EMPLOYMENT AGREEMENT (Amended and Restated January 1, 2001)
EXHIBIT 10.53
EMPLOYMENT AGREEMENT
(Amended and Restated January 1, 2001)
(Amended and Restated January 1, 2001)
THIS AGREEMENT, made and entered into as of this 1st day of January, 2001, by and between
Kansas City Southern Industries, Inc., a Delaware corporation (“KCSI”) and Xxxxxxx X. Xxxxxxx, an
individual (“Executive”).
WHEREAS, KCSI, Kansas City Southern Lines, Inc., a Missouri corporation (“KCSL”) and Executive
have heretofore entered into an Employment Agreement, as amended and restated as of January 1, 1999
(the “Prior Agreement”) pertaining to the employment of Executive by KCSL; and
WHEREAS, KCSL was administratively merged into KCSI as of December 31, 2000, and thereby
ceased existence as a separate entity; and
WHEREAS, KCSI and Executive desire for KCSI to employ Executive on the terms and conditions
set forth in this Agreement, which shall supercede the Prior Agreement, and to provide an incentive
to Executive to remain in the employ of KCSI hereafter, particularly in the event of any change in
control (as herein defined) of KCSI or The Kansas City Southern Railway Company (“Railway”),
thereby establishing and preserving continuity of management of KCSI.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it
is agreed by and between KCSI and Executive as follows:
1. Employment. KCSI hereby employs Executive as its Vice President and General
Solicitor, to serve at the pleasure of the Board of Directors of KCSI (the “KCSI Board”) and to
have such duties, powers and responsibilities as may be prescribed or delegated from time to time
by the President or other officer to whom Executive reports, subject to the
powers vested in the KCSI Board and in the stockholders of KCSI. Executive shall faithfully
perform his duties under this Agreement to the best of his ability and shall devote substantially
all of his working time and efforts to the business and affairs of KCSI and its affiliates.
2. Compensation.
(a) Base Compensation. KCSI shall pay Executive as compensation for his services
hereunder an annual base salary at the rate approved by the KCSI Compensation Committee. Such rate
shall not be increased prior to January 1, 2002 and shall not be reduced except as agreed by the
parties or except as part of a general salary reduction program imposed by KCSI for non-union
employees and applicable to all officers of KCSI.
(b) Incentive Compensation. For the year 2001, Executive shall [not] be entitled to
participate in the KCSI Incentive Compensation Plan.
3. Benefits. During the period of his employment hereunder, KCSI shall provide
Executive with coverage under such benefit plans and programs as are made generally available to
similarly situated employees of KCSI, provided (a) KCSI shall have no obligation with respect to
any plan or program if Executive is not eligible for coverage thereunder, and (b) Executive
acknowledges that stock options and other stock and equity participation awards are granted in the
discretion of the KCSI Board or the Compensation Committee of the KCSI Board and that Executive has
no right to receive stock options or other equity participation awards or any particular number or
level of stock options or other awards. In determining contributions, coverage and benefits under
any disability insurance policy and under any cash compensation-based plan provided to Executive by
KCSI, it shall be assumed that the value of Executive’s annual compensation, pursuant to this
Agreement, is 145% of Executive’s annual base salary.
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Executive acknowledges that all rights and benefits under benefit plans and programs shall be
governed by the official text of each plan or program and not by any summary or description thereof
or any provision of this Agreement (except to the extent that this Agreement expressly modifies
such benefit plans or programs) and that neither KCSI nor Railway is under any obligation to
continue in effect or to fund any such plan or program, except as provided in Paragraph 7 hereof.
4. Termination.
(a) Termination by Executive. Executive may terminate this Agreement and his
employment hereunder by at least thirty (30) days advance written notice to KCSI, except that in
the event of any material breach of this Agreement by KCSI, Executive may terminate this Agreement
and his employment hereunder immediately upon notice to KCSI.
