exv10w4



 





Exhibit 10.4




 





Participation Agreement

(KCSR 2006-1)




dated as of August 2, 2006




among




The Kansas City Southern Railway Company,

as Lessee




KCSR Trust 2006-1, acting through

Wilmington Trust Company,

not in its individual capacity, except as otherwise

expressly provided herein, but solely as Owner Trustee,




HSH Nordbank AG, New York Branch,

as Owner Participant




Wells Fargo Bank Northwest, National Association,

as Indenture Trustee




and




DVB Bank AG,

as Loan Participant




33 SD70ACe Locomotives




 





 









 





Table of Contents




	 	 	 	 	 	 	 
	Section	 	Heading	 	Page
	 	 	 	 	 
	Article I
	 	Definitions; Interpretation of This Agreement

	 	 	2	 
	 	 	 
	 	 	 	 
	   Section 1.1.
	 	Definitions

	 	 	2	 
	   Section 1.2.
	 	Directly or Indirectly

	 	 	2	 
	 	 	 
	 	 	 	 
	Article II
	 	Sale and Purchase; Participation in the Equipment Cost;

	 	 	2	 
	 	 	 
	 	 	 	 
	   Section 2.1.
	 	Sale and Purchase

	 	 	2	 
	   Section 2.2.
	 	Participation in Equipment Cost

	 	 	3	 
	   Section 2.3.
	 	Closing Date; Procedure for Participation

	 	 	3	 
	   Section 2.4.
	 	Owner Participant’s Instructions to Owner Trustee; Satisfaction of
Conditions

	 	 	4	 
	   Section 2.5.
	 	Expenses

	 	 	5	 
	   Section 2.6.
	 	Calculation of Adjustments to Basic Rent, Stipulated Loss Value,
Termination Value and Fixed Purchase Price; Confirmation and Verification

	 	 	7	 
	   Section 2.7.
	 	Optional Postponement of Closing Date

	 	 	10	 
	 	 	 
	 	 	 	 
	Article III
	 	Representations and Warranties

	 	 	11	 
	 	 	 
	 	 	 	 
	   Section 3.1.
	 	Representations and Warranties of Trust Company and Owner Trustee
	 	 	11	 
	   Section 3.2.
	 	Representations and Warranties of Lessee

	 	 	13	 
	   Section 3.3.
	 	Representations and Warranties of Indenture Trustee

	 	 	15	 
	   Section 3.4.
	 	Representations, Warranties and Covenants Regarding Beneficial
Interest

	 	 	16	 
	   Section 3.5.
	 	Representations and Warranties of Loan Participant

	 	 	17	 
	   Section 3.6.
	 	Representations and Warranties of Owner Participant

	 	 	18	 
	   Section 3.7.
	 	Opinion Acknowledgment

	 	 	19	 
	 	 	 
	 	 	 	 
	Article IV
	 	Conditions Precedent

	 	 	19	 
	 	 	 
	 	 	 	 
	   Section 4.1.
	 	Conditions Precedent to First Delivery Date; Conditions Precedent
of Each Participant and Indenture Trustee to the Closing Date

	 	 	19	 
	   Section 4.2.
	 	Additional Conditions Precedent to the Obligations of Loan
Participant

	 	 	23	 
	   Section 4.3.
	 	Additional Conditions Precedent to the Obligations of Owner
Participant

	 	 	24	 
	   Section 4.4.
	 	Conditions Precedent to the Obligation of Lessee

	 	 	25	 






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	Section	 	Heading	 	Page
	 	 	 	 	 
	Article V
	 	Financial and Other Reports of Lessee

	 	 	26	 
	 	 	 
	 	 	 	 
	Article VI
	 	Certain Covenants of the Participants, Trustees and Lessee

	 	 	27	 
	 	 	 
	 	 	 	 
	   Section 6.1.
	 	Restrictions on Transfer of Beneficial Interest

	 	 	27	 
	   Section 6.2.
	 	Lessor’s Liens Attributable to Owner Participant

	 	 	29	 
	   Section 6.3.
	 	Lessor’s Liens Attributable to Trust Company

	 	 	30	 
	   Section 6.4.
	 	Liens Created by Indenture Trustee and Loan Participant

	 	 	30	 
	   Section 6.5.
	 	Covenants of Owner Trustee, Trust Company, Owner Participant and
Indenture Trustee

	 	 	31	 
	   Section 6.6.
	 	Amendments to Operative Agreements

	 	 	32	 
	   Section 6.7.
	 	Section 1168

	 	 	32	 
	   Section 6.8.
	 	Merger Covenant

	 	 	32	 
	   Section 6.9.
	 	Additional Filings

	 	 	33	 
	   Section 6.10.
	 	Owner Participant an Affiliate of Lessee

	 	 	33	 
	   Section 6.11.
	 	Taxes

	 	 	33	 
	   Section 6.12.
	 	Negative Make-Whole Amount

	 	 	33	 
	 	 	 
	 	 	 	 
	Article VII
	 	Lessee’s Indemnities

	 	 	34	 
	 	 	 
	 	 	 	 
	   Section 7.1.
	 	General Tax Indemnity

	 	 	34	 
	   Section 7.2.
	 	General Indemnification and Waiver of Certain Claims

	 	 	41	 
	 	 	 
	 	 	 	 
	Article VIII
	 	Lessee’s Right of Quiet Enjoyment

	 	 	46	 
	 	 	 
	 	 	 	 
	Article IX
	 	[Reserved]

	 	 	46	 
	 	 	 
	 	 	 	 
	Article X
	 	Successor Indenture Trustee

	 	 	46	 
	 	 	 
	 	 	 	 
	Article XI
	 	Miscellaneous

	 	 	47	 
	 	 	 
	 	 	 	 
	   Section 11.1.
	 	Consents

	 	 	47	 
	   Section 11.2.
	 	Refinancing

	 	 	47	 
	   Section 11.3
	 	Amendments and Waivers

	 	 	49	 
	   Section 11.4.
	 	Notices

	 	 	49	 
	   Section 11.5.
	 	Survival

	 	 	51	 
	   Section 11.6.
	 	No Guarantee of Debt

	 	 	51	 
	   Section 11.7.
	 	Successors and Assigns

	 	 	51	 
	   Section 11.8.
	 	Business Day

	 	 	51	 
	   Section 11.9.
	 	Governing Law

	 	 	52	 
	   Section 11.10.
	 	Severability

	 	 	52	 
	   Section 11.11.
	 	Counterparts

	 	 	52	 
	   Section 11.12.
	 	Headings and Table of Contents

	 	 	52	 
	   Section 11.13.
	 	Limitations of Liability

	 	 	52	 
	   Section 11.14.
	 	Reproduction of Documents

	 	 	53	 






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	Section	 	Heading	 	Page
	 	 	 	 	 
	   Section 11.15.
	 	Tax Disclosure

	 	 	53	 
	   Section 11.16.
	 	Bankruptcy of Trust or Trust Estate

	 	 	53	 
	   Section 11.17.
	 	Transaction Intent

	 	 	54	 
	   Section 11.18.
	 	Jurisdiction, Court Proceedings

	 	 	54	 
	   Section 11.19.
	 	Increased Costs

	 	 	54	 






Attachments To Participation Agreement:




	 	 	 	 	 
	Schedule 1A

	 	—
	 	Description of Equipment; Equipment Cost (Type A)
	Schedule 1B

	 	—
	 	Description of Equipment; Equipment Cost (Type B)
	Schedule 2

	 	—
	 	Participants’ Commitments
	Exhibit A

	 	—
	 	Certificate of Acceptance
	Exhibit B

	 	—
	 	Bill of Sale






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Participation Agreement

(KCSR 2006-1)




     This Participation Agreement (KCSR 2006-1), dated as of August 2, 2006 (this
"Agreement” or this “Participation Agreement”), among (i) The Kansas City Southern Railway
Company, a Missouri corporation (herein, together with its permitted successors and assigns,
called the “Lessee”), (ii) KCSR TRUST 2006-1, a Delaware statutory trust (the “Trust”), acting
through Wilmington Trust Company, a Delaware banking corporation, not in its individual
capacity except as expressly stated herein, but solely as trustee of the Trust created under the
Trust Agreement (as hereinafter defined) (in its individual capacity “Trust Company” and as Owner
Trustee, together with its permitted successors and assigns, called the “Owner Trustee”), (iii)
HSH Nordbank AG, New York Branch, a banking corporation organized under the laws of
Germany (herein, together with its permitted successors and assigns, called the “Owner
Participant”), (iv) Wells Fargo Bank Northwest, National Association, a national banking
association, not in its individual capacity except as expressly provided herein, but as trustee
under the Indenture (as hereinafter defined) (herein in such capacity, together with its permitted
successors and assigns, called the “Indenture Trustee”), and (v) DVB Bank AG, a German
banking institution (together with its permitted successors and assigns, the “Loan Participant”).



Witnesseth:




     Whereas, concurrently with the execution and delivery of this Agreement, Owner
Participant and Trust Company have entered into the Trust Agreement (KCSR 2006-1) pursuant to which
Owner Trustee agrees, among other things, to hold the Trust Estate for the benefit of Owner
Participant thereunder on the terms specified in the Trust Agreement, subject, however, to the lien
created under the Indenture and, on the Closing Date, subject to the terms and conditions hereof,
to purchase the Equipment from each Seller and concurrently therewith lease the Equipment to
Lessee;



     Whereas, concurrently with the execution and delivery of this Agreement, the Trust
has entered into the Indenture with Indenture Trustee pursuant to which the Trust agrees, among
other things, for the benefit of the holder or holders of the Equipment Notes (i) to issue to Loan
Participant on the Closing Date an Equipment Note as evidence of the loan made by Loan Participant
on the Closing Date in connection with the financing of the Equipment Cost of the Units of
Equipment to be delivered on or prior to the Closing Date and (ii) on the Closing Date, to execute
and deliver an Indenture Supplement granting to Indenture Trustee a security interest in all of the
Units of Equipment delivered on or prior to the Closing Date (and it is the intention of the
parties hereto that Indenture Trustee have, for the benefit of the holders of the Equipment Notes,
such a security interest in all of the Units of Equipment delivered on or prior to the Closing
Date);



     Whereas, pursuant to the terms of the Trust Agreement, Owner Trustee, on behalf of
the Trust, is authorized and directed by Owner Participant (i) on the Closing Date, to accept
delivery of each Bill of Sale evidencing the purchase and transfer of title of each Unit of
Equipment to the



 









 







Trust; and (ii) to execute and deliver the Lease relating to the Equipment pursuant to which,
subject to the terms and conditions set forth therein, the Trust agrees to lease to Lessee, and
Lessee agrees to lease from the Trust, on such date, each Unit of Equipment to be delivered on or
prior to the Closing Date, such lease and delivery to be evidenced by the execution and delivery of
a Lease Supplement covering such Units subject to the condition subsequent that each Seller shall
receive the purchase price for the applicable Equipment on the Closing Date;



     Whereas, concurrently with the execution and delivery of this Agreement, Lessee and
Owner Participant have entered into the Tax Indemnity Agreement relating to the Equipment;



     Whereas, the proceeds from the sale of the Equipment Notes to Loan Participant on the
Closing Date will be applied, together with the equity contribution made by Owner Participant
pursuant to this Agreement on the Closing Date, to effect the purchase of the Units of Equipment to
be delivered on or prior to the Closing Date contemplated hereby;



     Now, therefore, in consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:



Article I




Definitions; Interpretation of This Agreement




     Section 1.1. Definitions. The capitalized terms used in this Agreement (including the
foregoing recitals) and not otherwise defined herein shall have the respective meanings specified
in Appendix A to the Lease, unless the context hereof shall otherwise require. All references to
Sections, Schedules and Exhibits herein are to Sections, Schedules and Exhibits of this Agreement
unless otherwise indicated.



     Section 1.2. Directly or Indirectly. Where any provision in this Agreement refers to action
to be taken by any Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.



Article II




Sale and Purchase; Participation in the Equipment Cost;

Closing Date; Transaction Costs; Adjustments




     Section 2.1. Sale and Purchase. (a) Subject to the terms and conditions hereof and on the
basis of the representations and warranties set forth herein, the Trust agrees to purchase each
Unit from the applicable Seller and Lessee agrees to accept delivery of such Unit under the Lease,
such lease, delivery and acceptance of the Units under the Lease to be conclusively evidenced by
the execution and delivery by Lessee of a Certificate of Acceptance covering such Unit in the form
attached hereto as Exhibit A (a “Certificate of Acceptance”) and dated the date



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of such delivery and acceptance, subject to the condition subsequent that each Seller shall receive
the purchase price for such Unit as herein provided.




     (b) Settlement of Purchase Price. Subject to the terms and conditions hereof and on the basis
of the representations and warranties set forth herein, on the date specified in the Closing Date
Notice delivered by Lessee pursuant to Section 2.3 (the
“Closing Date”), the Trust will pay to each
Seller a purchase price equal to the Equipment Cost with respect to each Unit theretofor delivered
by such Seller and accepted under the Lease but which settlement of the purchase price has not
occurred; provided, however, that the Trust shall not be obligated to pay the purchase price for
any Unit that shall suffer an Event of Loss on or prior to the Closing Date, and provided further,
in the event that the Closing Date does not occur on or before September 29, 2006 with respect to
any Unit for which a Delivery Date shall have occurred, the delivery and acceptance of such Unit
under the Lease shall automatically, without further action, be rescinded and all right, title and
interest to such Unit shall revert to the applicable Seller. The Closing Date shall occur on or
prior to September 29, 2006.



     Section 2.2. Participation in Equipment Cost.



     (a) Equity Participation. Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, Owner Participant agrees to participate in the
payment of the Equipment Cost for the Units on the Closing Date by making an equity investment in
the beneficial ownership of the Trust in an amount equal to the product of the Equipment Cost for
the Units of each Type delivered on or prior to the Closing Date and the percentage set forth
opposite Owner Participant’s name on Schedule 2 hereto for such Type (the “Owner Participant’s
Commitment”). The aggregate amount of Owner Participant’s Commitment required to be made as above
provided in the payment of the Equipment Cost on the Closing Date shall not exceed $17,162,938.91
(plus up to $683,100 in Transaction Costs). In no event shall the Equipment Cost for any Unit
exceed the fair market value of such Unit as set forth in the Appraisal referred to in Section
4.3(a) hereof. Owner Participant’s Commitment to be paid by Owner Participant on the Closing Date
shall be paid to Owner Trustee at an account with Owner Trustee to be held and applied by Owner
Trustee as provided in Section 2.3.



     (b) Debt Participation. Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, Loan Participant severally agrees to participate
on the Closing Date, in the payment of the Equipment Cost for the Units by making a secured loan,
to be evidenced by an Equipment Note of each Series, to Owner Trustee in an amount equal to the
product of the Equipment Cost for the Units of each Type delivered on or prior to the Closing Date
and the percentage set forth opposite Loan Participant’s name on Schedule 2 hereto for such Type
(the “Loan Participant’s Commitment"). The aggregate amount of Loan Participant’s Commitment
required to be made as above provided in the payment of the Equipment Cost on the Closing Date
shall not exceed the amount set forth opposite Loan Participant’s name on Schedule 2 hereto.



     Section 2.3. Closing Date; Procedure for Participation. (a) Closing Date Notice. Not later
than 11:00 A.M., New York City time, on the third Business Day preceding the Closing Date, Lessee
shall give Owner Participant, Indenture Trustee, Owner Trustee and Loan



-3-









 







Participant notice (a “Closing Date Notice”) by telex, telegraph, facsimile or other form of
telecommunication or telephone (to be promptly confirmed in writing) of the Closing Date, which
Closing Date Notice shall specify in reasonable detail the number and type of Units to be delivered
and accepted under the Lease for which settlement of the purchase price will be made on such date,
the aggregate Equipment Cost of such Units, and the respective amounts of Owner Participant’s
Commitment and Loan Participant’s Commitment required to be paid with respect to such Units.
Concurrently with the delivery of the Closing Date Notice, Lessee shall deliver to Loan Participant
a funding indemnity letter, in form and substance satisfactory to Loan Participant, pursuant to
which Lessee indemnifies Loan Participant against any loss, cost or expense in (x) terminating Loan
Participant’s funding (which, for the avoidance of doubt, includes both LIBOR funding and a long
term LIBOR to fixed rate swap) if the Closing does not occur on the date specified or (y) partially
terminating Loan Participant’s funding if the Closing occurs on the date specified but not all
Units are delivered or resetting Loan Participant’s funding. Prior to 11:00 A.M., New York City
time, on the Closing Date, Owner Participant shall make the amount of Owner Participant’s
Commitment and Loan Participant shall make the amount of its Loan Participant’s Commitment required
to be paid on the Closing Date available to Owner Trustee, by transferring or delivering such
amounts, in funds immediately available, to Owner Trustee, at Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890, Ph: (302) 636-6302, Fax: (302)
636-4140, ABA #031100092, Account Number: 077533-000, Account Name: KCSR 2006-1 Trust. The making
available by Owner Participant of the amount of its Commitment for the Equipment Cost shall be
deemed a waiver of the Closing Date Notice by Owner Participant and Owner Trustee and the making
available by Loan Participant of the amount of its Commitment for the Equipment Cost shall be
deemed a waiver of the Closing Date Notice by Loan Participant and Indenture Trustee (with respect
to Loan Participant).



     (b) Closing. The settlement with respect to the payment of the purchase price of the
applicable Units on the Closing Date (the “Closing") shall take place at 11:00 A.M., New York City
time on the Closing Date at the offices of Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603, or at such other place or time as the parties hereto shall agree. Upon receipt by
Owner Trustee on the Closing Date of the full amount of Owner Participant’s Commitment and Loan
Participant’s Commitment in respect of the Units for which settlement will be made on the Closing
Date, and subject to the conditions set forth in Section 4 to be fulfilled on the Closing Date
having been fulfilled to the satisfaction of Owner Participant and Loan Participant or waived by
Owner Participant or Loan Participant, as the case may be, the Trust shall, pay to, or to the order
of, each Seller, from the funds then held by it, in immediately available funds, an amount equal to
the Equipment Cost for such Units purchased from such Seller. Each of Owner Participant, Owner
Trustee, Loan Participant, Indenture Trustee, and Lessee shall take all actions required to be
taken by it in connection therewith and pursuant to this Section 2.3(b).



     Section 2.4. Owner Participant’s Instructions to Owner Trustee; Satisfaction of Conditions.
(a) Owner Participant agrees that the making available to Owner Trustee of the amount of its
Commitment for the Units delivered on or prior to the Closing Date in accordance with the terms of
this Article II shall constitute, without further act, authorization and direction by Owner
Participant to Owner Trustee, subject, on the Closing Date, to the conditions set forth



-4-









 







in Sections 4.1 and 4.3 to be fulfilled on the Closing Date having been fulfilled on the Closing
Date to the satisfaction of Owner Participant or waived by Owner Participant, to take the
applicable actions specified in Section 3.01 of the Trust Agreement with respect to the Units on
the Closing Date.



