exv10w14



 


Exhibit 10.14






EMPLOYMENT AGREEMENT




     THIS AGREEMENT, made and entered into as of this 1st day of October, 2004, by and between
Kansas City Southern, a Delaware corporation (“KCS”) and Robert B. Terry, an individual
(“Executive”).



     WHEREAS, Executive has been offered employment by KCS and Executive desire for KCS 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 KCS hereafter, particularly in the event of any
change in control (as herein defined) of KCS, or Railway, thereby establishing and preserving
continuity of management of KCS.



     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it
is agreed by and between KCS and Executive as follows:



     1. Employment. KCS hereby employs Executive as its Senior Vice President and General
Counsel to serve at the pleasure of the Board of Directors of KCS (the “KCS 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 KCS Board
and in the stockholders of KCS. 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 KCS and its affiliates.



     2. Compensation.



          (a) Base Compensation. KCS 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 reduced except as agreed by the parties or except as part of a general salary
reduction program imposed by KCS for non-union employees and applicable to all officers of KCS, not
related to a Change of Control.




     3. Benefits. During the period of his employment hereunder, KCS shall provide
Executive with coverage under such benefit plans and programs as are made generally available to
similarly situated employees of KCS, provided (a) KCS 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 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
KCS, it shall be assumed that the value of Executive’s annual compensation, pursuant to this
Agreement, is 160% 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 KCS is not under any obligation to continue
in effect or to fund any such plan or program, except as provided in Paragraph 7 hereof.




     4. Term and Termination.



          The “Term” of this Agreement shall begin on the date first written above and continue until
terminated as provided in (a) through (d) of this Section 4.




          (a) Termination by Executive. Executive may terminate this Agreement and his
employment hereunder by providing at least thirty (30) days advance written notice to KCS, except
that in the event of any material breach of this Agreement by KCS, Executive may terminate this
Agreement and his employment hereunder immediately upon notice to KCS.




          (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 KCS’s disability plan. For purposes of this Agreement, Executive shall be deemed
to be disabled if he qualifies for disability benefits under KCS’s long-term disability plan.




          (c) Termination by KCS For Cause. KCS 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 KCS Board;




     (iv) Executive’s failure to substantially perform his duties and responsibilities
hereunder, including without limitation Executive’s willful failure to follow reasonable
instructions of the President or other officer to whom Executive reports;




     (v) Executive’s breach of an express employment policy of KCS or its
affiliates;




     (vi) Executive’s fraud or criminal activity;




     (vii) Embezzlement or misappropriation by Executive.; or




     (viii) Executive’s breach of his fiduciary duty to Railway, or KCS, or their
affiliates.



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     (d) Termination by KCS Other Than For Cause.




     (i) KCS may terminate this Agreement and Executive’s employment other than for cause
immediately upon notice to Executive, and in such event, KCS shall provide severance
benefits to Executive in accordance with Paragraph 4(d)(ii) below. Executive
acknowledges and agrees that such severance benefits constitute the exclusive remedy of
Executive upon termination of employment other than for cause. Notwithstanding any other
provision of this Agreement, as a condition to receiving such severance benefits, Executive
shall execute a full release of claims in favor of KCS and Railway and their affiliates in
the form Attached hereto as Appendix A.




     (ii) Unless the provisions of Paragraph 7 of this Agreement are applicable, if
Executive’s employment is terminated under Paragraph 4(d)(i), KCS 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 KCS
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 KCS 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 KCS 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 KCS
Incentive Compensation Plan or the Executive Plan with respect to the severance pay provided
herein, notwithstanding that benefits under such plan there are still generally available to
executive employees of KCS. 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 Section 401(k) and Profit
Sharing Plan and the KCS Employee Stock Ownership Plan (if KCS 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. Confidentiality and Non-Disclosure.



          (a) Executive understands and agrees that he will be given Confidential Information (as
defined below) during his employment with KCS relating to the business of




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KCS, Railway, and/or their affiliates, in exchange for his agreement herein. Executive hereby
expressly agrees to maintain in strictest confidence and not to use in any way (including without
limitation in any future business relationship of Executive), publish, disclose or authorize anyone
else to use, publish or disclose in any way, any Confidential Information relating in any manner to
the business or affairs of KCS, Railway, and/or their affiliates. Executive agrees further not to
remove or retain any figures, calculations, letters, documents, lists, papers, or copies thereof,
which embody Confidential Information of KCS, Railway, and/or their affiliates, and to return,
prior to Executive’s termination of employment for any reason, any such information in Executive’s
possession. If Executive discovers, or comes into possession of, any such information after his
termination he shall promptly return it to KCS. Executive acknowledges that the provisions of this
paragraph are consistent with KCS’s policies and procedures to which Executive, as an employee of
KCS, is bound.




