relational database architecture (Sybase
or Oracle), GPS has seamless integration with OPS and can interface with a wide
range of third-party systems offering trading, portfolio management and
custodian communication.
HiPortfolio/2 is also designed for medium and large investment management firms
who are seeking a turn key system for investment accounting that can meet their
requirements with a minimum amount of customization. HiPortfolio/2 includes
OpenFrontOffice, a front office GUI based trading system as well as
OpenDataWarehouse, a complete data warehouse and reporting system.
OPS is a multi-currency performance measurement and attribution system that
enables investment companies to calculate and evaluate the performance of their
portfolios against industry standard benchmarks while adhering to the
performance presentation standards of the Association for Investment Management
and Research. OPS uses relational database architecture (Sybase or Oracle), and
offers multiple delivery options. OPS is available as a remote product or for
in-house installation on UNIX or Windows NT server platforms. OPS is offered
both on a fully integrated basis with the PAS, GPS or HiPortfolio/2 products or
on a stand-alone basis.
Securities Transfer Market
The Company's existing system to support the securities transfer market, the
Securities Transfer System (STS), provides a wide array of corporate stock and
bond security holder recordkeeping services, including maintaining ownership
records, recording ownership changes, issuing certificates, issuing and
tabulating proxies, calculating and disbursing dividends and interest,
processing dividend reinvestments, tax reporting and responding to shareowner
inquiries through on-line data access. STS also maintains shareowner activity
for closed-end mutual funds and unit investment trusts.
DST provides remote system access to a wide range of customers, including BFDS.
Significant consolidation of service providers in the 1990s has allowed DST to
pursue end user clients through BFDS.
The Company's largest STS customer is Boston EquiServe, which was created by the
1995 merger of BFDS's securities transfer business with the Bank of Boston
Corporation's securities transfer business. This joint venture created one of
the largest securities transfer agents in the United States, processing
approximately 14 million accounts. Boston EquiServe currently uses STS to
process approximately 4 million accounts with the remaining accounts processed
by the Bank of Boston on a system owned by the Bank of Boston. DST is currently
developing a new securities transfer system ("Fairway") to be used by Boston
EquiServe to process all of its accounts. Initial conversions of Boston
EquiServe's accounts onto Fairway commenced in late 1997 and other accounts will
be converted as additional functionality is delivered.
7
As discussed under Item 1. Business, Recent Developments in the Company's
Business, Boston EquiServe announced an agreement to merge with First Chicago
Trust Company of New York. In conjunction with the merger, DST entered into a
memorandum of understanding to complete development of Fairway for the exclusive
use by EquiServe to process all of its accounts. DST believes that an ownership
in EquiServe provides the most effective participation in the opportunities
presented by the continued consolidation of the stock transfer industry.
Winchester Information Processing Services
Winchester Information Processing Services supports DST's computing needs with
two data centers in Kansas City.
The Winchester Data Center ("Winchester"), provides the Company's primary
central computer operations and data processing facility. Winchester has a total
of 161,000 square feet, of which 74,000 square feet is a raised floor computer
room. Winchester has mainframe computers with a combined processing capacity of
over 3,300 million instructions per second (MIPS) and direct access storage
devices (DASD) with an aggregate storage capacity which exceeds 16 terrabytes.
Winchester also contains over 100 servers supporting NT, UNIX, and AS/400 small
and midrange computing environments. These servers are used to support DST's
products, automated voice response, Internet services and processing for certain
of the Company's affiliates. The facility is virtually disaster-proof and is
able to withstand tornado-force winds of over 260 miles per hour.
The Poindexter Data Center ("Poindexter") provides the Company's AWD Image
processing services. Poindexter has a total of 11,500 square feet, of which
8,500 are currently used for the computer room. The computer room houses IBM
AS/400 computers and optical storage systems, which support over 1,600 AWD Image
users. AWD users include DST's Full-Service area as well as several of the
Company's remote AWD customers. Poindexter also houses over 100 servers
supporting DST's products, Winchester's remote tape storage using IBM's
automated tape libraries and IBM's SP/2 computers, which support Argus Health
Systems, Inc. processing.
Both data centers are staffed 24-hours-a-day, seven-days-a-week and have
self-contained power plants with mechanical and electrical systems that operate
virtually without interruption in the event of commercial power loss. The data
centers utilize fully redundant telecommunications networks serving the
Company's clients. The network, which serves more than 92,000 computer users,
has redundant pathing and software which provide for automatic rerouting of data
transmission in the event of carrier circuit failure.
The Company has an agreement with a commercial disaster recovery provider for
computer processing in the event of a computer failure at Winchester. The
Company's data communications network is linked to the disaster recovery
provider's facility and network to enable client access to the disaster recovery
facility. Poindexter's AS/400 Processors are backed up real time to Winchester.
The Company tests the disaster recovery processes for both data centers on a
regularly scheduled basis.
Satellite TV Subscriber Management
DBS Systems Corporation ("DBS"), a wholly owned subsidiary of the Company, is a
developer and provider of subscriber management software for the DirecTV
satellite system, a product of DirecTV, Inc., a Hughes Electronics company. DBS'
software system manages DirecTV satellite television billing and
subscriber-related activities for DirecTV's U.S. residential satellite
television subscribers. Output Technologies performs the electronic printing and
mailing of subscriber invoices for DBS.
8
International Businesses
Europe and Others
DST International Limited ("DST International")
DST International, a United Kingdom company, provides investment management and
portfolio accounting software and services with over 500 installations in
various countries worldwide, serviced by offices in the United Kingdom,
Australia, New Zealand, Hong Kong, Singapore, Thailand and South Africa. Its
primary applications include HiPortfolio/2, a client server based investment
management system and OpenProducts, a series of GUI front end and back end
products directly integrated with HiPortfolio/2. Among DST International's other
products are Impart/2, Uptix and Paladign. In addition to investment management
and portfolio accounting software and services, DST International distributes
and supports AWD outside North America.
European Financial Data Services Limited ("EFDS")
A United Kingdom joint venture of DST and State Street Corporation, EFDS
provides full and remote service processing for unit trust and related products
serving nearly one million unit holder accounts at December 31, 1997. In 1998,
EFDS expects to implement FAST2000, a new unit trust accounting system developed
by EFDS for the United Kingdom market.
DST Catalyst, Inc. ("DST Catalyst")
DST Catalyst develops, markets, installs, and maintains computer systems to
support securities exchanges and brokerage firms and performs research and
consulting related to the development of financial markets and institutions.
During 1997, DST Catalyst primarily derived its revenues from international
projects in Bangkok, Manila, Johannesburg, Tel Aviv and Athens.
Canada
DST Canada, Inc. ("DST Canada")
DST Canada, formerly Corfax Benefit Systems Limited, provides remote mutual fund
shareowner processing and licenses its mutual fund shareowner system to mutual
fund companies primarily in the Canadian financial services market.
Xebec Imaging Services, Inc. ("Xebec")
Xebec, located principally in Toronto, provides computer output, archival and
print/mail services for various Canadian financial services companies.
CFDS Limited ("CFDS")
A Canadian subsidiary of BFDS, CFDS provides full-service processing to the
Canadian mutual fund industry using DST Canada's mutual fund system and
full-service processing for United States off-shore mutual funds using TA2000.
Prescription Claim Processing
Argus Health Systems, Inc. ("Argus") is a 50% owned joint venture of the Company
and a privately held life insurance holding company. Argus provides managed care
pharmaceutical claim processing services using its proprietary computer
processing system, Integrated Pharmacy Network System ("IPNS"). IPNS is an
interactive, database managed processing system for administration of
prescription drug claims, pharmacy and member reimbursement and drug utilization
review. IPNS, which provides substantial flexibility to accommodate varying
provider requirements, allows point-of-sale monitoring and control of pharmacy
plan benefits with on-line benefit authorization and alerts dispensing
pharmacists to potential medication problems arising from such factors as
duplicate prescriptions, incorrect dosage and drug interactions. Argus is
currently developing a new client/server based claims processing system which
will replace IPNS.
The Company provides data processing, telecommunications and output services to
Argus, and Argus operates IPNS at Winchester and Poindexter. Its primary clients
are providers of pharmacy benefit plans including insurance companies, health
maintenance organizations, preferred provider organizations and other pharmacy
benefit managers.
9
Marketing / Distribution
The Company's mutual fund systems and related services and products are marketed
to mutual fund management firms and to distributors of mutual fund shares, such
as banks, insurance companies, brokerage firms and third-party administration
firms. Increasingly, such firms manage multiple mutual fund products to address
different investment objectives. Generally, mutual fund products are promoted
and distributed in fund groups which provide investors with a variety of mutual
fund investments and the ability to exchange investments from one fund to
another within the group. This often means that a single service agent, such as
the Company, is used for all funds in the group.
The Company's output processing business has sixteen offices across North
America and distributes its products to the mutual fund, banking, brokerage,
insurance, healthcare, telecommunications, transportation and utilities
industries. A team of client administrators manages the needs of clients and a
national sales force supports efforts in the U.S. and Canada.
DST International markets its investment management and portfolio accounting
software and services to medium and large investment management firms through
its offices in the United Kingdom, Australia, New Zealand, Hong Kong, Singapore,
Thailand and South Africa. Generally, DST International's customers are seeking
a turn key system for investment accounting that can meet their requirements
with a minimum amount of customization. Each of DST International's offices has
a dedicated sales force and a team of consultants who can sell, install and
implement these products.
The Company identifies potential users of its products and services and tailors
its marketing programs to focus on their needs. The Company's marketing efforts
also include cross-selling the Company's wide range of services and products to
its existing clients. The Company's sales efforts are closely coordinated with
its joint venture and strategic alliance partners.
Sources of new business for the Company include (i) existing clients of the
Company, particularly with respect to complementary and new services and
products; (ii) companies relying on their own in-house capabilities and not
using outside vendors; (iii) companies using competitors' systems; and (iv) new
entrants into the markets served by the Company. The Company considers its
existing client base to be one of its best sources of new business.
Software Development and Maintenance
The Company continually upgrades and enhances its proprietary products and
services to meet the needs of its clients and the financial services industry.
The Company's Advanced Technology Group develops new products designed to
address emerging information processing needs of both existing and potential
markets. Operating costs include approximately $59.1 million, $82.1 million and
$92.1 million during the years ended December 31, 1995, 1996 and 1997,
respectively, for software development and maintenance and enhancements to its
proprietary systems and software products.
Competition
The Company believes that competition in the markets in which it operates is
based largely on quality of service, features offered including the ability to
handle rapidly changing transaction volumes, commitment to hardware capacity and
software development, and price. The Company believes there is significant
existing competition in its markets.
The Company's shareowner accounting systems compete not only with third-party
providers but also with in-house systems and broker-dealer firms distributing
mutual funds who retain the shareowner account processing. Financial
institutions competing with the Company may have an advantage because they can
take into consideration the value of their clients' funds on deposit in pricing
their services. The Company's ability to compete effectively is dependent on the
availability of capital. Some of the Company's competitors have greater
resources and greater access to capital than the Company and its affiliates.
10
The Company has significant competition with its portfolio accounting and
investment management systems. Principal competitors are third-party software
service providers and those companies which license their products. The key
competitive factors in the investment management systems are the accuracy and
timeliness of processed information provided to customers, features and
adaptability of the software, level and quality of customer support, level of
software development expertise and price. The Company believes that it competes
effectively in the market by its ongoing investment in its products and the
development of new products to meet the needs of the portfolio accountants and
investment managers.
The Company's automated workflow system competes with other data processing and
financial software vendors. Competitive factors include features and
adaptability of the software, level and quality of customer support, level of
software development expertise and price. The Company believes that it can
compete effectively in those markets the Company chooses to pursue.
The key competitive factors in output services of the Company are quality of
services, quality of customer support, ability to handle large volumes at month
and quarter ends and speed of production. The Company's principal competitors in
this business are local companies in the cities where the Company's printing
operations are located and several large national organizations. The Company
believes that it competes effectively with others in the market.
Employees
As of December 31, 1997, the Company and its majority owned subsidiaries
employed approximately 6,000 employees. In addition, 50% owned unconsolidated
affiliates of the Company and its subsidiaries employed approximately 3,200
employees, including approximately 2,400 at BFDS.
11
ITEM 2. PROPERTIES
PROPERTIES
The following table provides certain summary information with respect to the
principal properties owned or leased by the Company. The Company believes the
facilities, office space and other properties owned or leased are adequate for
its current operations.
<TABLE>
<CAPTION>
LOCATION USE (1) OWNED/LEASED (2) SQUARE FEET
- -------- ------- ---------------- -----------
<S> <C> <C> <C>
Kansas City, MO Data Center Owned 161,000
Kansas City, MO Office Space/Data Center Owned 477,000
Kansas City, MO (3) Office Space Leased 671,000
Kansas City, MO Production Owned 1,114,000
Kansas City, MO Production Leased 32,000
Boston, MA Office Space Leased 21,000
Charlotte, NC Office Space Leased 31,000
Denver, CO Production Leased 94,000
East Hartford, CT Production Leased 75,000
Miami, FL Production Leased 25,000
Mt. Prospect, IL Production Leased 110,000
New York, NY Production Leased 27,000
Phoenix, AZ Production Leased 20,000
St. Louis, MO Production Leased 39,000
Westwood, MA Production Leased 128,000
Wheeling, IL Production Leased 26,000
Australia Office Space Leased 30,000
Canada Office Space Leased 34,000
Canada Production Leased 88,000
United Kingdom Office Space Leased 49,000
</TABLE>
(1) Property specified as being used for production in the above table includes
space used for storage and manufacturing and as warehouse space.
(2) Excluded from the table are a number of surface parking lots in the
downtown Kansas City, Missouri area. The table also excludes nine
properties outside the Kansas City, Missouri metropolitan area having an
aggregate 57,353 square feet of office or production space, which are each
less than 20,000 square feet. In addition to the property listed in the
table and discussed above, the Company, through its subsidiaries and joint
ventures, leases space in the Netherlands, Switzerland, Belgium, South
Africa, Hong Kong, Singapore, Thailand and New Zealand. The property listed
in the table as owned by the Company is subject to mortgage indebtedness in
an aggregate amount of approximately $34 million as of December 31, 1997.
(3) Includes 352,680 square feet master-leased by a wholly owned subsidiary of
the Company, of which 122,318 square feet is subleased to the Company or
its other subsidiaries.
The discussion under "Winchester Information Processing Services" in Item 1
hereto is hereby incorporated by reference in partial response to this Item 2.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal proceedings
arising in the normal course of their businesses. While the ultimate outcome of
these legal proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with legal counsel, that the final outcome in
such proceedings, in the aggregate, would not have a material adverse effect on
the consolidated financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to security holders during the fourth
quarter of calendar year 1997.
12
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G(3) of Form 10-K/A and instruction 3 to
paragraph (b) of Item 401 of Regulation S-K, the following list is included as
an unnumbered Item in Part I of this Annual Report on Form 10-K/A in lieu of
being included in the Company's Definitive Proxy Statement in connection with
its annual meeting of stockholders scheduled for May 12, 1998.
All executive officers are elected by and serve at the discretion of the
Company's Board of Directors. Certain of the executive officers have employment
agreements with the Company. There are no arrangements or understandings between
the executive officers and any other person pursuant to which he or she was or
is to be selected as an officer, except with respect to the executive officers
who have entered into employment agreements, which agreements designate the
position or positions to be held by the executive officer. None of the executive
officers are related to one another by family.
THOMAS A. MCDONNELL, age 52, has served as director of the Company since 1971.
He has served as Chief Executive Officer of the Company since October 1984 and
as President of the Company since January 1973 (except for a 30 month period
from October 1984 to April 1987). He served as Treasurer of the Company from
February 1973 to August 1995 and as Vice Chairman of the Board from June 1984 to
September 1995. He served as Executive Vice President of Kansas City Southern
Industries ("KCSI") from February 1987 until October 1995 and as a director of
KCSI from 1983 until October 1995. He is a director of BHA Group, Inc., Cerner
Corporation, Computer Sciences Corporation, Euronet Services, Inc., and Informix
Software, Inc.
THOMAS A. MCCULLOUGH, age 55, is Executive Vice President of the Company. He has
served as a director of the Company since 1990 and as Executive Vice President
since April 1987. His responsibilities include full-service mutual fund
processing, remote-service mutual fund client servicing, information systems,
portfolio accounting, securities transfer and product sales and marketing.
ROBERT C. CANFIELD, age 59, has served as Senior Vice President, General Counsel
and Secretary since August 1995 and as Senior Vice President-Law of the Company
from March 1992 to August 1995.
MORTON B. COMER, age 65, has served as Senior Vice President of the Company
since April 1991. He was responsible for the Company's full-service mutual fund
processing and corporate support until February 1998 at which time he assumed
duties at the Company's affiliate, Boston EquiServe, LLP.
KENNETH V. HAGER, age 47, has served as Vice President and Chief Financial
Officer of the Company since April 1988 and as Treasurer since August 1995. He
is responsible for the financial, internal audit and data security functions of
the Company. He is a director of Digital Holdings, Inc.
JAMES P. HORAN, age 54, has served as Chief Information Officer of the Company
since July 1988. He is responsible for the Advanced Technology Group, AWD and
the Information Systems Division which includes mutual fund systems development
and support and remote mutual fund services.
JONATHAN J. BOEHM, age 37, joined the Company as a Group Vice President in
November 1997. He is responsible for the Company's full-service mutual fund
processing and corporate support. Prior to joining the Company, he had been
First Vice President with Kemper Service Company from July 1993 to November 1997
and Vice President of Kemper Service Company from October 1990 through July
1993.
JOHN W. MCBRIDE, age 55, has served as Group Vice President of the Company since
1993 and as Vice President of the Company from December 1985 to May 1993. He is
responsible for the operations of the Company's Winchester and Poindexter Data
Centers.
13
ROBERT L. TRITT, age 42, has served as Group Vice President of the Company since
1989. He is responsible for the Company's remote mutual fund processing
operations.
MICHAEL A. WATERFORD, age 55, has served as Group Vice President of the Company
since 1986. He is responsible for certain of the Company's development projects
and Year 2000 readiness.
J. PHILIP KIRK, JR., age 60, has served as Vice President of the Company since
January 1988 and as Chairman of DST Realty, Inc. since July 1996. From March
1987 to July 1996 he served as President of DST Realty, Inc.
CHARLES W. SCHELLHORN, age 49, has served as President of Output Technologies,
Inc. since 1990 and Chairman of the Board of Output Technologies, Inc.
since 1991.
J. MICHAEL WINN, age 50, has served since June 1993 as Managing Director of DST
International Limited, a wholly owned subsidiary of the Company. From February
1992 to June 1993, he was Managing Director of Clarke & Tilley Ltd. when it was
acquired by the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades under the symbol "DST" principally on the New
York Stock Exchange ("NYSE"). Additionally, the Company listed its common stock
on the Chicago Stock Exchange on January 21, 1998. As of February 27, 1998,
there were approximately14,000 beneficial owners of the Company's common stock.
No cash dividends have been paid since the initial public offering of the
Company's common stock on October 31, 1995. The Company intends to retain its
earnings for use in its business and therefore does not anticipate paying any
cash dividends in the foreseeable future.
The information set forth in response to Item 201 of Regulation S-K in Part II
Item 8, Financial Statements, and Supplementary Data at Note 16, Quarterly
Financial Data (Unaudited) ("Note 16"), in this Form 10-K/A is incorporated by
reference in partial response to this Item 5. The prices set forth in Note 16 do
not include commissions and do not necessarily represent actual transactions.
The closing price of the Company's common stock on the NYSE on December 31, 1997
was $42.6875.
The Company did not have any unregistered sales of securities in 1997.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth in the following table have
been derived from the consolidated financial statements for the Company and
notes thereto. The consolidated statement of income data for the years ended
December 31, 1995, 1996 and 1997, and the consolidated balance sheet data as of
December 31, 1996 and 1997, are derived from the consolidated financial
statements of the Company and the related notes thereto, which have been audited
by Price Waterhouse LLP, independent accountants and which are included in Item
8 elsewhere in this Form 10-K/A. The consolidated income statement data for the
years ended December 31, 1993 and 1994, and the consolidated balance sheet data
as of December 31, 1993, 1994 and 1995, are derived from the consolidated
financial statements and notes thereto of the Company, which have also been
audited by Price Waterhouse LLP, but which are not contained herein. This data
should be read in conjunction with and is qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 in this Form 10-K/A and the Company's audited
consolidated financial statements, including the notes thereto and the
independent accountants report thereon and the other financial information
included in Item 8 in this Form 10-K/A.
14
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994 1995 1996 1997
------- ------ ------- --------- ---------
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $341.2 $401.7 $484.1 $ 580.8 $ 650.7
Income from operations 29.6 35.0 40.8 57.0 92.2
Interest expense (10.9) (14.0) (22.0) (6.9) (7.7)
Gains on sales of equity investments* 44.9 223.4 1.5
Equity in earnings (losses) of unconsolidated affiliates 11.7 22.2 6.5 (4.0) (1.3)
Income before income taxes and minority interests 31.7 46.6 73.8 273.6 88.7
Income from continuing operations* 22.8 33.4 27.7 167.2 59.0
Income per share from continuing operations
Basic** 0.74 1.09 0.82 3.35 1.20
Diluted** 0.74 1.09 0.82 3.32 1.18
Total assets 401.7 510.4 749.5 1,121.6 1,355.4
Long-term obligations $ 146.0 $175.8 $ 52.5 $ 75.9 $ 92.0
Cash dividends per common share** $ - $ -
</TABLE>
* In the third quarter of 1996, the Company recognized a one-time gain on the
CSC/Continuum merger. See Note 4 to the consolidated financial statements.
** The Company's capital structure substantially changed as a result of the
initial public offering of the Company's common stock in the fourth quarter
of 1995. Earnings per share data prior to the public offering is reflective
of being a wholly owned subsidiary of Kansas City Southern Industries, Inc.
("KCSI"). The Company paid cash dividends of $6.2 million, $6.2 million and
$150.0 million to KCSI in 1993, 1994 and 1995, respectively, which have been
excluded from this table. The declaration and payment of dividends is at the
discretion of the Board of Directors which, prior to the public offering, was
controlled by KCSI.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussions set forth in this Annual Report on Form 10-K/A contain
statements concerning potential future events. Such forward-looking statements
are based upon assumptions by the Company's management, as of the date of this
Annual Report, including assumptions about risks and uncertainties faced by the
Company. Readers can identify these forward-looking statements by their use of
such verbs as expects, anticipates, believes or similar verbs or conjugations of
such verbs. If any of management's assumptions prove incorrect or should
unanticipated circumstances arise, the Company's actual results could materially
differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's Current
Report on Form 8-K dated March 22, 1996, which is hereby incorporated by
reference. This report has been filed with the United States Securities and
Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can
be obtained by contacting the SEC's Public Reference Branch. Readers are
strongly encouraged to obtain and consider the factors listed in the March 22,
1996 Current Report and any amendments or modifications thereof when evaluating
any forward-looking statements concerning the Company. The Company will not
update any forward-looking statements in this Annual Report to reflect future
events or developments
INTRODUCTION
The Company provides sophisticated information processing and computer software
services and products, primarily to mutual funds, insurance providers, banks and
other financial services organizations.
The Company's revenues are generated from a variety of sources. The Company's
mutual fund, securities transfer and portfolio accounting processing revenues
are primarily dependent upon base or maintenance fees per account or portfolio.
Revenues from output services for printing and mailing of customer documents and
archival are dependent upon the volume of output transactions processed. The
Company provides data processing services to Argus and Computer Sciences
Corporation Financial Services Group ("CSC-FSG") to process their proprietary
applications. Revenues from Argus and CSC-FSG are primarily based upon data
center capacity that is utilized, which is significantly influenced by each
company's volume of transactions. The Company also licenses its work management
software, certain investment management and portfolio accounting software and
securities exchange systems and, outside the United States, certain mutual fund
shareowner accounting systems. Revenues for licensed software products are
primarily comprised of: (i) license fees; (ii) consulting and development
revenues which are based primarily on time and materials billings; and (iii)
annual maintenance fees. The license fee component of these revenues is not
material to the Company as a whole.
15
The Company derives part of its net income from its pro rata share in the
earnings (losses) of certain unconsolidated affiliates, primarily BFDS, Argus,
EFDS and prior to its merger with CSC discussed below, Continuum. BFDS provides
full-service transfer agency functions for mutual funds utilizing DST's
proprietary TA2000 system. BFDS also offers remittance and proxy processing,
class action administration services, teleservicing and full-service support for
defined contribution plans using the Company's TRAC2000 system. Argus provides
managed care pharmacy claim processing services to the health insurance industry
utilizing the Company's data center facilities. EFDS provides full and remote
services in the United Kingdom for unit trusts and related products, serving
nearly one million unitholder accounts in the United Kingdom at December 31,
1997.
Recent Events
Securities Transfer Developments
On February 10, 1998, Boston EquiServe, LLP ("Boston EquiServe"), a 50% owned
joint venture between Boston Financial Data Services, Inc. ("BFDS") (a 50% owned
joint venture of the Company and State Street Corporation) and Bank of Boston
Corporation, announced an agreement to merge with First Chicago Trust Company of
New York ("First Chicago") which would create the largest securities transfer
agent in the United States, processing approximately 25 million accounts. The
merger of the two businesses, to be named EquiServe, LLP, is expected to be
completed in the second quarter of 1998.
DST is currently developing a new securities transfer system ("Fairway") to be
used by Boston EquiServe to process all of its accounts. In conjunction with the
merger, DST entered into a memorandum of understanding with Boston EquiServe and
First Chicago to complete development of the system for the exclusive use by
EquiServe to process all of its accounts. The Company has also agreed with
EquiServe to provide data processing services for EquiServe to use the new
system. The terms and conditions of this memorandum of understanding will be set
forth in a definitive agreement, the completion of which is a condition to the
closing of the merger agreement between Boston EquiServe and First Chicago. Upon
acceptance of defined components of Fairway, DST will contribute Fairway and its
non-EquiServe stock transfer processing business (approximately 2 million
accounts) to EquiServe for a direct ownership interest in EquiServe. DST will
also continue to hold an indirect ownership interest in EquiServe through BFDS.
DBS Systems Corporation
In October 1997, the Company purchased the remaining 20% minority interest in
DBS Systems Corporation ("DBS") for $13.2 million in cash. The $11.6 million
excess of the purchase price over the net assets acquired has been assigned a
useful life of 12 years. The Company had previously acquired 60% of DBS for $3.0
million in May 1993 and an additional 20% of DBS for $6.0 million in December
1995. On a pro forma basis, the acquisition did not have a material impact on
the Company's historical results of operations or financial position.
DST Catalyst, Inc.
In August 1997, the Company formed DST Catalyst, Inc. by purchasing an 81%
interest in the international information technology subsidiary of the Chicago
Stock Exchange and the consulting practice of Catalyst Institute. DST Catalyst,
Inc. provides software and services to support automated securities exchange
activities and broker order interfaces primarily outside the United States. On a
pro forma basis, the acquisition did not have a material impact on the Company's
historical results of operations or financial position.
16
First of Michigan
In July 1997, the Company sold its interest in First of Michigan Capital
Corporation for $9.6 million. The transaction, on an after-tax basis, did not
have a material effect on the Company's financial position or results of
operations.
Continuum
On August 1, 1996, The Continuum Company, Inc. ("Continuum") merged with
Computer Sciences Corporation ("CSC") in a tax-free share exchange and as a
result became a wholly owned subsidiary of CSC. DST, which prior to the merger
owned approximately 23% of Continuum, received in the exchange CSC common stock
with a value of $295 million based upon the closing price of CSC common stock on
August 1, 1996. DST recognized a one-time gain after taxes and other expenses of
$127.6 million. In connection with the merger, the Company elected to make a
one-time $13.7 million ESOP contribution to provide funding for certain
Continuum employee withdrawals from DST's ESOP. DST's shares of CSC represent an
approximate 6% interest in the combined company. As a result of the merger,
Continuum ceased to be an unconsolidated equity affiliate of DST and under
generally accepted accounting principles, no part of Continuum or CSC future
earnings since that time have been recognized by DST. DST recognized equity in
losses of Continuum of $1.1 million and $4.9 million in 1995 and 1996,
respectively. The Company's investment in CSC is accounted for as
available-for-sale securities. Although CSC does not currently pay cash
dividends, DST will recognize dividend income on any cash dividends received
from CSC.
DST currently provides data processing operations for Computer Sciences
Corporation Financial Services Group ("CSC-FSG"), formerly Continuum, through
DST's Winchester Data Center. The merger has not affected the Company's existing
agreements with CSC-FSG for distribution of DST's AWD work flow management
software to the insurance and banking industries.
Although DST has limited registration rights with respect to the sale of the CSC
stock DST owns, any dispositions of such stock may be restricted by securities
laws. DST has no present intention to dispose of such stock.
In March 1996, Continuum, a then 29% owned unconsolidated affiliate of the
Company, announced the completion of its merger with Hogan Systems, Inc. ("the
Hogan Merger"), a provider of software to banks and financial institutions, for
shares of Continuum stock. As a result of this merger, the Company's common
stock interest in Continuum was reduced from approximately 29% to approximately
23%. As a result, the Company recorded in March 1996 its estimated $9.4 million
after-tax share of a non-recurring charge recorded by Continuum in connection
with the Hogan Merger.
In December 1995, Continuum acquired SOCS Groupe SA, a French insurance software
firm. The Company recorded in December 1995 its estimated $7.7 million after-tax
share of a non-recurring charge in connection with this acquisition.
Stock Repurchase Program
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management considers appropriate. All such purchases are made in
compliance with applicable SEC regulations. The Company has repurchased 1.0
million shares as of December 31, 1997 for approximately $32.7 million.
Initial Public Offering
In the fourth quarter of 1995, the Company and Kansas City Southern Industries,
Inc. ("KCSI") completed an initial public offering ("the Offerings") of 25.3
million shares of the Company's common stock at an offering price of $21 per
share. Of the 25.3 million shares offered, 19,450,000 were sold by the Company
and 5,850,000 were sold by KCSI. The Company received net proceeds of
approximately $384.8 million which were used primarily to repay all debt to KCSI
and certain bank term notes. In conjunction with the Offerings, KCSI exchanged
4,253,508 shares of its DST common stock for 1,820,000 shares of KCSI stock held
by The Employee Stock Ownership Plan ("ESOP").
Credit Agreements
In December 1996, the Company entered into an amended and restated five year
revolving credit facility of $105 million (increased to $125 million in February
1997) with a syndicate of U.S. and international banks. The facility replaced
the three year $150 million agreement entered into in May 1995. Borrowings under
the facility are available at rates based on the Eurodollar, Prime, Base CD, or
Federal Funds rates. A commitment fee of 0.085% per annum is required on the
total amount of the facility. An additional utilization fee of .050% is required
if the principal amount outstanding is greater than 50% of the total facility.
At December 31, 1997, borrowings of $30 million were outstanding.
17
The Company also maintains a $50 million bank line of credit to finance working
capital requirements which is available through May 1998. Borrowings under the
facility are available at rates tied to the Eurodollar or federal funds rates. A
commitment fee of 0.105% per annum is required on the unused portion of the line
of credit. At December 31, 1997, borrowings of $25.0 million were outstanding.
KCSI Dividend
In May 1995, the Company paid a cash dividend of $150 million to KCSI ("KCSI
Dividend"), which was financed by the Company's revolving credit facilities.
Output Processing Expansion
In January 1996, the Company's subsidiary, Output Technologies, acquired for
$5.5 million, Xebec Imaging Services, Inc. ("Xebec"), a Canadian company engaged
in output processing.
During 1997, Output Technologies increased its ownership in PSI Technologies
Corporation ("PSI") to 20% for $2.0 million. Output Technologies had previously
acquired a 15% interest in PSI for $2.9 million in 1996. PSI has developed a
Computer Output to Laser Disk (COLD) software product for archiving documents.
In conjunction with the investment, Output Technologies retains the exclusive
right to market a customized product using PSI's COLD software to the mutual
fund industry.
Kemper Agreements
In April 1995, the Company purchased substantially all of the assets and
business operations of Supervised Service Company, Inc. ("SSC"), a subsidiary of
Kemper Financial Services, Inc. ("Kemper"). The Company also acquired certain
assets, including computer software from Kemper. The total consideration for
these asset purchases was approximately $39.4 million. In addition, the Company
entered into long-term contracts with Kemper to provide mutual fund shareowner
system services and portfolio accounting system services for the Kemper Mutual
Funds including certain Kemper funds that had been previously processed by
Kemper. As a result of these transactions (the "Kemper Agreements"), the Company
continued to process the Kemper accounts already processed by the Company for
Kemper and began processing the additional accounts previously processed by
Kemper and SSC.
DST International Expansion
In February 1995, DST International purchased HiPortfolio Pty Ltd.
("HiPortfolio"), an Australian provider of portfolio accounting software and
services for $16.0 million. The acquisition was financed through borrowings from
KCSI.
IFTC Transaction
In January 1995, the Company received shares of State Street Corporation common
stock with a then-market value of $98.2 million in a tax-free exchange for the
Company's 50% interest in Investors Fiduciary Trust Company (the "IFTC
Transaction"). The Company recognized a pretax gain of $43.6 million and
recorded deferred income taxes of $35.0 million resulting in a net after-tax
gain of $8.6 million on the transaction. As a result of the IFTC Transaction,
equity in IFTC's earnings is no longer included in the Company's results of
operations and dividends on State Street's common stock are recorded as other
income.
Midland Data Systems, Inc.
In August 1995, the Company sold its joint venture interests in Midland Data
Systems, Inc. ("MDS") and Midland Loan Services L.P. ("MLS") to KCSI. The
transaction did not result in a material net gain or loss to the Company.
18
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results for the years
ended December 31, (dollars in millions, except per share amounts).
<TABLE>
<CAPTION>
OPERATING RESULTS 1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 484.1 $580.8 $ 650.7
Costs and expenses 373.6 431.6 479.1
Depreciation and amortization 69.7 78.5 79.4
Other expense 13.7
Income from operations 40.8 57.0 92.2
Interest expense (22.0) (6.9) (7.7)
Other income, net 3.6 4.1 4.0
Gains on sales of equity investments 44.9 223.4 1.5
Equity in earnings (losses) of unconsolidated affiliates 6.5 (4.0) (1.3)
Income before income taxes and minority interests 73.8 273.6 88.7
Income taxes 46.1 105.9 29.2
Minority interests 0.5 0.5
Net income $ 27.7 $167.2 $ 59.0
Basic earnings per share $ 0.82 $ 3.35 $ 1.20
Diluted earnings per share $ 0.82 $ 3.32 $ 1.18
AS A PERCENTAGE OF REVENUES
Revenues 100.0% 100.0% 100.0%
Costs and expenses 77.2 74.3 73.6
Depreciation and amortization 14.4 13.5 12.2
Other expense 2.4
Income from operations 8.4 9.8 14.2
Interest expense (4.5) (1.2) (1.2)
Other income, net 0.7 0.7 0.6
Gains on sales of equity investments 9.3 38.5 0.2
Equity in earnings (losses) of unconsolidated affiliates 1.3 (0.7) (0.2)
Income before income taxes and minority interests 15.2 47.1 13.6
Income taxes 9.5 18.2 4.4
Minority interests 0.1 0.1
Net income 5.7% 28.8% 9.1%
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Consolidated revenues for the year ended December 31, 1997 increased
12.0% over the prior year to $650.7 million. U.S. revenues increased 10.7% to
$549.8 million in 1997. U.S. mutual fund processing revenues for 1997 increased
11.5% over the prior year as shareowner accounts serviced increased 9.5% from
41.1 million at December 31, 1996 to 45.0 million at December 31, 1997. Accounts
serviced at December 31, 1997 include approximately 900,000 accounts which were
converted to TA2000 during the fourth quarter. A remote client of the Company
internalized its processing subsequent to year-end causing a loss of
approximately one million accounts. Output Technologies' U.S. revenues in 1997
increased 8.1% over the prior year due to increased business volumes including a
16.8% increase in pages printed. U.S. AWD product revenues for 1997 increased
10.5% over the prior year primarily due to an increase in the number of AWD
workstations licensed. Subscriber management revenues increased over 50% versus
the prior year due to increases in the number of DirecTV satellite subscribers
serviced by DBS Systems Corporation.
Revenues from international operations for the year increased 19.6% to $100.9
million, driven primarily by increases in investment accounting and AWD license
and service revenues. In addition, revenues of $1.3 million were recorded by DST
Catalyst, Inc. which was acquired in August 1997.
COSTS AND EXPENSES. Consolidated costs and expenses for 1997 increased 11.0% to
$479.1 million.
U.S. costs and expenses increased $34.4 million or 9.8%. Personnel costs
increased 12.8% over 1996 as a result of increased staff levels to support
volume growth and increased wages primarily for data processing professionals.
Occupancy costs also increased to support increased staffing and business
volumes. Costs and expenses from international businesses for the year increased
$13.1 million or 16.5% due to the continued development of DST International's
new portfolio accounting system, GPS2000, and additional staffing to support the
increased investment management and AWD business volumes.
The Company has experienced some increases in costs necessary to hire and retain
computer programmers and other systems professionals. While these cost increases
have not materially affected the Company's overall cost structure to date, the
Company believes that the costs associated with computer programmers and other
systems professionals may continue to increase at least through the Year 2000 at
rates above general inflation.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the year
increased $0.8 million, or 1.0%. The containment of depreciation and
amortization expenses in 1997 is primarily the result of lower capital
expenditures in 1996 and 1997 compared to prior years, decreases in the unit
costs of electronic data processing equipment and the Company's use of
accelerated depreciation methods.
OTHER EXPENSES. In connection with the CSC/Continuum merger in 1996, the Company
accrued a one-time $13.7 million ESOP contribution which provided funding for
certain Continuum employee withdrawals from the ESOP.
INTEREST EXPENSE. Interest expense increased to $7.7 million, or 10.5%, for the
year on higher average debt balances.
OTHER INCOME. Other income consists mainly of dividends received on shares of
State Street stock held by the Company and amortization of deferred
non-operating gains.
GAINS ON SALES OF EQUITY INVESTMENTS. The 1997 amount primarily represents the
Company's gain on sale of its investment in First of Michigan. The 1996 amount
represents the Company's gain on the CSC/Continuum merger.
UNCONSOLIDATED AFFILIATES. Equity in earnings of unconsolidated affiliates
decreased $2.2 million in 1997 (excluding equity in earnings of Continuum from
1996 results) as a result of increased losses at EFDS, partially offset by
improved earnings at BFDS and Argus. Argus has received notice of termination
from a significant client whose contract terminates in the first quarter 1998.
DST recorded losses of $11.8 million from EFDS in 1997 as compared to $6.0
million in 1996. Increased losses at EFDS were the result of continued
development of the new FAST2000 software and a $1.0 million (DST share)
write-off of costs associated with hardware which is expected to be replaced by
FAST2000 and software in 1998. 1997 EFDS costs were also impacted by business
growth as accounts serviced increased to approximately one million, an increase
of 634,000, or 179% over the prior year.
INCOME TAXES. The Company's effective tax rate for 1997 was 32.9%. If all
Continuum related equity in earnings, gains and charges previously discussed
were eliminated, the Company's effective tax rate for 1996 would have been
35.2%. The primary difference between the Company's effective tax rate and the
combined federal and state statutory rates is the result of deferred taxes being
provided for unremitted earnings of U.S. unconsolidated affiliates net of the
dividends received deduction provided under current tax law and increased tax
benefits associated with international operations.
NET INCOME. The Company's 1997 net income was $59.0 million or $1.20 basic
earnings per share and $1.18 diluted earnings per share as compared to $167.2
million or $3.35 basic earnings per share and $3.32 diluted earnings per share
in 1996. If all Continuum related equity in earnings, gains and charges
previously discussed were eliminated, DST's net income for 1996 would have been
$44.0 million, or $0.88 earnings per share on both a basic and diluted basis.
20
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Consolidated revenues increased 20% to $580.8 million in 1996
primarily due to increased U.S. mutual fund processing, AWD and subscriber
management revenues, higher U.S. output volumes at Output Technologies and the
acquisition of Xebec in January 1996.
Total U.S. revenues increased 17% to $496.4 million in 1996. U.S. mutual fund
processing revenues for 1996 increased 15% over the prior year as shareowner
accounts serviced increased 13% from 36.5 million at December 31, 1995 to 41.1
million at December 31, 1996. In the last quarter of 1996, two new clients were
added with approximately 700,000 accounts. Output Technologies' U.S. revenues in
1996 increased 19% over the prior year due to increased business volumes
including a 32% increase in pages printed. U.S. AWD product revenues for 1996
increased 42% over the prior year primarily due to an increase in the number of
AWD workstations installed and increased royalties from workstations installed
internationally. Subscriber management revenues increased substantially over the
prior year on increases in the number of DirecTV satellite subscribers serviced
by DBS Systems Corporation. Revenues from international operations for the year
increased 39% to $84.4 million. The increase is primarily attributable to the
addition of $14.4 million in Canadian revenues resulting from the acquisition of
Xebec by Output Technologies in January 1996 and increased license and
development revenues from DST International.
COSTS AND EXPENSES. Consolidated costs and expenses for 1996 increased 16% to
$431.6 million, primarily as a result of higher operating volumes, increased
costs of international operations partially offset by the absence in 1996 of
certain other costs that were incurred in 1995.
U.S. costs and expenses increased $37.5 million or 12% primarily due to
increased business volumes and increased compensation and staffing to support
mutual fund, Output Technologies and AWD products. In addition, the development
and partial implementation of a new manufacturing and administration system at
Output Technologies increased 1996 costs by $4.3 million. Partially offsetting
these increases were certain costs incurred in 1995 which did not recur in 1996,
including (i) an accrual of $7.3 million for a performance-based incentive
compensation program at an Output Technologies subsidiary, which was completed
as of December 31, 1995, and (ii) costs of approximately $3.0 million in
transition activities associated with the Kemper Agreements, which activities
were substantially concluded at December 31, 1995.
Costs and expenses from international businesses for the year increased $20.5
million or 35% due to the continued development of new international investment
management and portfolio accounting applications, increased staffing to support
the investment management and AWD businesses and the addition of $11.9 million
of costs and expenses from the operations of Xebec which was acquired in January
1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $8.8
million, or 13%, for the year primarily because of increased operating
capacities at the Winchester Data Center and Output Technologies and increased
amortization expense related to the April 1995 Kemper Agreements.
OTHER EXPENSES. In connection with the CSC/Continuum merger, the Company accrued
a one-time $13.7 million ESOP contribution which provided funding for certain
Continuum employee withdrawals from the ESOP.
INTEREST EXPENSE. Interest expense decreased $15.0 million, or 68%, for the year
primarily from the retirement of debt with proceeds from the Company's initial
public offering in the fourth quarter of 1995. Additionally, the Company
capitalized $1.1 million of interest expense in 1996 related to certain
construction activities as compared to $1.6 million in the prior year.
OTHER INCOME. Other income increased $0.5 million in 1996 due primarily to the
increased dividends received on shares of State Street stock held by the
Company.
21
GAINS ON SALES OF EQUITY INVESTMENTS. The 1996 amount represents the Company's
gain on the CSC/Continuum merger. The 1995 amount includes the sales of the
Company's joint venture interests in IFTC to State Street and MDS and MLS to
KCSI.
UNCONSOLIDATED AFFILIATES. Equity in earnings of unconsolidated affiliates
decreased $10.5 million in 1996 primarily as a result of the discontinuance of
recording equity in Continuum earnings beginning in third quarter 1996 and the
Company's $10.3 million share (before taxes) of a non-recurring charge recorded
by Continuum related to the Hogan Merger in the first quarter of 1996. Argus
recorded lower earnings as a result of increased development costs for a new
claims processing system and lower unit revenues. Increased costs were also
incurred at EFDS due to an acceleration of the delivery timetable for the
FAST2000 unit trust product, which is currently expected to be substantially
completed in 1998. 1995 also included $1.1 million of equity in earnings of
Midland joint ventures which were sold in August 1995.
INCOME TAXES. 1996 income tax expense increased $59.7 million, or 129%,
primarily resulting from the Company's gain on the CSC/Continuum merger. The
Company recorded $82.1 million of income tax expense in 1996 as a result of the
Continuum/CSC merger to recognize the deferred tax liability on the difference
between the value of CSC stock received and the Company's tax basis in Continuum
less previous deferred taxes provided respecting Continuum and less the current
tax benefit of the ESOP contribution which provided funding for certain
Continuum employee withdrawals from the ESOP. The Company recorded $35.0 million
of deferred income tax expense in the first quarter 1995 as a result of the IFTC
transaction to recognize the deferred tax liability on the difference between
the value of State Street stock received and the Company's tax basis in IFTC
less previous deferred taxes provided.
Excluding the effects of the Continuum/CSC merger, ESOP contribution and the
effect of the one-time charge taken by Continuum in connection with the Hogan
Merger, the Company's effective tax rate for 1996 was approximately 33%. The
primary difference between the Company's effective tax rate and the combined
federal and state statutory rates is the result of deferred taxes being provided
for unremitted earnings of U.S. unconsolidated affiliates net of the dividends
received deduction provided under current tax law and certain tax credits
recognized by the Company in conjunction with the rehabilitation of historic
property that will be used as office space.
NET INCOME. The Company's net income was $167.2 million, or $3.35 basic earnings
per share and $3.32 diluted earnings per share, as compared to $27.6 million, or
$0.82 earnings per share on both a basic and diluted basis. If all Continuum
related equity in earnings, gains and charges previously discussed were
eliminated, DST's net income for 1996 would have been $44.0 million, or $0.88
earnings per share on both a basic and diluted basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash available from operating activities, borrowings from
banks and financing from third-party vendors and others to fund operating,
investing and financing activities.
The Company's cash flow from operating activities totaled $51.7 million, $112.2
million and $127.4 million for the years ended December 31, 1995, 1996 and 1997,
respectively. 1997 operating cash flows were partially offset by a $13.7 million
ESOP contribution (accrued in 1996) to fund the withdrawal of certain Continuum
employees from the ESOP.
Operating costs include software development and maintenance costs relating to
proprietary systems of approximately $59.1 million, $82.1 million and $92.1
million for the years ended December 31, 1995, 1996 and 1997, respectively.
During the years ended December 31, 1995, 1996 and 1997, the Company expended
approximately $95.6 million, $78.7 million and $73.8 million, respectively, in
capital expenditures for equipment and facilities which includes amounts
directly paid by third-party lenders. Capital expenditures in 1995 include
approximately $12.6 million in facility additions and improvements related to
the expansion of the Winchester Data Center, which was substantially completed
in 1995. The Company incurred an additional $21.0 million in mortgage
indebtedness in 1995 to finance, in part, these capital additions. Future
capital expenditures are expected to be funded primarily by cash flows from
operating activities, secured term notes or bank lines of credit as required.
22
The Company expended approximately $9.2 million, $23.3 million and $37.8 million
primarily for investments and advances to unconsolidated affiliates during 1995,
1996 and 1997, respectively. In addition, the Company expended $53.3 million,
$3.2 million and $14.8 million during 1995, 1996 and 1997, respectively, for
acquisitions previously described, net of cash acquired. The Company received
proceeds of $12.4 million in 1997 from the sale of equity investments including
$9.6 million from the sale of First of Michigan.
The Company paid a cash dividend to KCSI of $150.0 million in 1995. As
previously noted, the Company has not paid any dividends since the initial
public offering and does not expect to pay any cash dividends in the foreseeable
future.
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. The Company has purchased 1.0
million shares through December 31, 1997 for approximately $32.7 million.
The Company maintains a $50 million bank line of credit to finance working
capital requirements of the Company which is available through May 1998. The
Company also maintains a $125 million line of credit with a syndicate of U.S.
and international banks which is available through December 2001. Borrowings
under these facilities totaled $55.0 million at December 31, 1997.
The Company believes that its existing cash balances and other current assets,
together with cash provided by operating activities and, as necessary, the
Company's bank and revolving credit facilities, will be sufficient to meet the
Company's operating and debt service requirements and other current liabilities
for at least the next 12 months. Further, the Company believes that its longer
term liquidity and capital requirements will also be met through cash provided
by operating activities and bank credit facilities, as well as the Company's
$125 million revolving credit facility described above.
OTHER
SEASONALITY. Generally, the Company does not have significant seasonal
fluctuations in its business operations. Processing and output volumes for
mutual fund customers are usually highest during the quarter ended March 31 due
primarily to processing year-end transactions and printing and mailing of
year-end statements and tax forms during January. The Company has historically
added operating equipment in the last half of the year in preparation for
processing year-end transactions which has the effect of increasing costs for
the second half of the year. Revenues and operating results from individual
license sales depend heavily on the timing and size of the contract.
UNREALIZED GAIN ON SECURITIES. The Company holds, among others, approximately
4.3 million shares of Computer Sciences Corporation common stock and
approximately 6.0 million shares of State Street Corporation common stock as
investments. At December 31, 1996, the market value of the Company's investments
in available-for-sale securities reflected an aggregate unrealized gain of
$155.3 million. At December 31, 1997, these investments had an aggregate
unrealized gain of $323.2 million. The $167.9 million unrealized gain in 1997 on
the Company's investments in these securities, net of deferred taxes of $65.5
million, has been recorded in stockholders' equity in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
FOREIGN CURRENCY TRANSLATION. The Company's international subsidiaries use the
local currency as the functional currency. The Company translates all assets and
liabilities at year end exchange rates and income and expense accounts at
average rates during the year. Foreign currency fluctuations have historically
had an immaterial effect on the Company and the comparability of financial
information. While it is generally not the Company's practice to enter into
derivative contracts, from time to time the Company and its subsidiaries do
utilize forward foreign currency exchange contracts to minimize the impact of
currency movements.
23
COMPREHENSIVE INCOME. The Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" in June 1997. The new statement
requires that all changes in equity during a period except those resulting from
investments by and distributions to owners be reported as "comprehensive income"
in the financial statements beginning in 1998. Upon implementation, the Company
will include the net unrealized gain or loss on its available-for-sale
securities and foreign currency translation effects in the computation of
comprehensive income.
YEAR 2000. Many computer programs use only two digits to identify a year in a
date field within the program (e.g., "98" or "02"). If not corrected, computer
applications making calculations and comparisons in different centuries may
cause inaccurate results, or fail by or at the Year 2000.These Year 2000 related
issues are of particular importance to the Company. The Company depends upon its
computer and other systems and the computer and other systems of third-parties
to conduct and manage the Company's business. Additionally, the Company's
products and services are dependent upon using accurate dates in order to
function properly. These Year 2000-related issues may also adversely affect the
operations and financial performance of one or more of the Company's customers
or suppliers. As a result, the failure of the Company's computer and other
systems, products or services, the computer systems and other systems upon which
the Company depends, or of the Company's customers or suppliers to be Year 2000
ready could have a material adverse effect on the Company's results of
operations, financial position and cash flows.
The Company recognizes the significance of the Year 2000 problem and is
executing a program to achieve Year 2000 readiness. The Company's Year 2000
program is supported by a corporate-wide structure of project teams, a
governance structure and a central Project Office. The Project Office was
established to lead the readiness efforts for the Company and manage the overall
progress of the project. The Company has redirected some of its development
employees to address the Year 2000 issues.
The program's purpose is to identify, evaluate and resolve potential Year 2000
related issues for the Company's products, services, internal systems, hardware,
communications and other systems. The program includes the following key steps:
1. Identification of systems and applications that must be modified
2. Evaluation of alternatives (modification, replacement or discontinuance)
3. Establishment of plans which include timely milestones and appropriate
testing to ensure that the systems and applications are ready for the Year
2000.
The program also includes:
1. Projects to ensure that external vendors and services are also ready
2. The development of alternatives where necessary
3. Interoperability testing with clients and key organizations in the
financial services industry.
The Company's goal is to be ready, internally, for the Year 2000 by December 31,
1998. This goal allows for one full year of testing with clients and the
industry prior to the Year 2000. The Company's Year 2000 program is under way,
and the Company expects to achieve its goal.
The expenses associated with the program will be expensed as incurred. The
Company does not believe the amount to be spent on Year 2000 issues will be
material to the Company's results of operations, liquidity or capital resources.
However, although the Company is not aware of any material operational or
financial Year 2000 related issues, the Company cannot make any assurances that
its computer systems, products, services or other systems or the computers and
other systems of others upon which the Company depends will be Year 2000 ready
on schedule, that the costs of its Year 2000 program will not become material or
that the Company's alternative plans will be adequate. The Company is currently
unable to anticipate accurately the magnitude, if any, of the Year 2000 related
issues arising from the Company's customers and suppliers. If any such risks
(either with respect to the Company or its customers or suppliers) materialize,
the Company could experience material adverse consequences to its business which
could have material adverse effects on the Company's results of operations,
financial position and cash flows.
24
SEGMENT INFORMATION. The Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
in June 1997. This statement requires that publicly traded companies report
certain information about their operating segments, products and services,
geographic areas in which they operate, and major customers beginning in 1998.
The Company is currently evaluating the effect that implementation of the new
standard will have on the information disclosed in its financial statements.
EARNINGS PER SHARE. The Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("EPS") ("SFAS 128") in February 1997. SFAS 128
replaces the presentation of "Primary EPS" and "Fully Diluted EPS" with "Basic
EPS" and "Diluted EPS", respectively. The Company's financial statements have
been adjusted for the required new disclosures.
SOFTWARE REVENUE RECOGNITION. The Accounting Standards Executive Committee
("ACSEC") of the American Institute of Certified Public Accountants recently
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition"
providing guidance on applying Generally Accepted Accounting Principles in
recognizing revenue from software transactions. The Company believes
implementation of the new statement will not have a material effect on the
consolidated results of operations of the Company.
INTERNAL USE SOFTWARE. The ACSEC recently issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The new
statement is effective for fiscal periods beginning after December 15, 1998 and
concludes that costs for the development of internal use software are an asset.
Accordingly, certain primary types of development activities should be
capitalized, including coding and software configuration costs, costs of testing
and installing the software, and when clearly distinguishable from maintenance,
the costs of upgrades and enhancements. The Company currently expenses costs of
internally developed proprietary software as it is incurred. The Company is
currently evaluating the effect that implementation of the new standard will
have on its software development accounting policies and is unable to determine
the effects on the Company's results of operations at this time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
To the Stockholders of DST Systems, Inc.
The accompanying consolidated financial statements of DST Systems, Inc. and its
subsidiaries were prepared by management in conformity with generally accepted
accounting principles. In preparing the financial statements, management has
made judgments and estimates based on currently available information. Other
financial information included in this annual report is consistent with that in
the consolidated financial statements.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and that its financial
records are reliable. Management monitors the system for compliance, and the
Company's internal auditors measure its effectiveness and recommend possible
improvements thereto.
Independent accountants provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
regularly evaluate the system of internal accounting controls and perform such
tests and other procedures as they deem necessary to express an opinion on the
fairness of the consolidated financial statements.
The Board of Directors pursues its oversight role in the area of financial
reporting and internal accounting controls through its Audit Committee which is
composed solely of directors who are not officers or employees of the Company.
This committee meets regularly with the independent accountants, management and
internal auditors to discuss the scope and results of their work and their
comments on the adequacy of internal accounting controls and the quality of
external financial reporting.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of DST Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
DST Systems, Inc. and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Kansas City, Missouri
February 26, 1998
26
DST Systems, Inc.
Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
DECEMBER 31,
1996 1997
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 8,279 $ 15,833
Accounts receivable 138,622 158,069
Accounts receivable-related parties 15,472 12,630
Inventories 10,690 11,369
Other assets 28,232 33,423
----------- -----------
201,295 231,324
Investments 620,437 820,577
Properties 243,989 242,153
Intangibles and other assets 55,867 61,350
----------- -----------
Total assets $1,121,588 $ 1,355,404
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 15,159 $ 13,898
Accounts payable 44,944 49,763
Accrued compensation and benefits 33,276 28,319
Deferred revenues and gains 14,553 22,679
Other liabilities 17,772 26,334
----------- -----------
125,704 140,993
Long-term debt 75,895 92,005
Deferred income taxes 180,853 241,782
Other liabilities 42,939 43,534
----------- -----------
425,391 518,314
----------- -----------
Commitments and contingencies (Note 14)
----------- -----------
Minority interests 972 1,380
----------- -----------
Stockholders' equity
Preferred stock, $0.01 par, 10,000,000 shares
authorized and unissued
Common stock, $0.01 par, 125,000,000 shares
authorized, 50,000,000 shares issued 500 500
Additional paid-in capital 408,807 408,610
Retained earnings 203,638 261,010
Treasury stock, at cost (12,345) (31,404)
Net unrealized gain on investments 94,625 196,994
----------- -----------
Total stockholders' equity 695,225 835,710
----------- -----------
Total liabilities and stockholders' equity $ 1,121,588 $ 1,355,404
=========== ===========
The accompanying notes are an integral part of these financial statements.
27
DST Systems, Inc.
Consolidated Statement of Income
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 380,187 $ 470,705 $ 538,074
Revenues - related parties 103,944 110,103 112,604
--------- ---------- ----------
Total revenues 484,131 580,808 650,678
Costs and expenses 373,561 431,563 479,103
Depreciation and amortization 69,749 78,572 79,335
Other expense 13,700
--------- ---------- ----------
Income from operations 40,821 56,973 92,240
Interest expense (21,964) (6,940) (7,670)
Other income, net 3,627 4,176 4,020
Gains on sales of equity investments 44,895 223,438 1,464
Equity in earnings (losses) of unconsolidated
affiliates, net of income taxes 6,452 (4,028) (1,345)
--------- ---------- ----------
Income before income taxes and minority interests 73,831 273,619 88,709
Income taxes 46,174 105,920 29,178
--------- ---------- ----------
Income before minority interests 27,657 167,699 59,531
Minority interests 17 497 534
--------- ---------- ----------
Net income $ 27,640 $ 167,202 $ 58,997
========= ========== ==========
Average common shares outstanding 33,791 49,871 49,308
Basic earnings per share $ 0.82 $ 3.35 $ 1.20
Diluted earnings per share $ 0.82 $ 3.32 $ 1.18
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
DST Systems, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
$.01 PAR $.01 PAR ADDITIONAL NET UNREALIZED TOTAL
PREFERRED COMMON PAID-IN RETAINED TREASURY GAIN (LOSS) ON STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS STOCK INVESTMENTS EQUITY
--------- -------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ $ 306 $ 24,214 $157,676 $ $ (1,635) $ 180,561
Net income 27,640 27,640
Dividend to KCSI (150,000) (150,000)
Issuance of 19,450,000 shares of
common stock, net of issuance costs 194 384,593 384,787
Unrealized gain on investments, net 23,698 23,698
Other (328) (328)
--------- -------- ----------- --------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995 500 408,807 34,988 22,063 466,358
Net income 167,202 167,202
Purchase of 400,000 shares of
common stock (12,470) (12,470)
Unrealized gain on investments, net 72,562 72,562
Other 1,448 125 1,573
--------- -------- ----------- --------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 500 408,807 203,638 (12,345) 94,625 695,225
Net income 58,997 58,997
Purchase of 600,000 shares of
common stock (20,256) (20,256)
Unrealized gain on investments, net 102,369 102,369
Other (197) (1,625) 1,197 (625)
--------- -------- ----------- --------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 $ $ 500 $ 408,610 $261,010 $ (31,404) $ 196,994 $ 835,710
========= ======== =========== ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
DST Systems, Inc.
Consolidated Statement of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1996 1997
---------- ---------- ---------
CASH FLOWS - OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 27,640 $ 167,202 $ 58,997
---------- ---------- ---------
Depreciation and amortization 69,749 78,572 79,335
Equity in (earnings) losses of unconsolidated affiliates (6,452) 4,028 1,345
Cash dividends received from unconsolidated affiliates 853 8,000
Gains on sales of equity investments (44,895) (223,438) (1,464)
Deferred taxes on gains on sales of equity investments 35,028 87,254
Changes in accounts receivable (29,415) (16,995) (16,305)
Changes in other current assets (6,103) 862 (5,782)
Changes in accounts payable and accrued liabilities (2,383) 6,376 11,505
Other, net 7,646 342 (240)
---------- ---------- ---------
Total adjustments to net income 24,028 (54,999) 68,394
---------- ---------- ---------
Net 51,668 112,203 127,391
---------- ---------- ---------
CASH FLOWS - INVESTING ACTIVITIES:
Investments and advances to unconsolidated affiliates (9,150) (23,336) (37,759)
Capital expenditures (65,449) (73,935) (67,063)
Payment for purchases of subsidiaries, net of cash acquired (53,303) (3,183) (14,788)
Other, net 6,470 3,930 14,838
---------- ---------- ---------
Net (121,432) (96,524) (104,772)
---------- ---------- ---------
CASH FLOWS - FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 384,787
Proceeds from issuance of long-term debt-KCSI 24,000
Proceeds from issuance of long-term debt-other 171,000
Principal payments on long-term debt (342,083) (20,430) (14,261)
Net increase (decrease) in short-term notes payable (1,334) (11,999) 2,574
Net increase in revolving credit facilities 33,554 21,496
Dividends to KCSI (150,000)
Common stock repurchased (12,470) (20,256)
Other, net (7,520) (9,112) (4,618)
---------- ---------- ---------
Net 78,850 (20,457) (15,065)
---------- ---------- ---------
Net increase (decrease) in cash 9,086 (4,778) 7,554
Cash at beginning of year 3,971 13,057 8,279
---------- ---------- ---------
Cash at end of year $ 13,057 $ 8,279 $ 15,833
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
DST Systems, Inc.
Notes to Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
DST Systems, Inc. (the "Company" or "DST") provides sophisticated information
processing and computer software services and products, primarily to mutual
funds, insurance providers, banks and other financial organizations. Its
software systems include shareowner accounting and recordkeeping systems offered
to the U.S. mutual fund industry; shareowner accounting and recordkeeping system
offered to non U.S. mutual funds and unit trusts; a securities transfer system
offered primarily to corporate trustees and securities transfer agents; a
variety of portfolio accounting and investment management systems offered to
U.S. and international fund accountants and investment management firms; an
image-based work management system offered primarily to mutual funds, insurance
companies and other financial services businesses; a subscriber management
system for the satellite television industry; and securities exchange and broker
order systems offered to brokers and companies involved in the exchange of
equity, bond and derivative securities primarily outside the U.S. Its output
products include customized printing and mailing, computer output archival
services, design services and offset printing.
The Company licenses its work management software and certain investment
management software, non-U.S. mutual fund shareowner accounting software and
securities exchange and broker order systems. The Company distributes its
services and products on a direct basis and through various subsidiaries or
joint venture affiliates in the U.S., Canada, United Kingdom, Europe, Australia,
South Africa and Asia-Pacific.
The Company and Kansas City Southern Industries, Inc. ("KCSI") completed an
initial public offering ("the Offerings") in the fourth quarter of 1995 of 25.3
million shares of the Company's common stock. KCSI owned approximately 41% of
the Company's outstanding common stock at December 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include all
majority-owned subsidiaries of DST. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Computer processing and output revenues are recognized upon
completion of the service provided. Software license fees, maintenance fees and
other ancillary fees are recognized as services are provided or delivered and
all customer obligations have been met. The Company generally does not have
customer obligations that extend past one year.
COSTS AND EXPENSES. Costs and expenses include all costs, excluding depreciation
and amortization, incurred by the Company to produce revenues. The Company
believes that the nature of its business as well as its organizational
structure, in which virtually all officers and associates have operational
responsibilities, does not allow for a meaningful segregation of selling,
general and administrative costs. These costs, which the Company believes to be
immaterial, are also included in costs and expenses. Substantially all
depreciation and amortization are directly associated with the production of
revenues.
SOFTWARE DEVELOPMENT AND MAINTENANCE. Purchased software is recorded at cost and
is amortized over the estimated economic lives of three to ten years. Costs of
internally developed proprietary software, used for producing processing
revenues, are expensed as incurred. Costs of internally developed software, that
will be exclusively sold or licensed to third parties, have not been material
and have been expensed as incurred. A portion of the Company's development costs
is funded by customers through various programs, including product support and
shared-cost arrangements.
31
Operating costs include software development and maintenance costs relating to
internal proprietary systems of approximately $59.1 million, $82.1 million, and
$92.1 million for the years ended December 31, 1995, 1996 and 1997,
respectively.
CASH EQUIVALENTS. Short-term liquid investments with a maturity of three months
or less are considered cash equivalents. Due to the short-term nature of these
investments, carrying value approximates market value.
INVENTORIES. Inventories are valued at the lower of cost or market. Cost is
determined on the specific identification or first-in, first-out basis.
