UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Kansas City Southern Industries, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
[LOGO] KCSI
427 West 12th Street
Kansas City, Missouri 64105
KANSAS CITY SOUTHERN INDUSTRIES, INC.
NOTICE AND PROXY STATEMENT
for
the Annual Meeting of Stockholders
to be held
May 2, 2002
YOUR VOTE IS IMPORTANT!
Please mark, date and sign the enclosed proxy card and promptly
return it in the enclosed envelope, or vote by telephone or through the Internet
as described on the proxy card.
Mailing of this Notice and Proxy Statement, the accompanying enclosed Proxy Card
and the accompanying 2001 Annual Report
commenced on or about April 4, 2002.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
427 West 12th Street
Kansas City, Missouri 64105
April 4, 2002
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
Kansas City Southern Industries, Inc., at Union Station Kansas City, City Stage
Theater, 30 West Pershing Road, Kansas City, Missouri, at 10:00 a.m., on
Thursday, May 2, 2002. The purposes of this meeting are set forth in the
accompanying Notice of Annual Meeting and Proxy Statement.
We urge you to read these proxy materials and the Annual Report and to
participate in the Annual Meeting either in person or by proxy. Whether or not
you plan to attend the meeting in person, please sign and return promptly the
accompanying proxy card, in the envelope provided, to assure that your shares
will be represented. Alternatively, you may cast your votes by telephone or
through the Internet, as described on the accompanying proxy card.
Sincerely,
/s/ Michael R. Haverty
Michael R. Haverty
Chairman of the Board, President
and Chief Executive Officer
KANSAS CITY SOUTHERN INDUSTRIES, INC.
427 West 12th Street
Kansas City, Missouri 64105
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------
The Annual Meeting of the Stockholders of Kansas City Southern
Industries, Inc., a Delaware corporation ("KCSI" or the "Company"), will be
held at Union Station Kansas City, City Stage Theater, 30 West Pershing Road,
Kansas City, Missouri, at 10:00 a.m. on Thursday, May 2, 2002, to consider and
vote upon:
(1) Election of Two Directors;
(2) Amendment of KCSI's Certificate of Incorporation to change the
Company's name from "Kansas City Southern Industries, Inc." to
"Kansas City Southern";
(3) Ratification of the Board of Directors' selection of KPMG LLP as
KCSI's independent accountants for 2002; and
(4) Such other matters as may properly come before the Annual Meeting or
any adjournment thereof.
Only stockholders of record at the close of business on March 4, 2002,
are entitled to notice of and to vote at this meeting or any adjournment
thereof.
By Order of the Board of Directors,
/s/ Michael R. Haverty
Michael R. Haverty
Chairman of the Board, President
and Chief Executive Officer
The date of this Notice is April 4, 2002.
Please date, sign and promptly return the enclosed proxy card, regardless
of the number of shares you may own and whether or not you plan to attend the
meeting in person. Alternatively, you may cast your votes by telephone or
through the Internet as described on the accompanying proxy card. You may
revoke your proxy and vote your shares in person if revoked in accordance with
the procedures described in this notice and proxy statement. Please also
indicate on your proxy card whether you plan to attend the Annual Meeting.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
427 West 12th Street
Kansas City, Missouri 64105
PROXY STATEMENT
TABLE OF CONTENTS
Page
----
Information About the Annual Meeting........................................................... 1
Voting......................................................................................... 2
Principal Stockholders and Stock Owned Beneficially by Directors and Certain Executive Officers 5
Proposal 1--Election of Two Directors.......................................................... 8
The Board of Directors......................................................................... 9
Audit Matters.................................................................................. 13
Proposal 2--Amendment of Certificate of Incorporation to Change the Company's Name from "Kansas
City Southern Industries, Inc." to "Kansas City Southern"............................. 15
Proposal 3--Ratification of the Board of Directors' Selection of Independent Accountants....... 16
Management Compensation........................................................................ 18
Stockholder Proposals.......................................................................... 32
Section 16(a) Beneficial Ownership Reporting Compliance........................................ 33
Householding of Annual Meeting Materials....................................................... 33
Other Matters.................................................................................. 34
INFORMATION ABOUT THE ANNUAL MEETING
Why Were KCSI's Stockholders Sent this Proxy Statement?
Kansas City Southern Industries, Inc., a Delaware corporation ("KCSI"),
is mailing this Proxy Statement on or about April 4, 2002 to its stockholders
of record on March 4, 2002 in connection with KCSI's Board of Directors'
solicitation of proxies for use at the 2002 Annual Meeting of Stockholders and
any adjournment thereof (the "Annual Meeting"). The Annual Meeting will be held
at Union Station Kansas City, City Stage Theater, 30 West Pershing Road, Kansas
City, Missouri, on Thursday, May 2, 2002 at 10:00 a.m. The Notice of Annual
Meeting of Stockholders, KCSI's 2001 Annual Report to Stockholders (the "Annual
Report"), and a proxy card accompany this Proxy Statement.
KCSI will pay for the Annual Meeting, including the cost of mailing the
proxy materials and any supplemental materials. Directors, officers and
employees of KCSI may, either in person, by telephone or otherwise, also
solicit proxy cards. They have not been specifically engaged for that purpose,
however, nor will they be compensated for their efforts. Morrow & Co., Inc. has
been retained to assist in the solicitation of proxies at a cost not expected
to exceed $7,500, plus expenses. In addition, KCSI may reimburse brokerage
firms and other persons representing beneficial owners of KCSI shares for their
expenses in forwarding this Proxy Statement, the Annual Report and other
soliciting materials to the beneficial owners.
Brokers, dealers, banks, voting trustees, other custodians and their
nominees are asked to forward this Notice and Proxy Statement, the proxy card
and the Annual Report to the beneficial owners of KCSI's stock held of record
by them. Upon request, KCSI will reimburse them for their reasonable expenses
in completing the mailing of the materials to beneficial owners of our stock.
Who May Attend the Annual Meeting?
Only KCSI stockholders or their proxies and guests of KCSI may attend the
Annual Meeting. Any stockholders or stockholder's representative who, because
of a disability, may need special assistance or accomodation to allow him or
her to participate in the Annual Meeting may request reasonable assistance or
accomodation from KCSI by contacting the office of the Corporate Secretary at
KCSI's principal executive offices at 114 West 11th Street, Kansas City,
Missouri 64105, (816) 983-1538 before April 5, 2002 and at 427 West 12th
Street, Kansas City, Missouri 64105, (816) 983-1538 on and after April 5, 2002.
To provide KCSI sufficient time to arrange for reasonable assistance, please
submit all requests by April 23, 2002.
What Matters Will Be Considered at the Annual Meeting?
At the Annual Meeting, stockholders will consider and vote upon: (1) the
election of two directors; (2) amendment of KCSI's certificate of incorporation
to change the Company's name from "Kansas City Southern Industries, Inc." to
"Kansas City Southern"; (3) ratification of the Board of Directors' selection
of KPMG LLP as KCSI's independent accountants for 2002; and (4) such other
matters as may properly come before the Annual Meeting or any adjournment
thereof. Stockholders do not have dissenters' rights of appraisal in connection
with the matters set forth in (1) through (3) of the preceding sentence. Each
of these matters has been proposed by the Board of Directors, and none of them
is related to or contingent upon the other or others. The Board of Directors
knows of no other matters that will be presented or voted on at the Annual
Meeting.
1
VOTING
Which Stockholders May Vote at the Annual Meeting?
Only the holders of KCSI's common stock, par value $0.01 per share (the
"Common Stock"), and preferred stock, par value $25.00 per share (the
"Preferred Stock"), of record at the close of business on March 4, 2002 (the
"Record Date"), are entitled to notice of and to vote at the Annual Meeting. On
the Record Date, KCSI had outstanding 242,170 shares of Preferred Stock (which
does not include 407,566 shares held in treasury) and 59,945,871 shares of
Common Stock (which does not include 13,423,245 shares held in treasury) for a
total of 60,188,041 shares eligible to be voted at the Annual Meeting.
The Common Stock and the Preferred Stock (collectively, the "Voting
Stock") constitute KCSI's only voting securities and will vote together as a
single class on all matters to be considered at the Annual Meeting. Each holder
of Voting Stock is entitled to cast one vote for each share of Voting Stock
held on the Record Date on all matters other than the election of directors.
Stockholders may vote cumulatively for the election of directors. In other
words, each stockholder has votes equal to the number of shares of Voting Stock
held on the Record Date multiplied by the number of directors to be elected,
and the stockholder may cast all votes for a single nominee or distribute the
votes among the nominees as the stockholder chooses. Internet and telephone
voting are also available, and the accompanying form of proxy contains the
Internet address and toll-free telephone number. This Proxy Statement solicits
discretionary authority to vote cumulatively for the election of directors, and
the accompanying form of proxy or telephone or Internet vote grants that
authority.
How Does KCSI Decide Whether Its Stockholders Have Approved Any of the
Proposals?
Stockholders owning at least a majority of the shares of Voting Stock
entitled to vote must be present in person or represented by proxy to
constitute a quorum for the transaction of business at the Annual Meeting. The
shares of a stockholder who is present and entitled to vote at the Annual
Meeting, either in person or through a proxy, are counted for purposes of
determining whether there is a quorum, regardless of whether the stockholder
votes the shares.
The directors are elected by an affirmative vote of the plurality of
shares of Voting Stock present at the Annual Meeting that are entitled to vote,
provided a quorum exists. A plurality means receiving the largest number of
votes, and where, as here, there are two vacancies for director, the two
nominees with the highest number of affirmative votes are elected. Approval of
the amendment to KCSI's Certificate of Incorporation to change the corporate
name will require the affirmative vote of a majority of the outstanding Voting
Stock entitled to vote. Approval of the proposal to ratify the Board of
Directors' selection of KCSI's independent accountants will require the
affirmative vote of a majority of the shares of Voting Stock present at the
Annual Meeting in person or by proxy and entitled to vote, provided a quorum
exists.
Voting ceases when the chairman of the Annual Meeting closes the polls.
The votes are counted and certified by three inspectors appointed by the Board
of Directors of KCSI in advance of the Annual Meeting. In determining whether a
majority of shares have been affirmatively voted for a particular purpose, the
affirmative votes for the proposal are measured against the votes for and
against the proposal plus the abstentions from voting on the proposal. A
stockholder may abstain from voting on any proposal other than the election of
directors, and abstentions from voting are not considered to be votes
affirmatively cast. Abstaining will, therefore, have the effect of a vote
against a proposal.
2
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect.
What if a Stockholder Holds Shares in a Brokerage Account?
The Voting Stock is traded on the New York Stock Exchange, Inc. (the
"NYSE"). Under the rules of the NYSE, member stockbrokers who hold shares of
Voting Stock in the broker's name for customers are required to get directions
from the customers on how to vote their shares. NYSE rules also permit brokers
to vote shares on certain proposals when they have not received any directions.
The Staff of the NYSE, prior to the Annual Meeting, informs the brokers of
those proposals upon which the brokers are entitled to vote the undirected
shares.
When a stockholder does not vote, the stockbroker's abstention is
referred to as a "broker non-vote" (customer directed abstentions are not
broker non-votes). Broker non-votes generally do not affect the determination
of whether a quorum is present at the Annual Meeting because, in most cases,
some of the shares held in the broker's name have been voted on at least some
proposals, and, therefore, all of those shares are considered present at the
Annual Meeting. Under applicable law, a broker non-vote will have the same
effect as a vote against any proposal other than the election of directors and
will have no effect on the outcome of the election of directors.
How are a Stockholder's Shares Voted if the Stockholder Submits a Proxy?
Stockholders who return a properly executed proxy card or properly give
instructions via the Internet or telephone are appointing the Proxy Committee
to vote their shares of Voting Stock covered by the Proxy. That Committee
consists of the three directors of KCSI whose names are listed on the related
proxy card. A stockholder wishing to name as his, her or its proxy someone
other than the Proxy Committee designated on the proxy card may do so by
crossing out the names of the designated proxies and inserting the name of
another person. In that case, it will be necessary for the stockholder to sign
the proxy card and deliver it to the person so named and for that person to be
present and vote at the Annual Meeting. Proxy cards so marked should not be
mailed directly to KCSI.
The Proxy Committee will vote the shares of Voting Stock covered by a
proxy in accordance with the instructions given by the stockholders executing
the proxy/1/ or authorizing the proxy and voting by Internet or telephone. If a
properly executed, or authorized, and unrevoked proxy solicited hereunder does
not specify how the shares represented thereby are to be voted, the Proxy
Committee intends to vote the shares FOR the election of the persons nominated
by management for directorships, FOR amendment of KCSI's certificate of
incorporation to change its corporate name, FOR ratification of the Board of
Directors' selection of KPMG LLP as KCSI's independent accountants for 2002;
and in accordance with their discretion upon such other matters as may properly
come before the Annual Meeting. The Proxy Committee reserves the right to vote
such proxies cumulatively and for the election of less than all of the nominees
for director, but does not intend to do so unless other persons are nominated
and such a vote appears necessary to assure the election of the maximum number
of management nominees.
May a Stockholder Revoke His or Her Proxy or Voting Instruction Card?
At any time before the polls for the Annual Meeting are closed, a
stockholder who holds stock in his or her name may revoke a properly executed
or authorized proxy by (a) an Internet or telephone
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/1/ Internet and telephone voting are also available, and the accompanying
form of proxy contains the Internet address and toll-free telephone number.
3
vote subsequent to the date shown on a previously executed and delivered proxy
or to the date of a prior electronic vote or telephone vote, or (b) with a
later-dated, properly executed and delivered proxy, or (c) a written revocation
delivered to the Corporate Secretary of KCSI. A stockholder who holds stock in
a brokerage account must contact the broker and comply with the broker's
procedures if he or she wants to revoke or change the instructions that the
stockholder returned to the broker. Attendance at the Annual Meeting will not
have the effect of revoking a properly executed or authorized proxy unless the
stockholder delivers a written revocation to the Corporate Secretary before the
proxy is voted.
