Exhibit 10.12
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EMPLOYMENT AGREEMENT
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(Amended and Restated January 1, 2001)
THIS AGREEMENT, made and entered into as of this 1st day of January, 2001,
by and among The Kansas City Southern Railway Company, a Missouri corporation
("Railway"), Kansas City Southern Industries, Inc., a Delaware corporation
("KCSI") and Xxxxxxx X. Xxxxxxx, an individual ("Executive").
WHEREAS, Executive is now employed by Railway, and Railway, KCSI and
Executive desire for Railway 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 Railway hereafter, particularly in the event of any
change in control (as herein defined) of KCSI, or Railway, thereby establishing
and preserving continuity of management of Railway.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed by and among Railway, KCSI and Executive as
follows:
1. Employment. Railway hereby continues the employment of Executive as its
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President and Chief Executive Officer to have general supervision over,
responsibility for and control of the day-to-day business and affairs of
Railway, subject to the powers vested in the Railway Board and in the
stockholder of Railway. Executive shall have such other powers, duties and
responsibilities consistent with his position as President and Chief Executive
Officer of Railway as may be prescribed from time to time by the Board. KCSI
shall cause Executive to continue to be elected and retained as President and
Chief Executive Officer of KCSI and as a Director and Chairman of the Board of
Railway and shall use its best efforts to cause Executive to continue to be
elected as a Director and Chairman of the Board of KCSI. Executive shall
faithfully perform his duties under this Agreement to the best of his ability
and shall devote
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substantially all of his working time and efforts to the business and affairs of
Railway and its affiliates; provided, however, that to an extent consistent with
the needs of Railway and its affiliates, Executive shall be entitled to expend a
reasonable amount of time on civic and philanthropic activities and the
management of personal and family investments.
2. Compensation.
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(a) Base Compensation. Railway shall pay Executive as compensation for
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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 Railway for non-union employees
and applicable to all officers of Railway.
(b) Incentive Compensation. For the year 2001, Executive shall not be
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entitled to participate in the Railway Incentive Compensation Plan.
3. Benefits. During the period of his employment hereunder, Railway shall
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provide Executive with coverage under such benefit plans and programs as are
made generally available to similarly situated employees of Railway, provided
(a) Railway 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 Board of Directors of KCSI (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 Railway, it
shall be assumed that the value of Executive's annual compensation, pursuant
to this Agreement, is 167.67% of Executive's annual base salary. Executive
acknowledges that all rights and benefits under benefit plans and
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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.
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(a) Termination by Executive. Executive may terminate this Agreement
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and his employment hereunder by at least thirty (30) days advance written notice
to Railway, except that in the event of any material breach of this Agreement by
Railway, Executive may terminate this Agreement and his employment hereunder
immediately upon notice to Railway.
(b) Death or Disability. This Agreement and Executive's employment
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hereunder shall terminate automatically on the death or disability of Executive,
except to the extent employment is continued under Railway's disability
plan. For purposes of this Agreement, Executive shall be deemed to be disabled
if he qualifies for disability benefits under Railway's long-term disability
plan.
(c) Termination by Railway For Cause. Railway may terminate this
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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 Railway, KCSI, or any
subsidiary of Railway or KCSI;
(iii) Gross negligence or willful misconduct in the performance
of Executive's duties as determined in good faith by the Railway Board;
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(iv) Willful failure by Executive to follow reasonable
instructions of the Railway Board;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) Termination by Railway Other Than For Cause.
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(i) Railway may terminate this Agreement and Executive's
employment other than for cause immediately upon notice to Executive, and
in such event, Railway 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), Railway 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 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 Railway
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 Railway Incentive Compensation
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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 Railway 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
Railway 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 Railway.
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 Section 401(k) and Profit Sharing Plan
(if Railway 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.
5. Non-Disclosure. During the term of this Agreement and at all times after
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any termination of this Agreement, Executive shall not, either directly or
indirectly, use or disclose any Railway trade secret, except to the extent
necessary for Executive to perform his duties for Railway while an employee. For
purposes of this Agreement, the term "Railway trade secret" shall mean any
information regarding the business or activities of Railway 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
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disclosure or use, and (b) is the subject of efforts of Railway 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,
Railway 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.
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(a) Duties. Upon termination of this Agreement by Railway or Executive
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for any reason, Executive shall immediately return to Railway all Railway 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 Railway and all direct and indirect subsidiaries and affiliates of Railway as
may be requested by Railway and shall sign such other documents and papers
relating to Executive's employment, benefits and benefit plans as Railway may
reasonably request.
(b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of this
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Agreement shall survive any termination of this Agreement by Railway or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Railway under Paragraph 4(d)(i).
7. Continuation of Employment Upon Change in Control
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(a) Continuation of Employment. Subject to the terms and conditions of
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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 Railway for a period of three years (the "Three-Year Period")
from the date of such Change in Control (the "Control Change Date"). Railway
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 with KCSI and
Railway shall be
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at least commensurate in all material respects with the most significant of
those held, exercised and assigned (with respect to KCSI and Railway) 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,
Railway 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 Railway in respect of the 12-month period immediately before
the Control Change Date.
(b) Benefits. During the Three-Year Period, Executive shall be
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entitled to participate, on the basis of his executive position, in each of the
following KCSI or Railway 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 Railway
generally.
In addition, Railway and KCSI shall use their 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
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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
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
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Executive would be entitled at the Control Change Date to receive Specified
Benefits or incentive compensation as a general obligation of Railway which has
not been separately funded (including specifically, but not limited to, those
referred to under Paragraph 7(b)(i)(D) above), Executive
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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
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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 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 Railway
or KCSI 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 Railway's or KCSI's then outstanding voting
securities; or
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(iii) the stockholders of Railway or KCSI shall have approved a
merger, consolidation or dissolution of Railway or KCSI or a sale, lease,
exchange or disposition of all or substantially all of Railway's or KCSI's
assets, if persons who were the beneficial owners of the combined voting
power of Railway's or KCSI'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.