Inventories are comprised of paper and envelope stocks.
INVESTMENTS IN SECURITIES. The equity method of accounting is used for all
entities in which the Company or its subsidiaries have at least 20% but not more
than 50% voting control interest or significant influence; the cost method of
accounting is used for investments of less than 20% voting control interest.
Investments classified as available-for-sale securities are reported at fair
value, with unrealized gains and losses excluded from earnings and recorded net
of deferred taxes directly to stockholders' equity as net unrealized holding
gains or losses.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost with major
additions and improvements capitalized. Cost includes the net amount of interest
cost associated with significant capital additions. Depreciation of buildings is
recorded using the straight-line method over 15 to 30 years. Equipment and
furniture are depreciated using straight-line and accelerated methods over the
estimated useful lives, principally 5 to 7 years. Leasehold improvements are
depreciated using the straight-line method over the term of the leases. The
Company reviews, on a quarterly basis, its property and equipment for possible
impairment. In management's opinion, no such impairment exists at December 31,
1997.
INTANGIBLES. Goodwill resulting from the cost of investments in excess of the
underlying fair value of identifiable net assets acquired is amortized over
periods ranging from 7 to 20 years. On a quarterly basis, the Company reviews
the recoverability of goodwill. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from expected
future operating cash flows on an undiscounted basis. These analyses are
performed on an individual investment basis with the primary focus of the
analyses being the expected future cash flows from significant products of each
of the investments. In management's opinion, no such impairment exists at
December 31, 1997.
INCOME TAXES. Deferred income tax effects of transactions reported in different
periods for financial reporting and income tax return purposes are recorded by
the liability method. This method gives consideration to the future tax
consequences of deferred income or expense items and immediately recognizes
changes in income tax laws upon enactment. The income statement effect is
generally derived from changes in deferred income taxes on the balance sheet.
Prior to 1993, the Company generally did not provide deferred income taxes for
unremitted earnings of certain investees accounted for under the equity method
in so much as those earnings have been and will continue to be reinvested.
Beginning in 1993, pursuant to the provisions of Statement of Financial
Accounting Standards No. 109 ("SFAS 109") (Note 10), the Company began providing
deferred taxes for unremitted earnings of U.S. unconsolidated affiliates net of
the 80% dividends received deduction provided for under current tax law. Through
December 31, 1997, the cumulative amount of such unremitted earnings was
$36,981,000. These amounts would become taxable to the Company if distributed by
the affiliates as dividends, in which case the Company would be entitled to the
dividends received deduction for 80% of the dividends; alternatively, these
earnings could be realized by the sale of the affiliates' stock, which would
give rise to tax at federal capital gains rates and state ordinary income tax
rates, to the extent the stock sale proceeds exceeded the Company's tax basis.
Deferred taxes provided on unremitted earnings through December 31, 1996 and
1997 were $1,785,000 and $2,343,000, respectively. Determination of the amount
of the unrecognized deferred tax liability related to investments in
international subsidiaries, including but not limited to unremitted earnings and
cumulative translation adjustments, is not practicable.
32
FOREIGN CURRENCY TRANSLATION. The Company's international subsidiaries use the
local currency as the functional currency. The Company translates all assets and
liabilities at year end exchange rates and income and expense accounts at
average rates during the year. Translation adjustments are recorded in
stockholders' equity and were not material at December 31, 1996 and 1997. While
it is generally not the Company's practice to enter into derivative contracts,
from time to time the Company and its subsidiaries do utilize forward foreign
currency exchange contracts to minimize the impact of currency movements.
EARNINGS PER SHARE. The Company adopted Statement of Financial Accounting
Standards No. 128 in 1997 and accordingly restated prior year amounts. Basic
earnings per share is determined by dividing net income by the weighted average
number of common shares outstanding during the year. The dilutive effect of all
potential common shares outstanding during the year has been included in diluted
earnings per share. The computation of basic and diluted earnings per share for
the years ended December 31 is as follows (in thousands, except per share
amounts):
<TABLE>
<S> <C> <C>
1995 1996 1997
-------------- -------------- --------------
Net income $ 27,640 $ 167,202 $ 58,997
============== ============== ==============
Average common shares outstanding 33,791 49,871 49,308
Incremental shares from assumed conversions of stock options 57 464 530
-------------- -------------- --------------
Dilutive potential common shares 33,848 50,335 49,838
============== ============== ==============
Basic earnings per share $ 0.82 $ 3.35 $ 1.20
Diluted earnings per share $ 0.82 $ 3.32 $ 1.18
</TABLE>
Options to purchase 61,500 shares and 204,000 share of common stock,
respectively, at weighted average exercise prices of $34.75 and $36.33,
respectively, were outstanding during 1996 and 1997, but were not included in
the computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares and
therefore, the effect would be antidilutive.
STOCK-BASED COMPENSATION. The Company accounts for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 and has presented the
required pro forma disclosures in Note 11.
NEW ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME. The Financial Accounting Standards Board issued
Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income" in June
1997. The new statement requires that all changes in equity during a
period except those resulting from investments by and distributions to
owners be reported as "comprehensive income" in the financial statements
beginning in 1998.
The Company holds, among others, approximately 4.3 million shares of
Computer Sciences Corporation common stock and approximately 6.0 million
shares of State Street Corporation common stock as investments. At
December 31, 1996, the market value of the Company's investments in
available-for-sale securities reflected an aggregate unrealized gain of
$155.3 million. At December 31, 1997, these investments had an aggregate
unrealized gain of $323.2 million. The $167.9 million unrealized gain in
1997 on the Company's investments in these securities, net of deferred
taxes of $65.5 million, has been recorded in stockholders' equity in
accordance with SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities." Upon implementation of SFAS 130, DST will include the
net unrealized gain or loss on its available-for-sale securities in the
computation of comprehensive income.
33
SEGMENT INFORMATION. The Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in June 1997. This statement requires that publicly
traded companies report certain information about their operating
segments, products and services, geographic areas in which they operate,
and major customers beginning in 1998. The Company is currently
evaluating the effect that implementation of the new standard will have
on the information disclosed in its financial statements.
SOFTWARE REVENUE RECOGNITION. The Accounting Standards Executive
Committee ("ACSEC") of the American Institute of Certified Public
Accountants recently issued Statement of Position ("SOP") 97-2, "Software
Revenue Recognition" providing guidance on applying GAAP in recognizing
revenue from software transactions. The Company believes the
implementation of the new statement will not have a material effect on
the consolidated results of operations of the Company.
INTERNAL USE SOFTWARE. The ACSEC recently issued SOP 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use." The new statement is effective for fiscal periods beginning after
December 15, 1998 and concludes that costs for the development of
internal use software are an asset. Accordingly, certain primary types of
development activities should be capitalized, including coding and
software configuration costs, costs of testing and installing the
software, and when clearly distinguishable from maintenance, the costs of
upgrades and enhancements. The Company currently expenses costs of
internally developed proprietary software as it is incurred. The Company
is currently evaluating the effect that implementation of the new
standard will have on its software development accounting policies and is
unable to determine the effects on the Company's results of operations at
this time.
3. MAJOR CUSTOMER
Boston Financial Data Services, Inc. (Note 7) is the Company's largest customer
representing 12%, 12% and 11% of consolidated revenues for the years ended
December 31, 1995, 1996 and 1997, respectively.
4. ACQUISITIONS AND DISPOSITIONS
CONTINUUM
On August 1, 1996, The Continuum Company, Inc. ("Continuum") merged with
Computer Sciences Corporation ("CSC") in a tax-free share exchange accounted for
as a pooling-of-interests. DST, which prior to the merger owned approximately
23% of Continuum, received in the exchange shares of CSC common stock with a
value of $295 million based upon the closing price of CSC common stock on August
1, 1996. DST recognized a one-time gain after taxes and other expenses of $127.6
million. In connection with the merger, the Company elected to make a one-time
$13.7 million ESOP contribution to provide funding for certain Continuum
employee withdrawals from DST's ESOP. DST's shares of CSC represent an
approximate 6% interest in the combined company. As a result of the merger,
Continuum ceased to be an unconsolidated equity affiliate of DST and under
generally accepted accounting principles, no part of Continuum or CSC earnings
since that time have been recognized by DST. DST recognized equity in losses of
Continuum of $1.1 million and $4.9 million in 1995 and 1996, respectively. The
Company's investment in CSC is accounted for as available-for-sale securities.
Although CSC does not currently pay cash dividends, DST will recognize dividend
income on any cash dividends received from CSC.
In March 1996, Continuum, a then 29% owned unconsolidated affiliate of the
Company, announced the completion of its merger with Hogan Systems, Inc., (the
"Hogan Merger") a provider of software to banks and financial institutions, for
shares of Continuum stock. As a result of this transaction, the Company's common
stock interest in Continuum was reduced from approximately 29% to approximately
23%. The Company recorded in March 1996 its estimated $9.4 million after-tax
share of a non-recurring charge recorded by Continuum in connection with the
Hogan Merger.
In December 1995, Continuum acquired SOCS Groupe SA, a French insurance software
firm. The Company recorded in December 1995 its estimated $7.7 million after-tax
share of a non-recurring charge in connection with this acquisition.
34
OTHER ACQUISITIONS AND DISPOSITIONS
Boston EquiServe, LLP ("Boston EquiServe") is a 50% owned joint venture between
Boston Financial Data Services, Inc. ("BFDS") (a 50% owned joint venture of the
Company and State Street Corporation) and Bank of Boston Corporation. In
February 1998, Boston EquiServe and First Chicago Trust Company of New York
announced an agreement to merge operations which would create the largest
securities transfer agent in the United States, which is to be called EquiServe.
In conjunction with the merger, DST entered into a memorandum of understanding
to complete development of a new securities transfer system ("Fairway") for the
exclusive use of EquiServe to process all of its accounts. The Company has also
agreed to provide data processing services for EquiServe. Upon acceptance of
defined components of Fairway, DST will contribute the software and its
non-EquiServe stock transfer processing business to EquiServe for a direct
ownership interest in EquiServe.
In October 1997, the Company purchased the remaining 20% minority interest in
DBS Systems Corporation. for $13.2 million in cash. The excess of the purchase
price over the net assets acquired of $11.6 million has been assigned a useful
life of 12 years. The Company had previously acquired 60% of DBS for $3.0
million in May 1993 and an additional 20% of DBS for $6.0 million in December
1995. On a pro forma basis, the acquisition did not have a material impact on
the Company's historical results of operations or financial position.
In August 1997, the Company formed DST Catalyst, Inc. by purchasing an 81%
interest in the international information technology subsidiary of the Chicago
Stock Exchange and the consulting practice of Catalyst Institute. DST Catalyst
provides software and services to support automated securities exchange
activities and broker order interfaces primarily outside the U. S. On a pro
forma basis, the acquisition did not have a material impact on the Company's
historical results of operations or financial position.
In July 1997, the Company sold its interest in First of Michigan Capital
Corporation for $9.6 million. The transaction, on an after-tax basis, did not
have a material effect on the Company's financial position or results of
operations.
During 1997, Output Technologies increased its ownership in PSI Technologies
Corporation ("PSI") to 20% for $2.0 million. Output Technologies had previously
acquired a 15% interest in PSI for $2.9 million in 1996. PSI has developed a
Computer Output to Laser Disk (COLD) software product for archiving documents.
In conjunction with the investment, Output Technologies retains the exclusive
right to market a customized product using PSI's COLD software to the mutual
fund industry.
The Company established its output services business in the Canadian market with
the $5.5 million acquisition of Xebec Imaging Services, Inc. which was completed
in January 1996.
In August 1995, the Company sold its joint venture interests in Midland Data
Systems, Inc. ("MDS") and Midland Loan Services L.P. ("MLS") to KCSI for
approximately $5.7 million. The transaction did not result in a material net
gain or loss to the Company. The Company recorded equity in income of MDS and
MLS of $1,053,000 for the year ended December 31, 1995.
In April 1995, the Company purchased substantially all of the assets and
business operations of Supervised Service Company, Inc. ("SSC"), a subsidiary of
Kemper Financial Services, Inc. ("Kemper") and the mutual fund shareowner
servicing system software owned by Kemper Services Company used to service
certain of the Kemper Mutual Funds as well as various third-party mutual funds.
In conjunction with and subject to the SSC transaction, DST also agreed to enter
into long-term contracts with Kemper to provide mutual fund shareowner systems
services and portfolio accounting systems services for the Kemper Mutual Funds.
Total consideration for these asset purchases was approximately $39.4 million
and was financed from the Company's revolving credit facilities. Of the total
consideration, the Company allocated $17.4 million to data processing software
and $22.0 million to intangible assets to be amortized over a seven-year life.
On a pro forma basis, the acquisition did not have a material impact on the
Company's historical results of operations or financial position.
35
In February 1995, the Company's wholly owned subsidiary, DST International
Limited ("DST International"), purchased HiPortfolio Pty Ltd. ("HiPortfolio"),
an Australian provider of portfolio accounting software and services for $16.0
million in cash. The acquisition was financed through borrowings from KCSI. On a
pro forma basis, the acquisition did not have a material impact on the Company's
historical results of operations or financial position.
On January 31, 1995, the Company closed the sale of its 50% interest in
Investors Fiduciary Trust Company ("IFTC") to State Street Corporation ("State
Street"). At closing, DST received shares of State Street common stock with a
then-market value of $98.2 million, in a tax-free exchange. DST recognized a
pre-tax gain on the transaction of $43.6 million and deferred taxes of $35.0
million resulting in a net book gain of $8.6 million. With the closing of the
transaction, IFTC ceased to be an unconsolidated equity affiliate of the Company
and no further equity in earnings of IFTC were recorded by the Company. The
Company records income on dividends received from State Street. The Company's
investment in State Street is accounted for as available-for-sale securities.
5. ACCOUNTS RECEIVABLE AND RELATED PARTY INFORMATION
Accounts receivable information is as follows at December 31, (in thousands):
1995 1996 1997
--------- --------- ----------
Accounts receivable (including related parties) $ 139,616 $ 158,619 $ 176,960
Less allowance for doubtful accounts 3,302 4,525 6,261
--------- --------- ----------
Accounts receivable, net $ 136,314 $ 154,094 $ 170,699
========= ========= ==========
Doubtful account expense $ 2,477 $ 3,314 4,384
========= ========= ==========
The Company has entered into various agreements with related parties to utilize
the Company's data processing facilities and its computer software systems. The
Company believes that the terms of the contracts with related parties are fair
to the Company and are no less favorable to the Company than those obtained from
unaffiliated parties.
Accounts receivable from unconsolidated affiliates aggregated $14,172,000,
$11,850,000 and $9,493,000 at December 31, 1995, 1996 and 1997, respectively.
Accounts receivable from other related parties aggregated $5,009,000, $3,622,000
and $3,137,000 at December 31, 1995, 1996 and 1997, respectively. Revenues
earned by the Company from unconsolidated affiliates aggregated $85,501,000,
$89,588,000 and $90,214,000 in 1995, 1996 and 1997, respectively, including
revenues from Continuum through July 1996. Revenues earned by the Company from
other related parties aggregated $18,443,000, $20,515,000 and $22,390,000 in
1995, 1996 and 1997, respectively.
6. PROPERTIES
Properties and related accumulated depreciation are as follows at December 31,
(in thousands):
1996 1997
---------- ----------
Land $ 13,269 $ 16,884
Buildings 92,482 100,668
Data processing equipment 193,399 217,044
Data processing software 87,261 93,217
Furniture, fixtures and other equipment 121,791 134,823
Leasehold improvements 22,370 23,274
Capitalized leases 6,103 4,701
Construction-in-progress 5,755 8,556
---------- ----------
542,430 599,167
Less accumulated depreciation and amortization 298,441 357,014
---------- ----------
Net properties $ 243,989 $ 242,153
========== ==========
36
Depreciation expense for the years ended December 31, 1995, 1996 and 1997, was
$62,063,000, $70,818,000 and $71,286,000, respectively. Cost includes the net
amount of interest cost associated with significant capital additions.
Capitalized interest was $1,565,000, $1,135,000 and $51,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
7. INVESTMENTS
Investments are as follows at December 31, (in thousands):
1997
OWNERSHIP CARRYING VALUE
PERCENTAGE 1996 1997
---------- -------------- -------------
Computer Sciences Corporation 6% $ 354,466 $ 360,400
State Street Corporation 4% 192,992 347,509
Boston Financial Data Services, Inc. 50% 26,032 32,262
Argus Health Systems, Inc. 50% 6,140 10,649
Euronet Services, Inc. 7% 1,167 9,136
European Financial Data Services Ltd. 50% 4,447 6,196
Other 35,193 54,425
-------------- -------------
$ 620,437 $ 820,577
============== =============
Computer Sciences Corporation ("CSC") is a provider of outsourcing, system
integration, information technology, management consulting and other
professional services to industry and government. The Company's investment in
CSC is a result of the merger of CSC with The Continuum Company, Inc. on August
1, 1996, as described in Note 4. Continuum is an international software systems
and services provider specializing in the development and installation of
advanced computing software for life and property and casualty insurance,
annuities and other financial services products. The aggregate market value of
the Company's investment in CSC's common stock at December 31, 1996 and 1997,
respectively, was $354.5 million and $360.4 million based on the closing price
on the New York Stock Exchange.
State Street Corporation ("State Street") is a leading provider of securities
custody and recordkeeping services to the mutual fund industry. State Street
also provides corporate banking services to New England middle market companies,
as well as specialized lending and international banking services. The aggregate
market value of the Company's investment in State Street's common stock at
December 31, 1996 and 1997 was $193.0 million and $347.5 million, respectively,
based on the closing price on the New York Stock Exchange. The Company received
$1.5 million, $2.2 million and $2.5 million in dividends from State Street in
1995, 1996 and 1997, respectively, which have been recorded in other income.
Boston Financial Data Services, Inc. ("BFDS") is a corporate joint venture of
the Company and State Street Corporation, the parent of State Street Bank and
Trust Company. BFDS performs shareowner accounting services for mutual fund
companies using the Company's proprietary application system for mutual fund
shareowner recordkeeping, TA2000, and retirement plan recordkeeping services
using TRAC2000. BFDS also performs remittance and proxy processing,
teleservicing and class action administration services.
Argus Health Systems, Inc. ("Argus") is a corporate joint venture of the Company
and a privately held life insurance holding company. Argus provides pharmacy
benefit plan processing services to the health care industry. Argus utilizes the
Company's data processing facility for its claims processing services. In
December 1996, the Company received a $9.5 million dividend from Argus, of which
$8.0 million was cash. The dividend was recorded as a reduction of the Company's
investment in Argus.
Euronet Services, Inc. operates an independent, non-bank owned automatic teller
machine network in Hungary and Poland as a service provider to banks and other
financial institutions. Euronet consummated an initial public offering of its
common stock in March 1997. Since that date, the Company's investment in Euronet
has been accounted for as available-for-sale securities in accordance with
Statement of Financial Accounting Standards No. 115. Prior to March 1997, the
Company's investment was carried at cost. The aggregate market value of the
Company's investment in Euronet's common stock at December 31, 1997 was
approximately $9.1 million based on the closing price on the New York Stock
Exchange.
37
European Financial Data Services Limited ("EFDS") is a United Kingdom joint
venture of DST and State Street. EFDS provides full and remote processing for
United Kingdom unit trusts and related products. EFDS is also developing a new
unit trust accounting system for the United Kingdom market.
The Company's retained earnings include equity in the unremitted earnings of its
unconsolidated affiliates of $17,060,000 and $12,233,000 at December 31, 1996
and 1997, respectively.
Equity in earnings (losses) of unconsolidated affiliates, net of income taxes
provided by the unconsolidated affiliates and related goodwill amortization is
as follows for the years ended December 31, (in thousands):
1995 1996 1997
-------- --------- ---------
Boston Financial Data Services, Inc. $ 5,159 $ 5,421 $ 6,226
Argus Health Systems, Inc. 4,144 1,743 4,509
The Continuum Company, Inc.* (1,151) (4,891)
European Financial Data Services Limited (2,705) (5,969) (11,832)
Other 1,005 (332) (248)
-------- --------- ---------
$ 6,452 $ (4,028) $ (1,345)
======== ========= =========
*Through the period ended June 30, 1996.
Certain condensed financial information of the unconsolidated affiliates follows
(in thousands):
For the Year For the Six
Ended Months Ended
December 31, June 30,
1995 1996
------------ ------------
The Continuum Company, Inc.
Revenues $ 388,625 $ 271,037
Costs and expenses 381,672 292,417
Net income (loss) 6,953 (21,380)
Current assets 218,800
Noncurrent assets 136,364
Current liabilities 168,909
Noncurrent liabilities 57,401
Stockholders' equity 128,854
FOR THE YEARS ENDED DECEMBER 31,
1995 1996 1997
------------ ----------- ----------
Boston Financial Data Services, Inc.
Revenues $ 158,452 $ 194,385 $ 224,128
Costs and expenses 148,134 183,543 211,676
Net income 10,318 10,842 12,452
Current assets 55,080 55,598
Noncurrent assets 28,061 35,887
Current liabilities 26,374 22,120
Noncurrent liabilities 4,749 5,109
Stockholders' equity 52,018 64,256
38
FOR THE YEARS ENDED DECEMBER 31,
1995 1996 1997
--------- ---------- ----------
Other Unconsolidated Affiliates (Combined)
Revenues $ 153,832 $ 149,310 $ 112,012
Costs and expenses 147,131 157,470 125,905
Net income (loss) 6,701 (8,160) (13,893)
Current assets 121,247 44,275
Noncurrent assets 113,115 159,583
Current liabilities 86,423 19,424
Noncurrent liabilities 105,422 169,561
Partners' and stockholders' equity 42,517 14,873
8. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include the following items at December 31, (in
thousands):
1996 1997
--------- -----------
Intangibles $ 75,340 $ 91,048
Less accumulated amortization 24,641 32,185
---------- -----------
Net 50,699 58,863
Other assets 5,168 2,487
---------- -----------
Total $ 55,867 $ 61,350
========== ===========
Intangibles exclude goodwill of $1,122,000 and $370,294 at December 31, 1996 and
1997, respectively, related to unconsolidated affiliates which is classified as
part of the investments in the unconsolidated affiliates. Amortization expense,
including amortization related to goodwill recorded in investments, totaled
$10,024,000, $8,983,000 and $8,116,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
9. LONG-TERM DEBT
The Company is obligated under notes and other indebtedness as follows at
December 31, (in thousands):
1996 1997
-------------- --------------
Secured notes payable $ 17,469 $ 11,463
Revolving credit facilities 33,620 57,690
Mortgage notes 36,202 33,985
Other 3,763 2,765
-------------- --------------
91,054 105,903
Less debt due within one year 15,159 13,898
-------------- --------------
Long-term debt $ 75,895 $ 92,005
============== ==============
In December 1996, the Company entered into an amended and restated five-year
revolving credit facility of $105 million (increased to $125 million in February
1997) with a syndicate of U.S. and international banks. Borrowings under the
facility are available at rates based on the Eurodollar, Prime, Base CD, or
Federal Funds rates. A commitment fee of 0.085% per annum is required on the
total amount of the facility. An additional utilization fee of .050% is required
if the principal amount outstanding is greater than 50% of the total facility.
Among other provisions, the agreement limits subsidiary indebtedness and sales
of assets and requires the Company to maintain certain coverage and leverage
ratios. Borrowings of $30.0 million were outstanding at December 31, 1996 and
1997.
The Company also maintains a $50 million line of credit used to finance working
capital requirements of the Company available through May 1998. Borrowings under
the facility are available at rates tied to the Eurodollar or federal funds
rates. A commitment fee of 0.105% per annum is required on the unused portion of
the $50 million line of credit. Borrowings of $3.5 million and $25.0 million
were outstanding at December 31, 1996 and 1997, respectively.
39
The secured notes payable primarily represent notes which are secured by data
processing and production equipment. Equipment notes are generally payable over
24 to 60 month periods with interest rates from 3.9% to 6.5% at December 31,
1997.
The mortgage notes represent real estate borrowings due in installments with the
balance due at the end of the term. Interest rates are based on floating prime
or fixed and range from 8.39% to 10.0% at December 31, 1997.
Future principal payments of indebtedness at December 31, 1997 are as follows
(in thousands):
1998 $ 13,898
1999 6,115
2000 4,327
2001 57,863
2002 3,074
Thereafter 20,626
---------
Total $ 105,903
=========
Based upon the borrowing rates currently available to the Company and its
subsidiaries for indebtedness with similar terms and average maturities, the
fair value of debt was approximately $91.7 million and $109.1 million at
December 31, 1996 and 1997, respectively.
10. INCOME TAXES
The Company and its consolidated U.S. subsidiaries join in filing a consolidated
federal income tax return. Prior to the initial public offering on October 31,
1995, the Company and its consolidated U.S. subsidiaries were included in the
consolidated federal income tax return filed by KCSI and other members of KCSI's
group of consolidated U.S. subsidiaries. For 1995, the Company was included in
the KCSI consolidated federal income tax return from January 1, 1995, through
October 31, 1995. The Company filed a separate consolidated return for the
period from November 1, 1995, to December 31, 1995. While a member of the KCSI
consolidated federal income tax return, the Company computed federal income tax
expense and current federal income taxes payable to KCSI using an intercompany
tax allocation policy. The federal income tax expense using this policy was, in
all material respects, in accordance with the separate return method.
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is generally the result of changes in
the assets or liabilities for deferred taxes.
Prior to 1993, the Company did not provide deferred taxes for unremitted
earnings of certain investees accounted for under the equity method in so much
as those earnings have been and will continue to be reinvested. Beginning in
1993, pursuant to SFAS 109, the Company began providing deferred taxes for
unremitted earnings for U.S. unconsolidated affiliates net of the 80% dividends
received deduction provided under current tax law.
40
The following summarizes pretax income (loss) for the years ended December 31,
(in thousands):
1995 1996 1997
-------------- -------------- --------------
U.S. $ 79,027 $ 281,829 $ 99,977
International (5,196) (8,210) (11,268)
-------------- -------------- --------------
Total $ 73,831 $ 273,619 $ 88,709
============== ============== ==============
Income tax expense consists of the following components for the years ended
December 31, (in thousands):
1995 1996 1997
------------- -------------- --------------
Current
Federal $ 11,149 $ 16,789 $ 27,934
State and local 1,800 2,154 4,268
International 652 469 3,077
-------------- -------------- --------------
Total current 13,601 19,412 35,279
-------------- -------------- --------------
Deferred
Federal 28,304 72,842 (3,437)
State and local 5,316 13,833 (1,416)
International (1,047) (167) (1,248)
-------------- -------------- --------------
Total deferred 32,573 86,508 (6,101)
-------------- -------------- --------------
Total income tax expense $ 46,174 $ 105,920 $ 29,178
============== ============== ==============
Differences between the Company's effective income tax rate and the U.S.
federal income tax statutory rate are as follows for the years ended December
31, (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Income tax expense using the
statutory rate in effect $ 25,841 $ 95,767 $ 31,048
Tax effect of:
State and local income taxes, net 4,626 10,391 1,854
International income taxes, net 374 1,087 1,534
Losses of international unconsolidated affiliates 1,050 2,089
Earnings of U.S. unconsolidated affiliates (2,890) (1,274) (3,104)
Sale of IFTC (Note 4) 16,118
Other 1,055 (2,140) (2,154)
-------------- -------------- --------------
Total income tax expense $ 46,174 $ 105,920 $ 29,178
============== ============== ==============
Effective tax rate 62.5% 38.7% 32.9%
Statutory federal tax rate 35.0% 35.0% 35.0%
</TABLE>
41
The federal and state deferred tax assets (liabilities) recorded on the
Consolidated Balance Sheet at December 31, are as follows (in thousands):
1996 1997
----------- -----------
Liabilities:
Investments in available for sale securities $ (189,784) $ (255,371)
Unconsolidated affiliates and investments (3,208) (2,832)
----------- -----------
Gross deferred tax liabilities (192,992) (258,203)
----------- -----------
Assets:
Book reserves not currently deductible for tax 9,094 10,016
Deferred compensation and other employee benefits 2,948 3,215
International operating loss carryforwards 998 2,180
Vacation accrual 1,366 1,611
Deferred gains 625 255
Depreciation and amortization 1,636 6,037
Other, net 399 657
----------- -----------
Gross deferred tax assets 17,066 23,971
----------- -----------
Deferred tax asset valuation allowance (314) (1,949)
----------- -----------
Net deferred tax liability $ (176,240) $ (236,181)
=========== ===========
The Company had federal operating loss carryforwards from DBS of $1.3 million at
December 31, 1995 which were used to reduce taxable income in 1996.
Additionally, the Company had operating loss carryforwards related to certain
international operations of approximately $2.5 million at December 31, 1996 and
$4.4 million at December 31, 1997. There is no assurance that certain loss
carryforwards will be utilized. Accordingly, the Company has recognized a
valuation allowance for the benefit of certain loss carryforwards of $0.3
million at December 31, 1996 and $1.9 million at December 31, 1997.
11. STOCKHOLDERS' EQUITY
In August 1995, the Company was merged into a Delaware corporation. Upon
completion of the merger, the Company had 125 million shares of $.01 par value
common stock authorized of which 28.5 million shares were issued and outstanding
and held by its sole shareowner, KCSI. In addition, the Company is authorized to
issue 10 million shares of preferred stock, par value $.01 per share. No
preferred shares have been issued.
On October 31, 1995, in conjunction with and immediately prior to the Offerings,
the Company distributed to KCSI a stock dividend of 2,050,000 shares of common
stock. Appropriate share data has been retroactively restated in the
consolidated balance sheet to reflect the effect of the stock dividend and
merger into a Delaware corporation.
On October 31, 1995, the Company and KCSI completed an initial public offering
("the Offerings") of 22 million shares of the Company's common stock at an
offering price of $21 per share. Of the 22 million shares offered, 19,450,000
were sold by the Company and 2,550,000 were sold by KCSI. The Company received
net proceeds of approximately $384.8 million which were used to repay all debt
to KCSI and certain bank term notes. In conjunction with the Offerings, KCSI
exchanged 4,253,508 shares of its DST common stock for 1,820,000 shares of KCSI
stock held by The Employee Stock Ownership Plan. On November 6, 1995,
over-allotment options granted by KCSI to the underwriters totaling 3,300,000
shares of the Company's common stock were exercised in full.
In September 1995, the Company established the Stock Option and Performance
Award Plan which provides for the availability of 6,000,000 shares of the
Company's common stock for the grant of awards to officers, directors and other
designated employees. The awards may take the form of an option, stock
appreciation right, limited right, performance share or unit, dividend
equivalent, or any other right, interest or option relating to shares of common
stock granted under the plan. The option prices must be at least equal to the
fair market value of the underlying shares on the date of grant. Options become
exercisable and expire as determined by the Compensation Committee of the Board
of Directors at or subsequent to the date of grant.
42
A summary of stock option activity is presented in the table below:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------------- ------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 2,281 $21.00 2,262 $21.41
Granted 2,287 $21.00 72 33.95 918 33.66
Exercised (40) 21.00
Canceled (6) 21.00 (91) 21.00 (79) 22.45
============= ============ ============
Outstanding at December 31 2,281 $21.00 2,262 $21.41 3,061 $25.06
============= ============ ============
Exercisable at December 31 887 $21.11 1,261 $21.20
EXERCISE PRICE RANGES: LOW HIGH LOW HIGH LOW HIGH
- ---------------------- ------------- ------------- ------------ ------------- ------------ -------------
for all outstanding options $21.00 $21.00 $21.00 $35.56 $21.00 $38.38
for all exercisable options $21.00 $32.69 $21.00 $35.31
</TABLE>
Had compensation cost been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income would have been reduced to the following pro forma amounts:
1995 1996 1997
-------- --------- ---------
Net income (000's): As reported $ 27,640 $ 167,202 $ 58,997
Pro forma 26,931 162,787 52,024
Basic earnings per share: As reported $ 0.82 $ 3.35 $ 1.20
Pro forma 0.80 3.26 1.06
Diluted earnings per share: As reported $ 0.82 $ 3.32 $ 1.18
Pro forma 0.80 3.23 1.04
The weighted average fair value of options granted was $7.10, $11.64 and $11.78
for 1995, 1996 and 1997, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 1995, 1996 and
1997, respectively: expected option terms of 5.3, 5.0 and 5.0 years, volatility
of 22%, 23% and 24%, dividend yield of 0% and risk-free interest rates of 5.9%,
6.3% and 6.3%. Given the limited trading history of DST's common stock, the
volatility factor was determined by using the average of the volatility,
calculated weekly over the three preceding calendar years, of the stock of three
peer companies.
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. All such purchases are in compliance
with applicable SEC regulations. The Company has purchased 1.0 million shares as
of December 31, 1997 for approximately $32.7 million. The Company had 396,000
and 956,942 shares held in treasury at December 31, 1996 and 1997, respectively.
After considering shares held in treasury, the Company had 49,604,000 and
49,043,058 shares of common stock outstanding at December 31, 1996 and 1997,
respectively.
43
The Company entered into a Stockholder's Right Agreement (the "Rights Plan") in
1995. Each share of the Company's common stock held of record on October 18,
1995, (KCSI was then the sole stockholder) and all shares of common stock issued
in the Offerings received one Right. Each Right entitles their holder (other
than those held by an acquiring person or group) to purchase 1/1000th share of
preferred stock of the Company or in some circumstances, other securities of the
Company. In certain circumstances the Rights entitle their holders (other than
those held by an acquiring person or group) to purchase shares in a surviving
entity or its affiliates resulting from transactions in which the Company is not
the surviving entity or disposes of more than 50% of the Company's assets or
earnings power.
The Rights, which are automatically attached to common stock, are not
exercisable or transferable separately from shares of common stock until ten
days following the earlier of an announcement that a person or group has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of the Company's common stock, or ten days following
the commencement or announcement of an intention to make a tender offer or
exchange offer that would result in an acquiring person or group owning 15% or
more of the outstanding common stock, unless the Board of Directors sets a later
date in either event. KCSI is excluded from the definition of an acquiring
person under the Rights Plan unless there is a change in control of KCSI,
followed by acquisition of additional company common stock.
The Rights Plan is intended to encourage a potential acquiring person or group
to negotiate directly with the Board of Directors, but may have certain
anti-takeover effects. The Rights Plan could significantly dilute the interests
in the Company of an acquiring person or group. The Rights Plan may therefore
have the effect of delaying, deterring or preventing a change in control of the
Company.
On May 8, 1995, the Company paid a cash dividend of $150 million to KCSI, the
proceeds for which were obtained through the Company's long-term revolving
credit agreement.
Net unrealized gains on investments represents the Company's unrealized holding
gains on its investments in available-for-sale securities. At December 31, 1996
and 1997, the Company's unrealized gains were $94,625,000 and $196,994,000,
respectively, which were net of deferred taxes of $60,625,000 and $126,212,000,
respectively.
12. RETIREMENT PLANS
The Company has a qualified profit sharing plan which covers all of its
employees following the completion of an eligibility period. Contributions to
the plan are made at the discretion of the Board of Directors, with the
limitation that the annual contribution may not exceed the maximum allowable
income tax deduction. Profit sharing expense was $129,000, $2,686,000 and
$2,500,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company has a 401(k) plan which covers all of its employees following the
completion of an eligibility period. Contributions to the plan are made at the
discretion of the Board of Directors. No discretionary contributions were made
during 1995, 1996 or 1997.
Prior to the Offerings in 1995, the Company participated in the KCSI ESOP. In
connection with the Offerings, the KCSI ESOP was renamed The Employee Stock
Ownership Plan ("ESOP") and amended to consist of two portions: a KCSI portion
and a Company portion. The account balances in the ESOP attributable to Company
employees became the Company portion of the ESOP. The Company portion initially
was invested in KCSI stock. Approximately one half of the value of the account
balances of Company employees at the time of the IPO were converted into common
stock of the Company through an exchange with KCSI of KCSI stock held by the
ESOP for shares of the Company's common stock. As of January 1, 1998, the
Company formed The DST Systems, Inc. Employee Stock Ownership Plan ("DST ESOP")
and transferred all balances from the Company portion of the ESOP to the DST
ESOP.
For the years ended December 31, 1995, 1996 and 1997, ESOP expense was
$11,021,000, $13,700,000 and $2,000,000, respectively. In 1995, such amounts
represent an allocated portion of the consolidated KCSI ESOP expense. Interest
incurred on ESOP indebtedness was $0.4 million in 1995; this amount includes an
allocated portion of interest expense on ESOP debt guaranteed by KCSI. All ESOP
indebtedness was retired in 1995. The ESOP loan principal payments were
accounted for as employee benefit expense in the year of allocation to
participants; interest payments were recorded as interest expense using an
accrual method.
44
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the years ended December
31, (in thousands):
1995 1996 1997
------- ------- -------
Interest paid during the year $25,307 $ 7,930 $ 6,727
Income taxes paid during the year 15,892 21,098 30,495
In December 1996, the Company received a $9.5 million dividend from Argus, $8.0
million of which was received in cash and $1.5 million of which was received in
the form of a note receivable from a related party.
In connection with the Offerings in 1995, the Company incurred underwriting
commissions of approximately $22.6 million which have been reflected in the net
proceeds from the Offerings.
The Company purchased mainframe computer equipment and other capital additions
in the amount of $30,163,000, $4,754,000 and $5,964,000 in 1995, 1996 and 1997,
respectively, through secured notes payable or vendor financed installment notes
which required no direct outlay of cash.
The Company acquired an additional 20% interest in DBS Systems Corporation in
December 1995 for a $6.0 million note payable which was paid in January 1996.
14. COMMITMENTS AND CONTINGENCIES
The Company leases facilities, data processing and other equipment under various
operating leases. Lease terms generally range from 1 to 25 years not including
options to extend the leases for various lengths of time. Rental expense was
$24,519,000, $30,825,000 and $33,356,000 for the years ended December 31, 1995,
1996 and 1997, respectively. Future minimum rentals for the non-cancelable term
of all operating leases are as follows (in thousands):
1998 $ 19,711
1999 14,497
2000 10,851
2001 5,646
2002 4,953
Thereafter 15,643
---------
Total $ 71,301
=========
Certain leases have clauses that call for the annual rents to be increased
during the term of the lease. Such lease payments are expensed on a
straight-line basis.
The Company leases certain facilities from unconsolidated affiliates and
incurred occupancy expenses of $4,158,000, $4,674,000 and $6,642,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
The Company has also entered into agreements with co-participants in certain
joint venture subsidiaries whereby upon defined circumstances constituting a
change in control of either party to the venture, the other party has the right
to acquire, at a specified price, the entire interest in the joint venture.
The Company has entered into agreements with the minority stockholders of DST
Catalyst whereby the minority stockholder has the option to sell to the Company
shares of DST Catalyst stock. If the provisions of the agreements were
exercised, the Company would be required to purchase the respective minority
interests at fair market value, currently estimated at approximately $1.0
million.
45
The Company has committed to make additional investments approximating $3.0
million related to certain private equity partnerships.
The Company has entered into agreements with certain officers whereby upon
defined circumstances constituting a change in control of the Company, certain
benefit entitlements are automatically funded and such officers are entitled to
specific cash payments upon termination of employment.
The Company has also established trusts to provide for the funding of corporate
commitments and entitlements of Company officers, directors, employees and
others in the event of a change in control of the Company. Assets held in such
trusts at December 31, 1997 were not significant.
The Company and its subsidiaries are involved in various legal proceedings
arising in the normal course of their businesses. While the ultimate outcome of
these legal proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with legal counsel, that the final outcome in
such proceedings, in the aggregate, would not have a material adverse effect on
the consolidated financial condition or results of operations of the Company.
46
15. GEOGRAPHIC INFORMATION
Financial information by geographic region for the Company is presented below
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------
UNITED EUROPE
STATES CANADA & OTHERS TOTAL
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 319,294 $ 7,924 $ 52,969 $ 380,187
Revenues - related parties 103,944 103,944
---------------- ---------------- ---------------- ----------------
Total $ 423,238 $ 7,924 $ 52,969 $ 484,131
================ ================ ================ ================
Income (loss) from operations $ 42,689 $(1,904) $ 36 $ 40,821
Equity in earnings (losses) of unconsolidated
affiliates, net of affiliate taxes 9,822 (3,370) 6,452
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------
UNITED EUROPE
STATES CANADA & OTHERS TOTAL
---------------- ---------------- ---------------- ----------------
Revenues $ 389,964 $21,071 $ 59,670 $ 470,705
Revenues - related parties 106,471 3,632 110,103
---------------- ---------------- ---------------- ----------------
Total $ 496,435 $24,703 $ 59,670 $ 580,808
================ ================ ================ ================
Income (loss) from operations $ 58,635 $ 276 $ (1,938) $ 56,973
Equity in earnings (losses) of unconsolidated
affiliates, net of affiliate taxes 4,106 (1,068) (7,066) (4,028)
Total assets 1,041,155 15,965 64,468 1,121,588
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
UNITED EUROPE
STATES CANADA & OTHERS TOTAL
---------------- ---------------- ---------------- ----------------
Revenues $ 440,865 $22,341 $ 74,868 $ 538,074
Revenues - related parties 108,910 3,568 126 112,604
---------------- ---------------- ---------------- ----------------
Total $ 549,775 $25,909 $ 74,994 $ 650,678
================ ================ ================ ================
Income (loss) from operations $ 91,108 $(4,570) $ 5,702 $ 92,240
Equity in earnings (losses) of unconsolidated
affiliates, net of affiliate taxes 13,036 (1,271) (13,110) (1,345)
Total assets 1,255,147 19,708 80,549 1,355,404
</TABLE>
47
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data follows (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER 1996
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 144,262 $ 143,216 $ 139,569 $ 153,761 $ 580,808
Cost and expenses 106,389 106,565 104,343 114,266 431,563
Depreciation and amortization 18,688 19,192 19,804 20,888 78,572
Other expenses 13,700 (2) 13,700
------------ ------------- ------------- ------------- ------------
Income from operations 19,185 17,459 1,722 18,607 56,973
Interest expense (2,102) (1,653) (1,356) (1,829) (6,940)
Other income, net 931 981 912 1,352 4,176
Gain on sales of equity investment 223,438 (2) 223,438
Equity in earnings (losses) of unconsolidated
affiliates, net of taxes (7,641) (1) 3,140 (45) 518 (4,028)
------------ ------------- ------------- ------------- ------------
Income before income taxes and minority interests 10,373 19,927 224,671 18,648 273,619
Income taxes 5,963 7,549 85,897 6,511 105,920
------------ ------------- ------------- ------------- ------------
Income before minority interests 4,410 12,378 138,774 12,137 167,699
Minority interests (7) 51 144 309 497
------------ ------------- ------------- ------------- ------------
Net income $ 4,417 $ 12,327 $ 138,630 $ 11,828 $ 167,202
============ ============= ============= ============= ============
Basic average shares outstanding 50,000 49,965 49,841 49,679 49,871
Basic earnings per share $ 0.09 $ 0.25 $ 2.78 $ 0.24 $ 3.35(3)
Diluted average shares outstanding 50,465 50,496 50,238 50,142 50,335
Diluted earnings per share $ 0.09 $ 0.24 $ 2.76 $ 0.24 $ 3.32(3)
Common stock price ranges - High $ 34.88 $ 37.75 $ 32.75 $ 34.38 $ 37.75
- Low $ 27.38 $ 29.50 $ 25.63 $ 29.00 $ 25.63
</TABLE>
(1) Includes one-time Continuum charge from Hogan Merger (Note 4)
(2) Gain on CSC / Continuum Merger and related charges (Note 4)
(3) The accumulation of 1996's quarterly earnings per share is greater than the
earnings per share for the year ended December 31, 1996 due to repurchases
of Company common stock throughout the year.
48
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER 1997
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 158,684 $ 155,394 $ 159,863 $ 176,737 $ 650,678
Cost and expenses 115,354 114,983 118,811 129,955 479,103
Depreciation and amortization 19,629 19,468 19,453 20,785 79,335
------------- ------------- -------------- -------------- --------------
Income from operations 23,701 20,943 21,599 25,997 92,240
Interest expense (2,163) (1,884) (1,960) (1,663) (7,670)
Other income, net 979 1,019 989 1,033 4,020
Gain on sale of equity investment 212 1,252 1,464
Equity in earnings (losses) of unconsolidated
affiliates, net of taxes 1,044 820 (507) (2,702) (1,345)
------------- ------------- -------------- -------------- --------------
Income before income taxes and minority interests 23,561 21,110 21,373 22,665 88,709
Income taxes 8,302 7,064 7,097 6,715 29,178
------------- ------------- -------------- -------------- --------------
Income before minority interests 15,259 14,046 14,276 15,950 59,531
Minority interests 156 229 222 (73) 534
------------- ------------- -------------- -------------- --------------
Net income $ 15,103 $ 13,817 $ 14,054 $ 16,023 $ 58,997
============= ============= ============== ============== ==============
Basic average shares outstanding 49,529 49,374 49,236 49,099 49,308
Basic earnings per share $ 0.30 $ 0.28 $ 0.29 $ 0.33 $ 1.20
Diluted average shares outstanding 50,021 49,762 49,804 49,770 49,838
Diluted earnings per share $ 0.30 $ 0.28 $ 0.28 $ 0.32 $ 1.18
Common stock price ranges - High $ 35.63 $ 33.31 $ 37.81 $ 44.56 $ 44.56
- Low $ 28.50 $ 24.25 $ 32.19 $ 34.56 $ 24.25
</TABLE>
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company has incorporated by reference certain information in response or
partial response to the Items under this Part III of this Annual Report on Form
10-K/A pursuant to General Instruction G(3) of this Form 10-K/A and Rule 12b-23
under the Exchange Act. The Company's definitive proxy statement in connection
with its annual meeting of stockholders scheduled for May 12, 1998 (the
"Definitive Proxy Statement") will be filed with the Securities and Exchange
Commission no later than 120 days after December 31, 1997.
(a) DIRECTORS OF THE COMPANY
The information set forth in response to Item 401 of Regulation S-K under the
heading "Proposal - Election of Two Directors" and "The Board of Directors" in
the Company's Definitive Proxy Statement is hereby incorporated herein by
reference in partial response to this Item 10.
(b) EXECUTIVE OFFICERS OF THE COMPANY
The information set forth in response to Item 401 of Regulation S-K under the
heading "Executive Officers of the Company" in Part I of this Form 10-K/A is
incorporated herein by reference in partial response to this Item 10. The
information set forth in response to Item 405 of Regulation S-K under the
heading "Other Matters-Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's Definitive Proxy Statement is hereby incorporated herein by
reference in partial response to this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in response to Item 402 of Regulation S-K under "The
Board of Directors - Compensation of Directors" and under "Executive
Compensation" in the Company's Definitive Proxy Statement (other than The
Compensation Committee Report on Executive Compensation and the Stock
Performance Graph) is hereby incorporated herein by reference in response to
this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in response to Item 403 of Regulation S-K under the
heading "Principal Stockholders and Stockholdings of Management" in the
Company's Definitive Proxy Statement is hereby incorporated herein by reference
in response to this Item 12.
The Company has no knowledge of any arrangement the operation of which may at a
subsequent date result in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in response to Item 404 of Regulation S-K under the
heading "Compensation Committee Interlocks and Insider Participation" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 13.
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report
(1) Consolidated Financial Statements
The consolidated financial statements and related notes, together with the
report of Price Waterhouse LLP dated February 26, 1998 appear in Part II Item 8
Financial Statements and Supplementary Data of this Form 10-K/A.
(2) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not applicable, insignificant
or the required information is shown in the consolidated financial statements or
notes thereto.
(3) List of Exhibits
(a) Exhibits
The Company has incorporated by reference herein certain exhibits as specified
below pursuant to Rule 12b-32 under the Exchange Act.
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
3. Articles of Incorporation and by-laws
3.1 The Company's Amended Delaware Certificate of Incorporation, as
restated, which is attached as exhibit 3.1 to the Company's
Registration Statement dated September 1, 1995, as amended
August 31, 1995 (Commission file no. 33-96526) (the
"Registration Statement"), is hereby incorporated by reference
as Exhibit 3.1.
3.2 The Company's Amended and Restated By-laws as adopted August 28,
1995, which are attached as Exhibit 3.2 to the Company's
Registration Statement, are hereby incorporated by reference as
Exhibit 3.2.
4. Instruments defining the rights of security holders, including
indentures
4.1 The Registration Rights Agreement dated October 24, 1995,
between the Company and Kansas City Southern Industries, Inc.
("KCSI"), which is attached as Exhibit 4.1 to the Company's
Registration Statement, is hereby incorporated by reference as
Exhibit 4.1.
4.2 The Certificate of Designations dated October 16, 1995,
establishing the Series A Preferred Stock of the Company, which
is attached as Exhibit 4.3 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 4.2.
4.3 The Summary of the preferred stock purchase rights set forth in
Form 8-A dated November 15, 1995 (Commission file no. 1-14036),
and the related Rights Agreement dated as of October 6, 1995,
between the Company and State Street Bank and Trust Company, as
rights agent, which is attached as exhibit 4.4 to the Company's
Registration Statement, are hereby incorporated by reference as
Exhibit 4.3.
51
4.4 The Registration Rights Agreement dated October 31, 1995,
between the Company and UMB Bank, N.A. as trustee of The
Employee Stock Ownership Plan of DST Systems, Inc. ("UMB") which
is attached as Exhibit 4.4 to the Company's Annual Report for
the year ended December 31, 1995(Commission file no. 1-14036),
is hereby incorporated by reference as Exhibit 4.4.
4.5 The Stock Exchange Agreement dated October 26, 1995, between
KCSI and UMB, which is attached as Exhibit 4.6 to the Company's
Registration Statement, is hereby incorporated by reference as
Exhibit 4.5.
4.6 The description of the Company's common stock, par value $0.01
per share, set forth under the headings "Description of Capital
Stock" and "Dividend Policy" in the Company's Registration
Statement of the common stock on Form 8-A declared effective
October 31, 1995 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 4.6.
4.7 Paragraphs fourth, fifth, sixth, seventh, tenth, eleventh, and
twelfth of Exhibit 3.1 are hereby incorporated by reference as
Exhibit 4.7.
4.8 Article I, Sections 1, 2, 3, and 11 of Article II, Article V,
Article VIII, Article IX of Exhibit 3.2 are hereby
incorporated by reference as Exhibit 4.8.
The Company agrees to furnish to the Commission a copy of any long-term debt
agreements that do not exceed 10 percent of the total assets of the Company upon
request.
9. VOTING TRUST AGREEMENT
Not applicable.
10. MATERIAL CONTRACTS
10.1 The Registration Rights Agreement incorporated by reference as
Exhibit 4.1 hereto, is also hereby incorporated by reference as
Exhibit 10.1.
10.2 The Company's Executive Plan effective as of October 31, 1995,
attached as Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (Commission file no.
1-14036), is hereby incorporated by reference as Exhibit 10.2
10.3 The Company's 1995 Stock Option and Performance Award Plan,
effective September 1, 1995, which is attached as Exhibit 10.3
to the Company's registration statement on Form S- 1 dated
September 1, 1995 (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.3.
10.3.1 The First Amendment to the 1995 Stock Option and Performance
Award Plan approved May 13, 1997, attached as Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (Commission file no. 1-14036).
10.4 The Tax Disaffiliation Agreement between the Company and KCSI
dated October 23, 1995, which is attached as Exhibit 10.4 to the
Company's Registration Statement, is hereby incorporated by
reference as Exhibit 10.4.
10.5 The Stock Purchase, Sale of Assets, Assignment and Assumption
Agreement dated August 30, 1995, among the Company, DST Realty,
Inc., Tolmak, Inc., Mulberry Western Company and KCSI, which is
attached as Exhibit 10.5 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.5.
52
10.6 The Employee Stock Ownership Plan and Trust Agreement of DST
Systems, Inc. dated January 1, 1998 is attached as Exhibit 10.6
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (Commission file no. 1-14036).
10.7 The 1996 Restatement of the Company's Profit Sharing Plan and
Trust Agreement dated December 31, 1996 (the "1996 Profit
Sharing Plan"), is attached as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997
(Commission file no. 1-14036).
10.7.1 The First Amendment dated February 27, 1998, to the 1996 Profit
Sharing Plan is attached as Exhibit 10.7.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997
(Commission file no. 1-14036).
10.8 The Employment Agreement among the Company, KCSI and Thomas A.
McDonnell, Amended and Restated as of March 18, 1993 and October
9, 1995, which is attached as Exhibit 10.8 to the Company's
Registration Statement, is hereby incorporated by reference as
Exhibit 10.8.
10.8.1 The Employment Agreement between the Company and Thomas A.
McDonnell dated October 9, 1995, which is attached as Exhibit
10.8.1 to the Company's Registration Statement, is hereby
incorporated by reference as Exhibit 10.8.1.
10.9 The Employment Agreement between the Company, KCSI and Thomas A.
McCullough dated April 1, 1992, as amended October 9, 1995,
which is attached as Exhibit 10.9 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.9.
10.10 The Employment Agreement between the Company, KCSI and James P.
Horan dated April 1, 1992, as amended October 9, 1995, which is
attached as Exhibit 10.10 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.10.
10.11 The Employment Agreement between the Company, KCSI and Robert C.
Canfield, dated April 1, 1992, as amended October 9, 1995, which
is attached as Exhibit 10.11 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.11.
10.12 The Employment Agreement between the Company, KCSI and Charles
W. Schellhorn, dated April 1, 1992, as amended October 9, 1995,
which is attached as Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission file no. 1-14036), is hereby incorporated by
reference as Exhibit 10.12.
10.13 The Company's 1994 Restatement of its 401(k) Plan and Trust
Agreement dated September 12, 1994 (the "1994 401(K) Plan"),
which is attached as Exhibit 10.13 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.13.
10.13.1The First Amendment dated June 1, 1995, to the Company's 1994
401(k) Plan, which is attached as Exhibit 10.13.1 to the
Company's Registration Statement, is hereby incorporated by
reference as Exhibit 10.13.1.
10.13.2The Second Amendment dated October 31, 1995, to the Company's
1994 401(k) Plan is attached as Exhibit 10.13.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995
(Commission file no. 1-14036), is hereby incorporated by
reference as Exhibit 10.13.2.
53
10.13.3The Third Amendment dated March 21, 1996, to the Company's 1994
401(k) Plan is attached as Exhibit 10.13.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997
(Commission file no. 1-14036).
10.13.4The Fourth Amendment dated February 9, 1998, to the Company's
1994 401(k) Plan is attached as Exhibit 10.13.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997
(Commission file no. 1-14036).
10.14 The Agreement between State Street Boston Financial Corporation
and Data-Sys-Tance dated June 1, 1974 (the "State Street
Agreement"), which is attached as Exhibit 10.14 to the Company's
Registration Statement, is hereby incorporated by reference as
Exhibit 10.14.
10.14.1The Amendment to the State Street Agreement between the Company
and State Street, dated October 1, 1987, which is attached as
Exhibit 10.14.1 to the Company's Registration Statement, is
hereby incorporated by reference as Exhibit 10.14.1.
10.15 The Data Processing Services Agreement between The Company and
The Continuum Company, Inc. dated October 1, 1993, which is
attached as Exhibit 10.15 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.15.
10.16 The Agreement among the Company, Financial Holding Corporation,
KCSI and Argus Health Systems, Inc. dated June 30, 1989, which
is attached as Exhibit 10.16 to the Company's Registration
Statement, is hereby incorporated by reference as Exhibit 10.16.
10.16.1The Stock Transfer Restriction and Option Agreement between the
Company, Argus Health Systems, Inc. and Financial Holding
Corporation dated June 30, 1989, which is attached as Exhibit
10.16.1 to the Company's Registration Statement, is hereby
incorporated by reference as Exhibit 10.16.1.
10.17 The Five-Year Competitive Advance and Revolving Credit Facility
Agreement among the Company, the lenders named therein, The
Chase Manhattan Bank, N.A. as Documentation, Syndication, and
Administrative Agent dated December 30, 1996, which is attached
as Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (Commission file no.
1-14036), is hereby incorporated by reference as Exhibit 10.17.
10.18 The Master Lease Agreement between the Company and Irkan Corp.
dated December 30, 1987 for property at 1004 Baltimore in Kansas
City, Missouri which is attached as Exhibit 10.18 to the
Company's Registration Statement, is hereby incorporated by
reference as Exhibit 10.18.
10.18.1The Master Lease Agreement between the Company and Irkan Corp.
dated December 30, 1987, for property at 127 West Tenth Street
in Kansas City, Missouri which is attached as Exhibit 10.18.1 to
the Company's Registration Statement, is hereby incorporated by
reference as Exhibit 10.18.1.
10.18.2The Lease Agreement dated February 24, 1988, between the
Company and Broadway Square Partners for property at 1055
Broadway in Kansas City, Missouri, which is attached as Exhibit
10.18.2 to the Company's Registration Statement, is hereby
incorporated by reference as Exhibit 10.18.2.
10.19 The Company's Directors' Deferred Fee Plan effective September
1, 1995, which is attached as Exhibit 10.19 to the Company's
Registration Statement, is hereby incorporated by reference as
Exhibit 10.19.
54
10.20 The Trust Agreement between the Company as settlor and United
Missouri Bank of Kansas City, N.A. as Trustee dated December 31,
1987, which is attached as Exhibit 10.20 to the Company's
Registration Statement, is hereby incorporated by reference as
Exhibit 10.20.
10.20.1Trust Agreement by and between the Company as settlor and
United Missouri Bank of Kansas City, N.A., Trustee dated June
30, 1989, for the benefit of James Horan, which is attached as
Exhibit 10.20.1 to the Company's Registration Statement, is
hereby incorporated by reference as Exhibit 10.20.1.
10.21 DST Systems, Inc. Master Trust agreement dated December 31, 1997
is attached as Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (Commission file
no. 1-14036).
11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Not applicable.
12. STATEMENTS RE COMPUTATION OF RATIOS
Not applicable.
13. ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR QUARTERLY REPORT TO SECURITY
HOLDERS
Not applicable.
16. LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
Not applicable.
18. LETTER RE CHANGE IN ACCOUNTING PRINCIPLES
Not applicable.
21. SUBSIDIARIES OF THE COMPANY
The list of the Company's significant subsidiaries, which is attached
as Exhibit 21.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, (Commission file no. 1-14036).
22. PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS
Not applicable.
23. CONSENTS OF EXPERTS AND COUNSEL
The consent dated March 16, 1998 of Price Waterhouse LLP to the
incorporation by reference of their report included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
(Commission file no. 1-14036) is attached as Exhibit 23.1.
The consent dated March 25, 1998 of Price Waterhouse LLP to the
incorporation by reference of their report included in this Annual
Report on Form 10-K/A is attached as Exhibit 23.2.
24. POWER OF ATTORNEY
Not applicable.
55
27. FINANCIAL DATA SCHEDULE
A Financial Data Schedule prepared in accordance with Item 601 (c) of
Regulation S-K is attached hereto as Exhibit 27.1.
99. ADDITIONAL EXHIBITS
Not applicable.
(B) REPORTS ON FORM 8-K DURING THE LAST CALENDAR QUARTER
The Company filed a Form 8-K dated October 16, 1997, under Item 5 of
such form, reporting the announcement of financial results for the
quarter ended September 30, 1997.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
- ---------------------------------------
KENNETH V. HAGER
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Dated: March 25, 1998
DST SYSTEMS, INC.,
1997 FORM 10-K ANNUAL REPORT
INDEX TO EXHIBITS
The following Exhibits are attached hereto.* See Part IV of this Annual Report
on Form 10-K for a complete list of exhibits.
EXHIBIT
NUMBER DOCUMENT
10.3.1 First Amendment to the 1995 Stock Option and Performance Award Plan
10.6 The Employee Stock Ownership Plan and Trust Agreement of DST Systems,Inc
10.7 DST Systems, Inc. Profit Sharing and Trust Agreement (1996 Restatement)
10.7.1 First Amendment to the 1996 Restatement of the Profit Sharing Plan
10.13.3 Third Amendment to the Company's 1994 401(k) Plan
10.13.4 Fourth Amendment to the Company's 1994 401(k) Plan
10.21 DST Systems, Inc. Master Trust
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
*The above exhibits are not included in this Form 10-K, but are
on file with the Securities and Exchange Commission
- --------------------------------------------------------------------------------
58
DST SYSTEMS, INC.,
1997 FORM 10-K/A ANNUAL REPORT
INDEX TO EXHIBITS
The following Exhibits are attached hereto.* See Part IV of this Annual Report
on Form 10-K for a complete list of exhibits.
EXHIBIT
NUMBER DOCUMENT
23.2 Consent of Independent Accountants
- --------------------------------------------------------------------------------
*The above exhibits are not included in this Form 10-K, but are
on file with the Securities and Exchange Commission
- --------------------------------------------------------------------------------
1
FIRST AMENDMENT
TO THE
DST SYSTEMS, INC.
1995 STOCK OPTION AND PERFORMANCE AWARD PLAN
The DST Systems, Inc. 1995 Stock Option And Performance Award Plan (the
"Plan") as adopted September 1, 1995, is hereby amended as set forth herein,
effective upon approval of this amendment by the stockholders of the Company at
the Stockholders Meeting.
I.
Section 2(b) is amended to read as follows:
(b) "Award" means any Option, Stock Appreciation Right, Limited
Right, Performance Share, Performance Unit, Restricted Stock,
Shares, Dividend Equivalent or any other right, interest or
option relating to Shares granted pursuant to the provisions
of the Plan.
II.
Section 2(v) is amended to read as follows:
(v) "Performance Unit" means any grant pursuant to Section 8
hereof of (i) a bonus consisting of cash or other property the
amount or value of which, and/or the entitlement to which, is
conditioned upon the attainment of any performance goals
specified by the Committee, or (ii) a unit valued by reference
to a designated amount of property other than Shares.
III.
Section 2 is amended to add the following new Subsections (ac) and (ad) to
the end thereof:
(ac) "Restricted Stock" means any Share issued with the restriction
that the holder may not sell, transfer, pledge, or assign such
Share and with such other restrictions as the Committee, in its
sole discretion, may impose (including, without limitation, any
restriction on the right to vote such Share, and the right to
receive any cash dividends), which restrictions may lapse
separately or in combination upon such conditions and at such
time or times, in installments or otherwise, as the Committee
may deem appropriate, and which restriction shall provide that
the Shares subject to such restriction shall be forfeited if the
restriction does not lapse prior to such date or such event as
the Committee may deem appropriate.
(ad) "Restricted Stock Award" means an award of Restricted Stock under
Section 8A hereof.
IV.
Section 5 is amended to read as follows:
Section 5. Eligibility.
Any Employee shall be eligible to be selected as a
Participant. Notwithstanding any other provision of the Plan
to the contrary, no Participant may be granted an Option,
Limited Right, Stock Appreciation Right, Performance Shares,
Shares or Restricted Stock with respect to a number of Shares
in any one (1) calendar year which, when added to the Shares
subject to any other Option, Limited Right, Stock Appreciation
Right, Performance Shares, Shares or Restricted Stock granted
to such Participant in the same calendar year shall exceed
Four Hundred Thousand (400,000) Shares. If an Option, Limited
Right, Stock Appreciation Right, or Performance Share is
cancelled, the cancelled Option, Limited Right, Stock
Appreciation Right or Performance Share continues to count
against the maximum number of Shares for which an Option,
Limited Right, Stock Appreciation Right or Performance Share
may be granted to a Participant in any calendar year. All
Shares specified in this Section 5 shall be adjusted to the
extent necessary to reflect adjustments to Shares required by
Section 4(c) hereof. No Participant may be granted Performance
Units in any one (1) calendar year which when added to all
other Performance Units granted to such Participant in the
same calendar year shall exceed 300% of the Participant's
annual base salary as of the first day of such calendar year
(or, if later, as of the date on which the Participant becomes
an Employee); provided, however, that no more than $1,000,000
of annual base salary may be taken into account for purposes
of determining the maximum amount of Performance Units which
may be granted in any calendar year to any Participant.
V.
Section 6(c) is amended to read as follows:
(c) Exercisability. Options shall be exercisable at such time or
times and subject to such exercise acceleration conditions (if
any) as determined by the Committee at or subsequent to the
grant, except as otherwise provided in Section 10(a).
VI.
Section 6(d) is amended to read as follows:
(d) Method of Exercise. Subject to the other provisions of the
Plan and any applicable Award Agreement, any Option may be
exercised by the Participant in whole or in part at such
time or times, and the Participant may make payment of
the option price in such form or forms as the Committee
shall determine, including, without limitation, payment by
delivery of cash, Shares, Restricted Stock, or other
consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the exercise
date equal to the total option price, or by any combination of
cash, Shares, Restricted Stock and other consideration as the
Committee may specify in the applicable Award Agreement;
provided, however, that if Restricted Stock is surrendered to
pay the option price, an equal number of shares issued as a
result of the option exercise shall be subject to the same
restrictions.