How do Participants in KCSI's or DST Systems, Inc.'s Employee Stock Ownership
Plans or in KCSI's or Stilwell Financial Inc.'s 401(k) and Profit Sharing Plans
Vote?
Participants in KCSI's and DST Systems, Inc.'s employee stock ownership
plans ("ESOPs") and in KCSI's and Stilwell Financial Inc.'s 401(k) and Profit
Sharing Plans ("401(k) Plans") are each provided a separate voting instruction
card (accompanying this Proxy Statement) to instruct the respective trustees of
these ESOPs and 401(k) Plans how to vote the shares of Common Stock held on
behalf of the participant./2/ The trustee is required under the trust
agreements to vote the shares in accordance with the instructions indicated on
the voting instruction card./2/ If voting instructions are not given by the
participant, the trustee must vote those shares, as well as any unallocated
shares, in the same proportions as the shares for which voting instructions
were received from the plan participants. Unless giving voting instructions by
Internet or telephone, the voting instruction card should be returned in the
envelope provided to UMB Bank, N.A., Securities Transfer Division, P.O. Box
410064, Kansas City, Missouri 64179-0013. The voting instruction card should
not be returned to KCSI, Stilwell Financial Inc. ("Stilwell") or DST Systems,
Inc. ("DST"). ESOP participants or 401(k) Plan participants who wish to revoke
their voting instructions must contact the trustee and follow its procedures.
Are the Votes of Participants in the ESOPs and the 401(k) Plans Confidential?
Under the terms of the ESOP and the 401(k) Plan trust agreements, the
trustee is required to establish procedures to ensure that the instructions
received from participants are held in confidence and not divulged, released or
otherwise utilized in a manner that might influence the participants' free
exercise of their voting rights.
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/2/ Voting instructions may also be given by Internet or telephone, and the
accompanying voting instruction card contains the Internet address and
toll-free number.
4
PRINCIPAL STOCKHOLDERS AND STOCK OWNED BENEFICIALLY
BY DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth information as of the Record Date
concerning the beneficial ownership of KCSI's Common Stock by: (i) beneficial
owners of more than five percent of any class of such stock that have publicly
disclosed their ownership; (ii) the members of the Board of Directors, the
Chief Executive Officer and the four other most highly compensated executive
officers; and (iii) all executive officers and directors as a group. KCSI is
not aware of any beneficial owner of more than five percent of the Preferred
Stock. None of the directors or executive officers own any shares of Preferred
Stock. No officer or director of KCSI owns any equity securities of any
subsidiary of KCSI. Beneficial ownership is generally either the sole or shared
power to vote or dispose of the shares. KCSI is not aware of any arrangement
which would at a subsequent date result in a change of control of KCSI.
Name and Address (1) Common Stock (2) Percent Of Class (2)
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Perkins, Wolf, McDonnell
& Company(3) 3,308,689(3) 5.51%
A. Edward Allinson 86,033(4) *
Director
Robert H. Berry 411,073(5) *
Senior Vice President
and Chief Financial
Officer
Gerald K. Davies 455,636(6) *
Executive Vice
President and Chief
Operating Officer
Michael G. Fitt 94,800(7) *
Director
Michael R. Haverty 2,321,862(8) 3.81%
Chairman of the Board,
President and Chief
Executive Officer
James R. Jones 56,880(9) *
Director
William J. Pinamont 25,994(10) *
Vice President and
General Counsel
Albert W. Rees 472,619(11) *
Senior Vice President--
Operations of KCSR
5
Name and Address (1) Common Stock (2) Percent Of Class (2)
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Landon H. Rowland 865,606(12) 1.44%
Director
Rodney E. Slater 0 *
Director
Byron G. Thompson 40,000(13) *
Director
All Directors and 5,255,319(14) 8.42%
Executive Officers as a
Group (15 Persons)
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* Less than one percent of the outstanding shares.
(1) The address for each of the individuals listed in the above table as of
the Record Date, other than Mr. Rowland, is 114 West 11th Street, Kansas
City, Missouri 64105. Effective April 5, 2002, the address for such
individuals will be 427 West 12th Street, Kansas City, Missouri 64105.
The address for Mr. Rowland is Stilwell Financial Inc., 920 Main Street,
21st Floor, Kansas City, Missouri 64105-2008.
(2) Under applicable law, shares that may be acquired upon the exercise of
options or other convertible securities that are exercisable on the
Record Date, or will become exercisable within 60 days of that date, are
considered beneficially owned. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares subject to options held by that person that are
exercisable on the Record Date, or exercisable within 60 days of the
Record Date, are deemed outstanding. These shares are not, however,
deemed outstanding for the purpose of computing the percentage ownership
of any other person. In addition, under applicable law, shares that are
held indirectly are considered beneficially owned. Directors and
executive officers may also be deemed to own, beneficially, shares
included in the amounts shown above which are held in other capacities.
The holders may disclaim beneficial ownership of shares included under
certain circumstances. Except as noted, the holders have sole voting and
dispositive power over the shares. The list of executive officers of KCSI
is included in KCSI's Annual Report on Form 10-K. See the last page of
this proxy statement for instructions on how to obtain a copy of the Form
10-K.
(3) Based upon information in Schedule 13G filed February 26, 2002. The
address for Perkins, Wolf, McDonnell & Company is 310 S. Michigan Avenue,
Suite 2600, Chicago, Illinois 60604. Perkins, Wolf, McDonnell & Company
reports that it has sole voting and dispositive power with respect to
37,189 shares and shared voting and dispositive power with respect to
3,271,500 shares.
(4) Mr. Allinson's beneficial ownership includes 70,000 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date and 1,200 shares held in a
Keogh plan.
(5) Mr. Berry's beneficial ownership includes 248,434 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date, 10,152 shares allocated
to his account in the KCSI ESOP, and 2,337 shares allocated to his
account in KCSI's 401(k) and Profit Sharing Plan.
(6) Mr. Davies' beneficial ownership includes 388,645 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date, and 585 shares allocated
to his account in the KCSI ESOP.
(7) Mr. Fitt's beneficial ownership includes 40,000 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date.
(8) Mr. Haverty's beneficial ownership includes 1,015,570 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date, 26,322 shares allocated
to his account in the KCSI ESOP, 10,843 shares allocated to his account
in KCSI's 401(k) and Profit Sharing Plan, 412 shares held by one of his
children and 375,000 shares held in trusts for his children for which his
brother acts as trustee.
(9) Mr. Jones' beneficial ownership includes 46,000 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date.
(10) Mr. Pinamont's beneficial ownership includes 25,000 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date, and 994 shares allocated
to his account in the KCSI's 401(k) and Profit Sharing Plan.
6
(11) Mr. Rees' beneficial ownership includes 246,728 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date, 17,227 shares allocated
to his account in the KCSI ESOP, 9,905 shares allocated to his account in
KCSI's 401(k) and Profit Sharing Plan, 2,914 shares in his wife's IRA
account, 7,300 shares held in trust by his wife, and 430 shares held as
custodian for his son.
(12) Mr. Rowland's beneficial ownership includes 10,000 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date and 240 shares allocated
to his account in Stilwell's 401(k) and Profit Sharing Plan.
(13) Mr. Thompson's beneficial ownership includes 30,000 shares that may be
acquired through options that are exercisable as of, or will become
exercisable within 60 days of, the Record Date.
(14) The number includes 2,498,392 shares that may be acquired through options
that are exercisable as of, or will become exercisable within 60 days of,
the Record Date and 481,311 shares otherwise held indirectly.
7
PROPOSAL 1--ELECTION OF TWO DIRECTORS
The Board of Directors of KCSI is divided into three classes. The members
of each class serve staggered three-year terms of office, which results in one
class standing for election at each annual meeting of stockholders. The term of
office for the directors elected at the Annual Meeting will expire in 2005 or
when their successors are elected and qualified.
Two persons have been nominated by management for election as directors.
All of these nominees are presently directors of KCSI, all have indicated that
they are willing and able to serve as directors if elected, and all have
consented to being named as nominees in this Proxy Statement. If any nominee
should become unable or unwilling to serve, the Proxy Committee intends to vote
for one or more substitute nominees chosen by them in their sole discretion.
KCSI's Bylaws provide that after January 19, 1990, no one who is 72 years
old shall be eligible to be nominated or to serve as a member of the Board of
Directors, but any person who shall attain the age of 72 during the term of
directorship to which he was elected shall be eligible to serve the remainder
of such term. KCSI's Certificate of Incorporation and Bylaws do not have any
other eligibility requirements for directors.
As explained further under "How Does KCSI Decide Whether Its Stockholders
Have Approved Any of the Proposals," directors are elected by the affirmative
vote of the plurality of the shares of Voting Stock present at the Annual
Meeting that are entitled to vote on the election of directors, assuming a
quorum.
Nominees for Directors to Serve Until the Annual Meeting of Stockholders in 2005
--------------------------------------------------------------------------------
[PHOTO] Rodney E. Slater, age 47, has been a director of KCSI since
June 5, 2001. Mr. Slater is a partner in the public policy
Photo of practice group of the firm Patton Boggs LLP and has served as
Slater head of the firm's transportation practice group in
Washington, D.C. since April 1, 2001. He served as U.S.
Secretary of Transportation from 1997 to January 2001 and head
of the Federal Highway Administration from 1993 to 1996. Mr.
Slater is also a director of Southern Development
Bancorporation and Parsons Brinckerhoff International Advisory
Board.
--------------------------------------------------------------------------------
[PHOTO] Byron G. Thompson, age 69, has been a director of KCSI since
August 17, 2000. Mr. Thompson has served as Chairman of the
Byron G. Board of Country Club Bank, n.a., Kansas City since February
Thompson 1985. Prior to that time, Mr. Thompson served as Vice Chairman
of Investment Banking at United Missouri Bank of Kansas City
and as a member of the Board of United Missouri Bancshares, Inc
--------------------------------------------------------------------------------
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
THE ELECTION OF MANAGEMENT'S NOMINEES
8
THE BOARD OF DIRECTORS
The Board of Directors met five times in 2001. The Board meets regularly
to review significant developments affecting KCSI and to act on matters
requiring Board approval. The Board reserves certain powers and functions to
itself; in addition, it has requested that the Chief Executive Officer refer
certain matters to it. All directors attended all of the meetings of the Board
in 2001 (with Mr. Slater attending all meetings of the Board in 2001 from the
time he became a director).
Directors Serving Until the Annual Meeting of Stockholders in 2003
--------------------------------------------------------------------------------
[PHOTO] Michael G. Fitt, age 70, has been a director of KCSI since
1986. Prior to retirement, he was Chairman and Chief Executive
Michael G. Officer of Employers Reinsurance Corporation, Overland Park,
Fitt Kansas, from 1980 through 1992 and President of that company
from 1979 through 1991. Employers Reinsurance Corporation, a
subsidiary of General Electric Capital Services, Inc., is a
reinsurance company. Mr. Fitt is also a director of DST
Systems, Inc., Kansas City, Missouri.
--------------------------------------------------------------------------------
[PHOTO] Michael R. Haverty, age 57, has been the President and Chief
Executive Officer of KCSI since July 12, 2000 and a director
Michael R. since May 1995. Mr. Haverty has served as Chairman of the
Haverty Board of KCSI since January 1, 2001. Mr. Haverty served as
Executive Vice President of KCSI from May 1995 until July 12,
2000. He has been President, Chief Executive Officer and a
director of The Kansas City Southern Railway Company ("KCSR"),
a subsidiary of KCSI, since 1995. He has served as Chairman of
the Board of KCSR since November 1999. Mr. Haverty has served
as the President and a director of Mexrail, Inc., an affiliate
of KCSI, since 1995 and as a director of the Panama Canal
Railway Company, an affiliate of KCSI, since October 1996 and
as Co-Chairman of the Board of Directors of that company since
May 1999. Mr. Haverty has served as Co-Chairman of Panarail
Tourism Company, an affiliate of KCSI, since October 2000. He
is also a director and Chairman of the Executive Committee of
the Board of Grupo Transportacion Ferroviaria Mexicana, S.A.
de C.V., a director of The Texas-Mexican Railway Company and a
director and Chairman of the Executive Committee of TFM, S.A.
de C.V., each an affiliate of KCSI. Mr. Haverty previously
served as Chairman and Chief Executive Officer of Haverty
Corporation from 1993 to May 1995, acted as an independent
executive transportation adviser from 1991 to 1993 and was
President and Chief Operating Officer of The Atchison, Topeka
and Santa Fe Railway Company from 1989 to 1991. Mr. Haverty is
also a director of Midwest Grain Products, Inc., Atchison,
Kansas.
--------------------------------------------------------------------------------
9
Directors Serving Until the Annual Meeting of Stockholders in 2004
--------------------------------------------------------------------------------
[PHOTO] A. Edward Allinson, age 67, has been a director of KCSI since
1990. He served as the Chief Executive Officer and Chairman of
A. Edward the Board of EquiServe LP ("EquiServe") from December 1999
Allinson through October 2000. EquiServe provides stock transfer and
related services to publicly listed corporations. Prior to
joining EquiServe, Mr. Allinson was an Executive Vice
President of State Street Bank and Trust Company, Chairman of
the Board of Directors of Boston Financial Data Services, Inc.
("BFDS"), and Executive Vice President of State Street
Corporation from March 1990 through December 1999. BFDS
provides full service share owner accounting and recordkeeping
services to mutual funds, selected services to certain
retirement plans and certain securities transfer services. DST
Systems, Inc. owns 50% of BFDS. In 2001, EquiServe became a
wholly-owned subsidiary of DST. Mr. Allinson is also a
director of DST Systems, Inc., Kansas City, Missouri.
