exv10w4



 





Exhibit 10.4




AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT




     This Amendment No. 1 to Employment Agreement (this “Amendment”), effective as of May 7, 2007,
is between The Kansas City Southern Railway Company, a Missouri corporation (“Railway”), and
Patrick J. Ottensmeyer, an individual (“Executive”).



     WHEREAS, Executive is currently employed by Railway, and Railway and Executive previously
entered into an Employment Agreement dated May 15, 2006 (“Agreement”), which sets forth terms and
conditions of Executive’s employment by Railway; and



     WHEREAS, the parties desire to amend certain of those terms and conditions in the Agreement as
set forth below without amending the remaining terms of the Agreement.



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



     1. Amendments to the Agreement.




(a) Paragraph 7(e) of the Agreement is hereby deleted in its entirety and the following new
Paragraph 7(e) is inserted in lieu thereof:




	 	 	 	“(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 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 KCS, or Railway) and a continuing
participant in such plan to the end of the Benefits Period. Following
the end of the Benefits Period, Railway shall continue to provide to
the Executive and the Executive’s family the following benefits
(“Post-Period Benefits”): (1) prior to the Executive’s attainment of
age sixty (60), health, prescription and dental benefits equivalent to
those then applicable to active peer executives of Railway) and their
families, as the same may be modified from time to time, and (2)
following the Executive’s attainment of age sixty (60) (and without
regard to the Executive’s period of service with Railway) health and
prescription benefits equivalent to those then applicable to retired
peer executives of Railway and their families 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 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.”






(b) The penultimate sentence of the first paragraph of Paragraph 7(f) of the Agreement is
hereby deleted in its entirety, and the following new sentence is inserted in lieu thereof:




“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.”




(c) Paragraphs 7(h) and 7(i) of the Agreement are hereby deleted in their entirety and the
following new Paragraphs 7(h) through 7(p), inclusive, are inserted in lieu thereof:




	 	 	 	“(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 to: (A) deliver a Certificate to the Executive or
(B) 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 are 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.”






(d) The first sentence of Paragraph 8 of the Agreement is hereby deleted in its entirety, and
the following new sentence is inserted in lieu thereof:



 









 






“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.”


2. Reference to and Effect on the Agreement. On and after the effectiveness of this
Amendment, each reference in the Agreement to “hereunder”, “hereof” or words of like import
referring to the Agreement, shall mean and be a reference to the Agreement as modified by this
Amendment.



3. Severability. The invalidity or unenforceability of any particular provision of this
Amendment shall not affect the other provisions hereof, and this Amendment shall be construed in
all respects as if such invalid or unenforceable provisions were omitted.



4. Controlling Law and Jurisdiction. The validity, interpretation and performance of this
Amendment shall be subject to and construed under the laws of the State of Missouri, without regard
to principles of conflicts of law.



5. Entire Agreement. This Amendment 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, oral or otherwise, respecting such subject matter, any such
agreement or understanding being superseded hereby, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns, and may not be
amended, extended or otherwise modified, except in a writing executed in whole or in counterparts
by each party hereto.




[Signature Page Follows.]




 









 








     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 26th day of
July, 2007.



	 	 	 	 	 
	 	THE KANSAS CITY SOUTHERN RAILWAY COMPANY

 	 
	 	By:  	/s/ Michael R. Haverty
 	 
	 	 	Michael R. Haverty, Chairman 	 
	 	 	 	 
	 
	 	EXECUTIVE

 	 
	 	/s/ Patrick J. Ottensmeyer
 	 
	 	PATRICK J. OTTENSMEYER