VII.
A new subsection 6(g) is added to read as follows:
(g) Reload Options. If and to the extent the Committee expressly
provides, at the time of grant or later, that the Participant
shall have the right to receive reload options with respect to
Non-Qualified Stock Options, the Participant shall receive
reload options in accordance with and subject to the following
terms and conditions:
(i) Grant of the Reload Option; Number of Shares; Price.
Subject to paragraph (ii) of this Subsection and,
except as provided in paragraph (viii) hereof, to the
availability of Shares to be optioned to the
Participant under the Plan (including the limitations
set forth in Section 5), if a Participant has an
Option (the "original option") with reload rights and
pays for the exercise of the original option by
surrendering Shares or Restricted Stock (whether by
means of delivering Shares or Restricted Stock
previously held by the optionee or by delivering
Shares or Restricted Stock simultaneously acquired on
exercise of the original option), the Participant
shall receive a new Option ("reload option") for the
number of Shares or Restricted Shares so surrendered
at an option price per Share equal to the Fair Market
Value of a Share on the date of the exercise of the
original option.
(ii) Conditions to Grant of Reload Option. A reload option
will not be granted: (A) if the Fair Market Value of
a Share on the date of exercise of the original
option is less than the exercise price of the
original option; or (B) if the Participant is no
longer an Employee of the Company or an Affiliate.
(iii) Term of Reload Option. The reload option shall expire
on the same date as the original option, or at such
later date as the Committee may provide.
(iv) Type of Option. The reload option shall be a Non-
Qualified Stock Option.
(v) Additional Reload Options. Except as expressly
provided by the Committee (at the time of the grant
of the original option or reload option or later),
reload options shall not include any right to
subsequent reload options.
(vi) Date of Grant, Vesting. The date of grant of the
reload option shall be the date of the exercise of
the original option. The reload options shall be
exercisable in full beginning from date of grant,
except as otherwise provided by the Committee.
(vii) Stock Withholding; Grants of Reload Options. If and
to the extent permitted by the Committee, if the
other requirements of this Subsection are satisfied,
and if Shares are withheld or Shares surrendered for
tax withholding pursuant to Section 13(g), a reload
option will be granted for the number of Shares
surrendered as payment for the exercise of the
original option plus the number of Shares surrendered
or withheld to satisfy tax withholding.
(viii) Share Limits. Reload options shall not be counted
against or as a reduction from the number of shares
available for grant under Section 4 hereof because
such grants are a substitute for Shares transferred
to or withheld by the Company.
(ix) Other Terms and Conditions. In connection with reload
options for officers who are subject to Section 16 of
the Exchange Act, the Committee may at any time
impose any limitations which, in the Committee's sole
discretion, are necessary or desirable in order to
comply with Section 16(b) of the Exchange Act and the
rules and regulations thereunder, or in order to
obtain any exemption therefrom. Except as otherwise
provided in this Subsection, all the provisions of
the Plan shall apply to reload options.
VIII.
Section 8 is amended to read as follows:
Section 8. Performance Awards.
Performance Awards may be issued hereunder to
Participants in the form of Performance Shares or Performance
Units, for no cash consideration or for such minimal cash
consideration as may be required by applicable law, either
alone or in addition to other Awards granted under the Plan.
The value represented by a Performance Share or Unit shall be
payable to, or upon the exercise by, the Participant holding
such Award, in whole or in part, following achievement of such
performance goals during such Performance Period as determined
by the Committee. Except as provided in Section 10,
Performance Awards will be paid only after the end of the
relevant Performance Period. Performance Awards may be paid in
cash, Shares, Restricted Stock, Options, other property or any
combination thereof, in the sole discretion of the Committee
at the time of payment. The length of the Performance Period,
the performance criteria or levels to be achieved for each
Performance Period, and the amount of the Award to be
distributed shall be conclusively determined by the Committee.
Performance Awards may be paid in a lump sum or in
installments following the close of the Performance Period or,
in accordance with procedures established by the Committee, on
a deferred basis. Notwithstanding the foregoing, an Award
Agreement may condition the vesting or exercise of a
Performance Award on any combination of the achievement of one
or more performance goals and/or the completion of a specified
period of service as the Committee shall determine at the time
of grant. To the extent determined by the Committee, when
making Performance Awards the Committee shall adopt
performance goals, certify completion of such goals and comply
with any other Code requirements necessary to be in compliance
with the performance-based compensation requirements of Code
Section 162(m). Performance goals for Performance Awards may
be based, in whole or in part, on one or more of the following
performance-based criteria or such other criteria as the
Committee may determine: (i) attainment during the Performance
Period of a specified price per share of the Company's common
stock; (ii) attainment during the Performance Period of a
specified rate of growth or increase in the amount of growth
in the price per share of the Company's common stock; (iii)
attainment during the Performance Period of a specified level
of the Company's earnings or earnings per share of the
Company's common stock; (iv) attainment during the Performance
Period of a specified rate of growth or increase in the amount
of growth of the Company's earnings or earnings per share of
the Company's common stock; (v) attainment during the
Performance Period of a specified level of the Company's cash
flow or cash flow per share of the Company's common stock;
(vi) attainment during the Performance Period of a specific
rate of growth or increase in the amount of growth of the
Company's cash flow or cash flow per share of the Company's
common stock; (vii) attainment during the Performance Period
of a specified level of the Company's return on equity; (viii)
attainment during the Performance Period of a specific rate of
growth or increase in the amount of growth of the Company's
return on equity; (ix) attainment during the Performance
Period of a specified level of the Company's return on assets;
or (x) attainment during the Performance Period of a specific
rate of growth or increase in the amount of growth of the
Company's return on assets.
IX.
A new Section 8A is added immediately after Section 8 to read as
follows:
Section 8A. Restricted Stock.
(a) Issuance. Restricted Stock Awards may be issued
hereunder to Participants, for no cash consideration
or for such minimum consideration as may be
required by applicable law, either alone or in
addition to other Awards granted under the Plan.
The provisions of Restricted Stock Awards need
not be the same with respect to each recipient.
The granting of Restricted Stock shall take place
on the date the Committee decides to grant the
Restricted Stock, or if the Restricted Stock
Award provides that the grant of Restricted Stock is
conditioned upon the achievement of performance
goals specified in the Restricted Stock Award, on a
date established by the Committee following the
achievement of such performance goals.
(b) Registration. Any Restricted Stock issued
hereunder may be evidenced in such manner as the
Committee in its sole discretion shall deem
appropriate, including, without limitation, book-
entry registration or issuance of a stock
certificate or certificates. In the event any stock
certificate is issued in respect of shares of
Restricted Stock awarded under the Plan, such
certificate shall be registered in the name of the
Participant, shall bear an appropriate legend
referring to the terms, conditions, and restrictions
applicable to such Award, and shall be held in escrow
by the Company.
(c) Forfeiture. A Restricted Stock Award may condition
the grant of Restricted Stock and/or the lapse of any
restriction or restrictions on Restricted Stock on
any combination of the achievement of one or more
performance goals and/or the completion of a
specified period of service as the Committee shall
determine at the time the Restricted Stock Award is
made. To the extent determined by the Committee, when
making Restricted Stock Awards the Committee shall
adopt performance goals, certify completion of such
goals and comply with any other Code requirements
necessary to be in compliance with the performance-
based compensation requirements of Code Section
162(m). Performance goals for Restricted Stock Awards
may be based, in whole or in part, on one or more of
the following performance-based criteria or such
other criteria as the Committee may determine:
(i) attainment during the Performance Period of a
specified price per share of the Company's common
stock; (ii) attainment during the Performance Period
of a specified rate of growth or increase in the
amount of growth in the price per share of the
Company's common stock; (iii) attainment during the
Performance Period of a specified level of the
Company's earnings or earnings per share of the
Company's common stock; (iv) attainment during the
Performance Period of a specified rate of growth or
increase in the amount of growth of the Company's
earnings or earnings per share of the Company's
common stock; (v) attainment during the Performance
Period of a specified level of the Company's cash
flow or cash flow per share of the Company's common
stock; (vi) attainment during the Performance Period
of a specific rate of growth or increase in the
amount of growth of the Company's cash flow or cash
flow per share of the Company's common stock;
(vii) attainment during the Performance Period of a
specified level of the Company's return on equity;
(viii) attainment during the Performance Period of a
specific rate of growth or increase in the amount of
growth of the Company's return on equity;
(ix) attainment during the Performance Period of a
specified level of the Company's return on assets; or
(x) attainment during the Performance Period of a
specific rate of growth or increase in the amount of
growth of the Company's return on assets.
As soon as practicable following the lapse
of the restrictions on Restricted Stock, unrestricted
Shares, evidenced in such manner as the Committee
shall deem appropriate, shall be issued to the
grantee.
Except as otherwise determined by the
Committee at the time of grant, upon termination of
employment for any reason before the restriction
lapses, all shares of Restricted Stock still subject
to restriction shall be forfeited by the Participant
(who shall sign any document and take any other
action required to assign such shares back to the
Company) and reacquired by the Company.
X.
Except as otherwise expressly set forth herein, the Plan shall remain in full
force and effect.
THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
OF DST SYSTEMS, INC.
THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
OF DST SYSTEMS, INC.
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS...................................... 2
1.01 "Plan"........................................... 2
1.02 "DST"............................................ 2
1.03 "Employer"....................................... 2
1.04 "Trustee"........................................ 2
1.05 "Plan Administrator"............................. 2
1.06 "Advisory Committee"............................. 2
1.07 "Employee"....................................... 2
1.08 "Highly Compensated Employee..................... 3
1.09 "Participant".................................... 4
1.10 "Beneficiary".................................... 4
1.11 "Compensation"................................... 4
1.12 "Account"........................................ 6
1.13 "Accrued Benefit"................................ 6
1.14 "Nonforfeitable"................................. 6
1.15 "Plan Year"...................................... 6
1.16 "Effective Date"................................. 6
1.17 "Plan Entry Date"................................ 6
1.18 "Accounting Date"................................ 6
1.19 "Trust".......................................... 6
1.20 "Trust Fund"..................................... 6
1.21 "Nontransferable Annuity"........................ 6
1.22 "ERISA".......................................... 7
1.23 "Code"........................................... 7
1.24 "Service"........................................ 7
1.25 "Hour of Service"................................ 7
1.26 "Disability"..................................... 8
1.27 Service for Predecessor Employer................. 9
1.28 Related Employers................................ 9
1.29 Leased Employees.................................. 10
1.30 Determination of Top Heavy Status................. 10
1.31 [Reserved]........................................ 12
1.32 "Disqualified Person"............................. 12
1.33 "Employer Securities"............................. 12
1.34 "Exempt Loan"..................................... 12
1.35 "Leveraged Employer Securities"................... 12
1.36 "Issuer".......................................... 12
ARTICLE II. EMPLOYEE PARTICIPANTS............................. 13
-i-
PAGE
2.01 ELIGIBILITY....................................... 13
2.02 SERVICE - PARTICIPATION........................... 14
2.03 BREAK IN SERVICE - PARTICIPATION.................. 14
2.04 PARTICIPATION UPON REEMPLOYMENT................... 14
ARTICLE III. EMPLOYER CONTRIBUTIONS AND FORFEITURES............ 14
3.01 AMOUNT............................................ 14
3.02 CONTRIBUTION ALLOCATION........................... 15
3.03 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS'
ACCOUNTS......................................... 16
3.04 DEFINITIONS....................................... 17
3.05 DEFINITIONS....................................... 19
3.06 DETERMINATION OF CONTRIBUTION..................... 21
3.07 TIME OF PAYMENT OF CONTRIBUTION................... 21
3.08 FORFEITURE ALLOCATION............................. 21
3.09 ACCRUAL OF BENEFIT................................ 21
ARTICLE IV. PARTICIPANT CONTRIBUTIONS......................... 22
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS............... 22
4.02 PARTICIPANT ROLLOVER CONTRIBUTIONS................ 22
ARTICLE V. TERMINATION OF SERVICE - PARTICIPANT VESTING...... 22
5.01 NORMAL RETIREMENT AGE............................. 22
5.02 PARTICIPANT DISABILITY OR DEATH................... 22
5.03 VESTING SCHEDULE.................................. 22
5.04 CASH-OUT DISTRIBUTION TO PARTIALLY-VESTED
PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED
BENEFIT.......................................... 23
5.05 [RESERVED]........................................ 25
5.06 YEAR OF SERVICE - VESTING......................... 25
5.07 BREAK IN SERVICE - VESTING........................ 25
5.08 INCLUDED YEARS OF SERVICE - VESTING............... 25
5.09 FORFEITURE OCCURS................................. 25
ARTICLE VI. TIME AND METHOD OF PAYMENT OF BENEFITS............ 26
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT................ 26
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT.............. 28
6.03 BENEFIT PAYMENT ELECTIONS......................... 30
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS............. 32
6.05 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS..... 32
-ii-
PAGE
6.06 [Reserved]........................................ 33
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS..... 33
6.08 ROLLOVER DISTRIBUTIONS............................ 34
ARTICLE VII. EMPLOYER ADMINISTRATIVE PROVISIONS....... 35
7.01 INFORMATION TO COMMITTEE.......................... 35
7.02 NO LIABILITY...................................... 35
7.03 INDEMNITY OF COMMITTEE............................ 35
7.04 AMENDMENT TO VESTING SCHEDULE..................... 36
ARTICLE VIII. PARTICIPANT ADMINISTRATIVE PROVISIONS.... 36
8.01 BENEFICIARY DESIGNATION........................... 36
8.02 NO BENEFICIARY DESIGNATION........................ 37
8.03 PERSONAL DATA TO COMMITTEE........................ 37
8.04 ADDRESS FOR NOTIFICATION.......................... 37
8.05 ASSIGNMENT OR ALIENATION.......................... 38
8.06 NOTICE OF CHANGE IN TERMS......................... 38
8.07 LITIGATION AGAINST THE TRUST...................... 38
8.08 INFORMATION AVAILABLE............................. 38
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS........... 38
8.10 ESOP DIVERSIFICATION.............................. 39
ARTICLE IX. ADVISORY COMMITTEE--DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS............................ 40
9.01 MEMBERS' COMPENSATION EXPENSES.................... 40
9.02 GENERAL........................................... 40
9.03 FUNDING POLICY.................................... 41
9.04 INDIVIDUAL ACCOUNTS............................... 41
9.05 VALUE OF PARTICIPANT'S ACCRUED BENEFIT............ 42
9.06 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS............. 42
9.07 UNCLAIMED ACCOUNT PROCEDURE....................... 44
9.08 TERM.............................................. 45
9.09 POWERS............................................ 45
9.10 MANNER OF ACTION.................................. 45
9.11 AUTHORIZED REPRESENTATIVE......................... 45
9.12 INTERESTED MEMBER................................. 45
9.13 INDIVIDUAL STATEMENT.............................. 45
9.14 ACCOUNT CHARGED................................... 45
9.15 TRANSFERRED ACCOUNTS.............................. 45
-iii-
PAGE
ARTICLE X. TRUSTEE POWERS AND DUTIES................. 46
10.01 ACCEPTANCE........................................ 46
10.02 RECEIPT OF CONTRIBUTIONS.......................... 46
10.03 INVESTMENT POWERS................................. 46
10.04 RECORDS AND STATEMENTS............................ 50
10.05 FEES AND EXPENSES FROM FUND....................... 51
10.06 PARTIES TO LITIGATION............................. 51
10.07 PROFESSIONAL AGENTS............................... 51
10.08 DISTRIBUTION OF TRUST FUND........................ 51
10.09 DISTRIBUTION DIRECTIONS........................... 52
10.10 THIRD PARTY....................................... 52
10.11 RESIGNATION....................................... 52
10.12 REMOVAL........................................... 52
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE.............. 52
10.14 VALUATION OF TRUST................................ 53
10.15 PARTICIPANT VOTING RIGHTS - EMPLOYER SECURITIES... 53
10.16 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER
APPOINTED. ....................................... 54
10.17 USE OF INDEPENDENT APPRAISER...................... 54
10.18 INVESTMENT IN GROUP TRUST FUND.................... 54
10.19 KCSI SHARE RESTRICTIONS........................... 55
ARTICLE XI. REPURCHASE OF EMPLOYER SECURITIES........ 55
11.01 PUT OPTION........................................ 55
11.02 CONTINUATION OF PUT OPTION........................ 56
ARTICLE XII. MISCELLANEOUS............................ 56
12.01 EVIDENCE.......................................... 56
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION............. 57
12.03 FIDUCIARIES NOT INSURERS.......................... 57
12.04 WAIVER OF NOTICE.................................. 57
12.05 SUCCESSORS........................................ 57
12.06 WORD USAGE........................................ 57
12.07 STATE LAW......................................... 57
12.08 EMPLOYMENT NOT GUARANTEED......................... 57
ARTICLE XIII. EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION 58
13.01 EXCLUSIVE BENEFIT................................. 58
13.02 AMENDMENT BY EMPLOYER............................. 58
13.03 DISCONTINUANCE.................................... 59
-iv-
PAGE
13.04 FULL VESTING ON TERMINATION....................... 59
13.05 MERGER/DIRECT TRANSFER............................ 59
13.06 TERMINATION....................................... 60
ARTICLE XIV. PROVISIONS EFFECTIVE UPON CHANGE IN
CONTROL................................. 61
14.01 DEFINITION OF "CHANGE IN CONTROL OF DST".......... 61
14.02 PROVISIONS EFFECTIVE UPON CHANGE OF CONTROL....... 61
14.03 RIGHT TO AMEND PART 1 OF ARTICLE XIV PRIOR TO CHANGE
IN CONTROL OF DST................................. 62
-v-
ALPHABETICAL LISTING OF DEFINITIONS
Plan Definition Section Reference
(Page Number)
Account.................................................................1.12 (6)
Accounting Date.........................................................1.18 (6)
Accrued Benefit.........................................................1.13 (6)
Advisory Committee......................................................1.06 (2)
Affiliate..............................................................1.28A (9)
Annual Addition.....................................................3.04(a) (12)
Annuity Starting Date..................................................6.01 (26)
Advisory Committee......................................................1.06 (2)
Beneficial Owner......................................................14.01 (60)
Beneficiary.............................................................1.10 (4)
Break in Service for Eligibility Purposes..............................2.02 (14)
Break in Service for Vesting Purposes..................................5.07 (25)
Cash-Out Distribution..................................................5.04 (23)
Change in Control of DST..............................................14.01 (60)
Claimant...............................................................8.09 (38)
Code....................................................................1.23 (6)
Code ss.411(d)(6) Protected Benefits..................................13.02 (57)
Compensation............................................................1.11 (4)
Compensation for Code ss.415 Purposes...............................3.04(e) (19)
Compensation for Top Heavy Purposes....................................1.30 (10)
Deemed Cash-Out Rule................................................5.04(C) (23)
Defined Contribution Plan...........................................3.04(c) (18)
Defined Benefit Plan................................................3.04(d) (19)
Determination Date..................................................1.30(g) (12)
Disability..............................................................1.26 (8)
Disqualified Person....................................................1.32 (12)
Distribution Date......................................................6.01 (26)
DST.....................................................................1.02 (2)
Effective Date..........................................................1.16 (6)
Elective Contributions..................................................1.11 (5)
Elective Transfer.....................................................13.05 (58)
Eligible Accrued Benefit...............................................8.10 (39)
Eligible Portion.......................................................6.05 (32)
Employee................................................................1.07 (2)
Employer................................................................1.03 (2)
Employer for Code ss.415 Purposes...................................8.01(b) (18)
Employer for Top Heavy Purposes.....................................1.30(f) (12)
Employer Securities....................................................1.33 (12)
Employer Securities Fund..........................................Witnesseth (1)
-vi-
Plan Definition Section Reference
(Page Number)
Employment Commencement Date...........................................2.01 (13)
ERISA...................................................................1.22 (7)
Exchange Act..........................................................14.01 (60)
Excess Amount.......................................................3.05(e) (21)
Exempt Loan............................................................1.34 (12)
5% Owner................................................................1.08 (3)
Forfeiture Break in Service............................................5.08 (25)
Former Plan.......................................................Witnesseth (1)
Group Trust Fund......................................................10.18 (57)
Highly Compensated Employee.............................................1.08 (4)
Hour of Service.........................................................1.25 (7)
Investment Manager..................................................9.02(i) (40)
Issuer.................................................................1.36 (12)
KCSI..............................................................Witnesseth (1)
KCSI Shares.......................................................Witnesseth (1)
KCSI Shares Fund..................................................Witnesseth (1)
Key Employee........................................................1.30(a) (10)
Leased Employees.......................................................1.29 (10)
Leveraged Employer Securities..........................................1.35 (12)
Limitation Year.....................................................3.04(f) (18)
Master Trust ...........................................................1.19 (6)
MDIB................................................................6.02(A) (29)
Maximum Permissible Amount..........................................3.05(a) (19)
Minimum Distribution Incidental Benefit (MDIB).........................6.02 (29)
Non-Key Employee....................................................1.31(b) (11)
Nonforfeitable..........................................................1.14 (6)
Nontransferable Annuity.................................................1.21 (6)
Normal Retirement Age..................................................5.01 (22)
Participant Forfeiture.................................................3.08 (21)
Participant.............................................................1.09 (4)
Permissive Aggregation Group........................................1.31(e) (11)
Plan..............................................................Witnesseth (1)
Plan Entry Date.........................................................1.17 (6)
Plan Administrator......................................................1.05 (2)
Plan Year...............................................................1.15 (6)
Predecessor Employer....................................................1.27 (8)
Qualified Domestic Relations Order.....................................6.07 (33)
Related Employers.......................................................1.28 (8)
Required Aggregation Group..........................................1.30(d) (11)
Required Beginning Date.............................................6.01(B) (27)
Separate Trust .........................................................1.19 (6)
-vii-
Plan Definition Section Reference
(Page Number)
Service.................................................................1.24 (7)
Top Heavy Minimum Allocation........................................3.02(B) (15)
Top Heavy Ratio.........................................................1.30 (9)
Trust...................................................................1.19 (6)
Trust Fund..............................................................1.20 (6)
Trustee.................................................................1.04 (2)
Trustee Powers.....................................................10.03(A) (46)
Years of Service.......................................................5.08 (25)
-viii-
THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
OF DST SYSTEMS, INC.
DST Systems, Inc., a corporation organized under the laws of the State
of Delaware, makes this Agreement with UMB Bank, N.A., as Trustee.
WITNESSETH:
DST Systems, Inc. establishes within this Trust Agreement The Employee
Stock Ownership Plan of DST Systems, Inc. (the "Plan") for the administration
and distribution of (a) amounts to be transferred to the Plan (as described
below) comprising the DST Portion ("DST Portion") of The Employee Stock
Ownership Plan and Trust Agreement of Kansas City Southern Industries, Inc. (the
"Former Plan") on behalf of current and former employees of the Employer, and
(b) contributions to be made by the Employer for the purpose of providing
retirement benefits for eligible Employees. The Plan as set forth herein is
effective as of 12:01 a.m. on the Effective Date. The Plan is an employee stock
ownership plan which is intended to qualify as a stock bonus plan under Section
401(a) of the Internal Revenue Code and as an employee stock ownership plan
under Section 4975(e)(7) of the Internal Revenue Code. The Plan shall consist of
Employer Securities Accounts and the General Investment Accounts. The assets of
the Plan shall be invested primarily in qualifying employer securities within
the meaning of Section 409(l) of the Internal Revenue Code.
Prior to the Effective Date, employees of the Employer are eligible to
participate in the Former Plan established by Kansas City Southern Industries,
Inc. ("KCSI"). The Former Plan includes assets attributable to a leveraged
employee stock ownership plan and consists largely of shares of stock of KCSI
("KCSI Shares"). As of October 1, 1995, the Former Plan was amended and restated
to comprise (1) a "DST Portion" of the Plan, consisting of the Accounts of those
Participants who are employed by DST, Accounts of former Employees who separated
from Service with DST, Accounts of former Employees employed or formerly
employed by Investors Fiduciary Trust Company, Kemper Service Company or an
affiliate of DST, as defined in Section 1.28 ("DST Participants"), Accounts of
Beneficiaries of DST Participants, and the number of KCSI Shares allocable to
DST Participants for the 1995 Plan Year; and (2) an "Industries Portion" of the
Plan, consisting of the remaining Accounts and shares. As of the Effective Date,
the assets of the DST Portion of the Former Plan shall be transferred to this
Plan, with KCSI, and DST Systems Inc. by signature to this document, evidencing
having taken or agreeing to take all appropriate action to cause such transfer
to occur.
KCSI Shares to be transferred to this Plan from the Former Plan shall
be held in a KCSI Shares Fund. The KCSI Shares Fund is provided solely to permit
the continued holding of KCSI Shares allocated to Participants' Accounts
following the transfer. No future contributions or investments may be made in
the KCSI Shares Fund.
Effective as of the Effective Date, employees of the Employer shall
cease to be eligible to continue active participation in the Former Plan.
Effective as of the Effective Date, the Plan shall be established by the
Employer as a successor to the Former Plan to provide retirement benefits for
eligible employees who continue employment with or become employed by the
Employer following the Effective Date.
Now, therefore, in consideration of their mutual covenants, the
Employer and the Trustee agree as follows:
ARTICLE I.
DEFINITIONS
1.01 "Plan" means the retirement plan established by the Employer in
the form of this Agreement, designated as The Employee Stock Ownership Plan of
DST Systems, Inc.
1.02 "DST" means DST Systems, Inc., or any of its subsidiary companies,
that, with the written consent of DST Systems, Inc., adopts this Plan; PROVIDED,
in no event shall a subsidiary company be deemed to be within the definition of
"DST" prior to the date on which such subsidiary company became a member of a
controlled group of corporations (as defined in Code ss.414(b)) or a member of a
group of trades or businesses under common control (as defined in Code
ss.414(c)), which includes DST Systems, Inc. as a member of such group.
1.03 "Employer" means DST.
1.04 "Trustee" with respect to the Separate Trust means UMB Bank, N.A.,
or any successor in office who in writing accepts the position of Trustee under
this Plan and the Separate Trust; and with respect to the Master Trust means UMB
Bank, N.A., or any successor in office who in writing accepts the position of
Trustee under the Master Trust. Unless otherwise specified in this Plan,
references to the "Trustee" in this Plan include either or both of the Trustee
under the Separate Trust or the Trustee under the Master Trust.
1.05 "Plan Administrator" is DST Systems, Inc. unless DST Systems, Inc.
designates another person to hold the position of Plan Administrator. In
addition to its other duties, the Plan Administrator has full responsibility for
compliance with the reporting and disclosure rules under ERISA as respects this
Agreement.
1.06 "Advisory Committee" means the Advisory Committee for the Plan as
from time to time constituted.
1.07 "Employee" means any employee of the Employer, excluding any
Leased Employee, and excluding any individual who performs services for the
Employer and (i) is working in a classification described as independent
contractor (even if such person is subsequently determined to be a common-law
employee of the Employer), (ii) is paid, directly or indirectly, through an
Employer's accounts payable system, or (iii) performs such services pursuant to
a contract or agreement which provides that the person is an independent
contractor or consultant (even if such person is subsequently determined to be
a common-law employee of the Employer).
-2-
1.08 "Highly Compensated Employee" means, for any Plan Year, any
individual who (i) is an Employee described in subsection (a) or (b) below, or
(ii) is a former Employee described in subsection (c), below:
(a) An Employee who at any time during the current Plan Year
or the preceding Plan Year is a more than five percent (5%) owner (or
is considered as owning more than five percent (5%) within the meaning
of Section 318 of the Code) ("5% Owner") of the Employer;
(b) An Employee who (i) received Compensation during the
preceding Plan Year in excess of $80,000 (in 1996, as adjusted in
accordance with regulations and rulings under Section 414(q) of the
Code), and (ii) if the Advisory Committee elects to apply this clause
(ii) to determine the Highly Compensated Employees for a Plan Year, for
this Plan and, except as otherwise permitted, consistently for all
plans of the Employer whose plan years begin in the same calendar year
as such preceding Plan Year, is in the group consisting of the top
twenty percent (20%) of the total number of persons employed by the
Employer when ranked on the basis of Compensation paid during the
preceding Plan Year, provided that, for purposes of determining the
total number of persons employed by the Employer, the following
Employees shall be excluded:
(1) Employees who have not completed an aggregate of
six (6) months of service during the preceding Plan Year,
(2) Employees who work less than seventeen and
one-half (17-1/2) hours per week for 50% or more of the total
weeks worked by such employees during the preceding Plan Year,
(3) Employees who normally work during not more than
six (6) months during any year,
(4) Employees who have not attained age 21 by the end
of the preceding Plan Year,
(5) Employees who are nonresident aliens and who
receive no earned income (within the meaning of Section
911(d)(2) of the Code) from the Employer which constitutes
income during the preceding Plan Year from sources within the
United States (within the meaning of Section 861(a)(3) of the
Code), and
(6) Except to the extent provided in regulations
prescribed by the Secretary of the Treasury, Employees who are
members of a collective bargaining unit represented by a
collective bargaining agent with which an Employer has or has
had a bargaining agreement.
(c) The term "Highly Compensated Employee" also includes any
former Employee who separated from Service (or has a deemed Separation
from Service, as determined under Treasury regulations) prior to the
Plan Year, performs no Service for the Employer during the Plan Year,
and was a Highly Compensated Employee either for the separation year or
any Plan Year ending on or after his 55th birthday.
For purposes of this Section 1.08, "Compensation" means
Compensation as defined in Section 1.11, except any exclusions from
Compensation, and Compensation must include Elective Contributions.
The Advisory Committee must make the determination of who is a
Highly Compensated Employee, including the determinations of the number
and identity of the top paid 20% group and the relevant Compensation,
consistent with Code ss.414(q) and regulations issued under that Code
section. The Employer may make a calendar year election to determine
the Highly Compensated Employees for the Plan Year, as prescribed by
Treasury regulations. Except as otherwise permitted, a calendar year
election must apply to all plans and arrangements of the Employer.
1.09 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.10 "Beneficiary" is a person designated by a Participant who is or
may become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan remains a Beneficiary under the Plan until
the Trustee has fully distributed his benefit to him. A Beneficiary's right to
(and the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.11 "Compensation" means, with respect to a Participant in the Plan,
all wages, salaries, fees for professional service and other amounts (whether or
not paid in cash) for personal services actually rendered in the course of
employment with DST, but only to the extent includible in gross income. This
definition of Compensation includes, but is not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, fringe benefits, reimbursements and
expense allowances. This definition of Compensation does not include:
(a) Employer contributions to a plan of deferred compensation
to the extent the contributions are not includible in gross income of
the Employee for the taxable year in which contributed, on behalf of an
Employee to a Simplified Employee Pension Plan to the extent such
contributions are excludible from the Employee's gross income, and any
distributions from a plan of deferred compensation, regardless of
whether such amounts are includible in the gross income of the Employee
when distributed.
(b) Amounts realized from the exercise of a non qualified
stock option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer subject to
a substantial risk of forfeiture.
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a stock option described in Part
II, Subchapter D, Chapter 1 of the Code.
(d) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that the
premiums are not includible in the gross income of the Employee), or
contributions made by an Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in Code ss. 403(b) (whether or not the contributions are
excludible from the gross income of the Employee).
To determine a Participant's contribution allocation under Section
3.02(A), Compensation means the general definition of Compensation described in
this Section 1.11, but excluding reimbursements or other expense allowances,
fringe benefits (cash and noncash), moving expenses, deferred compensation and
welfare benefits, and including Elective Contributions. "Elective Contributions"
are amounts excludible from the Employee's gross income under Code ss.ss. 125,
402(a)(8), 402(h) or 403(b), and contributed by the Employer, at the Employee's
election, to a Code ss. 401(k) arrangement, a Simplified Employee Pension,
cafeteria plan or tax-sheltered annuity.
For purposes of determining whether the Plan discriminates in favor of
Highly Compensated Employees, Compensation means Compensation as defined in this
Section 1.11, unless DST elects to use an alternate nondiscriminatory
definition, in accordance with the requirements of Code ss.414(s) and the
regulations issued under that Code section. DST may elect to include all
Elective Contributions made by DST on behalf of the Employees of DST. DST's
election to include Elective Contributions must be consistent and uniform with
respect to Employees of DST and all plans of DST for any particular Plan Year.
DST may make this election to include Elective Contributions for
nondiscrimination testing purposes, irrespective of whether this Section 1.11
includes Elective Contributions in the general Compensation definition
applicable to the Plan.
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.11, unless the Plan reference specifies a
modification to this definition. The Advisory Committee will take into account
only Compensation actually paid for the relevant period.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not exceed
the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit
is $150,000, as adjusted by the Commissioner for
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increases in the cost of living in accordance with Code ss.401(a)(17)(B). The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which Compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code ss.401(a)(17)
shall mean the OBRA '93 annual compensation limit set forth in this provision.
1.12 "Account" means the separate account(s) which the Advisory
Committee or the Trustee maintains for a Participant under the Plan pursuant to
Section 9.04.
1.13 "Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from Employer contributions.
1.14 "Nonforfeitable" means a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.15 "Plan Year" means the fiscal year of the Plan, a 12 consecutive
month period ending every December 31.
1.16 "Effective Date" of this Plan means January 1, 1998.
1.17 "Plan Entry Date" means the Effective Date and every January 1 and
July 1 after the Effective Date.
1.18 "Accounting Date" shall be the last day of the Plan Year. Unless
otherwise specified in the Plan, the Advisory Committee shall make all Plan
allocations for a particular Plan Year as of the last Accounting Date of that
Plan Year.
1.19 "Trust" means either or both of (i) the separate Trust created
under Article X of this Plan (the "Separate Trust") and (ii) the Separate Plan
Account (as defined in the Master Trust) for this Plan under the DST Systems,
Inc. Master Trust created by the Master Trust Agreement by and between DST
Systems, Inc. and UMB Bank, N.A., as Trustee of the Master Trust effective as of
January 1, 1998 (the "Master Trust").
1.20 "Trust Fund" means all property of every kind held or acquired by
the Trustee of the Separate Trust under this Agreement or by the Trustee of the
Master Trust for purposes of this Plan under the Master Trust Agreement. This
Plan together with the Master Trust creates two separate trusts each of which
applies to all Employers participating under The Employee Stock Ownership Plan
and Trust Agreement of DST Systems, Inc. However, the Trustee will maintain
separate records of account in order to reflect properly each Participant's
Accrued Benefit derived from the participating Employer.
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1.21 "Nontransferable Annuity" means an annuity which by its terms
provides that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any purpose
to any person other than the insurance company. If the Trustee distributes an
annuity contract, the contract must be a Nontransferable Annuity.
1.22 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.23 "Code" means the Internal Revenue Code of 1986, as amended.
1.24 "Service" means any period of time the Employee is in the employ
of the Employer, including any period the Employee is on an unpaid leave of
absence authorized by the Employer under a uniform, nondiscriminatory policy
applicable to all Employees. Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service shall be provided in accordance with Section 414(u) of the
Code. "Separation from Service" means a separation from Service with the
Employer maintaining this Plan.
1.25 "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee is
entitled to payment, for the performance of duties. The Advisory
Committee credits Hours of Service under this paragraph (a) to the
Employee for the computation period in which the Employee performs the
duties, irrespective of when paid;
(b) Each Hour of Service for back pay, irrespective of
mitigation of damages, to which the Employer has agreed or for which
the Employee has received an award. The Advisory Committee credits
Hours of Service under this paragraph (b) to the Employee for the
computation period(s) to which the award or the agreement pertains
rather than for the computation period in which the award, agreement or
payment is made; and
(c) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee is
entitled to payment (irrespective of whether the employment
relationship is terminated), for reasons other than for the performance
of duties during a computation period, such as leave of absence,
vacation, holiday, sick leave, illness, incapacity (including
disability), layoff, jury duty or military duty. The Advisory Committee
will credit no more than 501 Hours of Service under this paragraph (c)
to an Employee on account of any single continuous period during which
the Employee does not perform any duties (whether or not such period
occurs during a single computation period). The Advisory Committee
credits Hours of Service under this paragraph (c) in accordance with
the rules of paragraphs (b) and (c) of Labor Reg.
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ss.2530.200b-2, which the Plan, by this reference, specifically
incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more
than one of the above paragraphs. A computation period for purposes of this
Section 1.25 is the Plan Year, Year of Service period, Break in Service period
or other period, as determined under the Plan provision for which the Advisory
Committee is measuring an Employee's Hours of Service.
The Employer will credit every Employee with Hours of Service on the
basis of the "actual" method. For purposes of the Plan, "actual" method means
the determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
However, for an employee who is paid on other than an hourly basis, Hours of
Service shall be credited according to the following schedule, based on the
payroll period of the Employee, for each payroll period with respect to which he
or she is paid or is entitled to payment of compensation:
PAYROLL PERIOD HOURS OF SERVICE
Daily 10
Weekly 45
Semi-Monthly 95
Monthly 190
Solely for purposes of determining whether the Employee incurs a Break
in Service under any provision of this Plan, the Advisory Committee must credit
Hours of Service during an Employee's unpaid absence period due to maternity or
paternity leave. The Advisory Committee considers an Employee on maternity or
paternity leave if the Employee's absence is due to the Employee's pregnancy,
the birth of the Employee's child, the placement with the Employee of an adopted
child, or the care of the Employee's child immediately following the child's
birth or placement. The Advisory Committee credits Hours of Service under this
paragraph on the basis of the number of Hours of Service the Employee would
receive if he were paid during the absence period or, if the Advisory Committee
cannot determine the number of Hours of Service the Employee would receive, on
the basis of 8 hours per day during the absence period. The Advisory Committee
will credit only the number (not exceeding 501) of Hours of Service necessary to
prevent an Employee's Break in Service. The Advisory Committee credits all Hours
of Service described in this paragraph to the computation period in which the
absence period begins or, if the Employee does not need these Hours of Service
to prevent a Break in Service in the computation period in which his absence
period begins, the Advisory Committee credits these Hours of Service to the
immediately following computation period.
1.26 "Disability" means the Participant, because of a physical or
mental disability, will be unable to perform the duties of his customary
position of employment (or is unable to engage in any substantial gainful
activity) for an indefinite period which the Advisory Committee considers will
be of long continued duration. The Plan considers a Participant disabled on the
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date the Advisory Committee determines the Participant satisfies the definition
of disability. The Advisory Committee may require a Participant to submit to a
physical examination in order to confirm disability. The Advisory Committee will
apply the provisions of this Section 1.26 in a nondiscriminatory, consistent and
uniform manner.
1.27 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the
plan of a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer.
1.28 RELATED EMPLOYERS. A related group is a controlled group of
corporations (as defined in Code ss.414(b)), trades or businesses (whether or
not incorporated) which are under common control (as defined in Code ss.414(c))
or an affiliated service group (as defined in Code ss.414(m) or in Code
ss.414(o)). If the Employer is a member of a related group, the term 'Employer'
includes the related group members for purposes of crediting Hours of Service,
determining Years of Service and Breaks in Service under Articles II and V,
applying the limitations on allocations in Article III, applying the top heavy
rules and the minimum allocation requirements of Article III, the definitions of
Employee, Highly Compensated Employee, Compensation and Leased Employee, and for
any other purpose required by the applicable Code section or by a Plan
provision. In addition, except as provided in Section 1.28(A), (1) the Plan
shall treat all service credited with respect to an Employee under the Former
Plan prior to the Effective Date as service with the Employer under this Plan,
and (2) the Plan shall treat service of an Employee on or after the Effective
Date with an "affiliate" of DST as service with DST. For purposes of this
Section 1.28, the term "affiliate" means any corporation, partnership, joint
venture or other business entity with respect to which fifteen percent (15%) or
more of the equity interests therein are owned, directly or indirectly, by DST
in the case of an affiliate of DST, or by the Employer in the case of an
affiliate of the Employer. However, only an Employer described in Section 1.03
may contribute to the Plan and only an Employee employed by an Employer
described in Section 1.03 is eligible to participate in this Plan. For Plan
allocation purposes, "Compensation" does not include Compensation received from
a related employer that is not participating in this Plan.
(A) SERVICE PRIOR AND SUBSEQUENT TO ADOPTION OF PLAN BY AFFILIATE. For
purposes of this Section 1.28(A), the term "affiliate" means any corporation,
partnership, joint venture or other business entity with respect to which
fifteen percent (15%) or more of the equity interests therein are owned,
directly or indirectly, by DST. This paragraph shall apply solely to affiliates
that become Employers. For purposes of crediting Hours of Service and
determining Years of Service and Breaks in Service under Articles II and V, the
Plan shall treat service of an Employee with the Employer before the date the
affiliate became an affiliate and after the date it ceases to be an affiliate as
service with the Employer. If an Employee was not employed by such affiliate on
the date it became an affiliate, the Plan shall exclude service with the
Employer prior to such date. If the Employee was employed by such affiliate on
the date it became an affiliate, the Plan shall treat service with such
affiliate prior to such date as service for the above purposes under the Plan,
other than such service prior to a separation from service with the affiliate.
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(B) SPECIAL RULE FOR KCSI GROUP SERVICE. For purposes of determining
service with an affiliate, an affiliate shall also include Kansas City Southern
Industries, Inc. ("KCSI"), and any corporation, partnership, joint venture, or
other business entity that would be an affiliate of KCSI under the foregoing
definitions of "affiliate" if KCSI were substituted for DST therein (a "KCSI
Affiliate"); but only for periods (before or after the Effective Date) during
which DST is also a KCSI affiliate under the foregoing definitions.
1.29 LEASED EMPLOYEES. The Plan does not treat a Leased Employee as an
Employee of the Employer. A Leased Employee is an individual (who otherwise is
not an Employee of the Employer) who, pursuant to a leasing agreement between
the Employer and any other person, has performed services for the Employer (or
for the Employer and any persons related to the Employer within the meaning of
Code ss.144(a)(3)) on a substantially full time basis for at least one year and
who performs services under the primary direction or control of the Employer. A
Leased Employee who performs services for the Employer pursuant to a contract or
agreement which provides that the person is a Leased Employee will not become
eligible to participate in this Plan merely by reason of a determination that
the person is a common-law employee of the Employer, unless and until the
Employer changes the employment classification of such person.
1.30 DETERMINATION OF TOP HEAVY STATUS.
If this Plan is the only qualified plan maintained by DST, Plan is top
heavy for a Plan Year if the top heavy ratio as of the Determination Date
exceeds 60%. The top heavy ratio is a fraction, the numerator of which is the
sum of the present value of Accrued Benefits of all Key Employees in the Plan as
of the Determination Date and the denominator of which is a similar sum
determined for all Employees in the Plan. The Advisory Committee must include in
the top heavy ratio, as part of the present value of Accrued Benefits, any
contribution by DST not made as of the Determination Date but includible under
Code ss.416 and the applicable Treasury regulations, and distributions made
within the Determination Period. The Advisory Committee must calculate the top
heavy ratio by disregarding the Accrued Benefit (and distributions, if any, of
the Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee,
and by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not received credit for at least one
Hour of Service with DST during the Determination Period. The Advisory Committee
must calculate the top heavy ratio, including the extent to which it must take
into account distributions, rollovers and transfers, in accordance with Code
ss.416 and the regulations under that Code section.
If DST maintains other qualified plans (including a simplified employee
pension plan), or maintained another such plan which now is terminated, the Plan
is top heavy only if it is part of the Required Aggregation Group, and the top
heavy ratio for the Required Aggregation Group and for the Permissive
Aggregation Group, if any, each exceeds 60%. The Advisory Committee will
calculate the top heavy ratio in the same manner as required by the first
paragraph of this Section 1.30(A), taking into account all plans within the
Aggregation Group. To the extent the Advisory Committee must take into account
distributions to a Participant, the Advisory
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Committee must include distributions from a terminated plan which would have
been part of the Required Aggregation Group if it were in existence on the
Determination Date. The Advisory Committee will calculate the present value of
Accrued Benefits under defined benefit plans or simplified employee pension
plans included within the group in accordance with the terms of those plans,
Code ss.416 and the regulations under that Code section. If a Participant in a
defined benefit plan is a Non-Key Employee, the Advisory Committee will
determine his Accrued Benefit under the accrual method, if any, which is
applicable uniformly to all defined benefit plans maintained by DST or, if there
is no uniform method, in accordance with the slowest accrual rate permitted
under the fractional rule accrual method described in Code ss.411(b)(1)(C). To
calculate the present value of benefits from a defined benefit plan, the
Advisory Committee will use the actuarial assumptions (interest and mortality
only) prescribed by the defined benefit plan(s) to value benefits for top heavy
purposes. If an aggregated plan does not have a valuation date coinciding with
the Determination Date, the Advisory Committee must value the Accrued Benefits
in the aggregated plan as of the most recent valuation date falling within the
12-month period ending on the Determination Date, except as Code ss.416 and
applicable Treasury regulations require for the first and second plan year of a
defined benefit plan. The Advisory Committee will calculate the top heavy ratio
with reference to the Determination Dates that fall within the same calendar
year.
Definitions. For purposes of applying the provisions of this Section 1.30:
(a) "Key Employee" means, as of any Determination Date, any
Employee or former Employee of DST (or Beneficiary of such Employee)
who, for any Plan Year in the Determination Period: (i) has
Compensation in excess of 50% of the dollar amount prescribed in Code
ss.415(b)(1)(A) (relating to defined benefit plans) and is an officer
of DST; (ii) has Compensation in excess of the dollar amount prescribed
in Code ss.415(c)(1)(A) (relating to defined contribution plans) and is
one of the Employees of DST owning the ten largest interests in DST;
(iii) is a more than 5% owner of DST; or (iv) is a more than 1% owner
of DST and has Compensation of more than $150,000. The constructive
ownership rules of Code ss.318 (or the principles of that section, in
the case of an unincorporated Employer) will apply to determine
ownership in DST. The number of officers taken into account under
clause (i) will not exceed the greater of 3 or 10% of the total number
(after application of the Code ss.414(q)(8) exclusions) of Employees of
DST, but no more than 50 officers. The Advisory Committee will make the
determination of who is a Key Employee in accordance with Code
ss.416(i)(1) and the regulations under that Code section.
(b) "Non-Key Employee" is an Employee of DST who does not meet
the definition of Key Employee.
(c) "Compensation" means Compensation as determined under
Section 1.08 (relating to the Highly Compensated Employee definition).
(d) "Required Aggregation Group" means: (1) each qualified
plan of DST in
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which at least one Key Employee participates at any time during the
Determination Period; and (2) any other qualified plan of DST which
enables a plan described in clause (1) to meet the requirements of Code
ss.401(a)(4) or Code ss.410.
(e) "Permissive Aggregation Group" is the Required Aggregation
Group plus any other qualified plans maintained by DST, but only if
such group would satisfy in the aggregate the requirements of Code
ss.401(a)(4) and Code ss.410. The Advisory Committee will determine the
Permissive Aggregation Group.
(f) "Employer" means DST and any related employers described
in Section 1.28.
(g) "Determination Date" for any Plan Year is the last
Accounting Date of the preceding Plan Year or, in the case of the first
Plan Year of the Plan, the last Accounting Date of that Plan Year. The
"Determination Period" is the 5-year period ending on the Determination
Date.
1.31 [RESERVED].
1.32 "Disqualified Person" has the meaning ascribed to that term under
Code ss.4975(e)(2).
1.33 "Employer Securities" means voting common stock issued by DST
Systems, Inc., or by a corporation which is a member of the same controlled
group of corporations, which is readily tradable on an established securities
market. Noncallable preferred stock of DST Systems Inc. shall be treated as
Employer Securities with respect to the Plan if such stock is convertible at any
time into voting common stock issued by DST Systems, Inc. if such conversion is
at a conversion price which (as of the date of acquisition by the Plan) is
reasonable. Under regulations under Code ss.409(l), preferred stock shall be
treated as noncallable if after the call there will be a reasonable opportunity
for a conversion which meets the requirements of the preceding sentence.
For purposes of Sections 3.08, 5.09, 6.05, 8.10(A), 10.03(o), 10.15,
10.17 and 11.01 only, in order to comply with Code ss.ss.401(a)(28), 409 and
411(d)(6), the term "Employer Securities" shall include voting common stock of
Kansas City Southern Industries, Inc., which is readily tradable on an
established securities market.
1.34 "Exempt Loan" means a loan made to this Plan by a Disqualified
Person, or a loan to this Plan which a Disqualified Person guarantees, provided
the loan satisfies the requirements of Treas. Reg. ss.54.4975-7(b).
1.35 "Leveraged Employer Securities" means Employer Securities acquired
by the Trust with the proceeds of an Exempt Loan and which satisfy the
definition of "qualifying employer securities" in Code ss.4975(e)(8) with
respect to the Plan to which the Exempt Loan was made.
1.36 "Issuer" means the corporation that issued the Employer Securities.
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ARTICLE II.
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee (other than an Excluded Employee)
becomes a Participant in the Plan on the Plan Entry Date (if employed on that
date) coincident with or immediately following his Employment Commencement Date.
Each Employee who was a Participant in the Former Plan on the day before the
Effective Date and whose Employer becomes an Employer under this Plan as of the
Effective Date of this Plan shall become a Participant in the Plan as of the
Effective Date. The term "Employment Commencement Date" means the date on which
the Employee first performs an Hour of Service for an Employer.
An Employee is an Excluded Employee if he is (a) a nonresident alien
who receives no earned income (within the meaning of Code ss.911(d)(2)) from an
Employer which constitutes income from sources within the United States (within
the meaning of Code ss.861(a)(3)), or (b) a member of a collective bargaining
unit, unless the collective bargaining agreement provides otherwise. An Employee
is a member of a collective bargaining unit if he is included in a unit of
employees covered by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or more
employers if there is evidence that retirement benefits were the subject of good
faith bargaining between such employee representatives and such employer or
employers. The term "employee representatives" does not include an organization
more than one half the members of which are owners, officers or executives of an
Employer.
If a Participant has not incurred a Separation from Service but becomes
an Excluded Employee, then during the period such a Participant is an Excluded
Employee, the Advisory Committee will limit that Participant's sharing in the
allocation of Employer contributions and Participant forfeitures, if any, under
the Plan by disregarding his Compensation paid by an Employer for services
rendered in his capacity as an Excluded Employee. However, during such period of
exclusion, the Participant, without regard to employment classification,
continues to receive credit for vesting under Article V for each included Year
of Service and the Participant's Account continues to share fully in Trust Fund
allocations under Section 9.06.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he would have been a Participant had
he not been an Excluded Employee during his period of Service. Furthermore, the
Plan takes into account all of the Participant's included years of Service with
an Employer as an Excluded Employee for purposes of vesting credit under Article
V.
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A Leased Employee who performs services for the Employer pursuant to a
contract or agreement which provides that the person is a Leased Employee will
not become eligible to participate in this Plan merely by reason of a
determination that the person is a common-law employee of the Employer, unless
and until the Employer changes the employment classification of such person. If
a Leased Employee who is not a Participant becomes eligible to participate in
the Plan by reason of a change in employment classification, he will participate
in the Plan immediately if he has satisfied the eligibility conditions of
Section 2.01 and would have been a Participant had he not been a Leased Employee
during his period of Service. Furthermore, the Plan takes into account all of
the Participant's included Years of Service with an Employer as a Leased
Employee for purposes of vesting credit under Article V.
2.02 SERVICE - PARTICIPATION. For purposes of participation under
Section 2.01, the Plan does not apply any minimum Hour of Service requirement.
The Plan does not require an Employee who terminates employment to establish a
new Employment Commencement Date if reemployed by an Employer.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of participation in
the Plan, the Plan does not apply any Break in Service rule.
2.04 PARTICIPATION UPON REEMPLOYMENT. A Participant whose employment
terminates reenters the Plan as a Participant on the date of his reemployment.
An Employee who satisfies the Plan's eligibility conditions but who terminates
employment prior to becoming a Participant becomes a Participant in the Plan on
the later of the Plan Entry Date on which he would have entered the Plan had he
not terminated employment or the date of his reemployment.
ARTICLE III.
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT. For each Plan Year, DST will contribute to the Trust an
amount which DST may from time to time deem advisable. DST (or the Advisory
Committee on behalf of DST) shall determine the extent to which such
contributions are directed to the Separate Trust or the Master Trust. DST may
not make a contribution to the Trust for any Plan Year to the extent the
contribution would exceed the Participants' in the Plan "Maximum Permissible
Amounts".
DST contributes to this Plan on the condition its contribution is not
due to a mistake of fact and the Internal Revenue Service will not disallow the
deduction for its contribution. The Trustee, upon written request from DST, must
return to DST the amount of DST's contribution made by DST by mistake of fact or
the amount of DST's contribution disallowed as a deduction under Code ss.404.
The Trustee will not return any portion of DST's contribution under the
provisions of this paragraph more than one year after:
(a) DST made the contribution by mistake of fact; or
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(b) The disallowance of the contribution as a deduction, and
then, only to the extent of the disallowance.
The Trustee will not increase the amount of DST's contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease DST's contribution returnable for
any losses attributable to it. The Trustee may require DST to furnish it
whatever evidence the Trustee deems necessary to enable the Trustee to confirm
the amount DST has requested be returned is properly returnable under ERISA.
DST may make its contribution in cash or in Employer Securities as DST
from time to time may determine. DST may make its contribution of Employer
Securities at fair market value determined at the time of contribution.
3.02 CONTRIBUTION ALLOCATION.
(A) METHOD OF ALLOCATION. Subject to any restoration allocation required under
Section 5.04, the Advisory Committee will allocate and credit each annual DST
contribution (and Participant forfeitures, if any) to the Account of each
Participant in the Plan who satisfies the conditions of Section 3.09. The
Advisory Committee will make this allocation in the same ratio that each such
Participant in the Plan's Compensation for the Plan Year bears to the total
Compensation of all such Participants in the Plan for the Plan Year.
(B) TOP HEAVY MINIMUM ALLOCATION.
(1) MINIMUM ALLOCATION. If the Plan is top heavy in any Plan
Year:
(a) Each Non-Key Employee (as defined in Section
1.30) who is a Participant in the Plan and is employed by DST
on the last day of the Plan Year will receive a top heavy
minimum allocation for that Plan Year, irrespective of whether
he satisfies the Hours of Service condition under Section
3.09(B); and
(b) The top heavy minimum allocation is the lesser of
3% of the NonKey Employee's Compensation for the Plan Year or
the highest contribution rate for the Plan Year made on behalf
of any Key Employee in the Plan (as defined in Section 1.30).
However, if a defined benefit plan maintained by DST which
benefits a Key Employee in the Plan depends on this Plan to
satisfy the antidiscrimination rules of Code ss.401(a)(4) or
the coverage rules of Code ss.410 (or another plan benefiting
the Key Employee so depends on such defined benefit plan), the
top heavy minimum allocation is 3% of the Non-Key Employee's
Compensation regardless of the contribution rate for the Key
Employees in the Plan.
For purposes of clause (b), "Compensation" means Compensation
as defined in Section 1.11, except (i) compensation does not include
Elective Contributions; (ii) any
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exclusions from Compensation (other than the exclusion of elective
contributions and the exclusions described in paragraphs (a), (b), (c)
and (d) of Section 1.11) do not apply, and (iii) the Advisory Committee
must disregard the requirements of Section 3.13. For purposes of this
Section 3.02(B), a Participant's contribution rate is the sum of
Employer contributions (not including Employer contributions to Social
Security) and forfeitures allocated to the Participant's Account for
the Plan Year under Sections 3.02 and 3.08 divided by his Compensation
for the entire Plan Year. However, a Non-Key Employee's contribution
rate does not include any elective contributions under a Code ss.401(k)
arrangement maintained by DST nor any Employer matching contributions
made by DST subject to the nondiscrimination requirements of Code
ss.401(k) or of Code ss.401(m). To determine a Participant's
contribution rate, the Advisory Committee must treat all qualified top
heavy defined contribution plans maintained by DST (or by any related
Employers described in Section 1.28) as a single plan.
(2) METHOD OF COMPLIANCE. The Plan will satisfy the top heavy
minimum allocation in accordance with this Section 3.02(B)(2). The
Advisory Committee first will allocate the Employer contributions (and
Participant forfeitures, if any) for the Plan Year in accordance with
the allocation formula under Section 3.02(A). DST then will contribute
an additional amount for the Account of any Participant in the Plan who
is entitled under this Section 3.02(B) to a top heavy minimum
allocation and whose contribution rate for the Plan Year is less than
the top heavy minimum allocation. The additional amount is the amount
necessary to increase the Participant's contribution rate to the top
heavy minimum allocation. The Advisory Committee will allocate the
additional contribution to the Account of the Participant on whose
behalf DST makes the contribution.
3.03 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount
of Annual Additions which the Advisory Committee may allocate under the Plan on
a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount DST otherwise would contribute to the
Participant's Account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, DST will reduce the amount of its
contribution so the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.02, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.02(B)) to the
Participant's Account, the Advisory Committee will reallocate the Excess Amount
to the remaining Participants in the Plan who are eligible for an allocation of
Employer contributions for the Plan Year in which the Limitation Year ends. The
Advisory Committee will make this reallocation on the basis of the allocation
method under the Plan as if the Participant whose Account otherwise would
receive the Excess Amount is not eligible for an allocation of Employer
contributions.
(A) ESTIMATION OF COMPENSATION. Prior to the determination of a Participant's
actual Compensation for a Limitation Year, the Advisory Committee may determine
the Maximum Permissible Amount on the basis of the Participant's estimated
annual Compensation for such
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Limitation Year. The Advisory Committee must make this determination on a
reasonable and uniform basis for all Participants in the Plan similarly
situated. The Advisory Committee must reduce any Employer contributions
(including any allocation of forfeitures) based on estimated annual Compensation
by any Excess Amount carried over from prior years. As soon as is
administratively feasible after the end of the Limitation Year, the Advisory
Committee will determine the Maximum Permissible Amount for such Limitation Year
on the basis of the Participant's actual Compensation for such Limitation Year.
(B) DISPOSITION OF EXCESS AMOUNT. If, pursuant to Section 3.03(A), or because of
the allocation of forfeitures, there is an Excess Amount with respect to a
Participant in the Plan for a Limitation Year, the Advisory Committee will
dispose of such Excess Amount as follows:
(a) The Advisory Committee will return any nondeductible
voluntary Employee contributions to the Participant to the extent that
the return would reduce the Excess Amount.
(b) If, after the application of paragraph (a), an Excess
Amount still exists, and the Plan covers the Participant at the end of
the Limitation Year, then the Advisory Committee will use the Excess
Amount(s) to reduce future Employer contributions (including any
allocation of forfeitures) under the Plan for the next Limitation Year
and for each succeeding Limitation Year, as is necessary, for the
Participant.
(c) If, after the application of paragraph (a), an Excess
Amount still exists, and the Plan does not cover the Participant at the
end of the Limitation Year, then the Advisory Committee will hold the
Excess Amount unallocated in a suspense account. The Advisory Committee
will apply the suspense account to reduce Employer contributions
(including allocation of forfeitures) for all remaining Participants in
the Plan in the next Limitation Year, and in each succeeding Limitation
Year if necessary.
(d) The Advisory Committee will not distribute any Excess
Amount(s) to Participants or to former Participants.
(C) MORE THAN ONE PLAN. If the Advisory Committee allocated an Excess Amount to
a Participant's Account on an allocation date of the Plan which coincides with
an allocation date of another defined contribution plan maintained by DST, the
Advisory Committee will attribute the Excess Amount allocated as of such date
first to the DST Systems, Inc. Profit Sharing Plan. If an Excess Amount remains,
it will then be attributed to this Plan and then, if necessary, to the DST
Systems, Inc. 401(k) Plan.
(D) DEFINED BENEFIT PLAN LIMITATION. If the Participant presently participates,
or has ever participated, under a defined benefit plan maintained by DST, then
the sum of the defined benefit plan fraction and the defined contribution plan
fraction for the Participant for that Limitation Year must not exceed 1.0. To
the extent necessary to satisfy this limitation, DST will reduce the
Participant's annual benefit under the defined benefit plan under which the
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Participant participates and then, if necessary, its contribution or allocation
on behalf of the Participant to the defined contribution plan under which the
Participant participates.
3.04 DEFINITIONS. For purposes of Sections 3.01 through 3.04, the
following terms mean:
(a) "Annual Addition" - The sum of the following amounts
allocated in the Plan on behalf of a Participant for a Limitation Year:
(i) all contributions; (ii) all forfeitures; and (iii) all Employee
contributions. Except to the extent provided in Treasury Regulations,
Annual Additions include excess contributions described in Code
ss.401(k), excess aggregate contributions described in Code ss.401(m)
and excess deferrals described in Code ss.402(g), irrespective of
whether the plan distributes or forfeits such excess amounts. Annual
Additions also include Excess Amounts reapplied to reduce Employer
contributions under Section 3.03. Amounts allocated after March 31,
1984, to an individual medical account (as defined in Code
ss.415(l)(2)) included as part of a defined benefit plan maintained by
DST are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable
years ending after December 31, 1985, attributable to post-retirement
medical benefits allocated to the separate account of a key employee
(as defined in Code ss.419A(d)(3)) under a welfare benefit fund (as
defined in Code ss.419(e)) maintained by DST, but only for purposes of
the dollar limitation applicable to the Maximum Permissible Amount.
"Annual Additions" do not include any Employer contributions
applied by the Advisory Committee (not later than the due date,
including extensions, for filing DST's Federal income tax return for
that Plan Year) to pay interest on an Exempt Loan, and any Leveraged
Employer Securities the Advisory Committee allocates as forfeitures;
provided, however, the provisions of this sentence do not apply in a
Plan Year for which the Advisory Committee allocates more than
one-third (1/3) of the Employer contributions applied to pay principal
and interest on an Exempt Loan to Restricted Participants. The Advisory
Committee may reallocate the Employer contributions in accordance with
Section 3.03 to the Accounts of non-Restricted Participants to the
extent necessary in order to satisfy this special limitation. For
purposes of this Section 3.03, "Restricted Participants" mean
Participants in the Plan who are Highly Compensated Employees within
the meaning of Code ss.414(q).
(b) "Employer" - DST and any related employers described in
Section 1.28. Solely for purposes of applying the limitations of
Section 3.03, the Advisory Committee will determine related employers
described in Section 1.28 by modifying Code ss.ss.414(b) and (c) in
accordance with Code ss.415(h).
(c) "Defined contribution plan" - A retirement plan which
provides for an individual account for each participant and for
benefits based solely on the amount contributed to the participant's
account, and any income, expenses, gains and losses, and
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any forfeitures of accounts of other participants which the plan may
allocate to such participant's account. The Advisory Committee must
treat all defined contribution plans (whether or not terminated)
maintained by DST as a single plan. For purposes of the limitations of
Section 3.03, the Advisory Committee will treat employee contributions
made to a defined benefit plan maintained by DST as a separate defined
contribution plan. The Advisory Committee also will treat as a defined
contribution plan an individual medical account (as defined in Code
ss.415(l)(2)) included as part of a defined benefit plan maintained by
DST and, for taxable years ending after December 31, 1985, a welfare
benefit fund under Code ss.419(e) maintained by DST to the extent there
are post-retirement medical benefits allocated to the separate account
of a key employee (as defined in Code ss.419A(d)(3)).
(d) "Defined benefit plan" - A retirement plan which does not
provide for individual accounts for Employer contributions. The
Advisory Committee must treat all defined benefit plans (whether or not
terminated) maintained by DST as a single plan.
(e) "Compensation" - For purposes of applying the limitations
of Section 3.03, "Compensation" means Compensation as defined in
Section 1.11, disregarding any exclusions from Compensation and
disregarding elective contributions for limitations years beginning
prior to January 1, 1998, but including Elective Contributions for
limitation years beginning after December 31, 1997.
(f) "Limitation Year" - The Plan Year. If DST amends the
Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for
which DST makes the amendment, creating a short Limitation Year.
3.05 DEFINITIONS. For purposes of Article III, the following terms
mean:
(a) "Maximum Permissible Amount" - The lesser of (i) $30,000
or (ii) 25% of the Participant's Compensation for the Limitation Year.