(e) Termination After Control Change Date. Notwithstanding any other
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provision of this Paragraph 7, at any time after the Control Change Date,
Railway 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 Railway 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) 167.67% of 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 Railway
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
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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, Railway 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), health, prescription and dental benefits equivalent to those then
applicable to active peer executives of Railway) 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
Railway) health and prescription benefits equivalent to those then applicable to
retired peer executives of Railway 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 Railway, 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
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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,
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on not less than thirty (30) days written notice (the "Notice of Resignation")
to the Secretary of Railway and effective at the end of such notice period,
resign his employment with Railway (the "Resignation"). Within five (5) days of
such a Resignation, Railway 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), 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 with
Railway or with KCSI as contemplated by Section 7(a)(i), or any other
action by Railway or KCSI which results in a diminution or other material
adverse change in such position, authority or duties;
(ii) any failure by Railway or KCSI to comply with any of the
provisions of Paragraph 7;
(iii) Railway's or 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 Railway 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
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any other provision of this Paragraph 7, at any time after the Control Change
Date, Executive may be terminated by Railway "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 Railway (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 Railway Board that the Executive met
the applicable standard of conduct for indemnification or reimbursement
under Railway'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
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of the Railway 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 Railway 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
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computation of Railway'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 Railway or 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 Railway 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.
Railway shall cause the preparation and delivery to the Executive
of a Certificate upon request at any time. Railway 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.
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(i) If Railway 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
Railway 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 Railway, Railway 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
Railway) or (B) deliver to the Executive a Certificate specifying the
Gross-up Payment determined by Railway's independent auditors, together
with an opinion of Railway's counsel ("Railway Counsel Opinion"), and pay
the Executive the Gross-up Payment specified in such Certificate. If for
any reason Railway 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 purposes.
(ii) If the Executive does not make a request for, and Railway
does not deliver to the Executive, a Certificate, Railway 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
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Railway and/or the Executive that certain Payments are neither subject to Excise
Taxes nor to be
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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 Railway'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
Railway or the Executive pursuant to Paragraph 7(h) or Paragraph 7(i), as
applicable, then Railway 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,\
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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
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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
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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 Railway'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 Railway
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in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by Railway 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 Railway's obligations under this Paragraph 7
only if and to the extent that such failure results in actual prejudice to
Railway. The Executive shall not pay such claim less than 30 days after the
Executive gives such notice to Railway (or, if sooner, the date on which payment
of such claim is due). If Railway notifies the Executive in writing before the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give Railway any information that it reasonably requests
relating to such claim;
(ii) take such action in connection with contesting such claim as
Railway 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 Railway;
(iii) cooperate with Railway in good faith to contest such claim;
and
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(iv) permit Railway to participate in any proceedings relating to
such claim; provided, however, that Railway 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, Railway 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 Railway shall determine; provided, however, that if Railway
directs the Executive to pay such claim and xxx for a refund, Railway 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 Railway'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.
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(n) Refunds. If, after the receipt by the Executive of an amount
-------
advanced by Railway pursuant to Paragraph 7(m), the Executive receives any
refund with respect to such claim, the Executive shall (subject to Railway's
complying with the requirements of Paragraph 7(m)) promptly pay Railway 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 Railway 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
Railway 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, Railway 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 Railway 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
Railway's obligations set forth in the preceding sentence, Railway 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
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thereof that sum which the Railway 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 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. KCSI Not An Obligor. Notwithstanding that KCSI has executed this
-------------------
Agreement and has agreed to certain commitments hereunder (including without
limitation Executive's continued election and retention as President and Chief
Executive Officer of KCSI), KCSI shall have no obligation for the payment of
salary, benefits, or other compensation hereunder, and all such obligations
shall be the sole responsibility of Railway.
10. 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
-20-
prepaid, addressed, in the case of Railway or KCSI, to Railway or KCSI at 000
Xxxx 00xx Xxxxxx, Xxxxxx Xxxx, Xxxxxxxx 00000, Attention: Secretary, or, in the
case of the Executive, to at 0000 Xxxxxxx Xxxx, Xxxxxxx Xxxxx, Xxxxxx 00000, or
to such other address as a party shall designate by notice to the other party.
11. 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, the Chairman of the Compensation
Committee of the KCSI Board and a duly authorized member of the Railway Board.
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.
12. Successors in Interest. The rights and obligations of KCSI and Railway
----------------------
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 and
Railway, regardless of the manner in which such successors or assigns shall
succeed to the interest of KCSI or Railway hereunder, and this Agreement shall
not be terminated by the voluntary or involuntary dissolution of KCSI or Railway
or by any merger or consolidation or acquisition involving KCSI or Railway, or
upon any transfer of all or substantially all of KCSI'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 Railway.
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13. 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.
14. 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.
15. 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
-22-
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 1st day of January, 2001.
THE KANSAS CITY SOUTHERN RAILWAY COMPANY
By /s/ Xxxxxx X. Xxxxx
--------------------------------------------
Xxxxxx X. Xxxxx
Senior Vice President and
Chief Financial Officer
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By /s/ Xxxxx X. Xxxxx
--------------------------------------------
Xxxxx X. Xxxxx
Chairman, Compensation Committee
EXECUTIVE
/s/ Xxxxxxx X. Xxxxxxx
--------------------------------------------
Xxxxxxx X. Xxxxxxx
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