     (b) Owner Participant agrees, in the case of any Replacement Unit substituted pursuant to
Section 11.4 of the Lease, that Owner Trustee is authorized and directed to take the actions
specified in Section 11.4 of the Lease with respect to such Replacement Unit upon due compliance
with the terms and conditions set forth in such Section 11.4 of the Lease with respect to such
Replacement Unit.



     (c) Owner Participant agrees that the authorization by Owner Participant or its counsel to
Owner Trustee to release to each Seller, the Owner Participant’s Commitment with respect to the
Units delivered on or prior to the Closing Date shall constitute, without further act, notice and
confirmation that all conditions set forth in Sections 4.1 and 4.3 to be fulfilled on the Closing
Date were either met to the satisfaction of Owner Participant or, if not so met, were in any event
waived by it with respect to such Units.



     Section 2.5. Expenses. (a) If Owner Participant shall have made its investment provided for
in Section 2.2(a) and the transactions contemplated by this Agreement are consummated, either Owner
Participant will promptly pay, or Owner Trustee will promptly pay, with funds Owner Participant
hereby agrees to pay to Owner Trustee, the following (the “Transaction Costs”):




     (i) the cost of reproducing and printing the Operative Agreements, the Equipment Notes,
if any, including all costs and fees in connection with the initial filing and recording of
appropriate evidence of the Lease, the Indenture and any other document required to be filed
or recorded pursuant to the provisions hereof or of any other Operative Agreement;




     (ii) the reasonable fees and expenses of Thelen Reid & Priest LLP, special counsel to
Owner Participant (in the amount separately agreed to by Owner Participant and Lessee) and
the reasonable fees and expenses of local counsel to Owner Participant, if any (in the
amount separately agreed to by Owner Participant and Lessee), for their services rendered in
connection with the negotiation, execution and delivery of this Participation Agreement and
the Operative Agreements related hereto;




     (iii) the reasonable fees and expenses of Vedder Price Kaufman & Kammholz, P.C.,
special counsel to Loan Participant, for their services rendered in connection with the
negotiation, execution and delivery of this Participation Agreement and the Operative
Agreements related hereto;




     (iv) the reasonable fees and expenses of Ray, Quinney & Nebeker P.C., special counsel
to Indenture Trustee (up to the amount separately agreed to by Indenture Trustee and
Lessee), for their services rendered in connection with the negotiation, execution and
delivery of this Participation Agreement and the Operative Agreements related hereto;



-5-









 






     (v) the reasonable fees and expenses of Chapman and Cutler LLP, special counsel to
Lessee, for their services rendered in connection with the negotiation, execution and
delivery of this Participation Agreement and the Operative Agreements related hereto;




     (vi) the reasonable fees and expenses of Morris, James, Hitchens, & Williams, LLP,
special counsel to Owner Trustee (up to the amount separately agreed to by Owner Trustee and
Lessee), for their services rendered in connection with the negotiation, execution and
delivery of this Participation Agreement and the Operative Agreements related hereto;




     (vii) the initial fees and expenses of Owner Trustee;




     (viii) the upfront fee payable to the Loan Participant;




     (ix) the initial fees and expenses of Indenture Trustee;




     (x) the fees of an equipment appraiser, for their services rendered in connection with
delivering the Appraisal required by Section 4.3(a);




     (xi) the fees of AMA Capital Partners, L.L.C.;




     (xii) the reasonable fees and expenses of Alvord and Alvord, special STB counsel, for
their services rendered in connection with the consummation of the transactions contemplated
by the Operative Agreements;




     (xiii) the reasonable fees and expenses of McCarthy Tétrault, special Canadian counsel,
for their services rendered in connection with the consummation of the transactions
contemplated by the Operative Agreements; and




     (xiv) the reasonable fees and expenses of Lessee’s independent accountants, in
connection with the transactions contemplated by the Operative Agreements;


provided, however, that if such Transaction Costs exceed the amount of Transaction Costs used in
calculating Basic Rent and other amounts pursuant to Section 2.6(a) hereof on the Closing Date,
Lessee shall pay such excess; provided further, however, that, in such event, Owner Participant
shall designate which Transaction Costs shall be payable by Lessee.




     Notwithstanding the foregoing, Transaction Costs shall not include internal costs and expenses
such as salaries and overhead of whatsoever kind or nature nor costs incurred by parties to this
Participation Agreement pursuant to arrangements with third parties for services (other than those
expressly referred to above), such as computer time procurement, financial analysis and consulting,
advisory services, and costs of a similar nature.



     (b) Upon the consummation of the transactions contemplated by this Agreement, Lessee agrees to
pay when due: (i) the reasonable expenses of Owner Trustee, Indenture Trustee



-6-









 







and the Participants incurred subsequent to the delivery of the Equipment, including reasonable
fees and expenses of their counsel, in connection with any waivers, supplements, amendments,
modifications or alterations which are (A) requested by Lessee in connection with any of the
Operative Agreements or (B) necessary or required to comply with applicable law or to effectuate
the purpose or intent of any Operative Agreement (excluding costs incurred in connection with any
adjustment pursuant to Section 2.6, except as expressly provided in Section 2.6(b)); (ii) the
reasonable ongoing fees and expenses of Owner Trustee under the Trust Agreement, including fees and
expenses incurred in connection with the enforcement of obligations of Lessee under the Operative
Agreements; and (iii) the reasonable ongoing fees and expenses of Indenture Trustee under the
Operative Agreements, including fees and expenses incurred in connection with the enforcement of
obligations of Lessee under the Operative Agreements.



     (c) Notwithstanding the foregoing provisions of this Section 2.5, except as specifically
provided in Section 7.2, Lessee shall have no liability for any costs or expenses relating to any
voluntary transfer of Owner Participant’s interest in the Equipment including any transfer prior to
the Closing Date of Owner Participant’s obligation to fund its participation pursuant to Article II
(other than during the continuance of an Event of Default or in connection with the exercise of
remedies as provided in Section 15 of the Lease, Lessee’s exercise of any purchase option pursuant
to Section 23 of the Lease, Lessee’s exercise of its termination rights pursuant to Section 10 of
the Lease or the transfer to Lessee of any Unit which has been the subject of an Event of Loss
pursuant to Section 11 of the Lease) and no such costs or expenses shall constitute Transaction
Costs and Lessee will not have any obligation with respect to the costs and expenses resulting from
any voluntary transfer of any equity interest by any transferee of Owner Participant, whenever
occurring (other than during the continuance of an Event of Default or in connection with the
exercise of remedies as provided in Section 15 of the Lease, Lessee’s exercise of any purchase
option pursuant to Section 23 of the Lease, Lessee’s exercise of its termination rights pursuant to
Section 10 of the Lease or the transfer to Lessee of any Unit which has been the subject of an
Event of Loss pursuant to Section 11 of the Lease).



     Section 2.6. Calculation of Adjustments to Basic Rent, Stipulated Loss Value, Termination
Value and Fixed Purchase Price; Confirmation and Verification.



     (a) Schedules. On the Closing Date, (i) Lessee and Owner Trustee shall enter into a Lease
Supplement which shall include as exhibits thereto schedules which include the actual Basic Rent,
Rent Payment Dates, Stipulated Loss Values, Termination Values, EBO Fixed Purchase Price, EBO Fixed
Purchase Price Date, allocation of Rent, in each case in respect of the Units to be settled on the
Closing Date, and shall attach a list of the Units to be financed on such date and (ii) the Trust
shall enter into an Indenture Supplement which shall attach a list of the Units to be financed on
such date.



     (b) Calculation of Adjustments. In the event that (A) the Transaction Costs paid by Owner
Participant pursuant to Section 2.5 are less or more than 1.15% of the total Equipment Cost, or (B)
prior to the Closing Date: (1) there shall have occurred a Change in Tax Law and (2) after having
been advised in writing by Owner Participant of such Change in Tax Law and the proposed adjustment
to the payments of Basic Rent resulting therefrom, Lessee shall have



-7-









 







waived its right under Section 4.4 of this Agreement to decline to proceed with the transaction, or
(C) a refinancing or refunding as contemplated by Section 11.2 occurs, or (D) any amount is paid
by Lessee to Owner Participant pursuant to Section 5.5(i) or 5.5(iii) of the Tax Indemnity
Agreement, or (E) Lessee elects to make payments to Owner Participant pursuant to Section 5.5(ii)
of the Tax Indemnity Agreement, then, in each case, Owner Participant shall recalculate the
payments or amounts, as the case may be, of Basic Rent, Stipulated Loss Values, Termination Values
and EBO Fixed Purchase Price (except that in the case of events described in clause (D) or (E)
above, Owner Participant shall recalculate the Stipulated Loss Values, Termination Values and EBO
Fixed Purchase Price only):




     (i) to preserve the Net Economic Return that Owner Participant would have realized had
the Transaction Costs equaled 1.15% of the Total Equipment Cost or had such Change in Tax
Law not occurred or had such refunding or refinancing not occurred or had such amount not
been paid by Lessee under Section 5.5(i) or 5.5(iii) of the Tax Indemnity Agreement or had
Lessee not elected to make such payment under Section 5.5(ii) of the Tax Indemnity
Agreement, and




     (ii) to minimize to the greatest extent possible, consistent with the foregoing clause
(i), the sum of the present value of the payments of Basic Rent through and including the
EBO Fixed Purchase Price Date, and the EBO Fixed Purchase Price (all present values for
purposes of the foregoing being computed using the relevant Debt Rate, semiannually
compounded, and discounting to the date hereof).



In performing any such recalculation and in determining Owner Participant’s Net Economic Return,
Owner Participant shall utilize the same methods, tax constraints and assumptions originally used
to calculate the payments of Basic Rent, Stipulated Loss Values, Termination Values and EBO Fixed
Purchase Price with respect to the Basic Term (other than those assumptions changed as a result of
any of the events described in clauses (A) through (E) of the preceding sentence necessitating such
recalculation; it being agreed that such recalculation shall reflect solely any changes of
assumptions or facts resulting directly from the event or events necessitating such recalculation).
Such adjustments shall comply (to the extent the original structure complied) with section 467 of
the Code and the Regulations and the requirements of sections 4.02(5), 4.07(1) and (2) and 4.08(1)
of Revenue Procedure 2001-29, as amended ((and such that the Lease could not be treated as a
“disqualified leaseback” or “long term agreement” within the meaning of section 467 of the Code),
and in the case of any refinancing governed by Section 11.2, shall comply with Treasury Regulation
sections 1.467-1(f)(6)(i) and 1.861-10(T)(b)(9) or any successor thereto) whether the term of the
Lease is deemed to commence with respect to any Unit on the Closing Date therefor and end on the
Basic Term Expiration Date or is deemed to commence on the date of the refinancing and end on the
Basic Term Expiration Date.



     (c) Confirmation and Verification. Upon completion of any recalculation described above in
this Section 2.6, a duly authorized officer of Owner Participant shall provide a certificate to
Lessee either (x) stating that the payments of Basic Rent, Stipulated Loss Values, Termination
Values and EBO Fixed Purchase Price with respect to the Basic Term as are then set forth in the
Lease do not require change, or (y) setting forth such adjustments to the payments of



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Basic Rent, Stipulated Loss Values, Termination Values or EBO Fixed Purchase Price with respect to
the Basic Term as have been calculated by Owner Participant in accordance with Section 2.6(b)
above. Such certificate shall describe in reasonable detail the basis for any such adjustments.
If Lessee shall so request, the recalculation of any such adjustments described in this Section 2.6
shall be verified by a nationally recognized firm of independent accountants selected by Owner
Participant and reasonably acceptable to Lessee and any such recalculation of such adjustment as so
verified shall be binding on Lessee and Owner Participant. Such accounting firm shall be requested
to make its determination within 30 days. Owner Participant shall provide to a representative of
such accounting firm, on a confidential basis, such information as it may reasonably require (but
excluding any books, records or tax returns), including the original assumptions used by Owner
Participant and the methods used by Owner Participant in the original calculation of, and any
recalculation of, Basic Rent, Stipulated Loss Values, Termination Values and EBO Fixed Purchase
Price and such other information as is necessary to determine whether the computation is accurate
and in conformity with the provisions of this Agreement. The reasonable costs of such verification
shall be borne by Lessee, unless as a result of such verification process (1) the payments of Basic
Rent certified by Owner Participant pursuant to this Section 2.6(c) are adjusted and such
adjustment causes the sum of the present value of the payments of Basic Rent through and including
the EBO Fixed Purchase Price Date and the present value of the EBO Fixed Purchase Price (all
present values for purposes of the foregoing being computed using the relevant Debt Rate,
semiannually compounded, and discounting to the Closing Date) to decline by 10 basis points or more
from the sum of the present value of the payments of Basic Rent through and including the EBO Fixed
Purchase Price Date and the present value of the EBO Fixed Purchase Price (all present values for
purposes of the foregoing being computed using the relevant Debt Rate, semiannually compounded, and
discounting to the Closing Date) certified by Owner Participant pursuant to this Section 2.6(c), or
(2) any payment of Stipulated Loss Value, Termination Value or EBO Fixed Purchase Price is adjusted
and such adjustment causes such Stipulated Loss Value, Termination Value or EBO Fixed Purchase
Price to decline by 10 basis points or more from such Stipulated Loss Value, Termination Value or
EBO Fixed Purchase Price certified by Owner Participant pursuant to this Section 2.6(c), in which
case Owner Participant shall be responsible for the reasonable costs of such verification.



     (d) Notwithstanding the foregoing, any adjustment made to the payments of Basic Rent or to
Stipulated Loss Values or Termination Values or EBO Fixed Purchase Price with respect to the Basic
Term, pursuant to the foregoing, shall comply with the following requirements: (i) each installment
of Basic Rent, as so adjusted, under any circumstances and in any event, will be in an amount at
least sufficient for Owner Trustee to pay in full as of the due date of such installment any
payment of principal of and interest on the Equipment Notes required to be paid on the due date of
such installment of Basic Rent and (ii) Stipulated Loss Value and Termination Value, as so
adjusted, under any circumstances and in any event, will be an amount which, together with any
other amounts required to be paid by Lessee under the Lease in connection with a deemed Event of
Loss pursuant to Section 9.1 of the Lease or any other Event of Loss or a termination of the Lease,
as the case may be, will be at least sufficient to pay in full, as of the date of payment thereof,
the aggregate unpaid principal of the Equipment Notes, Positive Make-Whole Amount, if any, and all
unpaid interest on the Equipment Notes, accrued to the date on which Stipulated



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Loss Value or Termination Value, as the case may be, is paid in accordance with the terms of the
Lease.



     (e) Invoices. All invoices in respect of Transaction Costs shall be directed to Owner
Participant at the address set forth in Section 11.4, with a copy to Lessee.



     Section 2.7. Optional Postponement of Closing Date. (a) The originally scheduled Closing Date
(the originally scheduled Closing Date being referred to as the “Scheduled Closing Date” for the
purposes of this Section 2.7) may be postponed from time to time for any reason (but to a date no
later than September 29, 2006) if Lessee gives Owner Participant, Indenture Trustee, Loan
Participant and Owner Trustee telex, telegraphic, facsimile or telephonic (confirmed in writing)
notice of such postponement and notice of the date to which the Scheduled Closing Date has been
postponed, such notice of postponement to be received by each party no later than 5:00 P.M., New
York City time, on the Business Day immediately before the Scheduled Closing Date or subsequent
scheduled Closing Date, and in the event of such postponement, the term “Closing Date” as used in
this Agreement shall mean the date to which the Scheduled Closing Date has been postponed.



     (b) In the event of any postponement of the Closing Date pursuant to this Section 2.7, or if
on the originally scheduled Closing Date or subsequent scheduled Closing Date not postponed as
above provided any Unit is not delivered or, if delivered, is not accepted by Owner Trustee’s
representative for any reason: (i) Lessee will reimburse Owner Participant for the loss of the use
of its funds with respect to each such Unit occasioned by such postponement or failure to deliver
or accept (unless such failure to accept is caused by a default by Owner Participant hereunder) by
paying to Owner Participant on demand interest at an interest rate equal to the Debt Rate for the
period from and including the Scheduled Closing Date to but excluding the earlier of the date upon
which such funds are returned prior to 1:00 P.M. (New York City time) or the actual date of
delivery; provided that Lessee shall in any event pay to Owner Participant at least one (1) day’s
interest at such rate on the amount of such funds, unless Owner Participant shall have received,
prior to 12:00 P.M. (New York City time) on the Business Day preceding the Scheduled Closing Date,
a notice of postponement of the Scheduled Closing Date pursuant to Section 2.7(a), and (ii) Owner
Trustee will return on the earlier of the second Business Day following the Scheduled Closing Date
or September 29, 2006, or earlier, if so instructed by Lessee, any funds which it shall have
received from Owner Participant as its Commitment for such Units payable to Owner Participant,
absent joint instruction from Lessee and Owner Participant to retain such funds until the specified
date of postponement established under Section 2.7(a).



     (c) Owner Trustee agrees that, in the event it has received telephonic notice (to be confirmed
promptly in writing) from Lessee on the Scheduled Closing Date for any Unit or Units that such Unit
or Units have not been tendered for delivery, it will if instructed in the aforementioned notice
from Lessee (which notice shall specify the Securities to be purchased) use reasonable best efforts
to invest, at the risk of Lessee (except as provided below with respect to Owner Trustee’s gross
negligence or willful misconduct), the funds received by it from Owner Participant with respect to
such Unit or Units in Permitted Investments in accordance with Lessee’s instructions. Any such
Permitted Investments purchased by Owner Trustee upon



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instructions from Lessee shall be held in trust by Owner Trustee for the benefit of Owner
Participant. Lessee shall pay to Owner Trustee on the Closing Date (if such Unit or Units are
delivered and accepted pursuant hereto) the amount of any net loss on the investment of such funds
invested at the instruction of Lessee. If the funds furnished by Owner Participant with respect to
such Unit or Units are required to be returned to Owner Participant, Lessee shall, on the date on
which such funds are so required to be returned, reimburse Owner Trustee, for the benefit of Owner
Participant, for any net losses incurred on such investments. Owner Trustee shall not be liable
for failure to invest such funds or for any losses incurred on such investments except for its own
willful misconduct or gross negligence. In order to obtain funds for the payment of the Equipment
Cost for such Unit or Units or to return funds furnished by Owner Participant to Owner Trustee for
the benefit of Owner Participant with respect to such Unit or Units, Owner Trustee is authorized to
sell any Permitted Investments purchased as aforesaid with the funds received by it from Owner
Participant in connection with such Unit or Units.