(b) Death or Disability. This Agreement and Executive’s employment hereunder shall
terminate automatically on the death or disability of Executive, except to the extent employment is
continued under KCSI’s disability plan. For purposes of this Agreement, Executive shall be deemed
to be disabled if he qualifies for disability benefits under KCSI’s long-term disability plan.
(c) Termination by KCSI For Cause. KCSI may terminate this Agreement and Executive’s
employment “for cause” immediately upon notice to Executive. For purposes of this Agreement
(except for Paragraph 7), termination “for cause” shall mean termination based upon any one or more
of the following:
(i) Any material breach of this Agreement by Executive;
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(ii) Executive’s dishonesty involving KCSI, Railway or any subsidiary of KCSI or
Railway;
(iii) Gross negligence or willful misconduct in the performance of Executive’s duties
as determined in good faith by the KCSI Board;
(iv) Willful failure by Executive to follow reasonable instructions of the President or
other officer to whom Executive reports;
(v) Executive’s fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) Termination by KCSI Other Than For Cause.
(i) KCSI may terminate this Agreement and Executive’s employment other than for cause
immediately upon notice to Executive, and in such event, KCSI shall provide severance
benefits to Executive in accordance with Paragraph 4(d)(ii) below.
(ii) Unless the provisions of Paragraph 7 of this Agreement are applicable, if
Executive’s employment is terminated under Paragraph 4(d)(i), KCSI shall continue, for a
period of one (1) year following such termination, (a) to pay to Executive as severance pay
a monthly amount equal to one-twelfth (1/12th) of the annual base salary referenced in
Paragraph 2(a) above, at the rate in effect immediately prior to termination, and, (b) to
reimburse Executive for the cost (including state and federal income taxes payable with
respect to this reimbursement) of continuing the health insurance coverage provided pursuant
to this Agreement or obtaining health insurance coverage comparable to the health insurance
provided pursuant to this Agreement, and
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obtaining coverage comparable to the life insurance provided pursuant to this
Agreement, unless Executive is provided comparable health or life insurance coverage in
connection with other employment. The foregoing obligations of KCSI shall continue until
the end of such one (1) year period notwithstanding the death or disability of Executive
during said period (except, in the event of death, the obligation to reimburse Executive for
the cost of life insurance shall not continue). In the year in which termination of
employment occurs, Executive shall be eligible to receive benefits under the KCSI Incentive
Compensation Plan and any Executive Plan in which Executive participates (the “Executive
Plan”) (if such Plans then are in existence and Executive was entitled to participate
immediately prior to termination) in accordance with the provisions of such plans then
applicable, and severance pay received in such year shall be taken into account for the
purpose of determining benefits, if any, under the KCSI Incentive Compensation Plan but not
under the Executive Plan. After the year in which termination occurs, Executive shall not
be entitled to accrue or receive benefits under the KCSI Incentive Compensation Plan or the
Executive Plan with respect to the severance pay provided herein, notwithstanding that
benefits under such plan then are still generally available to executive employees of KCSI.
After termination of employment, Executive shall not be entitled to accrue or receive
benefits under any other employee benefit plan or program, except that Executive shall be
entitled to participate in the KCSI Employee Stock Ownership Plan and the KCSI 401(k) and
Profit Sharing Plan (if KCSI employees then still participate in such plans) in the year of
termination of employment only if Executive meets all requirements of such plans for
participation in such year.
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5. Non-Disclosure. During the term of this Agreement and at all times after any
termination of this Agreement, Executive shall not, either directly or indirectly, use or disclose
any KCSI trade secret, except to the extent necessary for Executive to perform his duties for KCSI
while an employee. For purposes of this Agreement, the term “KCSI trade secret” shall mean any
information regarding the business or activities of KCSI or any subsidiary or affiliate, including
any formula, pattern, compilation, program, device, method, technique, process, customer list,
technical information or other confidential or proprietary information, that (a) derives
independent economic value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic value from its
disclosure or use, and (b) is the subject of efforts of KCSI or its subsidiary or affiliate that
are reasonable under the circumstance to maintain its secrecy. In the event of any breach of this
Paragraph 5 by Executive, KCSI shall be entitled to terminate any and all remaining severance
benefits under Paragraph 4(d)(ii) and shall be entitled to pursue such other legal and equitable
remedies as may be available.