If there is a short Limitation Year because of a change in Limitation
Year, the Advisory Committee will multiply the $30,000 limitation by
the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(b) "Defined benefit plan fraction"
Projected annual benefit of the Participant under the
defined benefit plan(s)
------------------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation"
in paragraph (d)) of the dollar limitation in effect
under Code ss.415(b)(1)(A) for the Limitation Year,
or (ii) 140% of the Participant's average Compensation
for his high 3 consecutive Years of Service
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To determine the denominator of this fraction, the Advisory
Committee will make any adjustment required under Code ss.415(b) and
will determine a Year of Service as a Plan Year in which the Employee
completed at least 1,000 Hours of Service. The "projected annual
benefit" is the annual retirement benefit (adjusted to an actuarially
equivalent straight life annuity if the plan expresses such benefit in
a form other than a straight life annuity or qualified joint and
survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his
normal retirement age (or current age, if later) as stated in the
defined benefit plan, his compensation continues at the same rate as in
effect in the Limitation Year under consideration until the date of his
normal retirement age and all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of the
current Limitation Year for all future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits
in one or more defined benefit plans maintained by an Employer which
were in existence on May 5, 1986, the dollar limitation used in the
denominator of this fraction will not be less than the Participant's
Current Accrued Benefit. A Participant's Current Accrued Benefit is the
sum of the annual benefits under such defined benefit plans which the
Participant had accrued as of the end of the 1986 Limitation Year (the
last Limitation Year beginning before January 1, 1987), determined
without regard to any change in the terms or conditions of the Plan
made after May 5, 1986, and without regard to any cost of living
adjustment occurring after May 5, 1986. This Current Accrued Benefit
rule applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Code ss.415 as in effect at the
end of the 1986 Limitation Year.
(c) "Defined contribution plan fraction"
The sum, as of the close of the Limitation Year, of the
Annual Additions to the Participant's Account under the
defined contribution plan(s)
--------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (i) 125% (subject to the
"100% limitation" in paragraph (d)) of the dollar
limitation in effect under Code ss.415(c)(1)(A) for the
Limitation Year (determined without regard to the
special dollar limitations for employee stock ownership
plans), or (ii) 35% of the Participant's Compensation
for the Limitation Year
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For purposes of determining the defined contribution plan
fraction, the Advisory Committee will not recompute Annual Additions in
Limitation Years beginning prior to January 1, 1987, to treat all
Employee contributions as Annual Additions. If the Plan satisfied Code
ss.415 for Limitation Years beginning prior to January 1, 1987, the
Advisory Committee will redetermine the defined contribution plan
fraction and the defined benefit plan fraction as of the end of the
1986 Limitation Year, in accordance with this Section 3.05. If the sum
of the redetermined fractions exceeds 1.0, the Advisory Committee will
subtract permanently from the numerator of the defined contribution
plan fraction an amount equal to the product of (1) the excess of the
sum of the fractions over 1.0, times (2) the denominator of the defined
contribution plan fraction. In making the adjustment, the Advisory
Committee must disregard any accrued benefit under the defined benefit
plan which is in excess of the Current Accrued Benefit. This Plan
continues any transitional rules applicable to the determination of the
defined contribution plan fraction under the Employer's Plan as of the
end of the 1986 Limitation Year.
(d) "100% limitation." If the 100% limitation applies, the
Applicable Advisory Committee must determine the denominator of the
defined benefit plan fraction and the denominator of the defined
contribution plan fraction by substituting 100% for 125%. The 100%
limitation applies only if: (i) the Plan's top heavy ratio exceeds 90%;
or (ii) the Plan's top heavy ratio is greater than 60%, and the
Employer does not provide extra minimum benefits which satisfy Code
ss.416(h)(2).
(e) "Excess Amount" - The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
3.06 DETERMINATION OF CONTRIBUTION. Each Employer, from its
records, determines the amount of any contributions to be made by it to the
Trust under the terms of the Plan.
3.07 TIME OF PAYMENT OF CONTRIBUTION. An Employer may pay its
contribution for each Plan Year in one or more monthly installments without
interest. An Employer must make its contribution to the Trustee within the time
prescribed by the Code or applicable Treasury regulations.
3.08 FORFEITURE ALLOCATION. The amount of a Participant's Accrued
Benefit forfeited under the Plan is a Participant forfeiture. Subject to any
restoration allocation required under Sections 5.04 or 9.07, the Advisory
Committee will allocate the forfeiture in accordance with Section 3.02, as an
Employer contribution for the Plan Year in which the forfeiture occurs, as if
the Participant forfeiture were an additional Employer contribution for that
Plan Year. The Advisory Committee will continue to hold the undistributed,
non-vested portion of a terminated Participant's Accrued Benefit in his Account
solely for his benefit until a forfeiture occurs at the time specified in
Section 5.09. Except as provided under Section 5.04, a Participant will not
share in the allocation of a
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forfeiture of any portion of his Accrued Benefit. In making a forfeiture
allocation under this Section 3.08, the Advisory Committee will base forfeitures
of Employer Securities upon the fair market value of the Employer Securities as
of the Accounting Date of the forfeitures.
3.09 ACCRUAL OF BENEFIT. The Advisory Committee will determine the
accrual of benefit (Employer contributions and Participant forfeitures) on the
basis of the Plan Year.
(A) COMPENSATION TAKEN INTO ACCOUNT. In allocating an Employer contribution to a
Participant's account, the Advisory Committee, except for purposes of
determining the top heavy minimum contribution under Section 3.02(B), will take
into account only the Compensation determined for the portion of the Plan Year
in which the Employee actually is a Participant.
(B) HOURS OF SERVICE REQUIREMENT. Subject to the top heavy minimum allocation
requirement of Section 3.02(B), the Advisory Committee will not allocate any
portion of an Employer contribution for a Plan Year to any Participant's Account
if the Participant does not complete a minimum of 1,000 Hours of Service during
the Plan Year, unless the Participant terminates employment during the Plan Year
because of death or disability or because of the attainment of Normal Retirement
Age in the current Plan Year or in a prior Plan Year.
(C) EMPLOYMENT REQUIREMENT. A Participant who, during a particular Plan Year,
completes the Hours of Service requirement under this Section 3.09 will share in
the allocation of Employer contributions and Participant forfeitures without
regard to whether he is employed by an Employer on the last day of that Plan
Year.
ARTICLE IV.
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS. The Plan does not permit or
require Participant contributions.
4.02 PARTICIPANT ROLLOVER CONTRIBUTIONS. The Plan does not permit
Participant rollover contributions.
ARTICLE V.
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age is 65
years of age. A Participant who remains in the employ of an Employer after
attaining Normal Retirement Age will continue to participate in Employer
contributions. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by an Employer on or after that date).
-22-
5.02 PARTICIPANT DISABILITY OR DEATH. If a Participant's employment
with an Employer terminates as a result of death or disability, the
Participant's Accrued Benefit derived from Employer contributions will be 100%
Nonforfeitable.
5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02,
for each Year of Service, a Participant's Nonforfeitable percentage of his
Accrued Benefit derived from Employer contributions equals the percentage in the
following vesting schedule:
Percent of
Years of Service Nonforfeitable
With the Employer Accrued Benefit
----------------- ---------------
Less than 5 None
5 or more 100%
For any Plan Year in which the Plan is a top heavy Plan (as defined in
Section 1.30) the Advisory Committees will calculate a Participant's
Nonforfeitable percentage of his Accrued Benefit under the following schedule:
Percent of
Year of Service Nonforfeitable
With the Employer Accrued Benefit
----------------- ---------------
Less than 2 None
2 20%
3 40%
4 60%
5 80%
6 or more 100%
The Advisory Committee will apply the top heavy schedule to
Participants who earn at least one Hour of Service after the top heavy schedule
becomes effective. A shift between vesting schedules under this Section 5.03 is
an amendment to the vesting schedule and the Advisory Committee must apply the
rules of Section 7.04 accordingly. A shift to a new vesting schedule under this
Section 5.03 is effective on the first day of the Plan Year for which the top
heavy status of the Plan changes.
5.04 CASH-OUT DISTRIBUTION TO PARTIALLY-VESTED
PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to
Article VI, a partially-vested Participant receives a cash-out distribution from
the Plan before he incurs a Forfeiture Break in Service (as defined in Section
5.08), the cash-out distribution will result in an immediate forfeiture of the
non-vested portion of the Participant's Accrued
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Benefit derived from Employer contributions in the Plan. See Section 5.09. A
partially- vested Participant is a Participant whose Nonforfeitable Percentage
determined under Section 5.03 is less than 100%. A cash-out distribution is a
distribution of the entire present value of the Participant's Nonforfeitable
Accrued Benefit.
(A) RESTORATION AND CONDITIONS UPON RESTORATION. A partially vested Participant
who is reemployed by an Employer after receiving a cash-out distribution of the
Nonforfeitable percentage of his Accrued Benefit shall have a right to
restoration under the requirements of this Section 5.04.
The Advisory Committee, subject to the conditions of this paragraph
(A), must restore the Accrued Benefit of such Participant attributable to
Employer contributions in the Plan to the same dollar amount as the dollar
amount of his Accrued Benefit on the Accounting Date, or other valuation date,
immediately preceding the date of the cash-out distribution, unadjusted for any
gains or losses occurring subsequent to that Accounting Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration of
all Code ss.411(d)(6) protected benefits with respect to that restored Accrued
Benefit, in accordance with applicable Treasury regulations.
The Advisory Committee, subject to the conditions of this paragraph
(A), must restore the Accrued Benefit of such Participant attributable to
Employer contributions in the Former Plan to the same dollar amount as the
dollar amount of his Accrued Benefit on the Accounting Date, or other valuation
date, immediately preceding the date of the cash-out distribution, unadjusted
for any gains or losses occurring subsequent to that Accounting Date, or other
valuation date. Restoration of the Participant's Accrued Benefit includes
restoration of all Code ss.411(d)(6) protected benefits with respect to that
restored Accrued Benefit, in accordance with applicable Treasury regulations.
The Advisory Committee will not restore a reemployed Participant's
Accrued Benefit under this paragraph if:
(1) 5 years have elapsed since the Participant's
first reemployment date following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in
Service (as defined in Section 5.08).
(B) TIME AND METHOD OF RESTORATION. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory Committee
will restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the reemployment. To restore the
Participant's Accrued Benefit, the Advisory Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant
forfeitures the Advisory Committee would otherwise allocate under
Section 3.08;
-24-
(2) Second, the amount, if any, of the net income or
gain for the Plan for the Plan Year; and
(3) Third, the Employer contribution for the Plan
Year to the extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Advisory Committee to make any required restoration,
DST must contribute, without regard to any requirement or condition of Section
3.01, the additional amount necessary to enable the Advisory Committee to make
the required restoration. If, for a particular Plan Year, the Advisory Committee
must restore the Accrued Benefit of more than one reemployed Participant, then
the Advisory Committee will make the restoration allocation(s) to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of all
reemployed Participants in the Plan. The Advisory Committee will not take into
account the allocation under this Section 5.04 in applying the limitation on
allocations under Section 3.03.
(C) 0% VESTED PARTICIPANT. The deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of his
Separation from Service. Under the deemed cash-out rule, the Advisory Committee
will treat a 0% vested Participant as having received a cash-out distribution on
the first day of the Plan Year immediately following the Plan Year in which he
separates from Service.
5.05 [RESERVED].
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section
5.03, Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service, including Plan Years prior to the Effective
Date of the Plan.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with an Employer. For the sole purpose of
determining a Participant's Nonforfeitable percentage of his Accrued Benefit
derived from Employer contributions which accrued for his benefit prior to a
Forfeiture Break in Service, the Plan disregards any Year of Service after the
Participant first incurs a Forfeiture Break in Service. The Participant incurs a
Forfeiture Break in Service when he incurs 5 consecutive Breaks in Service.
-25-
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
(a) The last day of the Plan Year in which the Participant
first incurs a Forfeiture Break in Service; or
(b) The last day of the Plan Year in which the Participant
receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's
forfeiture, if any, under this Section 5.09 solely by reference to the vesting
schedule of Section 5.03. A Participant will not forfeit any portion of his
Accrued Benefit for any other reason or cause except as expressly provided by
this Section 5.09 or as provided under Section 9.07. Employer Securities
allocated to the Participant's Account under Section 9.06 of the Plan must be
forfeited only after other assets.
ARTICLE VI.
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to
Section 6.03, the Participant or the Beneficiary elects in writing to a
different time or method of payment, the Advisory Committee will direct the
Trustee to commence distribution of a Participant's Nonforfeitable Accrued
Benefit in accordance with this Section 6.01. A Participant must consent, in
writing, to any distribution required under this Section 6.01 if the present
value of the Participant's Nonforfeitable Accrued Benefit, at the time of the
distribution to the Participant, exceeds $5,000 and the Participant has not
attained the later of Normal Retirement Age or age 62. For all purposes of this
Article VI, the term "annuity starting date" means the first day of the first
period for which the Plan pays an amount as an annuity or in any other form. A
distribution date under this Article VI, unless otherwise specified within the
Plan, is the last day of each Plan Year or as soon as administratively
practicable following such last day of the Plan Year. For purposes of the
consent requirements under this Article VI, if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of any distribution,
exceeds $5,000, the Advisory Committee must treat that present value as
exceeding $5,000 for purposes of all subsequent Plan distributions to the
Participant.
(A) TERMINATION OF EMPLOYMENT FOR A REASON OTHER THAN DEATH. For a Participant
who terminates employment with the Employer for a reason other than death, the
Advisory Committee will direct the Trustee to commence distribution of the
Participant's Accrued Benefit, as follows:
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(1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING
$5,000.
In a lump sum, on the first distribution date after the close of the
Plan Year in which the Participant's Separation from Service occurs,
but in no event later than sixty (60) days after the latest of the
close of the Plan Year in which (a) the Participant attains age
sixty-five (65), (b) occurs the tenth (10th) anniversary of the date on
which the Participant commenced participation in the Plan, and (c) the
Participant had a Separation from Service; or as soon thereafter as the
amount of the payment can be ascertained, in which event the
distribution shall be retroactive to such date. In the case of a
Participant who separates from Service between January 1, and September
30, and who has attained age 55 on or before the date of his Separation
from Service, the Participant may elect to have the Trustee commence
distribution as of the 30th day after the end of the calendar quarter
in which his Separation from Service occurs, or as soon as
administratively practicable thereafter If a Participant incurred a
Separation from Service (under this Plan or the Former Plan) before
January 1, 1998 with a nonforfeitable Accrued Benefit of more than
$3,500 but not more than $5,000, and has not otherwise made a
distribution election under subsection (2) below and Section 6.03,
distribution to the Participant shall be made under this subsection (1)
as soon as practicable after January 1, 1998.
(2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$5,000. In a form and at the time elected by the Participant, pursuant
to Section 6.03. In the absence of an election by the Participant, the
Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in a lump sum not later
than sixty (60) days after the latest of the close of the Plan Year in
which (a) the Participant attains age sixty-five (65), (b) occurs the
tenth (10th) anniversary of the date on which the Participant commenced
participation in the Plan, and (c) the Participant had a Separation
from Service or as soon thereafter as the amount of the payment can be
ascertained in which event the distribution shall be retroactive to
such date.
(3) DISABILITY. If the Participant terminates employment
because of disability, in a form and at the time elected by the
Participant, pursuant to Section 6.03. In the absence of an election by
the Participant, the Advisory Committee will direct the Trustee to
distribute the Participant's Nonforfeitable Accrued Benefit in a lump
sum, on the first distribution date after the close of the Plan Year in
which the Participant terminates employment because of disability,
subject to the notice and consent requirements of this Article VI and
to the applicable mandatory commencement dates described in Paragraph
(1) or in Paragraph (2).
(B) REQUIRED BEGINNING DATE. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or non-election), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution under this Section 6.01 on the Participant's Required Beginning
Date. A Participant's Required Beginning Date is the April 1 of the calendar
year following the later of (i) the calendar year in which the Participant
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attains age 70-1/2 or (ii) the calendar year in which the Participant separates
from Service. However, clause (ii) of the preceding sentence shall not apply if
the Participant is a 5% owner (as defined in Section 1.07(a)) with respect to
the Plan Year ending in the calendar year in which he attains age 70-1/2). If
the Participant attains age 70-1/2 prior to January 1, 1999, the Participant may
elect by written notice to the Plan Administrator not to have clause (ii) of the
preceding sentence apply. A mandatory distribution at the Participant's Required
Beginning Date will be in lump sum unless the Participant, pursuant to the
provisions of this Article VI, makes a valid election to receive an alternative
form of payment.
(C) DEATH OF THE PARTICIPANT. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. The Advisory Committee will
determine the death benefit by reducing the Participant's Nonforfeitable Accrued
Benefit by any security interest the Plan has against that Nonforfeitable
Accrued Benefit by reason of an outstanding Participant loan.
(1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES
NOT EXCEED $5,000. The Advisory Committee must direct the Trustee to
pay the deceased Participant's Nonforfeitable Accrued Benefit in a
single cash sum, as soon as administratively practicable following the
Participant's death or, if later, the date on which the Advisory
Committee receives notification of or otherwise confirms the
Participant's death.
(2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT
EXCEEDS $5,000. The Advisory Committee will direct the Trustee to pay
the deceased Participant's Nonforfeitable Accrued Benefit at the time
and in the form elected by the Participant or, if applicable by the
Beneficiary, as permitted under this Article VI. In the absence of an
election, the Advisory Committee will direct the Trustee to distribute
the Participant's undistributed Nonforfeitable Accrued Benefit in a
lump sum on the first distribution date following the close of the Plan
Year in which the Participant's death occurs or, if later, the first
distribution date following the date the Advisory Committee receives
notification of or otherwise confirms the Participant's death.
If the death benefit is payable to the Participant's surviving spouse
in full, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form this
Article VI would permit for a Participant.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy of
the Participant and his Beneficiary.
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The distribution options permitted under this Section 6.02 are
available only if the present value of the Participant's Nonforfeitable Accrued
Benefit, at the time of the distribution to the Participant, exceeds $5,000.
Under an installment distribution, the Participant or Beneficiary, at any time,
may elect to accelerate the payment of all, or any portion, of the Participant's
unpaid Nonforfeitable Accrued Benefit.
(A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution requirements
under Code ss.401(a)(9) and the applicable Treasury regulations.
The minimum distribution for a calendar year for a Participant in the
Plan equals the Participant's Nonforfeitable Accrued Benefit in the Plan as of
the latest valuation date preceding the beginning of the calendar year divided
by the Participant's life expectancy or, if applicable, the joint and last
survivor expectancy of the Participant and his designated Beneficiary (as
determined under Article VIII, subject to the requirements of the Code
ss.401(a)(9) regulations). The Advisory Committee will increase the
Participant's Nonforfeitable Accrued Benefit in the Plan, as determined on the
relevant valuation date, for contributions or forfeitures allocated after the
valuation date and by December 31 of the valuation calendar year, and will
decrease the valuation by distributions made after the valuation date and by
December 31 of the valuation calendar year. For purposes of this valuation, the
Advisory Committee will treat any portion of the minimum distribution for the
first distribution calendar year made after the close of that year as a
distribution occurring in that first distribution calendar year. In computing a
minimum distribution, the Advisory Committee must use the unisex life expectancy
multiples under Treas. Reg. ss.1.72-9. The Advisory Committee, only upon the
Participant's written request, may compute the minimum distribution for a
calendar year subsequent to the first calendar year for which the Plan requires
a minimum distribution by redetermining the applicable life expectancy. However,
the Advisory Committee may not redetermine the joint life and last survivor
expectancy of the Participant and a non-spouse designated Beneficiary in a
manner which takes into account any adjustment to a life expectancy other than
the Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method
of payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the minimum distribution incidental benefit ("MDIB") requirement in the
Treasury regulations issued under Code ss.401(a)(9) for distributions made on or
after the Participant's Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) by substituting the
applicable MDIB divisor for the applicable life expectancy factor, if the MDIB
divisor is a lesser number. Following the Participant's death, the Advisory
Committee will compute the
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minimum distribution required by this Section 6.02(A) solely on the basis of the
applicable life expectancy factor and will disregard the MDIB factor. For Plan
Years beginning prior to January 1, 1989, the Plan satisfies the incidental
benefits requirement if the distributions to the Participant satisfied the MDIB
requirement or if the present value of the retirement benefits payable solely to
the Participant is greater than 50% of the present value of the total benefits
payable to the Participant and his Beneficiaries. The Advisory Committee must
determine whether benefits to the Beneficiary are incidental as of the date the
Trustee is to commence payment of the retirement benefits to the Participant, or
as of any date the Trustee redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is
due by the Participant's Required Beginning Date. The minimum distribution for
each subsequent distribution calendar year, including the calendar year in which
the Participant's Required Beginning Date falls, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code ss.401(a)(9) and the applicable
Treasury regulations.
(B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code ss.401(a)(9) and
the applicable Treasury regulations. If the Participant's death occurs after his
Required Beginning Date, the method of payment to the Beneficiary must provide
for completion of payment over a period which does not exceed the payment period
which had commenced for the Participant. If the Participant's death occurs prior
to his Required Beginning Date, the method of payment to the Beneficiary, must
provide for completion of payment to the Beneficiary over a period not
exceeding: (i) 5 years after the date of the Participant's death; or (ii) if the
Beneficiary is a designated Beneficiary, the designated Beneficiary's life
expectancy.
The Advisory Committee may not direct payment of a Participant's
Nonforfeitable Accrued Benefit in the Plan over a period described in clause
(ii) above unless the Trustee will commence payment to the designated
Beneficiary no later than the December 31 following the close of the calendar
year in which the Participant's death occurred or, if later, and the designated
Beneficiary is the Participant's surviving spouse, December 31 of the calendar
year in which the Participant would have attained age 70-1/2. If the Trustee
will make distribution in accordance with clause (ii), the minimum distribution
for a calendar year equals the Participant's Nonforfeitable Accrued Benefit in
the Plan as of the latest valuation date preceding the beginning of the calendar
year divided by the designated Beneficiary's life expectancy.
The Advisory Committee must use the unisex life expectancy multiples
under Treas. Reg. ss.1.72-9 for purposes of applying this Section 6.02(B). The
Advisory Committee, only upon the written request of the Participant or of the
Participant's surviving spouse, may recalculate the life expectancy of the
Participant's surviving spouse not more frequently than annually, but may not
recalculate the life expectancy of a non-spouse designated Beneficiary
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after the Trustee commences payment to the designated Beneficiary. The Advisory
Committee will apply this Section 6.02(B) by treating any amount paid to the
Participant's child, which becomes payable to the Participant's surviving spouse
upon the child's attaining the age of majority, as paid to the Participant's
surviving spouse. Upon the Beneficiary's written request, the Advisory Committee
must direct the Trustee to accelerate payment of all, or any portion, of the
Participant's unpaid Accrued Benefit, as soon as administratively practicable
following the effective date of that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than ninety (90) days
before nor later than thirty (30) days before the Participant's annuity starting
date, the Plan Administrator must provide a benefit notice to a Participant who
is eligible to make an election under this Section 6.03. The benefit notice must
explain the optional forms of benefit in the Plan, including the material
features and relative values of those options, and the Participant's right to
defer distribution until he attains the later of Normal Retirement Age or age
62.
A distribution may commence less than 30 days after the benefit notice
is given, provided that:
(1) the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02. The Participant or Beneficiary must make an election under this Section
6.03 by filing his election form with the Applicable Advisory Committee at any
time before the Trustee otherwise would commence to pay a Participant's Accrued
Benefit in accordance with the requirements of Article VI.
(A) PARTICIPANT ELECTIONS AFTER TERMINATION OF EMPLOYMENT. If the present value
of a Participant's Nonforfeitable Accrued Benefit exceeds $5,000, he may elect
to have the Trustee commence distribution as of any distribution date, but not
earlier than the first distribution date at the close of the Plan Year in which
the Participant's Separation from Service occurs. The Participant may reconsider
an election at any time prior to the annuity starting date and elect to commence
distribution as of any other distribution date, but not earlier than the date
described in the first sentence of this Section 6.03(A). In the case of a
Participant who separates from Service between January 1 and September 30, and
who has attained age 55 on or before the date of his Separation from Service,
the Participant, in
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addition to the benefit payment elections provided for in the first two
sentences of this Section 6.03(A), shall have the right to elect to have the
Trustee commence distribution as of the 30th day after the end of the calendar
quarter in which his Separation from Service occurs, or as soon as
administratively practicable thereafter. A Participant who has separated from
Service may elect distribution as of any distribution date following his
attainment of Normal Retirement Age, irrespective of the restrictions otherwise
applicable under this Section 6.03(A). If the Participant is partially vested in
his Accrued Benefit, an election under this Section 6.03(A) to distribute prior
to the Participant's incurring a Forfeiture Break in Service (as defined in
Section 5.08), must be in the form of a cash-out distribution (as defined in
Article V). A Participant may not receive a cash-out distribution if, prior to
the time the Trustee actually makes the cash-out distribution, the Participant
returns to employment with an Employer.
(B) PARTICIPANT ELECTIONS PRIOR TO TERMINATION OF EMPLOYMENT. After a
Participant (1) attains Normal Retirement Age or (2) attains 59-1/2 and has at
least five years of Participation in the Plan (including the Former Plan), the
Participant, until he retires, has a continuing election to receive all or any
portion of his Nonforfeitable Accrued Benefit. A Participant must make an
election under this Section 6.03(B) on a form prescribed by the Advisory
Committee at any time during the Plan Year for which his election is to be
effective. In his written election, the Participant must specify the percentage
or dollar amount he wishes the Trustee to distribute to him. The Participant's
election relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for a
particular Plan Year greater than the dollar amount or percentage specified in
his election form terminates on the Accounting Date. The Trustee must make a
distribution to a Participant in accordance with his election under this Section
6.03(B) within the 90-day period (or as soon as administratively practicable)
after the distribution date next following the date the Participant files his
written election with the Trustee. The Trustee will distribute the balance of
the Participant's Nonforfeitable Accrued Benefit not distributed pursuant to
this election(s) in accordance with the other distribution provision of this
Plan.
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased Participant's
Nonforfeitable Accrued Benefit exceeds $5,000, the Participant's Beneficiary may
elect to have the Trustee distribute the Participant's Nonforfeitable Accrued
Benefit in a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions designated in writing by
the Participant and not revoked as of his date of death.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS. The joint and survivor
annuity requirements of the Code do not apply to this Plan. The Plan does not
provide any annuity distributions to Participants. A transfer agreement
described in Section 13.05 may not permit a plan which is subject to the
provisions of Code ss.417 to transfer assets to this Plan.
6.05 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS. Unless the
Participant elects in writing to have the Trustee apply other distribution
provisions of the
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Plan, or unless other distribution provisions of the Plan require earlier
distribution of the Participant's Accrued Benefit, the Trustee must distribute
the Participant's vested Accrued Benefit (the "Eligible Portion") no later than
the time prescribed by this Section 6.05, irrespective of any other provision of
the Plan. The distribution provisions of this Section 6.05 are subject to the
consent and form of distribution requirements of Articles V and VI of the Plan.
(a) If the Participant separates from Service by reason of the
attainment of Normal Retirement Age, death, or disability, the Advisory
Committee will direct the Trustee to commence distribution of the
Participant's Eligible Portion not later than one year after the close
of the Plan Year in which that event occurs.
(b) If the Participant separates from Service for any reason
other than by reason of the attainment of Normal Retirement Age, death
or disability, the Advisory Committee will direct the Trustee to
commence distribution of the Participant's Eligible Portion not later
than one year after the close of the fifth Plan Year following the Plan
Year in which the Participant separates from Service. If the
Participant resumes employment with an Employer on or before the last
day of the fifth Plan Year following the Plan Year of his Separation
from Service, the distribution provisions of this paragraph (b) do not
apply.
For purposes of this Section 6.05, Eligible Portion does not include
any Employer Securities acquired with the proceeds of an Exempt Loan until the
close of the Plan Year in which the borrower repays the Exempt Loan in full.
Notwithstanding anything else in this Plan, unless the Participant
otherwise elects, the distribution of the Participant's Accrued Benefit will be
in substantially equal periodic payment (not less frequently than annually) over
a period not longer than the greater of:
(a) Five years, or
(b) In the case of a Participant with an Accrued Benefit in excess of
Five Hundred Thousand Dollars ($500,000) (or beginning January 1, 1990,
such larger amount as the Commissioner of Internal Revenue shall
prescribe), five (5) years plus one (1) additional year (not more than
five (5) additional years) for each One Hundred Thousand Dollars
($100,000) (or beginning January 1, 1990, such larger amount as the
Commissioner of Internal Revenue shall prescribe) or fraction thereof
by which such balance exceeds $500,000.
The foregoing provisions of this paragraph shall not be construed so as to
preclude the distribution of a Participant's Accrued Benefit in the form of a
single lump-sum payment.
6.06 [Reserved]
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6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained
in this Plan prevents the Trustee, in accordance with the direction of the
Advisory Committee, from complying with the provisions of a qualified domestic
relations order (as defined in Code ss.414(p)). This Plan specifically permits
distribution to an alternate payee under a qualified domestic relations order as
of March 31, April 30, July 30 or October 30 of any Plan Year, irrespective of
whether the Participant has attained his earliest retirement age (as defined
under Code ss.414(p)) under the Plan. A distribution to an alternate payee prior
to the Participant's attainment of earliest retirement age is available only if:
(1) the order specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an earlier distribution;
and (2) if the present value of the alternate payee's benefits under the Plan
exceeds $5,000, and the order requires and the alternate payee consents to any
distribution occurring prior to the Participant's attainment of earliest
retirement age. Nothing in this Section 6.07 permits a Participant a right to
receive distribution at a time otherwise not permitted under the Plan nor does
it permit the alternate payee to receive a form of payment not permitted under
the Plan.
The Plan Administrator must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator must determine the qualified
status of the order and must notify the Participant and each alternate payee, in
writing, of its determination. The Plan Administrator must provide notice under
this paragraph by mailing to the individual's address specified in the domestic
relations order, or in a manner consistent with Department of Labor regulations.
A qualified domestic relations order under the Former Plan with respect to the
Accrued Benefit of a DST Participant shall be treated as a qualified domestic
relations order under this Plan.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrator is making its determination of
the qualified status of the domestic relations order, the Advisory Committee
must make a separate accounting of the amounts payable. If the Plan
Administrator determines the order is a qualified domestic relations order
within 18 months of the date amounts first are payable following receipt of the
order, the Advisory Committee will direct the Trustee to distribute the payable
amounts in accordance with the order. If the Plan Administrator does not make
its determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Plan
Administrator later determines the order is a qualified domestic relations
order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Advisory Committee may direct the
Trustee to invest any partitioned amount in a segregated subaccount or separate
account and to invest the account in Federally
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insured, interest-bearing savings account(s) or time deposit(s) (or a
combination of both), or in other fixed income investments. A segregated
subaccount remains a part of the Trust, but it alone shares in any income it
earns, and it alone bears any expense or loss it incurs. The Trustee will make
any payments or distributions required under this Section 6.07 by separate
benefit checks or other separate distribution to the alternate payee(s).
6.08 ROLLOVER DISTRIBUTIONS. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's election under this
Section 6.08, a distributee may elect, at the time and in the manner prescribed
by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section 6.08, the
following definitions shall apply.
(A) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance
to the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee and
the distributee's designated beneficiary, or for a specified period of
ten years or more; any distribution to the extent such distribution is
required under Code ss.401(a)(9); and the portion of any distribution
that is not includible in gross income (determined without regard to
the exclusion for net unrealized appreciation with respect to employer
securities).
(B) Eligible retirement plan: An eligible retirement plan is
an individual retirement account described in Code ss.408(a), an
individual retirement annuity described in Code ss.408(b), an annuity
plan described in Code ss.403(a), or a qualified trust described in
Code ss.401(a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(C) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations order,
as defined in section 414(p) of the Code, are distributees with regard
to the interest of the spouse or former spouse.
(D) Direct rollover: A direct rollover is a payment by the
plan to eligible retirement plan specified by the distributee.
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ARTICLE VII.
EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 INFORMATION TO COMMITTEE. DST must supply current information to
the Advisory Committee as to the name, date of birth, date of employment, annual
compensation, leaves of absence, Years of Service and date of termination of
employment of each Employee who is, or who will be eligible to become, a
Participant under the Plan, together with any other information which the
Advisory Committee considers necessary. DST's records as to the current
information DST furnishes to the Advisory Committee are conclusive as to all
persons.
7.02 NO LIABILITY. No Employer assumes any obligation or responsibility
to any of its Employees, Participants or Beneficiaries for any act of, or
failure to act, on the part of the Advisory Committee (unless the Employer is
the Advisory Committee), the Trustee or the Plan Administrator (unless the
Employer is the Plan Administrator).
7.03 INDEMNITY OF COMMITTEE. DST Systems, Inc. indemnifies and saves
harmless the Plan Administrator and the members of the Advisory Committee, and
each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses reasonably
incurred in their defense, in case DST Systems, Inc. fails to provide such
defense. The indemnification provisions of this Section 7.03 do not relieve the
Plan Administrator or any member of the Advisory Committee from any liability he
may have under ERISA for breach of a fiduciary duty. Furthermore, the Plan
Administrator and the members of the Advisory Committee and DST Systems, Inc.
may execute a letter agreement further delineating the indemnification agreement
of this paragraph, provided the agreement must be consistent with and must not
violate ERISA. The indemnification provisions of this paragraph extend to the
Trustee solely to the extent provided by a letter agreement executed by the
Trustee and DST Systems, Inc.
7.04 AMENDMENT TO VESTING SCHEDULE. Though DST Systems, Inc. reserves
the right to amend the vesting schedule of the Plan at any time, the Advisory
Committee will not apply the amended vesting schedule to reduce the
Nonforfeitable percentage of any Participant's Accrued Benefit derived from
Employer contributions (determined as of the later of the date the amendment is
adopted, or the date the amendment becomes effective) to a percentage less than
the Nonforfeitable percentage computed under the Plan prior to the amendment.
If an Employer makes a permissible amendment to the vesting schedule,
each Participant having at least 3 Years of Service with an Employer may elect
to have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. The Participant must file his election
with the Plan Administrator within
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sixty (60) days of the latest of (a) the adoption of the amendment; (b) the
effective date of the amendment; or (c) his receipt of a copy of the amendment.
The Plan Administrator, as soon as practicable, must forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the time within which the
Participant must make an election to remain under the prior vesting schedule.
For purposes of this Section 7.04, an amendment to the vesting schedule includes
any Plan amendment which directly or indirectly affects the computation of the
Nonforfeitable percentage of an Employee's rights to his Employer derived
Accrued Benefit.
ARTICLE VIII.
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Accrued Benefit in the event of his death and the
Participant may designate the form and method of payment. The Advisory Committee
will prescribe the form for the written designation of Beneficiary and, upon the
Participant's filing the form with the Advisory Committee, the form effectively
revokes all designations filed prior to that date by the same Participant. A
Beneficiary designation valid under the Former Plan by a DST Participant shall
be effective under this Plan until changed by the Participant in accordance with
this Section.
A married Participant's Beneficiary designation is not valid unless the
Participant's spouse consents, in writing, to the Beneficiary designation. The
spouse's consent must acknowledge the effect of that consent and a notary public
or the Plan Administrator (or his representative) must witness that consent. The
spousal consent requirements of this paragraph do not apply if: (1) the
Participant's spouse is the Participant's sole primary beneficiary; (2) the
Participant's spouse cannot be located; (3) the Participant is legally separated
or has been abandoned (within the meaning of State law) and the Participant has
a court order to that effect; or (4) other circumstances exist under which the
Secretary of the Treasury will excuse the consent requirement. If the
Participant's spouse is legally incompetent to give consent, the spouse's legal
guardian (even if the guardian is the Participant) may give consent.
8.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
Beneficiary in accordance with Section 8.01, or if the Beneficiary named by a
Participant predeceases him, then the Trustee will pay the Participant's Accrued
Benefit in accordance with Section 6.02 in the following order of priority to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted
children, in equal shares;
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(c) The Participant's surviving parents, in equal shares; or
(d) The legal representative of the estate of the Participant.
If the Beneficiary does not predecease the Participant, but dies prior
to the distribution of the Participant's entire Nonforfeitable Accrued Benefit,
the Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise. The Advisory Committee will direct the Trustee as to the method and
to whom the Trustee will make payment under this Section 8.02.
8.03 PERSONAL DATA TO COMMITTEE. Each Participant (and each Beneficiary
of a deceased Participant) must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant (and each Beneficiary
of a deceased Participant) must file with the Advisory Committee from time to
time, in writing, his post office address and any change of post office address.
Any communication, statement or notice addressed to a Participant, or
Beneficiary, at his last post office address filed with the Advisory Committee,
or as shown on the records of an Employer, binds the Participant, or
Beneficiary, for all purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code ss.414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee will not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries in the Plan a summary description of any material
amendment to, or notice of discontinuance of, the Plan and all other information
required by ERISA to be furnished without charge.
8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction
may authorize any appropriate equitable relief to redress violations of ERISA or
to enforce
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any provisions of ERISA or the terms of the Plan. A fiduciary may receive
reimbursement of expenses properly and actually incurred in the performance of
his duties with the Plan.
8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator will
maintain all of the items listed in this Section 8.08 in his office, or in such
other place or places as he may designate from time to time in order to comply
with the regulations issued under ERISA, for examination during reasonable
business hours. Upon the written request of a Participant or Beneficiary the
Plan Administrator will furnish him with a copy of any item listed in this
Section 8.08. The Plan Administrator may make a reasonable charge to the
requesting person for the copy so furnished.
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Plan
Administrator will provide adequate notice in writing to any Participant or to
any Beneficiary ("Claimant") whose claim for benefits under the Plan the
Advisory Committee has denied.
The Plan Administrator's notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which
the Advisory Committee based its denial;
(c) A description of any additional material and information
needed for the Claimant to perfect his claim and an explanation of why
the material or information is needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within 75
days after receipt of the Plan Administrator's notice of denial of
benefits. The Plan Administrator's notice must further advise the
Claimant that his failure to appeal the action to the Advisory
Committee in writing within the 75-day period will render the Advisory
Committee's determination final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his
duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Claimant, or his duly authorized representative, may review pertinent plan
documents. The Advisory Committee will reexamine all facts related to the appeal
and make a final determination as to whether the denial of benefits is justified
under the circumstances. The Advisory Committee must advise the Claimant of its
decision within sixty (60) days of the Claimant's written request for review,
unless special circumstances (such as a hearing) would make the rendering of a
decision within the sixty (60) day limit unfeasible, but in no event may the
Advisory
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Committee render a decision respecting a denial for a claim for benefits later
than 120 days after its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
8.10 ESOP DIVERSIFICATION. Each Qualified Participant may direct the
Trustee as to the distribution of 25% of the aggregate value of the
Participant's Employer Securities Shares Account (the "Eligible Accrued
Benefit"), within 90 days after the last Accounting Date of each Plan Year (to
the extent a direction amount exceeds the amount to which a prior direction
under this Section 8.10(A) or Section 8.10(B) applies) during the Participant's
Qualified Election Period. For the last Plan Year in the Participant's Qualified
Election Period, the Trustee will substitute "50%" for "25%" in the immediately
preceding sentence. The Qualified Participant must make his direction to the
Trustee in writing, the direction may be effective no later than 180 days after
the close of the Plan Year to which the direction applies. The Trustee will make
the distribution within 90 days after the last day of the period during which
the Qualified Participant may make the election. The provisions of this Plan
applicable to a distribution of Employer Securities, including the put option
requirements of Article XI, apply to this investment option.
For purpose of this Section 8.10, the following definitions apply:
(1) "Qualified Participant" means a Participant who has
attained age 55 and who has completed at least 10 years of
participation in the Plan. A "year of participation" means a Plan Year
of the Plan or Former Plan in which the Participant was eligible for an
allocation of Employer contributions, irrespective of whether the
Employer actually contributed to the Plan for that Plan Year.
(2) "Qualified Election Period" means the six (6) Plan Year
period beginning with the Plan Year in which the Participant first
becomes a Qualified Participant.
A Participant's right under this Section 8.10(A) to direct the
distribution of his Account applies solely to Employer Securities acquired by
the Plan or Former Plan after December 31, 1986.
Except as provided in this Section 8.10, a Participant does not have
the right to direct the Trustee with respect to the investment or reinvestment
of the assets comprising the Participant's individual Accounts.
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ARTICLE IX.
ADVISORY COMMITTEE--DUTIES WITH RESPECT
TO PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION EXPENSES. DST Systems, Inc. must appoint an
Advisory Committee to administer the Plan, the members of which may or may not
be Participants in the Plan, or which may be the Plan Administrator acting
alone. The members of the Advisory Committee will serve without compensation for
services as such, but DST will pay all expenses of the Advisory Committee,
including the expense for any bond required under ERISA.
9.02 GENERAL. The Advisory Committee has the following powers and
duties:
(a) To select a Secretary, who need not be a member of the
Advisory Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit
in the Plan and the Nonforfeitable percentage of each Participant's
Accrued Benefit in the Plan;
(c) To adopt rules of procedure and regulations necessary for
the proper and efficient administration of the Plan provided the rules
are not inconsistent with the terms of this Agreement;
(d) Discretionary authority to construe, interpret and enforce
the terms of the Plan (including making factual determinations) and the
rules and regulations it adopts, including interpretation of the Plan
documents and documents related to the Plan's operation and its
decisions shall be final and binding on all interested persons;
(e) To direct the Trustee as respects the crediting and
distribution of the Plan;
(f) To direct the Trustee as respects the purchase and sale of
Employer Securities;
(g) To review and render decisions respecting a claim for (or
denial of a claim for) a benefit under the Plan;
(h) To furnish DST with information which DST may require for
tax or other purposes;
(i) To engage the service of agents whom it may deem advisable
to assist it with the performance of its duties;
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(j) To engage the services of an Investment Manager or
Managers (as defined in ERISA ss.3(38)), each of whom will have full
power and authority to manage, acquire or dispose (or direct the
Trustee with respect to acquisition or disposition) of any asset in the
Plan under its control; and
(k) To direct Employer contributions between the Separate
Trust and the Master Trust and to direct the Trustee to transfer assets
from the Separate Trust to the Master Trust or from the Master Trust to
the Separate Trust.
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
9.03 FUNDING POLICY. The Advisory Committee will review, not less often
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.04 INDIVIDUAL ACCOUNTS. The Trustee shall maintain a separate
Account, or multiple separate Accounts, in the name of each Participant in the
Plan to reflect the Participant's Accrued Benefit under the Plan. The Trustee
must maintain for purposes of the Plan one Account designated as the Employer
Securities Account to reflect a Participant's interest in Employer Securities
held by the Plan, another Account designated as the General Investment Account
to reflect the Participant's interest in the Plan attributable to assets other
than Employer Securities and other than KCSI Shares, and another Account
designated as the KCSI Shares Account to reflect a Participant's interest in the
KCSI Shares held by the Plan. If a Participant reenters the Plan subsequent to
his having a Forfeiture Break in Service (as defined in Section 5.08), the
Trustee must maintain separate Accounts for the Participant's pre-Forfeiture
Break in Service Accrued Benefit and separate Accounts for his post- Forfeiture
Break in Service Accrued Benefit unless the Participant's entire Accrued Benefit
under the Plan is 100% Nonforfeitable.
The Trustee shall make its allocations to the Accounts of the
Participants in the Plan in accordance with the provisions of Section 9.06. The
Trustee may and if directed by the Advisory Committee shall maintain a temporary
segregated investment Account in the name of a Participant to prevent a
distortion of income, gain or loss allocations under Section 9.06.
The Trustee shall maintain records of its activities.
9.05 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
Participant's Accrued Benefit consists of that portion of the net worth (at fair
market value) of the Plan which the net credit balance in his Accounts bears to
the total net credit balance in the Accounts of all Participants in the Plan.
For purposes of a distribution under the Plan,
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the value of a Participant's Accrued Benefit is its value as of the valuation
date immediately preceding the date of the distribution. A Participant's Accrued
Benefit shall not include or be deemed to include, any Employer Security held in
a suspense account, as provided in Section 10.03(B).
9.06 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. A "valuation date" under
this Plan is each Accounting Date and each interim valuation date determined
under Section 10.14. As of each valuation date the Trustee must adjust Accounts
to reflect net income, gain or loss since the last valuation date. In adjusting
Accounts the Trustee of the Separate Trust may rely on information provided by
the Trustee of the Master Trust with respect to income, gain or loss on the
intent of Accounts in the Master Trust, and the Trustee of the Master Trust may
similarly rely on information provided by the Trustee of the Separate Trust. The
valuation period is the period beginning the day after the last valuation date
and ending on the current valuation date.
(A) EMPLOYER SECURITIES ACCOUNT. As of the Accounting Date of each Plan
Year, the Trustee first will reduce Employer Securities Accounts in the Plan for
any forfeitures arising under Section 5.09 and then will credit the Employer
Securities Account maintained for each Participant in the Plan with the
Participant's allocable share of Employer Securities (including fractional
shares) purchased and paid for by the Trust or contributed in kind to the Trust,
with any forfeitures of Employer Securities and with any stock dividends on
Employer Securities allocated to his Employer Securities Account. The Trustee
will allocate Employer Securities acquired with an Exempt Loan under Section
10.03(B) in accordance with that Section. Except as otherwise specifically
provided in Section 10.03(B), the Trustee will base allocations to the
Participants' Accounts on dollar values of Employer Securities or on the basis
of actual Employer Securities shares where there is a single class of Employer
Securities. In making a forfeiture reduction under this Section 9.06(A), the
Trustee, to the extent possible, first must forfeit from a Participant's General
Investment Account before making a forfeiture from his Employer Securities
Account.
(B) GENERAL INVESTMENT ACCOUNT.
TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply
to all Participant General Investment Accounts in the Plan other than segregated
investment Accounts. The Trustee first will adjust such Participant General
Investment Accounts, as those Accounts stood at the beginning of the current
valuation period, by reducing the Accounts for any forfeitures arising under
Section 5.09 or under Section 9.07, for amounts charged during the valuation
period to the Accounts in accordance with Section 9.14 (relating to
distributions) and for the amount of any such General Investment Account which
the Trustee has fully distributed since the immediately preceding valuation
date. The Trustee then, subject to the restoration allocation requirements of
Section 5.04 or of Section 9.07, will allocate the net income, gain or loss pro
rata to the adjusted Participant General Investment Accounts in the Plan. The
allocable net income, gain or loss is the net income (or net loss), including
the increase or decrease in the fair market value of assets, since the
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last valuation date. In making its allocations under this Section 9.06(B), the
Trustee will exclude Employer Securities allocated to Employer Securities
Accounts, stock dividends on allocated Employer Securities and interest paid by
the Trust on an Exempt Loan. The Trustee will include cash dividends on Employer
Securities as income (available for payment on an Exempt Loan to the extent such
dividends are attributable to Employer Securities acquired with the proceeds of
an Exempt Loan) except cash dividends which the Advisory Committee has directed
the Trustee to distribute in accordance with Section 10.08, or which the
Advisory Committee has directed the Trustee to use for the payment of principal
and/or interest on any Exempt Loan, or to use for the funding of a benefit
distribution in cash, in lieu of Employer Securities, to a Participant pursuant
to Section 10.08. If dividends on any Employer Securities are used for the
funding of such a benefit distribution in cash pursuant to Section 10.08, then
the Employer Securities which, but for such benefit distribution in cash rather
than Employer Securities, would have been distributed to the Participant shall
be allocated for the Plan Year in which such cash benefit distribution occurred
to the Accounts of Participants as if such Employer Securities constituted
earnings for such Plan Year.
SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account
receives all income it earns and bears all expense or loss it incurs. As of the
valuation date, the Trustee must reduce a segregated investment Account for any
forfeiture arising under Section 5.089 after the Trustee has made all other
allocations, changes or adjustments to the Account for the Plan Year.
ADDITIONAL RULES. An Excess Amount or suspense account described in
Article III does not share in the allocation of net income, gain or loss
described in this Section 9.06(B). The Trustee will allocate the Employer
contributions and Participant forfeitures, if any, in accordance with Article
III.
(C) KCSI SHARES ACCOUNT. As of each valuation date of each Plan Year,
the Trustee first will reduce KCSI Shares Accounts in the Plan for any
forfeitures arising under Section 5.09 and then will credit the KCSI Shares
Account maintained for each Participant in the Plan with any forfeitures of KCSI
Shares and with any stock dividends on KCSI Shares allocated to his KCSI Shares
Account. The Trustee will base allocations to the Participants' Accounts on
dollar values of KCSI Shares or on the basis of actual shares where there is a
single class of KCSI Shares. In making a forfeiture reduction under this Section
9.06(C), the Trustee, to the extent possible, first must forfeit from a
Participant's General Investment Account before making a forfeiture from his
KCSI Shares Account.
9.07 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Advisory Committee to search for, or ascertain the whereabouts
of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
Committee, by certified or registered mail addressed to his last known address
of record with the Advisory Committee or the Employer, must notify the
Participant, or Beneficiary, that he is entitled to a distribution under this
Plan. The notice must quote the provisions of this Section 9.07 and otherwise
must comply
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with the notice requirements of Article VI. If the Participant, or Beneficiary,
fails to claim his distributive share or make his whereabouts known in writing
to the Advisory Committee within 6 months from the date of mailing of the
notice, the Advisory Committee will treat the Participant's or Beneficiary's
unclaimed payable Accrued Benefit as forfeited and will reallocate the unclaimed
payable Accrued Benefit in accordance with Section 3.08. Where the benefit is
distributable to the Participant, the forfeiture under this paragraph occurs as
of the last day of the notice period, if the Participant's Nonforfeitable
Accrued Benefit does not exceed $5,000, or as of the first day the benefit is
distributable without the Participant's consent, if the present value of the
Participant's Nonforfeitable Accrued Benefit exceeds $5,000. Where the benefit
is distributed to a Beneficiary, the forfeiture occurs on the date the notice
period ends except, if the Beneficiary is the Participant's spouse and the
Nonforfeitable Accrued Benefit payable to the spouse exceeds $5,000, the
forfeiture occurs as of the first day the benefit is distributable without the
spouse's consent. Pending forfeiture, the Advisory Committee, following the
expiration of the notice period, may direct the Trustee to segregate the
Nonforfeiture Accrued Benefit in the Plan in a segregated Account and to invest
that segregated Account in Federally insured interest bearing savings accounts
or time deposits (or in a combination of both), or in other fixed income
investments.
If a Participant or Beneficiary in the Plan who has incurred a
forfeiture of his Accrued Benefit in the Plan under the provisions of the first
paragraph of this Section 9.07 makes a claim, at any time, for the forfeited
Accrued Benefit, the Advisory Committee must restore such forfeited Accrued
Benefit to the same dollar amount as the dollar amount of the Accrued Benefit
forfeited, unadjusted for any gains or losses occurring subsequent to the date
of the forfeiture. The Advisory Committee will make the restoration during the
Plan Year in which the Participant or Beneficiary makes the claim, first from
the amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year in the Plan, then from the amount, if any, of
the Trust Fund net income or gain allocable to the Plan for the Plan Year and
then from the amount, or additional amount, that DST contributes to enable the
Advisory Committee to make the required restoration. The Advisory Committee will
direct the Trustee to distribute the Participant's or Beneficiary's restored
Accrued Benefit to him not later than 60 days after the close of the Plan Year
in which the Advisory Committee restores the forfeited Accrued Benefit. The
forfeiture provisions of this Section 9.07 apply solely to the Participant's or
the Beneficiary's Accrued Benefit derived from Employer contributions.
9.08 TERM. Each member of the Advisory Committee serves until the
appointment of his successor.
9.09 POWERS. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred the such Advisory
Committee pending the filling of the vacancy.
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9.10 MANNER OF ACTION. The decision of a majority of the members
appointed and qualified controls.
9.11 AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize
any one of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters or
other documents. The Advisory Committee must evidence this authority by an
instrument signed by all its members and filed with the Trustee.
9.12 INTERESTED MEMBER. No member of the Advisory Committee may decide
or determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an election
available to that member in his capacity as a Participant, unless the Plan
Administrator is acting alone in the capacity of the Advisory Committee.
9.13 INDIVIDUAL STATEMENT. As soon as practicable after the last
Accounting Date of each Plan Year, but within the time prescribed by ERISA and
the regulations under ERISA, the Plan Administrator will deliver to each
Participant (and to each Beneficiary) a statement reflecting the condition of
his Accrued Benefit in the Trust as of that date and such other information
ERISA requires be furnished the Participant or Beneficiary. No Participant,
except a member of the Advisory Committee, has the right to inspect the records
reflecting the Account of any other Participant.
9.14 ACCOUNT CHARGED. The Advisory Committee will charge all
distributions made to a Participant or to his Beneficiary from his Account
against the Account of the Participant when made.
9.15 TRANSFERRED ACCOUNTS. Subject to Section 13.05, the Trustee shall
accept as of the Effective Date a transfer from the Former Plan of assets in
kind and liabilities comprising the Accounts representing the DST Portion of the
Former Plan; and each DST Participant shall become a Participant in this Plan as
of the Effective Date. The Trustee and the Advisory Committee shall allocate
such assets and liabilities to Accounts of Participants in this Plan that
correspond to the Accounts (as defined in the Former Plan) of the DST
Participants in the DST Portion of the Former Plan, based on the information
supplied by the Trustee and Advisory Committee under the Former Plan respecting
such transfer. Such transfer of Accounts shall not itself alter the vesting,
beneficiary election, distribution election, or other benefits, rights and
features of such transferred Accounts. Transferred Accounts shall thereafter be
maintained under this Plan, subject to the Sponsor's right to amend and
terminate this Plan as provided in Article XIII. Any Qualified Domestic
Relations Order applying under the Former Plan to a transferred Account shall be
transferred to and shall be deemed to apply against this Plan.
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ARTICLE X.
TRUSTEE POWERS AND DUTIES
10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan
and agrees to perform the obligations imposed. The Trustee must provide bond for
the faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the
Employer for the funds contributed to it by the Employer, but does not have any
duty to see that the contributions received comply with the provisions of the
Plan. DST (or the Advisory Committee on behalf of DST) shall direct
contributions from time to time to this Separate Trust or to the Master Trust
and make direct transfers from time to time from the Separate Trust to the
Master Trust or from the Master Trust to the Separate Trust, and the Trustee of
the Separate Trust does not have any duty under the Separate Trust with respect
to contributions and transfers so directed to the Master Trust. The Trustee is
not obliged to collect any contributions from the Employer, nor is it obliged to
see that funds deposited with it are deposited according to the provisions of
the Plan.
10.03 INVESTMENT POWERS.
(A) TRUSTEE POWERS. The Trustee has full discretion and authority with regard to
the investment of the Separate Trust Fund, except with respect to a Plan asset
under the control or direction of a properly appointed Investment Manager or
with respect to a Plan asset subject to Employer, Separate or Advisory Committee
direction of investment. The Trustee must coordinate its investment policy with
Plan financial needs as communicated to it by the Advisory Committees. The
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights and duties:
(a) To invest the leveraged employee stock ownership portion
of the Trust Fund primarily in Employer Securities ("primarily" meaning
the authority to hold and acquire not more than 100% of the Trust Fund
in Employer Securities) as directed by the Advisory Committee and to
invest any part or all of the Separate Trust Fund in shares of stock
issued by DST, any common or preferred stocks, open-end or closed-end
mutual funds, put and call options traded on a national exchange,
United States retirement plan bonds, corporate bonds, debentures,
convertible debentures, commercial paper, U.S. Treasury bills, U.S.
Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance
contracts of any type, mortgages, notes or other property of any kind,
real or personal, and to buy or sell options on common stock on a
nationally recognized exchange with or without holding the underlying
common stock, and to make any other investments the Trustee deems
appropriate, as a prudent man would do under like circumstances with
due regard for the purposes of this Plan. Any investment made or
retained by the Trustee in good faith is proper but must be of a kind
(with the exception of Employer Securities) constituting a
diversification considered by law suitable for trust investments.
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(b) To retain in cash so much of the Separate Trust Fund as it
may deem advisable to satisfy liquidity needs of the Plan and to
deposit any cash held in the Separate Trust Fund in a bank account at
reasonable interest. If the Trustee is a bank or similar financial
institution supervised by the United States or by a State, this
paragraph (c) includes specific authority to invest in any type of
deposit of the Trustee (or of a bank related to the Trustee within the
meaning of Code ss.414(b)) at a reasonable rate of interest or in a
common trust fund (the provisions of which govern the investment of
such assets and which the Plan incorporates by this reference) as
described in Code ss.584 which the Trustee (or its affiliate, as
defined in Code ss.1504) maintains exclusively for the collective
investment of money contributed by the bank (or the affiliate) in its
capacity as trustee and which conforms to the rules of the Comptroller
of the Currency.
(c) To manage, sell, contract to sell, grant options to
purchase, convey, exchange, transfer, abandon, improve, repair, insure,
lease for any term even though commencing in the future or extending
beyond the term of the Trust, and otherwise deal with all property,
real or personal, in such manner, for such considerations and on such
terms and conditions as the Trustee decides.
(d) To credit and distribute the Plan as directed by the
Advisory Committee. The Trustee is not obliged to inquire as to whether
any payee or distributee is entitled to any payment or whether the
distribution is proper or within the terms of the Plan, or as to the
manner of making any payment or distribution. The Trustee is
accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of the
Advisory Committee.
(e) To borrow money, to assume indebtedness, extend mortgages
and encumber by mortgage or pledge.
(f) To compromise, contest, arbitrate or abandon claims and
demands, in its discretion.
(g) to vote the stock held by the Separate Trust Fund, subject
to Section 10.15.
(h) To lease for oil, gas and other mineral purposes and to
create mineral severances by grant or reservation; to pool or unitize
interests in oil, gas and other minerals; and to enter into operating
agreements and to execute division and transfer orders.
(i) To hold any securities or other property in the name of
the Trustee or its nominee, with depositories or agent depositories or
in another form as it may deem best, with or without disclosing the
trust relationship.
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(j) To perform any and all other acts in its judgment
necessary or appropriate for the proper and advantageous management,
investment and distribution of the Trust.
(k) To retain any funds or property subject to any dispute
without liability for the payment of interest, and to decline to make
payment or delivery of the funds or property until final adjudication
is made by a court of competent jurisdiction.
(l) To file all tax returns required of the Trustee.
(m) To furnish to the Employer, the Plan Administrator and the
Advisory Committee an annual statement of account showing the condition
of the Separate Trust Fund and all investments, receipts, disbursements
and other transactions effected by the Trustee during the Plan Year
covered by the statement and also stating the assets of the Trust held
at the end of the Plan Year, which accounts are conclusive on all
persons, including the Employer, the Plan Administrator and the
Advisory Committee, except as to any act or transaction concerning
which the Employer, the Plan Administrator or the Advisory Committee
files with the Trustee written exceptions or objections within 90 days
after the receipt of the accounts or for which ERISA authorizes a
longer period within which to object.
(n) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan, except that the Trustee
is not obligated or required to do so unless indemnified to its
satisfaction.
(o) To respond to a tender offer, exchange offer or any other
offer to purchase Employer Securities, subject to Section 10.15.
(B) EXEMPT LOAN. This Section 10.03(B) specifically authorizes the Trustee to
enter into an Exempt Loan transaction with respect to the Plan. The following
terms and conditions will apply to any Exempt Loan authorized by this Section
10.03(B).
(1) The Trustee will use the proceeds of the loan within a
reasonable time after receipt only for any or all of the following
purposes: (i) to acquire Employer Securities, (ii) to repay such loan,
or (iii) to repay a prior Exempt Loan. Except as provided under Article
XI, no Employer Security acquired with the proceeds of an Exempt Loan
may be subject to a put, call or other option, or buy-sell or similar
arrangement while held by and when distributed from this Plan, whether
or not this Plan is then an employee stock ownership plan.
(2) The interest rate of the loan may not be more than a
reasonable rate of interest.
(3) Any collateral the Trustee pledges to the creditor must
consist only of the assets purchased by the borrowed funds and those
assets the Trust used as collateral on the prior Exempt Loan repaid
with the proceeds of the current Exempt Loan.
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(4) The creditor may have no recourse against the Trust under
the loan except with respect to such collateral given for the loan,
contributions (other than contributions of Employer Securities) made to
the Trust to meet its obligations under the loan, and earnings
attributable to such collateral and the investment of such
contributions. The payment made with respect to an Exempt Loan by the
Plan during a Plan Year must not exceed an amount equal to the sum of
such contributions and earnings received during or prior to the year
less such payments in prior years. The Advisory Committee and the
Trustee must account separately for such contributions and earnings in
the books of account of the Plan until the Trust repays the loan.
(5) In the event of default upon the loan, the value of Plan
assets transferred in satisfaction of the loan must not exceed the
amount of the default, and if the lender is a Disqualified Person, the
loan must provide for transfer of Plan assets upon default only upon
and to the extent of the failure of the Plan to meet the payment
schedule of the loan.
(6) The Trustee must add and maintain all assets acquired with
the proceeds of an Exempt Loan in a Suspense Account. In withdrawing
assets from the Suspense Account, the Trustee will apply the provisions
of Treas. Reg. ss.ss.54.4975- 7(b)(8) and (15) as if all securities in
the Suspense Account were encumbered. Upon the payment of any portion
of the loan, the Trustee will effect the release of assets in the
Suspense Account from encumbrances. For each Plan Year during the
duration of the loan, the number of Employer Securities released must
equal the number of encumbered Employer Securities held immediately
before release for the current Plan Year multiplied by a fraction. The
numerator of the fraction is the amount of principal and interest paid
for the Plan Year. The denominator of the fraction is the sum of the
numerator plus the principal and interest to be paid for all future
Plan Years. The number of future Plan Years under the loan must be
definitely ascertainable and must be determined without taking into
account any possible extension or renewal periods. If the interest rate
under the loan is variable, the interest to be paid in future Plan
Years must be computed by using the interest rate applicable as of the
end of the Plan Year. If collateral includes more than one class of
Employer Securities, the number of Employer Securities of each class to
be released for a Plan Year must be determined by applying the same
fraction to each such class. The Advisory Committee will allocate
assets withdrawn from the Suspense Account to the Accounts of
Participants who otherwise share in the allocation of DST's
contribution for the Plan Year for which the Trustee has paid the
portion of the loan resulting in the release of the assets. The
Advisory Committee consistently will make this allocation as of the
last business day of each Plan Year (unless otherwise specified by DST)
on the basis of nonmonetary units, taking into
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account the relative Compensation of all such Participants for such
Plan Year. Notwithstanding the foregoing provisions for the allocation
of Employer Securities withdrawn from the Suspense Account, if
dividends on any Employer Securities which are allocated to any
Participant are used to make any payment on an Exempt Loan, then
Employer Securities with a fair market value not less than the amount
of such dividends shall be allocated to the Account of such Participant
for the Plan Year in which, but for the use of the dividends to make a
payment on the loan, such dividends would have been allocated to the
Account of such Participant. Employer Securities acquired by the Trust
must be accounted for in accordance with the provisions of Treasury
Regulation ss.54.4975-11(d)(1), both while they are held in the
Suspense Account and after release therefrom.
(7) The loan must be for a specific term and may not be
payable at the demand of any person except in the case of default.
(8) Notwithstanding the fact this Plan ceases to be an
employee stock ownership plan, Employer Securities acquired with the
proceeds of an Exempt Loan will continue after the Trustee repays the
loan to be subject to the provisions of Treas. Reg.
ss.ss.54.4975-7(b)(4), (10), (11) and (12) relating to put, call or
other options and to buy-sell or similar arrangements, except to the
extent these regulations are inconsistent with Code ss.409(h).
10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to
the Plan must be open to the inspection of the Plan Administrator, Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05 FEES AND EXPENSES FROM FUND. The Trustee will receive reasonable
annual compensation as may be agreed upon from time to time between the Employer
and the Trustee. The Trustee will pay all fees and expenses reasonably incurred
by it in its administration of the Plan from the Trust Fund, unless the Employer
pays the fees and expenses. The Applicable Advisory Committee will not treat any
fee or expense paid, directly or indirectly, by an Employer as an Employer
contribution, provided the fee expense relates to the ordinary and necessary
administration of the Fund. No person who is receiving full pay from the
Employer may receive compensation for services as Trustee.
10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA,
only the Employer, the Plan Administrator, the Advisory Committee, and the
Trustee are necessary parties to any court proceeding involving the Trustee or
the Trust Fund. No Participant, or Beneficiary, is entitled to any notice of
process unless required by ERISA. Any final judgment entered in any proceeding
will be conclusive upon the Employer, the Plan Administrator, the Advisory
Committee, the Trustee, Participants and Beneficiaries.