     (d) Notwithstanding the provisions of Section 2.7(a), no Participant shall be under any
obligation to make its Commitment available beyond 5:00 P.M. (New York City time) on September 29,
2006.



Article III




Representations and Warranties




     Section 3.1. Representations and Warranties of Trust Company and Owner Trustee. Trust Company
(except with respect to clause (c) below) and Owner Trustee (with respect to clause (c) below)
represents and warrants to Owner Participant, Indenture Trustee, Loan Participant and Lessee,
notwithstanding the provisions of Section 11.13 or any similar provision in any other Operative
Agreement, that, as of the date hereof and as of the Closing Date (unless any such representation
is specifically made as of one date):



     (a) Trust Company is a Delaware banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and has full corporate power and authority to
carry on its business as now conducted and to enter into and perform its obligations hereunder and
under the Trust Agreement and (assuming due authorization, execution and delivery of the Trust
Agreement by Owner Participant) has full power and authority, as Owner Trustee and/or, to the
extent expressly provided herein or therein to enter into and perform its obligations under each of
the Owner Trustee Agreements;



     (b) Owner Trustee and, to the extent expressly provided therein, Trust Company, has duly
authorized, executed and delivered the Trust Agreement and (assuming the due authorization,
execution and delivery of the Trust Agreement by Owner Participant) has duly authorized, executed
and delivered, or in the case of the Lease Supplement and the Indenture Supplement will on the
Closing Date execute and deliver, each of the other Owner Trustee Agreements (other than the
Equipment Notes) and, as of the Closing Date, the Equipment Notes to be delivered on the Closing
Date; and the Trust Agreement constitutes a legal, valid and binding obligation of Trust Company,
enforceable against Trust Company or Owner Trustee, as the case may be, in accordance with its
terms except as the same may be limited by bankruptcy,



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insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally
and by general equity principles;



     (c) assuming the due authorization, execution and delivery of the Trust Agreement by Owner
Participant, each of the Owner Trustee Agreements (other than the Trust Agreement) to which it is a
party constitutes, or when entered into will constitute, a legal, valid and binding obligation of
Trust Company or as Owner Trustee, as the case may be, enforceable against Trust Company or Owner
Trustee, as the case may be, in accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by general equity principles;



     (d) neither the execution and delivery by Trust Company or Owner Trustee, as the case may be,
of the Owner Trustee Agreements or the Equipment Notes to be delivered on the Closing Date, nor the
consummation by Trust Company or Owner Trustee, as the case may be, of any of the transactions
contemplated hereby or thereby, nor the compliance by Trust Company or Owner Trustee, as the case
may be, with any of the terms and provisions hereof and thereof, (i) requires or will require any
approval of its stockholders, or approval or consent of any trustees or holders of any indebtedness
or obligations of it, or (ii) violates or will violate its Certificate of Incorporation or by-laws,
or contravenes or will contravene any provision of, or constitutes or will constitute a default
under, or results or will result in any breach of, or results or will result in the creation of any
Lien (other than as permitted under the Lease) upon its property under, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sale contract, bank loan or credit agreement, license
or other agreement or instrument to which it is a party or by which it is bound, or contravenes or
will contravene any law, governmental rule or regulation of the State of Delaware governing the
banking or trust powers of Owner Trustee, or any judgment or order applicable to or binding on it;



     (e) there are no pending or threatened actions or proceedings against Trust Company or Owner
Trustee before any court or administrative agency which individually or in the aggregate, if
determined adversely to it, would materially adversely affect the ability of Trust Company or Owner
Trustee, as the case may be, to perform its obligations under the Trust Agreement, the other Owner
Trustee Agreements or the Equipment Notes to be delivered on the Closing Date;



     (f) its location as such term is used in Section 9-307 of the Uniform Commercial Code is
located in Delaware and the place where its records concerning the Equipment and all its interest
in, to and under all documents relating to the Trust Estate, is located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890, and Trust Company agrees to give Owner
Participant, Indenture Trustee and Lessee written notice of any relocation of said location or said
place from its present location within 60 days of the date thereof;



     (g) no consent, approval, order or authorization of, giving of notice to, or registration
with, or taking of any other action in respect of, governmental authority or agency or any State of
Delaware governmental authority or agency regulating the banking or trust powers of Trust Company,
is required for the execution and delivery of, or the carrying out by, Trust Company or Owner
Trustee, as the case may be, of any of the transactions contemplated hereby or by the Trust
Agreement or of any of the transactions contemplated by any of the other Owner Trustee



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Agreements, other than any such consent, approval, order, authorization, registration, notice or
action as has been duly obtained, given or taken;



     (h) on each Delivery Date, Owner Trustee’s right, title and interest in and to the Equipment
delivered on such Delivery Date shall be free of any Lessor’s Liens attributable to Trust Company;



     (i) on the Closing Date, the proceeds received by Owner Trustee from Owner Participant on the
Closing Date pursuant to the Trust Agreement will be administered by it in accordance with Article
IV of the Trust Agreement;



     (j) on the Closing Date, the Trust shall receive from each Seller such title to the Units of
Equipment delivered on or prior to such Delivery Date as was conveyed to it by such Seller, subject
to the rights of Owner Trustee and Lessee under the Lease and the security interest created
pursuant to the Indenture and each Indenture Supplement; and



     (k) the Trust is a Delaware Statutory Trust in good standing created pursuant to the Delaware
Statutory Trust Act, 12 Del. C. Section 3801 et seq. and the Trust Agreement.



     Section 3.2. Representations and Warranties of Lessee. Lessee represents and warrants to
Owner Trustee, Trust Company, Indenture Trustee, Loan Participant and Owner Participant that, as of
the date hereof and as of the Closing Date (unless any such representation is specifically made as
of one date):



     (a) Lessee is a corporation duly organized, validly existing, and in good standing under the
laws of the State of Missouri, is a Class I railroad as defined in 49 CFR Part 12011-1, is duly
licensed or qualified and in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its ability to enter into and perform its obligations under
the Lessee Agreements, has the corporate power and authority to carry on its business as now
conducted, and has the requisite power and authority to execute, deliver and perform its
obligations under the Lessee Agreements;



     (b) the Lessee Agreements have been duly authorized by all necessary corporate action (no
shareholder approval being required), executed and delivered (or in the case of the Lease
Supplement will on the Closing Date have been duly executed and delivered) by Lessee, and
constitute (or in the case of the Lease Supplement will on the Closing Date constitute) the legal,
valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency and similar laws and
by general principles of equity;



     (c) the execution, delivery and performance by Lessee of each Lessee Agreement and compliance
by Lessee with all of the provisions thereof do not and will not contravene any law or regulation,
or any order of any court or governmental authority or agency applicable to or binding on Lessee or
any of its properties, or contravene the provisions of, or constitute a default by Lessee under, or
result in the creation of any Lien (except for Permitted Liens) upon the property of Lessee under
its Certificate of Incorporation or by-laws or any material indenture,



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mortgage, contract or other agreement or instrument to which Lessee is a party or by which Lessee
or any of its property is bound or affected;



     (d) except for those matters discussed in the financial statements provided to the
Participants under Section 3.2(e), there are no proceedings pending or, to the knowledge of Lessee,
threatened against Lessee in any court or before any governmental authority or arbitration board or
tribunal which individually or in the aggregate would materially and adversely affect the financial
condition of Lessee or impair the ability of Lessee to perform its obligations under the Lessee
Agreements or which questions the validity of any Lessee Agreement or any action taken or to be
taken pursuant thereto;



     (e) the audited consolidated balance sheet and consolidated statements of income and retained
earnings and cash flows of KCS for the fiscal year ended December 31, 2005, fairly present, in
conformity with generally accepted accounting principles, the consolidated financial position of
KCS as of such date and the results of its operations for the period then ended. The unaudited
consolidated balance sheet and consolidated statements of income and retained earnings and cash
flows of KCS for the six months ended June 30, 2006, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of KCS as of such date and the
results of its operations for the period then ended, subject to normal year-end adjustments;



     (f) neither the nature of Lessee nor its businesses or properties, nor any relationship
between Lessee and any other Person, nor any circumstances in connection with the execution and
delivery by Lessee of the Lessee Agreements, is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, or the giving of notice to, any
governmental authority on the part of Lessee in connection with the execution and delivery by
Lessee of the Lessee Agreements, other than notices required to be filed with the STB, which
notices shall have been filed on or prior to the Closing Date and except as contemplated by Section
3.2(g) hereof;



     (g) all filings and other actions necessary to protect the rights of Trust under the Lease,
and to perfect the security interest of Indenture Trustee under the Indenture in the Indenture
Estate as against creditors of and purchasers from Owner Trustee, will have been made on or prior
to the Closing Date and the Indenture will on the Closing Date create a valid and perfected lien
and security interest in the Indenture Estate, subject to any Lessor’s Liens and Permitted Liens;



     (h) on each Delivery Date, the Equipment is covered by the insurance required by Section 12 of
the Lease and all premiums due prior to each Delivery Date in respect of such insurance shall have
been paid in full;



     (i) Lessee has timely filed all United States Federal income tax returns and all other
material tax returns which (to its knowledge) are required to be filed by it and has paid all taxes
due pursuant to such returns or pursuant to any assessment made against Lessee or any of its assets
(other than assessments, the payment of which is being contested in good faith by Lessee) and no
tax liens have been filed and no claims are being asserted with respect to any such taxes,



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fees or other charges which could reasonably be expected to have a materially adverse effect on its
ability to perform its obligations under the Lessee Agreements;



     (j) the (i) “location” (as such term is used in Section 9-307 of the Uniform Commercial Code)
of Lessee is the State of Missouri, and the place where its records concerning the Equipment and
all of its interests in, to and under all documents relating to the Equipment are and will be kept,
is located at Kansas City, Missouri, and (ii) The Kansas City Southern Railway Company is its true
legal name as registered in the jurisdiction of its organization, its federal employer
identification number is 44-6000758 and its organizational identification number designated by its
jurisdiction of organization is R00000513;



     (k) no Lease Default has occurred and is continuing and no Event of Loss has occurred;




     (l) Lessee is not an “investment company” or an “affiliated person” of an “investment company”
within the meaning of the Investment Company Act of 1940;



     (m) the acquisition by Owner Participant of the Beneficial Interest for its own account will
not constitute a prohibited transaction within the meaning of section 4975(c)(1)(A) through (D) of
the Code. The representation made by Lessee in the preceding clause is made in reliance upon and
subject to the accuracy of the representation of Owner Participant in Section 3.6(g) of this
Agreement;



     (n) on each Delivery Date, after giving effect to the transactions contemplated hereby, Owner
Trustee shall have good and marketable title to the Units being delivered on or such Delivery Date,
in each case free and clear of all claims, Liens and encumbrances of any nature, except Permitted
Liens of the type described in clauses (iii), (iv) or (v) of the definition thereof; and



     (o) each Unit has been manufactured to meet the Design Specifications.



     Section 3.3. Representations and Warranties of Indenture Trustee. Indenture Trustee
represents and warrants to Owner Participant, Owner Trustee, Trust Company, Loan Participant and
Lessee that, as of the date hereof and as of the Closing Date (unless any such representation is
specifically made as of one date):



     (a) Indenture Trustee is a national banking association duly organized and validly existing
and in good standing under the laws of the United States and has the full corporate power,
authority and legal right under the laws of the State of Utah and the laws of the United States
pertaining to its banking, trust and fiduciary powers to execute, deliver and carry out the terms
of each of the Indenture Trustee Agreements;



     (b) the execution, delivery and performance by Indenture Trustee of each of the Indenture
Trustee Agreements have been duly authorized by Indenture Trustee and will not violate its Articles
of Association or by-laws or the provisions of any indenture, mortgage, contract or other agreement
to which it is a party or by which it is bound or any laws, rules or



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regulations of the United States or the State of Utah (or any governmental subdivision of either
thereof) pertaining to its banking, trust or fiduciary powers;



     (c) each Indenture Trustee Agreement, when executed and delivered, will constitute its legal,
valid and binding obligation enforceable against it in accordance with its terms;



     (d) there are no proceedings pending or, to the knowledge of Indenture Trustee, threatened,
and to the knowledge of Indenture Trustee there is no existing basis for any such proceedings,
against or affecting Indenture Trustee in or before any court or before any governmental authority
or arbitration board or tribunal which, individually or in the aggregate, if adversely determined,
might impair the ability of Indenture Trustee to perform its obligations under the Indenture
Trustee Agreements;



     (e) no authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body of the United States or the State of Utah, in each case
pertaining to the banking, trust or fiduciary powers of Indenture Trustee, is required for the due
execution, delivery and performance by Indenture Trustee of the Indenture Trustee Agreements,
except as have been previously obtained, given or taken;



     (f) Indenture Trustee is not in default under any of the Indenture Trustee Agreements;




     (g) neither Indenture Trustee, nor any Person authorized to act on behalf of Indenture
Trustee, has directly or indirectly offered any interest in the Trust Estate or the Equipment Notes
or any other Operative Agreement or any security similar to either thereof for sale to, or
solicited offers to buy any of the same from, or otherwise approached or negotiated with respect to
any of the same with, any Person other than Loan Participant; and



     (h) there are no Taxes which may be imposed on or asserted against the Indenture Estate or any
part thereof or any interest therein, Trust Company, Owner Trustee or Owner Participant by any
state or local government or taxing authority in connection with the execution, delivery or
performance by Indenture Trustee of the Indenture Trustee Agreements or the authentication of the
Equipment Notes.



     Section 3.4. Representations, Warranties and Covenants Regarding Beneficial Interest. (a)
The Trust represents and warrants to Lessee, Indenture Trustee, Loan Participant and Owner
Participant that, as of the date hereof and as of the Closing Date, neither the Trust nor any
Person authorized or employed by the Trust as agent or otherwise in connection with the placement
of the Beneficial Interest or any similar interest has offered any of the Beneficial Interest or
any similar interest or any of the Equipment Notes or any similar interest for sale to, or
solicited offers to buy any thereof from, or otherwise approached or negotiated with respect
thereto with, any prospective purchaser.



     (b) Lessee represents and warrants to Owner Trustee, Indenture Trustee, Loan Participant and
Owner Participant that, as of the date hereof and as of the Closing Date, it has not offered any of
the Beneficial Interest for sale to, or solicited offers to buy any thereof from, any



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Person other than Owner Participant and not more than 33 other prospective institutional investors.



     (c) Both the Trust and Lessee agree severally but not jointly that neither the Trust nor
Lessee nor anyone acting on behalf of the Trust or Lessee will offer the Beneficial Interest or any
part thereof or any similar interest for issue or sale to any prospective purchaser, or solicit any
offer to acquire any of the Beneficial Interest or any part thereof so as to bring the issuance and
sale of the Beneficial Interest or any part thereof within the provisions of Section 5 of the
Securities Act of 1933, as amended.



     (d) Lessee has not retained or employed any broker, finder or financial advisor (other than
AMA Capital Partners, L.L.C.) to act on its behalf in connection with the transactions contemplated
hereby and it has not authorized any broker, finder or financial advisor retained or employed by
any other Person to so act.



     Section 3.5. Representations and Warranties of Loan Participant. Loan Participant represents
and warrants to Owner Trustee, Indenture Trustee, Owner Participant and Lessee that, as of the date
hereof and as of the Closing Date (and the purchase of an Equipment Note by Loan Participant on the
Closing Date shall constitute a reaffirmation by Loan Participant of each of these representations
and warranties as of such date):



     (a) Loan Participant is duly organized and validly existing under the laws of its jurisdiction
of organization, and has the full power, authority and legal right under the laws of its
jurisdiction of organization to execute, deliver and perform the terms of this Agreement;



     (b) the execution and delivery by Loan Participant of this Agreement and its performance
hereunder and under the Equipment Notes have been duly authorized by all necessary corporate
action. It has duly and validly executed and delivered this Agreement.



     (c) assuming the due authorization, execution and delivery by the other parties hereto, this
Agreement constitutes, and its obligations under the Equipment Notes will constitute, its legal,
valid, and binding obligations enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency and similar laws and by general
principles of equity.



     (d) Loan Participant is acquiring the Equipment Notes to be issued to it on the Closing Date
for the purpose of investment and not with a view to the distribution thereof, and that, except as
permitted or contemplated by the terms of the Operative Agreements, Loan Participant has no present
intention of selling, negotiating or otherwise disposing of such Equipment Notes; it being
understood, however, that the disposition of Loan Participant’s property shall at all times be and
remain within its control; and



     (e) Loan Participant is acquiring the Equipment Notes with funds that do not constitute plan
assets, and the term “plan assets” shall have the meaning specified in Department of Labor
Regulation §2510.3-101.



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     Section 3.6. Representations and Warranties of Owner Participant. Owner Participant
represents and warrants to Owner Trustee, Trust Company, Indenture Trustee, Loan Participant and
Lessee that, as of the date hereof and as of the Closing Date (unless any such representation is
specifically made as of one date):



     (a) Owner Participant is a banking corporation duly organized, validly existing and in good
standing under the laws of Germany and has the power and authority to carry on its business as now
conducted;



     (b) Owner Participant has the corporate power and authority to enter into the Owner
Participant Agreements and to perform its obligations thereunder, and such execution, delivery and
performance do not and will not contravene any law or any order of any court or governmental
authority or agency applicable to or binding on Owner Participant, or contravene the provisions of,
or constitute a default under, or result in the creation of any Lien (other than the leasehold
interest of Lessee under the Lease and the security interest of Indenture Trustee under the
Indenture) upon the Equipment under, its organization documents or any material indenture,
mortgage, contract or other agreement or instrument to which Owner Participant is a party or by
which it or any of its property or the Equipment may be bound or affected;



     (c) the Owner Participant Agreements have been duly authorized by all necessary corporate
action on the part of Owner Participant, do not require any approval not already obtained of the
stockholders of Owner Participant or any approval or consent not already obtained of any trustee or
holders of indebtedness or obligations of Owner Participant, have been duly executed and delivered
by Owner Participant and (assuming the due authorization, execution and delivery by each other
party thereto) constitute the legal, valid and binding obligations of Owner Participant,
enforceable against Owner Participant in accordance with their respective terms except as
enforceability may be limited by applicable bankruptcy, insolvency and similar laws and by general
principles of equity;



     (d) no authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due execution, delivery or
performance by Owner Participant of the Trust Agreement, the Tax Indemnity Agreement and this
Agreement, it being understood that no representation or warranty is being made herein with respect
to the ICC Termination Act or any other laws, governmental rules or regulations specific to the
Equipment;



     (e) the Trust Estate is free of any Lessor’s Liens attributable to Owner Participant;




     (f) there are no pending or, to the knowledge of Owner Participant, threatened actions or
proceedings before any court or administrative agency which would materially adversely affect Owner
Participant’s financial condition or its ability to perform its obligations under the Trust
Agreement, the Tax Indemnity Agreement, this Agreement or any other Owner Participant Agreement;



     (g) as of the Closing Date, Owner Participant is purchasing the Beneficial Interest to be
acquired by it on the Closing Date for its account with no present intention of distributing such



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Beneficial Interest or any part thereof in any manner which would violate the Securities Act of
1933, as amended, but without prejudice, however, to the right of Owner Participant at all times to
sell or otherwise dispose of all or any part of such Beneficial Interest under a registration
statement under the Securities Act of 1933, as amended, or under an exemption from such
registration available under such Act. Owner Participant acknowledges that its Beneficial Interest
has not been registered under the Securities Act of 1933, as amended, and that neither Owner
Trustee nor Lessee contemplates filing, or is legally required to file, any such registration
statement;



     (h) with respect to the sources of the amount to be advanced by Owner Participant pursuant to
Section 2.2(a), no part of such amounts constitutes assets of any employee benefit plan (other than
a government plan exempt from the coverage of ERISA); and



     (i) Owner Participant has a tangible net worth of not less than $75,000,000.