6. Duties Upon Termination; Survival.
(a) Duties. Upon termination of this Agreement by KCSI or Executive for any reason,
Executive shall immediately return to KCSI all KCSI trade secrets which exist in tangible form and
shall sign such written resignations from all positions as an officer, director or member of any
committee or board of KCSI and all direct and indirect subsidiaries and affiliates of KCSI as may
be requested by KCSI and shall sign such other documents and papers relating to Executive’s
employment, benefits and benefit plans as KCSI may reasonably request.
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(b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of this Agreement shall
survive any termination of this Agreement by KCSI or Executive, and the provisions of Paragraph
4(d)(ii) shall survive any termination of this Agreement by KCSI under Paragraph 4(d)(i).
7. Continuation of Employment Upon Change in Control.
(a) Continuation of Employment. Subject to the terms and conditions of this Paragraph
7, in the event of a Change in Control (as defined in Paragraph 7(d)) at any time during the term
of this Agreement, Executive agrees to remain in the employ of KCSI for a period of three years
(the “Three-Year Period”) from the date of such Change in Control (the “Control Change Date”).
KCSI agrees to continue to employ Executive for the Three-Year Period. During the Three-Year
Period, (i) the Executive’s position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time during the 12 month
period immediately before the Control Change Date and (ii) the Executive’s services shall be
performed at the location where Executive was employed immediately before the Control Change Date
or at any other location less than 40 miles from such former location. During the Three-Year
Period, KCSI shall continue to pay to Executive an annual base salary on the same basis and at the
same intervals as in effect prior to the Control Change Date at a rate not less than 12 times the
highest monthly base salary paid or payable to the Executive by KCSI in respect of the 12-month
period immediately before the Control Change Date.
(b) Benefits. During the Three-Year Period, Executive shall be entitled to
participate, on the basis of his executive position, in each of the following KCSI or Railway
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plans (together, the “Specified Benefits”) in existence, and in accordance with the terms
thereof, at the Control Change Date:
(i) any benefit plan, and trust fund associated therewith, related to (a) life, health,
dental, disability, accidental death and dismemberment insurance or accrued but unpaid
vacation time, (b) profit sharing, thrift or deferred savings (including deferred
compensation, such as under Sec. 401(k) plans), (c) retirement or pension benefits, (d)
ERISA excess benefits and similar plans and (e) tax favored employee stock ownership (such
as under ESOP, and Employee Stock Purchase programs); and
(ii) any other benefit plans hereafter made generally available to executives of
Executive’s level or to the employees of KCSI generally.
In addition, KCSI shall use its best efforts to cause all outstanding options held by
Executive under any stock option plan of KCSI or its affiliates to become immediately exercisable
on the Control Change Date and to the extent that such options are not vested and are subsequently
forfeited, the Executive shall receive a lump-sum cash payment within 5 days after the options are
forfeited equal to the difference between the fair market value of the shares of stock subject to
the non-vested, forfeited options determined as of the date such options are forfeited and the
exercise price for such options. During the Three-Year Period Executive shall be entitled to
participate, on the basis of his executive position, in any incentive compensation plan of KCSI or
Railway in accordance with the terms thereof at the Control Change Date; provided that if under
KCSI or Railway programs or Executive’s Employment Agreement in existence immediately prior to the
Control Change Date, there are written limitations on participation for a designated time period in
any incentive compensation plan, such limitations
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shall continue after the Control Change Date to the extent so provided for prior to the
Control Change Date.
If the amount of contributions or benefits with respect to the Specified Benefits or any
incentive compensation is determined on a discretionary basis under the terms of the Specified
Benefits or any incentive compensation plan immediately prior to the Control Change Date, the
amount of such contributions or benefits during the Three-Year Period for each of the Specified
Benefits shall not be less than the average annual contributions or benefits for each Specified
Benefit for the three plan years ending prior to the Control Change Date and, in the case of any
incentive compensation plan, the amount of the incentive compensation during the Three-Year Period
shall not be less than 75% of the maximum that could have been paid to the Executive under the
terms of the incentive compensation plan.