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10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the
Trust Fund reasonable compensation to agents, attorneys, accountants and other
persons to advise the Trustee as in its opinion may be necessary. The Trustee
may delegate to any agent, attorney, accountant or other person selected by it
any non-Trustee power or duty vested in it by the Plan, and the Trustee may act
or refrain from acting on the advice or opinion of any agent, attorney,
accountant or other person so selected.
10.08 DISTRIBUTION OF TRUST FUND. In the absence of a contrary
Participant election, the Trustee shall, to the extent of the Employer
Securities in a Participant's Accounts, make all distributions of benefits to
such Participant under the Plan in Employer Securities. A Participant may,
however, elect to receive this distribution in cash based on the fair market
value of the Employer Securities at the time of the distribution or in a
combination of cash and Employer Securities. The Trustee shall pay in cash any
fractional security share to which a Participant or his Beneficiary is entitled.
Any remaining balance in a Participant's Accounts shall be paid in cash, except
that, at the Participant's election, such balance shall be applied to provide
whole shares of common stock of DST Systems, Inc. for Participants in the Plan
for distribution at the then fair market value.
If the charter or bylaws of the Issuer of the Employer Securities
restrict ownership of substantially all shares of Employer Securities to
Employees and the Trust, as described in Code ss.409(h)(2), the Trustee may make
the distribution of a Participant's Accrued Benefit entirely in cash without
granting the Participant the right to demand distribution in shares of Employer
securities.
In addition to the distribution options set forth above, a Participant
in the Plan may elect to receive a distribution in the form of a number of
shares of common stock of Kansas City Southern Industries, Inc. allocated to
such Participant's Accounts as of the date of the distribution, with the balance
in cash, shares of common stock of DST or a combination of both.
Notwithstanding the preceding provisions of this Section 10.08, the
Trustee, if directed in writing by the Advisory Committee, shall pay, in cash,
any cash dividends on Employer Securities allocated, or allocable to
Participants' Employer Securities Account in the Plan, irrespective of whether a
Participant is fully vested in his Employer Securities Account. The Advisory
Committee's direction shall state whether the Trustee is to pay the cash
dividend distributions currently, or within the ninety (90) day period following
the close of the Plan Year in which DST pays the dividends to the Trust. The
Advisory Committee may request DST to pay dividends on Employer Securities
directly to Participants in the Plan.
10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or
distribution made from the Trust, the Trustee must promptly notify the Advisory
Committee and then dispose of the payment in accordance with the subsequent
direction of the Advisory Committee.
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10.10 THIRD PARTY. No person dealing with the Trustee is obligated to
see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the Trustee has acted pursuant to any of the
terms of the Plan. Each person dealing with the Trustee may act upon any notice,
request or representation in writing by the Trustee, or by the Trustee's duly
authorized agent, and is not liable to any person in so acting. The certificate
of the Trustee that is acting in accordance with the Plan will be conclusive in
favor of any person relying on the certificate.
10.11 RESIGNATION. The Trustee may resign at any time as Trustee of the
Plan by giving sixty (60) days' written notice in advance to the Employer and to
the Advisory Committee. If the Employer fails to appoint a successor Trustee
within sixty (60) days of its receipt of the Trustee's written notice of
resignation, the Trustee shall appoint a bank or trust company authorized to
exercise trust powers as the successor trustee, which shall accept its
appointment in writing delivered to the former Trustee and the Employer.
10.12 REMOVAL. The Employers, by giving written notice in advance to
the Trustee, may remove any Trustee. In the event of the resignation or removal
of a Trustee, the Employers must appoint a successor Trustee if they intend to
continue the Plan.
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee
succeeds to the title to the Trust vested in his predecessor by accepting in
writing his appointment as successor Trustee and filing the acceptance with the
former Trustee and the Advisory Committee without the signing or filing of any
further statement. The resigning or removed Trustee, upon receipt of acceptance
in writing of the Trust by the successor Trustee, must execute all documents and
do all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee has and enjoys all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. A successor
Trustee is not personally liable for any act or failure to act of any
predecessor Trustee, except as required under ERISA. With the approval of the
Employer and the Advisory Committee, a successor Trustee, with respect to the
Plan, may accept the account rendered and the property delivered to it by a
predecessor Trustee without incurring any liability or responsibility for so
doing.
10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of
each Accounting Date to determine the fair market value of each Participant's
Accrued Benefit in the Trust. The Trustee also must value the Trust Fund on such
other dates as directed in writing by the Advisory Committee.
10.15 PARTICIPANT VOTING RIGHTS - EMPLOYER SECURITIES. Each
Participant (or the Beneficiary thereof) acting as a named fiduciary shall have
the right, with respect to Employer Securities, to direct the Trustee as to the
manner in which (a) to vote
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any stock allocated to his Employer Securities Account as of the applicable
record date of any shareholder meeting in any matter put to a shareholder vote;
and (b) to respond to a tender offer, exchange offer or any other offer to
purchase Employer Securities allocated to the Participant's Employer Securities
Account or KCSI Shares Account.
Before any meeting in which a shareholder vote is to be taken, the
Employer will deliver to the Trustee or its designee such quantities of proxy
soliciting materials as are necessary to solicit voting instructions from the
Participants. The Trustee or its designee will mail the proxy solicitation
materials (and any additional material made available to other shareholders or
otherwise deemed appropriate by the Trustee) to the Participants within a
reasonable time before the meeting. A reasonable deadline for the return of such
materials may be specified.
Shares will be voted as instructed by the Participants on each matter
brought before the meeting. Such participants are appointed as named fiduciaries
to direct the Trustee as to the voting of shares allocated to the accounts of
Participants who have not timely instructed the Trustee how to vote them and any
unallocated shares. Such shares will be voted in the same proportions as the
shares for which the Trustee has received timely instructions. The Trustee may
submit to the Employer one summary proxy for the aggregate number of shares.
With regard to any tender offer, exchange offer or any other offer to
purchase Employer Securities, the Trustee or its designee will solicit such
instructions from Participants by distributing to each Participant such
information as is distributed to shareholders of the Employer or of KCSI, as
applicable, generally in connection with any such offer, and any additional
information the Trustee deems appropriate in order for each Participant to give
instructions. A reasonable deadline for the return of such materials may be
specified.
Shares will, in response to a tender offer, exchange offer or other
offer to purchase, be tendered, exchanged or sold as instructed by the
Participants. Fractional shares will be aggregated for purposes of tendering,
exchanging or selling shares, to the extent possible, to reflect the
instructions of the Participants. Such participants are appointed as named
fiduciaries to direct the Trustee as to the tender, exchange or sale of shares
allocated to an account of a Participant who has not timely instructed the
Trustee how to respond to such offer and any unallocated shares. Such shares
will be tendered, exchanged or sold in the same proportion as shares for which
the Trustee has received timely instructions.
For purposes of receiving, tabulating and transmitting instructions,
the Trustee will establish a procedure to insure that instructions received from
individual Participants regarding voting or responding to a tender offer,
exchange offer, or any other offer are held in confidence, and are not divulged,
released or otherwise utilized in a manner that, in the Trustee's reasonable
judgment, might influence the Participant's free exercise of the rights set
forth in this Section 10.15.
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In the event a Participant eligible to receive a distribution of that
Participant's Employer Securities Account or KCSI Shares Account does not elect
in accordance with Section 10.08 to receive the distribution in the form of
Employer Securities, a sale of the Employer Securities in such Account in order
to fund the resulting cash distribution shall be deemed to satisfy the
requirements of this Section 10.15.
10.16 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER APPOINTED. The
Trustee is not liable for the acts or omissions of any Investment Manager or
Managers the Advisory Committee may appoint, nor is the Trustee under any
obligation to invest or otherwise manage any asset of the Plan which is subject
to the management of a properly appointed Investment Manager. The Advisory
Committee, the Trustee and any properly appointed Investment Manager may execute
a letter agreement as a part of this Plan delineating the duties,
responsibilities and liabilities of the Investment Manager with respect to any
part of the Plan under the control of the Investment Manager.
10.17 USE OF INDEPENDENT APPRAISER. All valuations of Employer
Securities acquired after December 31, 1986, which are not readily tradable on
an established securities market (within the meaning of Code ss.401(a)(28)(C))
with respect to activities carried on by the Plan shall be by an independent
appraiser. For purposes of the preceding sentence, the term "independent
appraiser" means any appraiser meeting requirements similar to the requirements
of the Treasury Regulations prescribed under Code ss.170(a)(1).
10.18 INVESTMENT IN GROUP TRUST FUND. The Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
Notwithstanding the provisions of Section 10.03, but subject to the
provisions for the investment of Plan assets as set forth in Articles VIII and
IX, the Employer specifically authorizes the Trustee to invest all or any
portion of the assets comprising the Trust Fund in any group trust fund which at
the time of the investment provides for the pooling of the assets of plans
qualified under Code ss. 401(a). This authorization applies solely to a group
trust fund exempt from taxation under Code ss. 501(a) and the trust agreement of
which satisfies the requirements of Revenue Ruling 81-100. The provisions of the
group trust fund agreement, as amended from time to time, are by this reference
incorporated within this Plan and Trust. The provisions of the group trust fund
will govern any investment of Plan assets in that fund.
10.19 KCSI SHARE RESTRICTIONS. Any KCSI shares acquired under the
Former Plan with the proceeds of an exempt loan shall continue to be subject to
the provisions of Treas. Reg. ss.ss.54-4975-7(b)(4), (10), (11) and (12)
relating to put, call or other options and to buy-sell or similar arrangements,
except to the extent these regulations are inconsistent with Code ss.409(h).
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ARTICLE XI.
REPURCHASE OF EMPLOYER SECURITIES
11.01 PUT OPTION. Shares of Employer Securities distributed to a
Participant from the Trust shall be subject to a "put" option at the time of
distribution, provided that at such time the shares are either not readily
tradable on an established market within the meaning of Code ss.409(h) or are
subject to a trading limitation. The "put" option shall be exercisable by the
Participant or his Beneficiary, by the donees of either, or by a person
(including an estate or its distributee) to whom the Employer Securities pass by
reason of the Participant's or Beneficiary's death. The "put" option shall
provide that for a period of at least fifteen (15) months after such shares are
distributed, the holder of the option shall have the right to cause the
Employer, by notifying it in writing, to purchase such shares at their fair
market value, as determined by the Advisory Committee, in accordance with
Treasury Regulation ss.54.4975-11(d)(5) and Section 10.17 hereof. The Advisory
Committee may give the Trustee the option to assume the rights and obligations
of the Employer at the time the "put" option is exercised, insofar as the
repurchase of Employer Securities is concerned. The period during which the
"put" option is exercisable shall not include any period during which the holder
is unable to exercise such "put" option because the Employer is prohibited from
honoring it by federal or state law. If the Employer is prohibited from honoring
the "put" option by federal or state law, the holder shall be entitled to cause
it to be honored, consistent with such law, by an affiliate or shareholder of
the Employer that has substantial net worth and whose net worth is reasonably
expected to remain substantial. If shares of Employer Securities are readily
tradable on an established market on the date of distribution, but cease to be
readily tradable on an established market (as described above) within fifteen
(15) months after such date, the Employer Securities distributed shall be
subject to the "put" option described herein for the balance of the fifteen (15)
month period. The Employer shall give written notice to each shareholder within
ten (10) days of the date the Employer Securities cease to be readily tradable
on an established market or that the Employer Securities become subject to a
trading limitation that the Employer Securities are subject to the "put" option
for the remainder of the fifteen (15) month period. If the Employer fails to
give such notice to the shareholder within such ten (10) day period, then the
number of days between such tenth (10th) day and the date on which the notice is
actually given shall be added to the duration of the fifteen (15) month period.
The terms of payment for the purchase of such shares of Employer Securities
shall be as set forth in the "put" option and, if the Employer Securities are
distributed as part of a total distribution, may be either in a lump sum or in
installments, as determined by the Advisory Committee. For purposes of the
preceding sentence, the term "total distribution" means the distribution within
one taxable year to the Participant of the balance to the credit of the
Participant's Account. If the "put" option is exercised with respect to Employer
Securities constituting part of an installment distribution to a Participant,
the amount to be paid for the Employer Securities shall be paid not later than
thirty (30) days after the date the "put" option is exercised.
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An installment payment in connection with a "put" option shall:
(1) provide for acceleration in the event of thirty (30) days'
default in the payment of interest or principal and shall permit
prepayment of the installment obligation in whole or in part at any
time or times without penalty;
(2) be adequately secured and bear a reasonable rate of
interest, both as determined by the Advisory Committee;
(3) require equal annual payments;
(4) have a payment period not longer than five (5) years from
the date the "put" option is exercised;
(5) require that any payments pursuant to the installment
obligation must be substantially equal and begin to be made no later
than thirty (30) days after the date the "put" option is exercised; and
(6) satisfy the requirements of Treasury Regulation
ss.54.4975-7(b)(12), except to the extent this regulation is
inconsistent with Code ss.409(h).
11.02 CONTINUATION OF PUT OPTION. The "put" option provided for by
Section 11.01 is nonterminable and shall continue to apply to shares of Employer
Securities distributed hereunder notwithstanding the repayment of any Exempt
Loan or any amendment to, or termination of, this Plan which causes the Plan or
a portion of the Plan to cease to be an employee stock ownership plan within the
meaning of Code ss.4975(e)(7).
ARTICLE XII.
MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. Both the
Advisory Committee and the Trustee are fully protected in acting and relying
upon any evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor
Advisory Committee has any obligation or responsibility with respect to any
action required by the Plan to be taken by an Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. Neither
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the Trustee nor Advisory Committee needs to inquire into or be responsible for
any action or failure to act on the part of the others. Any action required of a
corporate Employer must be by its Board of Directors or its designate. Any
action required of DST Systems, Inc. must be by its Board of Directors, the
Compensation and Organization Committee of such Board, or the designees of such
Board or Committee. Any action required of any other corporate Employer must be
by its Board of Directors.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee,
the Plan Administrator and the Employers in no way guarantee the Trust Fund from
loss or depreciation. The Employers do not guarantee the payment of any money
which may be or becomes due to any person from the Trust Fund. The liability of
the Advisory Committee and the Trustee to make any payment from the Trust Fund
at any time and all times is limited to the then available assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan
may waive the notice.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee and the Advisory
Committee and their successors.
12.06 WORD USAGE. Words used in the masculine also apply to the
feminine where applicable, and wherever the context of the Plan dictates, the
plural includes the singular and the singular includes the plural.
12.07 STATE LAW. Missouri law will determine all questions arising with
respect to the provisions of this Agreement except to the extent Federal law
supersedes Missouri law.
12.08 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or
with respect to the establishment of the Trust, or any modification or amendment
to the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against an Employer, or
Employee of an Employer or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
ARTICLE XIII.
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, no
Employer has any beneficial interest in any asset of the Trust and no part of
any asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the
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satisfaction of all liabilities with respect to the Participants and their
Beneficiaries under the Plan, may any part of the corpus or income of the Trust
Fund, or any asset of the Trust, be (at any time) used for, or diverted to,
purposes other than the exclusive benefit of the Participants or their
Beneficiaries.
13.02 AMENDMENT BY EMPLOYER. DST Systems, Inc., by duly adopted
resolution of its Board of Directors, or of the Compensation and Organization
Committee of its Board of Directors, or by written instrument executed by its
Chief Executive Officer or by its Vice President - Human Resources, has the
right at any time and from time to time to amend the provisions of this
Agreement (a) in any manner it deems necessary or advisable in order to qualify
(or maintain qualification of) this Plan and the Trust created under it under
the appropriate provisions of Code ss.401(a), and (b) to amend the provisions of
this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than
the part which is required to pay taxes and administration expenses) to be used
for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries or estates. No amendment may cause or permit
any portion of the Trust Fund to revert to or become a property of the Employer.
No amendment may be made which affects the rights, duties or responsibilities of
the Trustee or the Plan Administrator without the written consent of the
affected Trustee or the Plan Administrator. No amendment may be made which
affects the rights, duties or responsibilities of the Advisory Committee without
the written consent of the affected member of the Advisory Committee.
CODE SS.411(D)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a transferor of assets from the Former Plan) may not
decrease a Participant's Accrued Benefit, except to the extent permitted under
Code ss.412(c)(8), and may not reduce or eliminate Code ss.411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
ss.411(d)(6) protected benefits if the amendment has the effect of either (1)
eliminating or reducing an early retirement benefit or a retirement-type subsidy
(as defined in Treasury regulations), or (2) except as provided by Treasury
regulations, eliminating an optional form of benefit. The Advisory Committee
must disregard an amendment to the extent application of the amendment would
fail to satisfy this paragraph. If the Advisory Committee must disregard an
amendment because the amendment would violate clause (1) or clause (2), the
Advisory Committee must maintain a schedule of the early retirement option or
other optional forms of benefit the Plan must continue for the affected
Participants.
All amendments must be made in writing. Each amendment must state the
date to which it is either retroactively or prospectively effective.
13.03 DISCONTINUANCE. Each Employer has the right, at any time, to
suspend or discontinue its contributions under the Plan. The Board of Directors
of DST Systems, Inc., or any duly authorized committee thereof, has the right to
terminate, at any time, the
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Plan created under this Agreement. The Plan will terminate upon the date
terminated by action of the Board of Directors of DST Systems, Inc., or any duly
authorized committee thereof.
13.04 FULL VESTING ON TERMINATION. Upon either full or partial
termination of the Plan, or, if applicable, upon complete discontinuance of
contributions to the Plan, an affected Participant's right to his Accrued
Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage
which otherwise would apply under Article V.
13.05 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a
party to, any merger or consolidation with another plan, or to a transfer of
assets or liabilities to another plan, unless immediately after the merger,
consolidation or transfer, the surviving Plan provides each Participant a
benefit equal to or greater than the benefit each Participant would have
received had the Plan terminated immediately before the merger or consolidation
or transfer. The Trustee possesses the specific authority to enter into merger
agreements or direct transfer of assets agreements with the trustees of other
retirement plans described in Code ss.401(a), including an elective transfer,
and to accept the direct transfer of plan assets, or to transfer plan assets, as
a party to any such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Trustee accepts a direct transfer of plan assets under this
paragraph, the Advisory Committee and Trustee must treat the Employee as a
Participant in the Plan for all purposes of the Plan except the Employee is not
a Participant in the Plan for purposes of sharing in Employer contributions or
Participant forfeitures under the Plan until he actually becomes a Participant
in the Plan.
The Trustee may not consent to, or be a party to a merger,
consolidation or transfer of assets with a defined benefit plan, except with
respect to an elective transfer. The Trustee will hold, administer and
distribute the transferred assets as a part of the Trust Fund and the Trustee
must maintain a separate Employer contribution Account for the benefit of the
Employee on whose behalf the Trustee accepted the transfer in order to reflect
the value of the transferred assets. Unless a transfer of assets to this Plan is
an elective transfer, the Plan will preserve all Code ss.411(d)(6) protected
benefits with respect to those transferred assets, in the manner described in
Section 13.02. A transfer is an elective transfer if: (1) the transfer satisfies
the first paragraph of this Section 13.05; (2) the transfer is voluntary, under
a fully informed election by the Participant; (3) the Participant has an
alternative that retains his Code ss.411(d)(6) protected benefits (including an
option to leave his benefit in the transferor plan, if that plan is not
terminating); (4) the transfer satisfies the applicable spousal consent
requirements of the Code; (5) the transferor plan satisfies the joint and
survivor notice requirements of the Code, if the Participant's transferred
benefit is subject to those requirements; (6) the Participant has a right to
immediate distribution from the transferor plan, in lieu of the elective
transfer; (7) the transferred benefit is at least the greater of the single sum
distribution provided by the transferor plan for which the Participant is
eligible or
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the present value of the Participant's accrued benefit under the transferor plan
payable at that plan's normal retirement age; (8) the Participant has a 100%
Nonforfeitable interest in the transferred benefit; and (9) the transfer
otherwise satisfies applicable Treasury regulations.
An elective transfer may occur between qualified plans of any type.
DISTRIBUTION RESTRICTIONS UNDER CODE SS.401(K). If the Plan receives a direct
transfer (by merger or otherwise) of elective contributions (or amounts treated
as elective contributions) under a Plan with a Code ss.401(k) arrangement, the
distribution restrictions of Code ss.ss.401(k)(2) and (10) continue to apply to
those transferred elective contributions.
13.06 TERMINATION. Upon termination of the Plan, the distribution
provisions of Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable
Accrued Benefit does not exceed $5,000, the Advisory Committee will
direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit to him in lump sum as soon as administratively
practicable after the Plan terminates; and
(2) if the present value of the Participant's Nonforfeitable
Accrued Benefit exceeds $5,000 the Participant or the Beneficiary, in
addition to the distribution events permitted under Article VI, may
elect to have the Trustee commence distribution of his Nonforfeitable
Accrued Benefit as soon as administratively practicable after the Plan
terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $5,000 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2). The Trust will continue until the
Trustee in accordance with the direction of the Advisory Committee has
distributed all of the benefits under the Plan.
On each valuation date, the Advisory Committee will credit any part of
a Participant's Accrued Benefit retained in the Trust with its allocable share
of the Trust's income, expenses, gains and losses, both realized and unrealized.
Upon termination of the Plan, the amount, if any, in a suspense account under
such portion under Article III will revert to the Employer, subject to the
conditions of the Treasury regulations permitting such a reversion. A resolution
or amendment to freeze all future benefit accruals but otherwise to continue
maintenance of this Plan is not a termination for purposes of this Section
13.06.
ARTICLE XIV.
PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL
14.01 DEFINITION OF "CHANGE IN CONTROL OF DST". For purposes of this
Plan and Trust Agreement, a "Change in Control of DST" shall be deemed to have
occurred if:
-61-
(a) for any reason at any time less than seventy-five percent
(75%) of the members of the DST Board shall be individuals who fall
into any of the following categories: (A) individuals who were members
of the DST Board on the Effective Date; or (B) individuals whose
election, or nomination for election by DST's stockholders, was
approved by a vote of at least seventy-five percent (75%) of the
members of the DST Board then still in office who were members of the
DST Board on the Effective Date; or (C) individuals whose election, or
nomination for election, by DST's stockholders, was approved by a vote
of at least seventy-five percent (75%) of the members of the DST Board
then still in office who were elected in the manner described in (A) or
(B) above, or
(b) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"))
shall have become after the Effective Date, according to a public
announcement or filing, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
DST, representing thirty percent (30%) or more (calculated in
accordance with Rule 13d-3) of the combined voting power of DST's then
outstanding voting securities; PROVIDED, HOWEVER, that for purposes of
this Section 14.01(b), KCSI (which on the Effective Date is the
beneficial owner of approximately forty percent (40%) of the voting
power of DST's then-oustanding voting securities) shall not be deemed
to be "person" unless and until it ceases to be the beneficial owner of
at least thirty percent (30%) of the combined voting power of DST's
then outstanding voting securities and subsequently becomes the
beneficial owner of securities of DST representing thirty percent (30%)
or more of the combined voting power of DST's then outstanding voting
securities; or
(c) the stockholders of DST shall have approved a merger,
consolidation or dissolution of DST or a sale, lease, exchange or
disposition of all or substantially all of DST's assets, if persons who
were the beneficial owners of the combined voting power of DST's voting
securities immediately before any such merger, consolidation,
dissolution, sale, lease, exchange or disposition do not immediately
thereafter, beneficially own, directly or indirectly, in substantially
the same proportions, more than 60% of the combined voting power of the
corporation resulting from any such transaction.
14.02 PROVISIONS EFFECTIVE UPON CHANGE OF CONTROL. Upon a Change in
Control of DST as defined in Section 14.01, notwithstanding what is otherwise
provided in this Plan and Trust Agreement, the following provisions will
supersede the indicated sections and otherwise govern the operation of the Plan
and Trust from that point forward:
(a) "Section 5.03, Vesting Schedule" shall provide as
follows:
-62-
5.03 VESTING SCHEDULE. A Participant's Accrued Benefit derived from
Employer contributions in the Plan shall be One Hundred Percent (100%)
Nonforfeitable at all times.
(b) A new subsection (o) is added to Section 10.03(A) to read
as follows:
(o) Notwithstanding anything to the contrary in this
Plan, the Trustee shall not invest any portion of the Trust in
employer securities (within the meaning of either Section
409(l) of the Code or Section 407(d)(1) of ERISA) other than
DST Shares.
(c) Except for the right to amend the Agreement pursuant to
Section 13.02 to qualify or maintain the qualification of the Plan and
the Trust created under it under the appropriate provisions of Code
ss.401(a), the Board of Directors of DST Systems, Inc., or any duly
authorized officer or committee thereof, shall not exercise its right
to amend pursuant to Section 13.02(b), discontinue or terminate
pursuant to Section 13.03, or merge pursuant to Section 13.05 the Plan
or Trust Agreement without the prior written consent to such aforesaid
action by seventy-five percent (75%) of the Participants in the Plan on
a per-capita basis.
14.03 RIGHT TO AMEND PART 1 OF ARTICLE XIV PRIOR TO CHANGE IN CONTROL
OF DST. The Board of Directors of DST Systems, Inc., or any duly authorized
committee thereof, reserves the right to amend or eliminate this Article XIV
prior to the date of a Change in Control of DST.
IN WITNESS WHEREOF, the Employer and the Trustee have executed this
Plan and Trust in Kansas City, Missouri, as of this 1st day of January, 1998.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
UMB BANK, N.A.
By: /s/Mark Herman
-63-
DST SYSTEMS, INC.
PROFIT SHARING PLAN AND TRUST AGREEMENT
(1996 RESTATEMENT)
<PAGE>
DST SYSTEMS, INC.
PROFIT SHARING PLAN AND TRUST AGREEMENT
(1996 RESTATEMENT)
TABLE OF CONTENTS
ARTICLE I, DEFINITIONS........................................................1
1.01 Plan........................................................1
1.02 Employer....................................................1
1.03 Trustee.....................................................1
1.04 Plan Administrator..........................................1
1.05 Advisory Committee..........................................1
1.06 Employee....................................................2
1.07 Highly Compensated Employee.................................2
1.08 Participant.................................................3
1.09 Beneficiary.................................................3
1.10 Compensation................................................3
1.11 Account.....................................................5
1.12 Accrued Benefit.............................................5
1.13 Nonforfeitable..............................................5
1.14 Plan Year...................................................5
1.15 Effective Date..............................................5
1.16 Plan Entry Date.............................................6
1.17 Accounting Date.............................................6
1.18 Trust.......................................................6
1.19 Trust Fund..................................................6
1.20 Nontransferable Annuity.....................................6
1.21 ERISA.......................................................6
1.22 Code........................................................6
1.23 Service.....................................................6
1.24 Hour of Service.............................................6
1.25 Disability..................................................8
1.26 Service for Predecessor Employer............................8
1.27 Related Employers...........................................8
1.28 Leased Employees............................................9
1.29 Determination of Top Heavy Status...........................9
1.30 Plan Maintained by More than One Employer. ................11
1.31 Esop Participant............................................11
ARTICLE II, EMPLOYEE PARTICIPANTS.............................................11
2.01 Eligibility.................................................11
2.02 Year of Service - Participation.............................12
2.03 Break in Service - Participation............................12
i
2.04 Participation upon Reemployment.............................13
ARTICLE III, EMPLOYER CONTRIBUTIONS AND FORFEITURES ..........................13
3.01 Amount......................................................13
3.02 Determination of Contribution...............................13
3.03 Time of Payment of Contribution.............................14
3.04 Contribution Allocation.....................................14
3.05 Forfeiture Allocation.......................................15
3.06 Accrual of Benefit..........................................15
3.07 Limitations on Allocations to Participants' Accounts........16
3.08 Definitions - Article III...................................17
ARTICLE IV, PARTICIPANT CONTRIBUTIONS.........................................19
4.01 Participant Voluntary Contributions.........................19
4.02 Participant Voluntary Contributions - Special Discrimination
Test......................................................19
4.03 Participant Rollover Contributions..........................19
4.04 Participant Contribution - Forfeitability...................20
4.05 Participant Contribution Withdrawal/Distribution............20
4.06 Participant Contribution - Accrued Benefit..................20
ARTICLE V, TERMINATION OF SERVICE - PARTICIPANT VESTING.......................20
5.01 Normal Retirement Age; Early Retirement.....................20
5.02 Participant Disability or Death.............................21
5.03 Vesting Schedule............................................21
5.04 Cash-out Distributions to Partially-vested Participants/
Restoration of Forfeited Accrued Benefit .................22
5.05 Segregated Account for Repaid Amount........................23
5.06 Year of Service - Vesting...................................23
5.07 Break in Service - Vesting..................................24
5.08 Included Years of Service - Vesting.........................24
5.09 Forfeiture Occurs...........................................24
ARTICLE VI, TIME AND METHOD OF PAYMENT OF BENEFITS............................24
6.01 Time of Payment of Accrued Benefit..........................24
6.02 Method of Payment of Accrued Benefit........................27
6.03 Benefit Payment Elections...................................29
6.04 Annuity Distributions to Participants And Surviving Spouses.33
6.05 Waiver Election - Qualified Joint And Survivor Annuity......33
6.06 Waiver Election - Preretirement Survivor Annuity............33
6.07 Distributions under Domestic Relations Orders...............33
6.08 Rollover Distributions......................................34
ii
ARTICLE VII, EMPLOYER ADMINISTRATIVE PROVISIONS...............................35
7.01 Information to Committee....................................35
7.02 No Liability. .............................................35
7.03 Indemnity of Committee......................................35
7.04 Employer Direction of Investment............................36
7.05 Amendment to Vesting Schedule...............................36
ARTICLE VIII, PARTICIPANT ADMINISTRATIVE PROVISIONS...........................36
8.01 Beneficiary Designation.....................................36
8.02 No Beneficiary Designation..................................37
8.03 Personal Data to Committee..................................37
8.04 Address for Notification....................................37
8.05 Assignment or Alienation....................................38
8.06 Notice of Change in Terms...................................38
8.07 Litigation Against the Trust................................38
8.08 Information Available.......................................38
8.09 Appeal Procedure for Denial of Benefits.....................38
ARTICLE IX, ADVISORY COMMITTEE-DUTIES WITH RESPECT TO PARTICIPANTS'
ACCOUNTS.............................................................39
9.01 Members' Compensation, Expenses.............................39
9.02 Term........................................................39
9.03 Powers......................................................39
9.04 General.....................................................39
9.05 Funding Policy..............................................40
9.06 Manner of Action............................................41
9.07 Authorized Representative...................................41
9.08 Interested Member...........................................41
9.09 Individual Accounts.........................................41
9.10 Individual Statement........................................41
9.11 Account Charged.............................................41
9.12 Unclaimed Account Procedure.................................41
9.13 Investment Manager. .......................................42
ARTICLE X, TRUSTEE, POWERS AND DUTIES.........................................43
10.01 Acceptance..................................................43
10.02 Receipt of Contributions....................................43
10.03 Investment Powers...........................................43
10.04 Records and Statements......................................45
10.05 Fees and Expenses from Fund.................................45
10.06 Parties to Litigation.......................................46
10.07 Professional Agents.........................................46
10.08 Distribution of Cash or Property............................46
iii
10.09 Distribution Directions.....................................46
10.10 Third Party.................................................46
10.11 Resignation.................................................46
10.12 Removal.....................................................47
10.13 Interim Duties and Successor Trustee........................47
10.14 Valuation of Trust..........................................47
10.15 Limitation on Liability - If Investment Manager Appointed...47
10.16 Investment in Group Trust Fund..............................47
ARTICLE XI, EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION.........................48
11.01 Exclusive Benefit...........................................48
11.02 Amendment by Employer.......................................48
11.03 Discontinuance..............................................49
11.04 Full Vesting on Termination.................................49
11.05 Merger/direct Transfer......................................49
11.06 Termination.................................................50
11.07 [Reserved]..................................................52
11.08 Direct Transfer of Assets from Terminated Thrift Plan.......52
11.09 [Reserved]..................................................52
11.10 Vesting of Participants Transferred to Policyholder Service
Corporation...............................................52
11.11 Transfer of Assets to IFTC Plan.............................53
11.12 Vesting of Participants in Vital Records Storage Group......53
11.13 Vesting of Participants in Lincoln, Nebraska Facility.......54
11.14 Vesting of Former Participants Employed by Continuum........54
11.15 Vesting of Former Participants Employed by Midland..........54
ARTICLE XII [RESERVED]........................................................54
ARTICLE XIII, MISCELLANEOUS...................................................54
13.01 Evidence....................................................54
13.02 No Responsibility for Employer Action.......................54
13.03 Fiduciaries Not Insurers....................................55
13.04 Waiver of Notice............................................55
13.05 Successors..................................................55
13.06 Word Usage..................................................55
13.07 State Law...................................................55
13.08 Employment Not Guaranteed...................................55
ARTICLE XIV, WITHDRAWALS......................................................55
14.01 Request For Withdrawal Due to Financial Hardship............55
14.02 Approved Request Irrevocable................................57
14.03 Time of Payment.............................................57
14.04 Effect of Withdrawal........................................57
iv
14.05 Request for Withdrawal Due to Financial Hardship for
Participants in the Policyholder Service Corporation
Retirement Plan...........................................57
14.06 Special Rules For Withdrawal Due to Purchase of Home..........59
ARTICLE XV, PARTICIPANT'S ACCOUNTS AND THEIR INVESTMENT.......................59
15.01 Individual Accounts...........................................59
15.02 Valuation of Participants' Accrued Benefits...................59
15.03 Allocation And Distribution of Net Income Gain or Loss........60
15.04 Special Distribution Options for Participants with Account
Balances Invested in Fund B...............................60
ARTICLE XVI, PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL OF DST...............61
16.01 Definition of "Change in Control of DST".....................61
16.02 Provisions Effective upon Change of Control...................61
16.03 Right to Amend Article XVI Prior to Change in Control of DST..62
ARTICLE XVII, WITHDRAWALS FROM PRIOR PLAN ACCOUNTS............................62
17.01 General.....................................................62
17.02 No Forfeiture of Participant's Account......................62
ARTICLE XVIII, PROVISIONS APPLICABLE TO TRANSFERRED ESOP ACCOUNTS.............63
18.01 ESOP Accounts...............................................63
18.02 Participant Direction of Investment.........................63
18.03 Special Vesting Schedule....................................64
18.04 Special Distribution and Payment Requirements...............64
v
ALPHABETICAL LISTING OF DEFINITIONS
Plan Definition Section Reference
(Page Number)
Account..................................................................1.11(5)
Accounting Date..........................................................1.17(6)
Accrued Benefit..........................................................1.12(5)
Advisory Committee.......................................................1.05(1)
Annual Addition......................................................3.08(a)(17)
Annuity Starting Date...................................................6.01(25)
Beneficiary..............................................................1.09(3)
Break in Service for Eligibility Purposes...............................2.03(12)
Break in Service for Vesting Purposes...................................5.07(24)
Cash-Out Distribution...................................................5.04(22)
Code.....................................................................1.22(6)
Code ss.411(d)(6) Protected Benefits...................................11.02(49)
Compensation.............................................................1.10(3)
Compensation for Code ss.415 Purposes................................3.08(b)(18)
Compensation for Top Heavy Purposes..................................1.29(c)(10)
Deemed Cash-Out Rule.................................................5.04(C)(23)
Defined Contribution Plan............................................3.08(g)(18)
Defined Benefit Plan.................................................3.08(h)(19)
Determination Date...................................................1.29(g)(11)
Disability...............................................................1.25(8)
Distribution Date.......................................................6.01(25)
Effective Date...........................................................1.15(5)
Elective Transfer......................................................11.05(51)
Employee.................................................................1.06(2)
Employer.................................................................1.02(1)
Employer for Code ss.415 Purposes....................................3.08(d)(18)
Employer for Top Heavy Purposes......................................1.29(f)(11)
Employment Commencement Date............................................2.02(12)
ERISA....................................................................1.21(6)
ESOP Account..........................................................18.01 (63)
ESOP Participant.......................................................1.31 (11)
Excess Amount........................................................3.08(e)(18)
Forfeiture Break in Service.............................................5.08(24)
Group Trust Fund.......................................................10.16(47)
Hardship...............................................................14.01(56)
Highly Compensated Employee..............................................1.07(2)
Hour of Service..........................................................1.24(6)
Investment Manager.........................................9.04(i)(40); 9.13(42)
vi
Key Employee.........................................................1.29(a)(10)
Leased Employees.........................................................1.28(9)
Limitation Year......................................................3.08(f)(18)
Maximum Permissible Amount...........................................3.08(c)(17)
Minimum Distribution Incidental Benefit (MDIB).......................6.02(A)(28)
Non-Key Employee.....................................................1.29(b)(10)
Nonforfeitable...........................................................1.13(5)
Nontransferable Annuity..................................................1.20(6)
Normal Retirement Age...................................................5.01(20)
Participant Voluntary Contributions.....................................4.01(19)
Participant Forfeiture..................................................3.05(15)
Participant..............................................................1.08(3)
Permissive Aggregation Group.........................................1.29(e)(10)
Plan.....................................................................1.01(1)
Plan Entry Date..........................................................1.16(6)
Plan Administrator.......................................................1.04(1)
Plan Year................................................................1.14(5)
Predecessor Employer.....................................................1.26(8)
Qualified Domestic Relations Order......................................6.07(33)
Related Employers........................................................1.27(8)
Required Aggregation Group...........................................1.29(d)(10)
Required Beginning Date..............................................6.01(B)(28)
Rollover Contributions..................................................4.03(19)
Service..................................................................1.23(6)
Top Heavy Minimum Allocation.........................................3.04(B)(14)
Top Heavy Ratio..........................................................1.29(9)
Trust Fund...............................................................1.19(6)
Trust....................................................................1.18(6)
Trustee..................................................................1.03(1)
Trustee Powers......................................................10.03(A)(43)
Year of Service for Eligibility Purposes................................2.02(12)
Year of Service for Vesting Purposes....................................5.06(23)
vii
DST SYSTEMS, INC.
PROFIT SHARING PLAN AND TRUST AGREEMENT
(1996 RESTATEMENT)
DST Systems, Inc., a corporation organized under the laws of the State
of Delaware, makes this Agreement with UMB Bank, N.A., as Trustee.
WITNESSETH:
DST Systems, Inc. continues within this Trust Agreement a Plan for the
administration and distribution of contributions made by the Employer for the
purpose of providing retirement benefits for eligible Employees. This Plan is an
amended plan, in restated form, the original plan having an effective date of
January 1, 1970. The provisions of this Plan, as amended, apply solely to an
Employee whose employment with the Employer terminates on or after the restated
Effective Date of the Employer's Plan. If an Employee's employment with the
Employer terminates prior to the restated Effective Date, that Employee is
entitled to benefits under the Plan as the Plan existed on the date of the
Employee's termination of employment.
Now, therefore, in consideration of their mutual covenants, the
Employer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
1.01 "Plan" means the retirement plan established and continued by the
Employer in the form of this Agreement, designated as the "DST Systems, Inc.
Profit Sharing Plan and Trust Agreement."
1.02 "Employer" means DST Systems, Inc. or any other employer who with
the written consent of DST Systems, Inc. adopts this Plan.
1.03 "Trustee" means UMB Bank, N.A., or any successor in office who in
writing accepts the position of Trustee.
1.04 "Plan Administrator" is DST Systems, Inc. unless DST Systems, Inc.
designates another person to hold the position of Plan Administrator. In
addition to its other duties, the Plan Administrator has full responsibility for
compliance with the reporting and disclosure rules under ERISA as respects this
Agreement.
1.05 "Advisory Committee" means the Employer's Advisory Committee as
from time to time constituted.
1
1.06 "Employee" means any employee of the Employer, excluding any
Leased Employee and excluding any individual who is working in a classification
described as an independent contractor. An independent contractor includes any
individual who is paid, directly or indirectly, through the Employer's accounts
payable system.
1.07 "Highly Compensated Employee" means an Employee who, during the
Plan Year or during the preceding 12-month period:
(a) is a more that 5% owner of the Employer (applying the
constructive ownership rules of Code ss.318, and applying the
principles of Code ss.318, for an unincorporated entity);
(b) has Compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
(c) has Compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is part of
the top-paid 20% group of employees (based on Compensation for the
relevant year);
(d) has Compensation in excess of 50% of the dollar amount
prescribed in Code ss.415(b)(1)(A) (relating to defined benefit plans)
and is an officer of the Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Plan Year but not during the preceding 12-month period and does not satisfy
clause (a) in either period, the Employee is a Highly Compensated Employee only
if he is one of the 100 most highly compensated Employees for the Plan Year. The
number of officers taken into account under clause (d) will not exceed the
greater of 3 or 10% of the total number (after application of the Code ss.414(q)
exclusions) of Employees, but no more than 50 officers. If no Employee satisfies
the Compensation requirement in clause (d) for the relevant year, the Advisory
Committee will treat the highest paid officer as satisfying clause (d) for that
year.
For purposes of this Section 1.07, "Compensation" means Compensation as
defined in Section 1.10, except any exclusions from Compensation other than the
exclusions described in paragraphs (a), (b), (c) and (d) of Section 1.10, and
Compensation must include: (i) elective deferrals under a Code ss.401(k)
arrangement or under a Simplified Employee Pension maintained by the Employer;
and (ii) amounts paid by the Employer which are not currently includible in the
Employee's gross income because of Code ss.ss.125 (cafeteria plans) or 403(b)
(tax-sheltered annuities). The Advisory Committee must make the determination of
who is a Highly Compensated Employee, including the determinations of the number
and identity of the top paid 20% group, the top 100 paid Employees, the number
of officers includible in clause (d) and the relevant Compensation, consistent
with Code ss.414(q) and regulations issued under that Code section. The Employer
may make a calendar year election to determine the Highly Compensated Employees
for the Plan Year, as prescribed by Treasury regulations. A calendar year
election must apply to all
2
plans and arrangements of the Employer. For purposes of applying any
non-discrimination test required under the Plan or under the Code, in a manner
consistent with applicable Treasury regulations, the Advisory Committee will not
treat as a separate Employee a family member (a spouse, a lineal ascendant or
descendant, or a spouse of a lineal ascendant or descendant) of a Highly
Compensated Employee described in a clause (a) of this Section, or a family
member of one of the ten Highly Compensated Employees with the greatest
Compensation for the Plan Year, but will treat the Highly Compensated Employee
and all family members as single Highly Compensated Employee. This aggregation
rule applies to a family member even if that family member is a Highly
Compensated Employee without family aggregation.
The term "Highly Compensated Employee" also includes any former
Employee who separated from Service (or has a deemed Separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's Separation from Service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.07 or received Compensation in excess of $50,000
during: (1) the year of his Separation from Service (or the prior year); or (2)
any year ending after his 54th birthday.
1.08 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.09 "Beneficiary" is a person designated by a Participant who is or
may become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan remains a Beneficiary under the Plan until
the Trustee has fully distributed his benefit to him. A Beneficiary's right to
(and the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.10 "Compensation" means the Participant's wages, salaries, fees for
professional service and other amounts received for personal services actually
rendered in the course of employment with the Employer maintaining the plan
(including, but not limited to, overtime pay, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips and bonuses). Compensation includes elective
contributions made by the Employer on the Employee's behalf. "Elective
contributions" are amounts excludible from the Employee's gross income under
Code ss.402(a)(8) (relating to a Code ss.401(k) arrangement), Code ss.402(h)
(relating to a Simplified employee Pension, Code ss.125 (relating to a cafeteria
plan) or Code ss.403(b) (relating to a tax-sheltered annuity). A Compensation
payment includes Compensation paid by the Employer to an Employee through
another person under the common paymaster provisions of Code ss.ss.3121(s) and
3306(p). The term "Compensation" does not include:
(a) Employer contributions (other than "elective
contributions") to a plan of deferred compensation to the
extent the contributions are not included in the gross
3
income of the Employee for the taxable year in which
contributed, on behalf of an Employee to a Simplified Employee
Pension Plan to the extent such contributions are excludible
from the Employee's gross income, and any distributions from a
plan of deferred compensation, regardless of whether such
amounts are includible in the gross income of the Employee
when distributed.
(b) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture.
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option.
(d) Other amounts which receive special tax benefits,
such as premiums for group term life insurance (but only to
the extent that the premiums are not includible in the gross
income of the Employee), or contributions made by an Employer
(whether or not under a salary reduction agreement) towards
the purchase of an annuity contract described in Code
ss.403(b) (whether or not the contributions are excludible
from the gross income of the Employee), other than "elective
contributions".
(e) Employee expense reimbursements and allowances,
moving expenses, director's fees and payments made by the
Employer for group insurance, hospitalization and like
benefits and contributions made by the Employer under any
other employee benefit plan it maintains.
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.10, unless the Plan reference specifies a
modification to this definition. The Advisory Committee will take into account
only Compensation actually paid for the relevant period.
For any Plan Year beginning after December 31, 1988, the Advisory
Committee must take into account only the first $200,000 (or beginning January
1, 1990, such larger amount as the Commissioner of Internal Revenue may
prescribe) of any Participant's Compensation. The $200,000 Compensation
limitation applies to the combined Compensation of the Employee and of any
family member aggregated with the Employee under Section 1.09 and who is either
(i) the Employee's spouse; or (ii) the Employee's lineal descendant under the
age of 19. If the $200,000 (or adjusted) Compensation limitation applies to the
combined Compensation of the Employee and one or more family members, the
Advisory Committee will apply the contribution and allocation provisions of
Article III by prorating the $200,000 (or adjusted) limitation among the
affected Participants in proportion to each such Participant's Compensation
determined prior to application of this limitation. For any Plan Year beginning
prior to January 1, 1989, this $200,000 limitation (but not the family
aggregation requirement) applies only if the Plan is top heavy (as determined
under Section 1.29) for such Plan Year.
4
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code ss.401(a)(17)(B). The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
NONDISCRIMINATION. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.10 except any exclusions from
Compensation other than the exclusions described in paragraphs (a), (b), (c) and
(d), unless the Employer elects to use an alternate nondiscriminatory
definition, in accordance with the requirements of Code ss.414(s) and the
regulations issued under that Code section. The Employer may elect to include
all elective contributions made by the Employer on behalf of the Employees. The
Employer's election to include elective contributions must be consistent and
uniform with respect to Employees and all plans of the Employer for any
particular Plan Year. The Employer may make this election to include elective
contributions for nondiscrimination testing purposes, irrespective of whether
this Section 1.10 includes elective contributions in the general Compensation
definition applicable to the Plan.
1.11 "Account" means the separate account(s) which the Advisory
Committee or the Trustee maintains for a Participant under the Plan.
1.12 "Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and Employee
contributions, if any.
1.13 "Nonforfeitable" means a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.14 "Plan Year" means the fiscal year of the Plan, a 12 consecutive
month period ending every December 31.
1.15 "Effective Date" of this Plan as restated during the 1996 Plan
Year is January 1, 1996.
5
1.16 "Plan Entry Date" means the restated Effective Date and every
January 1 and July 1 after the restated Effective Date.
1.17 "Accounting Date" is the last day of the Plan Year. Unless
otherwise specified in the Plan, the Advisory Committee will make all Plan
allocations for a particular Plan Year as of the Accounting Date of that Plan
Year.
1.18 "Trust" means the separate Trust created under the Plan.
1.19 "Trust Fund" means all property of every kind held or acquired by
the Trustee under the Plan, other than incidental benefit insurance contracts.
The Trustee may combine the Trusts created under the plans of all Employers
participating under the DST Systems, Inc. Profit Sharing Plan into one (1) Trust
Fund. However, the Trustee shall maintain separate records of account in order
to reflect properly each Participant's Accrued Benefit under the plan(s) in
which he is a Participant.
1.20 "Nontransferable Annuity" means an annuity which by its terms
provides that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any purpose
to any person other than the insurance company. If the Trustee distributes an
annuity contract, the contract must be a Nontransferable Annuity.
1.21 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.22 "Code" means the Internal Revenue Code of 1986, as amended.
1.23 "Service" means any period of time the Employee is in the employ
of the Employer, including any period the Employee is on an unpaid leave of
absence authorized by the Employer under a uniform, nondiscriminatory policy
applicable to all Employees. "Separation from Service" means a separation from
Service with the Employer. For purposes of this Section 1.23, the term
"Employer" includes "affiliates" and "related group" members, as those terms are
defined in Section 1.27.
1.24 "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee is
entitled to payment, for the performance of duties. The Advisory
Committee credits Hours of Service under this paragraph (a) to the
Employee for the computation period in which the Employee-performs the
duties, irrespective of when paid;
(b) Each Hour of Service for back pay, irrespective of
mitigation of damages, to which the Employer has agreed or for which
the Employee has received an award. The Advisory Committee credits
Hours of Service under this paragraph (b) to the Employee for
6
the computation period(s) to which the award or the agreement pertains
rather than for the computation period in which the award, agreement or
payment is made; and
(c) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee is
entitled to payment (irrespective of whether the employment
relationship is terminated), for reasons other than for the performance
of duties during a computation period, such as leave of absence,
vacation, holiday, sick leave, illness, incapacity (including
disability), layoff, jury duty or military duty. The Advisory Committee
will credit no more than 501 Hours of Service under this paragraph (c)
to an Employee on account of any single continuous period during which
the Employee does not perform any duties (whether or not such period
occurs during a single computation period). The Advisory Committee
credits Hours of Service under this paragraph (c) in accordance with
the rules of paragraphs (b) and (c) of Labor Reg. ss.2530.200b-2, which
the Plan, by this reference, specifically incorporates in full within
this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more
than one of the above paragraphs. A computation period for purposes of this
Section 1.24 is the Plan Year, Year of Service period, Break in Service period
or other period, as determined under the Plan provision for which the Advisory
Committee is measuring an Employee's Hours of Service. The Advisory Committee
will resolve any ambiguity with respect to the crediting of an Hour of Service
in favor of the Employee.
The Employer will credit every Employee with Hours of Service on the
basis of the "actual" method. For purposes of the Plan, "actual" method means
the determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
Solely for purposes of determining whether the Employee incurs a Break
in Service under any provision of this Plan, the Advisory Committee must credit
Hours of Service during an Employee's unpaid absence period due to maternity or
paternity leave. The Advisory Committee considers an Employee on maternity or
paternity leave if the Employee's absence is due to the Employee's pregnancy,
the birth of the Employee's child, the placement with the Employee of an adopted
child, or the care of the Employee's child immediately following the child's
birth or placement. The Advisory Committee credits Hours of Service under this
paragraph on the basis of the number of Hours of Service the Employee would
receive if he were paid during the absence period or, if the Advisory Committee
cannot determine the number of Hours of Service the Employee would receive, on
the basis of 8 hours per day during the absence period. The Advisory Committee
will credit only the number (not exceeding 501) of Hours of Service necessary to
prevent an Employee's Break in Service. The Advisory Committee credits all Hours
of Service described in this paragraph to the computation period in which the
absence period begins or, if the Employee does not need these Hours of Service
to prevent a Break in Service in the computation period in which his absence
period begins, the Advisory Committee credits these Hours of Service to the
immediately following computation period.
7
1.25 "Disability" means the Participant, because of a physical or
mental disability, will be unable to perform the duties of his customary
position of employment (or is unable to engage in any substantial gainful
activity) for an indefinite period which the Advisory Committee considers will
be of long continued duration. A Participant also is disabled if he incurs the
permanent loss or loss of use of a member or function of the body, or is
permanently disfigured, and incurs a Separation from Service. The Plan considers
a Participant disabled on the date the Advisory Committee determines the
Participant satisfies the definition of disability. The Advisory Committee may
require a participant to submit to a physical examination in order to confirm
disability. The Advisory Committee will apply the provisions of this Section
1.25 in a nondiscriminatory, consistent and uniform manner.
1.26 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the
plan of a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer.
1.27 RELATED EMPLOYERS. A related group is a controlled group of
corporations (as defined in Code ss.414(b)), trades or businesses (whether or
not incorporated) which are under common control (as defined in Code ss.414(c))
or an affiliated service group (as defined in Code ss.414(m) or in Code
ss.414(o)). If the Employer is a member of a related group, the term "Employer"
includes the related group members for purposes of crediting Hours of Service,
determining Years of Service and Breaks in Service under Articles II and V,
applying the limitations on allocations in Part 2 of Article III, applying the
top heavy rules and the minimum allocation requirements of Article III, the
definitions of Employee, Highly Compensated Employee, Compensation and Leased
Employee, and for any other purpose required by the applicable Code section or
by a Plan provision. In addition, except as provided in Section 1.27(A), the
Plan shall treat service of an Employee with an "affiliate" as service with the
Employer. For purposes of the immediately preceding sentence, the term
"affiliate" means any corporation, partnership, joint venture or other business
entity with respect to which fifteen percent (15%) or more of the equity
interests therein are owned, directly or indirectly, by Kansas City Southern
Industries, Inc., DST Systems, Inc. or any entity at least 80% of the equity
interests of which are owned by Kansas City Southern Industries, Inc. or DST
Systems, Inc. However, only an Employer described in Section 1.02 may contribute
to the Plan and only an Employee employed by an Employer described in Section
1.02 is eligible to participate in this Plan. For Plan allocation purposes,
"Compensation" does not include compensation received from a related employer
that is not participating in this Plan.
(A) SERVICE PRIOR TO ADOPTION OF PLAN BY AFFILIATE. For purposes of
this paragraph, the term "affiliate" means any corporation, partnership, joint
venture or other business entity with respect to which twenty-five percent (25%)
or more of the equity interests therein are owned, directly or indirectly, by
Kansas City Southern Industries, Inc. or DST Systems, Inc. or any entity at
least 80% of the equity interests of which are owned by Kansas City Southern
Industries, Inc. or DST Systems, Inc. This paragraph shall apply solely to
service with employers that become affiliates after January 1, 1994. The Plan
shall treat service of an Employee with the Employer after the date the Employer
becomes an affiliate as service with the Employer. If an Employee was not
employed
8
by the Employer on the date the Employer became an affiliate, the Plan shall
exclude service with the Employer prior to such date. If the Employee was
employed by the Employer on the date the Employer became an affiliate, the Plan
shall treat service with the Employer prior to such date as service under the
Plan, other than such service prior to a separation from service with the
Employer.
1.28 LEASED EMPLOYEES. The Plan does not treat a Leased Employee as an
Employee of the Employer. A Leased Employee is an individual (who otherwise is
not an Employee of the Employer) who, pursuant to a leasing agreement between
the Employer and any other person, has performed services for the Employer (or
for the Employer and any persons related to the Employer within the meaning of
Code ss.144 (a)(3)) on a substantially full time basis for at least one year and
who performs services historically performed by employees in the Employer's
business field.
1.29 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only
qualified plan maintained by the Employer, the Plan is top heavy for a Plan Year
if the top heavy ratio as of the Determination Date exceeds 60%. The top heavy
ratio is a fraction, the numerator of which is the sum of the present value of
Accrued Benefits of all Key Employees as of the Determination Date and the
denominator of which is a similar sum determined for all Employees. The Advisory
Committee must include in the top heavy ratio, as part of the present value of
Accrued Benefits, any contribution not made as of the Determination Date but
includible under Code ss.416 and the applicable Treasury regulations, and
distributions made within the Determination period. The Advisory Committee must
calculate the top heavy ratio by disregarding the Accrued Benefit (and
distributions, if any, of the Accrued Benefit) of any Non-Key Employee who was
formerly a Key Employee, and by disregarding the Accrued Benefit (including
distributions, if any, of the Accrued Benefit) of an individual who has not
received credit for at least one Hour of Service with the Employer during the
Determination period. The Advisory Committee must calculate the top heavy ratio,
including the extent to which it must take into account distributions, rollovers
and transfers, in accordance with Code ss.416 and the regulations under that
Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is terminated,
this Plan is top heavy only if it is part of the Required Aggregation Group, and
the top heavy ratio for the Required Aggregation Group and for the Permissive
Aggregation Group, if any, each exceeds sixty percent (60%). The Advisory
Committee will calculate the top heavy ratio in the same manner as required by
the first paragraph of this Section 1.29, taking into account all plans within
the Aggregation Group. To the extent the Advisory Committee must take into
account distributions to a Participant, the Advisory Committee must include
distributions from a terminated plan which would have been part of the Required
Aggregation Group if it were in existence on the Determination Date. The
Advisory Committee will calculate the present value of Accrued Benefits under
defined benefit plans or simplified employee pension plans included within the
group in accordance with the terms of those plans, Code ss.416 and the
regulations under that Code section. If a Participant in a defined benefit plan
is a Non-Key Employee, the Advisory Committee will determine his Accrued Benefit
under the accrual method, if any, which is applicable uniformly to all defined
benefit plans maintained by the Employer or, if there is no uniform method, in
accordance with the slowest accrual rate permitted
9
under the fractional rule accrual method described in Code ss.411(b)(1)(C). To
calculate the present value of benefits from a defined benefit plan, the
Advisory Committee will use the actuarial assumptions (interest and mortality
only) prescribed by the defined benefit plan(s) to value benefits for top heavy
purposes. If an aggregated plan does not have a valuation date coinciding with
the Determination Date, the Advisory Committee must value the Accrued Benefits
in the aggregated plan as of the most recent valuation date falling within the
twelve-month period ending on the Determination Date, except as Code ss.416 and
applicable Treasury regulations require for the first and second plan year of a
defined benefit plan. The Advisory Committee will calculate the top heavy ratio
with reference to the Determination Dates that fall within the same calendar
year.
DEFINITIONS. For purposes of applying the provisions of this Section
1.29:
(a) "Key Employee" means, as of any Determination Date, any
Employee or former Employee (or Beneficiary of such Employee) who, for
any Plan Year in the Determination Period: (i) has Compensation in
excess of 50% of the dollar amount prescribed in Code ss.415(b)(1)(A)
(relating to defined benefit plans) and is an officer of the Employer;
(ii) has Compensation in excess of the dollar amount prescribed in Code
ss.415(c)(1)(A) (relating to defined contribution plans) and is one of
the Employees owning the ten largest interests in the Employer; (iii)
is a more than 5% owner of the Employer; or (iv) is a more than 1%
owner of the Employer and has Compensation of more than $150,000. The
constructive ownership rules of Code ss.318 (or the principles of that
section, in the case of an unincorporated Employer,) will apply to
determine ownership in the Employer. The number of officers taken into
account under clause (i) will not exceed the greater of 3 or 10% of the
total number (after application of the code ss.414(q)(8) exclusions) of
Employees, but no more than 50 officers. The Advisory Committee will
make the determination of who is a Key Employee in accordance with Code
ss.416(i)(1) and the regulations under that Code section.
(b) "Non-Key Employee" is an employee who does not meet the
definition of Key Employee.
(c) "Compensation" means Compensation as determined under
Section 1.07 (relating to the Highly Compensated Employee definition).
(d) "Required Aggregation Group" means: (1) each qualified
plan of the Employer in which at least one Key Employee participates at
any time during the Determination Period; and (2) any other qualified
plan of the Employer which enables a plan described in clause (1) to
meet the requirements of Code ss.401(a)(4) or Code ss.410.
(e) "Permissive Aggregation Group" is the Required Aggregation
Group plus any other qualified plans maintained by the Employer, but
only if such group would satisfy in the aggregate the requirements of
Code ss.401(a)(4) and Code ss.410. The Advisory Committee will
determine the Permissive Aggregation Group.
10
(f) "Employer" means the Employer that adopts this Plan and
any related employers described in Section 1.27.
(g) "Determination Date" for any Plan Year is the Accounting
Date of the preceding Plan Year or, in the case of the first Plan Year
of the Plan, the Accounting Date of that Plan Year. The "Determination
Period" is the 5 year period ending on the Determination Date.
1.30 PLAN MAINTAINED BY MORE THAN ONE EMPLOYER. If more than one
employer maintains this Plan, then for purposes of determining Service and Hours
of Service, the Advisory Committee will treat all Employers maintaining this
Plan as a single employer.
PLAN ALLOCATIONS. The Advisory Committee and the Trustee will account
separately for each Employer's contributions under the Plan. In this respect,
the Advisory Committee will allocate each Employer's contributions to the
Trustee for a Plan Year, in accordance with Article III, to the Accounts of
those Participants actually employed by that Employer during the Plan Year. The
Advisory Committee will allocate Participant forfeitures to the Accounts of
those Participants employed by the Employer that actually employed the forfeited
Participant in the year of the forfeiture, provided, however, that for purposes
of such forfeiture allocations, the term "Employer" shall include any related
group members, as defined in Section 1.27. For purposes of this Section 1.30,
Compensation will mean Compensation paid during the Plan Year by an Employer to
those Participants actually employed by that Employer during that Plan Year.
1.31 "ESOP Participant" means any participant, former participant or
beneficiary of a participant or former participant in The Employee Stock
Ownership Plan, a portion of whose account balance in The Employee Stock
Ownership Plan has been transferred to this Plan in a transaction described in
ss.414(l) of the Code.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee (other than an Excluded Employee)
becomes a Participant in the Plan on the Plan Entry Date (if employed on that
date) immediately following the date on which he completes one Year of Service.
Each Employee who was a Participant in the Plan on the day before the Effective
Date of this restated Plan continues as a Participant in the Plan.
An Employee is an Excluded Employee if he is a member of a collective
bargaining unit, unless the collective bargaining agreement provides otherwise.
An Employee is a member of a collective bargaining unit if he is included in a
unit of employees covered by an agreement which the Secretary of Labor finds to
be a collective bargaining agreement between employee representatives and one or
more employers if there is evidence that retirement benefits were the subject of
good faith bargaining between such employee representatives and such employer or
11
employers. The term "employee representatives" does not include an organization
more than one half the members of which are owners, officers or executives of
the Employer.
If a Participant has not incurred a Separation from Service but becomes
an Excluded Employee, then during the period such a Participant is an Excluded
Employee, the Advisory Committee will limit that Participant's sharing in the
allocation of Employer contributions and Participant forfeitures, if any, under
the Plan by disregarding his Compensation paid by the Employer for services
rendered in his capacity as an Excluded Employee. However, during such period of
exclusion, the Participant, without regard to employment classification,
continues to receive credit for vesting under Article V for each included Year
of Service and the Participant's Account continues to share fully in Trust Fund
allocations under Section 15.05.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
If a Leased Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been a
Leased Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
a Leased Employee for purposes of vesting credit under Article V.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
participation in the Plan under Section 2.01, the Plan takes into account all of
an Employee's Years of Service with the Employer, except as provided in Section
2.03. "Year of Service" means a 12 consecutive month period during which the
Employee completes not less than 1,000 Hours of Service, measuring the beginning
of the first 12 month period from the Employment Commencement Date. If the
Employee does not complete 1,000 Hours of Service during the 12 month period
commencing with the Employment Commencement Date, the Plan measures the second
12 month period by reference to the Plan Year which includes the first
anniversary of the Employee's Employment commencement Date. The Plan measures
any subsequent 12 month period necessary for a determination of Year of Service
for participation by reference to succeeding Plan Years. "Employment
Commencement Date" means the date on which the Employee first performs an Hour
of Service for the Employer.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of participation in
the Plan, the Plan does not apply any Break in Service rule.
12
2.04 PARTICIPATION UPON REEMPLOYMENT. A Participant whose employment
terminates reenters the Plan as a Participant on the date of his reemployment.
An Employee who satisfies the Plan's eligibility conditions but who terminates
employment prior to becoming a Participant becomes a Participant in the Plan on
the later of the Plan Entry Date on which he would have entered the Plan had he
not terminated employment or the date of his reemployment. Any Employee who
terminates employment prior to satisfying the Plan's eligibility conditions
becomes a Participant in accordance with the provisions of Section 2.01.
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS: SECTIONS 3.01
THROUGH 3.06.
3.01 AMOUNT. For each Plan Year, the Employer will contribute to the
Trust an amount which the Employer may from time to time deem advisable.
Although the Employer may contribute to this Plan irrespective of whether it has
net profits, the Employer intends this Plan to be a profit sharing plan for all
purposes of the Code. The Employer shall not make a contribution to the Trust
for any Plan Year to the extent the contribution would exceed the Participants'
"Maximum Permissible Amount". See Part 2 of this Article III.
The Employer contributes to this Plan on the condition its contribution
is not due to a mistake of fact and the Internal Revenue Service will not
disallow the deduction for its contribution. The Trustee, upon written request
from the Employer, must return to the Employer the amount of the Employer's
contribution made by the Employer by mistake of fact or the amount of the
Employer's contribution disallowed as a deduction under Code ss.404. The Trustee
will not return any portion of the Employer's contribution under the provisions
of this paragraph more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and
then, only to the extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan.
13
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its
contribution for each Plan Year in one or more installments without interest.
The Employer must make its contribution to the Trustee within the time
prescribed by the Code or applicable Treasury regulations.