     Section 3.7. Opinion Acknowledgment. Each of the parties hereto, with respect to such party,
expressly consents to the rendering by its counsel of the opinions referred to in Section 4.1(a)(2)
and Section 4.1(b)(8) and acknowledges that such opinions shall be deemed to be rendered at the
request and upon the instructions of such party, each of whom has consulted with and has been
advised by its counsel as to the consequences of such request, instructions and consent.



Article IV




Conditions Precedent




     Section 4.1. Conditions Precedent to First Delivery Date; Conditions Precedent of Each
Participant and Indenture Trustee to the Closing Date.



     (a) First Delivery Date Conditions. No Delivery Date shall occur until the following
conditions precedent shall have been satisfied:




     (1) Execution of Operative Agreements. This Agreement, the Trust Agreement, the Lease,
the Indenture, shall each be satisfactory in form and substance to the parties thereto,
shall have been duly executed and delivered by the parties thereto, shall each be in full
force and effect and executed counterparts of each shall have been delivered to each such
party or its counsel; and no event shall have occurred and be continuing that constitutes a
Lease Default or an Indenture Default.




     (2) Opinions of Counsel. Owner Trustee, Indenture Trustee, Loan Participant, Owner
Participant and Lessee shall have received the favorable written opinion of each of (A)
internal counsel to Lessee and special counsel to Lessee, (B) counsel to Owner Trustee, (C)
internal counsel to Owner Participant and special counsel to Owner Participant and (D)
counsel to Indenture Trustee, each in form and scope satisfactory to the parties hereto;
provided that receipt by a party hereto of a favorable written opinion from counsel to such
party shall not be a condition precedent to such party’s obligations



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hereunder; provided further that, such opinions shall be dated the date of the agreements
set forth in Section 4.1(a)(1) hereof.




     (3) Tax Indemnity Agreement. The Tax Indemnity Agreement shall be satisfactory in form
and substance to Owner Participant and Lessee, shall have been duly executed and delivered
by Lessee and Owner Participant, and shall be in full force and effect.




     (4) Corporate Documents. Each of the parties shall have received such documents and
evidence with respect to Lessee, Owner Participant, Owner Trustee, the Trust and Indenture
Trustee as such party may reasonably request in order to establish the authority for the
consummation of the transactions contemplated by this Agreement and the other Operative
Agreements, the taking of all corporate and other proceedings in connection therewith and
compliance with the conditions herein or therein set forth and the incumbency of all
officers signing any of the Operative Agreements.



     (b) Closing Date Conditions. The obligation of each Participant and Indenture Trustee to
participate in the transactions contemplated hereby on the Closing Date shall be subject to the
following conditions precedent (except that paragraph (16) shall not be a condition precedent to
Owner Participant’s obligations hereunder and paragraph (17), as it relates to a Loan Participant,
shall not be a condition precedent to Loan Participant’s obligations):




     (1) Execution of Operative Agreements. On or before the Closing Date, each of the
documents referred to in Section 4.1(a)(1) and Section 4.1(a)(3) shall be in full force and
effect and the Equipment Notes to be issued on the Closing Date, the Lease Supplement, the
Indenture Supplement, in each case with respect of the Units for which settlement will be
made on the Closing Date shall each be satisfactory in form and substance to such
Participant and Indenture Trustee, shall have been duly executed and delivered by the
parties thereto (except that the execution and delivery of the documents referred to above
by a party thereto shall not be a condition precedent to such party’s obligations
hereunder), shall each be in full force and effect and executed counterparts of each shall
have been delivered to such Participant and Indenture Trustee or its counsel on or before
the Closing Date; and no event shall have occurred and be continuing that constitutes a
Lease Default or an Indenture Default.




     (2) Recordation and Filing. On or before the Closing Date, Lessee will cause the
Lease, the Lease Supplement with respect to the Units for which settlement will be made on
the Closing Date, the Indenture, the Indenture Supplement with respect to the Units for
which settlement will be made on the Closing Date, or appropriate evidence thereof, to be
duly filed, recorded and deposited (A) with the Surface Transportation Board in conformity
with 49 U.S.C. § 11301, (B) with the Registrar General of Canada pursuant to Section 105 of
the Canada Transportation Act and provision will have been made for publication of notice of
such deposit in The Canada Gazette in accordance with said Section 105 and (C) in such other
places within the United States, Canada or Mexico as Owner Trustee, Indenture Trustee and
any Participant may reasonably request for the protection of the Trust’s title to the
Equipment and interest in the Lease, or the security



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interest of Indenture Trustee in the Equipment and the Lease, and will furnish Indenture
Trustee, Owner Trustee and each Participant proof thereof.




     (3) Officer’s Certificate of Lessee. On the Closing Date, Owner Trustee, Indenture
Trustee, Loan Participant and Owner Participant shall have received an Officer’s Certificate
dated such date from Lessee, to the effect that the representations and warranties of Lessee
contained in Section 3.2 and Section 3.4(b) are true and correct in all material respects on
the Closing Date with the same effect as though made on and as of said date, except to the
extent that such representations and warranties relate solely to an earlier date (in which
case such representations and warranties were true and correct on and as of such earlier
date), and that Lessee has performed and complied with all agreements and conditions herein
contained which are required to be performed or complied with by Lessee on or before said
date.




     (4) Officer’s Certificate of Owner Trustee. On the Closing Date, Lessee, Indenture
Trustee, Loan Participant and Owner Participant shall have received an Officer’s Certificate
dated such date from Owner Trustee, to the effect that the representations and warranties of
Owner Trustee contained in Section 3.1 and Section 3.4(a) are true and correct in all
material respects on the Closing Date with the same effect as though made on and as of said
date, except to the extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties were true and correct on and
as of such earlier date), and that Owner Trustee has performed and complied with all
agreements and conditions herein contained which are required to be performed or complied
with by Owner Trustee on or before said date.




     (5) Officer’s Certificate of Indenture Trustee. On the Closing Date, Lessee, Owner
Trustee, Loan Participant and Owner Participant shall have received an Officer’s Certificate
dated such date from Indenture Trustee, to the effect that the representations and
warranties of Indenture Trustee contained in Section 3.3 are true and correct in all
material respects on the Closing Date with the same effect as though made on and as of said
date, except to the extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties were true and correct on and
as of such earlier date), and that Indenture Trustee has performed and complied with all
agreements and conditions herein contained which are required to be performed or complied
with by Indenture Trustee on or before said date.




     (6) Officer’s Certificate of Owner Participant. On the Closing Date, Lessee, Owner
Trustee, Indenture Trustee, and Loan Participant shall have received an Officer’s
Certificate dated such date from Owner Participant, to the effect that the representations
and warranties of Owner Participant contained in Section 3.6 are true and correct in all
material respects on the Closing Date with the same effect as though made on and as of said
date, except to the extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties were true and correct on and
as of such earlier date), and that Owner Participant has performed and complied with



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all agreements and conditions herein contained which are required to be performed or
complied with by Owner Participant on or before said date.




     (7) Opinions of Counsel. On the Closing Date, Owner Trustee, Indenture Trustee, Loan
Participant and Owner Participant shall have received the favorable written opinion of each
of (A) internal counsel to Lessee and special counsel to Lessee, (B) counsel to Owner
Trustee, (C) internal counsel to Owner Participant and special counsel to Owner Participant
and (D) counsel to Indenture Trustee, each in form and scope satisfactory to each
Participant, (E) Alvord and Alvord, special STB counsel, and (F) McCarthy Tétrault, special
Canadian counsel; provided that receipt by a party hereto of a favorable written opinion
from counsel to such party shall not be a condition precedent to such party’s obligations
hereunder.




     (8) Title. On the Closing Date, after giving effect to the transactions contemplated
hereby and by the other Operative Agreements, Owner Trustee shall have good and marketable
title to each Unit to be settled on the Closing Date, free and clear of all Liens, except
Permitted Liens of the type described in clause (iii), (iv) and (v) of the definition
thereof.




     (9) Bills of Sale. On the Closing Date, each Seller shall have delivered to Owner
Trustee (with copies to Indenture Trustee, Loan Participant and Owner Participant) a Bill of
Sale in the form attached hereto as Exhibit B with respect to the applicable Units being
settled on the Closing Date, such Bill of Sale dated the Closing Date for such Units,
transferring to Owner Trustee good and marketable title to such Units and warranting to
Owner Trustee that at the time of delivery of each such Unit, such Seller had legal title
thereto and good and lawful right to sell the same, and title thereto was free of all
claims, liens and encumbrances of any nature, except Permitted Liens of the type describe in
clause (iii) and (iv) of the definition thereof.




     (10) Certificates of Acceptance. On the Closing Date, Lessee shall have delivered to
Owner Trustee (with copies to Indenture Trustee, Loan Participant and Owner Participant) a
Certificate of Acceptance with respect to each Unit being settled on the Closing Date, such
Certificate of Acceptance executed on and dated the Delivery Date for such Unit.




     (11) Insurance Certificate. On or before the Closing Date, Indenture Trustee, Loan
Participant, Owner Trustee and Owner Participant shall have received a certificate relating
to insurance that is required pursuant to Section 12 of the Lease.




     (12) Corporate Documents. Each of the Participants shall have received such documents
and evidence with respect to Lessee, Owner Participant, Owner Trustee and Indenture Trustee
as the Participants may reasonably request in order to establish the authority for the
consummation of the transactions contemplated by this Agreement and the other Operative
Agreements, the taking of all corporate and other proceedings in connection therewith and
compliance with the conditions herein or therein set forth and the incumbency of all
officers signing any of the Operative Agreements.



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     (13) No Threatened Proceedings. No action or proceeding shall have been instituted nor
shall governmental action be threatened before any court or governmental agency, nor shall
any order, judgment or decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Closing Date, to set aside, restrain, enjoin or
prevent the completion and consummation of this Agreement or any of the other Operative
Agreements or the transactions contemplated hereby or thereby.




     (14) Closing Date Notice. Prior to the Closing Date, Indenture Trustee and the
Participants shall have received the written notice of the Closing Date required pursuant to
Section 2.3(a).




     (15) No Illegality. No change shall have occurred after the date of the execution and
delivery of this Agreement in applicable law or regulations thereunder or interpretations
thereof by regulatory authorities that, in the opinion of such Participant or its counsel,
would make it illegal for such Participant to enter into any transaction contemplated by the
Operative Agreements.




     (16) Owner Participant’s Investments. Owner Participant shall have made available its
Commitment with respect to the Units delivered on the Closing Date in accordance with
Sections 2.2(a) and 2.3.




     (17) Loan Participant’ Investment. Loan Participant shall have made available its
Commitment with respect to the Units delivered on the Closing Date in accordance with
Sections 2.2(b) and 2.3.




     (18) Consents. All approvals and consents of any trustees or holders of any
indebtedness or obligations of Lessee which are required in connection with the transactions
contemplated by this Agreement and the other Operative Agreements shall have been duly
obtained and be in full force and effect.




     (19) Governmental Actions. All actions, if any, required to have been taken on or
prior to the Closing Date in connection with the transactions contemplated by this Agreement
and the other Operative Agreements on the Closing Date shall have been taken by any
governmental or political agency, subdivision or instrumentality of the United States and
all orders, permits, waivers, exemptions, authorizations and approvals of such entities
required to be in effect on the Closing Date in connection with such transactions
contemplated by this Agreement and the other Operative Agreements on the Closing Date shall
have been issued, and all such orders, permits, waivers, exemptions, authorizations and
approvals shall be in full force and effect, on the Closing Date.



     Section 4.2. Additional Conditions Precedent to the Obligations of Loan Participant. The
obligation of Loan Participant to advance funds for the Equipment Notes to be purchased by it
pursuant to Section 2.2(b) on the Closing Date shall be subject to the additional conditions that:



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     (a) Equipment Notes. The Equipment Notes to be delivered on the Closing Date shall
have been duly authorized, executed and delivered to Loan Participant by a duly authorized
officer of Owner Trustee and duly authenticated by Indenture Trustee.




     (b) Debt Appraisal Letter. On or before the Closing Date, Loan Participant shall have
received a letter from the equipment appraiser setting forth the appraiser’s opinion as to
the fair market value of the applicable Units and that such fair market value is not less
than the Equipment Cost for such Units.




     (c) Original Counterparts of Lease and Lease Supplement. The “original” counterpart of
the Lease and each Lease Supplement shall have been delivered to Indenture Trustee.




     (d) Security Interest. On the Closing Date, after giving effect to the transactions
contemplated hereby and by the other Operative Agreements, Indenture Trustee shall have a
perfected security interest in the Equipment, the Lease and the other property constituting
the Indenture Estate, free of all Liens, except Permitted Liens.




     (e) Opinion. On the Closing Date, Loan Participant shall have received the opinion of
Vedder, Price, Kaufman & Kammholz, P.C., addressed to Loan Participant, in form and
substance satisfactory to Loan Participant.



     Section 4.3. Additional Conditions Precedent to the Obligations of Owner Participant. The
obligation of Owner Participant to provide the funds specified with respect to it in Section 2.2(a)
on the Closing Date with respect to any Unit to be settled on the Closing Date shall be subject to
the following additional conditions:




     (a) Appraisal. On or before the Closing Date, Owner Participant shall have received an
opinion (the “Appraisal”) of an equipment appraiser reasonably satisfactory in form and
substance to Owner Participant.




     (b) Opinion with Respect to Certain Tax Aspects. On the Closing Date, Owner
Participant shall have received the opinion of Thelen Reid & Priest LLP, addressed to Owner
Participant, in form and substance satisfactory to Owner Participant, containing such
counsel’s favorable opinion with respect to the Federal income tax aspects of the
transaction contemplated hereby.




     (c) No Tax Law Change. No Change in Tax Law shall have occurred nor shall a judicial
opinion on a tax issue have been rendered on or prior to the Closing Date which change, if
enacted, adopted or made effective, or such judicial opinion, would, in the reasonable
opinion of Owner Participant, render it disadvantageous or inadvisable for Owner Participant
to enter into the transactions contemplated by the Operative Agreements unless Lessee shall
indemnify Owner Participant to Owner Participant’s reasonable satisfaction for such Change
in Tax Law or, if such change can be compensated for by an adjustment to Basic Rent, unless
Lessee agrees to an adjustment



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to Basic Rent in accordance with the principles of Section 2.6 of this Agreement to preserve
Owner Participant’s Net Economic Return.



     Section 4.4. Conditions Precedent to the Obligation of Lessee. The obligation of Lessee to
participate in the transactions contemplated hereby on the Closing Date shall be subject to the
following conditions precedent:




     (a) Corporate Documents. On or before the Closing Date, Lessee shall have received
such documents and evidence with respect to Owner Participant, Owner Trustee and Indenture
Trustee as Lessee may reasonably request in order to establish the consummation of the
transactions contemplated by this Agreement, the taking of all corporate and other
proceedings in connection therewith and compliance with the conditions herein or therein set
forth.




     (b) Operative Agreements. On or before the Closing Date, each of the documents
referred to in Section 4.1(b)(1) shall be in full force and effect.




     (c) Representations and Warranties True. On the Closing Date, the representations and
warranties of Owner Trustee, Indenture Trustee, Loan Participant and Owner Participant
contained in Section 3 hereof shall be true and correct in all material respects as of the
Closing Date as though made on and as of such date, and Lessee shall have received an
Officer’s Certificate dated such date from each of Owner Trustee as described in Section
4.1(b)(4), Owner Participant as described in Section 4.1(b)(6) and Indenture Trustee as
described in Section 4.1(b)(5), addressed to Lessee and certifying as to the foregoing
matters insofar as they relate to Owner Trustee, Owner Participant and Indenture Trustee, as
the case may be.




     (d) Opinions of Counsel. On the Closing Date, Lessee shall have received the opinions
of counsel for Owner Trustee and Indenture Trustee referred to in Section 4.1(b)(7),
addressed to Lessee.




     (e) No Threatened Proceedings. No action or proceeding shall have been instituted nor
shall governmental action be threatened before any court or governmental agency, nor shall
any order, judgment or decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Closing Date, to set aside, restrain, enjoin or
prevent the completion and consummation of this Agreement or the transactions contemplated
hereby.




     (f) No Tax Law Change. Lessee shall not be obligated to carry out the transactions
contemplated on the Closing Date if a Change in Tax Law shall have occurred after the date
of execution hereof and on or prior to the Closing Date which would, in the reasonable
opinion of Lessee, result in an adjustment pursuant to Section 2.6 which would increase by
more than 50 basis points the present value (discounted at an interest rate per annum equal
to the Debt Rate) of all payments of Basic Rent payable for the Units to be delivered on the
Closing Date.