--------------------------------------------------------------------------------
[PHOTO] James R. Jones, age 62, has been a director of KCSI since
November 1997. Mr. Jones is also a director of Grupo
James R. Transportacion Ferroviaria Mexicana, S.A. de C.V. and TFM,
Jones S.A. de C.V., both affiliates of KCSI. He has been Senior
Counsel to the firm of Manatt, Phelps & Phillips since March
1, 1999. Mr. Jones is also Co-Chairman of Manatt Jones Global
Strategies. He is also Chairman of Globe Ranger Corp. Mr.
Jones was President of Warnaco Inc. International Division,
1997 through 1998; U.S. Ambassador to Mexico, 1993 through
1997; and Chairman and Chief Executive Officer of the American
Stock Exchange, 1989 through 1993. Mr. Jones served as a
member of the U.S. Congress representing Oklahoma for 14
years. He was White House Special Assistant and Appointments
Secretary to President Lyndon Johnson. Mr. Jones is also a
director of Anheuser-Busch; Grupo Modelo S.A. de C.V.; San
Luis Corporacion; TV Azteca; and Keyspan Energy Corporation.
--------------------------------------------------------------------------------
[PHOTO] Landon H. Rowland, age 64, has been a director of KCSI since
1983. Mr. Rowland served as President of KCSI from July 1983,
Landon H. and as Chief Executive Officer of KCSI from January 1987,
Rowland until July 12, 2000, when KCSI distributed to its shareholders
all of the outstanding shares of Stilwell, its then
wholly-owned subsidiary (the "Spin-off"). He served as
Chairman of the Board of KCSI from May 1997 through December
31, 2000. Mr. Rowland has been a director and President of
Stilwell since May 1998. He has served as Chairman of the
Board and Chief Executive Officer of Stilwell since August
1999.
--------------------------------------------------------------------------------
Committees of the Board of Directors
The Board of Directors has established an Executive Committee (which also
nominates individuals to serve as directors of KCSI), an Audit Committee and a
Compensation and Organization Committee. The members of the committees are
elected at the Board's annual meeting immediately following KCSI's annual
meeting of stockholders. During 2001, there was one meeting by telephone of the
Executive Committee, three meetings of the Audit Committee, and three meetings
of the
10
Compensation and Organization Committee, one of which was by telephone. All
directors attended all meetings of all committees on which they served during
2001.
The Executive Committee
The Executive Committee consists of KCSI's Chairman of the Board and
three non-officer directors elected by the Board to serve one-year terms. When
the Board is not in session, the Executive Committee has all the powers of the
Board for management of KCSI in all matters in which direction has not been
specifically reserved by the full Board.
The Executive Committee also serves as the Board's nominating committee
and recommends to the Board suitable nominees for election to the Board of
Directors or to fill newly created directorships or vacancies on the Board. The
Chairman of the Board is a non-voting member with respect to nomination
activities. As a part of its nominating duties, the Executive Committee may
meet with and consider suggestions from Board members, management, consultants
and others in formulating its recommendations. The Executive Committee
generally will consider director nominees recommended by stockholders.
Stockholders should see "Stockholder Proposals" and "Other Matters" below for
information relating to the submission by stockholders of nominees and matters
for consideration at a meeting of KCSI stockholders.
The members of the Executive Committee are: Michael G. Fitt (Chairman),
Michael R. Haverty, James R. Jones and Landon H. Rowland.
The Audit Committee
The Audit Committee consists of three outside directors elected by the
Board of Directors to serve staggered three-year terms. The members of the
Audit Committee are independent (as independence is defined in Sections
303.01(B)(2)(a) and (3) of the NYSE's listing standards). The Audit Committee
meets with and considers suggestions from members of management and KCSI's
internal audit staff, as well as KCSI's independent accountants, concerning the
financial operations of KCSI. The Audit Committee also reviews the audited
financial statements of KCSI and considers and recommends the appointment of
and approves fee arrangements with independent accountants for audit functions
and for advisory and other consulting services. The Board of Directors has
adopted a written charter for the Audit Committee.
The members of the Audit Committee are: A. Edward Allinson, Michael G.
Fitt and Byron G. Thompson (Chairman).
The Compensation and Organization Committee
The Compensation and Organization Committee (the "Compensation
Committee") consists of three outside directors (at least two of whom are
considered to be "disinterested persons" as defined under applicable federal
income tax and securities laws) elected by the Board to serve one-year terms.
The Compensation Committee has the authority to: (a) authorize all salaries for
certain KCSI and subsidiary company officers and supervisory employees; (b)
administer the incentive compensation plans of KCSI and certain subsidiaries in
accordance with the terms of those plans and determine any incentive allowances
made to their officers and staff; (c) administer KCSI's Employee Stock Purchase
Plan under which eligible employees of KCSI and its subsidiaries and certain
affiliates are permitted to subscribe to and purchase shares of KCSI Common
Stock through payroll deductions; (d) administer KCSI's 401(k) and Profit
Sharing Plan and Employee Stock Ownership Plan; (e) act as KCSI's stock
11
option plan committee and administer KCSI's stock option plans, in accordance
with KCSI's Bylaws, the terms of the plan and the applicable laws; and (f)
initiate, review and approve the succession plans and major organizational
changes.
The members of the Compensation and Organization Committee are: A. Edward
Allinson, Michael G. Fitt and James R. Jones (Chairman).
The Committee's report on executive compensation is set forth in the
section under "Management Compensation."
Compensation of Directors
Directors who are officers or employees of KCSI or its subsidiaries do
not receive any fees or other compensation for service on the Board or its
committees. No fees were paid during 2001 to any director or Named Executive
Officer (as defined herein) of KCSI for service on any board of directors of
any subsidiary of KCSI.
The Outside Directors (those directors who are not employees of KCSI or
its subsidiaries) are not paid any retainers for Board or committee membership.
The Outside Directors are paid $4,000 for each Board meeting attended in person
or $2,000 for telephone meetings. The Outside Directors are also paid $2,000
for each committee meeting attended in person or $1,000 for telephone meetings.
The Chair of a committee receives an additional $500 for each committee
meeting. The Outside Directors may also be granted awards, including among
others, options to buy shares of KCSI Common Stock, pursuant to the 1991
Amended and Restated Stock Option and Performance Award Plan, as determined by
the Committee (as defined in such plan). The Outside Directors were each
granted options for 10,000 shares of KCSI Common Stock in 2001, except for Mr.
Slater, who was granted options for 20,000 shares upon initially becoming a
member of the Board of Directors in June 2001.
Directors of KCSI are permitted to defer receipt of directors' fees under
an unfunded directors' deferred fee plan adopted by the Board of Directors, and
either to receive interest on such fees until they have been paid to them or,
in lieu of receiving interest, to have earnings on their deferred fees
determined pursuant to a formula based on the performance of certain mutual
funds advised by Janus Capital Corporation. The rate of interest to be paid
under the KCSI plan is set at the prime rate of a certain national bank less
one percent. Distributions under the plan are allowed in certain instances as
approved by the Board of Directors. The KCSI deferred fee plan also allows the
directors to elect to receive deferred amounts in installments payable over
several years.
Compensation Committee Interlocks and Insider Participation; Certain
Relationships and Related Transactions
On September 29, 2000, KCSI and Manatt, Phelps & Phillips entered into an
agreement commencing October 1, 2000 and ending October 31, 2002, under which
the law firm of Manatt, Phelps & Phillips and James R. Jones agreed to provide
KCSI with advice and assistance with reference to issues and transactions in
Mexico and other international venues. In consideration of the services
provided, KCSI agreed to pay Manatt, Phelps & Phillips the sum of $10,000 per
month. Mr. Jones, a director of KCSI who serves on the Compensation Committee,
acts as Senior Counsel to Manatt, Phelps & Phillips and receives a salary from
such law firm for his services as Senior Counsel. The fees paid by KCSI to such
law firm did not exceed 5% of the law firm's gross revenues for that firm's
last full fiscal year.
12
AUDIT MATTERS
Report of the Audit Committee
April 4, 2002
In accordance with the Audit Committee's written charter duly adopted by
the Board of Directors, we have reviewed and discussed with management the
Company's audited financial statements as of and for the year ended December
31, 2001.
We have discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommended to
the Board of Directors that the financial statements referred to above be
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 for filing with the Securities and Exchange Commission.
Based on the reviews and discussions referred to above, we recommend to
the Board of Directors and to the shareholders that KPMG LLP be retained as the
Company's independent auditing firm for the 2002 fiscal year.
The Audit Committee
A. Edward Allinson
Michael G. Fitt
Byron G. Thompson, Chairman
Principal Accounting Firm Fees
Upon completion of a competitive proposal process, KPMG LLP was engaged
by KCSI on June 20, 2001 and served as KCSI's principal independent accountants
in 2001. For the period in 2001 prior to the engagement of KPMG LLP,
PricewaterhouseCoopers LLP ("PWC") served as KCSI's independent accountants.
The following table sets forth the aggregate fees billed to KCSI for the fiscal
year ended December 31, 2001 by KPMG LLP and PWC:
13
KPMG LLP
Audit Fees, Excluding Audit Related......................... $327,658
Financial Information Systems Design and Implementation Fees 0
All Other Fees:
Audit Related Fees...................................... 58,956(a)(b)
Other Non-Audited Services.............................. 9,529(a)(c)
--------
Total All Other Fees........................................ $ 68,485
PricewaterhouseCoopers LLP
Audit Fees, Excluding Audit Related......................... $235,631
Financial Information Systems Design and Implementation Fees 0
All Other Fees:
Audit Related Fees...................................... 275,406(a)(d)
Other Non-Audited Services.............................. 438,129(a)(e)
--------
Total All Other Fees........................................ $713,535
--------------------------------------------------------------------------------
(a) The Audit Committee has considered whether the provision of these
services is compatible with maintaining the principal accountant's
independence.
(b) Includes fees for benefit plan audits, comfort letters, and SEC filing
review.
(c) Includes fees for litigation support and tax consultation.
(d) Includes fees for the review of the annual financial report required by
the Surface Transportation Board for Class I railroads and registration
statements.
(e) Includes fees for various tax recovery and tax planning projects and
litigation and actuarial consulting services.
14
PROPOSAL 2--AMENDMENT OF CERTIFICATE OF INCORPORATION
TO CHANGE THE COMPANY'S NAME FROM "KANSAS CITY SOUTHERN
INDUSTRIES, INC." TO "KANSAS CITY SOUTHERN"
On February 6, 2002, the Board of Directors approved an amendment to
KCSI's Certificate of Incorporation to change the Company's name to Kansas City
Southern. Under Delaware law, the adoption of the amendment to the Certificate
of Incorporation is subject to the approval of KCSI's shareholders. If approved
by the shareholders at the Annual Meeting, the amendment will become effective
when filed with the Secretary of State of the State of Delaware. The Board of
Directors approved the name change to reflect the change in KCSI's business and
holdings following the Spin-off of Stilwell on July 12, 2000. By dropping
"Industries" from KCSI's name we will maintain the identification in the
marketplace of the Company and its principle subsidiary, The Kansas City
Southern Railway Company, while emphasizing our focus on transportation rather
than a variety of industries. The proposed name change would not require a
change in the security ticker symbol of KCSI. Stockholders would not be
required to submit their stock certificates for exchange. If approved by the
shareholders, following the effective date of the amendment changing KCSI's
name, all new stock certificates issued by KCSI will bear the new name.
As explained further under "How Does KCSI Decide Whether Its Stockholders
Have Approved Any of the Proposals," approval of this proposal requires the
affirmative vote of the holders of a majority of the outstanding shares of
Voting Stock that are entitled to vote on the proposal.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO CHANGE THE COMPANY'S NAME
FROM KANSAS CITY SOUTHERN INDUSTRIES, INC.
TO KANSAS CITY SOUTHERN
15
PROPOSAL 3--RATIFICATION OF THE BOARD OF DIRECTORS'
SELECTION OF INDEPENDENT ACCOUNTANTS
The Audit Committee has recommended, and the Board of Directors has
selected, the firm of KPMG LLP as KCSI's independent accountants to examine
KCSI's 2002 consolidated financial statements.
On June 20, 2001, KCSI notified PWC, KCSI's principal accountant during
the 1999 and 2000 fiscal years, that it had been replaced as KCSI's principal
accountant. Additionally, on June 20, 2001, KCSI engaged the accounting firm of
KPMG LLP as its principal accountant for the 2001 fiscal year. The decision to
change certifying accountants was discussed with the Audit Committee and
approved by the Chairman of the Audit Committee. Prior to the Spin-off in July
2000, KCSI management had been discussing internally whether or not to
competitively bid out its audit services. Given the circumstances surrounding
the Spin-off, KCSI management determined that it was not feasible to initiate
the competitive bid process until after the completion of the audit for the
year in which the Spin-off occurred. Accordingly, subsequent to the completion
of the audit for the year ended December 31, 2000, KCSI management initiated
the competitive proposal process which began in April 2001. The selection of
KPMG LLP was made after the completion of this competitive proposal process,
which involved all five major accounting firms. No relationship exists between
KCSI and KPMG LLP other than that of independent accountant and client, except
as follows: NAFTA Rail, S.A. de C.V. ("NAFTA"), our Mexican affiliate and the
holder of our shares of Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.
("Grupo TFM"), employs the retired managing partner of KPMG Cardenas Dosal,
S.C., the Mexican affiliate of KPMG LLP, as our Comisario at Grupo TFM. NAFTA,
as a shareholder of approximately 37%, has the right to appoint a Comisario, or
statutory auditor, at Grupo TFM. The Comisario's alternate, or Comisario
Suplente, is a current partner of KPMG Cardenas Dosal, S.C. Both the Comisario
and Comisario Suplente are paid by Grupo TFM. Our tax advisers in Mexico are
affiliated with KPMG LLP. We also use KPMG, an affiliate of KPMG LLP, as our
auditors in Panama.