3.04 CONTRIBUTION ALLOCATION.
(A) METHOD OF ALLOCATION. Subject to Section 3.04(B) and any restoration
allocation required under Section 5.04, the Advisory Committee will allocate and
credit each annual Employer contribution (and Participant forfeitures, if any),
to the Account of each Participant who satisfies the conditions of Section 3.06,
in the same ratio that each Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year.
(B) TOP HEAVY MINIMUM ALLOCATION.
(1) MINIMUM ALLOCATION. If the Plan is top heavy in any
Plan Year:
(a) Each Non-Key Employee (as defined in Section
1.29) who is a Participant and is employed by the Employer on
the last day of the Plan Year will receive a top heavy minimum
allocation for that Plan Year, irrespective of whether he
satisfies the Hours of Service condition under Section 3.06;
and
(b) The top heavy minimum allocation is the lessor of
3% of the Non-Key Employee's Compensation for the Plan Year or
the highest contribution rate for the Plan Year made on behalf
of any Key Employee (as defined in Section 1.29). However, if
a defined benefit plan maintained by the Employer which
benefits a Key Employee depends on this Plan to satisfy the
antidiscrimination rules of Code ss.401(a)(4) or the coverage
rules of Code ss.410 (or another plan benefiting the Key
Employee so depends on such defined benefit plan), the top
heavy minimum allocation is 3% of the Non- Key Employee's
Compensation regardless of the contribution rate for the Key
Employees.
For purposes of clause (b), "Compensation" means Compensation
as defined in Section 1.10, except: (i) Compensation does not include
elective contributions; (ii) any exclusions from Compensation do not
apply; and (iii) any modification to the definition of Compensation in
Section 3.06 does not apply. For purposes of this Section 3.04(B), a
Participant's contribution rate is the sum of Employer contributions
(not including Employer contributions to Social Security) and
forfeitures allocated to the Participant's Account for the Plan Year
divided by his Compensation for the entire Plan Year. However, for Plan
Years beginning after December 31, 1988, a Non-Key Employee's
contribution rate does not include any elective contributions under a
Code ss.401(k) arrangement nor any Employer
14
matching contributions necessary to satisfy the nondiscrimination
requirements of Code ss.401(k) or of Code ss.401(m). To determine a
Participant's contribution rate, the Advisory Committee must treat all
qualified top heavy defined contribution plans maintained by the
Employer (or by any related Employers described in Section 1.27) as a
single plan.
(2) METHOD OF COMPLIANCE. The Plan will satisfy the top heavy
minimum allocation in accordance with this Section 3.04(B)(2). The
Advisory Committee first will allocate the Employer contributions (and
Participant forfeitures, if any) for the Plan Year in accordance with
the allocation formula under Section 3.04(A). The Employer then will
contribute an additional amount for the Account of any Participant who
is entitled under this Section 3.04(B) to a top heavy minimum
allocation and whose contribution rate for the Plan Year is less than
the top heavy minimum allocation. The additional amount is the amount
necessary to increase the Participant's contribution rate to the top
heavy minimum allocation. The Advisory Committee will allocate the
additional contribution to the Account of the Participant on whose
behalf the Employer makes the contribution.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued
Benefit forfeited under the Plan is a Participant forfeiture. Subject to any
restoration allocation required under Sections 5.04 or 9.12, the Advisory
Committee will allocate the forfeiture in accordance with Section 3.04 as an
Employer contribution for the Plan Year in which the forfeiture occurs, as if
the Participant forfeiture were an additional Employer contribution for that
Plan Year. The Advisory Committee will continue to hold the undistributed,
non-vested portion of a terminated Participant's Accrued Benefit in his Account
solely for his benefit until a forfeiture occurs at the time specified in
Section 5.09. Except as provided under Section 5.04, a Participant will not
share in the allocation of a forfeiture of any portion of his Accrued Benefit.
3.06 ACCRUAL OF BENEFIT. The Advisory Committee will determine the
accrual of benefit (Employer contributions and Participant forfeitures) on the
basis of the Plan Year.
COMPENSATION TAKEN INTO ACCOUNT. In allocating an Employer contribution
to a Participant's Account, the Advisory Committee, except for purposes of
determining the top heavy minimum contribution under Section 3.04(B), will take
into account only the Compensation determined for the portion of the Plan Year
in which the Employee actually is a Participant.
HOURS OF SERVICE REQUIREMENT. Subject to the top heavy minimum
allocation requirement of Section 3.04(B), the Advisory Committee will not
allocate any portion of an Employer contribution for a Plan Year to any
Participant's Account if the Participant does not complete a minimum of 1,000
Hours of Service during the Plan Year, unless the Participant terminates
employment during the Plan Year because of death or disability or because of the
attainment of Normal Retirement Age in the current Plan Year or in a prior Plan
Year.
EMPLOYMENT REQUIREMENT. A Participant who, during a particular Plan
Year, completes the Hours of Service requirement under this Section 3.06 will
share in the allocation of Employer
15
contributions and Participant forfeitures, if any, for that Plan Year without
regard to whether he is employed by the Employer on the Accounting Date of that
Plan Year.
PART 2. LIMITATIONS ON ALLOCATIONS: SECTIONS 3.07 AND 3.05.
3.07 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount
of Annual Additions which the Advisory Committee may allocate under this Plan on
a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to the
Participant's Account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, the Employer will reduce the amount of
its contribution so the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.04, would result in the allocation of an Excess Amount (other than
an Excess Amount resulting from the circumstances described in Section 3.07(B))
to the Participant's Account, the Advisory Committee will reallocate the Excess
Amount to the remaining Participants who are eligible for an allocation of
Employer contributions for the Plan Year in which the Limitation Year ends. The
Advisory Committee will make this reallocation on the basis of the allocation
method under the Plan as if the Participant whose Account otherwise would
receive the Excess Amount is not eligible for an allocation of Employer
contributions.
(A) ESTIMATION OF COMPENSATION. Prior to the determination of the Participant's
actual Compensation for a Limitation Year, the Advisory Committee may determine
the Maximum Permissible Amount on the basis of the Participant's estimated
annual Compensation for such Limitation Year. The Advisory Committee must make
this determination on a reasonable and uniform basis for all Participants
similarly situated. The Advisory Committee must reduce any Employer
contributions (including any allocation of forfeitures) based on estimated
annual Compensation by any Excess Amount carried over from prior years. As soon
as is administratively feasible after the end of the Limitation Year, the
Advisory Committee will determine the Maximum Permissible Amount for such
Limitation Year on the basis of the Participant's actual Compensation for such
Limitation Year.
(B) DISPOSITION OF EXCESS AMOUNT. If, pursuant to Section 3.07(A), or because of
the allocation of forfeitures, there is an Excess Amount with respect to a
Participant for a Limitation Year, the Advisory Committee will dispose of such
Excess Amount as follows:
(a) The Advisory Committee will return any nondeductible
voluntary Employee contributions to the Participant to the extent that
the return would reduce the Excess Amount.
(b) If, after the application of paragraph (a), an Excess
Amount still exists, and the Plan covers the Participant at the end of
the Limitation Year, then the Advisory Committee will use the Excess
Amount(s) to reduce future Employer contributions (including any
allocation of forfeitures) under the Plan for the next Limitation Year
and for each succeeding Limitation Year, as is necessary, for the
Participant.
16
(c) If, after the application of paragraph (a), an Excess
Amount still exists, and the Plan does not cover the Participant at the
end of the Limitation Year, then the Advisory Committee will hold the
Excess Amount unallocated in a suspense account. The Advisory Committee
will apply the suspense account to reduce Employer Contributions
(including allocation of forfeitures) for all remaining Participants in
the next Limitation Year, and in each succeeding Limitation Year if
necessary.
(d) The Advisory Committee will not distribute any Excess
Amount(s) to Participants or to former Participants.
(C) DEFINED BENEFIT PLAN LIMITATION. The Employer does not maintain and never
has maintained a defined benefit plan covering any Participant in this Plan.
Accordingly, no special defined benefit plan limitation applies under this Plan.
(D) MORE THAN ONE PLAN. If the Advisory Committee allocated an Excess Amount to
a Participant's Account on an allocation date of this Plan which coincides with
an allocation date of another defined contribution plan maintained by the
Employer, the Advisory Committee will attribute the Excess Amount allocated as
of such date to this Plan. If an Excess Amount remains, it will then be
attributed to The Employee Stock Ownership Plan, and then, if necessary, to the
DST Systems, Inc. 401(k) Plan.
3.08 DEFINITIONS - ARTICLE III. For purposes of Article III, the following
terms mean:
(a) "Annual Addition" - The sum of the following amounts
allocated on behalf of a Participant for a Limitation Year: (i) all
Employer contributions; (ii) all forfeitures; and (iii) all Employee
contributions. Except to the extent provided in Treasury Regulations,
Annual Additions include excess contributions described in Code
ss.401(k), excess aggregate contributions described in Code ss.401(m)
and excess deferrals described in Code ss.402(g), irrespective of
whether the plan distributes or forfeits such excess amounts. Annual
Additions also include Excess Amounts re-applied to reduce Employer
contributions under Section 3.07. Amounts allocated after March 31,
1984, to an individual medical account (as defined in Code ss.415(l)
(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable
years ending after December 31, 1985, attributable to post-retirement
medical benefits allocated to the separate account of a key employee
(as defined in Code ss.419A(d)(3)) under a welfare benefit fund (as
defined in Code ss.419(e)) maintained by the Employer, but only for
purposes of the dollar limitation applicable to the Maximum Permissible
Amount.
(b) "Compensation" - For purposes of applying the limitations
of Part 2 of this Article III, "Compensation" means Compensation as
defined in Section 1.10, disregarding elective contributions and any
exclusions from Compensation.
17
(c) "Maximum Permissible Amount" - The lesser of (i) $30,000
(or, if greater, one-fourth of the defined benefit dollar limitation
under Code ss.415(b)(1)(A)), or (ii) 25% of the Participant's
Compensation for the Limitation Year. If there is a short Limitation
Year because of a change in Limitation Year, the Advisory Committee
will multiply the $30,000 (or adjusted) limitation by the following
fraction:
number of months in the short limitation year
--------------------------------------------
12
(d) "Employer" - The Employer that adopts this Plan and any
related employers described in Section 1.27. Solely for purposes of
applying the limitations of Part 2 of this Article III, the Advisory
Committee will determine related employers described in Section 1.27 by
modifying Code ss.ss.414(b) and (c) in accordance with Code ss.415(h).
(e) "Excess Amount" - The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(f) "Limitation Year" - The Plan Year. If the Employer amends
the Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for
which the Employer makes the amendment, creating a short Limitation
Year.
(g) "Defined contribution plan" - A retirement plan which
provides for an individual account for each Participant and for
benefits based solely on the amount contributed to the Participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other Participants which the plan may
allocate to such Participant's account. The Advisory Committee must
treat all defined contribution plans (whether or not terminated)
maintained by the Employer as a single plan. For purposes of the
limitations of Part 2 of this Article III, the Advisory Committee will
treat employee contributions made to a defined benefit plan maintained
by the Employer as a separate defined contribution plan. The Advisory
Committee also will treat as a defined contribution plan an individual
medical account (as defined in Code ss.415(1)(2)) included as part of a
defined benefit plan maintained by the Employer and, for taxable years
ending after December 31, 1985, a welfare benefit fund under Code
ss.419(e) maintained by the Employer to the extent there are
post-retirement medical benefits allocated to the separate account of a
key employee (as defined in Code ss.419A(d)(3)).
(h) "Defined benefit plan" - A retirement plan which does not
provide for individual accounts for Employer contributions. The
Advisory Committee must treat all defined benefit plans (whether or not
terminated) maintained by the Employer as a single plan.
18
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS. The Plan does not permit nor
require Participant nondeductible contributions.
4.02 PARTICIPANT VOLUNTARY CONTRIBUTIONS - SPECIAL
DISCRIMINATION TEST. (Reserved]
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant employed on or
before December 31, 1992, with the Employer's written consent and after filing
with the Trustee the form prescribed by the Advisory Committee, may contribute
cash or other property to the Trust other than as a voluntary contribution if
the contribution is a "rollover contribution" which the Code permits an employee
to transfer either directly or indirectly from one qualified plan to another
qualified plan. Before accepting a rollover contribution, the Trustee may
require an Employee to furnish satisfactory evidence that the proposed transfer
is in fact a "rollover contribution" which the Code permits an employee to make
to a qualified plan. A rollover contribution is not an Annual Addition under
Part 2 of Article III.
The Trustee will invest the rollover contribution in a segregated
investment Account for the Participant's sole benefit unless the Trustee, in its
sole discretion, agrees to invest the rollover contribution as part of the Trust
Fund. The Trustee will not have any investment responsibility with respect to a
Participant's segregated rollover Account. The Participant, however, from time
to time, may direct the Trustee in writing as to the investment of his
segregated rollover Account in property, or property interests, of any kind,
real, personal or mixed; provided however, the Participant may not direct the
Trustee to make loans to his Employer. A Participant's segregated rollover
Account alone will bear any extraordinary expenses resulting from investments
made at the direction of the Participant. As of the Accounting Date (or other
valuation date) for each Plan Year, the Advisory Committee will allocate and
credit the net income (or net loss) from a Participant's segregated rollover
Account and the increase or decrease in the fair market value of the assets of a
segregated Account solely to that Account. The Trustee is not liable nor
responsible for any loss resulting to any Beneficiary, nor to any Participant,
by reason of any sale or investment made or other action taken pursuant to and
in accordance with the direction of the Participant. In all other respects, the
Trustee will hold, administer and distribute a rollover contribution in the same
manner as any Employer contribution made to the Trust.
An eligible Employee, prior to satisfying the Plan's eligibility
conditions, may make a rollover contribution to the Trust to the same extent and
in the same manner as a Participant. If an Employee makes a rollover
contribution to the Trust prior to satisfying the Plan's eligibility conditions,
the Advisory Committee and Trustee must treat the Employee as a Participant for
all purposes of the Plan except (1) the Employee is not a Participant for
purposes of sharing in Employer contributions or Participant forfeitures under
the Plan until he actually becomes a Participant in the Plan and (2) the
Employee is not a Participant for purposes of determining
19
eligibility to request a hardship withdrawal under Article XIV until he actually
becomes a Participant in the Plan. If the Employee has a Separation from Service
prior to becoming a Participant, the Trustee will distribute his rollover
contribution Account to him as if it were an Employer contribution Account.
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued
Benefit is, at all times, one hundred percent (100%) Nonforfeitable to the
extent the value of his Accrued Benefit is derived from Participant
contributions made by him to the Trust for his own benefit.
4.05 PARTICIPANT CONTRIBUTION WITHDRAWAL/DISTRIBUTION. A
Participant, by giving prior written notice to the Trustee, may withdraw all or
any part of the value of his Accrued Benefit derived from his Participant
contributions described in this Article IV; provided, however, that a
Participant may not withdraw any part of the value of his Accrued Benefit
attributable to a Participant rollover contribution made by him to the Trust. A
Participant may not exercise his right to withdraw the value of his Accrued
Benefit derived from his Participant contributions (other than rollover
contributions) more than once during any Plan Year. The Trustee, in accordance
with the direction of the Advisory Committee, shall distribute a Participant's
unwithdrawn Accrued Benefit attributable to his Participant contributions at the
same time the Trustee distributes the Participant's Accrued Benefit attributable
to Employer contributions.
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory
Committee must maintain, or must direct the Trustee to maintain, a separate
Account(s) in the name of each Participant to reflect the Participant's Accrued
Benefit under the Plan derived from his Participant contributions. A
Participant's Accrued Benefit derived from his Participant contributions as of
any applicable date is the balance of his separate Participant contribution
Account(s).
This Plan includes deductible employee contributions ("DECs") made for
certain taxable years beginning prior to January 1, 1987. The Advisory Committee
will continue to maintain a separate accounting for the Participant's Accrued
Benefit attributable to DECs, including DECs which are part of a rollover
contribution described in Section 4.03. The Advisory Committee will treat the
accumulated DECs as part of the Participant's Accrued Benefit for all purposes
of the Plan, except for purposes of determining the top heavy ratio under
Section 1.29. The Participant may not apply any portion of his accumulated
deductible employee contributions to the purchase of life insurance.
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE; EARLY RETIREMENT. A Participant's Normal
Retirement Age is 65 years of age. However, a Participant who has attained age
60 may elect to retire early as of any date thereafter. A Participant who
remains in the employ of the Employer after
20
attaining Normal Retirement Age will continue to participate in Employer
contributions. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by the Employer on or after that date).
5.02 PARTICIPANT DISABILITY OR DEATH. If a Participant's employment
with the Employer terminates as a result of death or disability, the
Participant's Accrued Benefit derived from Employer contributions will be 100%
Nonforfeitable.
5.03 VESTING SCHEDULE. A Participant's Accrued Benefit derived from
Employer contributions shall be one hundred percent (100%) Nonforfeitable upon
and after his attaining Normal Retirement Age (if employed by the Employer on or
after that date), or if his employment terminates as a result of death,
disability or early retirement pursuant to Section 5.01. At any other time, for
each Year of Service, a Participant's Nonforfeitable percentage of his Accrued
Benefit derived from Employer contributions equals the percentage in the
following vesting schedule:
Years of Service Percent of Nonforfeitable
with the employer accrued benefit
---------------- -------------------------
Less than 1 None
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
For any Plan Year for which the Plan is a top heavy Plan (as defined in
Section 1.29), the Advisory Committee will calculate a Participant's
Nonforfeitable percentage of his Accrued Benefit under the following schedule:
Years of Service Percent of Nonforfeitable
with the employer accrued benefit
----------------- -------------------------
Less than 2 None
2 20%
3 40%
4 60%
5 80%
6 or more 100%
The Advisory Committee will apply the top heavy schedule to
Participants who earn at least one Hour of Service after the top heavy schedule
becomes effective. A shift between vesting schedules under this Section 5.03 is
an amendment to the vesting schedule and the Advisory Committee must apply the
rules of Section 7.05 accordingly. A shift to a new vesting schedule
21
under this Section 5.03 is effective on the first day of the Plan Year for which
the top heavy status of the Plan changes.
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED
PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article
VI, a partially-vested Participant receives a cash-out distribution before he
incurs a Forfeiture Break in Service (as defined in Section 5.08), the cash-out
distribution will result in an immediate forfeiture of the non-vested portion of
the Participant's Accrued Benefit derived from Employer contributions. See
Section 5.09. A partially-vested Participant is a Participant whose
Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A
cash-out distribution is a distribution of the entire present value of the
Participant's Nonforfeitable Accrued Benefit.
(A) RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested Participant
who is reemployed by the Employer after receiving a cash-out distribution of the
Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the
amount of the cash-out distribution attributable to Employer contributions,
unless the Participant no longer has a right to restoration under the
requirements of this Section 5.04. If a partially-vested Participant makes the
cash-out distribution repayment, the Advisory Committee, subject to the
conditions of this paragraph (A), must restore his Accrued Benefit attributable
to Employer contributions to the same dollar amount as the dollar amount of his
Accrued Benefit on the Accounting Date, or other valuation date, immediately
preceding the date of the cash-out distribution, unadjusted for any gains or
losses occurring subsequent to that Accounting Date, or other valuation date.
Restoration of the Participant's Accrued Benefit includes restoration of all
Code ss.411(d)(6) protected benefits with respect to that restored Accrued
Benefit, in accordance with applicable Treasury regulations. The Advisory
Committee will not restore a reemployed Participant's Accrued Benefit under this
paragraph if:
(1) Five (5) years have elapsed since the Participant's first
reemployment date following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service (as
defined in Section 5.08). This condition also applies if the
Participant makes repayment within the Plan Year in which he incurs the
Forfeiture Break in Service and that Forfeiture Break in Service would
result in a complete forfeiture of the amount the Advisory Committee
otherwise would restore.
(B) TIME AND METHOD OF RESTORATION. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory Committee
will restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Advisory Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the
Advisory Committee would otherwise allocate under Section 3.05;
22
(2) Second, the amount, if any, of the Trust Fund net income
or gain for the Plan Year; and
(3) Third, the Employer contribution for the Plan Year to the
extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Advisory Committee to make the required restoration,
the Employer must contribute, without regard to any requirement or condition of
Section 3.01, the additional amount necessary to enable the Advisory Committee
to make the required restoration. If, for a particular Plan Year, the Advisory
Committee must restore the Accrued Benefit of more than one reemployed
Participant, then the Advisory Committee will make the restoration allocation(s)
to each such Participant's Account in the same proportion that a Participant's
restored amount for the Plan Year bears to the restored amount for the Plan Year
of all reemployed Participants. The Advisory Committee will not take into
account the allocation under this Section 5.04 in applying the limitation on
allocations under Part 2 of Article III.
(C) 0% VESTED PARTICIPANT. The deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of his
Separation from Service. Under the deemed cash-out rule, the Advisory Committee
will treat the 0% vested Participant as having received a cash-out distribution
on the first day of the Plan Year immediately following the Plan Year in which
he separates from Service. For purposes of applying the restoration provisions
of this Section 5.04, the Advisory Committee will treat the 0% vested
Participant as repaying his cash-out "distribution" on the first date of his
reemployment with the Employer.
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory
Committee restores the Participant's Accrued Benefit, as described in Section
5.04, the Trustee will invest the cash-out amount the Participant has repaid in
a segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally insured
interest bearing savings account(s) or time deposit(s) (or a combination of
both), or in other fixed income investments. Until commingled with the balance
of the Trust Fund on the date the Advisory Committee restores the Participant's
Accrued Benefit, the Participant's segregated Account remains a part of the
Trust, but it alone shares in any income it earns and it alone bears any expense
or loss it incurs. Unless the repayment qualifies as a rollover contribution,
the Advisory Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Advisory Committee determines either of the conditions
of Section 5.04(A) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant's repayment.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section
5.03, Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service with the Employer. Notwithstanding the
foregoing, Years of Service for vesting earned by
23
Participants under the United Micrographic Systems, Inc. Profit Sharing Plan
shall be counted as "Years of Service" for vesting under this Plan. In addition,
a Participant who was employed by United Micrographic Systems, Inc. and who
completed one thousand (1,000) Hours of Service during the calendar year 1989
and completed one thousand (1,000) Hours of Service from November 1, 1988, to
October 31, 1989, shall be entitled to two (2) Years of Service for vesting for
such vesting computation periods in accordance with the requirements of DOL Reg.
ss.2530.203-2(c).
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service with the Employer.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer, except any Year of Service
during the period the Employer did not maintain this Plan or a predecessor Plan.
For the sole purpose of determining a Participant's Nonforfeitable percentage of
his Accrued Benefit derived from Employer contributions which accrued for his
benefit prior to a Forfeiture Break in Service, the Plan disregards any Year of
Service after the Participant first incurs a Forfeiture Break in Service. The
Participant incurs a Forfeiture Break in Service when he incurs 5 consecutive
Breaks in Service.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
(a) The last day of the Plan Year in which the Participant
first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's
Accrued Benefit forfeiture, if any, under this Section 5.09 solely by reference
to the vesting schedule of Section 5.03. A Participant will not forfeit any
portion of his Accrued Benefit for any other reason or cause except as expressly
provided by this Section 5.09 or as provided under Section 9.12.
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section
6.03, the Participant or the Beneficiary elects in writing to a different time
or method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to
the Participant, exceeds $3,500 and
24
the Participant has not attained the later of Normal Retirement Age or age 62.
Furthermore, the Participant's spouse also must consent, in writing, to any
distribution, for which Section 6.04 requires the spouse's consent. For all
purposes of this Article VI, the term "annuity starting date" means the first
day of the first period for which the Plan pays an amount as an annuity or in
any other form. A distribution date under this Article VI, unless otherwise
specified within the Plan, is March 31 or as soon as administratively
practicable following a distribution date. For purposes of the consent
requirements under this Article VI, if the present value of the Participant's
Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500,
the Advisory Committee must treat that present value as exceeding $3,500 for
purposes of all subsequent Plan distributions to the Participant.
(A) TERMINATION OF EMPLOYMENT FOR A REASON OTHER THAN DEATH. For a Participant
who terminates employment with the Employer for a reason other than death, the
Advisory Committee will direct the Trustee to commence distribution of the
Participant's Accrued Benefit, as follows:
(1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING
$3,500. In a lump sum, on the first distribution date after the close
of the Plan Year during which the Participant separated from Service,
but in no event later than the 60th day following the close of the Plan
Year in which the Participant attains Normal Retirement Age. If the
Participant has attained Normal Retirement Age when he separates from
Service, the distribution will occur no later than the 60th day
following the close of the Plan Year in which the Participant's
Separation from Service occurs. In the case of a Participant who
separates from Service between January 1 and September 30, and who has
attained age 55 on or before the date of his Separation from Service,
the Participant may elect to have the Trustee commence distribution as
of the 30th day after the end of the calendar quarter in which his
Separation from Service occurs, or as soon as administratively
practicable thereafter.
(2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$3,500. In a form and at the time elected by the Participant, pursuant
to Section 6.03. In the absence of an election by the Participant, the
Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if
applicable, the normal annuity form of distribution required under
Section 6.04), on the 60th day following the close of the Plan Year in
which the latest of the following events occurs: (a) the Participant
attains Normal Retirement Age; (b) the Participant attains age 62; or
(c) the Participant separates from Service.
(B) REQUIRED BEGINNING DATE. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or non-election), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution under this Section 6.01 on the Participant's Required Beginning
Date. A Participant's Required Beginning Date is the April 1 following the close
of the calendar year in which the Participant attains age 70 1/2. However, if
the Participant, prior to incurring a separation
25
from Service, attained age 70 1/2 by January 1, 1988, and, for the five Plan
Year period ending in the calendar year in which he attained age 70 1/2 and for
all subsequent years, the Participant was not a more than 5% owner (as defined
in Section 1.07(a)), the Required Beginning Date is the April 1 following the
close of the calendar year in which the Participant separates from Service or,
if earlier, the earlier of (1) April 1, 1990 or (2) the April 1 following the
close of the calendar year in which the Participant becomes a more than 5%
owner. Furthermore, if a Participant who was not a more than 5% owner attained
age 70 1/2 during 1988 and did not incur a Separation from Service prior to
January 1, 1989, his Required Beginning Date is April 1, 1990. The mandatory
distribution at the Participant's Required Beginning Date, will be in lump sum
unless the Participant, pursuant to the provisions of this Article VI, makes a
valid election to receive an alternative form of payment.
(C) DEATH OF THE PARTICIPANT. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. Subject to the requirements of
Section 6.04, the Advisory Committee will determine the death benefit by
reducing the Participant's Nonforfeitable Accrued Benefit by any security
interest the Plan has against that Nonforfeitable Accrued Benefit by reason of
an outstanding Participant loan.
(1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES
NOT EXCEED $3,500. The Advisory Committee, subject to the requirements
of Section 6.04, must direct the Trustee to pay the deceased
Participant's Nonforfeitable Accrued Benefit in a single cash sum, as
soon as administratively practicable following the Participant's death
or, if later, the date on which the Advisory Committee receives
notification of or otherwise confirms the Participant's death.
(2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT
EXCEEDS $3,500. The Advisory Committee will direct the Trustee to
distribute the deceased Participant's Nonforfeitable Accrued Benefit at
the time and in the form elected by the Participant or, if applicable
by the Beneficiary, as permitted under this Article VI. In the absence
of an election, subject to the requirements of Section 6.04, the
Advisory Committee will direct the Trustee to distribute the
Participant's undistributed Nonforfeitable Accrued Benefit in a lump
sum on the first distribution date following the close of the Plan Year
in which the Participant's death occurs or, if later, the first
distribution date following the date the Advisory Committee receives
notification of or otherwise confirms the Participant's death.
If the death benefit is payable to the Participant's surviving spouse
in full, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form
(other than the joint and survivor annuity) this Article VI would permit for a
Participant.
(D) SPECIAL DISTRIBUTION DATE. Notwithstanding any other provision of this Plan,
each VRSG Participant, Lincoln Participant, Continuum Participant and Midland
Participant (all as defined in
26
Article XI) may elect to have the Trustee commence distribution of his
Nonforfeitable Accrued Benefit as of the Special Distribution Date. The "Special
Distribution Date" is January 31, 1997, or as soon as administratively
practicable thereafter.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy of
the Participant and his Beneficiary.
The distribution options permitted under this Section 6.02 are
available only if the present value of the Participant's Nonforfeitable Accrued
Benefit, at the time of the distribution to the Participant, exceeds $3,500. To
facilitate installment payments under this Article VI, the Advisory Committee
may direct the Trustee to segregate all or any part of the Participant's Accrued
Benefit in a separate Account. The Trustee will invest the Participant's
segregated Account in Federally insured interest bearing savings account(s) or
time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated Account remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
A Participant or Beneficiary may elect to receive an installment distribution in
the form of a Nontransferable Annuity Contract. Under an installment
distribution, the Participant or Beneficiary, at any time, may elect to
accelerate the payment of all, or any portion, of the Participant's unpaid
Nonforfeitable Accrued Benefit, subject to the requirements of Section 6.04.
(A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution requirements
under Code ss.401(a)(9) and the applicable Treasury regulations. The minimum
distribution for a calendar year equals the Participant's Nonforfeitable Accrued
Benefit as of the latest valuation date preceding the beginning of the calendar
year divided by the Participant's life expectancy or, if applicable, the joint
life and last survivor expectancy of the Participant and his designated
Beneficiary (as determined under Article VIII, subject to the requirements of
the Code ss.401(a)(9) regulations). The Advisory Committee will increase the
Participant's Nonforfeitable Accrued Benefit, as determined on the relevant
valuation date, for contributions or forfeitures allocated after the valuation
date and by December 31 of the valuation calendar year, and will decrease the
valuation by distributions made after the valuation date and by December 31 of
the valuation calendar year. For purposes of this valuation, the Advisory
Committee will treat any portion of the minimum distribution for the first
distribution calendar year made after the close of that year as a distribution
occurring in that first distribution calendar year. In computing a minimum
distribution, the Advisory Committee must use the unisex life expectancy
multiples under Treas. Reg. ss.1.72-9. The Advisory Committee, only upon the
Participant's written request, may compute the minimum distribution for a
calendar year subsequent to the first calendar year for which the Plan
27
requires a minimum distribution by redetermining the applicable life expectancy.
However, the Advisory Committee may not redetermine the joint life and last
survivor expectancy of the Participant and a non-spouse designated Beneficiary
in a manner which takes into account any adjustment to a life expectancy other
than the Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method
of payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the minimum distribution incidental benefit ("MDIB") requirement in the
Treasury regulations issued under Code ss.401(a)(9) for distributions made on or
after the Participant's Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) by substituting the
applicable MDIB divisor for the applicable life expectancy factor, if the MDIB
divisor is a lesser number. Following the Participant's death, the Advisory
Committee will compute the minimum distribution required by this Section 6.02(A)
solely on the basis of the applicable life expectancy factor and will disregard
the MDIB factor. For Plan Years beginning prior to January 1, 1989, the Plan
satisfies the incidental benefits requirement if the distributions to the
Participant satisfied the MDIB requirement or if the present value of the
retirement benefits payable solely to the Participant is greater than 50% of the
present value of the total benefits payable to the Participant and his
Beneficiaries. The Advisory Committee must determine whether benefits to the
Beneficiary are incidental as of the date the Trustee is to commence payment of
the retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is
due by the Participant's Required Beginning Date. The minimum distribution for
each subsequent distribution calendar year, including the calendar year in which
the Participant's Required Beginning Date falls, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code ss.401(a) (9) and the applicable
Treasury regulations.
(B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code ss.401(a)(9) and
the applicable Treasury regulations. If the Participant's death occurs after his
Required Beginning Date or, if earlier, the date the Participant commences an
irrevocable annuity pursuant to Section 6.04, the method of payment to the
Beneficiary must provide for completion of payment over a period which does not
exceed the payment period which had commenced for the Participant. If the
Participant's death occurs prior to his Required Beginning Date, and the
Participant had not commenced an irrevocable annuity pursuant to Section 6.04,
the method of payment to the Beneficiary, subject to Section 6.04, must provide
for completion of payment to the Beneficiary over a period not exceeding: (i) 5
years after the date of the Participant's death; or (ii) if the Beneficiary is a
designated Beneficiary, the designated Beneficiary's life expectancy. The
Advisory Committee may not direct payment of the Participant's Nonforfeitable
Accrued Benefit over a period described in clause (ii) unless the Trustee will
commence payment to the designated Beneficiary no later than the December 31
following the
28
close of the calendar year in which the Participant's death occurred or, if
later, and the designated Beneficiary is the Participant's surviving spouse,
December 31 of the calendar year in which the Participant would have attained
age 70 1/2. If the Trustee will make distribution in accordance with clause
(ii), the minimum distribution for a calendar year equals the Participant's
Nonforfeitable Accrued Benefit as of the latest valuation date preceding the
beginning of the calendar year divided by the designated Beneficiary's life
expectancy. The Advisory Committee must use the unisex life expectancy multiples
under Treas. Reg. ss.1.72-9 for purposes of applying this paragraph. The
Advisory Committee, only upon the written request of the Participant or of the
Participant's surviving spouse, may recalculate the life expectancy of the
Participant's surviving spouse not more frequently than annually, but may not
recalculate the life expectancy of a non-spouse designated Beneficiary after the
Trustee commences payment to the designated Beneficiary. The Advisory Committee
will apply this paragraph by treating any amount paid to the Participant's
child, which becomes payable to the Participant's surviving spouse upon the
child's attaining the age of majority, as paid to the Participant's surviving
spouse. Upon the Beneficiary's written request, the Advisory Committee must
direct the Trustee to accelerate payment of all, or any portion, of the
Participant's unpaid Accrued Benefit, as soon as administratively practicable
following the effective date of that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days before nor
later than 30 days before the Participant's annuity starting date, the Plan
Administrator must provide a benefit notice to a Participant who is eligible to
make an election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features and
relative values of those options, and the Participant's right to defer
distribution until he attains the later of Normal Retirement Age or age 62.
If a distribution is one to which the qualified joint and survivor
annuity or preretirement survivor annuity requirements of Code ss.ss.401(a)(11)
and 417 do not apply, such distribution may commence less than 30 days after the
benefit notice is given, provided that:
(1) the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
If a Participant or beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02 and of Section 6.04. The Participant or Beneficiary must make an election
under this Section 6.03 by filing his election form with the Advisory Committee
at any time before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
29
(A) PARTICIPANT ELECTIONS AFTER TERMINATION OF EMPLOYMENT. If the present value
of a Participant's Nonforfeitable Accrued Benefit exceeds $3,500, he may elect
to have the Trustee commence distribution as of any distribution date, but not
earlier than the first distribution date after the close of the Plan Year in
which the Participant's Separation from Service occurs. The Participant may
reconsider an election at any time prior to the annuity starting date and elect
to commence distribution as of any other distribution date, but not earlier than
the date described in the first sentence of this paragraph (A). In the case of a
Participant who separates from Service between January 1 and September 30 and
who has attained age 55 on or before the date of his Separation from Service,
the Participant, in addition to the benefit payment elections provided for in
the first two sentences of this Paragraph (A), shall have the right to elect to
have the Trustee commence distribution as of the 30th day after the end of the
calendar quarter in which his Separation from Service occurs, or as soon as
administratively practicable thereafter. A Participant who has separated from
Service, may elect distribution as of any distribution date following his
attainment of Normal Retirement Age, irrespective of the restrictions otherwise
applicable under this Section 6.03(A). If the Participant is partially-vested in
his Accrued Benefit, an election under this paragraph (A) to distribute prior to
the Participant's incurring a Forfeiture Break in Service (as defined in Section
5.08), must be in the form of a cash-out distribution (as defined in Article V).
A Participant may not receive a cash-out distribution if, prior to the time the
Trustee actually makes the cash-out distribution, the Participant returns to
employment with the Employer.
(B) PARTICIPANT ELECTIONS PRIOR TO TERMINATION OF EMPLOYMENT.
(1) AT NORMAL RETIREMENT AGE. After a Participant attains Normal
Retirement Age, the Participant, until he retires, has a continuing election to
receive all or any portion of his Accrued Benefit. A Participant must make an
election under this paragraph on a form prescribed by the Advisory Committee at
any time during the Plan Year for which his election is to be effective. In his
written election, the Participant must specify the percentage or dollar amount
he wishes the Trustee to distribute to him. The Participant's election relates
solely to the percentage or dollar amount specified in his election form and his
right to elect to receive an amount, if any, for a particular Plan Year greater
than the dollar amount or percentage specified in his election form terminates
on the Accounting Date. The Trustee must make a distribution to a Participant in
accordance with his election under this paragraph within the 90 day period (or
as soon as administratively practicable) after the Participant files his written
election with the Trustee. The Trustee will distribute the balance of the
Participant's Accrued Benefit not distributed pursuant to his election(s) in
accordance with the other distribution provisions of this Plan.
(2) PRIOR TO NORMAL RETIREMENT AGE. For purposes of this paragraph, the
terms "eligible retirement plan," "direct rollover" and eligible rollover
distribution" shall have the meanings ascribed to them in Section 6.08. Any
Participant who has attained 59 1/2 and has at least five Years of Service,
until he retires, has a continuing election to direct the Trustee to pay
directly to an eligible retirement plan specified by the Participant in a direct
rollover all or any portion, with a minimum portion of 20%, of his
Nonforfeitable Accrued Benefit, provided that the payment is an eligible
rollover distribution. A Participant may make an election under this paragraph
on a form
30
prescribed by the Advisory Committee at any time during the Plan Year for which
his election is to be effective. In his written election, the Participant must
specify the percentage or dollar amount he wishes the Trustee to distribute. The
Participant's election relates solely to the percentage or dollar amount
specified in his election form and his right to elect to have directly rolled
over an amount, if any, for a particular Plan Year greater than the dollar
amount or percentage specified in his election form terminates on the Accounting
Date. The Trustee must pay the amount specified by the Participant in a direct
rollover in accordance with the Participant's election under this paragraph
within the 90 day period (or as soon as administratively practicable) after the
Participant files his written election with the Trustee. The Trustee will
distribute the balance of the Participant's Accrued Benefit not distributed
pursuant to his election(s) under this Section 6.03(B) in accordance with the
other distribution provisions of this Plan.
If the Trustee makes a distribution (other than a cash-out distribution
described in Section 5.04) to a partially-vested Participant pursuant to this
Section 6.03(B), the Advisory Committee will establish a separate Account for
the Participant's Accrued Benefit. At any relevant time following the
distribution, the Advisory Committee will determine the Participant's
Nonforfeitable Accrued Benefit derived from Employer contributions in accordance
with the following formula: (P(AB + (RxD)) - (RxD).
To apply this formula, "P" is the Participant's current vesting
percentage at the relevant time, "AB" is the Participant's Employer-derived
Accrued Benefit at the relevant time, "R" is the ratio of distribution and "D"
is the amount of the earlier distribution.
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased Participant's
Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may
elect to have the Trustee distribute the Participant's Nonforfeitable Accrued
Benefit in a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions designated in writing by
the Participant and not revoked as of his date of death.
(D) TRANSITIONAL ELECTIONS. Notwithstanding the provisions of Sections 6.01 and
6.02, if the Participant (or Beneficiary) signed a written distribution
designation prior to January 1, 1984, the Advisory Committee must distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that
designation, subject however, to the requirements, if applicable, of Sections
6.04, 6.05 and 6.06. This Section 6.03(D) does not apply to a pre-1984
distribution designation, and the Advisory Committee will not comply with that
designation, if any of the following applies: (1) the method of distribution
would have disqualified the Plan under Code ss.401(a)(9) as in effect on
December 31, 1983; (2) the Participant did not have an Accrued Benefit as of
December 31, 1983; (3) the distribution designation does not specify the timing
and form of the distribution and the death Beneficiaries (in order of priority);
(4) the substitution of a Beneficiary modifies the payment period of the
distribution; or (5) the Participant (or Beneficiary) modifies or revokes the
distribution designation. In the event of a revocation, the Plan must
distribute, no later than December 31 of the calendar year following the year of
revocation, the amount which the Participant would have received under Section
6.02(A) if the election had not been in effect or, if the Beneficiary revokes
31
the election, the amount which the Beneficiary would have received under Section
6.02(B) if the election had not been in effect. The Advisory Committee will
apply this Section 6.03(D) to rollovers and transfers in accordance with Part J
of the Code ss.401(a)(9) regulations.
(E) SPECIAL DISTRIBUTION RULES FOR DEFERRAL CONTRIBUTIONS ACCOUNT. The
distribution provisions in Section 6.03(B) shall not apply to the Deferral
Contributions Accounts of, or any Deferred Income Contributions under the Prior
Plan (as defined in Section 17.01) made with respect to, Participants in the
Policyholder Service Corporation Retirement Plan which was merged with this Plan
on December 31, 1991. Instead, the distribution provisions in this Section
6.03(E) shall apply to withdrawals from the Deferral Contributions Account or
from Deferred Income Contributions by a Participant who has not separated from
Service with the Employer. The Participant, until he retires, may elect to
receive a distribution from his Deferral Contributions Account or from Deferred
Income Contributions if: (I) he has attained age 59-1/2; or (ii) he incurs an
immediate and heavy financial hardship. The distribution event under clause (I)
applies to all or any portion of the Participant's Deferral Contributions
Account or Deferred Income Contributions. The distribution event under clause
(II) applies to all or any portion of the Participant's Deferral Contributions
Account or Deferred Income Contributions, except: (i) any portion derived from
earnings on the Participant's elective deferrals credited after December 31,
1988; and (ii) to the extent used in the ADP test or in the ACP test, any
portion derived from qualified Employer matching contributions and from
qualified Employer nonelective contributions.
A Participant must make a written election under this Section 6.03(E)
on a form prescribed by the Advisory Committee between October 1 and November 1
for a distribution to be made on a distribution date of the following March 31
or between June 1 and July 1 for a distribution to be made on a distribution
date of the following September 30. The distribution in accordance with the
Participant's timely-filed written election will be made as soon as
administratively practicable after the March 31 or September 30 distribution
date specified in the election.
A hardship distribution, as described in clause (II) is on account of
an immediate and heavy financial need only if the distribution is for any of the
following reasons: (1) medical expenses described in Code ss.213(d) incurred by
the Participant, by the Participant's spouse, or by any of the Participant's
dependents; (2) the purchase (excluding mortgage payments) of a principal
residence for the Participant; (3) the payment of post-secondary education
tuition, for the next semester or for the next quarter, for the Participant, for
the Participant's spouse, or for any of the Participant's dependents; or (4) to
prevent the eviction of the Participant from his principal residence or the
foreclosure on the mortgage of the Participant's principal residence. A
Participant's hardship distribution must not exceed the amount required to meet
the need.
The Participant may not receive a hardship distribution unless he has
obtained all distributions and all nontaxable loans otherwise available under
the Plan and under all other qualified plans maintained by the Employer.
Furthermore, a Participant who receives a hardship distribution: (a) shall not
have the right to make a deferral election under the 401(k) arrangement or to
make Employee contributions under Section 4.01 for 12 months after receipt of
the hardship distribution;
32
and (b) must agree to limit elective deferrals under this Plan and under any
other qualified Plan maintained by the Employer, for the Participant's taxable
year immediately following the taxable year of the hardship distribution, to the
402(g) limitation reduced by the amount of the Participant's elective deferrals
made in the taxable year of the hardship distribution.
After the Participant separates from Service with the Employer, the
provisions of this Article VI other than this Section 6.03(E) shall apply to the
distribution of the Participant's Accrued Benefit, including the portion
attributable to his Deferral Contributions Account and Deferred Income
Contributions.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
joint and survivor annuity requirements do not apply to this Plan. The Plan does
not provide any annuity distributions to Participants nor to surviving spouses.
A transfer agreement described in Section 11.05 may not permit a plan which is
subject to the provisions of Code ss.417 to transfer assets to this Plan, unless
the transfer is an elective transfer, as described in Section 11.05.
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY.
[Reserved]
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. [Reserved]
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained
in this Plan prevents the Trustee, in accordance with the direction of the
Advisory Committee, from complying with the provisions of a qualified domestic
relations order (as defined in Code ss.414(p)). This Plan specifically permits
distribution to an alternate payee under a qualified domestic relations order as
of March 31, April 30, July 30 or October 30 of any Plan Year, irrespective of
whether the Participant has attained his earliest retirement age (as defined
under Code ss.414(p)) under the Plan. A distribution to an alternate payee prior
to the Participant's attainment of earliest retirement age is available only if:
(1) the order specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an earlier distribution;
and (2) if the present value of the alternate payee's benefits under the Plan
exceeds $3,500, and the order requires, the alternate payee consents to any
distribution occurring prior to the Participant's attainment of earliest
retirement age. Nothing in this Section 6.07 permits a Participant a right to
receive distribution at a time otherwise not permitted under the Plan nor does
it permit the alternate payee to receive a form of payment not permitted under
the Plan.
The Plan Administrator must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator must determine the qualified
status of the order and must notify the Participant and each alternate payee, in
writing, of its determination. The Plan Administrator must provide notice
33
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrator is making its determination of
the qualified status of the domestic relations order, the Advisory Committee
must make a separate accounting of the amounts payable. If the Plan
Administrator determines the order is a qualified domestic relations order
within 18 months of the date amounts first are payable following receipt of the
order, the Advisory Committee will direct the Trustee to distribute the payable
amounts in accordance with the order. If the Plan Administrator does not make
its determination of the qualified status of the order within the 18 month
determination period, the Advisory Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Plan
Administrator later determines the order is a qualified domestic relations
order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Advisory Committee may direct the
Trustee to invest any partitioned amount in a segregated subaccount or separate
account and to invest the account in Federally insured, interest-bearing savings
account(s) or time deposit(s) (or a combination of both), or in other fixed
income investments. A segregated subaccount remains a part of the Trust, but it
alone shares in any income it earns, and it alone bears any expense or loss it
incurs. The Trustee will make any payments or distributions required under this
Section 6.07 by separate benefit checks or other separate distribution to the
alternate payee(s).
6.08 ROLLOVER DISTRIBUTIONS. This Section 6.08 applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed by
the Plan Administrator, to have any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the distributee in a
direct rollover. For purposes of this Section 6.08, the following definitions
shall apply:
(a) "Eligible rollover distribution": An eligible rollover
distribution is any distribution of all or any portion of the balance
to the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee and
the distributee's designated beneficiary, or for a specified period of
ten years or more; any distribution to the extent such distribution is
required under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(b) "Eligible retirement plan": An eligible retirement plan is
an individual retirement account described in section 4.08(a) of the
Code, an individual retirement annuity
34
described in section 408(b) of the Code, an annuity plan described in
403(a) of the Code, or a qualified trust described in section 401(a) of
the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) "Distributee": A distributee includes an Employee or
former Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse or
former spouse who is the alternative payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former
spouse.
(d) "Direct rollover": A direct rollover is a payment by the
Plan to an eligible retirement plan specified by the distributee.
ARTICLE VII
EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 INFORMATION TO COMMITTEE. The Employer must supply current
information to the Advisory Committee as to the name, date of birth, date of
employment, annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information which
the Advisory Committee considers necessary. The Employer's records as to the
current information the Employer furnishes to the Advisory Committee are
conclusive as to all persons.
7.02 NO LIABILITY. The Employer assumes no obligation or responsibility
to any of its Employees, Participants or Beneficiaries for any act of, or
failure to act, on the part of its Advisory Committee (unless the Employer is
the Advisory Committee), the Trustee or the Plan Administrator (unless the
Employer is the Plan Administrator).
7.03 INDEMNITY OF COMMITTEE. The Employer indemnifies and saves
harmless the Plan Administrator and the members of the Advisory Committee, and
each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust of Plan or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 7.03 do not relieve the Plan
Administrator or any Advisory Committee member from any liability he may have
under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator
and the Advisory Committee members and the Employer may execute a letter
agreement further delineating the indemnification agreement of this Section
7.03, provided the letter agreement must be consistent with and must not violate
ERISA. The indemnification provisions of
35
this Section 7.03 extend to the Trustee solely to the extent provided by a
letter agreement executed by the Trustee and the Employer.
7.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to
direct the Trustee with respect to the investment and reinvestment of assets
comprising the Trust Fund only if the Trustee consents in writing to permit such
direction. If the Trustee consents to Employer direction of investment, the
Trustee and the Employer must execute a letter agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee will follow any Employer direction as respects
the investment or reinvestment of any part of the Trust Fund.
7.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the
right to amend the vesting schedule at any time, the Advisory Committee will not
apply the amended vesting schedule to reduce the Nonforfeitable percentage of
any Participant's Accrued Benefit derived from Employer contributions
(determined as of the later of the date the Employer adopts the amendment, or
the date the amendment becomes effective) to a percentage less than the
Nonforfeitable percentage computed under the Plan without regard to the
amendment.
If the Employer makes a permissible amendment to the vesting schedule,
each Participant having at least 3 Years of Service with the Employer may elect
to have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. For Plan Years beginning prior to January
1, 1989, the election described in the preceding sentence applies only to
Participants having at least 5 Years of Service with the Employer. The
Participant must file his election with the Plan Administrator within 60 days of
the latest of (a) the Employer's adoption of the amendment; (b) the effective
date of the amendment; or (c) his receipt of a copy of the amendment. The Plan
Administrator, as soon as practicable, must forward a true copy of any amendment
to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the time within which the
Participant must make an election to remain under the prior vesting schedule.
For purposes of this Section 7.05, an amendment to the vesting schedule includes
any Plan amendment which directly or indirectly affects the computation of the
Nonforfeitable percentage of an Employee's rights to his Employer derived
Accrued Benefit.
ARTICLE VIII
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Accrued Benefit (including any life insurance
proceeds payable to the Participant's Account) on event of his death and the
Participant may designate the form and method of payment. The Advisory Committee
will prescribe the form for the written designation of Beneficiary and, upon the
36
Participant's filing the form with the Advisory Committee, the form effectively
revokes all designations filed prior to that date by the same Participant.
A married Participant's Beneficiary designation is not valid unless the
Participant's spouse consents, in writing, to the Beneficiary designation. The
spouse's consent must acknowledge the effect of that consent and a notary public
or the Plan Administrator (or his representative) must witness that consent. The
spousal consent requirements of this paragraph do not apply if: (1) the
Participant's spouse is the Participant's sole primary beneficiary, (2) it is
established to the satisfaction of the Plan Administrator that the Participant's
spouse cannot be located; (3) the Participant is legally separated or has been
abandoned (within the meaning of state law) and the Participant has a court
order to that effect; or (4) other circumstances exist under which the Secretary
of the Treasury will excuse the consent requirement. If the Participant's spouse
is legally incompetent to give consent, the spouse's legal guardian (even if the
guardian is the Participant) may give consent.
8.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
Beneficiary in accordance with Section 8.01, or if the Beneficiary named by a
Participant predeceases him, then the Trustee will pay the Participant's Accrued
Benefit in accordance with Section 6.02 in the following order of priority to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted
children, in equal shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The legal representative of the estate of the Participant.
The Advisory Committee will direct the Trustee as to the method and to
whom the Trustee will make payment under this Section 8.02.
8.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary
of a deceased Participant must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of
a deceased Participant must file with the Advisory Committee from time to time,
in writing, his post office address and any change of post office address. Any
communication, statement or notice
37
addressed to a Participant, or Beneficiary, at his last post office address
filed with the Advisory Committee, or as shown on the records of the Employer,
binds the Participant, or Beneficiary, for all purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code ss.414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee will not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction
may authorize any appropriate equitable relief to redress violations of ERISA or
to enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator will
maintain all of the items listed in this Section 8.08 in his office, or in such
other place or places as he may designate from time to time in order to comply
with the regulations issued under ERISA, for examination during reasonable
business hours. upon the written request of a Participant or Beneficiary the
Plan Administrator will furnish him with a copy of any item listed in this
Section 8.08. The Plan Administrator may make a reasonable charge to the
requesting person for the copy so furnished.
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Plan Administrator
will provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Advisory Committee has
denied. The Plan Administrator's notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which
the Advisory Committee based its denial;
(c) A description of any additional material and information
needed for the Claimant to perfect his claim and an explanation of why
the material or information is needed; and
38
(d) That any appeal the claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within 75
days after receipt of the Plan Administrator's notice of denial of
benefits. The Plan Administrator's notice must further advise the
Claimant that his failure to appeal the action to the Advisory
Committee in writing within the 75 day period will render the Advisory
Committee's determination final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his
duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Claimant, or his duly authorized representative, may review pertinent plan
documents. The Advisory Committee will reexamine all facts related to the appeal
and make a final determination as to whether the denial of benefits is justified
under the circumstances. The Advisory Committee must advise the Claimant of its
decision within 60 days of the Claimant's written request for review, unless
special circumstances (such as a hearing) would make the rendering of a decision
within the 60 day limit unfeasible, but in no event may the Advisory Committee
render a decision respecting a denial for a claim for benefits later than 120
days after its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the claimant may forward his appeal.
ARTICLE IX
ADVISORY COMMITTEE-DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES. The Employer must appoint an
Advisory Committee to administer the Plan, the members of which may or may not
be Participants in the Plan, or which may be the Plan Administrator acting
alone. The members of the Advisory Committee will serve without compensation for
services as such, but the Employer will pay all expenses of the Advisory
Committee, including the expense for any bond required under ERISA.
9.02 TERM. Each member of the Advisory Committee serves until the
appointment of his successor.
9.03 POWERS. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred upon the Advisory
Committee pending the filling of the vacancy.
9.04 GENERAL. The Advisory Committee has the following powers and
duties:
(a) To select a Secretary, who need not be a member of the
Advisory Committee;
39
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit
and the Nonforfeitable percentage of each Participant's Accrued
Benefit;
(c) To adopt rules of procedure and regulations necessary for
the proper and efficient administration of the Plan provided the rules
are not inconsistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the
rules and regulations it adopts, including interpretation of the Plan
document and documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and
distribution of the Trust;
(f) To review and render decisions respecting a claim for (or
denial of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the
Employer may require for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable
to assist it with the performance of its duties;
(i) To engage the services of an Investment Manager or
Managers (as defined in ERISA ss.3(38)), each of whom will have full
power and authority to manage, acquire or dispose (or direct the
Trustee with respect to acquisition or disposition) of any Plan asset
under its control; and
(j) To establish and maintain a funding standard account and
to make credits and charges to the account to the extent required by
and in accordance with the provisions of the Code.
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
9.05 FUNDING POLICY. The Advisory Committee will review, not less often
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
40
9.06 MANNER OF ACTION. The decision of a majority of the members
appointed and qualified controls.
9.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize
any person, whether or not such person is a member of the Advisory Committee, to
sign on its behalf any notices, directions, applications, certificates,
consents, approvals, waivers, letters or other documents. The Advisory Committee
must evidence this authority by an instrument signed by all members and filed
with the Trustee.
9.08 INTERESTED MEMBER. No member of the Advisory Committee may decide
or determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an election
available to that member in his capacity as a Participant, unless the Plan
Administrator is acting alone in the capacity of the Advisory Committee.
9.09 INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or
direct the Trustee to maintain, a separate Account, or multiple Accounts, in the
name of each Participant to reflect the Participant's Accrued Benefit in
accordance with the provisions of Article XV hereof and shall give the Trustee
directions with respect to the investment of the Accounts of Participants in
accordance with the provisions of Article XV.
9.10 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting
Date of each Plan Year, but within the time prescribed by ERISA and the
regulations under ERISA, the Plan Administrator will deliver to each Participant
(and to each Beneficiary) a statement reflecting the condition of his Accrued
Benefit in the Trust as of that date and such other information ERISA requires
be furnished the Participant or Beneficiary. No Participant, except a member of
the Advisory Committee, has the right to inspect the records reflecting the
Account of any other Participant.
9.11 ACCOUNT CHARGED. The Advisory Committee will charge all
distributions made to a Participant or to his Beneficiary from his Account
against the Account of the Participant when made. The amount distributed shall
first be charged to the Participant's segregated account if any.
9.12 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Advisory Committee to search for, or ascertain the whereabouts
of, any Participant or Beneficiary. If the Advisory Committee has otherwise been
unable to locate the Participant or Beneficiary at the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
Committee, by certified or registered mail addressed to his last known address
of record with the Advisory Committee or the Employer, must notify any
Participant, or Beneficiary, that he is entitled to a distribution under this
Plan. The notice must quote the provisions of this Section 9.12 and otherwise
must comply with the notice requirements of Article VI. If the Participant, or
Beneficiary, fails to claim his distributive share or make his whereabouts known
in writing to the Advisory Committee within 6 months from the date of mailing of
the notice, the
41
Advisory Committee will treat the Participant's or Beneficiary's unclaimed
payable Accrued Benefit as forfeited and will reallocate the unclaimed payable
Accrued Benefit in accordance with Section 3.05. Where the benefit is
distributable to the Participant, the forfeiture under this paragraph occurs as
of the last day of the notice period, if the Participant's Nonforfeitable
Accrued Benefit does not exceed $3,500, or as of the first day the benefit is
distributable without the Participant's Consent, if the present value of the
Participant's Nonforfeitable Accrued Benefit exceeds $3,500. Where the benefit
is distributable to a Beneficiary, the forfeiture occurs on the date the notice
period ends except, if the Beneficiary is the Participant's spouse and the
Nonforfeitable Accrued Benefit payable to the spouse exceeds $3,500, the
forfeiture occurs as of the first day the benefit is distributable without the
spouse's consent. Pending forfeiture, the Advisory Committee, following the
expiration of the notice period, may direct the Trustee to segregate the
Nonforfeitable Accrued Benefit in a segregated Account and to invest that
segregated Account in Federally insured interest bearing savings accounts or
time deposits (or in a combination of both), or in other fixed income
investments.
If a Participant or Beneficiary who has incurred a forfeiture of his
Accrued Benefit under the provisions of the first paragraph of this Section 9.12
makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory
Committee must restore the Participant's or Beneficiary's forfeited Accrued
Benefit to the same dollar amount as the dollar amount of the Accrued Benefit
forfeited, unadjusted for any gains or losses occurring subsequent to the date
of the forfeiture. The Advisory Committee will make the restoration during the
Plan Year in which the Participant or Beneficiary makes the claim, first from
the amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year, then from the amount, if any, of the Trust
Fund net income or gain for the Plan Year and then from the amount, or
additional amount, the Employer contributes to enable the Advisory Committee to
make the required restoration. The Advisory Committee will direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture provisions of
this Section 9.12 apply solely to the Participant's or to the Beneficiary's
Accrued Benefit derived from Employer contributions.
9.13 INVESTMENT MANAGER. The Advisory Committee shall have the right,
as provided in Section 9.04(i), to appoint an Investment Manager for all or any
part of the assets of the Trust Fund as the Advisory Committee shall designate,
provided that any firm so appointed shall be and continue qualified to act as
such in accordance with ERISA. The Advisory Committee may remove any Investment
Manager at any time, and need not specify any cause for such removal.
The Advisory Committee has appointed Ruane, Cunniff & Co., Inc. to
serve as Investment Manager. That firm, so long as it shall serve as Investment
Manager, and any other firm which shall hereafter be appointed and serving as
Investment Manager, shall have and exercise, with respect to the assets under
its management, the entire investment power otherwise given to the Trustee with
respect to the Trust Fund. It shall exercise such power by giving orders
directing the acquisition and disposition of particular assets for, or by, the
Trust Fund. So long as Ruane, Cunniff & Co., Inc. is
42
acting as the Investment Manager it may, by itself or through an affiliate,
execute any of such orders as broker and agent, but it shall not, by itself or
through an affiliate, sell any securities to or purchase any securities from the
Trust Fund. The Investment Manager shall promptly advise the Trustee, in
writing, of every such transaction, as ordered.
When and so long as an Investment Manager appointed by the Advisory
Committee is serving, the Trustee in respect of the funds under management shall
have no other duty except to conform promptly to the written directions of the
Investment Manager, including any directions as to the retention of cash or the
purchase or sale of short-term cash equivalent assets, and to make settlement of
all such transactions as the Investment Manager shall have ordered.
The Trustee may assume that any appointment of an Investment Manager is
continuing unless and until the Advisory Committee shall advise the Trustee, in
writing, that it has removed the Manager or that the Manager's appointment has
terminated otherwise.
ARTICLE X
TRUSTEE, POWERS AND DUTIES
10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan
and agrees to perform the obligations imposed. The Trustee must provide bond for
the faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the
Employer for the funds contributed to it by the Employer, but does not have any
duty to see that the contributions received comply with the provisions of the
Plan. The Trustee is not obliged to collect any contributions from the Employer
or to see that funds deposited with it are deposited according to the provisions
of the Plan.
10.03 INVESTMENT POWERS. The Trust Fund shall be invested in accordance
with the provisions for the investment of assets as set forth in Article XV.
(A) TRUSTEE POWERS. The Trustee has full discretion and authority with regard to
the investment of the Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with respect
to a Plan asset subject to Employer, Participant or Advisory Committee direction
of investment. The Trustee must coordinate its investment policy with Plan
financial needs as communicated to it by the Advisory Committee. The Trustee is
authorized and empowered, but not by way of limitation, with the following
powers, rights and duties:
(a) To invest any part or all of the Trust Fund in any common
or preferred stocks, open-end or closed-end mutual funds, put and call
options traded on a national exchange, United States retirement plan
bonds, corporate bonds, debentures, convertible debentures, commercial
paper, U.S. Treasury bills, U.S. Treasury notes and other direct or
indirect
43
obligations of the United States Government or its agencies, improved
or unimproved real estate situated in the United States, limited
partnerships, insurance contracts of any type, mortgages, notes or
other property of any kind, real or personal, and to buy or sell
options on common stock on a nationally recognized exchange with or
without holding the underlying common stock, and to make any other
investments the Trustee deems appropriate, as a prudent man would do
under like circumstances with due regard for the purposes of this Plan.
Any investment made or retained by the Trustee in good faith is proper
but must be of a kind constituting a diversification considered by law
suitable for trust investments.
(b) To retain in cash so much of the Trust Fund as it may deem
advisable to satisfy liquidity needs of the Plan and to deposit any
cash held in the Trust Fund in a bank account at reasonable interest.
If the Trustee is a bank or similar financial institution supervised by
the United States or by a State, this paragraph (b) includes specific
authority to invest in any type of deposit of the Trustee (or of a bank
related to the Trustee within the meaning of Code ss.414(b)) at a
reasonable rate of interest or in a common trust fund (the provisions
of which govern the investment of such assets and which the Plan
incorporates by this reference) as described in Code ss.584 which the
Trustee (or its affiliate, as defined in Code ss.1504) maintains
exclusively for the collective investment of money contributed by the
bank (or the affiliate) in its capacity as trustee and which conforms
to the rules of the Comptroller of the Currency.
(c) To manage, sell, contract to sell, grant options to
purchase, convey, exchange, transfer, abandon, improve, repair, insure,
lease for any term even though commencing in the future or extending
beyond the term of the Trust, and otherwise deal with all property,
real or personal, in such manner, for such considerations and on such
terms and conditions as the Trustee decides.
(d) To credit and distribute the Trust as directed by the
Advisory Committee. The Trustee is not obliged to inquire as to whether
any payee or distributee is entitled to any payment or whether the
distribution is proper or within the terms of the Plan, or as to the
manner of making any payment or distribution. The Trustee is
accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of the
Advisory Committee.
(e) To borrow money, to assume indebtedness, extend mortgages
and encumber by mortgage or pledge.
(f) To compromise, contest, arbitrate or abandon claims and
demands, in its discretion.
(g) To have with respect to the Trust all of the rights of an
individual owner, including the power to give proxies, to participate
in any voting trusts, mergers,
44
consolidations or liquidations, and to exercise or sell stock
subscriptions or conversion rights.
(h) To lease for oil, gas and other mineral purposes and to
create mineral severances by grant or reservation; to pool or unitize
interests in oil, gas and other minerals; and to enter into operating
agreements and to execute division and transfer Orders.
(i) To hold any securities or other property in the name of
the Trustee or its nominee, with depositories or agent depositories or
in another form as it may deem best, with or without disclosing the
trust relationship.
(j) To perform any and all other acts in its judgment
necessary or appropriate for the proper and advantageous management,
investment and distribution of the Trust.
(k) To retain any funds or property subject to any dispute
without liability for the payment of interest, and to decline to make
payment or delivery of the funds or property until final adjudication
is made by a court of competent jurisdiction.
(l) To file all tax returns required of the Trustee.
