EMPLOYMENT AGREEMENT
(Amended and Restated January 1, 1999)
THIS AGREEMENT, made and entered into as of this 1st day of January,
1999, by and between The Kansas City Southern Railway Company, a Missouri
corporation ("Railway"), Kansas City Southern Industries, Inc., a Delaware
corporation ("KCSI") and Michael R. Haverty, 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, Railway or Kansas City Southern
Lines, Inc., 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 between Railway, KCSI and Executive as
follows:
1. Employment. Railway hereby continues the employment of Executive as
its 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 an Executive
Vice President of KCSI and as a Director of Railway and shall use its best
efforts to cause Executive to continue to be elected as a Director 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 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.
(a) Base Compensation. Railway shall pay Executive as
compensation for his services hereunder an annual base salary at the rate
approved by the KCSI Compensation Committee on November 17, 1998. 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 Railway for non-union employees and applicable to all officers of
Railway. (b) Incentive Compensation. For the year 1999, Executive shall not be
entitled to participate in the Railway Incentive Compensation Plan.
(c) Stock Options. Executive acknowledges that he has been granted
KCSI stock options as follows:
(i) Options for 100,000 shares of KCSI common stock pursuant to a
stock option agreement dated May 15, 1995, representing options at the
option price of $38.3125 awarded at the time of Executive's initial
employment by Railway in accordance with the Employment Agreement between
Executive, Railway, and KCSI dated May 15, 1995 (the "1995 Employment
Agreement").
(ii) Options for the purchase of 150,000 shares of KCSI common stock,
pursuant to a stock option agreement dated November 6, 1995, representing
options at the option price of Forty-Six Dollars ($46.00) granted to
Executive in lieu of Performance Shares which Executive was to have the
right to earn under the 1995 Employment Agreement.
(iii) Options to purchase 45,000 shares of KCSI common, pursuant to a
stock option agreement dated January 25, 1996, representing stock options
at the option price of $43.1875 awarded to Executive in lieu of a cash
bonus for the period of May 15, 1995 through December 31, 1995 as
previously provided in the 1995 Employment Agreement.
Executive acknowledges and agrees that he has received the stock
options specified in subparagraphs (ii) and (iii) above in lieu of performance
shares and a cash bonus as previously provided in the 1995 Employment Agreement
and that Executive has no right or claim under the 1995 Employment Agreement or
otherwise for said performance shares or said cash bonus.
3. Benefits. During the period of his employment hereunder, Railway
shall 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 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
none of KCSI, KCSL 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 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 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 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, KCSL or any
subsidiary of Railway, KCSI or KCSL;
(iii) Gross negligence or willful misconduct in the performance of
Executive's duties as determined in good faith by the Railway 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 Railway Other Than For Cause.
(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 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
Profit Sharing Plan, the KCSI Employee Stock Ownership Plan and the
KCSI Section 401(k) 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 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 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.
(a) Duties. Upon termination of this Agreement by Railway or
Executive 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 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
(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 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 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, 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
entitled to participate, on the basis of his executive position, in each of the
following KCSI, KCSL 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 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, KCSL or
Railway in accordance with the terms thereof at the Control Change Date;
provided that if under KCSI, KCSL 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
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 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 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 KCSL, 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 KCSL's, Railway's or KCSI's then outstanding voting
securities; or
(iii) the stockholders of KCSL, Railway or KCSI shall
have approved a merger, consolidation or dissolution of KCSL, Railway
or KCSI or a sale, lease, exchange or disposition of all or
substantially all of KCSL's, Railway's or KCSI's assets, if
persons who were the beneficial owners of the combined voting power of
KCSL's, 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.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the contrary,
the sale of shares of stock of 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,
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 Date (regardless of any limitations based on the earnings or performance
of KCSI, KCSL 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 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
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 as contemplated by Section 7(a)(i), or any other action by
Railway which results in a diminution or other material adverse change
in such position, authority or duties;
(ii) any failure by Railway to comply with any of the
provisions of Paragraph 7; (iii) Railway'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
(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 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 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 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, KCSL 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.
(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 Railway 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 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, 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 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 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 (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 sue 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 sue 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.
(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 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, it 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 prepaid, addressed,
in the case of Railway or KCSI, to Railway or KCSI at 114 West 11th Street,
Kansas City, Missouri 64105, Attention: Secretary, or, in the case of the
Executive, to at 6410 Wenonga Road, Mission Hills, Kansas 66208, 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 President of Railway 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.
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.
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 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, 1999.
THE KANSAS CITY SOUTHERN RAILWAY
COMPANY
By /s/ Michael R. Haverty
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Michael R. Haverty, President
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By /s/ Landon H. Rowland
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Landon H. Rowland, President
EXECUTIVE
/s/ Michael H. Haverty
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Michael R. Haverty