(c) Payment. With respect to any plan or agreement under which Executive would be
entitled at the Control Change Date to receive Specified Benefits or incentive compensation as a
general obligation of KCSI which has not been separately funded (including specifically, but not
limited to, those referred to under Paragraph 7(b)(i)(d) above), Executive shall receive within
five (5) days after such date full payment in cash (discounted to the then present value on the
basis of a rate of seven percent (7%) per annum) of all amounts to which he is then entitled
thereunder.
(d) Change in Control. Except as provided in the last sentence of this Paragraph
7(d), for purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if:
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(i) for any reason at any time less than seventy-five percent (75%) of the members of
the KCSI Board shall be individuals who fall into any of the following categories: (a)
individuals who were members of the KCSI Board on the date of the Agreement; or (b)
individuals whose election, or nomination for election by KCSI’s stockholders, was approved
by a vote of at least seventy-five percent (75%) of the members of the KCSI Board then still
in office who were members of the KCSI Board on the date of the Agreement; or (c)
individuals whose election, or nomination for election, by KCSI’s stockholders, was approved
by a vote of at least seventy-five percent (75%) of the members of the KCSI Board then still
in office who were elected in the manner described in (a) or (b) above, or
(ii) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934 (the “Exchange Act”)) other than KCSI shall have become
after September 18, 1997, according to a public announcement or filing, the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of KCSI or Railway representing thirty percent (30%) (or, with respect to
Paragraph 7(c) hereof, 40%) or more (calculated in accordance with Rule 13d-3) of the
combined voting power of KCSI’s or Railway’s then outstanding voting securities; or
(iii) the stockholders of KCSI or Railway shall have approved a merger, consolidation
or dissolution of KCSI or Railway or a sale, lease, exchange or disposition of all or
substantially all of KCSI’s or Railway’s assets, if persons who were the beneficial owners
of the combined voting power of KCSI’s or Railway’s voting securities immediately before any
such merger, consolidation, dissolution, sale, lease,
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exchange or disposition do not immediately thereafter, beneficially own, directly or
indirectly, in substantially the same proportions, more than 60% of the combined voting
power of any corporation or other entity resulting from any such transaction.
(e) Termination After Control Change Date. Notwithstanding any other provision of
this Paragraph 7, at any time after the Control Change Date, KCSI may terminate the employment of
Executive (the “Termination”), but unless such Termination is for Cause as defined in subparagraph
(g) or for disability, within five (5) days of the Termination KCSI shall pay to Executive his
full base salary through the Termination, to the extent not theretofore paid, plus a lump sum
amount (the “Special Severance Payment”) equal to the product (discounted to the then present value
on the basis of a rate of seven percent (7%) per annum) of (i) 160% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) Two; and Specified Benefits (excluding any incentive
compensation) to which Executive was entitled immediately prior to Termination shall continue until
the end of the 3-year period (“Benefits Period”) beginning on the date of Termination. If any plan
pursuant to which Specified Benefits are provided immediately prior to Termination would not permit
continued participation by Executive after Termination, then KCSI shall pay to Executive within
five (5) days after Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received under such plan if Executive had been fully vested in the average
annual contributions or benefits in effect for the three plan years ending prior to the Control
Change Date (regardless of any limitations based on the earnings or performance of KCSI or Railway)
and a continuing participant in such plan to the end of the Benefits Period. Following the end of
the Benefits Period, KCSI shall continue to provide to the Executive and the Executive’s family the
following benefits (“Post-Period Benefits”): (1) prior to the Executive’s attainment of age sixty
(60),
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health, prescription and dental benefits equivalent to those then applicable to active peer
executives of KCSI) and their families, as the same may be modified from time to time, and (2)
following the Executive’s attainment of age sixty (60) (and without regard to the Executive’s
period of service with KCSI) health and prescription benefits equivalent to those then applicable
to retired peer executives of KCSI and their families, as the same may be modified from time to
time. The cost to the Executive of such Post-Period Benefits shall not exceed the cost of such
benefits to active or retired (as applicable) peer executives, as the same may be modified from
time to time. Notwithstanding the preceding two sentences of this Paragraph 7(e), if the Executive
is covered under any health, prescription or dental plan provided by a subsequent employer, then
the corresponding type of plan coverage (i.e., health, prescription or dental), required to be
provided as Post-Period Benefits under this Paragraph 7(e) shall cease. The Executive’s rights
under this Paragraph 7(e) shall be in addition to, and not in lieu of, any post-termination
continuation coverage or conversion rights the Executive may have pursuant to applicable law,
including without limitation continuation coverage required by Section 4980 of the Code. Nothing
in this Paragraph 7(e) shall be deemed to limit in any manner the reserved right of KCSI, in its
sole and absolute discretion, to at any time amend, modify or terminate health, prescription or
dental benefits for active or retired employees generally.
