Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of June, 2002, by
and between The Kansas City Southern Railway Company, a Missouri corporation
("Railway"), Kansas City Southern, a Delaware corporation ("KCS") and Ronald G.
Russ, an individual ("Executive").
WHEREAS, Railway, KCS and Executive desire for Railway 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
Railway or KCS, 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, KCS and Executive as
follows:
1. Employment. Railway hereby employs Executive as its Senior Vice
President and Chief Financial Officer to serve at the pleasure of the Board of
Directors of Railway (the "Railway 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 Railway Board and in the stockholder of Railway. 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.
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
KCS Compensation Committee. Such rate shall not be increased prior to
January 1, 2003 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 2002, Executive shall not be
entitled to participate in the Railway Incentive Compensation Plan.
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 KCS (the "KCS Board")
or the Compensation Committee of the KCS 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 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 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
Railway nor KCS 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, KCS or any
subsidiary of Railway or KCS;
(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 KCS Employee Stock Ownership
Plan and the KCS 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
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 Railway or KCS 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 KCS shall use their best efforts to cause all
outstanding options held by Executive under any stock option plan of KCS 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 Railway
or KCS in accordance with the terms thereof at the Control Change Date; provided
that if under Railway or KCS 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. 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 KCS Board shall be individuals who fall
into any of the following categories: (a) individuals who were members
of the KCS Board on the date of the Agreement; or (b) individuals
whose election, or nomination for election by KCS's stockholders, was
approved by a vote of at least seventy-five percent (75%) of the
members of the KCS Board then still in office who were members of the
KCS Board on the date of the Agreement; or (c) individuals whose
election, or nomination for election, by KCS's stockholders, was
approved by a vote of at least seventy-five percent (75%) of the
members of the KCS 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 KCS 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 KCS 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 KCS's then outstanding voting securities; or
(iii) the stockholders of Railway or KCS shall have approved a
merger, consolidation or dissolution of Railway or KCS or a sale,
lease, exchange or disposition of all or substantially all of
Railway's or KCS's assets, if persons who were the beneficial owners
of the combined voting power of Railway's or KCS'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
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) 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 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
Railway or KCS) 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 or KCS 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. KCS Not an Obligor. Notwithstanding that KCS 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 KCS, to Railway or KCS at 114 West 11th Street, Kansas City,
Missouri 64105, Attention: Secretary, or, in the case of the Executive, to him
at 114 West 11th Street, Kansas City, Missouri 64105, 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 and the President of Railway and the
President of KCS. 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 Railway and KCS
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 Railway and
KCS, regardless of the manner in which such successors or assigns shall succeed
to the interest of Railway and KCS hereunder, and this Agreement shall not be
terminated by the voluntary or involuntary dissolution of Railway or KCS or by
any merger or consolidation or acquisition involving Railway or KCS, or upon any
transfer of all or substantially all of Railway's or KCS'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 Agreement as of
the 1st day of June, 2002.
THE KANSAS CITY SOUTHERN RAILWAY COMPANY
By /s/ Michael R. Haverty
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Michael R. Haverty, Chairman, President & CEO
KANSAS CITY SOUTHERN
By /s/ Michael R. Haverty
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Michael R. Haverty, Chairman, President & CEO
EXECUTIVE
/s/ Ronald G. Russ
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Ronald G. Russ