For the 1999 and 2000 fiscal years, the reports of PWC on KCSI's
financial statements contained no adverse opinion or disclaimer of opinion and
were not qualified as to uncertainty, audit scope or accounting principle. In
connection with its audits for the 1999 and 2000 fiscal years and through June
20, 2001, there were no disagreements with PWC on any matter of accounting
principles or practices, financial statements disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of PWC would
have caused them to make reference thereto in their report on the financial
statements for such years, except as discussed below.
During the year ended December 31, 2000, KCSI completed a transaction to
monetize, for a one-time payment, the rights to the future income stream
associated with certain billboard advertising sites located on the right of way
of KCSI's railroad operating property. The transaction was completed with a
third party vendor to KCSI, which provides advertising signage services to
other companies in the railroad industry. Based upon the details of the
transaction, KCSI believed that the associated transaction should be accounted
for under the guidance of Staff Accounting Bulletin No. 101--"Revenue
Recognition in Financial Statements" ("SAB 101") and consistent with railroad
industry accounting practices. After reviewing industry practice and SAB 101
related to the specifics of this transaction, KCSI concluded that the
appropriate criteria, of both industry accounting practices and the guidance in
SAB 101, were met to record the initial one-time payment as income in the
Statement of Income for the year ended December 31, 2000. KCSI's certifying
accountant, PWC, believed that SAB 101 did not apply and railroad industry
accounting practice would not take precedence over standards promulgated by the
Financial Accounting Standards Board. PWC believed that the transaction should
be evaluated under lease accounting rules which, in this instance, would
require that the up-front
16
payment be initially deferred and recognized over future periods. After further
discussion between KCSI and PWC, KCSI recorded the transaction as recommended
by PWC in the financial statements for the year ended December 31, 2000.
During the period of time that KCSI was exploring with PWC the various
accounting rules regarding this matter and following PWC's expression of its
conclusion with regard to this matter, KCSI inquired of PWC as to other avenues
that might be available to KCSI. PWC acknowledged that one alternative might be
for KCSI to seek a SAS 50 opinion from another independent accountant. In early
February 2001, KCSI's management discussed this transaction with KPMG LLP to
obtain an understanding of relevant industry practice and application of SAB
101. Also, at KCSI's request, PWC discussed the issue with representatives of
the other major accounting firms, including KPMG LLP. KPMG LLP communicated to
KCSI that this issue was discussed with representatives of the major accounting
firms and that PWC reaffirmed their earlier position on the proper accounting
treatment of the transaction. KCSI did not request a SAS 50 opinion or report
from KPMG LLP, and none was issued. Additionally, KPMG LLP did not express any
specific viewpoint to KCSI regarding the accounting for the transaction. KCSI's
management and PWC discussed this matter with KCSI's Audit Committee.
Additionally, KCSI authorized PWC to respond fully to inquiries of KPMG LLP
concerning this matter.
KCSI became aware that as a result of a reorganization during 2001
between two of the participants in the Grupo TFM venture (in which KCSI has a
minority interest), Grupo TFM may be reported by one of the participants as a
consolidated subsidiary under International Accounting Standards. KCSI has
historically treated Grupo TFM as a foreign corporate joint venture under U.S.
generally accepted accounting principles and, accordingly, has not provided
deferred income taxes at the statutory rates on the difference between the
financial accounting and income tax bases in its investment in Grupo TFM. PWC
informed KCSI that at the time of their replacement, PWC had not completed the
analysis and testing necessary to confirm KCSI's continued accounting for Grupo
TFM as a foreign corporate joint venture under these circumstances and,
accordingly, that PWC believed this matter represented a reportable event under
Regulation S-K Item 304(a)(1)(v)(D). KCSI's management and PWC discussed this
matter with KCSI's Audit Committee. Additionally, KCSI authorized PWC to
respond fully to inquiries of KPMG LLP concerning this matter.
KCSI seeks its stockholders' ratification of the Board of Directors'
selection of KCSI's independent accountants even though KCSI is not legally
required to do so. If KCSI's stockholders ratify the Board of Directors'
selection, the Board of Directors nonetheless may, in their discretion, retain
another independent accounting firm at any time during the year if the Board of
Directors feels that such change would be in the best interest of KCSI and its
stockholders. Alternatively, in the event that this proposal is not approved by
stockholders, the Audit Committee and the Board will re-evaluate their decision.
One or more representatives of KPMG LLP are expected to be present at the
Annual Meeting and, if so, will have the opportunity, if desired, to make a
statement and are expected to be available to respond to appropriate questions
by stockholders.
As explained further under "How Does KCSI Decide Whether Its Stockholders
Have Approved Any of the Proposals," approval of this proposal requires the
affirmative vote of a majority of the shares of Voting Stock present at the
Annual Meeting that are entitled to vote on the proposal, assuming a quorum.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
RATIFICATION OF THE BOARD OF DIRECTORS'
SELECTION OF KPMG LLP
17
MANAGEMENT COMPENSATION
Compensation and Organization Committee Report on Executive Compensation
Introduction
The Board of Directors believes that increasing the value of KCSI to its
stockholders is its most important objective. In support of this objective, the
Board charges the Compensation and Organization Committee (the "Committee")
with the responsibility of designing compensation packages for KCSI's
executives that provide substantial incentives to increase stockholder value
while enabling KCSI to attract and retain exceptionally qualified executives.
The Board emphasizes its overall objective by also relating the Outside
Directors' compensation to stockholder value through stock options.
The Committee seeks to align the interests of KCSI executives with the
Board's overall objective through a compensation strategy that emphasizes
long-term stock ownership and closely links executive compensation with changes
in stockholder value. In designing those compensation packages, the Committee
believes KCSI's compensation packages should provide executives with market
competitive base salaries and the opportunity to earn additional compensation
if stockholders experience long-term increases in the value of their stock. The
Committee also believes that KCSI's executives should maintain a significant
equity interest in KCSI, but that executives should earn such interest only if
KCSI's stockholders also experience an increase in the value of their
investment.
The Committee has implemented this strategy through compensation packages
that:
. Eliminate participation in any annual cash incentive program.
. Provide stock-based incentives through awards of stock options
that require, for the recipient to receive any benefits, market
price increases in KCSI's Common Stock.
. Emphasize long-term stock ownership through the Committee's
consideration of the retention of past KCSI stock-based awards in
determining the levels of future stock-based grants.
The result is that a significant portion of these compensation packages is
based upon at-risk components.
The Committee has used this compensation strategy with all KCSI and KCSR
executive officers who the Committee identifies as especially important to the
long-term success of KCSI. In connection with the Spin-off, the Committee
approved a compensation package described below for these executives which
became effective upon the Spin-off.
To assist the Committee with its responsibilities, the Committee utilizes
the expertise of independent compensation consultants. In addition to advising
the Committee, the compensation consultants provide the Committee with surveys
of compensation practices of selected industries and companies. The
compensation surveys used to determine competitive market pay range focused on
general industrial companies having the same level of revenues as KCSI and
publicly traded railroads. These compensation surveys include some of the
companies comprising the Dow Jones Transportation Average (the peer group used
in the stock performance graph below), as well as other companies in other
industries. The Committee believes using a broader sample of companies better
represents the market for executives. Where appropriate, compensation data from
these surveys are adjusted through
18
regression analysis to estimate compensation levels at companies similar in
size to KCSI or its operating units. The next section of this report details
the compensation program for these executives.
Compensation Package Components
Base Salary. The Committee determines the level of base salaries for all
of the executives for whom the Committee has responsibility based on
competitive market practices as indicated in surveys utilized by the Committee,
individual contribution and performance, level of responsibility, experience
and KCSI's corporate performance. The Committee does not give any specific
weighting to any of these factors.
The Committee targets the 75th percentile of the observed competitive
market practice in setting base salary levels. The Committee chooses such
levels based on the fact such executives will not participate in any annual
cash incentive plans and such executives have a higher risk (because of the use
of the stock-based incentives) of not being compensated than they would if they
had participated in the annual cash incentive program.
Under the compensation package, which became effective upon the Spin-off,
the base salaries of the executive officers were frozen at the rates in effect
for 1999 through December 31, 2001 and they did not participate in any KCSI
incentive compensation plan during that period. As part of a cost reduction
plan announced by KCSI on March 26, 2001, KCSI implemented a voluntary,
temporary annual salary reduction for middle and senior management and
suspended temporarily certain benefits for its management employees. Certain
management employees, including the Chief Executive Officer and the four other
most highly compensated executive officers, agreed to a voluntary temporary
salary reduction. This voluntary temporary salary reduction ended December 31,
2001.
Stock Compensation. The key component of the Committee's strategy is to
make stock-based incentives a significant portion of the executives' total
compensation package, primarily through stock options. By using primarily stock
options, the Committee seeks to ensure that the executives will be compensated
only if KCSI's stockholders also experience an increase in the value of their
investment and that any such compensation is linked directly to such increases
in KCSI's stock price.
To determine how many options to grant in connection with the
compensation packages, the Committee first considers each individual's targeted
total compensation for the period in question using the compensation surveys
mentioned above, including estimated potential earnings under KCSI's annual
cash incentive compensation plan. Targeted total incentive compensation is
approximately the total of the 75th percentile of the range of potential
short-term incentives foregone plus median long-term incentive compensation
shown in the observed market practices. These amounts are then adjusted by the
Committee to take into account the individual's contribution and performance,
level of responsibility, experience and KCSI's corporate performance. The
Committee does not give any specific weighting to any of these factors. An
option valuation model is utilized to calculate the risk-adjusted value of each
stock option to determine the number of options to be awarded. Each executive's
total option grant value is intended to cover the year or years to which the
grant relates and to approximate the value of a competitive median long-term
incentive opportunity plus the value of the foregone annual cash incentive
opportunity.
Under the compensation package, which became effective upon the Spin-off,
the executive officers did not participate in any KCSI incentive compensation
plan and did not receive grants of stock-based or other long-term incentive
compensation through December 31, 2001, except for the special grant of stock
options in 2000 in connection with the Spin-off. Consistent with the Committee's
19
compensation strategy, on July 13, 2000, the executive officers were granted
performance stock options, became eligible to purchase a specified number of
restricted shares of KCSI Common Stock and were granted a specified number of
options for each of the restricted shares purchased. The grants were intended
to cover the period during which the executives do not participate in any KCSI
incentive compensation plan and were designed to result in total compensation
at the 75th percentile of the range of total compensation indicated in the
surveys. The number of performance options granted, restricted shares available
and the number of options granted in connection with restricted shares
purchased were determined based on the compensation level of the executive. The
performance stock options were structured to reward the executives only when
KCSI's market value reached certain predetermined levels and remained at or
above those levels for twenty consecutive trading days. Each of these
predetermined levels was established by assuming appreciation in the market
price for KCSI Common Stock from the date of grant at a rate above the average
historical return of the S&P 500. The target stock prices established in the
performance stock option grants have been met. Mr. Pinamont joined the Company
in December 2000 and was granted options during 2001 designed to result in
total compensation at the 75th percentile of the range of total compensation
indicated in the surveys.
Compensation of the Chief Executive Officer
The compensation package for Mr. Haverty, the Chief Executive Officer of
KCSI, is based upon the same compensation strategy, and utilizes compensation
surveys of the same types of companies, used by the Committee for the other
executives of KCSI and KCSR discussed above. Under the compensation package for
2001 adopted by the Committee effective upon the Spin-off, Mr. Haverty's base
salary was frozen at the rates in effect for 1999 through December 31, 2001 and
he was not entitled to participate in any KCSI incentive compensation plan
during that period. In addition, pursuant to that compensation package, Mr.
Haverty did not receive grants of stock-based or other long-term incentive
compensation in 2001. The special grant of stock options in 2000 in connection
with the Spin-off was intended to cover the period during which Mr. Haverty did
not participate in any KCSI incentive compensation plan and was designed to
result in total compensation at the 75th percentile of the range of total
compensation indicated in the surveys. As part of a cost reduction plan
announced by KCSI on March 26, 2001, Mr. Haverty agreed to a voluntary
temporary reduction of his annual salary by 15%. This voluntary temporary
salary reduction ended on December 31, 2001.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally limits the
deduction by publicly held corporations for federal income tax purposes of
compensation in excess of $1 million paid to any of the executive officers
listed in the summary compensation table (the "Named Executive Officers")
unless it is "performance-based."
Except as otherwise set forth, the Committee intends to qualify all
compensation expense as deductible for federal income tax purposes. The
compensation packages of the Named Executive Officers include base salary and,
subject to the limitations under the compensation package discussed above,
stock, and the highest total base salary is within the $1 million limit. The
stock compensation awarded to those officers has the potential to result in
total compensation in excess of the $1 million limit of Section 162(m). Except
with respect to certain stock options granted in 2000 to Mr. Haverty as part of
his executive compensation package, KCSI believes it has taken all steps
necessary, including obtaining stockholder approval, so that any compensation
expense that KCSI may incur as a result of awards under its stock option and
performance award plan with respect to those Named Executive Officers whose
compensation might present an issue qualifies as performance-based compensation
for
20
purposes of Section 162(m) so that any portion of this component of the
executive compensation packages will be deductible for federal income tax
purposes. Mr. Haverty has indicated that he intends to manage the exercise of
such options so that the number of options he exercises in any given year will
not result in his total compensation exceeding the $1 million limit of Section
162(m).
The Committee will review from time to time in the future the potential
impact of Section 162(m) on the deductibility of executive compensation.