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Article V




Financial and Other Reports of Lessee




     Lessee agrees that it will furnish directly to each Participant the following:




     (a) unless included in a Form 10-Q delivered or deemed delivered under clause (c)
below, as soon as available and in any event within 60 days after the end of each quarterly
period, except the last, of each fiscal year, consolidated balance sheets of KCS, and its
consolidated Subsidiaries as at the end of such period, together with the related
consolidated statements of income and cash flows of KCS and its consolidated Subsidiaries
for the period beginning on the first day of such fiscal year and ending on the last day of
such quarterly period, setting forth in each case (except for the consolidated balance
sheet) in comparative form the figures for the corresponding periods of the previous fiscal
year, all in reasonable detail and prepared in accordance with generally accepted accounting
principles and certified by any Vice President, the Treasurer, the Chief Financial Officer
or any Assistant Treasurer of KCS;




     (b) unless included in a Form 10-K delivered or deemed delivered under clause (c)
below, as soon as available and in any event within 120 days after the last day of each
fiscal year, a copy of KCS’s annual audited report covering the operations of KCS and its
consolidated Subsidiaries, including consolidated balance sheets, and related consolidated
statements of income and retained earnings and consolidated statement of cash flows of KCS
and its consolidated Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable detail and
prepared in accordance with generally accepted accounting principles applied on a consistent
basis, which statements will have been certified by a firm of independent public accountants
of recognized national standing selected by KCS;




     (c) as soon as available, one copy of each Annual Report on Form 10-K (or any successor
form), Quarterly Report on Form 10-Q (or any successor form) and Form 8-K filed by KCS with
the SEC or any successor agency, provided that, as long as KCS is subject to informational
requirements of the Securities Exchange Act of 1934 and in accordance therewith files
reports and other information with the SEC, each Participant shall be deemed to have been
furnished the foregoing reports and forms at the time such Participant may electronically
access such reports and forms by means of the SEC’s homepage on the internet or at KCS’s
homepage on the internet, provided, further, in the event that KCS shall cease to be subject
to such informational requirements, Lessee will provide each Participant with 90 days’
advance written notice and thereafter Lessee shall directly furnish such reports and forms
to each Participant;




     (d) as soon as available and in any event within 120 days after the last day of each
calendar year, a copy of Lessee’s Class I Railroad Annual Report R-1 filed by the Lessee
with the Surface Transportation Board;



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     (e) as soon as available and in any event within 120 days after the last day of each
fiscal year, a certificate signed by any Vice President, the Treasurer, the Chief Financial
Officer or any Assistant Treasurer of Lessee stating that he/she has reviewed the activities
of Lessee during such year and that Lessee during such year has kept, observed, performed
and fulfilled each and every covenant, obligation and condition contained herein and in the
Lease, or if a Lease Event of Default shall exist or if an event has occurred and is
continuing which, with the giving of notice or the passage of time or both, would constitute
a Lease Event of Default, specifying such Lease Event of Default and all such events and the
nature and status thereof; and




     (f) from time to time, such additional information kept by Lessee in the ordinary
course of business reasonably related to the transactions contemplated hereby as Lessor,
Owner Participant, Loan Participant, Owner Trustee or Indenture Trustee may reasonably
request.


If at any time Lessee shall become subject to the public reporting requirements of the SEC or
Lessee shall cease to be a consolidated subsidiary of KCS, then the reporting requirements of
paragraphs (a) through (c) above shall apply directly to Lessee.




Article VI




Certain Covenants of the Participants, Trustees and Lessee




     Section 6.1. Restrictions on Transfer of Beneficial Interest. Owner Participant agrees that
it shall not sell, convey, assign, pledge, mortgage or otherwise transfer any of its Beneficial
Interest, except to Lessee in accordance with Section 23(c) of the Lease (to which transfer
Indenture Trustee hereby consents), unless:




     (a) the Person to whom such transfer is to be made (a “Transferee") is (i) a Person
that is an institutional investor organized as a corporation, limited liability company,
partnership or other legal entity under the laws of the United States or any state or
territory thereof or the District of Columbia with tangible net worth or, in the case of a
bank or lending institution, combined capital or surplus at the time of such transfer of at
least US $75,000,000, all of the foregoing determined in accordance with generally accepted
accounting principles or (ii) any United States subsidiary or United States affiliate of any
such institutional or corporate investor if such investor guarantees the obligations so
assumed by such subsidiary or affiliate pursuant to an instrument or instruments reasonably
satisfactory to Lessee, Owner Trustee and Indenture Trustee or (iii) any United States
subsidiary or United States affiliate of the transferring Owner Participant if the
transferring Owner Participant remains liable for all obligations of Owner Participant under
each of the Operative Agreements;




     (b) neither the Transferee nor any of its Affiliates shall be (i) directly involved in
the transportation business (it being understood that operating lessors and passive equity
and debt investors (including lessors) in railroad rolling stock and facilities are not
directly involved in the transportation business), (ii) a competitor of Lessee in Lessee’s



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primary business, (iii) at the time of the proposed transfer, a substantial investor in
Lessee or any Affiliate of Lessee attempting a merger, acquisition or other takeover of
Lessee or any Affiliate of Lessee which merger, acquisition or other takeover shall not have
been approved by the Board of Directors of Lessee or such Affiliate or otherwise be
perceived by Lessee or such Affiliate to be hostile to the management of Lessee or such
Affiliate, (iv) an adverse plaintiff or defendant in any then-existing litigation or any
then-existing third-party arbitration involving Lessee or an Affiliate of Lessee, or (v) the
potential plaintiff in any litigation which has been threatened, in writing, against Lessee
or an Affiliate of Lessee; provided that if a Specified Default or an Event of Default shall
have occurred and be continuing, the requirements set forth in this subsection (b) above
shall not apply to such transfer;




     (c) Indenture Trustee, Lessee and Owner Trustee shall have received 30 days’ (10 days
in the case of a transfer to an Affiliate) prior written notice of such transfer specifying
the name and address of any proposed transferee and such additional information as shall be
necessary to determine whether the proposed transfer satisfies the requirements of this
Section 6.1 and Section 8.01 of the Trust Agreement;




     (d) such Transferee enters into an agreement or agreements in form and substance
reasonably satisfactory to Lessee, Owner Trustee and Indenture Trustee whereby such
Transferee confirms that it shall be deemed a party to this Agreement and each other
Operative Agreement to which the transferring Owner Participant is a party, and agrees to be
bound by all the terms of, and to undertake all of the obligations and liabilities of the
transferring Owner Participant contained in, this Agreement and such other Operative
Agreements and in which the Transferee shall make representations and warranties comparable
to those of Owner Participant contained herein and therein;




     (e) such transfer complies in all respects with and does not violate any applicable
law, including any applicable Federal securities law and the securities law of any
applicable state;




     (f) an opinion of counsel of the Transferee (which counsel shall be either Thelen Reid
& Priest LLP, internal counsel to the Transferee or another counsel reasonably acceptable to
Lessee and Indenture Trustee), confirming (i) the existence, power and authority of, and due
authorization, execution and delivery of all relevant documentation by, the Transferee (with
appropriate reliance on certificates of corporate officers or public officials as to matters
of fact), (ii) that each agreement referred to in subparagraph (d) above is the legal,
valid, binding and enforceable obligation of the Transferee subject to the customary
exceptions, (iii) compliance of the transfer with the registration provisions of applicable
laws and regulations including Federal securities laws and securities laws of the
Transferee’s domicile and other jurisdictions reasonably identified by Lessee as potentially
applicable to the transfer, and (iv) other matters as Lessee or Indenture Trustee may
reasonably request, shall be provided, prior to such transfer, to Lessee, Indenture Trustee
and Owner Trustee, which opinion shall be in form and substance reasonably satisfactory to
each of them;



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     (g) except as specifically consented to in writing by Lessee and Indenture Trustee, the
terms of the Operative Agreements shall not be altered;




     (h) all fees, expenses and charges of the parties hereto (including without limitation,
legal fees and expenses of special counsel) incurred in connection with each transfer of
such Beneficial Interest shall be paid by Owner Participant;




     (i) such transfer (i) does not involve the use of an amount which constitutes assets of
an employee benefit plan (other than a government plan exempt from the coverage of ERISA) or
(ii) will not constitute a prohibited transaction;




     (j) such transfer shall be of all, but not less than all, of the entire Beneficial
Interest of Owner Participant;




     (k) such transfer shall not occur prior to the Closing Date;




     (l) as a result of such transfer, no Indenture Default attributable to Owner
Participant or Owner Trustee shall have occurred and be continuing; and




     (m) Owner Participant shall deliver an Officer’s Certificate to the parties hereto
certifying as to compliance with the transfer requirements contained herein.



     Upon any such transfer, (i) except as the context otherwise requires, such Transferee shall be
deemed the “Owner Participant” for all purposes, and shall enjoy the rights and privileges and
perform the obligations of Owner Participant to the extent of the interest transferred hereunder
and under each other Operative Agreement to which such Owner Participant is a party, and, except as
the context otherwise requires, each reference in this Agreement and each other Operative Agreement
to the “Owner Participant” shall thereafter be deemed to include such Transferee for all purposes
to the extent of the interest transferred and (ii) the transferor, except as provided in Section
6.1(h) hereof, shall be released from all obligations hereunder and under each other Operative
Agreement to which such transferor is a party or by which such transferor is bound to the extent
such obligations are expressly assumed by a Transferee; and provided, further, that in no event
shall any such transfer or assignment waive or release the transferor from any liability on account
of any breach existing immediately prior to such transfer of any of its representations,
warranties, covenants or obligations set forth in the Operative Agreements or for any fraudulent or
willful misconduct. Any transfer or assignment of the Beneficial Interest in violation of this
Section 6.1 shall be void and of no effect.



     Section 6.2. Lessor’s Liens Attributable to Owner Participant. Owner Participant hereby
unconditionally agrees with and for the benefit of the other parties to this Agreement that Owner
Participant will not directly or indirectly create, incur, assume or suffer to exist any Lessor’s
Liens on or against any part of the Trust Estate or the Equipment arising out of any act or
omission of or claim against Owner Participant, and Owner Participant agrees that it will, at its
own cost and expense, take such action as may be necessary to duly discharge and satisfy in full
any such Lessor’s Lien (by bonding or otherwise, so long as Lessee’s operation and use of the
Equipment is not impaired); provided that Owner Participant may contest any such Lessor’s



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Lien in good faith by appropriate proceedings so long as such proceedings do not involve any
material danger of the sale, forfeiture or loss of the Equipment or any interest therein and do not
interfere with the use, operation, or possession of the Equipment by Lessee under the Lease or the
rights of Indenture Trustee under the Indenture and the other Operative Agreements or the rights of
Loan Participant under the Operative Agreements. Owner Participant hereby indemnifies and holds
harmless Lessee, Indenture Trustee, Indenture Estate, Owner Trustee and Loan Participant from and
against any loss, cost or expense (including reasonable legal fees and expenses) which may be
suffered or incurred by any of them as the result of the failure of Owner Participant to discharge
and satisfy any such Lessor’s Lien.



     Section 6.3. Lessor’s Liens Attributable to Trust Company. Trust Company, hereby
unconditionally agrees with and for the benefit of the other parties to this Agreement that Trust
Company will not directly or indirectly create, incur, assume or suffer to exist any Lessor’s Liens
on or against any part of the Trust Estate or the Equipment arising out of any act or omission of
or claim against Trust Company, and Trust Company agrees that it will, at its own cost and expense,
take such action as may be necessary to duly discharge and satisfy in full (i) any such Lessor’s
Lien attributable to Trust Company (by bonding or otherwise, so long as Lessee’s operation and use
of the Equipment is not impaired) and (ii) any other liens or encumbrances attributable to Trust
Company on any part of the Trust Estate or the Indenture Estate which result from claims against
Trust Company not related to the ownership of the Equipment, the administration of the Trust Estate
or the Indenture Estate or the transactions contemplated by the Operative Agreements; provided that
Owner Trustee may contest any such Lessor’s Lien in good faith by appropriate proceedings so long
as such proceedings do not involve any material danger of the sale, forfeiture or loss of the
Equipment or any interest therein and do not interfere with the use, operation, or possession of
the Equipment by Lessee under the Lease or the rights of Indenture Trustee under the Indenture and
the other Operative Agreements or the rights of Loan Participant under the Operative Agreements.
Trust Company hereby indemnifies and holds harmless Lessee, Indenture Trustee, the Indenture
Estate, Owner Participant and Loan Participant from and against any loss, cost or expense
(including reasonable legal fees and expenses) which may be suffered or incurred by any of them as
the result of the failure of Owner Trustee to discharge and satisfy any such Lessor’s Lien.



     Section 6.4. Liens Created by Indenture Trustee and Loan Participant. (a) Indenture Trustee
covenants and agrees with Lessee, Owner Trustee, Owner Participant and Loan Participant that it
shall not cause or permit to exist any Lien on the Equipment or all or any portion of the Trust
Estate or the Indenture Estate arising as a result of (i) claims against Indenture Trustee not
related to its interest in the Equipment and the Trust Estate, or to the administration of the
Indenture Estate pursuant to the Indenture, (ii) acts of Indenture Trustee not contemplated by, or
failure of Indenture Trustee to take any action it is expressly required to perform by, the
Operative Agreements, (iii) claims against Indenture Trustee relating to Taxes or expenses that are
not indemnified against by Lessee pursuant to Section 7 attributable to the actions of Indenture
Trustee, or (iv) claims against Indenture Trustee arising out of the transfer by Indenture Trustee
of all or any portion of its interest in the Equipment, the Indenture Estate or the Operative
Agreements, other than a transfer permitted by the Operative Agreements and that Indenture Trustee
will, at its own cost and expense (and without any right of reimbursement from any other party
hereto), promptly take such action as may be necessary duly to discharge any



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such Lien; provided that Indenture Trustee may contest any such Lien in good faith by appropriate
proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture
or loss of the Equipment or any interest therein and do not interfere with the use, operation, or
possession of the Equipment by Lessee under the Lease, the rights of the Trust under the Operative
Agreements or the rights of Loan Participant under the Operative Agreements. Indenture Trustee
further agrees to indemnify and hold harmless each of the other parties hereto from and against any
loss, out-of-pocket cost and expenses (including reasonable legal fees and expenses) incurred, in
each case, as a result of the imposition or enforcement of any such Lien.



     (b) Loan Participant covenants and agrees with Lessee, Owner Trustee, Owner Participant and
Indenture Trustee that it shall not cause or permit to exist any Lien on the Equipment or all or
any portion of the Trust Estate or the Indenture Estate arising as a result of (i) claims against
Loan Participant not related to its interest in the Equipment and the Trust Estate, (ii) acts of
Loan Participant not contemplated by, or failure of Loan Participant to take any action it is
expressly required to perform under, the Operative Agreements, (iii) claims against Loan
Participant relating to Taxes or expenses that are not indemnified against by Lessee pursuant to
Article VII or (iv) claims against Loan Participant arising out of the transfer by Loan Participant
of all or any portion of its interest in the Equipment, the Indenture Estate or the Operative
Agreements, other than a transfer permitted by the Operative Agreements and that Loan Participant
will, at its own cost and expense (and without any right of reimbursement from Lessee), promptly
take such action as may be necessary duly to discharge any such Lien; provided that Loan
Participant may contest any such Lien in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or loss of the Equipment or
any interest therein and do not interfere with the use, operation, or possession of the Equipment
by Lessee under the Lease or the rights of the Trust or Indenture Trustee under the Operative
Agreements. Loan Participant further agrees to indemnify and hold harmless each of the other
parties hereto from and against any loss, out-of-pocket cost and expenses (including reasonable
legal fees and expenses) incurred, in each case, as a result of the imposition or enforcement of
any such Lien.



     Section 6.5. Covenants of Owner Trustee, Trust Company, Owner Participant and Indenture
Trustee. Owner Participant, and Owner Trustee and Trust Company, hereby agree, severally and not
jointly, with Lessee, Loan Participant and Indenture Trustee (i) to comply with all of the terms of
the Trust Agreement applicable to it in its respective capacity, (ii) not to amend, supplement, or
otherwise modify any provision of the Trust Agreement in such a manner as to adversely affect the
rights of any such party without the prior written consent of such party and (iii) not to terminate
or revoke the Trust Agreement or the trust created by the Trust Agreement and such trust shall not
be subject to revocation or termination by Owner Participant prior to the payment in full and
discharge of the Equipment Notes and all other indebtedness secured by the Indenture and the final
discharge thereof pursuant to Section 10.01 thereof or prior to the expiration or early termination
of the Lease and the payment in full and discharge of the Equipment Notes and all other
indebtedness secured by the Indenture and the final discharge thereof pursuant to Section 10.01
thereof. Each of Owner Trustee and Indenture Trustee agrees, for the benefit of Lessee and Owner
Participant, to comply with the provisions of the Indenture. Notwithstanding any provision herein
or in any of the Operative Agreements to the contrary,



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Indenture Trustee’s obligation to take or refrain from taking any actions, or to use its discretion
(including, but not limited to, the giving or withholding of consent or approval and the exercise
of any rights or remedies under such Operative Agreements), and any liability therefor, shall, in
addition to any other limitations provided herein or in the other Operative Agreements, be limited
by the provisions of the Indenture.



     Section 6.6. Amendments to Operative Agreements. The Trustees and Participants will not
terminate the Operative Agreements to which Lessee is not or will not be a party, except in
accordance with the Operative Agreements in effect on the date hereof (as amended, modified or
supplemented from time to time in accordance with the terms hereof and of the other Operative
Agreements), or amend, supplement, waive or modify such Operative Agreements in any manner that
increases the obligations or liabilities, or decreases the rights, of Lessee under the Operative
Agreements, without, in each such case, the prior written consent of Lessee. Owner Participant and
the Trustees (as applicable) agree that, in any event, they will not amend Section 2.01, 2.02,
2.05, 2.10, the provisions of the proviso of Section 4.3(a), Article III, Article IX of the
Indenture or Section 4.01, 9.01, 10.01 or 12.01 or Article IX of the Trust Agreement without the
prior written consent of Lessee.



     Section 6.7. Section 1168. Lessee shall at all times remain a “railroad”, as such term is
defined in Section 101 (44) of the U.S. Bankruptcy Code, such that Lessee’s obligations under the
Lease shall be subject to the provisions of Section 1168 of the U.S. Bankruptcy Code. Lessee shall
not take any action which would cause Section 1168 to cease to be applicable to this transaction
or, in connection with any bankruptcy proceedings involving Lessee or any of its Affiliates, take a
position in the United State Bankruptcy Court that is inconsistent with the rights of Lessor under
such Section 1168.



     Section 6.8. Merger Covenant. Lessee shall not consolidate with or merge into any other
Person or convey, transfer or lease substantially all of its assets as an entirety to any Person
unless (i) the Person formed by such consolidation or into which Lessee is merged or the Person
which acquires by conveyance, transfer or lease substantially all of the assets of Lessee as an
entirety shall execute and deliver to Owner Trustee, Owner Participant, Loan Participant and
Indenture Trustee an agreement containing the assumption by such successor corporation of the due
and punctual performance and observance of each covenant and condition of this Agreement and each
of the other Lessee Agreements to be performed or observed by Lessee, (ii) immediately after giving
effect to such transaction, no Lease Event of Default shall have occurred solely as a result of
such consolidation or merger or such conveyance, transfer or lease and (iii) Lessor (and Indenture
Trustee, as assignee of Lessor) shall be entitled to the benefits of Section 1168 of the Bankruptcy
Code to the same extent as immediately prior to such merger, consolidation or transfer. Upon such
consolidation or merger, or any conveyance, transfer or lease of substantially all of the assets of
Lessee as an entirety in accordance with this Section 6.8, the successor corporation formed by such
consolidation or into which Lessee is merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every right and power of, Lessee under
this Agreement and the other Operative Agreements with the same effect as if such successor
corporation had been named as Lessee herein. If Lessee shall have consolidated with or merged into
any other Person or conveyed, transferred or leased substantially all of its assets, such assets to
include Lessee’s leasehold



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interest in the Lease, the Person owning such leasehold interest after such event shall deliver to
Owner Participant, Loan Participant and Indenture Trustee, an opinion of counsel (which counsel may
be such Person’s in-house counsel) confirming that the assumption agreement pursuant to which such
Person assumed the obligations of Lessee shall have been duly authorized, executed and delivered by
such Person and that such agreement is the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with its terms.