          (b) For purposes of this Agreement, “Confidential Information” includes, but is not limited
to, information in the possession of, prepared by, obtained by, compiled by, or that is used by
KCS, Railway, or their affiliates or customers and (i) is proprietary to, about, or created by KCS,
Railway, or their affiliates or customers; (ii) gives KCS, Railway, or their affiliates or
customers some competitive business advantage, the opportunity of obtaining such advantage,
or disclosure of which might be detrimental to the interest of KCS, Railway, or their affiliates
or customers; and (iii) is not typically disclosed by KCS, Railway, or their affiliates or
customers, or known by persons who are not employed by KCS, Railway, or their affiliates or
customers. Without in any way limiting the foregoing and by way of example, Confidential
Information shall include: information pertaining to KCS’s, Railway’s, or their affiliates’
business operations such as financial and operational information and data, operational plans and
strategies, business and marketing strategies, pricing information, plans for various products and
services, and acquisition and divestiture planning.




          (c) 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. Executive
acknowledges, understands and agrees that KCS, Railway, and/or their affiliates will suffer
immediate and irreparable harm if Executive fails to comply with any of his obligations under
Paragraph 5 of this Agreement, and that monetary damages alone will be inadequate to compensate
KCS, Railway, or their affiliates for such breach. Accordingly, Executive agrees that KCS,
Railway, and/or their affiliates shall, in addition to any other remedies available to it at law
or in equity, be entitled to temporary, preliminary, and permanent injunctive relief and specific
performance to enforce the terms of Paragraph 5 without the necessity of proving inadequacy of
legal remedies or irreparable harm or posting bond.




          6. Duties Upon Termination; Survival.




          (a) Duties. Upon termination of this Agreement by KCS or Executive for any reason,
Executive shall immediately sign such written resignations from all positions as an officer,
director or member of any committee or board of KCS, and Railway and all direct and indirect
subsidiaries and affiliates of KCS and Railway as may be requested by KCS and shall sign such other
documents and papers relating to Executive’s employment, benefits and benefit plans as KCS may
reasonably request.




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          (b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of this Agreement shall
survive any termination of this Agreement by KCS, Railway or Executive, and the provisions of
Paragraph 4(d)(ii) shall survive any termination of this Agreement by KCS 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 KCS for a period of three years (the
“Three Year Period”) from the date of such Change in Control (the “Control Change Date”). KCS
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 (B) 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, KCS 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 KCS 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 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 KCS generally.



     In addition, KCS shall use its 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 KCS, in
accordance with the terms thereof at the Control Change Date; provided that if



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under KCS’s 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 KCS 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 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 KCS,
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
KCS’s or Railway’s or 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



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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, KCS 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 KCS 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 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 KCS 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 KCS,
or Railway) and a continuing participant in such plan to the end of the Benefits Period. Following
the end of the Benefits Period, KCS 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 KCS) 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 KCS) health and prescription benefits equivalent to those then
applicable to retired peer executives of KCS and their families immediately prior to the Change of
Control. 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 immediately prior to the Change of
Control. 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 KCS, 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 three-year period following the Change in Control, in his sole




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discretion, on not less than thirty (30) days’ written notice (the “Notice of Resignation”) to
the Secretary of KCS and effective at the end of such notice period, resign his employment with KCS
(the “Resignation”). Within five (5) days of such a Resignation, KCS 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 of 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 KCS which results in a diminution or other material adverse change in such
position, authority or duties;




     (ii) any failure by KCS to comply with any of the provisions of Paragraph 7;




     (iii) KCS’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 KCS 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 KCS “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;




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               (ii) any act or omission believed by the Executive in good faith to have been in or not
opposed to the interest of KCS or 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 KCS Board that the Executive met the applicable standard of conduct for
indemnification or reimbursement under KCS’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 KCS 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 KCS 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
KCS’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 KCS 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.




               KCS shall cause the preparation and delivery to the Executive of a Certificate upon
request at any time. KCS 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 KCS 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



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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 KCS 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 KCS, KCS 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 KCS) or (B) deliver to the
Executive a Certificate specifying the Gross-up Payment determined by KCS’s independent
auditors, together with an opinion of KCS’s counsel (“KCS Counsel Opinion”), and pay the
Executive the Gross-up Payment specified in such Certificate. If for any reason KCS 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 KCS does not deliver to the
Executive, a Certificate, KCS 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 KCS 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 KCS’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 KCS or the Executive pursuant to Paragraph 7(h) or Paragraph 7(i), as
applicable, then KCS 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.)