However, the Committee intends to maintain the flexibility to take actions that
it considers to be in the best interests of the Company and its stockholders
and which may be based on considerations in addition to tax deductibility.
The Compensation and Organization Committee.
A. Edward Allinson
Michael G. Fitt
James R. Jones, Chairman
21
Stock Performance Graph
The following graph shows the changes in value over the five years ending
December 31, 2001 of an assumed investment of $100 in: (i) KCSI's Common Stock;
(ii) the stocks that comprise the Dow Jones Transportation Average Index/(1)/;
and (iii) the stocks that comprise the S&P 500 Index/(2)/. The table following
the graph shows the value of those investments as of December 31 of each of the
years indicated. The value for the assumed investments depicted on the graph
and in the table has been calculated assuming that cash dividends are
reinvested. The 2000 dividend includes the Stilwell Financial Inc. stock
dividend distributed on July 12, 2000, which for purposes of this graph and
table was treated as a cash dividend and as reinvested.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
RELATIVE MARKET PERFORMANCE
TOTAL RETURN 1997-2001
[CHART]
KCSI Total Dow Jones S&P 500 Index Total
Return Average Transportation Return
Total Return
Dec-96 $100.00 $100.00 $100.00
Dec-97 $212.97 $148.07 $133.36
Dec-98 $331.27 $144.44 $171.47
Dec-99 $504.03 $138.47 $188.66
Dec-01 $738.68 $125.59 $166.24
As of December 31, 1996 1997 1998 1999 2000 2001
--------------------------------------------------------------------------------
KCSI Total Return............... $100.00 $212.97 $331.27 $504.03 $529.31 $738.68
Dow Jones Transportation Average
Total Return.................... $100.00 $148.07 $144.44 $137.92 $138.47 $125.59
S&P 500 Index Total Return...... $100.00 $133.36 $171.47 $207.56 $188.66 $166.24
--------------------------------------------------------------------------------
(1) The Dow Jones Transportation Average is an index prepared by Dow Jones &
Co., Inc., an independent company.
(2) The S&P 500 is an index prepared by Standard and Poor's Corporation, an
independent company. The S&P 500 Index reflects the change in weighted
average market value for 500 companies whose shares are traded on the New
York Stock Exchange, American Stock Exchange and in the over-the-counter
market. Information concerning Standard and Poor's Corporation and the
S&P 500 Index is available on the Internet at
www.stockinfo.standardpoor.com.
22
Summary Compensation Table
The Summary Compensation Table shows certain information concerning the
compensation earned in the fiscal years ended December 31, 2001, 2000 and 1999
by the Chief Executive Officer of KCSI and the four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
The table shows amounts earned by such persons for all services rendered in all
capacities to KCSI and its subsidiaries during the past three years.
Long-Term
Annual Compensation Compensation Awards
-------------------------------- -----------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Salary Bonus Compensation Awards Options/SARs Compensation
Principal Position Year ($) ($) ($) ($) /(1)/ (#) (2)(3/)/ ($)
---------------------------------------------------------------------------------------------------------------
Michael R. Haverty 2001 540,180 -- -- -- 12,363 8,052/(4)/
Chairman of the Board, President 2000 608,652 -- -- 49,500 1,189,366 16,484
and Chief Executive Officer 1999 608,652 -- -- -- 2,032 18,952
Gerald K. Davies 2001 284,250 -- -- -- 5,160 8,052/(5)/
Executive Vice President and 2000 300,000 -- -- 19,250 462,595 14,852
Chief Operating Officer 1999 300,000 -- -- -- 25,000 18,952
Robert H. Berry 2001 222,678 -- -- -- 3,507 8,052/(6)/
Senior Vice President and 2000 235,008 -- -- 12,000 288,409 14,852
Chief Financial Officer 1999 235,008 -- -- -- 572 18,952
Albert W. Rees 2001 213,192 -- -- -- 3,253 8,052/(7)/
Senior Vice President-- 2000 225,000 -- -- 12,500 290,394 14,852
Operations of KCSR 1999 225,000 -- -- -- 570 14,152
William J. Pinamont 2001 156,067 -- 8,824/(8)/ -- 35,000 5,453/(8)/
Vice President and 2000 1,091/(8)/ -- -- -- -- --
General Counsel 1999 N/A N/A NA N/A N/A N/A
--------------------------------------------------------------------------------
(1) The number and value of the aggregate restricted stock holdings of each
of the Named Executive Officers at the end of fiscal year 2001 are as
follows: Mr. Haverty--99,000 shares with a value of $829,620; Mr.
Davies--38,500 shares with a value of $322,630; Mr. Berry--24,000 shares
with a value of $201,120; and Mr. Rees--25,000 shares with a value of
$209,500. Mr. Pinamont held no restricted shares at the end of fiscal
year 2001. The value (net of any consideration paid by such Named
Executive Officers) of these restricted shares is based on the closing
market price of KCSI Common Stock on December 31, 2001. Dividends will
only be paid on the restricted stock when, as and if declared and paid on
KCSI Common Stock.
(2) Option grant information for options to purchase KCSI Common Stock is
provided on a post-reverse stock split basis.
(3) For a discussion of options to purchase Stilwell common stock granted by
Stilwell in 2000 in connection with the Spin-off, as part of an equitable
adjustment of KCSI options granted prior to the Spin-off, see "Stilwell
Options Granted in Connection with the Spin-off" below.
(4) All other compensation for Mr. Haverty for 2001 is comprised of: (a) a
contribution to his account under KCSI's 401(k) plan of $5,100; (b)
premiums on group term life insurance of $2,160, accidental death and
dismemberment insurance of $240 and long-term disability insurance of
$552.
(5) All other compensation for Mr. Davies for 2001 is comprised of: (a) a
contribution to his account under KCSI's 401(k) plan of $5,100; and (b)
premiums on group term life insurance of $2,160, accidental death and
dismemberment insurance of $240 and long-term disability insurance of
$552.
(6) All other compensation for Mr. Berry for 2001 is comprised of: (a) a
contribution to his account under KCSI's 401(k) plan of $5,100; and (b)
premiums on group term life insurance of $2,160, accidental death and
dismemberment insurance of $240 and long-term disability insurance of
$552.
(7) All other compensation for Mr. Rees for 2001 is comprised of: (a) a
contribution to his account under KCSI's 401(k) plan of $5,100; and (b)
premiums on group term life insurance of $2,160, accidental death and
dismemberment insurance of $240 and long-term disability insurance of
$552.
(8) Mr. Pinamont joined the Company on December 28, 2000. Other annual
compensation for Mr. Pinamont for 2001 is comprised of a relocation
transfer allowance. All other compensation for Mr. Pinamont for 2001 is
comprised of: (a) a contribution to his account under KCSI's 401(k) plan
of $3,399; and (b) premiums on group term life insurance of $1,352,
accidental death and dismemberment insurance of $150 and long-term
disability insurance of $552.
23
KCSI Option/SAR Grants in Last Fiscal Year
--------------------------------------------------------------------------------
Individual Grants Potential Realizable
---------------------------------------------------- Value at Assumed
Number of % of Total Exercise Annual Rates of Stock
Securities Options/SARs Or Base Price Appreciation for
Underlying Granted to Price Option Term/(3)/
Options/SARs Employees in ($ Per Expiration ----------------------
Name Granted(#) Fiscal Year/(1)/ Share)/(2)/ Date 5% ($) 10% ($)
-------------------------------------------------------------------------------------------------
Michael R. Haverty 12,363/(4)/ 6.4% $14.34 02/26/11 111,494 282,547
Gerald K. Davies 5,160/(5)/ 2.7% $14.34 02/26/11 46,535 117,928
Robert H. Berry 3,507/(6)/ 1.8% $14.34 02/26/11 31,627 80,150
Albert W. Rees 3,253/(4)/ 1.7% $14.34 02/26/11 29,337 74,345
William J. Pinamont 10,000/(7)/ 5.2% $ 9.75 01/01/11 61,317 155,390
15,000/(7)/ 7.7% $13.90 04/01/11 131,125 332,295
10,000/(7)/ 5.2% $13.85 07/31/11 87,102 220,733
--------------------------------------------------------------------------------
(1) Total options granted in 2001 to eligible employees of KCSI and its
subsidiaries covered a total of 193,654 shares of KCSI Common Stock.
(2) Average of the high and low prices of the KCSI Common Stock on the date
of grant as reported on the New York Stock Exchange.
(3) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future
prices of KCSI's Common Stock. The actual value realized may be greater
or less than the potential realizable values set forth in the table.
(4) The options were granted on February 27, 2001 under KCSI's 1991 Amended
and Restated Stock Option and Performance Award Plan (the "1991 Plan") in
connection with KCSI's Executive Plan and were immediately exercisable.
Participants in KCSI's Executive Plan may elect cash or non-qualified
stock options with an estimated value (using the Black-Scholes valuation
model) equal to 125% of the annual cash benefit. If there is a change in
control of KCSI that is approved by the incumbent board of KCSI (as such
terms are defined in the 1991 Plan), however, the options become
immediately exercisable, provided the individual has been continuously
employed by KCSI or a consolidated subsidiary from the grant date until
the change in control. Limited stock appreciation rights ("LSARs") were
granted in tandem with these options. All of the LSARs are automatically
exercised upon a change in control that is not approved by the incumbent
board of KCSI (as such terms are defined in the 1991 Plan) and the
related options are cancelled. All the options expire at the end of ten
years, subject to earlier termination as provided in the option
agreement. The options are subject to voluntary tax withholding rights.
(5) The options were granted under the 1991 Plan in connection with KCSI's
Executive Plan. These options were granted on February 27, 2001. Options
for 1,290 shares became exercisable on June 23, 2001. Options for 1,290
shares become exercisable on June 23, 2002. Options for 2,580 shares
become exercisable on June 23, 2003. If there is a change in control of
KCSI that is approved by the incumbent board of KCSI (as such terms are
defined in the 1991 Plan), however, the options become immediately
exercisable, provided the individual has been continuously employed by
KCSI or a consolidated subsidiary from the grant date until the change in
control. LSARs were granted in tandem with these options. All of the
LSARs are automatically exercised upon a change in control that is not
approved by the incumbent board of KCSI (as such terms are defined in the
1991 Plan) and the related options are cancelled. All the options expire
at the end of ten years, subject to earlier termination as provided in
the option agreement. The options are subject to voluntary tax
withholding rights.
(6) The options were granted under the 1991 Plan in connection with KCSI's
Executive Plan. These options were granted on February 27, 2001. Options
for 1,754 shares were immediately exercisable. Options for 1,753 shares
became exercisable on June 23, 2001. If there is a change in control of
KCSI that is approved by the incumbent board of KCSI (as such terms are
defined in the 1991 Plan), however, the options become immediately
exercisable, provided the individual has been continuously employed by
KCSI or a consolidated subsidiary from the grant date until the change in
control. LSARs were granted in tandem with these options. All of the
LSARs are automatically exercised upon a change in control that is not
approved by the incumbent board of KCSI (as such terms are defined in the
1991 Plan) and the related options are cancelled. All the options expire
at the end of ten years, subject to earlier termination as provided in
the option agreement. The options are subject to voluntary tax
withholding rights.
(7) These options were granted under the 1991 Plan. Options for 10,000 shares
were granted on January 2, 2001; options for 15,000 shares were granted
on April 2, 2001, and options for 10,000 shares were granted on August 1,
2001. All of the options become exercisable one year after the date of
grant. If there is a change in control of KCSI that is approved by the
incumbent board of KCSI (as such terms are defined in the 1991 Plan),
however, the options become immediately exercisable, provided the
individual has been continuously employed by KCSI or a consolidated
subsidiary from the grant date until the change in control. LSARs were
granted in tandem with these options. All of the LSARs are automatically
exercised upon a change in control that is not approved by the incumbent
board of KCSI (as such terms are defined in the 1991 Plan) and the
related options are cancelled. All the options expire at the end of ten
years, subject to earlier termination as provided in the option
agreement. The options are subject to voluntary tax withholding rights.
24
2001 Aggregated KCSI Option Exercises and Year-End Option Values/(1) /
The following table sets forth information with respect to the aggregate
KCSI option exercises during 2001 by the Named Executive Officers and the
number and value of options held by such officers as of December 31, 2001.
--------------------------------------------------------------------------------
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised In-The-
On Value Options/SARs At Fiscal Year- Money Options/SARs At Fiscal
Exercise Realized End Year-End
Name (#) ($)/ (2)/ (#) ($)/ (3)/
-------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------
Michael R. Haverty N/A N/A 1,002,363 198,000 $8,694,549 $1,738,440
Gerald K. Davies N/A N/A 386,439 81,316 $3,381,942 $ 680,973
Robert H. Berry N/A N/A 244,687 48,000 $2,120,802 $ 421,440
Albert W. Rees N/A N/A 243,253 50,000 $2,107,818 $ 439,000
William J. Pinamont N/A N/A 0 35,000 $ 0 $ 64,050
------------------------------------------------------------------------------------------------
(1) All information is provided on a post-reverse stock split basis.
(2) The dollar values in this column are calculated by multiplying (a) the
difference between the fair market value of the shares of KCSI Common
Stock underlying the options on the date of exercise and the exercise
price of the options by (b) the number of options exercised.
(3) The dollar values in this column are calculated by multiplying (a) the
difference between the fair market value of the shares of KCSI Common
Stock underlying the options on December 31, 2001 (the last trading day
of the year) and the exercise price of the options by (b) the number of
options held at year-end.
Stilwell Options Granted in Connection with the Spin-off
In connection with the Spin-off and as part of an equitable adjustment of
KCSI non-qualified stock options previously granted and outstanding as of June
28, 2000 (the record date for the Spin-off), the exercise price of such options
was adjusted as allowed by the 1991 Plan and holders of such options received
separately exercisable options to purchase Stilwell common stock ("Stilwell
options") in the proportion of two Stilwell options for each KCSI non-qualified
stock option held.
