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 Kansas City Southern Industries, Inc., a Delaware
corporation ("KCSI") and Danny R. Carpenter, 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
Vice President Finance to serve at the pleasure of the Board of Directors of
KCSI (the "KCSI Board") and to have such duties, powers and responsibilities as
may be prescribed or delegated from time to time by the President or other
officer to whom Executive reports, subject to the powers vested in the KCSI
Board and in the stockholders of KCSI. Executive shall faithfully perform his
duties under this Agreement to the best of his ability and shall devote
substantially all of his working time and efforts to the business and affairs of
KCSI and its affiliates.
2. Compensation.
(a) Base Compensation. KCSI shall pay Executive as
compensation for his services hereunder an annual base salary at the rate
approved by the KCSI Compensation Committee 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 KCSI and applicable to all officers of KCSI.
(b) Incentive Compensation. For the year 1999,
Executive shall not be entitled to participate in any KCSI incentive
compensation plan.
3. Benefits. During the period of his employment hereunder, KCSI shall
provide Executive with coverage under such benefit plans and programs as are
made generally available to similarly situated employees of KCSI, provided (a)
KCSI shall have no obligation with respect to any plan or program if Executive
is not eligible for coverage thereunder, and (b) Executive acknowledges that
stock options and other stock and equity participation awards are granted in the
discretion of the KCSI Board or the Compensation Committee of the KCSI Board and
that Executive has no right to receive stock options or other equity
participation awards or any particular number or level of stock options or other
awards. In determining contributions, coverage and benefits under any disability
insurance policy and under any cash compensation-based plan provided to
Executive by KCSI, it shall be assumed that the value of Executive's annual
compensation, pursuant to this Agreement, is 175% 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 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 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.
4. Termination.
(a) Termination by Executive. Executive may terminate this
Agreement and his employment hereunder by at least thirty (30) days advance
written notice to KCSI, except that in the event of any material breach of this
Agreement by KCSI, Executive may terminate this Agreement and his employment
hereunder immediately upon notice to KCSI.
(b) Death or Disability. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability of
Executive, except to the extent employment is continued under KCSI's
disability plan. For purposes of this Agreement, Executive shall be deemed to be
disabled if he qualifies for disability benefits under KCSI's long-term
disability plan.
(c) Termination by KCSI For Cause. KCSI may terminate this
Agreement and Executive's employment "for cause" immediately upon notice to
Executive. For purposes of this Agreement (except for Paragraph 7), termination
"for cause" shall mean termination based upon any one or more of the following:
(i) Any material breach of this Agreement by
Executive;
(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 President or other officer to whom
Executive reports 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 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 KCSI shall continue until the
end of such one (1) year period notwithstanding the death or disability
of Executive during said period (except, in the event of death, the
obligation to reimburse Executive for the cost of life insurance shall
not continue). In the year in which termination of employment occurs,
Executive shall be eligible to receive benefits under the KCSI
Incentive Compensation Plan and 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. During the term of this
Agreement and at all times after any termination of this Agreement,
Executive shall not, either directly or indirectly, use or
disclose any KCSI trade secret, except to the extent necessary for
Executive to perform his duties for KCSI while an employee. For
purposes of this Agreement, the term "KCSI trade secret" shall mean
any information regarding the business or activities of KCSI or any
subsidiary or affiliate, including any formula, pattern, compilation,
program, device, method, technique, process, customer list, technical
information or other confidential or proprietary information, that (a)
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use, and (b) is the subject of efforts of KCSI or its
subsidiary or affiliate that are reasonable under the circumstance
to maintain its secrecy. In the event of any breach of this Paragraph
5 by Executive, KCSI shall be entitled to terminate any and all
remaining severance benefits under Paragraph 4(d)(ii) and shall be
entitled to pursue such other legal and equitable remedies as may be
available.
6. Duties Upon Termination; Survival.
(a) Duties. Upon termination of this Agreement by KCSI or
Executive for any reason, Executive shall immediately return to KCSI all KCSI
trade secrets which exist in tangible form and shall sign such written
resignations from all positions as an officer, director or member of any
committee or board of KCSI and all direct and indirect subsidiaries and
affiliates of KCSI as may be requested by KCSI and shall sign such other
documents and papers relating to Executive's employment, benefits and benefit
plans as KCSI may reasonably request.
(b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of
this Agreement shall survive any termination of this Agreement by KCSI or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by KCSI under Paragraph 4(d)(i).