     Section 6.9. Additional Filings. In the event that during the Lease Term (i) a central filing
system becomes available in Mexico for the filing or recording of security interests or ownership
rights in railroad rolling stock and (ii) Lessee elects as a business practice to conduct such
filings or recordings with respect to equipment owned or leased by Lessee that is used in a manner
similar to the Units, then Lessee will take, or cause to be taken, at Lessee’s cost and expense,
such action with respect to the filing or recording of the Lease, the Indenture or any supplements
thereto and any other instruments as may be necessary or reasonably required to maintain, so long
as the Indenture or the Lease is in effect and such central filing system remains available, the
benefit of such filing or recording in Mexico for the protection of the security interest created
by the Indenture and any security interest that may be claimed to have been created by the Lease
and the ownership interest of Owner Trustee in each Unit to the extent such protection is available
pursuant to such filing or recording in Mexico.



     Section 6.10. Owner Participant an Affiliate of Lessee. If at any time the original or any
successor Owner Participant shall be an Affiliate of Lessee, such Owner Participant and Lessee
agree that, notwithstanding any provision of the Indenture to the contrary, they will not modify,
amend or supplement any provision of the Lease or this Agreement or give, or permit Owner Trustee
to give, any consent, waiver, authorization or approval thereunder if any such action would
adversely affect in a material manner Indenture Trustee or any holder of an Equipment Note unless
such action shall have been consented to by a Majority In Interest.



     Section 6.11. Taxes. Lessee shall pay and discharge all Taxes imposed upon Lessee or upon its
income, profits or properties prior to the date on which penalties attach thereto except for those
Taxes which are being contested in good faith through appropriate proceedings and for which
adequate reserves are being maintained.



     Section 6.12. Negative Make-Whole Amount. Loan Participant hereby agrees, and the other
parties hereby acknowledge, that in the event of any prepayment of the Equipment Notes pursuant to
Section 2.10 of the Indenture, any acceleration of the Equipment Notes pursuant to Section 4.02 of
the Indenture or any purchase of the Equipment Notes pursuant to Section 4.04(b) of the Indenture,
if the calculation of the Make-Whole Amount results in Negative Make-Whole Amount, then such
Negative Make-Whole Amount shall be due on the date of such prepayment as provided for in Section
2.10 of the Indenture, the date of payment under Section 4.02 of the Indenture in the case of such
acceleration or the date of such purchase as provided in Section 4.04(b) of the Indenture, as the
case may be, and such Negative Make-Whole Amount shall be paid in U.S. dollars on such date by the
holders of the Equipment Notes (each such holder to pay its ratable portion of such Negative
Make-Whole Amount in accordance with its percentage of the Equipment Notes then being prepaid or
purchased) directly to the Lessee free of the Lien of the Indenture or, if such acceleration
pursuant to Section 4.02 of the



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Indenture results from a Lease Event of Default, to the Owner Trustee or, in the case of Section
4.04(b) of the Indenture, to the Owner Participant; provided that if at any time that the Owner
Trustee is required to make a payment of the aggregate unpaid principal amount of all Equipment
Notes then outstanding plus the accrued but unpaid interest thereon in connection with any
acceleration of the Equipment Notes pursuant to Section 4.02 of the Indenture, there shall exist an
obligation of the holders of the Equipment Notes to pay any Negative Make-Whole Amount, there shall
be deducted from such payment of the aggregate unpaid principal amount of all Equipment Notes then
outstanding plus the accrued but unpaid interest thereon an amount equal to the aggregate amount of
such Negative Make-Whole Amount owed by the holders of the Equipment Notes at such time (with the
same effect as if such amount had been distributed pursuant to the provisions of Section 3.03 of
the Indenture).



Article VII




Lessee’s Indemnities




     Section 7.1. General Tax Indemnity.



     (a) Tax Indemnitee Defined. For purposes of this Section 7.1, “Tax Indemnitee” means Owner
Participant, its Affiliates, Owner Trustee, Trust Company, the Trust, the Trust Estate, Indenture
Trustee, Loan Participant, and each of their respective successors or assigns permitted under the
terms of the Operative Agreements and, with respect to any taxes, shall also include any affiliated
or combined group of which such Tax Indemnitee is, or may become, a member if consolidated or
combined returns are filed for such group for purposes of such taxes.



     (b) Taxes Indemnified. Subject to the exclusions stated in subsection (c) below, Lessee
agrees to indemnify and hold harmless each Tax Indemnitee on an After-Tax Basis against all fees,
taxes, levies, assessments, charges or withholdings of any nature, together with any penalties,
fines or interest thereon or additions thereto (“Taxes”) imposed upon any Tax Indemnitee, Lessee or
all or any part of the Equipment by any federal, state or local government, political subdivision,
or taxing authority in the United States, by any government or taxing authority of or in a foreign
country or by any international authority, upon, with respect to or in connection with:




     (i) the Equipment or any part of any of the Equipment or interest therein;




     (ii) the acquisition, financing, use or operation with respect to the Equipment or any
part of any of the Equipment or interest therein;




     (iii) payments of Rent or the receipts, income or earnings arising therefrom; or




     (iv) any or all of the Operative Agreements or any payments made with respect to the
Equipment Notes; or otherwise with respect to the transactions contemplated by or resulting
from the Operative Agreements, including any payments thereunder and the exercise of rights
and remedies thereunder;



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     (c) Taxes Excluded. The indemnity provided for in paragraph (b) above shall not extend to any
of the following:




     (i) Taxes which are based upon, measured by or in respect to gross or net income or
gross or net receipts (including (x) commercial activity taxes, business activity taxes and
other similar taxes that are based upon, measured by or in respect of such income or
receipts and (y) all Taxes which are in lieu of a gross or net income tax or gross or net
receipts tax); Taxes on items of preference or any minimum tax; value added taxes; business
and occupation taxes; franchise taxes; or Taxes based upon Owner Participant’s or Lessor’s
capital stock or net worth; provided that there shall not be excluded under this
subparagraph (i) any (x) sales, use, property, value added, license, rental, ad valorem or
Taxes in the nature thereof and (y) any Taxes imposed by any government or taxing authority
of or in a foreign country if, and to the extent, such Taxes are imposed as a result of (A)
the operation, presence or registration in such jurisdiction of any Unit or part thereof,
(B) the presence in such jurisdiction of a permanent establishment or fixed place of
business of any Lessee Person, (C) the residence, nationality or place of management and
control of any Lessee Person, (D) the payment by any Lessee Person of any amount due under
the Operative Agreements which is treated as paid from such jurisdiction or (E) any
combination of factors (A)-(D); provided, further, that in the case of a Loan Participant,
there shall not be excluded under this subparagraph (i) Taxes imposed by withholding or
deduction.




     (ii) In the case of a Loan Participant, Taxes imposed by withholding or deduction,
unless and to the extent such Loan Participant is a “resident” of the Federal Republic of
Germany, as defined for purposes of the Treaty as in effect on the Delivery Date in the case
of the Original Loan Participant and as in effect on the date a Loan Participant other than
the Original Loan Participant acquires its interest in an Equipment Note or other Operative
Agreement, and such Taxes are imposed by the United States as a result of a Change in Tax
Law on or with respect to the payment of principal, interest or any other sums payable under
an Equipment Note or other amounts payable to such holder under the Operative Agreements by
Lessee, Indenture Trustee or Owner Trustee;




     (iii) Taxes imposed with respect to any period after the earliest of (x) the return of
possession of the Equipment to Owner Participant or the placement of the Equipment in
storage at the request of Owner Participant, in either case pursuant to Section 6 of the
Lease and only so long as no Lease Event of Default shall have occurred and be continuing,
(y) the termination of the Lease Term pursuant to Section 22.1 of the Lease, or (z) the
discharge in full of Lessee’s obligation to pay the Termination Value or the Stipulated Loss
Value and all other amounts due, if any, under Section 10 or 11.2 of the Lease, as the case
may be, with respect to the Equipment; provided that the exclusion set forth in this clause
(ii) shall not apply to Taxes to the extent such Taxes relate to events occurring or matters
arising prior to or simultaneously with such time (including Taxes on or with respect to any
payment to a Tax Indemnitee due after the termination or expiration of the Lease if such
payment relates to events occurring or matters arising prior to or simultaneously with such
time);



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     (iv) Taxes of a Tax Indemnitee which arise out of or are caused by any breach by such
Tax Indemnitee of any of its representations, warranties or covenants in any of the
Operative Agreements, or the gross negligence or willful misconduct of such Tax Indemnitee;




     (v) Taxes which become payable as a result of a sale, assignment, transfer or other
disposition (whether voluntary or involuntary) by a Tax Indemnitee of all or any portion of
its interest in the Equipment or any part thereof, the Trust Estate or any of the Operative
Agreements or rights created thereunder other than a disposition attributable to (v) a Lease
Event of Default (but only while a Lease Event of Default has occurred and is continuing),
(w) an Event of Loss, (x) the exercise by Lessee of the termination right pursuant to
Section 10 of the Lease, (y) the exercise by Lessee of the purchase rights pursuant to
Section 23 of the Lease and (z) the replacement, substitution, subleasing or interchange of
any Unit by any Lessee Person;




     (vi) Taxes imposed with respect to any fees received by Indenture Trustee or Owner
Trustee for services rendered in its capacity as trustee;




     (vii) Taxes which have been included in the Equipment Cost;




     (viii) Taxes for which Lessee is obligated to indemnify Owner Participant or Owner
Trustee under the Tax Indemnity Agreement;




     (ix) Taxes which result from Owner Trustee’s engaging on behalf of the Trust Estate
acting upon the instruction of Owner Participant in transactions other than those permitted
or contemplated by the Operative Agreements unless attributable to the exercise of default
remedies pursuant to Article V of the Trust Agreement;




     (x) Taxes imposed pursuant to sections 6707, 6707A or 6708 of the Code;




     (xi) As to any Tax Indemnitee any Taxes imposed as a result of any modification,
amendment, supplement, consent, or waiver to any Operative Agreement entered into by such
Tax Indemnitee or any related Tax Indemnitee thereof other than any modification, amendment,
supplement, consent, or waiver (A) consented to in writing, requested in writing or
initiated by the Lessee, (B) while a Lease Event of Default shall have occurred and is
continuing or (C) that is required by the Operative Agreements or by law;




     (xii) Taxes imposed against a particular Indemnified Person resulting from any
prohibited transaction, within the meaning of section 4975(c)(1) of the Code, occurring with
respect to the purchase or holding of Equipment Notes or circumstances when such Indemnified
Person or any Person in such Indemnified Person’s Related Indemnitee Group caused such
purchase or holding and knew it would constitute such a prohibited transaction;



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     (xiii) Taxes imposed on a Tax Indemnitee to the extent resulting from a failure of such
Tax Indemnitee to provide any certificate, documentation, or other evidence requested by
Lessee in a timely manner and required under applicable law as a condition to the allowance
of a reduction in such Tax, but only if such Tax Indemnitee was legally eligible to provide
such certificate, document or other evidence (based on a good faith judgment of such Tax
Indemnitee that it is legally entitled and eligible to do so) without unindemnified adverse
consequences (other than certain de minimis costs);




     (xiv) Taxes imposed on a Tax Indemnitee to the extent consisting of interest,
penalties, fines or additions to Tax in connection with the filing of, or failure to file,
any tax return, the payment of, or failure to pay any Tax, or the conduct of any proceeding
in respect thereof unless resulting from the failure by Lessee to perform its obligations
under Section 7.1 hereof.



     (d) All Tax Obligations in This Section, Etc. It is intended that all of Lessee’s obligations
with respect to Taxes are set forth in this Section 7.1 and in the Tax Indemnity Agreement, but if
Lessee shall be required under any other provision of the Operative Agreements to pay any other
tax, the parties hereto agree that Section 7.1(e), (f), (h) , (j) and (k) shall apply to such
taxes.



     (e) Reverse Indemnity. If any Tax Indemnitee shall realize a tax benefit as a result of any
Taxes paid or indemnified against by Lessee under this Section 7.1 (whether by way of deduction,
credit, allocation or apportionment or otherwise), such Tax Indemnitee shall pay to Lessee an
amount equal to the amount of such tax benefit, increased by the Tax Indemnitee’s additional saved
taxes attributable to the payment being made to Lessee hereunder (a “reverse gross-up”), provided
that (i) the Tax Indemnitee shall not be obligated to make a payment to Lessee pursuant to this
subsection (e) as long as a Lease Event of Default shall have occurred and be continuing or (ii) to
the extent the amount of such payment by the Tax Indemnitee to Lessee would exceed the amount of
all prior payments by Lessee to the Tax Indemnitee pursuant to paragraph (b) less the amount of all
prior payments by the Tax Indemnitee of tax benefits pursuant to this paragraph (e), such excess
shall not be paid but shall instead be carried forward and shall reduce Lessee’s obligations to
make subsequent payments under paragraph (b) to the Tax Indemnitee. The foregoing proviso shall
not apply to any reverse gross-up. The Tax Indemnitee shall in good faith use diligence in filing
its tax returns and in dealing with taxing authorities to seek and claim any such tax benefit and
to minimize the Taxes indemnifiable by Lessee under paragraph (b). Any subsequent loss or
disallowance of such reduction in Taxes realized by the Tax Indemnitee shall be treated as Taxes
subject to Lessee’s indemnity obligation pursuant to this Section 7.1.



     (f) Refund. Provided that no Lease Event of Default has occurred and is continuing (in which
event such payments shall be made when there is no continuing Lease Event of Default), upon receipt
by a Tax Indemnitee of a refund or credit of all or part of any Taxes paid or indemnified against
by Lessee, such Tax Indemnitee shall pay to Lessee an amount equal to the amount of such refund
plus any interest received by or credited to such Tax Indemnitee with respect to such refund
increased or decreased, as the case may be, by the Tax Indemnitee’s net additional or saved taxes
attributable to the receipt of such amounts from the taxing authority and



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the payment being made to Lessee hereunder. The Tax Indemnitee shall in good faith use diligence
in filing its Tax returns and in dealing with taxing authorities to seek and claim any such refund
and to minimize the Taxes indemnifiable by Lessee pursuant to paragraph (b).



     (g) Procedures. Any amount payable to a Tax Indemnitee pursuant to paragraph (b) shall be
paid within 30 days after receipt of a written demand therefor from such Tax Indemnitee accompanied
by a written statement describing in reasonable detail the basis for such indemnity and the
computation of the amount so payable, provided that such amount need not be paid prior to the later
of (i) the date which is 3 days prior to the date on which such Taxes are required to be paid or
(ii) in the case of amounts which are being contested pursuant to paragraph (h) hereof, the time
such contest (including all appeals) is finally resolved. Any amount payable to Lessee pursuant to
paragraph (e) or (f) shall be paid within 30 days after the Tax Indemnitee realizes a tax benefit
giving rise to a payment under paragraph (e) or receives a refund giving rise to a payment under
paragraph (f), as the case may be, and shall be accompanied by a written statement by the Tax
Indemnitee setting forth in reasonable detail the basis for computing the amount of such payment.
Within 15 days following Lessee’s receipt of any computation from the Tax Indemnitee, Lessee may
request that an accounting firm selected by Lessee and reasonably acceptable to the Tax Indemnitee
determine whether such computations of the Tax Indemnitee are correct. Such accounting firm shall
be requested to make the determination contemplated by this paragraph (g) within 30 days of its
selection. In the event such accounting firm shall determine that such computations are incorrect,
then such firm shall determine what it believes to be the correct computations. The Tax Indemnitee
shall cooperate with such accounting firm and supply it with all information necessary to permit it
to accomplish such determination, provided that such accounting firm shall have entered into a
confidentiality agreement reasonably satisfactory to such Tax Indemnitee. The computations of such
accounting firm shall be final, binding and conclusive upon the parties and Lessee shall have no
right to inspect the books, records or tax returns of the Tax Indemnitee to verify such computation
or for any other purpose. All fees and expenses of the accounting firm payable under this Section
7.1(g) shall be borne by Lessee, provided, however, that such fees and expenses shall be borne by
the Tax Indemnitee if the amount determined by such firm is (1) in the case of any amount payable
by Lessee, less than the amount determined by the Tax Indemnitee by 5% of the amount determined by
such firm, and (2) in the case of any amount payable by the Tax Indemnitee, more than the amount
determined by the Tax Indemnitee by 5% of the amount determined by such firm.



     (h) Contest. If a written claim is made against a Tax Indemnitee for Taxes with respect to
which Lessee may be liable for indemnity hereunder, the Tax Indemnitee shall promptly give Lessee
notice in writing of such claim after its receipt and shall furnish Lessee with copies of the claim
and all other writings received from the taxing authority relating to the claim; provided, however,
that failure to notify Lessee shall not relieve Lessee of any obligation to indemnify the Tax
Indemnitee hereunder unless such failure shall effectively preclude Lessee’s ability to initiate or
continue the contest of such claim. The Tax Indemnitee shall not pay such claim prior to 30 days
after providing Lessee with such written notice, unless required to do so by law or unless deferral
of payment would cause adverse consequences to the Tax Indemnitee. The Tax Indemnitee shall in
good faith, with due diligence and at Lessee’s expense, if requested in writing by Lessee, contest
(including pursuing all appeals, other than to the United States



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Supreme Court) in the name of the Tax Indemnitee (or, if requested by Lessee and permissible as a
matter of law, in the name of Lessee), or shall at Lessee’s option permit Lessee to contest in
either the name of Lessee or with the Tax Indemnitee’s consent, which consent shall not be
unreasonably withheld, in the name of the Tax Indemnitee, the validity, applicability or amount of
such Taxes by,




     (i) resisting payment thereof if practical;




     (ii) not paying the same except under protest if protest is necessary and proper;




     (iii) if the payment be made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings; or




     (iv) taking such other reasonable action as is reasonably requested by Lessee from time
to time;



     Notwithstanding the foregoing provisions of this paragraph (h), the Tax Indemnitee shall not
be required to contest, or permit Lessee to contest, a claim unless (A) Lessee shall have agreed in
writing to pay on an After-Tax Basis to the Tax Indemnitee on demand all reasonable out-of-pocket
costs and expenses which the Tax Indemnitee may incur in connection with contesting such claim, (B)
no Lease Event of Default shall have occurred and be continuing, (C) such contest will not result
in any material danger of the sale, forfeiture or loss of any of the Units unless Lessee shall have
provided security reasonably acceptable to the Tax Indemnitee, and there is no risk of imposition
of any criminal penalties or material civil liability or penalty as a result of such Tax Claim, (D)
if such contest involves payment of such Tax, Lessee will either lend to the Tax Indemnitee on an
interest-free basis (without reduction for any Tax savings that the Tax Indemnitee may realize as a
result of the payment of such Tax), which loan will be repaid in full by the Tax Indemnitee upon
the conclusion of the contest or pay such Tax Indemnitee the amount payable by Lessee pursuant to
Section 7.1(a) above with respect to such Tax, and (E) upon request of a Tax Indemnitee, Lessee
furnishes such Tax Indemnitee with an opinion of Lessee’s counsel that there is a reasonable basis
for the position to be asserted in such contest and in the case of an appeal, that there is a
substantial likelihood that the adverse decision will be reversed or substantially modified on
appeal. If a Tax Indemnitee is obligated to contest a claim under this paragraph (h), such Tax
Indemnitee shall not compromise or settle such claim without the express written permission of
Lessee. If it does so in the absence of such permission, Lessee’s obligation to indemnify with
respect to such claim shall terminate. If a Tax Indemnitee is obligated to contest a claim under
this paragraph (h), such Tax Indemnitee may at any time decline to take further action with respect
to the contest of such claim if such Tax Indemnitee shall first waive in writing its right to any
indemnity payment by Lessee in respect of such claim (other than the expenses of such contest).