With respect to the Named Executive Officers, such Stilwell options were
granted for 1,888,106 shares to Mr. Haverty, 102,374 shares to Mr. Davies,
484,706 shares to Mr. Berry and 549,518 shares to Mr. Rees. These Stilwell
options relate to KCSI non-qualified stock options granted to the Named
Executive Officers in 2000 prior to the Spin-off and in years prior to 2000.
Mr. Pinamont, who did not join KCSI until after the Spin-off, did not receive
any Stilwell options.
25
2001 Aggregated Stilwell Option Exercises and Year-End Option Values
The following table sets forth information regarding the shares of
Stilwell common stock received upon exercise of Stilwell options, which were
granted in 2000 as discussed above, by the Named Executive Officers in 2001,
the aggregate dollar value realized upon exercise and the value of unexercised
options to purchase Stilwell common stock held by the Named Executive Officers
as of December 31, 2001.
--------------------------------------------------------------------------------
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised In-The-
On Value Options/SARs At Fiscal Year- Money Options/SARs At Fiscal
Exercise Realize) End Year-End
Name (#) ($) /(1)/ (#) ($)/ (2)/
--------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------------
Michael R. Haverty N/A N/A 1,438,106 0 $26,559,731 $ 0
Gerald K. Davies N/A N/A 50,594 1,780 $ 218,780 $ 0
Robert H. Berry N/A N/A 84,706 0 $ 987,174 $ 0
Albert W. Rees 300,000 $6,545,070 49,518 0 $ 334,159 $ 0
William J. Pinamont N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------------------------
(1) The dollar values in this column are calculated by multiplying (a) the
difference between the fair market value of the shares of Stilwell common
stock underlying the options on the date of exercise and the exercise
price of the options by (b) the number of options exercised.
(2) The dollar values in this column are calculated by multiplying (a) the
difference between the fair market value of the shares of Stilwell common
stock underlying the options on December 31, 2001 (the last trading day
of the year) and the exercise price of the options by (b) the number of
options held at year-end.
Employment Agreements and Termination of Employment and Change in Control
Arrangements with Named Executive Officers
Employment Agreements with the Named Executive Officers
All of the Named Executive Officers have employment agreements which
remain in effect until terminated or modified. KCSI and KCSR entered into an
Amended and Restated Employment Agreement with Mr. Haverty, dated as of January
1, 2001, an Employment Agreement with Mr. Davies, dated as of January 1, 1999,
as amended by an Amendment to Employment Agreement dated as of January 1, 2001,
an Amended and Restated Employment Agreement effective as of January 1, 2001
with Mr. Rees and an Employment Agreement with Mr. Pinamont, effective as of
August 1, 2001, as amended by an Amendment to Employment Agreement, effective
as of August 1, 2001. KCSI entered into an Amended and Restated Employment
Agreement, dated as of January 1, 2001, with Mr. Berry. Mr. Haverty's
employment agreement provides for his continued employment as President and
Chief Executive Officer of KCSR. KCSI also agreed to continue to cause Mr.
Haverty to be elected and retained as President and Chief Executive Officer of
KCSI and as a director and Chairman of the Board of KCSR and to use its best
efforts to enable Mr. Haverty to continue to be elected as a director and
Chairman of the Board of KCSI. Mr. Davies' employment agreement, as amended,
provides for his employment as Executive Vice President and Chief Operating
Officer of KCSR. Mr. Berry's employment agreement provides for his continued
employment as Senior Vice President and Chief Financial Officer of KCSI. Mr.
Rees' employment agreement provides for his employment as Senior Vice President
Operations of KCSR. Mr. Pinamont's employment agreement, as amended, provides
for his continued employment as Vice President and General Counsel of KCSR.
KCSI also agreed to cause Mr. Pinamont to continue to be elected and retained
as Vice President and General Counsel of KCSI. Each of these employment
agreements is subject to termination under certain circumstances.
26
Pursuant to their respective employment agreements, Messrs. Haverty,
Davies, Berry and Rees receive as compensation for their services an annual
base salary at the rate approved by the Compensation Committee, which for 2001
was $600,000 for Mr. Haverty, $300,000 for Mr. Davies, $235,008 for Mr. Berry,
and $225,000 for Mr. Rees. Pursuant to his employment agreement, Mr. Pinamont
receives as compensation for his services an annual base salary of $175,000.
The salaries for Messrs. Haverty, Davies, Berry and Rees were frozen at the
rates in effect for 1999 through December 31, 2001. Under his employment
agreement, the salary for Mr. Pinamont could not be increased prior to January
1, 2002. The salaries for these executive officers shall not be reduced except
as agreed to by the parties or as part of a general salary reduction by KCSR
applicable to all officers of KCSR, with respect to Messrs. Haverty, Davies,
Rees and Pinamont, and by KCSI applicable to all officers of KCSI, with respect
to Mr. Berry. Effective March 26, 2001, each of Messrs. Haverty, Davies, Berry
and Rees agreed to a voluntary temporary salary reduction. Mr. Haverty agreed
to a 15% reduction, and each of Messrs. Davies, Berry and Rees agreed to a 7%
reduction. Effective April 1, 2001, Mr. Pinamont agreed to a 3% voluntary
temporary salary reduction. These voluntary temporary salary reductions ended
December 31, 2001. Neither Mr. Haverty nor Mr. Davies was entitled to
participate in any KCSI or KCSR incentive compensation plans for 2001, but both
are eligible to participate in other benefit plans or programs generally
available to executive employees of KCSR. Mr. Berry was not entitled to
participate in any KCSI incentive compensation plans for 2001, but is eligible
to participate in other benefit plans or programs generally available to
executive employees of KCSI. Neither Mr. Pinamont nor Mr. Rees was entitled to
participate in the KCSR Incentive Compensation Plan for 2001, but both are
eligible to participate in other benefit plans or programs generally available
to executive employees of KCSR. Each of the employment agreements provides that
the value of the respective Named Executive Officer's annual compensation is
fixed at a percentage of base salary for purposes of cash compensation benefit
plans as follows: 167.76% for Mr. Haverty; 175% for each of Messrs. Davies,
Berry and Rees and 145% for Mr. Pinamont.
In the event of termination without cause by KCSI or KCSR, as applicable,
each of Messrs. Haverty, Davies, Berry, Rees and Pinamont would be entitled to
twelve months of severance pay at an annual rate equal to his base salary and
for reimbursement for the costs of continuing or obtaining comparable health
and life insurance benefits unless such benefits are provided by another
employer. In the year in which termination occurs, each of Messrs. Haverty,
Davies, Berry, Rees and Pinamont would remain eligible to receive benefits
under the KCSI Incentive Compensation Plan or the KCSR Incentive Compensation
Plan, as applicable, and any Executive Plan in which they participate, if such
plans are then in existence and the executive officer was entitled to
participate immediately prior to termination. After termination, the officers
would not be entitled to accrue or receive benefits under any other employee
benefit plan, except the officers would be entitled to participate in the KCSI
401(k) and Profit Sharing Plan and the KCSI Employee Stock Ownership Plan in
the year of termination if such officer were to meet the requirements for
participation in such termination year. In addition, Mr. Davies' employment
agreement provides that if he terminates his employment agreement within 90
days after Mr. Haverty has discontinued all association with KCSI and KCSR or
within 90 days after there is any significant reduction in his responsibilities
for KCSR, he shall be entitled to the payments and benefits described above as
if terminated by KCSR other than for cause. As part of his employment
agreement, each of Messrs. Haverty, Davies, Berry, Rees and Pinamont has agreed
not to use or disclose any trade secret of KCSI or KCSR, as applicable (as
defined in his employment agreement), after any termination of his employment
and shall, immediately upon termination of employment, return to KCSI or KCSR,
as applicable, any trade secrets in his possession which exist in tangible form.
27
If there were a change in control (as defined in the officer's employment
agreement) of KCSI or KCSR during the term of that employment agreement, that
officer's employment, executive capacity, salary and benefits would be
continued for a three-year period at levels in effect on the control change
date (as that term is defined in his employment agreement). During that
three-year period, salary would be paid at a rate not less than twelve times
the highest monthly base salary paid or payable to that officer in the twelve
months immediately prior to the change in control. During that three-year
period, the officer also would be eligible to participate in all benefit plans
made generally available to executives of their level or to the employees of
KCSI or KCSR, as applicable, generally, would be eligible to participate in any
KCSI or KCSR incentive compensation plan and would be entitled to immediately
exercise all outstanding stock options and receive a lump-sum cash payment
equal to the difference between the fair market value of the shares of Common
Stock underlying the non-vested options and the exercise price of such options.
If the amounts payable were determined on a discretionary basis immediately
prior to the change of control, the benefits continued would not be less than
the average annual amount for the three years prior to the change in control
and incentive compensation would not be less than 75% of the maximum amount
which could have been paid to the officer under the terms of the incentive
compensation plan. With respect to unfunded employer obligations under benefit
plans, the officer would be entitled to a discounted cash payment of amounts to
which he would be entitled. The officer's employment may be terminated after
the control change date, but where it were other than "for cause" (as defined
in his employment agreement) or disability, he would be entitled to payment of
his base salary through termination plus a discounted cash severance payment
equal to a percentage (167.67% for Mr. Haverty, 175% for each of Messrs.
Davies, Berry and Rees, and 180% for Mr. Pinamont) of three times his annual
base salary for each of Messrs. Haverty, Davies, Berry and Rees, and two times
his annual base salary for Mr. Pinamont, continuation or payment of benefits
for a three-year period at levels in effect on the control change date and
certain health, prescription and dental benefits until attainment of age 60,
and certain health and prescription benefits for the remainder of his life
unless such benefits are otherwise provided by a subsequent employer. Each of
the officers is also permitted to resign employment after a change in control
upon "good reason" (as that term is defined in his employment agreement) and
advance written notice, and to receive the same payments and benefits as if his
employment had been terminated. The employment agreements also provide for
payments to such officers necessary to relieve them of certain adverse federal
income tax consequences if amounts received under the agreements were
determined to involve "parachute payments" under Section 4999 of the Internal
Revenue Code.
Indemnification Agreements
KCSI has entered into indemnification agreements with its officers and
directors. Such agreements are intended to supplement KCSI's officer and
director liability insurance and to provide the officers and directors with
specific contractual assurance that the protection provided by KCSI's Bylaws
will continue to be available regardless of, among other things, an amendment
to the Bylaws or a change in management or control of KCSI. The indemnification
agreements provide for indemnification "to the fullest extent permitted by the
Delaware General Corporation Law" and for the prompt advancement of expenses,
including attorney's fees and all other costs and expenses incurred in
connection with any action, suit or proceeding in which the director or officer
was or is a party, is threatened to be made a party or is otherwise involved,
or to which the director or officer was or is a party, is threatened to be made
a party or is otherwise involved by reason of service in certain capacities.
Under the indemnification agreements, if required by the Delaware General
Corporation Law, an advancement of expenses incurred will be made only upon
delivery to KCSI of an undertaking to repay all advanced amounts if it is
ultimately determined by final adjudication that the officer or
28
director is not entitled to be indemnified for such expenses. The
indemnification agreements also provide a mechanism to seek court relief if
indemnification or expense advances are not received within specified periods.
Indemnification and advancement of expenses would also be provided with respect
to a court proceeding initiated for a determination of rights under the
indemnification agreement or of certain other matters.
Change in Control Arrangements
KCSI has established a series of trusts that are intended to secure the
rights of its officers, directors, employees, former employees and others (the
"Beneficiaries") under various contracts, benefit plans, agreements,
arrangements and commitments. The function of each trust is to receive
contributions from KCSI and, following a change in control of KCSI (as defined
by the trust), in the event that KCSI fails to honor certain obligations to a
Beneficiary, the trust shall distribute to the Beneficiary amounts accumulated
in such Beneficiary's trust account sufficient to discharge KCSI's obligation
as such amounts become due and payable. Most of the trusts require KCSI to be
solvent, as a condition to making distributions, and certain trusts allow
distributions upon the Board of Directors' approval prior to a change in
control. Trusts have been instituted with respect to the employment
continuation commitments under the employment agreements, the Executive Plan,
the Directors' Deferred Fee Plan, the indemnification agreements, stock option
plan, and KCSI's charitable contribution commitments in addition to certain
other agreements, commitments and arrangements. The trusts are revocable until
a change in control of KCSI and will terminate automatically if no such change
in control occurs prior to December 31, 2002.
KCSR has established similar trusts relating to its employment
continuation commitments under employment agreements and incentive compensation
arrangements, in addition to certain other agreements, commitments and
arrangements. KCSR also established a similar trust with respect to its
participation in the Executive Plan. As with the KCSI trusts, distributions
under the KCSR trust are tied to failures by the respective companies to honor
their obligations to their respective Beneficiaries following a change in
control of KCSI.
Other Compensatory Plans
KCSI and its subsidiaries maintain compensation plans for certain of
their officers and employees. Certain of those plans have vesting provisions
under which the plan participants do not have the right to receive all of the
plan benefits allocated to their accounts until certain conditions have been
satisfied. Described below are the portions of those plans in which the
accounts of the officers named in the Summary Compensation Table become vested
as a result of (a) their retirement or termination of employment or (b) a
change in control of KCSI, or change in the Named Executive Officer's
responsibilities following such a change of control.