(f) Resignation After Control Change Date. In the event of a Change in Control as
defined in Paragraph 7(d), thereafter, upon good reason (as defined below), Executive may, at any
time during the 3-year period following the Change in Control, in his sole discretion, on not less
than thirty (30) days’ written notice (the “Notice of Resignation”) to the Secretary of KCSI and
effective at the end of such notice period, resign his employment with KCSI (the “Resignation”).
Within five (5) days of such a Resignation, KCSI shall pay to Executive his full
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base salary through the effective date of such Resignation, to the extent not theretofore
paid, plus a lump sum amount equal to the Special Severance Payment (computed as provided in the
first sentence of Paragraph 7(e), except that for purposes of such computation all references to
“Termination” shall be deemed to be references to “Resignation”). Upon Resignation of Executive,
Specified Benefits to which Executive was entitled immediately prior to Resignation shall continue
on the same terms and conditions as provided in Paragraph 7(e) in the case of Termination
(including equivalent payments provided for therein), and Post-Period Benefits shall be provided on
the same terms and conditions as provided in Paragraph 7(e) in the case of Termination. For
purposes of this Agreement, “good reason” means any of the following:
(i) the assignment to the Executive of any duties inconsistent in any respect with the
Executive’s position (including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by Section 7(a)(i), or any other
action by KCSI which results in a diminution or other material adverse change in such
position, authority or duties;
(ii) any failure by KCSI to comply with any of the provisions of Paragraph 7;
(iii) KCSI’s requiring the Executive to be based at any office or location other than
the location described in Section 7(a)(ii);
(iv) any other material adverse change to the terms and conditions of the Executive’s
employment; or
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(v) any purported termination by KCSI of the Executive’s employment other than as
expressly permitted by this Agreement (any such purported termination shall not be effective
for any other purpose under this Agreement).
A passage of time prior to delivery of the Notice of Resignation or a failure by the Executive to
include in the Notice of Resignation any fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive under this Agreement or preclude the
Executive from asserting such fact or circumstance in enforcing rights under this Agreement.
(g) Termination for Cause After Control Change Date. Notwithstanding any other
provision of this Paragraph 7, at any time after the Control Change Date, Executive may be
terminated by KCSI “for cause.” Cause means commission by the Executive of any felony or willful
breach of duty by the Executive in the course of the Executive’s employment; except that Cause
shall not mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in good faith to have been in or not
opposed to the interest of KCSI (without intent of the Executive to gain, directly or
indirectly, a profit to which the Executive was not legally entitled);
(iii) any act or omission with respect to which a determination could properly have
been made by the KCSI Board that the Executive met the applicable standard of conduct for
indemnification or reimbursement under KCSI’s by-laws, any applicable indemnification
agreement, or applicable law, in each case in effect at the time of such act or omission; or
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(iv) any act or omission with respect to which Notice of Termination of the Executive
is given more than 12 months after the earliest date on which any member of the KCSI Board,
not a party to the act or omission, knew or should have known of such act or omission.