7. Continuation of Employment Upon Change in Control 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% 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 KCSI shall pay to Executive
within five (5) days after Termination a lump sum payment equal to the amount of
Specified Benefits Executive would have received under such plan if Executive
had been fully vested in the average annual contributions or benefits in effect
for the three plan years ending prior to the Control Change Date (regardless of
any limitations based on the earnings or performance of KCSI) and a continuing
participant in such plan to the end of the Benefits Period. Following the end of
the Benefits Period, KCSI shall continue to provide to the Executive and the
Executive's family the following benefits ("Post-Period Benefits"): (1) prior to
the Executive's attainment of age sixty (60), health, prescription and dental
benefits equivalent to those then applicable to active peer executives of KCSI
and their families, as the same may be modified from time to time, and (2)
following the Executive's attainment of age sixty (60) (and without regard to
the Executive's period of service with KCSI), health and prescription benefits
equivalent to those then applicable to retired peer executives of KCSI and their
families, as the same may be modified from time to time. The cost to the
Executive of such Post-Period Benefits shall not exceed the cost of such
benefits to active or retired (as applicable) peer executives, as the same may
be modified from time to time. Notwithstanding the preceding two sentences of
this Paragraph 7(e), if the Executive is covered under any health, prescription
or dental plan provided by a subsequent employer, then the corresponding type of
plan coverage (i.e., health, prescription or dental) required to be provided as
Post-Period Benefits under this Paragraph 7(e) shall cease. The Executive's
rights under this Paragraph 7(e) shall be in addition to, and not in lieu of,
any post-termination continuation coverage or conversion rights the Executive
may have pursuant to applicable law, including without limitation continuation
coverage required by Section 4980 of the Code. Nothing in this Paragraph 7(e)
shall be deemed to limit in any manner the reserved right of KCSI, in its sole
and absolute discretion, to at any time amend, modify or terminate health,
prescription or dental benefits for active or retired employees generally.
(f) Resignation After Control Change Date. In the event of a
Change in Control as defined in Paragraph 7(d), thereafter, upon good reason (as
defined below), Executive may, at any time during the 3-year period following
the Change in Control, in his sole discretion, on not less than thirty (30)
days' written notice (the "Notice of Resignation") to the Secretary of KCSI
and effective at the end of such notice period, resign his employment with KCSI
(the "Resignation"). Within five (5) days of such a Resignation, KCSI shall pay
to Executive his full base salary through the effective date of such
Resignation, to the extent not theretofore paid, plus a lump sum amount equal to
the Special Severance Payment (computed as provided in the first sentence of
Paragraph 7(e), except that for purposes of such computation all references to
"Termination" shall be deemed to be references to "Resignation"). Upon
Resignation of Executive, Specified Benefits to which Executive was entitled
immediately prior to Resignation shall continue on the same terms and conditions
as provided in Paragraph 7(e) in the case of Termination (including equivalent
payments provided for therein), and Post-Period Benefits shall be provided on
the same terms and conditions as provided in Paragraph 7(e) in the case of
Termination. For purposes of this Agreement, "good reason" means any of the
following:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by Section
7(a)(i), or any other action by KCSI which results in a diminution or
other material adverse change in such position, authority or duties;
(ii) any failure by KCSI to comply with any of the
provisions of Paragraph 7;
(iii) KCSI's requiring the Executive to be based at
any office or location other than the location described in Section
7(a)(ii);
(iv) any other material adverse change to
the terms and conditions of the 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 purposes.
(ii) If the Executive does not make a request for,
and KCSI does not deliver to the Executive, a Certificate, KCSI shall,
for purposes of Paragraph 7(j), be deemed to have determined that no
Gross-up Payment is due.
(j) Additional Gross-up Amounts. If, despite the initial
conclusion of KCSI and/or the Executive that certain Payments are neither
subject to Excise Taxes nor to be counted in determining whether other Payments
are subject to Excise Taxes (any such item, a "Non-Parachute Item"), it is later
determined (pursuant to subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, final IRS determination or judgment
of a court of competent jurisdiction or KCSI's independent auditors) that
any of the Non-Parachute Items are subject to Excise Taxes, or are to be counted
in determining whether any Payments are subject to Excise Taxes, with the result
that the amount of Excise Taxes payable by the Executive is greater than the
amount determined by KCSI or the Executive pursuant to Paragraph 7(h) or
Paragraph 7(i), as applicable, then KCSI shall pay the Executive an amount
(which shall also be deemed a Gross-up Payment) equal to the product of:
(i) the sum of (a) such additional Excise Taxes and
(b) any interest, fines, penalties, expenses or other costs incurred by
the Executive as a result of having taken a position in accordance with
a determination made pursuant to Paragraph 7(h); multiplied by
(ii) the Gross-up Multiple.
(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 representa-
tion 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 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 KCSI shall determine; provided, however, that if
KCSI directs the Executive to pay such claim and sue 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 and in Paragraph 7(e) with
respect to health, prescription and dental benefits, no such other employment,
if obtained, or compensation or benefits payable in connection therewith shall
reduce any amounts or benefits to which Executive is entitled hereunder. Such
amounts or benefits payable to Executive under this Agreement shall not be
treated as damages but as severance compensation to which Executive is entitled
because Executive's employment has been terminated.
9. Notice. Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have been
given when personally delivered, delivered by facsimile or deposited in the
United States mail by certified or registered mail, postage prepaid, addressed,
in the case of KCSI, to KCSI at 114 West 11th Street, Kansas City, Missouri
64105, Attention: Secretary, or, in the case of the Executive, to him at 5639
High Drive, Shawnee Mission, Kansas 66208, 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 1st day of January, 1999.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By /s/ Landon H. Rowland
---------------------------------
Landon H. Rowland, President
EXECUTIVE
/s/ Danny R. Carpenter
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Danny R. Carpenter