     (i) Reports. In case any report, return or statement is required to be filed with respect to
Taxes for which Lessee has an indemnity obligation under this Section 7.1, Lessee shall at Lessee’s
expense timely file the same (except for any such report, return or statement (x) which the
relevant Tax Indemnitee has notified in writing Lessee that such Tax Indemnitee intends to



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file or (y) which Lessee is not permitted to file, in which event Lessee shall timely (but in no
event later than 30 days prior to the due date for such report, return or statement) provide at
Lessee’s expense such Tax Indemnitee with such information reasonably available to Lessee as is
reasonably necessary for preparing such report, return or statement), provided that such Tax
Indemnitee shall have furnished Lessee with such information, not within the control of Lessee, as
is in such Tax Indemnitee’s control and is reasonably available to such Tax Indemnitee and
reasonably necessary to file such report, return or statement. Lessee shall either file such
report, return or statement so as to show the ownership of the Equipment by the Trust or, where
Lessee is not permitted to so file, shall notify the Tax Indemnitee of such requirement and prepare
and deliver such report, return or statement to the Tax Indemnitee within a reasonable time prior
to the time such report, return or statement is to be filed.



     (j) Mitigation. Notwithstanding the provisions of Section 7.1(b) hereof:




     (i) If circumstances arise which have resulted or would result in any Taxes imposed by
withholding or deduction (“Withholding Taxes") (other than Withholding Taxes excluded from
indemnification under Section 7.1(c)) being imposed with respect to payments to a Loan
Participant; then, without in any way limiting, reducing or otherwise qualifying the rights
of such Loan Participant under Section 7.1(b), such Loan Participant shall promptly upon
becoming aware of the same provide written notice to the Lessee (including in such notice a
good faith estimate of the amount of any such Withholding Taxes)(“Withholding Notice"). The
Loan Participant and Lessee shall consult in good faith and shall each use its best efforts
to avoid or mitigate the amount of any such Withholding Taxes, including, without
limitation, by reaching a mutually acceptable agreement to a transfer by the Loan
Participant of its Equipment Notes and its rights hereunder and under the other Operative
Agreements to another existing branch, office or subsidiary of the Loan Participant, or a
sale, for an amount equal to the Purchase Price (as defined in clause (ii) below), of such
participation and rights to a third party reasonably acceptable to Lessee which is not
affected by the circumstances having the results described above or which would be subject
to a lesser amount of Withholding Taxes than the Loan Participant (any such solution, a
“Mutually Acceptable Arrangement").




     (ii) Each Loan Participant agrees that if Lessee and such Loan Participant do not reach
a Mutually Acceptable Arrangement within thirty (30) days of Lessee’s receipt of a
Withholding Notice, Lessee may elect by providing written notice to the Loan Participants
within sixty (60) days of Lessee’s receipt of its Withholding Notice to refinance the
Equipment Notes pursuant to Section 11.2 hereof (without, however, the payment of
Make-Whole) or to require the affected Loan Participant to sell its Equipment Note to a
third party willing to purchase the Loan Participant’s Equipment Note for a purchase price
(the “Purchase Price") equal to the sum of the principal amount of such Loan Participant’s
interest in the Equipment Note plus accrued interest thereon, if any, that would be payable
to such Loan Participant if the Loan were prepaid on the date of such purchase. The
affected Loan Participant may give written notice to Lessee within thirty (30) days of its
receipt of Lessee’s notice of its intent to refinance the Equipment Notes or require sale of
the affected Equipment Note that it waives its right to indemnification for Withholding
Taxes with respect to such Change in Tax Law, in



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which event such affected Loan Participant shall not be entitled to indemnification in
respect thereof and this Section 7.1(j) shall no longer apply with respect to such
Withholding Taxes.



     (k) Withholding. Lessee shall indemnify the Owner Trustee and Owner Participant for Taxes
imposed by withholding in respect of payments on the Equipment Notes unless:




     (i) such Tax is imposed because of a failure of the Owner Trustee or Owner Participant
to provide any certificate, documentation, or other evidence requested by Lessee in a timely
manner and required under applicable law as a condition to the allowance of a reduction in
such Tax, but only if the Owner Trustee or Owner Participant was legally eligible to provide
such certificate, document or other evidence (based on a good faith judgment of such the
Owner Trustee or Owner Participant that it is legally entitled and eligible to do so)
without unindemnified adverse consequences (other than certain de minimis costs); or




     (ii) such Tax is imposed by a taxing jurisdiction outside of the United States solely
because the Owner Participant is organized under the laws of Germany or because of
activities unrelated to the transactions contemplated by the Operative Agreements.



     If Lessee indemnifies Owner Participant or Owner Trustee pursuant to this clause (k), Lessee
shall be subrogated to the extent of such payment to the rights and remedies of the Owner
Participant and Owner Trustee, if any, with respect to the transaction or event giving rise to such
Tax or payment thereof.



     Section 7.2. General Indemnification and Waiver of Certain Claims.



     (a) Claims Defined. For the purposes of this Section 7.2, “Claims” shall mean any and all
costs, expenses, liabilities, obligations, losses, damages, penalties, actions or suits or claims
of whatsoever kind or nature (whether or not on the basis of negligence, strict or absolute
liability or liability in tort) which may be imposed on, incurred by, suffered by, or asserted
against an Indemnified Person, as defined herein, or any Unit and, except as otherwise expressly
provided in this Section 7.2, shall include, but not be limited to, all reasonable out-of-pocket
costs, disbursements and expenses (including legal fees and expenses) paid or incurred by an
Indemnified Person in connection therewith or related thereto.



     (b) Indemnified Person Defined. For the purposes of this Section 7.2, “Indemnified Person”
means Owner Participant, Owner Trustee, Trust Company, the Trust, Indenture Trustee, Loan
Participant, and each of their respective directors, officers, employees, shareholders, constituent
investors or partners, Affiliates, successors and permitted assigns, agents and servants, the Trust
Estate and the Indenture Estate (the respective directors, officers, employees, shareholders,
constituent investors or partners, Affiliates, successors and permitted assigns, agents and
servants of Owner Participant, Owner Trustee and Indenture Trustee, as applicable, together with
Owner Participant (in the case of Owner Trustee), Owner Trustee (in the case of Owner Participant)
but not Wilmington Trust Company, and Indenture Trustee, as the case may be, being referred to
herein collectively as the “Related Indemnitee Group” of Owner Participant,



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Indenture Trustee and Owner Trustee, but not Wilmington Trust Company respectively), provided that
as a condition of any obligations of Lessee to pay any indemnity or perform any action under this
Section 7.2 with respect to any persons who are not signatories hereto, such persons at the written
request of Lessee shall expressly agree in writing to be bound by all the terms of this Section
7.2. In the event that any Indemnified Person fails, after notice to such Indemnified Person
referring to this sentence, to comply with any duty or obligation under Section 7.2(e) and (f),
such Indemnified Person shall not be entitled to indemnity under this Section 7.2 to the extent
such failure to comply has a material adverse effect on Lessee’s ability to defend any such Claim.



     (c) Claims Indemnified. Whether or not any Unit is accepted under the Lease, or a closing
occurs with respect thereto, and subject to the exclusions stated in subsection (d) below, Lessee
agrees to indemnify, protect, defend and hold harmless each Indemnified Person on an After-Tax
Basis against Claims resulting from or arising out of or related to (whether or not such
Indemnified Person shall be indemnified as to such Claim by any other Person):




     (i) this Agreement or any other Operative Agreement or any of the transactions
contemplated hereby and thereby or resulting herefrom or therefrom and the enforcement
thereof and hereof;




     (ii) the ownership, lease, operation, possession, modification, use, non-use,
maintenance, sublease, financing, substitution, control, repair, storage, alteration,
violation of law with respect to any Unit (including applicable securities laws, ERISA and
environmental law), transfer or other disposition of any Unit, return, overhaul, testing or
registration of any Unit (including, without limitation, injury, death or property damage of
passengers, shippers or others, and environmental control, noise and pollution regulations)
whether or not in compliance with the terms of the Lease;




     (iii) the manufacture, design, purchase, acceptance, rejection, delivery, nondelivery
or condition of any Unit (including, without limitation, latent and other defects, whether
or not discoverable, and any claim for patent, trademark or copyright infringement);




     (iv) any breach of or failure to perform or observe, or any other noncompliance with,
any covenant, condition or agreement to be performed by, or other obligation of, Lessee
under any of the Operative Agreements, or the falsity when made of any representation or
warranty of Lessee in any of the Operative Agreements or in any document or certificate
delivered in connection therewith other than representations and warranties in the Tax
Indemnity Agreement; and




     (v) the offer, sale or delivery of any Equipment Notes or any interest in the Trust
Estate.



     (d) Lessee’s Claims Excluded. The following are excluded from the agreement to indemnify
under this Section 7.2:



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     (i) Claims with respect to any Unit to the extent attributable to acts or events
occurring after (A) in the case of the exercise by Lessee of a purchase option with respect
to such Unit under Section 23 of the Lease, the exercise by Lessee of an early termination
option with respect to such Unit under Section 10 of the Lease or the occurrence of an Event
of Loss with respect to such Unit under Section 11 of the Lease, the last to occur of (w) if
an Event of Default exists, the elimination of such Event of Default and the payment of all
amounts due under the Operative Agreements, (x) the payment of all amounts due from Lessee
in connection with any such event and (y) the release of the lien of the Indenture on such
Unit or (B) in all other cases, with respect to such Unit the last to occur of (w) if an
Event of Default exists, the elimination of such Event of Default and the payment of all
amounts due under the Operative Agreements, (x) the earlier to occur of the termination of
the Lease or the expiration of the Lease Term, (y) the return of such Unit to Lessor in
accordance with the terms of the Lease (it being understood that the date of the placement
of such Unit in storage as provided in Section 6 of the Lease constitutes the date of return
of such Unit under the Lease) and (z) the release of the lien of the Indenture on such Unit;




     (ii) with respect to any particular Indemnified Person, Claims which are Taxes or
Losses, whether or not Lessee is required to indemnify therefor under Section 7.1 hereof or
the Tax Indemnity Agreement, except, subject to subparagraph (xiii) below, Taxes arising by
reason of ERISA and not related to such Indemnified Person’s making or holding its
investment as contemplated by the Operative Agreements or in accordance with the
instructions of Lessee. Except as expressly provided in the Operative Agreements (including
the foregoing sentence), Lessee’s entire obligation with respect to taxes and losses of tax
benefits being fully set out in such Section 7.1 or the Tax Indemnity Agreement;




     (iii) with respect to any particular Indemnified Person, Claims to the extent
attributable to the gross negligence or willful misconduct of (other than gross negligence
or willful misconduct imputed as a matter of law to such Indemnified Person solely by reason
of its interest in the Equipment), or to the breach of any contractual obligation by, or the
falsity or inaccuracy of any representation or warranty of such Indemnified Person or any of
such Indemnified Person’s Related Indemnitee Group;




     (iv) with respect to any particular Indemnified Person, Claims to the extent
attributable to any breach by such Indemnified Person of the warranty of quiet enjoyment set
forth in Article VIII or any transfer (other than pursuant to Section 10, 11, 15 or 23 of
the Lease or pursuant to the Indenture) by such Indemnified Person of any interest in the
Trust Estate;




     (v) with respect to any particular Indemnified Person, any Claim to the extent
attributable to the offer, sale or disposition (voluntary or involuntary) by or on behalf of
such Indemnified Person of any Equipment Note or any interest in the Trust Estate or the
Trust Agreement, or any similar security, other than a transfer by such Indemnified Person
of its interests in any Unit pursuant to Section 10, 11 or 23 of the Lease or otherwise
attributable to a Lease Event of Default that has occurred and is continuing;



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     (vi) any Claim by Owner Trustee or Owner Participant and the Related Indemnitee Group
of such Indemnified Person to the extent attributable to a failure on the part of Owner
Trustee to distribute in accordance with the Trust Agreement any amounts received and
distributable by it thereunder;




     (vii) any Claim (other than to the extent any such Claim is brought against Owner
Participant or Owner Trustee and the Related Indemnitee Group of such Indemnified Person) to
the extent attributable to a failure on the part of Indenture Trustee to distribute in
accordance with the Indenture any amounts received and distributable by it thereunder;




     (viii) any Claim to the extent attributable to the authorization or giving or
unreasonable withholding by such Indemnified Person of any future amendments, supplements,
modifications, alterations, waivers or consents with respect to any of this Agreement and
the other Operative Agreements, other than such as have been requested by or consented to by
Lessee or necessary or required to comply with applicable laws or to effectuate the purpose
or intent of any Operative Agreement or as are expressly required by any Operative
Agreements;




     (ix) any Claim to the extent attributable to an Indenture Default that does not also
constitute a Lease Default;




     (x) any Claim which relates to a cost, fee or expense payable by a Person other than
Lessee pursuant to this Agreement, the Lease or any other Operative Agreement;




     (xi) any Claim of Owner Participant or Owner Trustee to the extent that such Claim
would not have arisen but for the appointment of a successor or an additional Owner Trustee
without the consent of Lessee unless such successor or additional Owner Trustee had been
appointed in connection with the exercise of remedies pursuant to Section 15 of the Lease
following the occurrence and continuance of a Lease Event of Default;




     (xii) any Claim which is an ordinary and usual operating or overhead expense of such
Indemnified Person other than such expenses attributable to the occurrence of an Event of
Default; or




     (xiii) with respect to a particular Indemnified Person and such Indemnified Person’s
Related Indemnitee Group, Claims resulting from any prohibited transaction, within the
meaning of section 4975(c)(I) of the Code, occurring with respect to the purchase or holding
of Equipment Notes under circumstances when such Indemnified Person caused such purchase or
holding and knew it would constitute such a prohibited transaction.



     (e) Insured Claims. In the case of any Claim indemnified by Lessee hereunder which is covered
by a policy of insurance maintained by Lessee pursuant to Section 12 of the Lease or



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otherwise, each Indemnified Person agrees to provide reasonable cooperation, at the expense and
risk of Lessee, to the insurers in the exercise of their rights to investigate, defend or
compromise such Claim as may be required to retain the benefits of such insurance with respect to
such Claim.



     (f) Claims Procedure. An Indemnified Person shall promptly notify Lessee of any Claim as to
which indemnification is sought; provided, however, that, notwithstanding the last sentence of
Section 7.2(b), the failure to give such notice shall not release Lessee from any of its
obligations under this Article VII, except to the extent that such failure to give notice shall
have a material adverse effect on Lessee’s ability to defend such claim. Subject to the rights of
insurers under policies of insurance maintained by Lessee, Lessee shall have the right in each case
at Lessee’s sole expense to investigate, and the right in its sole discretion to defend or
compromise, any Claim for which indemnification is sought under this Section 7.2 and the
Indemnified Person shall cooperate with all reasonable requests of Lessee in connection therewith;
provided that no right to defend or compromise such Claim shall exist on the part of Lessee with
respect to any Indemnified Person if (1) a Lease Event of Default shall have occurred and be
continuing or (2) such Claim would entail a significant risk to Owner Participant, Loan Participant
or any Affiliate thereof of any criminal liability or, unless indemnified against by Lessee, any
civil liability or penalty; provided, further, that no right to compromise or settle such Claim
shall exist unless Lessee agrees in writing to pay the amount of such settlement or compromise. In
any case in which any action, suit or proceeding is brought against any Indemnified Person in
connection with any Claim, Lessee may and, upon such Indemnified Person’s request, will at Lessee’s
expense resist and defend such action, suit or proceeding, or cause the same to be resisted or
defended by counsel selected by Lessee and reasonably acceptable to such Indemnified Person and, in
the event of any failure by Lessee to do so, Lessee shall pay all costs and expenses (including,
without limitation, reasonable attorneys’ fees and expenses) incurred by such Indemnified Person in
connection with such action, suit or proceeding. Where Lessee or the insurers under a policy of
insurance maintained by Lessee undertake the defense of an Indemnified Person with respect to a
Claim, no additional legal fees or expenses of such Indemnified Person in connection with the
defense of such Claim shall be indemnified hereunder unless such fees or expenses were incurred at
the request of Lessee or such insurers; provided, however, that if in the written opinion of
counsel to such Indemnified Person an actual or potential material conflict exists where it is
advisable for such Indemnified Person to be represented by separate counsel, the reasonable fees
and expenses of any such separate counsel shall be paid by Lessee. Subject to the requirements of
any policy of insurance, an Indemnified Person may participate at its own expense in any judicial
proceeding controlled by Lessee pursuant to the preceding provisions; provided that such party’s
participation does not, in the opinion of the independent counsel appointed by Lessee or its
insurers to conduct such proceedings, interfere with such control; and such participation shall not
constitute a waiver of the indemnification provided in this Section 7.2(f). Nothing contained in
this Section 7.2(f) shall be deemed to require an Indemnified Person to contest any Claim or to
assume responsibility for or control of any judicial proceeding with respect thereto.



