EMPLOYMENT AGREEMENT
Amended and Restated September 18, 1997
THIS AGREEMENT, made and entered into as of this 1st day of January, 1997,
by and between Kansas City Southern Industries, Inc., a Delaware corporation
("KCSI") and Xxxxxx X. Xxxxxxx, an individual ("Executive").
WHEREAS, Executive is now employed by KCSI, and KCSI and Executive desire
for KCSI to continue to employ Executive on the terms and conditions set forth
in this 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, Kansas City Southern Lines, Inc.
("KCSL") 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 continues the employment of Executive as its
President and Chief Executive Officer 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
KCSI Board, 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 of $750,000. Such rate shall
not be increased prior to January 1, 2000 and shall not be reduced except as
agreed by the parties or except as part of a general salary reduction program
imposed by KCSI and applicable to all officers of KCSI.
(b) Incentive Compensation. For the years 1997, 1998 and 1999,
Executive shall not be entitled to participate in any KCSI incentive
compensation plan.
3. Benefits and Stock Ownership.
(a) 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, except that KCSI shall provide Executive with life insurance and
disability insurance comparable to that provided under Executive's
previous employment agreement dated January 1, 1992, provided (i) KCSI shall
have no obligation with respect to any plan or program if Executive is not
eligible for coverage thereunder, and (ii) 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 $875,000. Executive acknowledges
that all rights and benefits under benefit plans and programs shall be governed
by the official text of each such plan or program and not by any summary or
description thereof or any provision of this Agreement (except to the
extent this Agreement expressly modifies such benefit plans or programs) and
that KCSI is not is under any obligation to continue in effect or to fund any
such plan or program, except as provided in Paragraph 7 hereof. KCSI also
shall reimburse Executive for ordinary and necessary travel and other
business expenses in accordance with policies and procedures
established by KCSI.
(b) Stock Ownership. During the period of his employment hereunder,
Executive shall retain ownership in himself or in members of his immediate
family of at least a majority of the number of shares of (i) KCSI Restricted
Stock awarded to Executive on or after January 1, 1992, and (ii) shares of
KCSI stock acquired upon the exercise of stock options granted on or
after December 12, 1991, but excluding from such number of shares any
such shares transferred to KCSI to pay the purchase price upon the exercise
of stock options or to meet withholding tax requirements.
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 disabil-
ity 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;
(ii) Executive's dishonesty involving KCSI or any subsidiary of KCSI;
(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 KCSI Board concerning the operations or business of KCSI or any subsidiary
of KCSI;
(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 two (2) years 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 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 two (2) 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 the KCSI 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 KCSI 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 KCSI 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 Profit Sharing Plan, the KCSI Employee Stock
Ownership Plan and the KCSI Section 401(k) Plan in the year of termination
of employment only if Executive meets all requirements of such plans for
participation in such year.
5. Non-Disclosure and Non-Compete.
(a) 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 (i)
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
(ii) 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)
dand shall be entitled to pursue such other legal and equitable remedies as
may be available.
(b) Non-Compete. Following termination of this agreement, except
termination pursuant to Paragraph 4(d) or any termination after a Change in
Control of KCSI (as hereinafter defined), for a period ending three (3) years
after the last payment of salary or severance pay to Executive, Executive shall
not, directly or indirectly, as an individual, consultant, employer,
employee, officer, director, advisory director, principal, agent, partner,
member, stockholder (except non-controlling holdings of stock of
not more than 2% of a publicly traded company) or otherwise, (i) engage in a
business in competition with any business conducted by KCSI or any subsidiary
of KCSI at any time within five (5) years preceding the commencement of the
period of non-compete provided herein or any business which KCSI or any of
its subsidiaries was actively considering for ownership or conduct during the
aforesaid five (5) year period, or (ii) participate in management of any
holding company owning, directly or indirectly, more than 5% of any such
business. Executive acknowledges that certain subsidiaries of KCSI now
conduct business throughout the United States and in foreign countries, and
agrees that this non-compete shall apply in all countries and jurisdictions
in which KCSI or any of its subsidiaries conduct business or was actively
considering for the conduct of business during the aforesaid five (5) year
period.
(c) Remedies. In the event of any breach of this Paragraph 5 by
Executive, KCSI shall be entitled to pursue such other legal and equitable
remedies as may be available. Executive expressly acknowledges and agrees
that the restrictions set forth in Paragraphs 5(a) and (b) of this Agreement
are necessary for the protection of KCSI against irreparable
harm and loss of goodwill and business and, therefore, Executive intends and
agrees, that upon failure or refusal of Executive to comply with the
provisions of either such Paragraph, KCSI would be irreparably harmed and
shall be entitled to specifically enforce such provisions in a court of
proper jurisdiction by an injunction or such other relief as may be available
to require performance in accordance with this Agreement. Executive hereby
consents to the entry of an injunction or other appropriate order or decree in
any and all countries and jurisdictions in which such a breach or violation
may occur and agrees that such relief shall be in addition to other legal
rights and remedies available to KCSI.
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.
(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 termina-
tion of this Agreement by KCSI under Paragraph 4(d)(i).
7. Continuation of Employment Upon Change in Control of KCSI.
(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 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 in accordance with the terms thereof at the Control Change Date;
provided that if under KCSI 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 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:
(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 (as to KCSL and Railway securities) shall have become,
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, KCSL 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, KCSL's or Railway's then outstanding voting securities; or
(iii) the stockholders of KCSI, KCSL or Railway shall have
approved a merger, consolidation or dissolution of KCSI, KCSL or Railway
or a sale, lease, exchange or disposition of all or substantially all of
KCSI's, KCSL's or Railway's assets, if persons who were the beneficial
owners of the combined voting power of KCSI's, KCSL's or Railway's
voting securities immediately before any such merger, consolidation,
dissolution, sale, lease, exchange or disposition do not immediately
thereafter, beneficially own, directly or indirectly, in substantially
the same proportions, more than 60% of the combined voting power of any
corporation or other entity resulting from any such transaction.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the
contrary, the sale of shares of stock of Kansas City Southern Lines, Inc.
("KCSL") pursuant to an initial public offering of shares of stock of KCSL
shall not constitute a Change in Control.
(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) 175% his annual base salary
specified in Paragraph 7(a) multiplied by (ii) three; 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
has 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) and a continuing participant in such plan to the end of the Benefits
Period.
(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 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). 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 Executives employment; or
(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
(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 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.
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 with
clause (B) of the preceding sentence, the Gross-up Payment
specified in the Executive s Determination shall be controlling for all
prposes.
(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.
(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 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 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 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 provided in Paragraph
4(d)(ii) with respect to health and life insurance, 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 00000 Xx. Xxxxxx Xxxx, Xxxxxx Xxxx, Xxxxxxxx 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 a 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 shall succeed
to the interest of KCSI hereunder, and this Agreement shall not be
terminated by the voluntary or involuntary dissolution of KCSI, KCSL or
Railway or by any merger or consolidation or acquisition involving KCSI,
KCSL or Railway, or upon any transfer of all or substantially all of KCSI's,
KCSL's or Railway'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
between the parties with respect to the subject matter hereof and terminates
and supersedes all other prior agreements and understandings, 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 18th day of September, 1997.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By /s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
Vice President and Chief Financial Officer
/s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