Any Termination of the Executive’s employment by KCSI for Cause shall be communicated to the
Executive by Notice of Termination.
(h) Gross-up for Certain Taxes. If it is determined (by the reasonable computation of
KCSI’s independent auditors, which determinations shall be certified to by such auditors and set
forth in a written certificate (“Certificate”) delivered to the Executive) that any benefit
received or deemed received by the Executive from KCSI or Railway pursuant to this Agreement or
otherwise (collectively, the “Payments”) is or will become subject to any excise tax under Section
4999 of the Code or any similar tax payable under any United States federal, state, local or other
law (such excise tax and all such similar taxes collectively, “Excise Taxes”), then KCSI shall,
immediately after such determination, pay the Executive an amount (the “Gross-up Payment”) equal to
the product of:
(i) the amount of such Excise Taxes; multiplied by
(ii) the Gross-up Multiple (as defined in Paragraph 7(k)).
The Gross-up Payment is intended to compensate the Executive for the Excise Taxes and
any federal, state, local or other income or excise taxes or other taxes payable by the
Executive with respect to the Gross-up Payment.
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KCSI shall cause the preparation and delivery to the Executive of a Certificate upon
request at any time. KCSI shall, in addition to complying with this Paragraph 7(h), cause
all determinations and certifications under Paragraphs 7(h)-(o) to be made as soon as
reasonably possible and in adequate time to permit the Executive to prepare and file the
Executive’s individual tax returns on a timely basis.
(i) Determination by the Executive.
(i) If KCSI shall fail (a) to deliver a Certificate to the Executive or (B) to pay to
the Executive the amount of the Gross-up Payment, if any, within 14 days after receipt from
the Executive of a written request for a Certificate, or if at any time following receipt of
a Certificate the Executive disputes the amount of the Gross-up Payment set forth therein,
the Executive may elect to demand the payment of the amount which the Executive, in
accordance with an opinion of counsel to the Executive (“Executive Counsel Opinion”),
determines to be the Gross-up Payment. Any such demand by the Executive shall be made by
delivery to KCSI of a written notice which specifies the Gross-up Payment determined by the
Executive and an Executive Counsel Opinion regarding such Gross-up Payment (such written
notice and opinion collectively, the “Executive’s Determination”). Within 14 days after
delivery of the Executive’s Determination to KCSI, KCSI shall either (a) pay the Executive
the Gross-up Payment set forth in the Executive’s Determination (less the portion of such
amount, if any, previously paid to the Executive by KCSI) or (b) deliver to the Executive a
Certificate specifying the Gross-up Payment determined by KCSI’s independent auditors,
together with an opinion of KCSI’s counsel (“KCSI Counsel Opinion”), and pay the Executive
the Gross-up Payment specified in such Certificate. If for any reason KCSI fails to comply
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with clause (b) of the preceding sentence, the Gross-up Payment specified in the
Executive’s Determination shall be controlling for all purposes.
(ii) If the Executive does not make a request for, and KCSI does not deliver to the
Executive, a Certificate, KCSI shall, for purposes of Paragraph 7(j), be deemed to have
determined that no Gross-up Payment is due.
(j) Additional Gross-up Amounts. If, despite the initial conclusion of KCSI and/or
the Executive that certain Payments are neither subject to Excise Taxes nor to be counted in
determining whether other Payments are subject to Excise Taxes (any such item, a “Non-Parachute
Item”), it is later determined (pursuant to subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, final IRS determination or judgment of a court of
competent jurisdiction or KCSI’s independent auditors) that any of the Non-Parachute Items are
subject to Excise Taxes, or are to be counted in determining whether any Payments are subject to
Excise Taxes, with the result that the amount of Excise Taxes payable by the Executive is greater
than the amount determined by KCSI or the Executive pursuant to Paragraph 7(h) or Paragraph 7(i),
as applicable, then KCSI shall pay the Executive an amount (which shall also be deemed a Gross-up
Payment) equal to the product of:
(i) the sum of (a) such additional Excise Taxes and (b) any interest, fines, penalties,
expenses or other costs incurred by the Executive as a result of having taken a position in
accordance with a determination made pursuant to Paragraph 7(h); multiplied by
(ii) the Gross-up Multiple.