(m) To furnish to the Employer, the Plan administrator and the
Advisory Committee an annual statement of account showing the condition
of the Trust Fund and all investments, receipts, disbursements and
other transactions effected by the Trustee during the Plan Year covered
by the statement and also stating the assets of the Trust held at the
end of the Plan Year, which accounts are conclusive on all persons,
including the Employer, the Plan Administrator and the Advisory
Committee, except as to any act or transaction concerning which the
Employer, the Plan Administrator or the Advisory Committee files with
the Trustee written exceptions or objections within 90 days after the
receipt of the accounts or for which ERISA authorizes a longer period
within which to object.
(n) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan, except that the Trustee
is not obliged or required to do so unless indemnified to its
satisfaction.
10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to
the Plan must be open to the inspection of the Plan Administrator, Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05 FEES AND EXPENSES FROM FUND. The Trustee will receive reasonable
annual compensation as may be agreed upon from time to time between the Employer
and the Trustee. The
45
Trustee will pay all fees and expenses reasonably incurred by it in its
administration of the Plan from the Trust Fund, unless the Employer pays the
fees and expenses. The Advisory Committee will not treat any fee or expense
paid, directly or indirectly, by the Employer as an Employer contribution,
provided the fee or expense relates to the ordinary and necessary administration
of the Fund. No person who is receiving full pay from the Employer may receive
compensation for services as Trustee.
10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA,
only the Employer, the Plan Administrator, the Advisory Committee, and the
Trustee are necessary parties to any court proceeding involving the Trustee or
the Trust Fund. No Participant, or Beneficiary, is entitled to any notice of
process unless required by ERISA. Any final judgment entered in any proceeding
will be conclusive upon the Employer, the Plan Administrator, the Advisory
Committee, the Trustee, Participants and Beneficiaries.
10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the
Trust Fund reasonable compensation to agents, attorneys, accountants and other
persons to advise the Trustee as in its opinion may be necessary. The Trustee
may delegate to any agent, attorney, accountant or other person selected by it
any non-Trustee power or duty vested in it by the Plan, and the Trustee may act
or refrain from acting on the advice or opinion of any agent, attorney,
accountant or other person so selected.
10.08 DISTRIBUTION OF CASH OR PROPERTY. The Trustee may make
distribution under the Plan in cash or property, or partly in each, at its fair
market value as determined by the Trustee. For purposes of a distribution to a
Participant or to a Participant's designated Beneficiary or surviving spouse,
"property" includes a Nontransferable Annuity contract, provided the contract
satisfies the requirements of this Plan.
10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or
distribution made from the Trust, the Trustee must promptly notify the Advisory
Committee and then dispose of the payment in accordance with the subsequent
direction of the Advisory Committee.
10.10 THIRD PARTY. No person dealing with the Trustee is obligated to
see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the Trustee has acted pursuant to any of the
terms of the Plan. Each person dealing with the Trustee may act upon any notice,
request or representation in writing by the Trustee, or by the Trustee's duly
authorized agent, and is not liable to any person in so acting. The certificate
of the Trustee that is acting in accordance with the Plan will be conclusive in
favor of any person relying on the certificate. If more than two persons act as
Trustee, the decision of a majority of such persons controls with respect to any
decision regarding the administration or investment of the Trust Fund.
10.11 RESIGNATION. The Trustee may resign at any time as Trustee of the
Plan by giving 30 days' written notice in advance to the Employer and to the
Advisory Committee. If the Employer fails to appoint a successor Trustee within
60 days of its receipt of the Trustee's written
46
notice of resignation, the Trustee will treat the Employer as having appointed
itself as Trustee and as having filed its acceptance of appointment with the
former Trustee.
10.12 REMOVAL. The Employer, by giving 30 days' written notice in
advance to the Trustee, may remove any Trustee. In the event of the resignation
or removal of a Trustee, the Employer must appoint a successor Trustee if it
intends to continue the Plan.
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee
succeeds to the title to the Trust vested in his predecessor by accepting in
writing his appointment as successor Trustee and filing the acceptance with the
former Trustee and the Advisory Committee without the signing or filing of any
further statement. The resigning or removed Trustee, upon receipt of acceptance
in writing of the Trust by the successor Trustee, must execute all documents and
do all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee has and enjoys all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. A successor
Trustee is not personally liable for any act or failure to act of any
predecessor Trustee, except as required under ERISA. With the approval of the
Employer and the Advisory Committee, a successor Trustee, with respect to the
Plan, may accept the account rendered and the property delivered to it by a
predecessor Trustee without incurring any liability or responsibility for so
doing.
10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of
each Accounting Date to determine the fair market value of each participant's
Accrued Benefit in the Trust. The Trustee also must value the Trust Fund on such
other dates as directed in writing by the Advisory Committee.
10.15 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER APPOINTED. The
Trustee is not liable for the acts or omissions of any Investment Manager or
Managers the Advisory Committee may appoint, nor is the Trustee under any
obligation to invest or otherwise manage any asset of the Plan which is subject
to the management of a properly appointed Investment Manager. The Advisory
Committee, the Trustee and any properly appointed Investment Manager may execute
a letter agreement as a part of this Plan delineating the duties,
responsibilities and liabilities of the Investment Manager with respect to any
part of the Trust Fund under the control of the Investment Manager.
10.16 INVESTMENT IN GROUP TRUST FUND. The Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
Notwithstanding the provisions of Section 10.03, but subject to the
provisions for the investment of Plan assets as set forth in Article XV, the
Employer specifically authorizes the Trustee to invest all or any Portion of the
assets comprising the Trust Fund in any group trust fund which
47
at the time of the investment provides for the pooling of the assets of plans
qualified under Code ss.401(a). This authorization applies solely to a group
trust fund exempt from taxation under Code ss.501(a) and the trust agreement of
which satisfies the requirements of Revenue Ruling 81-100. The provisions of the
group trust fund agreement, as amended from time to time, are by this reference
incorporated within this Plan and Trust. The provisions of the group trust fund
will govern any investment of Plan assets in that fund. The group trust funds to
which this authorization applies are the FUND FOR POOLING EQUITY INVESTMENTS OF
EMPLOYEE TRUSTS, the FUND FOR POOLING DEBT INVESTMENTS OF EMPLOYEE TRUSTS, each
of such Funds having been created by a separate instrument entitled "Trust
Agreement and Declaration" dated the 5th day of December, 1955, the City
National Bank and Trust Company of Kansas City (now known as UMB Bank, N.A.)
being named Trustee of each such Fund, the POOLED INCOME FUND FOR EMPLOYEE
TRUSTS created and maintained by United Missouri Bank of Kansas City, N.A. (now
known as UMB Bank, N.A.), as Trustee thereof under separate instrument entitled
"Plan and Declaration of Trust" dated December 27, 1974, and/or the SHORT TERM
MONEY MARKET FUND created and maintained by United Missouri Bank of Kansas City,
N.A. (now known as UMB Bank, N.A.), as Trustee thereof under separate instrument
entitled "Plan of Operation" dated August 15, 1979.
ARTICLE XI
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
11.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the
Employer has no beneficial interest in any asset of the Trust and no part of any
asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the satisfaction of all liabilities with
respect to the Participants and their Beneficiaries under the Plan, may any part
of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any
time) used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries.
11.02 AMENDMENT BY EMPLOYER. The Board of Directors of DST Systems,
Inc., or any duly authorized committee thereof, has the right at any time and
from time to time:
(a) To amend this Agreement in any manner it deems necessary
or advisable in order to qualify (or maintain qualification of) this
Plan and the Trust created under it under the appropriate provisions of
Code ss.401(a); and
(b) To amend this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than
the part which is required to pay taxes and administration expenses) to be used
for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries or estates. No amendment may cause or permit
any portion of the Trust Fund to revert to or become a property of the Employer.
No amendment may be made which affects the rights, duties or responsibilities of
the Trustee, the
48
Plan Administrator or the Advisory Committee without the written consent of the
affected Trustee, the Plan Administrator or the affected member of the Advisory
Committee.
CODE SS.411(D)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code
ss.412(c)(8), and may not reduce or eliminate Code ss.411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
ss.411(d)(6) protected benefits if the amendment has the effect of either (1)
eliminating or reducing an early retirement benefit or a retirement-type subsidy
(as defined in Treasury regulations), or (2) except as provided by Treasury
regulations, eliminating an optional form of benefit. The Advisory Committee
must disregard an amendment to the extent application of the amendment would
fail to satisfy this paragraph. If the Advisory Committee must disregard an
amendment because the amendment would violate clause (1) or clause (2), the
Advisory Committee must maintain a schedule of the early retirement option or
other optional forms of benefit the Plan must continue for the affected
participants.
All amendments must be made in writing. Each amendment must state the
date to which it is either retroactively or prospectively effective.
11.03 DISCONTINUANCE. The Employer has the right, at any time, to
suspend or discontinue its contributions under the Plan, and the Board of
Directors of DST Systems, Inc., or any duly authorized committee thereof, has
the right to terminate, at any time, this Plan and the Trust created under this
Agreement. The Plan will terminate upon the first to occur of the following:
(a) The date terminated by action of the Board of Directors of
DST Systems, Inc., or any duly authorized committee thereof;
(b) The date the Employer is judicially declared bankrupt or
insolvent, unless the proceeding authorized continued maintenance of
the Plan;
(c) The dissolution, merger, consolidation or reorganization
of the Employer or the sale by the Employer of all or substantially all
of its assets, unless the successor or purchaser makes provision to
continue the Plan, in which event the successor or purchaser must
substitute itself as the Employer under this Plan.
11.04 FULL VESTING ON TERMINATION. Upon either full or partial
termination of the Plan, or, if applicable, upon complete discontinuance of
profit sharing plan contributions to the Plan, an affected participant's right
to his Accrued Benefit is 100% Nonforfeitable, irrespective of the
Nonforfeitable percentage which otherwise would apply under Article V.
11.05 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a
party to, any merger or consolidation with another plan, or to a transfer of
assets or liabilities to another plan, unless immediately after the merger,
consolidation or transfer, the surviving Plan provides each
49
participant a benefit equal to or greater than the benefit each participant
would have received had the Plan terminated immediately before the merger or
consolidation or transfer. The Trustee possesses the specific authority to enter
into merger agreements or direct transfer of assets agreements with the trustees
of other retirement plans described in Code ss.401(a), including an elective
transfer, and to accept the direct transfer of plan assets, or to transfer plan
assets, as a party to any such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the plan's eligibility
conditions. If the Trustee accepts a direct transfer of plan assets, the
Advisory Committee and Trustee must treat the Employee as a participant for all
purposes of the Plan except the Employee is not a participant for purposes of
sharing in Employer contributions or participant forfeitures under the Plan
until he actually becomes a participant in the Plan.
The Trustee, after August 9, 1988, may not consent to, or be a party to
a merger, consolidation or transfer of assets with a defined benefit plan,
except with respect to an elective transfer. The Trustee will hold, administer
and distribute the transferred assets as a part of the Trust Fund and the
Trustee must maintain a separate Employer contribution Account for the benefit
of the Employee on whose behalf the Trustee accepted the transfer in order to
reflect the value of the transferred assets. Unless a transfer of assets to this
Plan is an elective transfer, the Plan will preserve all Code ss.411(d)(6)
protected benefits with respect to those transferred assets, in the manner
described in Section 11.02. A transfer is an elective transfer if: (1) the
transfer satisfies the first paragraph of this Section 11.05; (2) the transfer
is voluntary, under a fully informed election by the participant; (3) the
Participant has an alternative that retains his Code ss.411(d)(6) protected
benefits (including an option to leave his benefit in the transferor plan, if
that plan is not terminating); (4) the transfer satisfies the applicable spousal
consent requirements of the Code; (5) the transferor plan satisfies the joint
and survivor notice requirements of the Code, if the Participant's transferred
benefit is subject to those requirements; (6) the participant has a right to
immediate distribution from the transferor plan, in lieu of the elective
transfer; (7) the transferred benefit is at least the greater of the single sum
distribution provided by the transferor plan for which the participant is
eligible or the present value of the Participant's accrued benefit under the
transferor plan payable at that plan's normal retirement age; (8) the
Participant has a 100% Nonforfeitable interest in the transferred benefit; and
(9) the transfer otherwise satisfies applicable Treasury regulations. An
elective transfer may occur between qualified plans of any type.
DISTRIBUTION RESTRICTIONS UNDER CODE SS.401(K). If the Plan receives a
direct transfer (by merger or otherwise) of elective contributions (or amounts
treated as elective contributions) under a Plan with a Code ss.401(k)
arrangement, the distribution restrictions of Code ss.ss.401(k)(2) and (10)
continue to apply to those transferred elective contributions.
11.06 TERMINATION. Upon termination of the Plan, the distribution
provisions of Article VI remain operative, with the following exceptions:
50
(1) if the present value of the Participant's Nonforfeitable
Accrued Benefit does not exceed $3,500, the Advisory Committee will
direct the Trustee to distribute the participant's nonforfeitable
Accrued Benefit to him in lump sum as soon as administratively
practicable after the Plan terminates; and
(2) if the present value of the Participant's Nonforfeitable
Accrued Benefit exceeds $3,500, the Participant or the Beneficiary, in
addition to the distribution events permitted under Article VI, may
elect to have the Trustee commence distribution of his Nonforfeitable
Accrued Benefit as soon as administratively practicable after the Plan
terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2). The Trust will continue until the
Trustee in accordance with the direction of the Advisory Committee has
distributed all of the benefits under the Plan.
If this paragraph applies, in lieu of the preceding provisions of this
Section 11.06 and the distribution provisions of Article VI, the Advisory
Committee will direct the Trustee to distribute each Participant's
Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively
practicable after the termination of the Plan, irrespective of the present value
of the Participant's Nonforfeitable Accrued Benefit and whether the Participant
consents to that distribution. This paragraph applies only if: (1) the Plan does
not provide an annuity option; (2) the Plan is a profit sharing plan at the time
of its termination date; and (3) as of the period between the Plan termination
date and the final distribution of assets, the Employer does not maintain any
other defined contribution plan (other than an ESOP).
On each valuation date, the Advisory Committee will credit any part of
a Participant's Accrued Benefit retained in the Trust with its proportionate
share of the Trust's income, expenses, gains and losses, both realized and
unrealized. Upon termination of the Plan, the amount, if any, in a suspense
account under Article III will revert to the Employer, subject to the conditions
of the Treasury regulations permitting such a reversion. A resolution or
amendment to freeze all future benefit accrual but otherwise to continue
maintenance of this Plan, is not a termination for purposes of this Section
11.06.
SPECIAL RULE FOR DEFERRAL CONTRIBUTIONS ACCOUNT. Notwithstanding the
provisions of this Section 11.06, the Participant may not receive a distribution
from his Deferral Contributions Account pursuant to the termination of the Plan
unless: (a) the Participant otherwise is entitled to a distribution from the
Deferral Contributions Account under the Plan; or (b) the Plan termination
occurs without the establishment of a successor plan. A successor plan under
clause (b) is a defined contribution plan (other than an ESOP) maintained by the
Employer (or by a related employer) at the time of the termination of the Plan
or within the period ending twelve (12) months after the final
51
distribution of assets. A distribution made after March 31, 1988, pursuant to
clause (b), must be part of a lump sum distribution to the Participant of his
Nonforfeitable Accrued Benefit.
11.07 [RESERVED]
11.08 DIRECT TRANSFER OF ASSETS FROM TERMINATED THRIFT PLAN. Any
Participant, pursuant to the options provided for in Section 11.08 of the DST
Systems, Inc. Thrift Plan and Trust, executed March 22, 1985, as amended by the
First and Second Amendments thereto (the "Thrift Plan"), may elect to transfer
all or a portion of his account(s) in the terminated Thrift Plan to the Trust.
The Trustee is specifically authorized to accept the direct transfer of Thrift
Plan assets.
The Advisory Committee shall maintain, or shall direct the Trustee to
maintain, a separate Account in the name of each participant to reflect the
participant's Accrued Benefit under the Plan derived from the direct transfer of
all or a portion of the Participant's Employee contribution Account in the
terminated Thrift Plan, and a separate Account to reflect the Participant's
Accrued Benefit derived from the direct transfer of his Employer contribution
Account in the terminated Thrift Plan. The Trustee shall hold, administer and
distribute any such Employer contribution Account in the same manner as any
Employer contributions made to the Trust. The right of withdrawal provided for
in Article XIV shall include the right to withdraw the portion, if any, of a
Participant's Accrued Benefit derived from the direct transfer to the Trust of
all or a portion of his Account(s) in the terminated Thrift Plan.
A Participant, by giving prior written notice to the Trustee, on or
before March 1, may withdraw all or any part of the value of his Accrued Benefit
derived from the direct transfer of all or a portion of the Participant's
Employee contribution Account in the terminated Thrift Plan. The Trustee must
make a distribution to a Participant in accordance with his timely-filed
election under this Section 11.08 as soon as administratively practicable after
the March 31 annual distribution date next following such election. The Trustee,
in accordance with the direction of the Advisory Committee, shall distribute a
Participant's unwithdrawn Accrued Benefit attributable to any such Employee
contribution Account at the same time the Trustee distributes the Participant's
Accrued Benefit attributable to Employer contributions.
A Participant's Accrued Benefit is, at all times, one hundred percent
(100%) Nonforfeitable to the extent the value of his Accrued Benefit is derived
from the direct transfer to the Trust of all or a portion of his Account(s) in
the terminated Thrift Plan.
11.09 [RESERVED]
11.10 VESTING OF PARTICIPANTS TRANSFERRED TO POLICYHOLDER SERVICE
CORPORATION. Effective as of approximately July 1, 1990, certain Participants
ceased to be employed by DST Systems, Inc. ("DST") and became employees of
Policyholder Service Corporation, an "affiliate" (as defined in Section 1.27) of
DST. The Accrued Benefit as of
52
December 31, 1990 of each such Participant (the names of which are set forth on
Exhibit A attached to the First Amendment to DST Systems, Inc. Profit Sharing
Plan and Trust Agreement (1990 Restatement)) shall be one hundred percent (100%)
nonforfeitable effective December 31, 1990.
11.11 TRANSFER OF ASSETS TO IFTC PLAN. Effective as of December 31,
1995, Investors Fiduciary Trust Company ("IFTC") ceased to be a participating
employer in this Plan, and certain Participants employed by IFTC ceased to be
covered by this Plan. IFTC has established a retirement plan intended to qualify
under Code ss.401(a) ("IFTC Plan"). The Accrued Benefit of former Participants
who (1) are employed by IFTC on December 31, 1995, or (2) separated from service
with IFTC prior to December 31, 1995, and who have not subsequently become
employed by any other participating Employer (collectively, the "IFTC
Participants") in the Plan will be transferred to the IFTC Plan as soon as
administratively practicable after June 30, 1996.
The Accrued Benefit of any IFTC Participant who is rehired by any
Employer that participates in this Plan prior to the transfer of assets shall
remain in this Plan and not be transferred to the IFTC Plan.
The Trustee may not consent to, or be a party to, the transfer of
assets to the IFTC Plan, unless immediately after the transfer, the IFTC Plan
provides each IFTC Participant a benefit equal to or greater than the benefit
each IFTC Participant would have received had the Plan terminated immediately
before the transfer. Pursuant to the requirements of Code ss.414(l), any
unallocated forfeitures and earnings allocable to the accounts of the IFTC
Participants shall be allocated prior to the transfer. For purposes of the
transfer of account balances to the IFTC Plan, the Trustee shall value the
account balances of the IFTC Participants as of the most recent valuation date
under the Plan prior to the transfer.
In the event an IFTC Participant separates from service with IFTC,
attains Normal Retirement Age, dies or becomes disabled, or requests a
distribution of his deferred vested benefit, he shall be entitled to a
distribution from the IFTC Plan in accordance with the terms of the IFTC Plan.
Until the effective date of the transfer of assets, the Plan shall
treat service of an IFTC Participant with IFTC as service with the Employer.
11.12 VESTING OF PARTICIPANTS IN VITAL RECORDS STORAGE GROUP.
Effective as of approximately May 20, 1996, certain Participants employed as of
that date in the vital records storage group of Output Technologies Central
Region, Inc. ("OTI Central") ceased to be employed by OTI Central as a result of
the sale of substantially all of the assets of the vital records storage group
of OTI Central. The Accrued Benefit as of December 31, 1996, of each such
Participant (the names of which are set forth on Exhibit A attached to this
Plan) ("VRSG Participants") shall be one hundred percent (100%) nonforfeitable
as of December 31, 1996.
53
11.13 VESTING OF PARTICIPANTS IN LINCOLN, NEBRASKA FACILITY. Effective
as of approximately April 25, 1996, certain Participants employed as of that
date at the Lincoln, Nebraska facility of OTI Central ceased to be employed by
OTI Central as a result of the sale of substantially all of the assets of the
Lincoln, Nebraska facility. The Accrued Benefit as of December 31, 1996, of each
such Participant (the names of which are set forth on Exhibit B attached to this
Plan ) ("Lincoln Participants") shall be one hundred percent (100%)
nonforfeitable as of December 31, 1996.
11.14 VESTING OF FORMER PARTICIPANTS EMPLOYED BY CONTINUUM.
Effective as of approximately August 1, 1996, certain former Participants
employed as of that date by The Continuum Company, Inc. ("Continuum") had a
separation from Service under the Plan because of the sale of the stock of
Continuum to Computer Sciences Corporation. The Accrued Benefit as of December
31, 1996, of each such Participant (the names of which are set forth on Exhibit
C attached to this Plan) ("Continuum Participants") shall be one hundred percent
nonforfeitable as of December 31, 1996.
11.15 VESTING OF FORMER PARTICIPANTS EMPLOYED BY MIDLAND. Effective as
of July 31, 1996, certain former Participants employed as of that date by
Midland Data Systems, Inc. or Midland Loan Services, L.P. ("Midland Companies")
had a separation from Service under the Plan because KCSI ceased to own any
equity interests in the Midland Companies. The Accrued Benefit as of December
31, 1996, of any such Participant still employed by the Midland Companies as of
January 1, 1996, (the names of which are set forth on Exhibit D attached to this
Plan) ("Midland Participants") shall be one hundred percent (100%)
nonforfeitable as of December 31, 1996.
ARTICLE XII
[RESERVED]
ARTICLE XIII
MISCELLANEOUS
13.01 EVIDENCE. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. Both the
Advisory Committee and the Trustee are fully protected in acting and relying
upon any evidence described under the immediately preceding sentence.
13.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor
the Advisory Committee has any obligation or responsibility with respect to any
action required by the Plan to be taken by the Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory
54
Committee to collect any contribution required under the Plan, or to determine
the correctness of the amount of any Employer contribution. Neither the Trustee
nor the Advisory Committee need inquire into or be responsible for any action or
failure to act on the part of the others. Any action required of a corporate
Employer must be by its Board of Directors or its designate.
13.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee,
the Plan Administrator and the Employer in no way guarantee the Trust Fund from
loss or depreciation. The Employer does not guarantee the payment of any money
which may be or becomes due to any person from the Trust Fund. The liability of
the Advisory Committee and the Trustee to make any payment from the Trust Fund
at any time and all times is limited to the then available assets of the Trust.
13.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan
may waive the notice.
13.05 SUCCESSORS. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee and the Advisory
Committee and their successors.
13.06 WORD USAGE. Words used in the masculine also apply to the
feminine where applicable, and wherever the context of the Plan dictates, the
plural includes the singular and the singular includes the plural.
13.07 STATE LAW. Missouri law will determine all questions arising with
respect to the provisions of this Agreement except to the extent Federal statute
supersedes Missouri law.
13.08 EMPLOYMENT NOT GUARANTEED. Nothing contained in this plan, or
with respect to the establishment of the Trust, or any modification or amendment
to the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
ARTICLE XIV
WITHDRAWALS
14.01 REQUEST FOR WITHDRAWAL DUE TO FINANCIAL HARDSHIP. Every
Participant who has completed four (4) Years of Service for vesting purposes, as
defined in Sections 5.06 and 5.08, may request to withdraw all or any portion,
at his option, but not to exceed the value of such Participant's vested interest
which would be available under Section 5.03, of the balance of his Accrued
Benefit as the same shall stand after completion of the year-end adjustments to
be made thereto as of the end of the Plan Year in which such request is made.
Effective for Plan Years
55
beginning after December 31, 1989, a Participant may make such a withdrawal
request if he has either completed four (4) Years of Service for vesting
purposes or been a Participant in the Plan for all or part of at least four (4)
Plan Years. Such request for withdrawal shall be made in writing on a form
satisfactory to the Advisory Committee and such request shall be delivered to
the Advisory Committee not more than 90 nor less than 60 days before the end of
such Plan Year. The Advisory Committee shall have complete discretion in
approving a request for withdrawal due to financial hardship and the amount
thereof; PROVIDED, the Advisory Committee shall grant its consent if satisfied
from positive evidence presented by the Participant, that the purpose of the
request for withdrawal due to financial hardship is:
(a) financing of the purchase, major repair or improvement of
the Participant's home;
(b) major illness or disability of the Participant, a member
of his immediate family or one dependent upon him;
(c) college or other post-high school education of the
Participant or one dependent upon him; a withdrawal pursuant to this
subparagraph (c) shall be distributed in approximately equal annual
installments over the scheduled course of the schooling. Installments
after the initial distribution will be paid only if the Participant
delivers to the Advisory Committee a copy of grades for the most recent
quarter or semester for which grades are available as well as a bill or
other appropriate written evidence sufficient to demonstrate to the
Advisory Committee the continuation by the Participant or dependent of
his course of schooling;
(d) financial hardship to the Participant caused by sickness,
accident or death in the Participant's immediate family; or
(e) such other condition or purpose which the Advisory
Committee shall determine, in accordance with uniform principles
consistently applied, is of sufficiently similar seriousness or
worthiness to the enumerated conditions and purposes as to constitute a
financial hardship;
and further provided, that in no event shall the Advisory Committee grant such
request from a Participant who has previously made a withdrawal pursuant to this
Section 14.01 unless, subsequent to the Plan Year in which the Participant's
most recent such request was made and granted, the Participant has completed
four (4) additional Years of Service for vesting purposes (effective for Plan
Years beginning after December 31, 1989, the Participant must have been a
Participant in the Plan for all or part of at least four (4) additional Plan
Years). If the Advisory Committee would otherwise grant a request for withdrawal
for the financing of the purchase of the Participant's home but for the fact
that the Participant has not obtained a signed contract for the purchase of the
home, the Advisory Committee shall approve the request subject to the condition
that Participant obtain a signed contract for purchase of a home.
56
14.02 APPROVED REQUEST IRREVOCABLE. Except as provided in Section
14.06, every such request for withdrawal, when made and approved by the Advisory
Committee as provided in Section 14.01, shall be and remain irrevocable.
14.03 TIME OF PAYMENT. Except as provided in Section 14.06, following
the close of the Plan Year when any such request for withdrawal shall be made
and approved by the Advisory Committee, the Advisory Committee shall direct the
Trustee to pay and distribute to the Participant the amount so specified.
Payment shall be made as soon as possible after the year-end adjustments to be
made for such Plan Year shall be completed, and the amount so distributed shall
be charged to the Participant's Account. Notwithstanding the foregoing
provisions of this Section 14.03, for the Plan Year ending December 31, 1986
only, each Participant for whom a withdrawal request has been approved shall
have the right to elect to have the amount so specified distributed to him on or
before December 31, 1986.
14. 04 EFFECT OF WITHDRAWAL. Except as provided in Section 14.06, other
than by reducing his Account in accordance with Section 14.03, the exercise of
the withdrawal option conferred by this Article XIV shall not affect the
Participant's rights under this Plan in any manner whatever. Notwithstanding the
provisions of Section 5.03, at any relevant time after such withdrawal, the
Participant's nonforfeitable interest in his Accrued Benefit shall be equal to
an amount determined by the formula:
X = P(AB + (RxD)) - (RxD)
X is Nonforfeitable interest in Accrued Benefit at relevant time
P is percent of Nonforfeitable Accrued Benefit at relevant time
AB is Accrued Benefit at relevant time
D is amount of withdrawal
R is the ratio of Accrued Benefit at relevant time over the
Accrued Benefit after distribution
14.05 REQUEST FOR WITHDRAWAL DUE TO FINANCIAL HARDSHIP FOR PARTICIPANTS
IN THE POLICYHOLDER SERVICE CORPORATION RETIREMENT PLAN.
A Participant in the Policyholder Service Corporation Retirement Plan which was
merged with this Plan on December 31, 1991, may request a withdrawal due to
financial hardship of all or any portion, at his option, but not to exceed the
value of such Participant's vested interest which would be available under
Section 5.03, of the balance of his Accrued Benefit attributable to
contributions (including any rollover contributions) made for Plan Years
beginning on or after January 1, 1988, and to any rollover contributions made
prior to January 1, 1988, to the Policyholder Service Corporation Retirement
Plan prior to merger with this Plan, as the same shall stand after completion
57
of the year-end adjustments to be made thereto as of the end of the Plan Year in
which such request is made; PROVIDED, the distribution provisions of Section
6.03(E) shall govern any request by a Participant for a withdrawal from the
Participant's Deferral Contributions Account. Such request for withdrawal shall
be made in writing on a form satisfactory to the Advisory Committee and such
request shall be delivered to the Advisory Committee not more than 90 nor less
than 60 days before the end of such Plan Year. The Advisory Committee shall have
complete discretion in approving a request for withdrawal and the amount
thereof; PROVIDED, the Advisory Committee shall grant its consent if satisfied
from positive evidence presented by the Participant, that the purpose of the
request for withdrawal due to financial hardship is:
(a) financing of the purchase, major repair or improvement of
the Participant's home;
(b) major illness or disability of the Participant, a member
of his immediate family or one dependent upon him;
(c) college or other post-high school education of the
Participant or one dependent upon him; (a withdrawal pursuant to this
subparagraph (c) shall be distributed in approximately equal annual
installments over the scheduled course of the schooling. Installments
after the initial distribution will be paid only if the Participant
delivers to the Advisory Committee a copy of grades for the most recent
quarter or semester for which grades are available as well as a bill or
other appropriate written evidence sufficient to demonstrate to the
Advisory Committee the continuation by the Participant or dependent of
his course of schooling);
(d) financial hardship to the Participant caused by sickness,
accident or death in the Participant's immediate family; or
(e) such other condition or purpose which the Advisory
Committee shall determine, in accordance with uniform principles
consistently applied, is of sufficiently similar seriousness or
worthiness to the enumerated conditions and purposes as to constitute a
financial hardship.
If the Advisory Committee would otherwise grant a request for
withdrawal for the financing of the purchase of the Participant's home
but for the fact that the Participant has not obtained a signed
contract for the purchase of the home, the Advisory Committee shall
approve the request subject to the condition that Participant obtain a
signed contract for purchase of a home.
The provisions of Sections 14.02, 14.03, 14.04 and 14.06 shall
apply to any withdrawals under this Section 14.05.
58
14.06 SPECIAL RULES FOR WITHDRAWAL DUE TO PURCHASE OF HOME. This
Section 14.06 shall apply to a Participant whose request for withdrawal for the
financing of the purchase of a home has been conditionally approved pursuant to
Section 14.01. If the Participant has not obtained a signed contract for the
purchase by the Distribution Date, the Trustee shall continue to hold such
approved amount and distribute it to the Participant when he obtains a signed
contract, provided that the Participant obtains a signed contract by October 1
of the Plan Year in which the Distribution Date occurs. If the Participant does
not obtain a signed contract by October 1 of the Plan Year in which the
Distribution Date occurs, the Participant's request shall be canceled, and the
Participant shall be permitted to make a new request pursuant to Section 14.01
and 14.05 notwithstanding any requirement that the Participant otherwise wait
four (4) years.
ARTICLE XV
PARTICIPANT'S ACCOUNTS AND THEIR INVESTMENT
15.01 INDIVIDUAL ACCOUNTS. The Advisory Committee shall maintain, or
direct the Trustee to maintain, a separate Account, or multiple Accounts, in the
name of each Participant to reflect the Participant's Accrued Benefit under the
Plan. Furthermore, if a Participant reenters the Plan subsequent to his having a
Forfeiture Break in Service the Advisory Committee, or the Trustee, shall
maintain a separate Account for the Participant's pre-Forfeiture Break in
Service Accrued Benefit and a separate Account for his post-Forfeiture Break in
Service Accrued Benefit unless the Participant's entire Accrued Benefit under
the Plan is one hundred percent (100%) Nonforfeitable. The Advisory Committee
will make its allocations, or request the Trustee to make its allocations, to
the Accounts of the Participants in accordance with the provisions of Section
15.03. The Advisory Committee may direct the Trustee to maintain a temporary
segregated investment Account in the name of a Participant to prevent a
distortion of income, gain or loss allocations under Section 15.03. The Advisory
Committee shall maintain records of its activities.
A Participant's Accrued Benefit shall be segregated for separate
investment when and as so expressly provided under the Plan. Except where the
Plan expressly provides for such segregation, Participants' Accrued Benefits
shall be invested collectively.
15.02 VALUATION OF PARTICIPANTS' ACCRUED BENEFITS. The value of each
Participant's Accrued Benefit shall consist of that portion of the net worth (at
fair market value) of the Trust Fund which the net credit balance in his Account
therein bears to the total net credit balance in the Accounts of all
Participants plus the value of any segregated account hereunder. For purposes of
a distribution under the Plan, the value of a Participant's Accrued Benefit
shall be its value as of the Accounting Date, or other valuation date,
immediately preceding the date of the distribution. Any distribution (other than
a distribution from a segregated Account) made to a Participant (or to his
Beneficiary) more than 90 days after the most recent valuation date shall
include interest on the amount of the distribution as an expense of the Trust
Fund. The interest accrues from such valuation date to the date of the
distribution at a rate of five percent (5%) per annum.
59
15.03 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A
"valuation date" under this Plan is each Accounting Date and each interim
valuation date determined under Section 10.14. As of each valuation date the
Advisory Committee must adjust Accounts to reflect net income, gain or loss
since the last valuation date. The valuation period is the period beginning the
day after the last valuation date and ending on the current valuation date.
TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply
to all Participant Accounts other than segregated investment Accounts. The
Advisory Committee first will adjust the Participant Accounts, as those Accounts
stood at the beginning of the current valuation period, by reducing the Accounts
for any forfeitures arising under Section 5.09 or under Section 9.12, for
amounts charged during the valuation period to the Accounts in accordance with
Section 9.11 (relating to distributions) and for the amount of any Account which
the Trustee has fully distributed since the immediately preceding valuation
date. The Advisory Committee then, subject to the restoration allocation
requirements of Section 5.04 or of Section 9.12, will allocate the net income,
gain or loss for the current valuation period pro rata to the Adjusted
Participant Accounts. The allocable net income, gain or loss is the net income
(or net loss), including the increase or decrease in the fair market value of
assets, since the last valuation date.
SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account
receives all income it earns and bears all expense or loss it incurs. As of the
valuation date, the Advisory Committee must reduce a segregated Account for any
forfeiture arising under Section 5.09 after the Advisory Committee has made all
other allocations, changes or adjustments to the Account for the Plan Year.
ADDITIONAL RULES. An Excess Amount or suspense account described in
Part 2 of Article III does not share in the allocation of net income, gain or
loss described in this Section 15.03. This Section 15.03 applies solely to the
allocation of net income, gain or loss of the Trust. The Advisory Committee will
allocate the Employer contributions and Participant forfeitures, if any, in
accordance with Article III.
15.04 SPECIAL DISTRIBUTION OPTIONS FOR PARTICIPANTS WITH ACCOUNT
BALANCES INVESTED IN FUND B. The Plan previously permitted Participants to elect
to invest all or any portion of his Account in an investment option known as
"Fund B". With respect to a Participant having all or any portion of his Account
invested in Fund B as of December 31, 1993, such Participant may elect to
receive a distribution from the Plan in an amount not to exceed the vested
portion of such Participant's Account invested in Fund B. However, no such
distribution will be made to the extent that it would violate the limitations on
in-service distributions applicable to account balances under Code ss.401(k)
arrangements. To the extent that a Participant's Account invested in Fund B is
not distributed pursuant to his election, such Account shall be transferred and
invested together with the remainder of the Trust Fund effective December 31,
1993.
Any election pursuant to this Section 15.04 shall be made at such time
and on such forms as the Advisory Committee may prescribe.
60
ARTICLE XVI
PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL OF DST
16.01 DEFINITION OF "CHANGE IN CONTROL OF DST". For purposes of this
Plan and Trust Agreement, a "Change in Control of DST" shall be deemed to have
occurred if (a) for any reason at any time less than seventy-five percent (75%)
of the members of the Board of Directors of DST Systems, Inc. shall be
individuals who fall into any of the following categories: (1) individuals who
were members of such Board on September 1, 1995; (2) individuals whose election,
or nomination for election by DST's stockholders, was approved by a vote of at
least seventy-five percent (75%) of the members of the Board then still in
office who were members of such Board on September 1, 1995; or (3) individuals
whose election, or nomination for election by DST's stockholders, was approved
by a vote of at least seventy-five percent (75%) of the members of the Board
then still in office who were elected in the manner described in (1) or (2)
above; or (b) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) shall have become, according to a public announcement or
filing, without the prior approval of the Board of Directors of DST, the
"beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act) directly
or indirectly, of securities of DST representing forty percent (40%) or more
(calculated in accordance with Rule 13(d)-3) of the combined voting power of
DST's then outstanding voting securities (such person hereafter referred to as a
"Major Stockholder"); or (c) the stockholders of DST shall have approved a
merger, consolidation or dissolution of DST or a sale, lease, exchange or
disposition of all or substantially all of DST's assets, or a Major Stockholder
shall have proposed any such transaction, unless such merger, consolidation,
dissolution, sale, lease, exchange or disposition shall have been approved by at
least seventy-five percent (75%) of the members of the Board of Directors of DST
who are individuals falling into any combination of the following categories:
(1) individuals who were members of such Board of Directors on September 1,
1995; (2) individuals whose election or nomination for election by DST's
stockholders was approved by at least seventy-five percent (75%) of the members
of the Board of Directors then still in office who are members of the Board of
Directors on September 1, 1995; or (3) individuals whose election, or nomination
for election by DST's stockholders was approved by a vote of at least
seventy-five percent (75%) of the members of the Board then still in office who
were elected in the manner described in (1) or (2) above.
16.02 PROVISIONS EFFECTIVE UPON CHANGE OF CONTROL. Upon a Change of
Control of DST as defined in Section 16.01, notwithstanding what is otherwise
provided in this Plan and Trust Agreement, the following provisions will
supersede the indicated sections and otherwise govern the operation of the Plan
and Trust from that point forward:
(a) "Section 5.03, Vesting Schedule" shall provide as follows:
Section 5.03 VESTING SCHEDULE. A Participant's Accrued Benefit
derived from Employer contributions shall be one hundred percent
(100%) Nonforfeitable at all times.
(b) A new "Section 8.10, Participant Direction of Investment" shall
provide as follows:
61
8.10 PARTICIPANT DIRECTION OF INVESTMENT. Other than provided
in Section 18.02, the Participant shall have the right to direct the
Trustee with respect to the investment or reinvestment of the assets
comprising the Participant's individual Account only if the Trustee
consents in writing to permit such direction. If the Trustee does not
consent to Participant direction of investment, the Trustee and each
Participant shall execute a letter agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee shall follow any Participant direction
as respects the investment or reinvestment of any part of the
Participant's individual Account. The Trustee shall not be liable for
any loss, or by reason of any breach, resulting from a Participant's
direction of the investment of any part of his individual Account.
(c) Except for the right to amend the Agreement pursuant to
Section 11.02(a), the Employer shall not exercise its right to amend
pursuant to Section 11.02(b), discontinue or terminate pursuant to
Section 11.03, or transfer assets of or merge, pursuant to section
11.05, the Plan or Trust Agreement without the prior written consent to
such aforesaid action by seventy-five percent (75%) of the Participants
on a per capita basis.
16.03 RIGHT TO AMEND ARTICLE XVI PRIOR TO CHANGE IN CONTROL OF DST. The
Board of Directors of DST Systems, Inc., or any duly authorized committee
thereof, reserves the right to amend or eliminate this Article XVI prior to the
date of Change in Control of DST.
ARTICLE XVII
WITHDRAWALS FROM PRIOR PLAN ACCOUNTS
17.01 GENERAL. In addition to the opportunity for withdrawals provided
for in Article XIV, a Participant who was a participant in the Vantage Computer
Systems Savings Investment Plan, as in effect on December 31, 1987 ("Prior
Plan"), may request cash withdrawals from his separate account attributable to
Participant Nondeductible Voluntary Contributions to the Prior Plan. A
Participant must make a written election under this Section 17.01 on a form
prescribed by the Advisory Committee on or before November 30 for a distribution
to be made on a distribution date of the following March 31 or on or before June
30 for a distribution to be made on a distribution date of the following
September 30. The distribution in accordance with the Participant's timely-filed
written election will be made as soon as administratively practicable after the
March 31 or September 30 distribution date specified in the election. A
terminated Participant with an account balance may not make partial withdrawals.
17.02 NO FORFEITURE OF PARTICIPANT'S ACCOUNT. No forfeiture of the
Participant's Account shall occur solely as a result of a withdrawal pursuant to
this Article VII.
62
ARTICLE XVIII
PROVISIONS APPLICABLE TO
TRANSFERRED ESOP ACCOUNTS
18.01 ESOP ACCOUNTS. The Advisory Committee shall maintain, in order to
reflect each ESOP Participant's Accrued Benefit under the Plan derived from
contributions to The Employee Stock Ownership Plan that has been transferred to
this Plan, a separate ESOP Account for each ESOP Participant. The provisions of
this Article XVIII shall govern the separate ESOP Accounts. Except as provided
under this Article XVIII, the Trustee shall hold, administer and distribute the
ESOP Accounts in the same manner under the Plan as Accounts derived from
contributions to this Plan. No allocations shall be made to the ESOP Accounts
other than amounts transferred from The Employee Stock Ownership Plan and any
earnings, gains or losses on the ESOP Accounts.
18.02 PARTICIPANT DIRECTION OF INVESTMENT. Except as provided in this
Section 18.02, a Participant does not have the right to direct the Trustee with
respect to the investment or reinvestment of the assets comprising the
Participant's individual ESOP Account. Each Qualified Participant may direct the
Trustee as to the investment of 25% of the value of the Participant's Accrued
Benefit attributable to his ESOP Account (the "Eligible Accrued Benefit") within
90 days of the Accounting Date of each Plan Year (to the extent a direction
exceeds the amount as to which a prior direction under this Section 8.10
applies) during the Participant's Qualified Election Period. For the last Plan
Year in the Participant's Qualified Election Period, the Trustee will substitute
"50%" for "25%" in the immediately preceding sentence. The Qualified Participant
must make his direction to the Trustee in writing, the direction may be
effective no later than 180 days after the close of the Plan Year in which the
direction applies, and the direction must specify the investment option set
forth below.
A Qualified Participant may choose the following investment option:
The distribution of the portion of his Eligible Accrued Benefit covered
by the election. The Trustee will make the distribution within 90 days
after the last day of the period during which the Qualified Participant
may make the election.
For purposes of this Section 18.02, the following definitions apply:
(i) "Qualified Participant" means a Participant who has
attained age 55 and who has completed at least 10 years of
participation in the Plan. A "year of participation" means a Plan Year
in which the Participant was eligible for an allocation of Employer
contributions, irrespective of whether the Employer actually
contributed to the Plan for that Plan Year.
(ii) "Qualified Election Period" means the six (6) Plan Year
period beginning with the Plan Year in which the Participant first
becomes a Qualified Participant.
63
A Participant's right under this Section 18.02 to direct the investment
of his Account applies solely to that portion of his ESOP Account attributable
to Employer Securities acquired by the Plan after December 31, 1986.
18.03 SPECIAL VESTING SCHEDULE. This Section 18.03 shall apply to the
ESOP Accounts in lieu of Section 5.03. Except as provided in Sections 5.01 and
5.02, for each Year of Service, a Participant's Nonforfeitable percentage of his
Accrued Benefit attributable to his ESOP Account and derived from Employer
contributions equals the percentage in the following vesting schedule:
Percent of
Years of Service Nonforfeitable
with the employer accrued benefit
----------------- ---------------
Less than 5 None
5 or more 100%
For any Plan Year for which the Plan is top heavy (as defined in
Section 1.29) the Advisory Committee will calculate a Participant's
Nonforfeitable percentage of his Accrued Benefit attributable to his ESOP
Account and derived from Employer Contributions the following schedule:
Percent of
Years of Service Nonforfeitable
with the employer accrued benefit
----------------- ---------------
Less than 2 None
2 20%
3 40%
4 60%
5 80%
6 or more 100%
The Advisory Committee will apply the top heavy schedule to
Participants who earn at least one Hour of Service after the top heavy schedule
becomes effective. A shift between vesting schedules under this Section 18.03 is
an amendment to the vesting schedule and the Advisory Committee must apply the
rules of Section 7.04 accordingly. A shift to a new vesting schedule under this
Section 18.03 is effective on the first day of the Plan Year for which the top
heavy status of the Plan changes.
18.04 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS. Unless the
Participant elects in writing to have the Trustee apply other distribution
provisions of the Plan, or unless other distribution provisions of the Plan
require earlier distribution of the Participant's Accrued Benefit attributable
to his ESOP Account, the Trustee must distribute the portion of the
64
Participant's Accrued Benefit attributable to his ESOP Account no later than the
time prescribed by this Section 18.04, irrespective of any other provision of
the Plan. The distribution provisions of this Section 18.04 are subject to the
consent and form of distribution requirements of Article VI of the Plan.
(a) If the Participant separates from Service by reason of the
attainment of Normal Retirement Age, death, or disability, the
Applicable Advisory Committee will direct the Trustee to commence
distribution of the ESOP Account not later than one year after the
close of the Plan Year in which that event occurs.
(b) If the Participant separates from Service for any reason
other than by reason of the attainment of Normal Retirement Age, death
or disability, the Applicable Advisory Committee will direct the
Trustee to commence distribution of the ESOP Account not later than one
year after the close of the fifth Plan Year following the Plan Year in
which the Participant separates from Service. If the Participant
resumes employment with an Employer on or before the last day of the
fifth Plan Year following the Plan Year of his Separation from Service,
the distribution provisions of this paragraph (b) do not apply.
Notwithstanding anything else in this Plan, unless the Participant
otherwise elects, the distribution of the Participant's Accrued Benefit
attributable to his ESOP Account will be in substantially equal periodic
payments (not less frequently than annually) over a period not longer than the
greater of:
(a) Five years, or
(b) In the case of a Participant with an Accrued Benefit attributable
to his ESOP Account in excess of Five Hundred Thousand Dollars
($500,000) (or beginning January l, 1990, such larger amount as the
Commissioner of Internal Revenue shall prescribe), five (5) years plus
one (1) additional year (not more than five (5) additional years) for
each One Hundred Thousand Dollars ($100,000) (or beginning January 1,
1990, such larger amount as the Commissioner of Internal Revenue shall
prescribe) or fraction thereof by which such balance exceeds $500,000.
The foregoing provisions of this paragraph shall not be construed so as to
preclude the distribution of a Participant's Accrued Benefit attributable to his
ESOP Account in the form of a single lump-sum payment.
IN WITNESS WHEREOF, the Employer and the Trustee have executed this
Plan and Trust in Kansas City, Missouri, this 31st day of December, 1996.
65
DST SYSTEMS, INC.
By:/s/Kenneth V. Hager
Attest:/s/Theresa C. Hursh
"EMPLOYER"
UMB BANK, N.A.
By:/s/Mark Herman
Attest:/s/L W Schutter
"TRUSTEE"
FIRST AMENDMENT TO
DST SYSTEMS, INC. PROFIT SHARING PLAN AND TRUST AGREEMENT
(1996 RESTATEMENT)
WHEREAS, by written instrument dated December 30, 1996, DST Systems,
Inc. has amended and restated the DST Systems, Inc. Profit Sharing Plan and
Trust Agreement (the "Profit Sharing Plan"); and
WHEREAS, DST Systems, Inc., in Section 11.02 of the Profit Sharing Plan
reserved the right to amend the Profit Sharing Plan; and
WHEREAS, DST Systems, Inc. finds it desirable to amend the Plan reflect
the creation of the DST Systems, Inc. Master Trust (the "Master Trust") as an
additional funding medium for assets to be held under the Profit Sharing Plan,
and to advance the administrative distribution date, and UMB Bank, N.A. agrees
to such amendment.
NOW THEREFORE, DST Systems, Inc. and UMB Bank, N.A. agree that the DST
Systems, Inc. Profit Sharing Plan and Trust Agreement (1996 Restatement) be
amended as follows:
I.
Section 1.03 is amended to read as follows:
1.04 "Trustee" with respect to the Separate Trust means UMB
Bank, N.A., or any successor in office who in writing accepts the
position of Trustee under this Plan and the Separate Trust; and with
respect to the Master Trust means UMB Bank, N.A., or any successor in
office who in writing accepts the position of Trustee under the Master
Trust. Unless otherwise specified in this Plan, references to the
"Trustee: in this Plan include either or both of the Trustee under the
Separate Trust or the Trustee under the Master Trust.
II.
Section 1.18 is amended to read as follows:
1.18 "Trust" means either or both of (i) the Separate Trust
fund created under Article X of this Plan (the "Separate Trust") and
(ii) the Separate Plan Account (as defined in the Master Trust) for
this Plan under the DST Systems, Inc. Master Trust created by the
Master Trust Agreement by and between DST Systems, Inc. and UMB Bank,
N.A. as Trustee of the Master trust effective as of January 1, 1998
(the "Master Trust").
III.
Section 1.19 is amended to read as follows:
1.19 "Trust Fund" means all property of every kind held or
acquired by the Trustee of the Separate Trust under this Agreement or
by the Trustee of the Master Trust for purposes of this Plan under the
Master Trust Agreement, other than incidental benefit insurance
contracts. This Plan together with the Master Trust creates two
separate trusts for purposes of the Plan, each of which applies to all
Employers participating under the Plan. The Trustee may combine the
respective Separate Trusts created under the plans of all Employers
participating under the DST Systems, Inc. Profit Sharing Plan into one
(1) Trust Fund for one (1) Separate Trust. However, the Trustee shall
maintain separate records of account in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a
Participant.
IV.
The first paragraph of Section 3.01 is amended to read as follows:
A. AMOUNT. For each Plan Year, the Employer will contribute to
the Trust an amount which the Employer may from time to time deem
advisable. The Employer (or the Advisory Committee on behalf of each
Employer) shall determine the extent to which such contributions are
directed to the Separate Trust or the Master Trust. Although the
Employer may contribute to this Plan irrespective of whether it has net
profits, the Employer intends the Plan to be a profit sharing plan for
all purposes of the Code. The Employer shall not make a contribution to
the Trust for any Plan Year to the extent the contribution would exceed
the Participants' "Maximum Permissible Amount".
See Part 2 of this Article III.
V.
The first paragraph of Section 6.01 is amended to read as follows:
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless,
pursuant to Section 6.03, the Participant or the Beneficiary elects in
writing to a different time or method of payment, the Advisory
Committee will direct the Trustee to commence distribution of a
Participant's Nonforfeitable Accrued Benefit in accordance with this
Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of
the Participant's Nonforfeitable Accrued Benefit, at the time of the
distribution to the Participant, exceeds $3,500 and the Participant has
not attained the later of Normal Retirement Age or age 62. Furthermore,
the Participant's spouse must also consent, in writing, to any
distribution for which Section 6.04 requires the
-2-
spouse's consent. For all purposes of this Article VI, the term
"annuity starting date" means the first day of the first period for
which the Plan pays an amount as an annuity or in any other form. A
distribution date under this Article VI, unless otherwise specified
within the Plan, is the last day of each Plan Year or as soon as
administratively practicable following such last day of the Plan Year.
For purposes of the consent requirements under this Article VI, if the
present value of the Participant's Nonforfeitable Accrued Benefit, at
the time of any distribution, exceeds $3,500, the Advisory Committee
must treat that present value as exceeding $3,500 for purposes of all
subsequent Plan distributions to the Participant.
VI.
Section 10.02 is amended to read as follows:
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to
the Employer for the funds contributed to it by the Employer, but does
not have any duty to see that the contributions received comply with
the provisions of the Plan. DST (or the Advisory Committee on behalf of
DST) shall direct contributions and transfers from time to time to this
Separate Trust or to the Master Trust and the Trustee of the Separate
Trust does not have any duty under the Separate Trust with respect to
contributions and transfers so directed to the Master Trust. The
Trustee is not obliged to collect any contributions from the employer
or to see that funds deposited with it are deposited according to the
provisions of the Plan.
VII.
The introductory paragraph of Section 10.03(A) is amended to read as
follows:
(A) TRUSTEE POWERS. The Trustee has full discretion and authority with
regard to the investment of the Separate Trust Fund, except with
respect to a Plan asset under the control or direction of a properly
appointed Investment Manager or with respect to a Plan asset subject to
Employer, Participant or Advisory Committee direction of investment.
The Trustee must coordinate its investment policy with Plan financial
needs as communicated to it by the Advisory Committee. The Trustee is
authorized and empowered, but not by way of limitation, with the
following powers, rights and duties:
VIII.
Article XVIII is deleted.
-3-
IX.
The above amendment is effective as of 12:01 a.m. January 1, 1998.
X.
Except as herein amended, the Profit Sharing Plan is hereby ratified
and confirmed.
IN WITNESS WHEREOF, DST Systems, Inc. and UMB Bank, N.A. have executed
this First Amendment as of the 27 day of February, 1998.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
UMB Bank, N.A.
By: /s/Mark Herman
-4-
THIRD AMENDMENT TO
DST SYSTEMS, INC.
401(k) PLAN AND TRUST AGREEMENT
(1994 Restatement)
WHEREAS, by written instrument dated September 12, 1994, DST Systems,
Inc. adopted the DST Systems, Inc. 401(k) Plan and Trust Agreement (1994
Restatement); and
WHEREAS, DST Systems, Inc., in Section 11.01 reserved the right to
amend its said 401(k) Plan and Trust Agreement; and
WHEREAS, DST Systems, Inc. finds it desirable to amend the Plan to
change the rules regarding eligibility and to provide for the transfer of
certain Accounts to qualified plans maintained by other employers and UMB Bank,
N.A., as Trustee, agrees to such amendment.
NOW, THEREFORE, DST Systems, Inc. and UMB Bank, N.A. agree that the
DST Systems, Inc. 401(k) Plan and Trust Agreement (1994 Restatement) be amended
as follows:
1. Section 1.16 is hereby deleted in its entirety and a new
Section 1.16 is provided to read as follows:
1.16 "Plan Entry Date" means the restated Effective Date
and every January 1, April 1, July 1 and October 1 after the restated
Effective Date.
2. Section 2.01(a) of the Plan is hereby deleted in its entirety
and a new Section 2.01(a) is provided to read as follows:
(A) ELIGIBILITY RULE FOR DEFERRAL CONTRIBUTIONS. Each Employee
(other than an Excluded Employee) becomes a Participant in the Code
ss.401(k) arrangement on the Plan Entry Date (if employed on that date)
coincident with or immediately following the date on which he completes
one calendar month of Service. See Section 12.01. Each Employee who was
a Participant in the Plan on the day before the Effective Date of this
restated Plan continues as a Participant in the Plan. If, for a Plan
Year, an Employee is a Participant solely in the Code ss.401(k)
arrangement, the Employee does not share in the allocation of any
Employer contributions other than deferral contributions.
3. A new Section 11.07 is hereby added to read as follows:
11.07 TRANSFER OF ASSETS TO IFTC PLAN. Effective as of
December 31, 1995, Investors Fiduciary Trust Company ("IFTC") ceased to
be a participating employer in this Plan, and certain Participants
employed by IFTC ceased to be covered by this Plan. IFTC has
established a retirement plan intended to qualify under Code ss.401(a)
("IFTC Plan"). The Accrued Benefit of Participants who (1) are employed
by IFTC on December 31, 1995, or (2) separated from service with IFTC
prior to December 31, 1995, and who have not subsequently become
employed by any other participating Employer (collectively, the "IFTC
Participants") in the Plan will be transferred to the IFTC Plan as soon
as administratively practicable after the later of (2) March 31, 1996,
or (2) the date that IFTC furnishes to DST Systems, Inc. a copy of a
favorable determination letter from the Internal Revenue Service to the
effect that the IFTC Plan is a qualified plan under Code ss.401(a) and
that the related trust is exempt from tax under Code ss.501(a).
The Accrued Benefits of any IFTC Participant who is rehired by
any Employer that participates in this Plan prior to the transfer of
assets shall remain in this Plan and not be transferred to the IFTC
Plan.
The Trustee may not consent to, or be a party to, the transfer
of assets to the IFTC Plan, unless immediately after the transfer, the
IFTC Plan provides each IFTC Participant a benefit equal to or greater
than the benefit each IFTC Participant would have received had the Plan
terminated immediately before the transfer. For purposes of the
transfer of account balances to the IFTC Plan, the Trustee shall value
the account balances of the IFTC Participants as of the most recent
valuation date under the Plan prior to the transfer.
In the event an IFTC Participant separates from service with
IFTC, attains Normal Retirement Age, dies or becomes disabled, or
requests a distribution of his deferred vested benefit, he shall be
entitled to a distribution from the IFTC Plan in accordance with the
terms of the IFTC Plan.
Until the effective date of the transfer of assets, the Plan
shall treat service of an IFTC Participant with IFTC as service with
the Employer.
4. A new Section 11.08 is hereby added to read as follows:
11.08 TRANSFER OF ASSETS TO KCSI PLAN. Effective as of
December 31, 1995, Kansas City Southern Industries, Inc. ("KCSI") and
certain members of its controlled group (as defined in Section 1.29)
(the "KCSI Group") ceased to be participating employers in this Plan,
and certain Participants employed by the KCSI Group ceased to be
covered by this Plan. KCSI has established a retirement plan intended
to qualify under Code ss.ss.401(a) and 401(k) ("KCSI Plan"). The
Accrued Benefits of Participants who (1) are employed by the KCSI Group
on December 31, 1995, or (2) separated from service with the KCSI Group
prior to December 31, 1995, and who have not subsequently become
employed by any other participating Employer (collectively, the "KCSI
Participants") in the Plan will be transferred to the KCSI Plan as soon
as administratively practicable after the earlier of (1) after the date
that KCSI furnishes to DST Systems, Inc. ("DST") an opinion of counsel,
in a form acceptable to DST, to the effect that the KCSI Plan is a
qualified plan under Code ss.401(a) and that the related trust is
exempt from tax under Code ss.501(a) or (2) the date that KCSI
furnishes to DST Systems, Inc. a copy of a favorable determination
letter from the Internal Revenue Service to the effect that the KCSI
Plan is a qualified plan under Code ss.401(a) and that the related
trust is exempt from tax under Code ss.501(a).
The Accrued Benefits of any KCSI Participant who is rehired by
any Employer that participates in this Plan prior to the transfer of
assets shall remain in this Plan and not be transferred to the KCSI
Plan.
The Trustee may not consent to, or be a party to, the transfer
of assets to the KCSI Plan, unless immediately after the transfer, the
KCSI Plan provides each KCSI Participant a benefit equal to or greater
than the benefit each KCSI Participant would have received had the Plan
terminated immediately before the transfer. For purposes of the
transfer of account balances to the KCSI Plan, the Trustee shall value
the account balances of the KCSI Participants as of the most recent
valuation date under the Plan prior to the transfer.
In the event a KCSI Participant separates from service with
the KCSI Group, attains Normal Retirement Age, dies or becomes
disabled, or requests a distribution of his deferred vested benefit, he
shall be entitled to a distribution from the KCSI Plan in accordance
with the terms of the KCSI Plan.
5. A new Section 11.09 is added to read as follows:
11.09 TRANSFER OF ASSETS TO MIDLAND PLANS. In August 1995, DST
Systems, Inc. sold its interest in Midland Data Systems, Inc. ("MDS")
and Midland Loan Services, L.P. ("MLS") (collectively the "Midland
Companies") to Kansas City Southern Industries, Inc. ("KCSI"). As soon
as administratively practicable after the date that KCSI sells its
interest in the Midland Companies to any party other than a party in
which KCSI or DST Systems, Inc. owns, directly or indirectly, at least
15% of the equity interests, the Accrued Benefits of former
Participants who are employed by MDS as of date of such sale (the "MDS
Participants") in the Plan will be transferred to the Midland Data
Systems, Inc. 401(k) Plan or its successor ("MDS Plan"), and the
Accrued Benefits of former Participants who are employed by MLS as of
the date of such sale (the "MLS Participants") in the Plan will be
transferred to the Midland Loan Services, L.P. 401(k) Plan or its
successor ("MLS Plan").
The Accrued Benefits of any MDS Participant or MLS Participant
who is rehired by any Employer that participates in this Plan prior to
the transfer of assets shall remain in this Plan and not be transferred
to the MDS Plan or the MLS Plan.
The Trustee may not consent to, or be a party to, the transfer
of assets to the MDS Plan, unless immediately after the transfer, the
MDS Plan provides each MDS Participant a benefit equal to or greater
than the benefit each MDS Participant would have received had the Plan
terminated immediately before the transfer. The Trustee may not consent
to, or be a party to, the transfer of assets to the MLS Plan, unless
immediately after the transfer, the MLS Plan provides each MLS
Participant a benefit equal to or greater than the benefit each MLS
Participant would have received had the Plan terminated immediately
before the transfer. For purposes of the transfer of account balances
to the MDS Plan and the MLS Plan, the Trustee shall value the account
balances of the MDS Participants and the MLS Participants as of the
most recent valuation date under the Plan prior to the transfer.
In the event an MDS Participant or an MLS Participant
separates from service with MDS or MLS, attains Normal Retirement Age,
dies or becomes disabled, or requests a distribution of his deferred
vested benefit, he shall be entitled to a distribution from the MDS
Plan or the MLS Plan, as the case may be, in accordance with the terms
of the such Plan.
6. The above amendment is effective January 1, 1996.
7. Except as herein amended, the aforesaid 401(k) Plan is hereby
ratified and confirmed.
IN WITNESS WHEREOF, DST Systems, Inc. and UMB Bank, N.A. have executed
this Third Amendment this 21st day of March, 1996.
DST SYSTEMS, INC.
By_/s/Kenneth V. Hager
UMB BANK, N.A.
By_/s/Mark Herman
FOURTH AMENDMENT TO
DST SYSTEMS, INC.
401(k) PLAN AND TRUST AGREEMENT
(1994 Restatement)
WHEREAS, by written instrument dated September 12, 1994, DST Systems,
Inc. adopted the DST Systems, Inc. 401(k) Plan and Trust Agreement (1994
Restatement); and
WHEREAS, DST Systems, Inc. in Section 11.01 reserved the right to amend
its said 401(k) Plan and Trust Agreement; and
WHEREAS, DST Systems, Inc. finds it desirable to amend the Plan to
permit rollovers to the Plan and to increase the amount of salary deferral
contributions permitted under the Plan, and UMB Bank, N.A., as Trustee, agrees
to such changes.
NOW, THEREFORE, DST Systems, Inc. and UMB Bank, N.A. agree that the DST
Systems, Inc. 401(k) Plan and Trust Agreement (1994 Restatement) be amended as
follows:
1. Section 4.03 is hereby deleted in its entirety and a new
Section 4.03 is provided to read as follows:
4.03. PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant,
with the Employer's written consent and after filing with the Trustee
the form prescribed by the Advisory Committee, may contribute cash or
other property to the Trust other than as a voluntary contribution if
the contribution is a "rollover contribution" which the Code permits an
employee to transfer either directly or indirectly from one qualified
plan to another qualified plan. Before accepting a rollover
contribution, the Trustee may require an Employee to furnish
satisfactory evidence that the proposed transfer is in fact a "rollover
contribution" which the Code permits an employee to make to a qualified
plan. A rollover contribution is not an Annual Addition under Part II
of Article III.
The Trustee will invest the rollover contribution in a
segregated investment Account for the Participant's sole benefit in
accordance with Article XV unless the Trustee, in its sole discretion,
agrees to invest the rollover contribution as part of the Trust Fund.
The Trustee will not have any investment responsibility with respect to
a Participant's segregated rollover Account. The Trustee, in its sole
discretion, may permit the Participant, from time to time, to direct
the Trustee in writing as to the investment of his segregated rollover
Account other than in accordance with Article XV, in property, or
property interests, of any kind, real, personal or mixed; provided,
however, the Participant may not direct the Trustee to make loans to
his Employer. A Participant's segregated rollover Account alone will
bear any extraordinary expenses resulting from investments resulting
from investments made at the direction of the Participant. As of the
Accounting Date (or other valuation date) for each Plan Year, the
Advisory Committee will allocate and credit the net income (or net
loss) from a Participant's segregated rollover Account and the increase
or decrease in the fair market value of the assets of a segregated
Account solely to that Account. The Trustee is not liable nor
responsible for any loss resulting to any Beneficiary, nor to any
Participant, by reason of any sale or investment made or other action
taken pursuant to and in accordance with the direction of the
participant. In all other respects, the Trustee will hold, administer
and distribute a rollover contribution in the same manner as any
Employer contribution made to the Trust.