The Employee Stock Ownership Plan
The KCSI Employee Stock Ownership Plan and Trust Agreement (the "ESOP")
is designed to be a qualified employee stock ownership plan under the Internal
Revenue Code of 1986, as amended (the "Code"), for purposes of investing in
shares of KCSI Common Stock and, as of January 1, 2001, a qualified stock bonus
plan with respect to the remainder of the ESOP not invested in KCSI Common
Stock. With respect to the shares of common stock of Stilwell ("Stilwell
shares") held in participants' ESOP accounts, a participant may: (a) keep the
Stilwell shares in the participant's account; (b) dispose of the Stilwell
shares and reinvest the proceeds in one or more of the diversified investment
funds that
29
are available under the ESOP; (c) dispose of the Stilwell shares and reinvest
the proceeds in KCSI Common Stock; or (d) select any combination of the
foregoing. Allocations of shares of KCSI Common Stock, if any, to participant
accounts in the ESOP for any plan year are based upon each participant's
proportionate share of the total eligible compensation paid during the plan
year to all participants in the ESOP, subject to Code-prescribed maximum
allocation limitations. As of the date of this Proxy Statement, all shares held
by the ESOP have been allocated to participants' accounts. Forfeitures are
similarly allocated. For this purpose, compensation includes only compensation
received during the period the individual was actually a participant in the
ESOP.
A participant with less than five years of service is not vested in the
ESOP's contributions, forfeitures and earnings. However, a participant becomes
100% vested upon completion of five years of service. In addition, a
participant becomes 100% vested at his or her retirement at age 65, death or
disability or upon a change in control of KCSI (as defined in the ESOP).
Distributions of benefits under the ESOP may be made in connection with a
participant's death, disability, retirement or other termination of employment.
A participant in the ESOP has the right to select whether payment of his or her
benefit will take the form of cash, whole shares of KCSI Common Stock, Stilwell
shares (to the extent Stilwell shares are held in the participant's account) or
a combination thereof. In the event no election is made, the plan provides that
the payment shall be made in KCSI Common Stock to the extent a participant's
account holds KCSI Common Stock and cash to the extent cash or other non-KCSI
Common Stock investments are held. A participant may further opt to receive
payment in a lump sum or in installments.
1991 Amended and Restated Stock Option and Performance Award Plan
Under the provisions of the 1991 Plan and subject to the terms of the
pertinent award agreement, the retirement, death or disability (as such terms
are defined in the 1991 Plan) of a Grantee of an Award or a change of control
of KCSI (as defined in the 1991 Plan) may accelerate the exercisability of an
award as follows. Upon the death or disability of a grantee of an award under
the 1991 Plan, the unexercisable options become exercisable and the grantee (or
his or her personal representative or transferee under a will or the laws of
descent and distribution) may exercise such options up to the earlier of the
expiration of the option term or 12 months. Upon the retirement of a grantee of
an award under the 1991 Plan, the unexercisable options become exercisable and
the grantee (or his or her personal representative or transferee under a will
or the laws of descent and distribution) may exercise such options up to the
earlier of the expiration of the option term or five years from the date of
retirement. Upon a change of control of KCSI (as defined in the 1991 Plan), the
unexercisable options become immediately exercisable. LSAR's are granted in
tandem with options. All of the LSAR's are automatically exercised upon a
change of control that is not approved by the incumbent board of KCSI (as such
terms are defined in the 1991 Plan).
KCSI 401(k) and Profit Sharing Plan
The KCSI 401(k) and Profit Sharing Plan is a qualified defined
contribution plan. KCSI originally established the KCSI 401(k) Plan effective
as of January 1, 1996 and the KCSI Profit Sharing Plan as of January 1, 1990.
Effective as of January 1, 2001, the Profit Sharing Plan was merged with the
401(k) Plan, which was renamed the KCSI 401(k) and Profit Sharing Plan (the
"Plan"). Upon the merger of the plans, participant accounts in the Profit
Sharing Plan were transferred to the Plan.
Eligible employees of KCSI and other participating subsidiaries of KCSI
(the "Employer") may elect to make pre-tax contributions, called 401(k)
contributions, to the Plan up to 10% of
30
compensation and subject to certain limits under the Code. The Employer will
make matching contributions to the Plan equal to 100% of a participant's 401(k)
contributions and up to a maximum of 3% of a participant's compensation.
Matching contributions vest at the rate of 20% at two years of service, 40% at
three years of service, 60% at four years of service and 100% at five years of
service. A participant becomes 100% vested upon retirement at age 65, death or
disability or upon a change in control of KCSI (as defined in the Plan). The
Employer may, in its discretion, make special contributions on behalf of
participants to satisfy certain nondiscrimination requirements imposed by the
Code, which are 100% vested.
The Employer may also make, in its discretion, annual profit sharing
contributions in an amount not to exceed the maximum allowable deduction for
federal income tax purposes and certain limits under the Code. Only employees
who have met certain standards as to hours of service are eligible to receive
profit sharing contributions. No minimum contribution is required. Each
eligible participant, subject to maximum allocation limitations under the Code,
is allocated the same percentage of the total contribution as the participant's
compensation bears to the total compensation of all participants. Profit
sharing contributions, including a participant's account in the Profit Sharing
Plan transferred to the Plan, are 100% vested.
Participants may direct the investment of their accounts under the Plan
by selecting from one or more of the diversified investment funds that are
available under the Plan, including a fund consisting of KCSI Common Stock.
Distribution of benefits under the Plan will be made in connection with a
participant's death, disability, retirement or other termination of employment.
A participant may elect whether payment of his or her benefits will be in a
lump sum or in installments.
31
STOCKHOLDER PROPOSALS
To be properly brought before the Annual Meeting, a proposal must be
either (i) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a stockholder.
If a holder of KCSI Common Stock wishes to present a proposal for
inclusion in KCSI's Proxy Statement for next year's annual meeting of
stockholders, such proposal must be received by KCSI on or before December 5,
2002. Such proposal must be made in accordance with the applicable laws and
rules of the Securities and Exchange Commission and the interpretations thereof
as well as KCSI's Bylaws. Any such proposal should be sent to the Corporate
Secretary of KCSI at 427 West 12th Street, Kansas City, Missouri 64105.
As described below, in order for a stockholder proposal that is not
included in KCSI's Proxy Statement for next year's annual meeting of
stockholders to be properly brought before the meeting, such proposal must be
delivered to the Corporate Secretary and received at KCSI's executive offices
no earlier than January 31, 2003 and no later than March 17, 2003 (assuming a
meeting date of May 1, 2003) and such proposal must also comply with the
procedures outlined below, which are set forth in KCSI's Bylaws. The
determination that any such proposal has been properly brought before such
meeting is made by the officer presiding over such meeting.
Director Nominations
With respect to stockholder nominations of candidates for KCSI's Board of
Directors, KCSI's Bylaws provide that not less than 45 days nor more than 90
days prior to the date of any meeting of the stockholders at which directors
are to be elected (the "Election Meeting") any stockholder who intends to make
a nomination at the Election Meeting shall deliver a notice in writing (the
"Stockholder's Notice") to the Secretary of KCSI setting forth (a) as to each
nominee whom the stockholder proposes to nominate for election or re-election
as a director, (i) the name, age, business address and residence address of the
nominee, (ii) the principal occupation or employment of the nominee, (iii) the
class and number of shares of capital stock of KCSI that are beneficially owned
by the nominee, and (iv) any other information concerning the nominee that
would be required, under the rules of the Securities and Exchange Commission,
in a proxy statement soliciting proxies for the election of such nominee; and
(b) as to the stockholder giving the notice, (i) the name and address of the
stockholder and (ii) the class and number of shares of capital stock of KCSI
which are beneficially owned by the stockholder and the name and address of
record under which such stock is held; provided, however, that in the event
that the Election Meeting is designated by the Board of Directors to be held at
a date other than the first Tuesday in May and less than 60 days' notice or
prior public disclosure of the date of the Election Meeting is given or made to
stockholders, to be timely, the Stockholder's Notice must be so delivered not
later than the close of business on the 15th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. The Stockholder's Notice shall include a signed
consent of each such nominee to serve as a director of KCSI, if elected. KCSI
may require any proposed nominee or stockholder proposing a nominee to furnish
such other information as may reasonably be required by KCSI to determine the
eligibility of such proposed nominee to serve as a director of KCSI or to
properly complete any proxy or information statement used for the solicitation
of proxies in connection with such Election Meeting.
32
Matters Other than Director Nominations
In addition to any other applicable requirements, for a proposal to be
properly brought before the meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of KCSI. To be timely,
such a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of KCSI, not less than 45 days nor more than 90
days prior to the meeting; provided, however, that in the event that the
meeting is designated by the Board of Directors to be held at a date other than
the first Tuesday in May and less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, to be
timely, the notice by the stockholder must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address
of the stockholder proposing such business, (iii) the class and number of
shares of capital stock of KCSI which are beneficially owned by the stockholder
and the name and address of record under which such stock is held and (iv) any
material interest of the stockholder in such business.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires KCSI's directors, executive officers and certain other officers, and
persons, legal or natural, who own more than 10 percent of KCSI's Common Stock
or Preferred Stock (collectively "Reporting Persons"), to file reports of their
ownership of such stock, and the changes therein, with the Securities and
Exchange Commission, the New York Stock Exchange and KCSI (the "Section 16
Reports"). Based solely on a review of the Section 16 reports for 2001 and any
amendments thereto furnished to KCSI and written representations from certain
of the Reporting Persons, no Reporting Person other than James R. Jones, was
late in filing such Section 16 Reports for fiscal year 2001. Mr. Jones, a
director of KCSI, purchased 3,050 shares on August 9, 2000, and reported the
purchase on a Form 5 for the year ended December 31, 2001.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Pursuant to the rules of the Securities and Exchange Commission, services
that deliver KCSI's communications to stockholders that hold their stock
through a bank, broker or other nominee holder of record may deliver to
multiple stockholders sharing the same address a single copy of KCSI's Annual
Report and Proxy Statement. KCSI will promptly deliver upon written or oral
request a separate copy of the Annual Report and/or Proxy Statement to any
stockholder at a shared address to which a single copy of the documents was
delivered. Written requests should be made to Kansas City Southern Industries,
Inc., 114 West 11th Street, Kansas City, Missouri 64105, before April 5, 2002
and at 427 West 12th Street, Kansas City, Missouri 64105, on and after April 5,
2002, Attention: Corporate Secretary's Office, and oral requests may be made by
calling the KCSI's Corporate Secretary's Office at (816) 983-1237. Any
stockholder who wants to receive separate copies of the Proxy Statement or
Annual Report in the future, or any stockholder who is receiving multiple
copies and would like to receive only one copy per household, should contact
the stockholder's bank, broker or other nominee holder of record, or the
stockholder may contact KCSI at the above address or telephone number.
33
OTHER MATTERS
The Board of Directors knows of no other matters that are expected to be
presented for consideration at the Annual Meeting. KCSI's Bylaws require that
stockholders intending to bring business before an Annual Meeting, including
the nomination of candidates for election to the Board of Directors, give
timely and sufficient notice thereof to the Secretary of KCSI, not more than 90
and no less than 45 days before an Annual Meeting held on the date specified in
KCSI's Bylaws and provide certain additional information; provided, however,
that in the event the Annual Meeting is to be held at a date other than the
first Tuesday in May and less than 60 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, to be timely, such
notice must be delivered not later than the close of business on the 15th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. As of the date of this
Proxy Statement, no such notice has been received. However, if other matters
properly come before the meeting, it is intended that persons named in the
accompanying proxy will vote on them in accordance with their best judgment.
Notwithstanding anything to the contrary set forth in any of KCSI's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Compensation and Organization Committee Report on
Executive Compensation and the Performance Graph included herein shall not be
incorporated by reference into any such filings.
By Order of the Board of Directors
/s/ Michael R. Haverty
Michael R. Haverty
Chairman of the Board, President
and Chief Executive Officer
Kansas City, Missouri
April 4, 2002
KCSI's Annual Report includes KCSI's Annual Report on Form 10-K for the
year ended December 31, 2001 (without exhibits) as filed with the Securities
and Exchange Commission (the "SEC"). KCSI will furnish without charge upon
written request a copy of KCSI's Annual Report on Form 10-K. The Annual Report
on Form 10-K includes a list of all exhibits thereto. KCSI will furnish copies
of such exhibits upon written request therefor and payment of KCSI's reasonable
expenses in furnishing such exhibits. Each such request must set forth a good
faith representation that, as of the Record Date, the person making such
request was a beneficial owner of Voting Stock entitled to vote at the Annual
Meeting. Such written request should be directed to the Corporate Secretary of
KCSI, 114 West 11th Street, Kansas City, Missouri 64105-1804 before April 5,
2002 and at 427 West 12/th Street, Kansas City, Missouri 64105, (816) 983-1538
on and after April 5, 2002. The Annual Report on Form 10-K for the year ended
December 31, 2001 with exhibits, as well as other filings by KCSI with the SEC,
are also available through the SEC's Internet site at www.sec.gov.
34
APPENDIX A
GRAPHIC AND IMAGE MATERIAL
IN
PROXY STATEMENT
In accordance with Rule 304 of Regulation S-T, the following graphic and
image material is included in the KCSI proxy statement.
Photographs of Each Director
----------------------------
The proxy statement includes photographs of each director. A photograph of
a director is placed in the proxy statement next to the discussion of the
director's principal occupations in the section entitled "PROPOSAL 1 - ELECTION
OF TWO DIRECTORS" and "THE BOARD OF DIRECTORS."
Stock Performance Graph
-----------------------
The proxy statement also includes a stock performance graph, which is
supplemented by a table showing the dollar value of the points on the graph. The
table is set forth in this electronic format document in the section entitled
"Stock Performance Graph." Both the graph and the table will be included in the
paper format definitive proxy mailed to KCSI's Stockholders. In accordance with
a letter to EDGAR filers dated November 16, 1992 from Mauri L. Osheroff,
Associate Director of Regulatory Policy of the Division of Corporate Finance, no
further explanation of the graph is set forth in this appendix.