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          (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 KCS’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 KCS in writing of any
claim by the IRS or other taxing authority that, if successful, would require the payment by KCS 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 KCS’s obligations
under this Paragraph 7 only if and to the extent that such failure results in actual prejudice to
KCS. The Executive shall not pay such claim less than 30 days after the Executive gives such
notice to KCS (or, if sooner, the date on which payment of such claim is due). If KCS notifies the
Executive in writing before the expiration of such period that it desires to contest such claim,
the Executive shall:





               (i) give KCS any information that it reasonably requests relating to such claim;




               (ii) take such action in connection with contesting such claim as KCS 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 KCS;




               (iii) cooperate with KCS in good faith to contest such claim; and




               (iv) permit KCS to participate in any proceedings relating to such claim; provided,
however, that KCS 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, KCS 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 KCS
shall determine; provided, however, that if KCS directs the Executive to pay such claim and
sue for a refund, KCS shall advance the amount of such payment to the Executive, on are
interest-free basis and shall indemnify



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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. KCS’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 KCS
pursuant to Paragraph 7(m), the Executive receives any refund with respect to such claim, the
Executive shall (subject to KCS’s complying with the requirements of Paragraph 7(m)) promptly pay
KCS 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 KCS 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 KCS 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, KCS 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 KCS any amounts so received if a court having
jurisdiction shall make a final, non-appealable determination that Executive acted frivolously or
in bad faith by such dispute. To assure Executive that adequate funds will be made available to
discharge KCS’s obligations set forth in the preceding sentence, KCS 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 KCS 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



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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 to KCS at P.O. Box 219335, Kansas City, Missouri 64121-9335, Attention:
Secretary, or, in the case of the Executive, to him at 4952 West 132nd Terrace, Leawood,
Kansas 66209, 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 writing signed
by Executive, 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.



     11. Successors in Interest. The rights and obligations of 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 KCS, regardless of the manner in which such successors or assigns shall
succeed to the interest of KCS hereunder, and this Agreement shall not be terminated by the
voluntary or involuntary dissolution of KCS or Railway or by any merger or consolidation or
acquisition involving KCS or Railway, or upon any transfer of all or substantially all of KCS’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 KCS.



     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 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.



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     IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement as of
the 1st day of October, 2004.



	 	 	 	 	 
	 	 	KANSAS CITY SOUTHERN
	 
	 	 	 	 
	 

	 	By:
	 	      /s/ Michael R. Haverty
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Michael R. Haverty, Chairman, President, and CEO






	 	 	 	 	 	 	 
	 	 	EXECUTIVE
	 
	 	 	 	 	 	 
	 	 	              /s/ Robert B. Terry
	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Robert B. Terry






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Appendix A




WAIVER AND RELEASE




     In consideration of the benefits described in the Employment Agreement, I do hereby fully
waive all claims and release Kansas City Southern (KCS), and its affiliates, parents, subsidiaries,
successors, assigns, directors and officers, fiduciaries, employees and agents, as well as any
employee benefit plans from liability and damages related in any way to any claim I may have
against or KCS. This waiver and release includes, but is not limited to all claims, causes of
action and rights under Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act
of 1991; the Age Discrimination in Employment Act of 1967, as amended; the Civil Rights Act of
1866; the American with Disabilities Act of 1990; the Rehabilitation Act of 1973; the Older Workers
Benefit Protection Act of 1990; the Employee Retirement Income Security Act of 1974, as amended;
the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the
Federal Employers Liability Act; the Railway Labor Act, including bumping rights, rights to file a
grievance, rights to a hearing (whether before any company official, any system, group, regional or
special adjustment board, the National Railroad Adjustment Board, or any other entity), and any
rights to arbitration thereunder; the Missouri Human Rights Act, the Kansas Act Against
Discrimination, the Kansas and Missouri Workers’ Compensation acts, and all local state and federal
statutes and regulations; all claims arising from labor protective conditions imposed by the
Interstate Commerce Commission or the Surface Transportation Board; all any KCSR incentive or
benefit plan or program, and any rights under any collective bargaining agreement, including
seniority rights, bumping rights and reinstatement rights, rights to file or assert a grievance or
other complaint, rights to a hearing, or rights to arbitration under such agreement; and all rights
under common law such as breach of contract, tort or personal injury of any sort.


I understand that this Agreement and Release also precludes me from recovering any relief as a
result of any lawsuit, grievance or claims brought on my behalf and arising out of my employment or
resignation of, or separation from employment, provided that nothing in this Agreement and this
Release may affect my entitlement, if any, to workers’ compensation or unemployment compensation.
Additionally, nothing in this Agreement and Release prohibits me from communications with, filing a
complaint with, or full cooperation in the investigations of, any governmental agency on matters
within their jurisdictions. However, as stated above, this Agreement and Release does prohibit me
from recovering any relief, including monetary relief, as a result of such activities.




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If any term, provision, covenant, or restriction of this Agreement and Release is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remainder of this Agreement and
Release and the other terms, provisions, covenants and restrictions hereof shall remain in full
force and effect and shall in no way be affected, impaired or invalidated. I understand and agree
that, in the event of breach by me of any of the terms and conditions of this Agreement and
Release, the Railway will be entitled to recover all costs and expenses as a result of my breach,
including but not limited to, reasonable attorneys’ fees and costs.



I have read this Agreement and Release and I understand all of its terms. I enter into and sign
this Agreement and Release knowingly and voluntarily, with full knowledge of what it means.




	 	 	 
	/s/ Robert B. Terry

	 	October 1, 2004
	 

	 	 
	Employee Signature

	 	Date
	 
	 	 
	Robert B. Terry

	 	(Contained within original)
	 

	 	 
	Employee Name(Please Print)

	 	Social Security Number







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