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(k) Gross-up Multiple. The Gross-up Multiple shall equal a fraction, the numerator of
which is one (1.0), and the denominator of which is one (1.0) minus the sum, expressed as a decimal
fraction, of the rates of all federal, state, local and other income and other taxes and any Excise
Taxes applicable to the Gross-up Payment; provided that, if such sum exceeds 0.8, it shall be
deemed equal to 0.8 for purposes of this computation. (If different rates of tax are applicable to
various portions of a Gross-up Payment, the weighted average of such rates shall be used.)
(l) Opinion of Counsel. “Executive Counsel Opinion” means a legal opinion of
nationally recognized executive compensation counsel that there is a reasonable basis to support a
conclusion that the Gross-up Payment determined by the Executive has been calculated in accord with
this Paragraph 7 and applicable law. “Company Counsel Opinion” means a legal opinion of nationally
recognized executive compensation counsel that (i) there is a reasonable basis to support a
conclusion that the Gross-up Payment set forth in the Certificate of KCSI’s independent auditors
has been calculated in accord with this Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the Gross-up Payment determined by the Executive.
(m) Amount Increased or Contested. The Executive shall notify KCSI in writing of any
claim by the IRS or other taxing authority that, if successful, would require the payment by KCSI
of a Gross-up Payment. Such notice shall include the nature of such claim and the date on which
such claim is due to be paid. The Executive shall give such notice as soon as practicable, but no
later than 10 business days, after the Executive first obtains actual knowledge of such claim;
provided, however, that any failure to give or delay in giving such notice shall affect KCSI’s
obligations under this Paragraph 7 only if and to the extent that such failure results
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in actual prejudice to KCSI. The Executive shall not pay such claim less than 30 days after
the Executive gives such notice to KCSI (or, if sooner, the date on which payment of such claim is
due). If KCSI notifies the Executive in writing before the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give KCSI any information that it reasonably requests relating to such claim;
(ii) take such action in connection with contesting such claim as KCSI reasonably
requests in writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by KCSI;
(iii) cooperate with KCSI in good faith to contest such claim; and
(iv) permit KCSI to participate in any proceedings relating to such claim; provided,
however, that KCSI shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax,
including related interest and penalties, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing, KCSI shall control all
proceedings in connection with such contest and, at its sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and xxx for a refund or contest the claim in any permissible manner.
The Executive agrees to prosecute such contest to a
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determination before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as KCSI shall determine; provided, however, that if
KCSI directs the Executive to pay such claim and xxx for a refund, KCSI shall advance the
amount of such payment to the Executive, on an interest-free basis and shall indemnify the
Executive, on an after-tax basis, for any Excise Tax or income tax, including related
interest or penalties, imposed with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. The KCSI’s control of the contest shall be limited to
issues with respect to which a Gross-up Payment would be payable. The Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the IRS or
other taxing authority.
(n) Refunds. If, after the receipt by the Executive of an amount advanced by KCSI
pursuant to Paragraph 7(m), the Executive receives any refund with respect to such claim, the
Executive shall (subject to KCSI’s complying with the requirements of Paragraph 7(m)) promptly pay
KCSI the amount of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount advanced by KCSI pursuant
to Paragraph 7(m), a determination is made that the Executive shall not be entitled to a full
refund with respect to such claim and KCSI does not notify the Executive in writing of its intent
to contest such determination before the expiration of 30 days after such determination, then the
applicable part of such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the
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amount of Gross-up Payment required to be paid. Any contest of a denial of refund shall be
controlled by Paragraph 7(m).