2. The third paragraph of Section 12.01 is hereby deleted in its
entirety and a new third paragraph is added to Section 12.01 to read as follows:
If the salary reduction agreement specifies the reduction
amount as a percentage of Compensation, the percentage may not be less
than one percent (1%) of Compensation and shall specify a reduction
percentage equal to an increment of one percent (1%). If the salary
reduction agreement specifies the reduction amount as a dollar amount
of Compensation, the dollar amount must equal an increment of $5. An
Employee's deferral contributions for the Plan year may not exceed ten
percent (10%) of his Compensation for the portion of the Plan Year in
which the Employee is actually a Participant. Further, each individual
deferral contribution may not exceed ten percent (10%) of Compensation
for the pay period for which such deferral contribution is calculated.
The Advisory Committee may from time to time specify a maximum deferral
percentage for Highly Compensated Employees that is less than ten
percent (10%). An Employee may modify his salary reduction agreement,
either to reduce or to increase the amount of deferral contributions,
as of the first day of any calendar quarter. The Employee shall make
this modification by filing a new salary reduction agreement with he
Advisory Committee. An Employee may revoke a salary reduction agreement
as of the first day of any calendar quarter. An Employee who revokes
his salary reduction agreement may file a new salary reduction
agreement effective as of a subsequent Plan Entry Date but not earlier
than six (6) months after the effective date of such revocation.
3. Section 15.02 is hereby deleted in its entirety and a new Section
15.02 is added to read as follows:
15.02 INVESTMENT OF ACCOUNTS. Each Participant's Deferral
Contributions Account, and any segregated rollover contributions account
invested in accordance with the provisions of this Article XV, shall be
invested, in accordance with the individual election of the Participant, in one
or more investment vehicles designated by the Advisory Committee, including
designated pooled investment funds.
4. Section 15.03 is hereby deleted in its entirety and a new Section
15.03 is added to read as follows:
15.03 PARTICIPANT ACCOUNTS--INVESTMENT PERCENTAGES. The
Advisory Committee from time to time shall establish procedures by
which each Participant may specify the percentage of his Deferral
Contributions Account and any segregated rollover contributions account
invested in accordance with this Article XV, and the percentage of
future contributions to be made on his behalf, to be invested in each
of the available investment vehicles for Accounts. The investment
percentage for each investment vehicle selected by the Participant must
be a multiple of 1%. The Participant's investment direction shall
remain in effect unless and until the Participant replaces the
direction in accordance with established procedures. Contributions and
Accounts with respect to which no affirmative Participant investment
direction has been made shall be invested in an investment vehicle or
vehicles selected by the Advisory Committee. The Trustee shall be
responsible for carrying out Participant investment direction.
5. The above amendment is effective January 1, 1998.
6. Except as herein amended, the aforesaid 401(k) Plan is hereby
ratified and confirmed.
IN WITNESS WHEREOF, DST Systems, Inc. and UMB Bank, N.A. have executed
this Fourth Amendment as of this 9th day of February, 1998.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
Kenneth V. Hager
UMB BANK, N.A.
By: /s/Mark Herman
DST SYSTEMS, INC.
MASTER TRUST
Effective as of January, 1998
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION.................. 2
1.1 Definitions........................................... 2
1.2 Construction in Accordance with Participating Plans... 3
1.3 Plurals and Gender.................................... 3
1.4 Headings and Subheadings.............................. 3
ARTICLE II TRUST FUND AND PARTICIPATING PLANS.................... 4
2.1 The Trust Fund........................................ 4
2.2 Participation in the Fund............................. 4
2.3 Maintenance of Separate Trusts........................ 4
ARTICLE III CONTRIBUTIONS......................................... 5
3.1 Contributions by Employers............................ 5
3.2 Transfers from Separate Trusts........................ 5
3.3 Discontinuance of Contributions....................... 5
ARTICLE IV DUTIES OF THE EMPLOYER AND THE ADMINISTRATOR
OF EACH PARTICIPATING PLAN............................ 6
4.1 Information and Data to be Furnished the Trustee...... 6
4.2 Diversification of Plan Assets........................ 6
4.3 Limitation of Duties.................................. 6
4.4 Limitation of Liability............................... 6
ARTICLE V ESTABLISHMENT OF SEPARATE ACCOUNTS.................... 7
5.1 Establishment of Separate Plan Accounts............... 7
5.2 Composition of Trust Fund............................. 7
5.3 Establishment of Directed Fund(s) and General Fund.... 7
5.4 Establishment of Additional Accounts.................. 7
5.5 Receipt of Contributions.............................. 7
5.6 Disbursements from Trust Fund......................... 8
5.7 Disputes as to Payments............................... 8
5.8 Valuation of the Trust Fund........................... 8
5.9 Allocation of Earnings, Losses and Expenses of Fund Among
Separate Plan Accounts................................ 9
ARTICLE VI DUTIES AND POWERS OF THE TRUSTEE....................... 10
6.1 Accounting, Reports, Records and Certificates.......... 10
6.2 Agents................................................. 11
6.3 General Powers of the Trustee.......................... 11
6.4 Investment Powers of the Trustee....................... 11
6.5 Liability of the Trustee............................... 14
6.6 Fees and Expenses...................................... 15
6.7 Freedom From Liability as to Validity of Agreement..... 15
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VII INVESTMENT MANAGER..................................... 16
7.1 Appointment of Investment Manager...................... 16
7.2 Qualification of Investment Manager.................... 16
7.3 Establishment of Directed Funds........................ 16
7.4 Powers and Duties of the Investment Manager............ 17
7.5 Duties of the Trustee.................................. 18
7.6 Fees of Investment Manager............................. 18
7.7 Removal of Investment Manager.......................... 18
7.8 Liability of Trustee................................... 19
7.9 Sponsor May Act Through Administrator.................. 19
ARTICLE VII RESIGNATION OR REMOVAL OF TRUSTEE...................... 20
8.1 Resignation of Trustee................................. 20
8.2 Removal of Trustee..................................... 20
8.3 Effective Date of Resignation or Removal............... 20
8.4 Effect of Removal or Resignation, Appointment of
Successor.............................................. 20
ARTICLE IX CONTINUANCE AND TERMINATION OF THIS AGREEMENT.......... 22
9.1 Term of this Agreement................................. 22
9.2 Manner and Effect of Termination....................... 22
ARTICLE X TERMINATION OR WITHDRAWAL OF A PARTICIPATING
PLAN; TRANSFER OF ASSETS TO SEPARATE TRUST............. 23
10.1 Termination of a Participating Plan.................... 23
10.2 Withdrawal of a Participating Plan..................... 23
10.3 Transfer of Assets to Separate Trust................... 23
10.4 Irrevocability of Contributions........................ 24
ARTICLE XI AMENDMENTS............................................. 25
11.1 Amendments Suggested by the Treasury Department........ 25
11.2 Other Amendments....................................... 25
ARTICLE XII MISCELLANEOUS.......................................... 26
12.1 Reliance............................................... 26
12.2 Persons Dealing with the Trustee....................... 26
12.3 Advice of Sponsor, Counsel, Etc........................ 26
12.4 Notices................................................ 26
12.5 Judicial Accounting.................................... 27
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TABLE OF CONTENTS
(CONTINUED)
PAGE
12.6 No Bond or Security Required........................... 27
12.8 Law.................................................... 28
12.9 Invalidity............................................. 28
12.10 Copies................................................. 28
-iii-
THIS MASTER TRUST AGREEMENT, made as of this 31 day of December,
1997, is by and between DST Systems, Inc., a Delaware corporation (the
"Sponsor"), and UMB Bank, N.A., as Trustee (the "Trustee"):
WITNESSETH:
WHEREAS, DST Systems, Inc. is the sponsor of the DST Systems, Inc.
Profit Sharing Plan and Trust Agreement (the "Profit Sharing Plan") and the
Employee Stock Ownership Plan and Trust Agreement of DST Systems, Inc. (the
"ESOP"); and
WHEREAS, the Sponsor desires to establish this Master Trust with the
Trustee to facilitate commingling for investment purposes some or all of the
assets of the Profit Sharing Plan and the ESOP, and such other tax-qualified
retirement plans of the Sponsor or its affiliates as may desire to participate
in the Master Trust (the "Participating Plans"); and
WHEREAS, certain investment managers have heretofore been appointed
with respect to the Trust Fund assets of the Participating Plans, and it is
contemplated that such investment managers will continue their services under
this Master Trust; and
WHEREAS, the Trustee desires to serve as Trustee under this Master
Trust Agreement on the terms and conditions hereinafter set forth; and
WHEREAS, the Sponsor intends that this Master Trust shall qualify for
tax exemption under Section 501(a) of the Internal Revenue Code of 1986, as
amended.
NOW THEREFORE, in consideration of the mutual promises, the mutual
covenants and agreements herein contained, and other good and valuable
considerations, the receipt of which is hereby acknowledged, the Sponsor and the
Trustee agree, effective as of 12:01 a.m. January 1, 1998, as follows:
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 DEFINITIONS.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Master Trust Agreement shall have the following
meaning:
(a) "ACT" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time, or any successor statute.
(b) "ADMINISTRATOR" means the Advisory Committee or other
administrative committee provided for in a Participating Plan, or the members of
such committee, as appropriate.
(c) "AFFILIATE" means any corporation or trust which is owned or
controlled, either directly or indirectly, by the Sponsor or any entity related
to the Sponsor.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Sponsor or
any duly authorized committee thereof, unless the context clearly indicates
otherwise.
(e) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
(f) "EMPLOYER" means the Sponsor and each Affiliate which elects to
participate hereunder with the consent of the Sponsor.
(g) "ESOP" means the Employee Stock Ownership Plan and Trust Agreement
of DST Systems, Inc.
(h) "FUND" or "TRUST FUND" means the assets held by the Trustee under
this Master Trust Agreement.
(i) "MASTER TRUST" means the trust embodied in this Agreement, and any
amendments thereto.
(j) "PARTICIPATING PLAN" means the Profit Sharing Plan, the ESOP, and
any other defined contribution plan of an Employer which adopts this Master
Trust as a funding vehicle in accordance with Sections 2.2 and 2.3 hereof.
(k) "PROFIT SHARING PLAN" means the DST Systems, Inc. Profit Sharing
Plan and Trust Agreement.
(l) "SEPARATE PLAN ACCOUNT" has the meaning ascribed to such term in
Section 5.1.
(m) "SEPARATE TRUST" means any trust (other than this Master Trust)
established by an Employer to create a funding vehicle for a Participating Plan.
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(n) "SPONSOR" means DST Systems, Inc. or any successor thereto by
merger, consolidation or otherwise.
(o) "TRUSTEE" means UMB Bank, N.A., or such other successor trustee as
may be duly appointed and qualified in accordance with this Agreement.
(p) "VALUATION DATE" means each valuation date under any Participating
Plan and any other date as of which the Sponsor directs a valuation of the Trust
Fund.
1.2 CONSTRUCTION IN ACCORDANCE WITH PARTICIPATING PLANS.
Unless the context of this Master Trust Agreement clearly indicates
otherwise, the terms used herein shall be construed in accordance with the terms
of each Participating Plan.
1.3 PLURALS AND GENDER.
Where appearing in this Master Trust Agreement, the masculine gender
shall include the feminine and neuter genders, and the singular shall include
the plural, and vice versa, unless the context clearly indicates a different
meaning.
1.4 HEADINGS AND SUBHEADINGS.
The headings and subheadings in this Master Trust Agreement are
inserted for convenience only and are to be ignored in any construction of the
provisions thereof.
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ARTICLE II
TRUST FUND AND PARTICIPATING PLANS
2.1 THE TRUST FUND.
The Sponsor hereby establishes with the Trustee the Trust Fund
consisting of any transfer of assets from a Separate Trust of a Participating
Plan, and any contributions made by an Employer to this Trust for purposes of a
Participating Plan, together with any income, gains or profits, and less any
distributions, expenses and losses thereon. The Trustee shall hold, invest,
reinvest, manage, administer and distribute the assets of the Fund in accordance
with the provisions of this Agreement for the exclusive benefit of the employees
who are covered by the Participating Plans and their beneficiaries. Even though
several Participating Plans may be funded under this Trust Agreement, the share
of the Fund allocable to each Participating Plan, as determined in accordance
with Section 5.1 hereof, shall be a separate trust fund for the exclusive
benefit of the participants in such Participating Plan and their beneficiaries
and shall not be liable for any expenses, debts, expenditures, or liabilities
that are not properly allocable or chargeable to the Separate Plan Account of
such Participating Plan pursuant to the terms of this Agreement.
2.2 PARTICIPATION IN THE FUND.
In addition to the Profit Sharing Plan and the ESOP, any defined
contribution plan of an Employer may be funded in whole or in part through this
Master Trust and become a Participating Plan hereunder provided all of the
following conditions have been met:
(a) such plan meets the requirements for qualification contained in
Section 401(a) of the Code;
(b) the Employer has adopted this Master Trust as a funding vehicle
under such plan; and
(c) the Sponsor and the Trustee have consented in writing to the
Employer's adoption of the Master Trust.
2.3 MAINTENANCE OF SEPARATE TRUSTS.
Nothing contained in this Master Trust Agreement shall be construed as
(i) terminating the Separate Trust of any Participating Plan; or (ii) preventing
an Employer or any Participating Plan from maintaining a Separate Trust as an
additional funding vehicle for a Participating Plan.
-4-
ARTICLE III
CONTRIBUTIONS
3.1 CONTRIBUTIONS BY EMPLOYERS.
(a) Each Employer shall contribute and pay over to the Trustee,
annually or more often, as the Employer shall decide, such amounts as it may
determine with respect to each Participating Plan. Contributions may be made by
the Employer to the Trustee in the form of cash, securities or any other
property permissible under the Code. If a Separate Trust is maintained for a
Participating Plan, the Employer may, at its discretion, make contributions to
the Separate Trust in lieu of, or in addition to, contributions under this
Master Trust.
(b) Anything hereinabove to the contrary notwithstanding, an Employer
may at any time that it so elects, anticipate (by increasing) the payment of any
contributions which may hereafter become due from it under a Participating Plan.
3.2 TRANSFERS FROM SEPARATE TRUSTS.
Each Employer that maintains a Separate Trust for a Participating Plan
may, at any time, cause all or part of the assets of the Separate Trust to be
transferred to the Trustee and held pursuant to the terms of this Master Trust,
and (ii) in accordance with Section 5.6 hereof cause all or part of the assets
of the Separate Plan Account in this Master Trust to be transferred to the
Trustee of the Separate Trust for such Participating Plan and held pursuant to
the terms of such Separate Trust.
3.3 DISCONTINUANCE OF CONTRIBUTIONS.
Except as may be expressly set forth in a Participating Plan, an
Employer assumes no contractual obligation to continue contributions to any
Participating Plan but has specifically reserved therein the right at any time
and for any reason to discontinue any Participating Plan and the contributions
provided to be made thereunder. Failure by an Employer to continue a
Participating Plan or to make contributions provided to be made thereunder shall
not give rise to any liability on its part whatsoever other than for
contributions provided to be made prior to the effective date of the termination
of such Participating Plan.
-5-
ARTICLE IV
DUTIES OF THE EMPLOYER AND THE ADMINISTRATOR
OF EACH PARTICIPATING PLAN
4.1 INFORMATION AND DATA TO BE FURNISHED THE TRUSTEE.
In addition to making the contributions called for in Article III
hereof, each Employer, through the Administrator of a Participating Plan, agrees
to furnish the Trustee with such information and data relative to such
Participating Plan as is necessary for the proper administration of the Fund
established hereunder. An Employer shall promptly notify the Trustee in the
event that the Internal Revenue Service proposes to disallow the qualified
status of any Participating Plan or this Master Trust.
4.2 DIVERSIFICATION OF PLAN ASSETS.
If a Separate Trust is used as a funding medium for a Participating
Plan in addition to this Master Trust, the Employer maintaining such
Participating Plan, through its Administrator shall be responsible for
determining the proper diversification policy with respect to the investment of
such Participating Plan's assets, for monitoring adherence to such policy and
for advising the Trustee with respect to its compliance with any investment
limitations on Employer securities, if any, or Employer real property, if any,
or other property contained in such Participating Plan or imposed on the
Participating Plan by applicable statute.
4.3 LIMITATION OF DUTIES.
Neither the Employer nor any of its officers, trustees or directors,
nor the Administrator of any Participating Plan, shall have any duties or
obligations with respect to this Master Trust Agreement, except those expressly
set forth in Articles III, IV and VII hereof and in such Participating Plan or
Plans.
4.4 LIMITATION OF LIABILITY.
Except as otherwise provided by law, no Employer, nor any of its
officers, trustees or directors, nor the Administrator of a Participating Plan,
shall in any way be liable or responsible to any participant, beneficiary,
trustee or any other person, firm or corporation whatsoever for any acts of
omission or commission in connection with their duties as specified in Articles
III, IV and VII hereof, unless such act of omission or commission is due to his
or its own individual, willful and intentional nonfeasance, malfeasance or
misfeasance.
-6-
ARTICLE V
ESTABLISHMENT OF SEPARATE ACCOUNTS
5.1 ESTABLISHMENT OF SEPARATE PLAN ACCOUNTS.
The Trustee shall establish and maintain a separate plan account for
each Participating Plan (the "Separate Plan Account") into which shall be paid
the contributions made by the Employer for such Plan or transfer of assets from
the Separate Trust for such Plan, which contributions and transfers, together
with any income, gains or profits, less distributions, expenses and losses,
shall comprise a separate trust fund for such Participating Plan. The
establishment of a Separate Plan Account hereunder shall be for accounting and
bookkeeping purposes only and shall not require a segregation of any part of the
assets of the Trust Fund, and no Participating Plan, or a participant or former
participant of a Participating Plan, shall acquire any right to or interest in
any specific asset of the Fund. The Trustee shall hold, invest, reinvest,
manage, administer and distribute the assets of each Separate Plan Account, as
hereinafter set forth, for the exclusive benefit of the employees participating
in such Participating Plan and their beneficiaries. If an Employer maintains
more than one Participating Plan, the Employer shall advise the Trustee as to
which Separate Plan Account contributions made by it are to be credited.
5.2 COMPOSITION OF TRUST FUND.
The assets of all Separate Plan Accounts held by the Trustee shall
comprise the Trust Fund.
5.3 ESTABLISHMENT OF DIRECTED FUND(S) AND GENERAL FUND.
The Trustee shall establish and maintain a segregated account
designated as the "Directed Fund" for each Investment Manager appointed by the
Sponsor pursuant to Article VII. A Directed Fund shall be comprised of that
portion of the Fund allocated to such Investment Manager pursuant to Article
VII. The amount of the Fund not allocated to a Directed Fund of an Investment
Manager pursuant to Article VII shall be held by the Trustee in a segregated
account designated as the "General Fund."
5.4 ESTABLISHMENT OF ADDITIONAL ACCOUNTS.
For efficiency or convenience of investment or administration, the
Trustee shall divide the Fund into one or more subfunds as directed by the
Sponsor or as the Trustee deems advisable.
5.5 RECEIPT OF CONTRIBUTIONS.
The Trustee shall accept and hold in the Fund contributions made by an
Employer under each Participating Plan and transfers of assets from the Separate
Trust of any Participating Plan. The Trustee shall not be responsible in any way
for the administration of the Participating Plan and shall be under no duty to
determine whether the amount of any contribution is in accordance
-7-
with a Participating Plan or to collect or enforce payment of any contribution.
The Trustee shall not be responsible for the adequacy of the funding method
adopted by the Employer for a Participating Plan, nor for the insufficiency of
the Fund attributable to such plan funding method.
5.6 DISBURSEMENTS FROM TRUST FUND.
(a) The Trustee shall make payment from the Trust Fund to such persons
(who may include the Administrator of a Participating Plan or any members
thereof or the trustee of a Separate Trust), in such manner, at such times, and
in such amounts as the Administrator of a Participating Plan may from time to
time direct. Each such direction shall be in the form of a certificate setting
forth the names and addresses of, and the amounts payable to, the persons named
therein and certifying that such persons are entitled to receive benefits under
the Participating Plan in the amounts and at the times stated in such
certificate. Payments shall be made by the Trustee to the persons or companies
named in such certificate at their addresses therein set forth. All such
payments shall be charged against the Separate Plan Account of the Participating
Plan to which the payment relates.
(b) The Trustee shall also make disbursements from the Fund to defray
all reasonable expenses incurred in managing and maintaining the assets of the
Fund unless other arrangements for their payment are made by the Sponsor. Any
such disbursements shall be charged against the Separate Plan Account of each
Participating Plan in accordance with Section 5.9.
5.7 DISPUTES AS TO PAYMENTS.
In the event that any dispute shall arise as to the persons to whom
payments and the delivery of any fund or property shall be made by the Trustee,
or the amounts thereof, the Trustee may retain such payments and/or postpone
such delivery until actual adjudication of such dispute shall have been made in
a court of competent jurisdiction as provided herein or it shall be indemnified
against loss to its satisfaction.
5.8 VALUATION OF THE TRUST FUND.
(a) Except as otherwise provided in Article VII, as of each Valuation
Date the Trustee shall determine the net worth of the assets of the Fund, and
report, in writing, the value of the Fund and each Separate Plan Account to the
Employers and the value of each Separate Plan Account to the Administrator of
the respective Participating Plan. In determining such net worth, the Trustee
shall value the assets of the Fund at their fair market value as of such
Valuation Date and shall deduct all expenses chargeable to the Fund.
(b) In determining and valuing the assets and liabilities of the Fund
for any purpose, the Trustee may rely upon any information it believes to be
reliable including appraisals, reports of sales and of bid and asked prices of
issues listed on an exchange as disclosed in newspapers of general circulation
or in generally recognized financial services, or quotations with respect to
unlisted issues as supplied by any reputable broker or investment bank or from
any other source that the Trustee believes to be reliable.
-8-
(c) In the event the Trustee considers the method hereinbefore in this
Section provided to be impracticable because of the fact that any of the
securities included in the Fund are not quoted or listed, or for any other
reason, then the Trustee may employ at the expense of the Fund two reputable
brokers, members of the New York Stock Exchange or any other recognized stock
exchange, to appraise such securities for the purpose of obtaining the value of
the Fund and for any other purpose in the administration of the Master Trust, or
the Trustee may make such determination based upon its own analysis of such
records or reports of any company issuing such securities as are made available
to it or which it can obtain with reasonable diligence.
5.9 ALLOCATION OF EARNINGS, LOSSES AND EXPENSES OF FUND AMONG SEPARATE PLAN
ACCOUNTS.
As of each Valuation Date or more frequently as determined by the
Trustee or directed by the Sponsor, any increase or decrease in the net worth of
the Fund attributable to investment earnings, gains, losses, expenses and
unrealized appreciation or depreciation, as determined by the Trustee, shall be
credited to or deducted from each Separate Plan Account as follows:
(a) Any expenses or portions thereof which are separately identifiable
as attributable to a Separate Plan Account, rather than to the Fund as a whole,
shall be charged against such Separate Plan Account. To the extent that any
expenses or portions thereof are not separately identifiable as attributable to
a Separate Plan Account, the Trustee shall allocate such expenses among all
Separate Plan Accounts in proportion to the value that each such account bears
to the total of all such accounts.
(b) Investment earnings, gains, losses, and unrealized appreciation or
depreciation shall be allocated among all Separate Plan Accounts in proportion
to the value that each such account bears to the total of all such accounts.
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ARTICLE VI
DUTIES AND POWERS OF THE TRUSTEE
6.1 ACCOUNTING, REPORTS, RECORDS AND CERTIFICATES.
(a) The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions hereunder, which
shall show the complete record of the operation of the Fund and each Separate
Plan Account, and all such accounts and the books and records relating thereto
shall be open to inspection at all reasonable times by any person designated in
writing by the Sponsor, or in the case of the books and records of a Separate
Plan Account, the Administrator of such Participating Plan.
(b) Except as otherwise provided in Article VII, the Trustee shall also
furnish to each Employer (or to such person as may be designated by the
Employer), financial transaction statements which reflect all receipts and
disbursements, but the Trustee shall not be required to furnish such statements
more than once each month.
(c) Within ninety (90) days following (i) the close of each plan year,
(ii) the resignation or removal of the Trustee as provided for in Article IX
hereof, (iii) the termination of this Master Trust as provided in Article X, or
(iv) the completion of the application or distribution of any Separate Plan
Account upon termination or withdrawal of a Participating Plan as provided for
in Article XI hereof, the Trustee shall file with the Employer (or such person
as may be designated by the Employer) a written account setting forth all
investments, receipts, disbursements and other transactions of the Fund and each
Separate Plan Account (or, in the case of the withdrawal or termination of a
Participating Plan, the Separate Plan Account of such Plan) effected by it
during such year or during the period from the closing date of the last
preceding written account to the date of such resignation or removal or to the
date of such completion of application or distribution of funds. Each such
account shall set forth in summary form the receipts and disbursements of the
Trustee for the period accounted for and shall include a description of all
securities and other assets purchased and sold during the period accounted for,
and the cost or proceeds of sale thereof, and shall show all cash, securities
and other property held at the end of such period, and the cost and then market
value of each item thereof. Except as otherwise prescribed by the Act, the
Trustee shall be forever released and discharged from any liability or
accountability to anyone as respects the propriety of its acts or transactions
shown in such account, except with respect to any such acts or transactions as
to which the Employer or Administrator of a Participating Plan shall, within the
one-year period after such account shall have been filed with the Employer and
with each Administrator of a Participating Plan, file with the Trustee a written
statement setting forth its or their exceptions or objections. If such statement
is filed with the Trustee and the matters thereby brought into controversy
cannot be adjusted by agreement between the Employer and/or such Administrator
and the Trustee, then the Trustee shall file such account in any court of
competent jurisdiction for audit and adjudication, as provided in Section 13.5
hereof. The written approval by the Employer and by the Administrator of any
account filed by the Trustee with the Employer and each Administrator shall
forever release and discharge the Trustee from any liability or accountability
to anyone as respects the propriety of its acts or transactions shown in such
account.
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(d) The records of the Trustee pertaining to a Participating Plan shall
be open to the inspection of the Administrator and the Employer at all
reasonable times and may be audited from time to time by any person or persons
as the Employer or Administrator may specify in writing. The Trustee shall
furnish the Administrator with such information relating to interest of a
Participating Plan in the Trust Fund as the Administrator shall consider
necessary.
(e) The Trustee shall cooperate with each Employer and Administrator
and the trustee of any Separate Trust in the preparation and filing of such
returns, reports and other information concerning the Master Trust or a
Participating Plan required to be prepared by or filed with the Internal Revenue
Service or Department of Labor.
6.2 AGENTS.
(a) With the approval of the Sponsor, the Trustee may employ such
counsel, accountants, brokers, actuaries and other agents and provide for such
clerical, accounting, actuarial and other services as the Trustee may deem
advisable to perform its duties under this Master Trust Agreement, or as may be
directed by the Administrator of a Participating Plan.
(b) The Trustee may enter into contracts in such form as it shall
determine with one or more persons, firms, corporations or associations to
provide administrative services in handling investments, including custodial
arrangements with qualified parties.
6.3 GENERAL POWERS OF THE TRUSTEE.
The Trustee shall have all of the powers necessary or desirable to
perform properly the duties herein set forth.
6.4 INVESTMENT POWERS OF THE TRUSTEE.
In extension and not in limitation of the powers given it by law or by
other provisions of this Agreement, and subject to the provisions of Article VII
hereof, the Trustee shall have the following powers with respect to the Fund;
each and all of which powers may be exercised without court order or other legal
formality:
(a) To invest and reinvest any monies at any time forming a part of the
Fund in any property, real, personal or mixed or any interest therein, wherever
situate, which, in the opinion of the Trustee, offers possibilities for
investment return through either capital appreciation or income or both,
including, but not limited to, savings accounts or other savings investment
media which are maintained by the banking department of the Trustee or an
affiliate of the Trustee (including savings accounts and savings investment
media whose balances exceed the maximum amount insured from time to time by the
Federal Deposit Insurance Corporation), capital or common stock (whether voting
or non-voting and whether or not currently paying a dividend), preferred or
preference stock (whether voting or non-voting and whether or not currently
paying a dividend), convertible securities, corporate and governmental
obligations, shares of open-end investment companies as defined in the
Investment Company Act of 1940 (including such investment companies designated
by the Sponsor to which the Trustee or an affiliate provides investment
advisory, investment management or other similar services for a
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fee provided that the Participating Plans do not pay any investment advisory,
investment management or similar fee with respect to Fund assets invested in
such investment company for the entire period of such investment), real
property, leaseholds, ground rents, mortgages, junior mortgages and other
interests in realty, notes and other evidences of indebtedness or ownership
(secured or unsecured), contracts, partnership or joint venture interests
chooses in actions, and warrants and other instruments entitling the owner
thereof to subscribe to or purchase any of the aforesaid. Subject to the
provisions of Section 6.5 hereof, investments pursuant hereto may be made by the
Trustee without any duty to refrain from making investments which by any
statute, rule of court or custom would not be considered appropriate investments
for a trustee or which are not productive of income and without any limitation
because of the size or nature of any investment, the size or nature of the
enterprise in which any investment is made, the lack or absence of certainty or
regularity of return on the investment or the volatile nature of the market
value of any investment. A substitute Trustee need not request Internal Revenue
Service approval of any investment in the Fund at the time it assumes its
duties.
(b) To invest, with respect to any Participating Plan, in Employer
Securities in accordance with the provisions of such Participating Plan and its
Separate Trust.
(c) To retain, manage, operate, repair, develop, preserve, improve,
mortgage or lease for any period any real, personal or mixed property held by
the Trustee upon such terms and conditions as the Trustee deems proper, either
alone or by joining with others, using other trust assets for any such purposes
if deemed advisable by the Trustee; to modify, extend, renew or otherwise adjust
any or all of the provisions of any such mortgage or lease, including the waiver
of rentals, if deemed advisable by the Trustee; and to make provisions for the
amortization of the investment or in depreciation of the value of such property
as it may deem advisable.
(d) To make, execute, acknowledge and deliver any and all deeds,
leases, assignments and instruments.
(e) To borrow or raise money, from its own banking department or from
any other person, for the purposes of the Fund to the extent that the Trustee
shall deem desirable, including the borrowing of money for the purposes of
acquiring, improving, developing and repairing real, personal or mixed property,
or any interest therein and any other property, and for the purpose of acquiring
any property owned by the Employer to the extent permitted by the Act, the Code
and the Internal Revenue Regulations, upon such terms and conditions as the
Trustee, in its absolute discretion may deem desirable and proper, provided
consent to such borrowing is first obtained from the Sponsor. For any sum so
borrowed, the Trustee may issue a promissory note as Trustee, and secure the
repayment thereof by pledging, mortgaging, or otherwise assigning all or any
part of the Fund.
(f) To sell or otherwise dispose of, either by public or private sale,
any property, real, personal or mixed, at any time held by the Trustee, for such
considerations, and on such terms and conditions as to credit or otherwise as
the Trustee may deem best, and to make contracts and grant options with respect
to any such property, to bid for and become the purchaser of any property so
sold on behalf of the Fund at any public sale thereof, and to again sell the
same without liability for any resulting loss.
-12-
(g) To write call option contracts which give another the right to
purchase from the Trustee, at a future time, any stock or security of any
company, and to purchase call option contracts which give the Trustee the right
to purchase from another, at a future time, any stock or security of any company
if (i) with respect to the writing of a call option contract, at the time the
contract is written and except in extraordinary circumstances, as long as it is
outstanding, the assets of the Fund include a sufficient number of shares of the
stock or security which is the subject of the contract to fulfill the contract
or (ii) with respect to the purchase of a call option contract, the purchase is
a closing purchase transaction, i.e., the purchase is for the purpose of
enabling the Trustee to liquidate its position as a writer of a call option
contract. Each Employer realizes that there are risks inherent in the
transactions described above, but it believes that the possibility of preserving
the capital and income values of the Fund may be enhanced by the prudent use of
the discretion granted herein.
(h) To exchange any property at any time held by the Trustee for other
property, upon such terms and conditions as the Trustee deems advisable, and to
pay and receive money to effect equality in price.
(i) To vote in person or by proxy any stocks, bonds or other securities
held by the Trustee; to exercise any options appurtenant to any stocks, bonds or
other securities, or to exercise any right to subscribe for additional stocks,
bonds or other securities, and to make any and all necessary payments therefor;
to join in, or to dissent from, and to oppose, the reorganization,
recapitalization, consolidation, liquidation, sale or merger of corporations or
properties in which it may be interested as Trustee, upon such terms and
conditions as it may deem wise.
(j) To compromise, compound and settle any debt or obligations upon
such terms as the Trustee may deem advisable and to agree to reduce the rate of
interest on, to extend or otherwise modify, or to foreclose upon default, or
otherwise enforce any such obligation.
(k) To cause any investments from time to time held by it to be
registered in, or transferred into, its name as Trustee, or the name of a
nominee, or to retain them unregistered or in form permitting transferability by
delivery, but the books and records of the Trustee shall at all times show that
all such investments are part of the Fund.
(l) To retain any stocks or other property received as a result of the
exercise of any of the powers herein granted or transferred to the Master Trust
from a Separate Trust, whether or not investment in such stocks or other
property is authorized by paragraph (a) of this Section.
(m) To organize and incorporate under the laws of any state the Trustee
may deem advisable one or more holding corporations for the purposes of
acquiring and holding title to any real or personal property which the Trustee
is authorized to acquire under paragraph (a) of this Section, and to exercise
with respect thereto any and all of the powers, functions and duties set forth
in this Section.
(n) To retain any cash, by deposits in the banking department of the
Trustee or an affiliate of the Trustee, even if the balances in any such account
exceed the maximum amount insured from time to time by the Federal Deposit
Insurance Corporation, or otherwise any
-13-
portion of the Fund as the Trustee, in its absolute discretion, may deem
advisable, at a reasonable rate of interest, or without liability for interest
in the case of cash temporarily in its hands for an anticipated short term
pending investment or distribution.
(o) To cause any or all funds of this Trust to be invested and
reinvested in any proportion through the medium of any combined, common or
commingled trust fund or funds established by the Trustee for the investment of
trust funds held by the Trustee, whether or not such funds are limited to
qualified retirement plans (all such funds being hereinafter referred to as the
"Combined Funds"). In connection with the participation of this Master Trust in
any of the Combined Funds, where required by law or the terms of any such
Combined Fund, the instrument establishing such Combined Fund is hereby adopted
and made a part of this Master Trust Agreement, to the extent such instrument
does not violate the Act or the Code and does not affect the tax qualification
of a Participating Plan, and any funds of this Master Trust invested in any of
the Combined Funds shall be subject to all the provisions thereof, as the same
may be amended from time to time.
(p) To hold and administer the Fund without distinction between
principal and income, and as a single fund without physical separation of any
separate funds or accounts provided for in a Participating Plan, except where
such Participating Plan or this Master Trust clearly requires the segregation of
Fund assets.
(q) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment and
distribution of the Trust.
Each and all of the foregoing powers may be exercised without court
order or other legal formality. No one dealing with the Trustee need inquire
concerning the validity or propriety of any thing that is done or need see to
the application of any money paid or property transferred to or upon the order
of the Trustee.
6.5 LIABILITY OF THE TRUSTEE.
(a) The Trustee shall discharge its duties with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims. The Trustee
shall diversify the investments of the Fund so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so. The
Trustee shall perform its duties in accordance with each Participating Plan
insofar as such Participating Plan is consistent with the provisions of the Act.
The Trustee shall be under no duty to defend or engage in any suit with respect
to the Fund or any Separate Plan Account unless the Trustee shall have first
agreed in writing to do so and shall have been fully indemnified to its
satisfaction. To the extent not prohibited by the Act, the Trustee shall not be
responsible in any way for any action or omission of any Employer or the
Administrator of a Participating Plan with respect to their duties and
obligations as set forth in the Participating Plan and this Agreement. To the
extent not prohibited by the Act, the Trustee shall also not be responsible for
any action or omission of any of its agents or with respect to reliance upon the
advice of its counsel (whether or not such counsel is also counsel to an
Employer or the Administrator of a Participating Plan), provided that such
agents or counsel were prudently chosen by the Trustee
-14-
and that the Trustee relied in good faith upon the action of such agent or the
advice of such counsel. The Trustee shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under a
Participating Plan or under the Act. Nothing herein shall preclude the
indemnification of the Trustee by the Sponsor or any Employer nor prevent the
Trustee from purchasing liability insurance to protect the Trustee against
liability or losses occurring by reason of any act or omission of the Trustee,
to the extent that such insurance is permissible under the Act.
(b) The Trustee is a party to this Agreement solely for the purposes
set forth in this Agreement and each Participating Plan, and to perform the acts
set forth therein, and no obligation or duty shall be expected or required of it
except as expressly stated in a Participating Plan or this Agreement.
6.6 FEES AND EXPENSES.
(a) The Trustee shall be entitled to receive such fees as may be
mutually agreed upon in writing between the Sponsor and the Trustee. A copy of
such agreement shall be delivered by the Sponsor to each Employer. The Trustee's
fees shall be charged to and paid by the Fund unless otherwise paid by one or
more Employers.
(b) The Trustee shall be entitled to reimbursement from the Fund for
its actual out-of-pocket expenses incurred in the performance of its duties
hereunder, but none of the general overhead expenses of the Trustee shall be
included in the term "out-of-pocket" expenses. All fees, including those of the
Trustee, and expenses incurred by the Trustee in the performance of its duties
hereunder and all other proper charges and disbursements of the Trustee, shall
be paid from the Fund unless paid by one or more Employers. All bond premiums,
with respect to a Participating Plan and the Master Trust shall be paid by the
Trustee from the Fund to the extent legally permissible unless otherwise paid by
one or more Employers. All taxes of any and all kinds whatsoever that may be
levied or assessed under existing or future laws upon or in respect to the Fund
or the income thereof shall be paid from the Fund.
(c) All fees and expenses payable by reason of Section 6.6(a) or (b)
above shall be charged to the Separate Plan Account of each Participating Plan
in accordance with Section 5.9.
6.7 FREEDOM FROM LIABILITY AS TO VALIDITY OF AGREEMENT.
Anything herein contained to the contrary notwithstanding, the Trustee
shall not have any responsibility for the validity of this Master Trust
Agreement.
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ARTICLE VII
INVESTMENT MANAGER
7.1 APPOINTMENT OF INVESTMENT MANAGER.
(a) The Sponsor may appoint one or more "Investment Managers" to manage
the investment of all or any portion of the Trust Fund (including the power to
acquire and dispose of all or any portion thereof). If the Sponsor appoints one
or more Investment Managers, it shall notify the Trustee and each Employer in
writing of such appointment and direct the segregation of the portion of the
Trust Fund to be managed by each Investment Manager. The Sponsor shall also
deliver to the Trustee and each Employer:
(1) a copy of the agreement between the Sponsor and the
Investment Manager (along with any subsequent amendments thereto), and
(2) an acknowledgment by the Investment Manager that it is a
fiduciary with respect to the Master Trust and each Participating Plan. The
Trustee shall be fully protected in relying upon such documents until otherwise
notified in writing by the Sponsor.
(b) The Trustee shall not be a party to any agreement with an
Investment Manager, and the terms and conditions of appointment, authority and
retention of an Investment Manager shall be the sole responsibility of the
Sponsor.
7.2 QUALIFICATION OF INVESTMENT MANAGER.
Each Investment Manager shall either be:
(a) registered as an Investment Advisor under the Investment Advisor's
Act of 1940, or
(b) a bank (as defined in that Act), or
(c) an insurance company qualified to manage, acquire, or dispose of
trust assets under the laws of more than one state.
7.3 ESTABLISHMENT OF DIRECTED FUNDS.
(a) Upon the appointment of one or more Investment Managers pursuant to
Section 7.1, the Trustee shall segregate the portion or portions of the Trust
Fund to be managed by such Investment Manager in a separate account (the
"Directed Fund or Funds").
(b) Any portion of the Trust Fund which is not segregated into a
Directed Fund or Funds shall be held by the Trustee in a separate account (the
"General Fund").
(c) Allocation of assets of the Fund between and among the General Fund
and the Directed Fund or Funds shall be determined by the Sponsor.
-16-
(d) Allocation of Participating Plan contributions and transfers to the
Fund between and among the General Fund and the Directed Fund or Funds shall be
determined by the Employer pursuant to the Participating Plan.
(e) Disbursements made in accordance with Section 5.4, and fees and
expenses, paid in accordance with Section 6.6 (except for fees or expenses of an
investment manager or other expenses attributable to a Directed Fund), shall be
paid from the General Fund to the extent of the balance thereof. If, at any
time, the balance of the General Fund is not sufficient to pay such
disbursements, fees, or expenses, the Trustee (upon authorization by the
Sponsor) shall request each Investment Manager to liquidate, on a pro rata
basis, the portion of such Investment Managers Directed Fund necessary to make
such payments. Any amount in the General Fund which is not necessary to cover
estimated disbursements, fees and expenses shall be credited to the Directed
Fund or Funds established hereunder at such times and in such manner as the
Trustee is instructed in writing by the Sponsor.
7.4 POWERS AND DUTIES OF THE INVESTMENT MANAGER.
(a) Unless the Sponsor specifically limits the powers of an Investment
Manager in an agreement between the Sponsor and the Investment Manager and
notifies the Trustee in writing of such limitation, each Investment Manager
shall have the exclusive power to direct the Trustee as to the investment and
reinvestment of all assets under its management and the Trustee shall exercise
its powers as set forth in Article VI as directed by each such Investment
Manager.
(b) In addition to the powers set forth in Section 7.4(a) above, each
Investment Manager at any time, and from time to time, may issue orders for the
purchase or sale of securities directly to a broker; and in order to facilitate
such transactions, the Trustee, upon request by an Investment Manager, shall
deliver appropriate trading authorizations to the Investment Manager. Written
notification of the issuance of such order shall be given promptly to the
Trustee by the Investment Manager and the execution of each such order shall be
confirmed by written advice to the Trustee by the broker. Such notification
shall be authority for the Trustee to pay for securities purchased against
receipt thereof, and to deliver securities sold against payment thereof, as the
case may be.
(c) Under no circumstances shall any Investment Manager act as
custodian for any portion of Trust Fund, or take, have possession of, or remove
from custody of the Trustee any portion of the Trust Fund.
(d) Each Investment Manager shall furnish the Trustee from time to time
with the names and signatures of those persons who shall be authorized to direct
the Trustee on its behalf hereunder. The Trustee shall have the right to request
that all directions by an Investment Manager be in writing and shall assume no
liability hereunder for failure to act pursuant to such directions unless and
until it shall receive directions in form satisfactory to it.
(e) Within twenty (20) days after the end of each calendar quarter,
each Investment Manager shall furnish each Employer (or such person as may be
designated by the Employer) with a summary report on the operation of its
Directed Fund for such quarter.
-17-
(f) As of each Valuation Date, each Investment Manager shall determine
the net worth of the assets in its Directed Fund and report such value to the
Sponsor (or such person as may be designated by the Sponsor) of each and the
Trustee in writing. In determining such net worth, the Investment Manager shall
evaluate the assets of its Directed Fund at their fair market value as of such
Valuation Date and shall deduct all expenses chargeable to the Directed Fund.
Said valuation shall be made in accordance with Section 5.8(b) and (c) hereof.
The Trustee, in preparing any report required under Article VI which reflects
the value of a Directed Fund as of such Valuation Date, may conclusively rely on
the valuation furnished by such Investment Manager.
7.5 DUTIES OF THE TRUSTEE.
(a) The Trustee shall manage the investment of all funds in the General
Fund consistent with the purpose and function of the Fund and in connection
therewith, shall have all of the powers specified in Article VI.
(b) All transactions in or from a Directed Fund related to the
acquisition or disposal of assets, as well as all purchases and sales of assets
shall be made upon such terms and conditions and from or through such principals
and agents as the Investment Manager shall direct.
(c) Nothing herein shall confer any obligation upon the Trustee to
invest or reinvest account balances of any Directed Fund unless and until it
receives directions from an Investment Manager. The Trustee may, however, agree
with the Investment Manager to manage the investment or reinvestment of any cash
reserve in such Directed Fund on a day to day or other short term basis.
(d) The Trustee shall transmit to each Investment Manager and the
Sponsor (or such person as may be designated by the Sponsor) within fifteen (15)
days after the close of each month, a principal transaction statement (including
a statement of principal cash) and a statement of all investments in the
Directed Fund.
7.6 FEES OF INVESTMENT MANAGER.
Each Investment Manager shall be entitled to receive such fees as may
be mutually agreed upon in writing between the Sponsor and such Investment
Manager. The fees of the Investment Manager shall be paid from the Trust Fund
and charged against the Directed Fund of that Investment Manager as directed by
the Sponsor unless otherwise paid by the Sponsor or by one or more Employers.
7.7 REMOVAL OF INVESTMENT MANAGER.
The Sponsor reserves the right to remove any Investment Manager
appointed hereunder at any time by delivering written notice of such removal to
the Investment Manager, the Trustee and each Employer. The Trustee shall be
under no duty or obligation to inquire into or question the propriety of any
such removal by the Sponsor. The Trustee shall not be deemed to have any
responsibility to manage any asset held in a Directed Fund upon the removal of
any Investment Manager unless and until it has been notified in writing by the
Sponsor that such Investment
-18-
Manager's authority has terminated and that the Directed Fund is to be
integrated with the General Fund. Such notice shall not be deemed effective
until two (2) business days after it has been received by the Trustee.
7.8 LIABILITY OF TRUSTEE.
(a) Supervision of the Investment Managers shall be the exclusive
responsibility of the Sponsor. The Trustee shall be under no duty or obligation
to:
(i) question any direction of any Investment Manager,
(ii) review (with respect to prudence, proper diversification,
liquidity, or otherwise) any Directed Fund or any security or other property to
be acquired, held, or disposed of pursuant to the directions of an Investment
Manager,
(iii) make any recommendations with respect to the disposition
or continued retention of any securities or other property held in a Directed
Fund, or
(iv) determine whether the directions of an Investment Manager
comply with the terms of this Master Trust, any agreement entered into between
the Sponsor and the Investment Manager or any applicable federal, state or local
law, ordinance, statute, or regulation.
(b) In the event that the assets of a Directed Fund shall become
integrated at any time with the General Fund, the Trustee shall not be liable
for any losses to the Fund resulting from the disposition of any investment made
by an Investment Manager or for the holding of any illiquid or unmarketable
securities or the holding of any other asset acquired by the Investment Manager
if it is unable to dispose of such investment because of any securities laws
restrictions or if an orderly liquidation of such investment is difficult under
prevailing conditions, or for failure to comply with any investment or
diversification limitations imposed by the Sponsor or for any other violation of
the terms of this Agreement or applicable law or laws as a result of the
addition of Directed Fund assets to the General Fund.
(c) The Trustee shall be fully protected in acting or omitting to act
in accordance with, or in the absence of, the directions of an Investment
Manager, unless the Trustee knows that by such action or failure to act it would
be committing or participating in a breach of fiduciary duty by the Investment
Manager. The Trustee shall be indemnified and held harmless by the Sponsor from
and against any claim or liability which may be asserted against it by reason of
its acting or omitting to act pursuant to any direction from the Investment
Manager or failing to act in the absence of any such direction.
7.9 SPONSOR MAY ACT THROUGH ADMINISTRATOR.
All actions required or permitted to be taken by the Sponsor with
respect to this Article VII may be taken by the Administrator of the
Participating Plan.
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ARTICLE VII
RESIGNATION OR REMOVAL OF TRUSTEE
8.1 RESIGNATION OF TRUSTEE.
The Trustee may resign from this Agreement at any time by giving each
Employer and the Administrator of each Participating Plan written notice of such
resignation.
8.2 REMOVAL OF TRUSTEE.
The Trustee may be removed by the Sponsor at any time. Notice of said
removal shall be in writing and mailed or delivered by hand to the Trustee, each
Employer and the Administrator of each Participating Plan.
8.3 EFFECTIVE DATE OF RESIGNATION OR REMOVAL.
Resignation of the Trustee shall take effect on the date specified in
the notice of resignation, but the date thus specified shall not be less than
sixty (60) days following the date of receipt of such notice by the Sponsor.
Removal of the Trustee shall take effect immediately upon receipt of the notice
of removal by the Trustee, or on such later date as may be specified in the
notice of removal.
8.4 EFFECT OF REMOVAL OR RESIGNATION, APPOINTMENT OF SUCCESSOR.
(a) In no event shall the resignation or removal of the Trustee
terminate this Agreement. Upon the resignation or removal of the Trustee, the
Sponsor shall have the duty forthwith of appointing a successor Trustee to carry
out the terms of this Agreement. Notice in writing of such appointment of a
successor Trustee shall be given to the Trustee resigning or being removed by
the Sponsor, to each Employer, and to the Administrator of each Participating
Plan. Any successor Trustee succeeds to the title to the Trust vested in his
predecessor by accepting in writing his appointment as successor Trustee and
filing the acceptance with the former Trustee and the Sponsor without the
signing or filing of any further statement.
(b) In the event of the resignation or removal of the Trustee, and upon
the appointment of a successor trustee and the acceptance of such trustee, the
Trustee shall turn over to its successor trustee the entire Fund.
(c) All records or books of account pertaining to the Fund which are in
the possession of the Trustee shall be turned over to the successor trustee,
provided that the Trustee shall be given a reasonable time, not to exceed sixty
(60) days, to complete its accounting before making such turnover. The resigning
or removed Trustee, upon receipt of acceptance in writing of the Trust by the
successor Trustee, shall execute all documents and do all acts necessary to vest
the title of record in any successor Trustee. Upon such resignation or removal
of a corporate Trustee, it shall be entitled to be paid its fee, if any, earned
to the date of such resignation or removal.
-20-
(d) A successor trustee shall have the same powers and duties as those
herein conferred upon the Trustee. A successor trustee may be removed or may
resign in the same manner, and, in the event of such removal or resignation of a
successor trustee, the same steps shall follow as on removal of the Trustee.
(e) When the assets of the Fund shall have been transferred and
delivered to the successor trustee and the accounts of the Trustee shall have
been settled in accordance with Section 6.1(c) hereof, the Trustee shall be
forever released and discharged from all further accountability, responsibility
and liability to anyone for assets of the Fund and shall not be responsible in
any way for the further disposition of the Fund.
-21-
ARTICLE IX
CONTINUANCE AND TERMINATION OF THIS AGREEMENT
9.1 TERM OF THIS AGREEMENT.
This Agreement shall continue as long as any Participating Plan is in
full force and effect unless sooner terminated by the Sponsor.
9.2 MANNER AND EFFECT OF TERMINATION.
(a) If all Participating Plans cease to be in full force and effect,
this Agreement shall thereupon terminate unless expressly extended by the
Sponsor.
(b) Notice of termination of this Agreement by the Sponsor shall be in
writing and mailed or delivered by hand to the Trustee, each Employer and the
Administrator of each Participating Plan. Termination of the Agreement shall
take effect on the date specified in the notice of termination, but the date
thus specified shall not be less than thirty (30) days following the date of
mailing or delivery of such notice.
(c) In the event of termination of this Agreement, the Trustee shall
allocate Fund assets among the Separate Plan Accounts in accordance with the
instructions of the Sponsor and each Employer. The assets so allocated to each
Separate Plan Account shall be segregated in a separate account and shall be
administered as a separate trust in accordance with the terms of this Agreement
until such time as the Employer executes a new trust agreement for such separate
account or directs the Trustee to transfer such separate account to a Separate
Trust; provided, however, all powers exercisable by the Sponsor hereunder shall
be exercisable by the Employer with respect to such separate account.
(d) In the event the assets of a Separate Plan Account are to be
transferred to the trustee of a Separate Trust or a new trust agreement, all
records or books of account pertaining to the Separate Plan Account which are in
the possession of the Trustee shall be turned over to such trustee, provided the
Trustee shall be given a reasonable time, not to exceed sixty (60) days, to
complete its accounting before making such turnover. The Trustee shall also be
entitled to be paid its fee, if any, attributable to such Separate Plan Account,
earned to the date of transfer.
(e) When the assets of the Separate Plan Account shall have been
transferred and delivered to such other trustee of a Separate Trust or any new
trust agreement and the accounts of the Trustee have been settled in accordance
with Section 6.1(c) hereof, the Trustee shall be forever released and discharged
from all further accountability, responsibility and liabilities to anyone for
assets of the Separate Plan Account and shall not be responsible in any way for
the further disposition of the Separate Plan Account.
-22-
ARTICLE X
TERMINATION OR WITHDRAWAL OF A PARTICIPATING PLAN;
TRANSFER OF ASSETS TO SEPARATE TRUST
10.1 TERMINATION OF A PARTICIPATING PLAN.
Upon the termination of a Participating Plan, the Separate Plan Account
of such Participating Plan shall be allocated and distributed or held by the
Trustee as provided in such Participating Plan.
10.2 WITHDRAWAL OF A PARTICIPATING PLAN.
(a) An Employer may cause any Participating Plan it maintains to
withdraw from this Master Trust by delivering notice of such withdrawal to the
Trustee and the Sponsor.
(b) The Sponsor may cause any Participating Plan to withdraw from this
Master Trust by delivering notice of such withdrawal to the Trustee and the
Employer maintaining such Participating Plan. The Sponsor shall give notice of
withdrawal to the Trustee for any Participating Plan maintained by an Employer
that no longer qualifies as such.
(c) A notice of withdrawal shall be in writing and mailed or hand
delivered to the Trustee. Such withdrawal shall be effective on the date
specified in the notice, but the date thus specified shall not be less than
thirty (30) days following the date of mailing or delivery of such notice,
unless the notice of withdrawal is given because of Participating Plan no longer
meets the requirements of Section 401(a) of the Code, in which case the notice
of withdrawal shall be effective immediately.
(d) Upon delivery of notice of withdrawal of a Participating Plan, the
Trustee shall withdraw from the Fund such assets allocable to the Separate Plan
Account of such Participating Plan as may be designated by the Sponsor and the
Employer maintaining such Participating Plan and shall segregate such assets in
a separate account for such Participating Plan. Such separate account shall
continue to be administered as a separate trust in accordance with this Master
Trust Agreement, until the Employer executes a new trust agreement for such
separate account or directs the Trustee to transfer such separate account to a
Separate Trust; provided, however, all powers exercisable by the Sponsor
hereunder shall be exercisable by the Employer with respect to such separate
account.
(e) In the event the assets of a Separate Plan Account are to be
transferred to another trustee under a Separate Trust or a new trust agreement,
the provisions of Section 9.2(d) and (e) shall apply.
10.3 TRANSFER OF ASSETS TO SEPARATE TRUST.
With the prior consent of the Sponsor, an Employer may direct the
Trustee to transfer any part of the Separate Plan Account of a Participating
Plan to a Separate Trust upon not less
-23-
than thirty (30) days written notice to the Trustee. Such transfer shall not be
deemed a withdrawal of such Participating Plan from this Master Trust.
10.4 IRREVOCABILITY OF CONTRIBUTIONS.
Except as otherwise expressly provided in a Participating Plan, neither
the termination of this Agreement, the withdrawal of a Participating Plan, the
transfer of any assets, or any other action or non-action shall cause an
Employer to have any right whatsoever with respect to any contribution, or any
asset of the Fund or any Separate Plan Account, or any other matter or thing
whatsoever in connection with the Fund or any Separate Plan Account, it being
expressly agreed and understood that all contributions made are irrevocable and
that none of said contributions may, under any circumstances other than as
specifically set forth in a Participating Plan, be returned or used for the
benefit of the Employer prior to the satisfaction of all liabilities under such
Participating Plan.
-24-
ARTICLE XI
AMENDMENTS
11.1 AMENDMENTS SUGGESTED BY THE TREASURY DEPARTMENT.
Any and all amendments to this Agreement which may be required or
suggested by any employee or agent of the Internal Revenue Service for the
purpose of the approval of a Participating Plan or this Trust under Sections 401
and 501 of the Code, or by any other governmental agency, shall be accomplished
by the Sponsor and effected by written notice to the Trustee and each Employer.
11.2 OTHER AMENDMENTS.
This Agreement may be amended by the Sponsor, and such amendment may be
made retroactively to the extent permitted by law. The Sponsor shall give
written notice of amendment to the Trustee and to each Employer. But no
amendment to this Agreement may be made under this Section 11.2 which is
prohibited under a Participating Plan, or which increases the duties of the
Trustee without its consent.
-25-
ARTICLE XII
MISCELLANEOUS
12.1 RELIANCE.
The parties hereto shall be protected in acting upon any notice,
resolution, request, consent, order, certificate, report, opinion, statement or
other document which they reasonably believed to be genuine and to have been
signed by the proper party or parties or by a person or persons authorized to
act on its behalf.
12.2 PERSONS DEALING WITH THE TRUSTEE.
No person dealing with the Trustee shall be under any obligation to
inquire into the validity, expediency or propriety of any action by the Trustee
or of any exercise by it of any of the powers conferred upon it by this
Agreement. The execution by the Trustee of any instrument, document or paper in
connection with the exercise of any of the powers enumerated herein shall, of
itself, be conclusive evidence to all persons of the authority of the Trustee to
execute the same and to exercise the powers incident thereto.
12.3 ADVICE OF SPONSOR, COUNSEL, ETC.
(a) If at any time or times the Trustee is in doubt as to the course
which it should follow in any matter relating to the administration of this
Agreement with respect to any Participating Plan, it may request the Sponsor to
advise it with respect thereto and it shall be protected in relying upon the
advice or direction which may be given it by the Sponsor, in writing, in
response to such request.
(b) In the event the Trustee has any reasonable doubt at any time as to
its rights or obligations hereunder, or in the event of any dispute arising
under the terms of this Agreement or a Participating Plan, in which dispute the
Employer, the Administrator of a Participating Plan, any participant, any
beneficiary or any person claiming an interest in the Fund or any Separate Plan
Account is involved, the Trustee shall have the right to consult with legal
counsel (including counsel for the Employer or the Administrator of any
Participating Plan) and to obtain other professional assistance such as, for
example, accountants or actuaries, to assist it in resolving such doubts, or to
advise it with respect to the meaning or construction of this Agreement, or its
obligations, powers or duties hereunder, or to advise it or represent it with
respect to any action or proceeding or any question, and it shall be fully
protected with respect to any action taken by it or omitted by it in good faith
pursuant to the advice of such counsel or other such professional advisors. The
fees and expenses of such counsel or such professional advisors shall be paid
from the Fund, unless paid by one or more Employers.
12.4 NOTICES.
(a) Except as otherwise provided by Section 7.9 hereof, any action by
the Sponsor pursuant to this Agreement or by an Employer pursuant to any of the
provisions of a Participating Plan or this Agreement shall be evidenced by a
resolution of its Board of Directors,
-26-
certified to the Trustee over the signature of the Employer's Secretary or
Assistant Secretary under the corporate seal, and the Trustee shall be fully
protected in acting in accordance with such resolution so certified to it. All
orders, requests, directions and instructions of the Administrator of a
Participating Plan to the Trustee shall be in writing, signed by the Chairman or
Secretary of the Administrator or by any member or agent of the Administrator
duly authorized to act on its behalf. Unless it knows that the direction
constitutes a breach of the Administrator's duties or responsibilities under the
Participating Plan, the Trustee shall act and shall be fully protected in acting
in accordance with such orders, requests, directions and instructions. The
Trustee shall not be liable to anyone for the inaction, action, mistaken action
or other errors of an Administrator of a Participating Plan in directing or
failing to direct the Trustee to make any payments to any participant or
beneficiary.
(b) Promptly after the execution of this Agreement or promptly upon an
Employer's adoption of the Master Trust for any Participating Plan, as the case
may be, each Employer shall furnish the Trustee with a list of the names of the
Administrators of each Participating Plan maintained by the Employer and
thereafter it shall, upon the removal or resignation of any Administrator of
such Participating Plan, notify the Trustee of the name of the Administrator so
removed or so resigning and at such time or times as a successor Administrator
is appointed it shall notify the Trustee of the name of said successor. The
Trustee may assume at all times that the Administrators of such Participating
Plan, the Chairman and the Secretary of each Administrator are the same persons
named in said list, unless it has received written notice from the Employer to
the contrary.
12.5 JUDICIAL ACCOUNTING.
Nothing contained in this Agreement or in any Participating Plan shall
be construed as depriving the Trustee of the right to have a judicial settlement
of its accounts. Upon any proceeding by the Trustee for a judicial settlement of
its accounts or for instructions, the only necessary parties thereto in addition
to the Trustee shall be the Employers. If the Trustee's statement or account
proves accurate, the costs of such proceedings, including any reasonable counsel
fee incurred by the Trustee, shall be paid from the Fund.
12.6 NO BOND OR SECURITY REQUIRED.
The Trustee shall not be required to give any bond or other security
for the faithful performance of its duties hereunder, unless otherwise required
by law.
12.7 NO ASSIGNMENT OR ALIENATION.
Subject to Section 414(p) of the Code relating to qualified domestic
relations orders, and to such provisions for security for a loan to a
participant as may exist in any Participating Plan, neither a participant nor a
beneficiary may anticipate, assign or alienate (either at law or in equity) any
benefit provided under the Participating Plan or this Trust, and the Trustee
will not recognize any such anticipation, assignment or alienation. Furthermore,
a benefit under a Participating Plan or this Trust is not subject to attachment,
garnishment, levy, execution or other legal or equitable process, except as
specifically permitted by the Code or the Act or regulations thereunder.
-27-
12.8 LAW.
This Agreement is made in the State of Missouri and shall be construed
in accordance with the laws thereof, other than its laws respecting choice of
law, to the extent not preempted by the Act.
12.9 INVALIDITY.
In the event any provision of this Agreement shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof, and this Agreement shall thereafter be construed
and enforced as if said illegal or invalid provisions had never been included
herein.
12.10 COPIES.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized and their
corporate seals to be hereunto affixed and attested as of the day and year first
above written.
ATTEST: DST SYSTEMS, INC.
/s/Robert Canfield BY:/s/Kenneth V. Hager
(Corporate Seal)
UMB BANK, N.A.
("Trustee")
/s/L W Schutter BY:/s/Mark Herman SrVP
(Corporate Seal)
================================================================================
SUBSIDIARIES
State of Incorporation /
Name of Entity Jurisdiction & Date Doing Business As
- -------------- ------------------------- -----------------
DST International Limited United Kingdom
DST Realty, Inc. Missouri - 5/21/82
Output Technologies, Inc. Missouri - 12/28/90
West Side Investments, Inc. Nevada - 2/11/98
================================================================================
Note: Significant subsidiaries as calculated under Rule 1-02(w) of
Regulation S-X, listed in alphabetical order. DST International Limited, DST
Realty, Inc. and Output Technologies, Inc. individually are not significant
subsidiaries under Rule 1-02(w) of Regulation S-X as of December 31, 1997.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-04197) of DST Systems, Inc. of our report dated
February 26, 1998 appearing on page 26 of this Annual Report on Form 10-K. We
also consent to the reference to us under the heading "Selected Consolidated
Financial Data" in this Annual Report on Form 10-K. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
/s/Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
March 16, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-04197) of DST Systems, Inc. of our report dated
February 26, 1998 appearing on page 26 of this Annual Report on Form 10-K/A. We
also consent to the reference to us under the heading "Selected Consolidated
Financial Data" in this Annual Report on Form 10-K/A. However, it should be
noted that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
/s/Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-K, CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET
AND STATEMENT OF INCOME OF DST SYSTEMS, INC., COMMISSION FILE NO. 1-14036, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000714603
<NAME> DST SYSTEMS, INC.
<MULTIPLIER> 1000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,833
<SECURITIES> 0
<RECEIVABLES> 176,960
<ALLOWANCES> 6,261
<INVENTORY> 11,369
<CURRENT-ASSETS> 231,324
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<CURRENT-LIABILITIES> 140,993
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0
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<COMMON> 500
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<TOTAL-LIABILITY-AND-EQUITY> 1,355,404
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<INCOME-PRETAX> 88,709
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<INCOME-CONTINUING> 58,997
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<EPS-PRIMARY> 1.20
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