APPENDIX B
FORM OF PROXIES
KANSAS CITY SOUTHERN INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 2, 2002
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Vote by Internet
2. Vote by Phone
3. Vote by mailing your proxy in the enclosed envelope.
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately submitted.
Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet Voting site at http://www.eproxyvote.com/ksu and
follow the instructions on the screen.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m. Central Time, May 1, 2002. Your Internet vote authorizes the named proxies
to vote your shares to the same extent as if you marked, signed, dated and
returned the proxy card.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR PROXY BY MAIL.
VOTE BY TELEPHONE
Your telephone vote is quick, easy and immediate. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. On a Touch-Tone Telephone call Toll Free 1-800-758-6973 and follow
the instructions.
3. When instructed, enter the Control Number, which is printed on the
lower right-hand corner of your proxy card below.
4. Follow the simple recorded instructions.
Please note that all votes cast by Telephone must be submitted prior to 5:00
p.m. Central Time, May 1, 2002. Your telephone vote authorizes the named
proxies to vote your shares to the same extent as if you marked, signed, dated
and returned the proxy card.
IF YOU VOTE BY TELEPHONE, PLEASE DO NOT RETURN YOUR PROXY BY MAIL.
VOTE BY MAIL
1. Read the accompanying Proxy Statement.
2. Mark your vote on the reverse side of the attached proxy card.
3. Sign and date the proxy card.
4. Detach and return the proxy card in the postage paid envelope
provided.
THANK YOU FOR YOUR VOTE
(Tear Here)
KANSAS CITY SOUTHERN INDUSTRIES, INC. PROXY
This proxy confers discretionary authority as described, and may be
revoked in the manner described, in the Proxy Statement dated April 4, 2002,
receipt of which is hereby acknowledged.
Signature
________________________
Date _________ , 2002
Signature
________________________
Date _________ , 2002
Please sign exactly as name(s)
appear. All joint owners should
sign. Executors, administrators,
trustees, guardians,
attorneys-in-fact, and officers
of corporate stockholders should
indicate the capacity in which
they are signing. Please
indicate whether you plan to
attend the Annual Meeting:
[_] Will
Attend [_] Will
Not Attend
(Continued on other side)
(Continued, and to be signed on reverse side)
(Tear Here)
KANSAS CITY SOUTHERN INDUSTRIES, INC. PROXY
This proxy is solicited by the Board of Directors. Michael G. Fitt, Michael R.
Haverty and Byron G. Thompson, or any one of them, are hereby authorized, with
full power of substitution, to vote the shares of stock of Kansas City Southern
Industries, Inc. entitled to be voted by the stockholder(s) signing this proxy
at the Annual Meeting of Stockholders to be held on May 2, 2002, or any
adjournment thereof, as specified herein and in their discretion on all other
matters that are properly brought before the Annual Meeting. If no choice is
specified, such proxies will vote "For" the nominees named hereon and "For"
proposals 2 and 3.
1.Election of two directors. Nominees: 01) Rodney E. Slater 2.Approval of an amendment to the Certificate of
and 02) Byron G. Thompson. Incorporation to change the Company's name from
"Kansas City Southern Industries, Inc." to "Kansas City
[_] FORall nominees except those indicated below: Southern".
---------------------------------------- [_] FOR [_] AGAINST [_] ABSTAIN
[_] WITHHOLDAUTHORITY to vote for all nominees. 3.Ratification of the Board of Directors' selection of
Unless authority to vote for any nominee is withheld, authority to KPMG LLP as KCSI's independent accountants for 2002.
vote cumulatively for such nominee will be deemed granted, and if
other persons are nominated, this proxy may be voted for less than [_] FOR [_] AGAINST [_] ABSTAIN
all the nominees named above, in the proxy holders' discretion, to
elect the maximum number of management nominees.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 2, 2002
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Vote by Internet
2. Vote by Phone
3. Vote by mailing your voting instruction card in the enclosed envelope.
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately submitted.
Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet Voting site at http://www.eproxyvote.com/ksuep and
follow the instructions on the screen.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m. Central Time, April 30, 2002. Your Internet vote instructs the trustee of
the plan how to vote the shares of Kansas City Southern Industries, Inc.
allocated to your account under the plan.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD BY
MAIL.
VOTE BY TELEPHONE
Your telephone vote is quick, easy and immediate. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. On a Touch-Tone Telephone call Toll Free 1-800-758-6973 and follow
the instructions.
3. When instructed, enter the Control Number, which is printed on the
lower right-hand corner of your voting instruction card below.
4. Follow the simple recorded instructions.
Please note that all votes cast by Telephone must be submitted prior to 5:00
p.m. Central Time, April 30, 2002. Your telephone vote instructs the trustee of
the plan how to vote the shares of Kansas City Southern Industries, Inc.
allocated to your account under the plan.
IF YOU VOTE BY TELEPHONE, PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD BY
MAIL.
VOTE BY MAIL
1. Read the accompanying Proxy Statement.
2. Mark your vote on the reverse side of the attached voting instruction
card.
3. Sign and date the voting instruction card.
4. Detach and return the voting instruction card in the postage paid
envelope provided.
THANK YOU FOR YOUR VOTE
(Tear Here)
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
THE EMPLOYEE STOCK OWNERSHIP PLAN OF KANSAS CITY SOUTHERN INDUSTRIES, INC.
Signature
________________________
Date _________ , 2002
Please sign exactly as name appears.
(Continued on other side)
(Continued, and to be signed on reverse side)
(Tear Here)
This voting instruction card is solicited by the Trustee. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Annual Meeting of Stockholders to be held on May 2, 2002, or
any adjournment thereof, as specified hereon and in its discretion on all other
matters that are properly brought before the Annual Meeting and matters
incidental to such meeting.
1.Election of two directors. Nominees: 01) Rodney E. Slater 2.Approval of an amendment to the Certificate of
and 02) Byron G. Thompson. Incorporation to change the Company's name from
"Kansas City Southern Industries, Inc." to "Kansas City
[_] FORall nominees except those indicated below: Southern".
---------------------------------------- [_] FOR [_] AGAINST [_] ABSTAIN
[_] WITHHOLDAUTHORITY to vote for all nominees. 3.Ratification of the Board of Directors' selection of
KPMG LLP as KCSI's independent accountants for 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
If the voting instruction card is not returned, the Trustee must vote such
shares in the same proportions as the shares for which voting instruction cards
were received from the plan participants.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 2, 2002
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Vote by Internet
2. Vote by Phone
3. Vote by mailing your voting instruction card in the enclosed envelope.
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately submitted.
Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet Voting site at http://www.eproxyvote.com/ksu4k and
follow the instructions on the screen.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m. Central Time, April 30, 2002. Your Internet vote instructs the trustee of
the plan how to vote the shares of Kansas City Southern Industries, Inc.
allocated to your account under the plan.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD BY
MAIL.
VOTE BY TELEPHONE
Your telephone vote is quick, easy and immediate. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. On a Touch-Tone Telephone call Toll Free 1-800-758-6973 and follow
the instructions.
3. When instructed, enter the Control Number, which is printed on the
lower right-hand corner of your voting instruction card below.
4. Follow the simple recorded instructions.
Please note that all votes cast by Telephone must be submitted prior to 5:00
p.m. Central Time, April 30, 2002. Your telephone vote instructs the trustee of
the plan how to vote the shares of Kansas City Southern Industries, Inc.
allocated to your account under the plan.
IF YOU VOTE BY TELEPHONE, PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD BY
MAIL.
VOTE BY MAIL
1. Read the accompanying Proxy Statement.
2. Mark your vote on the reverse side of the attached voting instruction
card.
3. Sign and date the voting instruction card.
4. Detach and return the voting instruction card in the postage paid
envelope provided.
THANK YOU FOR YOUR VOTE
(Tear Here)
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
KANSAS CITY SOUTHERN INDUSTRIES, INC. 401K AND PROFIT SHARING PLAN.
Signature
________________________
Date _________ , 2002
Please sign exactly as name appears.
(Continued on other side)
(Continued, and to be signed on reverse side)
(Tear Here)
This voting instruction card is solicited by the Trustee. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Annual Meeting of Stockholders to be held on May 2, 2002, or
any adjournment thereof, as specified hereon and in its discretion on all other
matters that are properly brought before the Annual Meeting and matters
incidental to such meeting.
1.Election of two directors. Nominees: 01) Rodney E. Slater 2.Approval of an amendment to the Certificate of
and 02) Byron G. Thompson. Incorporation to change the Company's name from
"Kansas City Southern Industries, Inc." to "Kansas City
[_] FORall nominees except those indicated below: Southern".
---------------------------------------- [_] FOR [_] AGAINST [_] ABSTAIN
[_] WITHHOLDAUTHORITY to vote for all nominees. 3.Ratification of the Board of Directors' selection of
KPMG LLP as KCSI's independent accountants for 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
If the voting instruction card is not returned, the Trustee must vote such
shares in the same proportions as the shares for which voting instruction cards
were received from the plan participants.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 2, 2002
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Vote by Internet
2. Vote by Phone
3. Vote by mailing your voting instruction card in the enclosed envelope.
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately submitted.
Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet Voting site at http://www.eproxyvote.com/ksude and
follow the instructions on the screen.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m. Central Time, April 30, 2002. Your Internet vote instructs the trustee of
the plan how to vote the shares of Kansas City Southern Industries, Inc.
allocated to your account under the plan.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD BY
MAIL.
VOTE BY TELEPHONE
Your telephone vote is quick, easy and immediate. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. On a Touch-Tone Telephone call Toll Free 1-800-758-6973 and follow
the instructions.
3. When instructed, enter the Control Number, which is printed on the
lower right-hand corner of your voting instruction card below.
4. Follow the simple recorded instructions.
Please note that all votes cast by Telephone must be submitted prior to 5:00
p.m. Central Time, April 30, 2002. Your telephone vote instructs the trustee of
the plan how to vote the shares of Kansas City Southern Industries, Inc.
allocated to your account under the plan.
IF YOU VOTE BY TELEPHONE, PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD BY
MAIL.
VOTE BY MAIL
1. Read the accompanying Proxy Statement.
2. Mark your vote on the reverse side of the attached voting instruction
card.
3. Sign and date the voting instruction card.
4. Detach and return the voting instruction card in the postage paid
envelope provided.
THANK YOU FOR YOUR VOTE
(Tear Here)
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
THE EMPLOYEE STOCK OWNERSHIP PLAN OF DST SYSTEMS, INC.
Signature
________________________
Date _________ , 2002
Please sign exactly as name appears.
(Continued on other side)
(Continued, and to be signed on reverse side)
(Tear Here)
This voting instruction card is solicited by the Trustee. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Annual Meeting of Stockholders to be held on May 2, 2002, or
any adjournment thereof, as specified hereon and in its discretion on all other
matters that are properly brought before the Annual Meeting and matters
incidental to such meeting.
1.Election of two directors. Nominees: 01) Rodney E. Slater 2.Approval of an amendment to the Certificate of
and 02) Byron G. Thompson. Incorporation to change the Company's name from
"Kansas City Southern Industries, Inc." to "Kansas City
[_] FORall nominees except those indicated below: Southern".
---------------------------------------- [_] FOR [_] AGAINST [_] ABSTAIN
[_] WITHHOLDAUTHORITY to vote for all nominees. 3.Ratification of the Board of Directors' selection of
KPMG LLP as KCSI's independent accountants for 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
If the voting instruction card is not returned, the Trustee must vote such
shares in the same proportions as the shares for which voting instruction cards
were received from the plan participants.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105-1804
April 4, 2002
Dear Participant in the Profit Sharing Plan portion of the Stilwell Financial
Inc. 401(K) Plan:
Enclosed is your voting instruction card in connection with the Annual
Meeting of Stockholders of KCSI to be held on May 2, 2002, which instructs
Charles Schwab Trust Company as Trustee of the Stilwell Profit Sharing Plan
portion of the 401(K) Plan, how to vote the shares of KCSI common stock
allocated to your 401(K) account.
Please do not deliver this card to the Company, as your vote is
confidential. Your card should be returned to UMB Bank, N.A., Securities
Transfer Division, P.O. Box 410064, Kansas City, Missouri 64179-0013, in the
enclosed postage-paid return envelope at your earliest convenience.
Thank you,
Michael R. Haverty
Chairman of the Board, President
and Chief Executive Officer
PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED
(Date, sign and return promptly in the prepaid envelope enclosed)
(Tear Here)
---------------------
CONFIDENTIAL VOTING INSTRUCTIONS TO CHARLES SCHWAB TRUST COMPANY AS
TRUSTEE UNDER THE STILWELL 401K AND PROFIT SHARING PLAN
Signature Date , 2002
---------------------------------- ----------
Please sign exactly as name appears.
(Continued on other side)
(Continued, and to be signed on reverse side)
(Tear Here)
--------------------
This voting instruction card is solicited by the Trustee. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Annual Meeting of Stockholders to be held on May 2, 2002, or
any adjournment thereof, as specified hereon and in its discretion on all other
matters that are properly brought before the Annual Meeting and matters
incidental to such meeting.
1. Election of two directors. Nominees: 01) Rodney E. Slater and 02) Byron G.
Thompson.
|_| FOR all nominees except those indicated below:
----------------------------------------------
|_| WITHHOLD AUTHORITY to vote for all nominees.
2. Approval of an amendment to the Certificate of Incorporation to change the
Company's name from "Kansas City Southern Industries, Inc." to "Kansas City
Southern".
[_] FOR [_] AGAINST [_] ABSTAIN
3. Ratification of the Board of Directors' selection of KPMG LLP as KCSI's
independent accountants for 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
If the voting instruction card is not returned, the Trustee must vote such
shares in the same proportions as the shares for which voting instruction
cards were received from the plan participants.