(o) Expenses. If any dispute should arise under this Agreement after the Control
Change Date involving an effort by Executive to protect, enforce or secure rights or benefits
claimed by Executive hereunder, KCSI shall pay (promptly upon demand by Executive accompanied by
reasonable evidence of incurrence) all reasonable expenses (including attorneys’ fees) incurred by
Executive in connection with such dispute, without regard to whether Executive prevails in such
dispute except that Executive shall repay KCSI any amounts so received if a court having
jurisdiction shall make a final, nonappealable determination that Executive acted frivolously or in
bad faith by such dispute. To assure Executive that adequate funds will be made available to
discharge KCSI’s obligations set forth in the preceding sentence, KCSI has established a trust and
upon the occurrence of a Change in Control shall promptly deliver to the trustee of such trust to
hold in accordance with the terms and conditions thereof that sum which the KCSI Board shall have
determined is reasonably sufficient for such purpose.
(p) Prevailing Provisions. On and after the Control Change Date, the provisions of
this Paragraph 7 shall control and take precedence over any other provisions of this Agreement
which are in conflict with or address the same or a similar subject matter as the provisions of
this Paragraph 7.
8. Mitigation and Other Employment. After a termination of Executive’s employment
pursuant to Paragraph 4(d)(i) or a Change in Control as defined in Paragraph 7(d), Executive shall
not be required to mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, and except as otherwise specifically
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provided in Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph 7(e)
with respect to health, prescription and dental benefits, no such other employment, if obtained, or
compensation or benefits payable in connection therewith shall reduce any amounts or benefits to
which Executive is entitled hereunder. Such amounts or benefits payable to Executive under this
Agreement shall not be treated as damages but as severance compensation to which Executive is
entitled because Executive’s employment has been terminated.
9. Notice. Notices and all other communications to either party pursuant to this
Agreement shall be in writing and shall be deemed to have been given when personally delivered,
delivered by facsimile or deposited in the United States mail by certified or registered mail,
postage prepaid, addressed, in the case of KCSI, to KCSI at 000 Xxxx 00xx Xxxxxx, Xxxxxx Xxxx,
Xxxxxxxx 00000, Attention: Secretary, or, in the case of the Executive, to him at 0000 Xxxxxx Xxxx,
Xxxxxxx, Xxxxxx 00000, or to such other address as a party shall designate by notice to the other
party.
10. Amendment. No provision of this Agreement may be amended, modified, waived or
discharged unless such amendment, waiver, modification or discharge is agreed to in writing signed
by Executive and the President of KCSI. No waiver by any party hereto at any time of any breach by
another party hereto of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the time or at any prior or subsequent time.
11. Successors in Interest. The rights and obligations of KCSI under this Agreement
shall inure to the benefit of and be binding in each and every respect upon the direct and indirect
successors and assigns of KCSI, regardless of the manner in which such successors or assigns
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shall succeed to the interest of KCSI hereunder, and this Agreement shall not be terminated by
the voluntary or involuntary dissolution of KCSI or by any merger or consolidation or acquisition
involving KCSI, or upon any transfer of all or substantially all of KCSI’s assets, or terminated
otherwise than in accordance with its terms. In the event of any such merger or consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon and shall inure to the
benefit of the surviving corporation or the corporation or other person to which such assets shall
be transferred. Neither this Agreement nor any of the payments or benefits hereunder may be
pledged, assigned or transferred by Executive either in whole or in part in any manner, without the
prior written consent of KCSI.
12. Severability. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed
in all respects as if such invalid or unenforceable provisions were omitted.
13. Controlling Law and Jurisdiction. The validity, interpretation and performance of
this Agreement shall be subject to and construed under the laws of the State of Missouri, without
regard to principles of conflicts of law.
14. Entire Agreement. This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and terminates and supersedes all other prior
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agreements and understandings (including, without limitation, the Prior Agreement), both written
and oral, between the parties with respect to the terms of Executive’s employment or severance
arrangements.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement as of
the 1st day of January, 2001.
| KANSAS CITY SOUTHERN INDUSTRIES, INC. | ||||||
| By | ||||||
| Xxxxxxx X. Xxxxxxx, President & CEO | ||||||
| EXECUTIVE | ||||||
| Xxxxxxx X. Xxxxxxx | ||||||
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