     (g) Subrogation. If a Claim indemnified by Lessee under this Section 7.2 is paid by Lessee
and/or an insurer under a policy of insurance maintained by Lessee, Lessee and/or such insurer, as
the case may be, shall be subrogated to the extent of such payment to the rights and



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remedies of the Indemnified Person (other than under insurance policies maintained by such
Indemnified Person) on whose behalf such Claim was paid with respect to the transaction or event
giving rise to such Claim. So long as no Lease Event of Default shall have occurred and be
continuing, should an Indemnified Person receive any refund, in whole or in part, with respect to
any Claim paid by Lessee hereunder, it shall promptly pay over the amount refunded (but not in
excess of the amount Lessee or any of its insurers has paid in respect of such Claim paid or
payable by such Indemnified Person on account of such refund) to Lessee.



     (h) Waiver of Certain Claims. Lessee hereby waives and releases any Claim now or hereafter
existing against any Indemnified Person arising out of death or personal injury to personnel of
Lessee, loss or damage to property of Lessee, or the loss of use of any property of Lessee, which
may result from or arise out of the condition, use or operation of the Equipment during the Lease
Term, including without limitation any latent or patent defect whether or not discoverable.



     (i) Conflicting Provisions. The general indemnification provisions of this Section 7.2 are
not intended to waive or supersede any specific provisions of, or any rights or remedies of Lessee
under, the Lease, this Agreement or any other Operative Agreement to the extent such provisions
apply to any Claim. The general indemnification provisions of this Section 7.2 do not constitute a
guaranty by Lessee that the principal of, interest on or any amounts payable with respect to the
Equipment Notes will be paid.



Article VIII




Lessee’s Right of Quiet Enjoyment




     Each party to this Agreement acknowledges notice of, and consents in all respects to, the
terms of the Lease, and expressly, severally and as to its own actions only, agrees that, so long
as no Lease Event of Default has occurred and is continuing, it shall not take or cause to be taken
any action contrary to Lessee’s rights under the Lease, including, without limitation, the right to
possession, use and quiet enjoyment by Lessee or any permitted sublessee.



Article IX




[Reserved]




Article X




Successor Indenture Trustee




     (a) In the event that Indenture Trustee gives notice of its resignation pursuant to Section
8.02(a) of the Trust Indenture, Owner Trustee shall promptly appoint a successor Indenture Trustee
reasonably acceptable to Lessee and to Loan Participant.



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     (b) In the event that any of Owner Trustee, Loan Participant or Lessee obtains actual
knowledge of the existence of any of the grounds for removal of Indenture Trustee set forth in
Section 8.02(a) of the Indenture, Owner Trustee, Loan Participant or Lessee, as the case may be,
shall promptly notify the others by telephone, confirmed in writing and Owner Trustee shall
promptly thereafter remove Indenture Trustee and appoint a successor Indenture Trustee reasonably
acceptable to Lessee and to Loan Participant.



Article XI




Miscellaneous




     Section 11.1. Consents. Each Participant covenants and agrees that it shall not unreasonably
withhold its consent to any consent requested of Owner Trustee or Indenture Trustee, as the case
may be, under the terms of the Operative Agreements that by its terms is not to be unreasonably
withheld by Owner Trustee or Indenture Trustee.



     Section 11.2. Refinancing.



     (a) Generally. Provided no Specified Default or Event of Default shall have occurred and be
continuing, Lessee shall have the right at any time during the Lease Term to request Owner
Participant and Owner Trustee to effect an optional prepayment of all of the Equipment Notes
pursuant to Section 2.10(d) of the Indenture as part of a refunding or refinancing operation.
Promptly on receipt of such request, Owner Participant will conclude an agreement with Lessee as to
the terms of such refunding or refinancing operation, and upon such agreement:




     (i) Lessee, Owner Participant, Indenture Trustee, Owner Trustee, and any other
appropriate parties will enter into a financing or loan agreement which shall be without
recourse or warranty as to Owner Participant (which may involve an underwriting agreement in
connection with a public offering) providing for (x) the issuance and sale by Owner Trustee
or such other party as may be appropriate to such institution or institutions on the date
specified in such agreement (for the purposes of this Section 11.2, the “Refunding Date") of
debt Securities in an aggregate principal amount (in the lawful currency of the United
States) equal to the principal amount of the Equipment Notes outstanding on the Refunding
Date, and (y) the application of the proceeds of the sale of such debt Securities to the
prepayment of all such Equipment Notes on the Refunding Date, and (z) payment by Lessee to
the Person or Persons entitled thereto on behalf of Owner Trustee as Supplemental Rent of
all other amounts in respect of accrued interest, and any Positive Make-Whole Amount with
respect to any Equipment Note payable on such Refunding Date;




     (ii) Lessee and Owner Trustee will amend the Lease such that (w) if the Refunding Date
is not a Rent Payment Date, Lessee shall on the Refunding Date prepay that portion of the
next succeeding installment of Basic Rent as shall equal the aggregate interest accrued on
the Equipment Notes outstanding to the Refunding Date, (x) Basic Rent payable in respect of
the period from and after the Refunding Date shall be recalculated to preserve the Net
Economic Return which Owner Participant would have



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realized had such refunding not occurred, provided that the net present value of Basic Rent
shall be minimized to the extent consistent therewith, and (y) the EBO Fixed Purchase Price
and amounts payable in respect of Stipulated Loss Value and Termination Value from and after
the Refunding Date shall be appropriately recalculated to preserve the Net Economic Return
which Owner Participant would have realized had such refunding not occurred (it being agreed
that any recalculations pursuant to subclauses (x) and (y) of this clause (ii) shall be
performed in accordance with the requirements of Section 2.6 hereof);




     (iii) Owner Participant will cause Owner Trustee to enter into an agreement to provide
for the securing thereunder of the debt Securities issued by Owner Trustee pursuant to
clause (a) of this Section 11.2 in like manner as the Equipment Notes and/or will enter into
such amendments and supplements to the Indenture which shall be without recourse or warranty
as to Owner Participant as may be necessary to effect such refunding or refinancing;
provided that, notwithstanding the foregoing, Lessee reserves the right to set the economic
terms and other terms not customarily negotiated between an owner participant and a lender
of the refunding or refinancing transaction to be so offered; provided, further, that no
such amendment or supplement will increase the obligations or impair the rights of Owner
Participant or Owner Trustee under the Operative Agreements without the consent of Owner
Participant;




     (iv) in the case of a refunding or refinancing involving a public offering of debt
Securities, the offering materials (including any registration statement) for the refunding
or refinancing transaction shall be reasonably acceptable to Owner Participant to the extent
of any description or statement contained therein describing Owner Participant or Owner
Trustee or the terms of the transaction among Owner Participant, Owner Trustee and Lessee;
and




     (v) unless otherwise agreed by Owner Participant, Lessee shall pay to Owner Trustee as
Supplemental Rent an amount equal to the Positive Make-Whole Amount, if any, payable in
respect of Equipment Notes outstanding on the Refunding Date, and all reasonable fees,
costs, expenses of such refunding or refinancing; provided, however, that (u) any such
refinancing shall not adversely affect the rights or increase the obligations of Owner
Participant under the Operative Agreements taken as a whole; (v) such refinancing shall not
increase Owner Participant’s risk of any adverse tax consequences (including any adverse tax
consequences under section 467 or section 861 of the Code or the Regulations) unless such
risks are indemnified by Lessee in a manner satisfactory to Owner Participant; (w) Lessee
may only enter into a refunding or refinancing operation under this Section 11.2(a) on no
more than two occasions; (x) Lessee shall pay to or reimburse the Participants, Owner
Trustee and Indenture Trustee for all costs and expenses (including reasonable attorneys’
and advisors’ fees) paid or incurred by them in connection with such refinancing; (y) no
refinancing shall cause Owner Participant to account for the transaction contemplated hereby
as other than a “leveraged lease” under the Financial Accounting Standards Board (“FASB”)
Statement No. 13, as amended (including any amendment effected by means of the adoption by
FASB of a new statement in lieu of FASB Statement No. 13); and (z) such refinancing shall
not



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(A) create replacement Equipment Notes with a maturity longer than the outstanding Equipment
Notes, (B) create replacement Equipment Notes with an average life more than three (3)
months longer than the average life of the Equipment Notes (C) require any additional
investment by Owner Participant or (D) increase the amount of premium payable in connection
with a prepayment of the Equipment Notes. In addition to the foregoing, in the case of any
refunding or refinancing of the Equipment Notes pursuant to this Section 11, the party
purchasing the Equipment Notes shall represent either that (i) no part of its purchase
consists of assets of any “employee benefit plan” (as defined in Section 3(3) of ERISA) or
any other entity subject to section 4975 of the Code other than a “governmental plan” or
“church plan” (as defined in section 3(32) of ERISA) organized in a jurisdiction not having
prohibition on transactions with such governmental plan or church plan substantially similar
to those contained in section 406 of ERISA or section 4975 of the Code, (ii) the purchase of
such Equipment Notes does not constitute a non-exempt prohibited transaction under section
406 of ERISA or section 4975 of the Code, or (iii) the source of funds for its purchase is
an “insurance company general account” within the meaning of proposed Department of Labor
Prohibited Transaction Exemption (“PTE”) 95-60 (issued July 12, 1995) and it has identified
that there is no employee benefit plan, treating as a single employee benefit plan, all
employee benefit plans maintained by the same employer or affiliates thereof or employee
organization, with respect to which the amount of the reserves for all contracts held by or
on behalf of such employee benefit plan exceed 10% of the total liabilities of such general
account. Accordingly, Owner Participant agrees to cooperate in good faith with Lessee in
effecting any such refunding or refinancing and, in connection therewith, at the request of
Lessee made at least 30 days prior to any proposed Refunding Date, (A) to cooperate with the
reasonable requests of any advisor selected by Lessee after consultation with Owner
Participant to obtain commitments from financial institutions to lend to Owner Trustee funds
sufficient to permit Owner Trustee to prepay, in whole, the outstanding Equipment Notes in
accordance with their terms in connection with any such refunding or refinancing and (B) to
make the adjustments contemplated by this Section 11.2 in connection with any such refunding
or refinancing.



     (b) Other Prepayments, Redemptions, Etc. No prepayment or redemption and cancellation by
Owner Trustee or Owner Participant of any Equipment Note (other than pursuant to the Indenture and
this Section 11.2) shall be made without the prior written consent of Lessee.



     Section 11.3 Amendments and Waivers. No term, covenant, agreement or condition of this
Agreement may be terminated, amended or compliance therewith waived (either generally or in a
particular instance, retroactively or prospectively) except by an instrument or instruments in
writing executed by each party hereto.



     Section 11.4. Notices. Unless otherwise expressly specified or permitted by the terms hereof,
all communications and notices provided for herein shall be in writing or by a telecommunications
device capable of creating a written record (including electronic mail), and any such notice shall
become effective (a) upon personal delivery thereof, including, without limitation, by overnight
mail and courier service, (b) in the case of notice by United States mail, certified or registered,
postage prepaid, return receipt requested, upon receipt thereof, or (c) in



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the case of notice by such a telecommunications device, upon transmission thereof, provided such
transmission is promptly confirmed by either of the methods set forth in clauses (a) or (b) above,
in each case addressed to each party hereto at its address set forth below or, in the case of any
such party hereto, at such other address as such party may from time to time designate by written
notice to the other parties hereto:



	 	 	 
	If to Lessee:

	 	Address of Lessee for Mail Delivery:
	 

	 	The Kansas City Southern Railway Company
	 

	 	P.O. Box 219335
	 

	 	Kansas City, MO 64121-9335
	 

	 	Attention: Senior Vice President – Finance & Treasurer
	 

	 	Facsimile No.: (816) 983-1198
	 

	 	Telephone No.: (816) 983-1802
	 
	 	 
	 

	 	Address of Lessee for Courier and Similar Delivery:
	 

	 	The Kansas City Southern Railway Company
	 

	 	427 West 12th
 Street
	 

	 	Kansas City, MO 64105
	 

	 	Attention: Senior Vice President — Finance & Treasurer
	 

	 	Facsimile No.: (816) 983-1198
	 

	 	Telephone No.: (816) 983-1802
	 
	 	 
	With a copy to:

	 	The Kansas City Southern Railway Company
	 

	 	427 West 12th
 Street
	 

	 	Kansas City, MO 64105
	 

	 	Attention: Senior Vice President & General Counsel
	 

	 	Facsimile No.: (816) 983-1227
	 

	 	Telephone No.: (816) 983-1303
	 
	 	 
	If to Owner Trustee:

	 	Wilmington Trust Company
	 

	 	Rodney Square North
	 

	 	1100 North Market Street
	 

	 	Wilmington, DE 19890-0001
	 

	 	Attention: Corporate Trust Administration
	 

	 	Facsimile No.: (302) 636-4140
	 

	 	Telephone No.: (302) 636-6000
	 
	 	 
	with a copy to:

	 	Owner Participant at the address set forth below






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	 	If to Owner Participant:

	 	HSH Nordbank AG, New York Branch
	 	 

	 	230 Park Avenue
	 	 

	 	New York, New York 10169-0005
	 	 

	 	Attn: Patricia Mooney, Loan Administration
	 	 

	 	Facsimile No: (212) 407-6802
	 	 

	 	Telephone No.: (212) 407-6021/(212) 407-6000
	 	 

	 	Attn: Ed Sproull, Leasing Americas
	 	 

	 	Facsimile No: (212) 407-6087
	 	 

	 	Telephone No.: (212) 407-6060/(212) 407-6000
	 
	 	 
	 	If to
a Loan Participant:

	 	at the addresses set forth in Exhibit C to the Indenture
	 
	 	 
	 	If to Indenture Trustee:

	 	Wells Fargo Bank Northwest, National Association
	 	 

	 	299 South Main Street,
12th Floor
	 	 

	 	MAC: U1228-120
	 	 

	 	Salt Lake City, Utah, 84111
	 	 

	 	Attention: Corporate Trust Department
	 	 

	 	Facsimile No.: 801-246-5053
	 	 

	 	Telephone No.: 801-246-5630






     Section 11.5. Survival. All warranties, representations, indemnities and covenants made by
any party hereto, herein or in any certificate or other instrument delivered by any such party or
on the behalf of any such party under this Agreement, shall be considered to have been relied upon
by each other party hereto and shall survive the consummation of the transactions contemplated
hereby on the date hereof and on the Closing Date regardless of any investigation made by any such
party or on behalf of any such party.



     Section 11.6. No Guarantee of Debt. Nothing contained herein or in the Lease, the Trust
Indenture, the Trust Agreement or the Tax Indemnity Agreement or in any certificate or other
statement delivered by Lessee in connection with the transactions contemplated hereby shall be
deemed to be (a) a guarantee by Lessee to Owner Trustee, Owner Participant, Indenture Trustee or
Loan Participant that the Equipment will have any residual value or useful life, or (b) a guarantee
by Indenture Trustee or Lessee of payment of the principal or Make-Whole Amount, if any, with
respect to any Equipment Note, or interest on the Equipment Notes.



     Section 11.7. Successors and Assigns. This Agreement shall be binding upon and shall inure to
the benefit of, and shall be enforceable by, the parties hereto and their respective successors and
assigns as permitted by and in accordance with the terms hereof, including each successive holder
of the Beneficial Interest permitted under Section 6.1 hereof and Section 23(c) of the Lease and
each successive holder of any Equipment Note issued and delivered pursuant to this Agreement or the
Indenture. Except as expressly provided herein or in the other Operative Agreements, no party
hereto may assign their interests herein without the consent of the parties hereto.



     Section 11.8. Business Day. Notwithstanding anything herein or in any other Operative
Agreement to the contrary, if the date on which any payment is to be made pursuant to this



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Agreement or any other Operative Agreement is not a Business Day, the payment otherwise payable on
such date shall be payable on the next succeeding Business Day with the same force and effect as if
made on such scheduled date and (provided such payment is made on such succeeding Business Day) no
interest shall accrue on the amount of such payment from and after such scheduled date to the time
of such payment on such next succeeding Business Day.



     Section 11.9. Governing Law. This Agreement shall be in all respects governed by and
construed in accordance with the laws of the State of New York including all matters of
construction, validity and performance; provided, however, that the parties hereto shall be
entitled to all rights conferred by any applicable federal statute, rule or regulation.



     Section 11.10. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.



     Section 11.11. Counterparts. This Agreement may be executed in any number of counterparts,
each executed counterpart constituting an original but all together only one Agreement.



     Section 11.12. Headings and Table of Contents. The headings of the sections of this Agreement
and the Table of Contents are inserted for purposes of convenience only and shall not be construed
to affect the meaning or construction of any of the provisions hereof.



     Section 11.13. Limitations of Liability.



          (a) Liabilities of the Participants. Neither Indenture Trustee, Trust Company, Owner Trustee
nor any Participant shall have any obligation or duty to Lessee, to any other Participant or to
others with respect to the transactions contemplated hereby, except those obligations or duties of
such party expressly set forth in this Agreement and the other Operative Agreements, and neither
Indenture Trustee, Trust Company, Owner Trustee nor any Participant shall be liable for performance
by any other party hereto of such other party’s obligations or duties hereunder. Without
limitation of the generality of the foregoing, under no circumstances whatsoever shall Indenture
Trustee or any Participant be liable to Lessee for any action or inaction on the part of Owner
Trustee in connection with the transactions contemplated herein, whether or not such action or
inaction is caused by willful misconduct or gross negligence of Owner Trustee unless such action or
inaction is at the direction of Indenture Trustee or any Participant, as the case may be, and such
direction is expressly permitted hereby.



          (b) No Recourse to Owner Trustee. It is expressly understood and agreed by and between Owner
Trustee, Lessee, Owner Participant, Indenture Trustee, and Loan Participant, and their respective
successors and permitted assigns, that, subject to the proviso contained in this Section 11.13(b),
all representations, warranties and undertakings of Owner Trustee hereunder shall be binding upon
Owner Trustee, only in its capacity as Owner Trustee under the Trust



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Agreement, and (except as expressly provided herein) Trust Company for any breach thereof, except
for its gross negligence or willful misconduct, or for breach of its covenants, representations and
warranties contained herein, except to the extent covenanted or made in its individual capacity;
provided, however, that nothing in this Section 11.13(b) shall be construed to limit in scope or
substance those representations and warranties of Trust Company made expressly in its individual
capacity set forth herein. The term “Owner Trustee” as used in this Agreement shall include any
successor trustee under the Trust Agreement, or Owner Participant if the trust created thereby is
revoked.



     Section 11.14. Reproduction of Documents. This Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the parties hereto on the Closing Date (except the Equipment
Notes), and (c) financial statements, certificates and other information previously or hereafter
furnished pursuant hereto, may be reproduced by the parties hereto by any photographic,
photostatic, microfilm, microcard, miniature photographic, electronic or other similar process and
the parties hereto may destroy any original document so reproduced. The parties agree to accept
delivery of all of the foregoing documents in electronic format in lieu of original closing
transcripts. The parties further agree and stipulate that, to the extent permitted by applicable
law, any such reproduction, in electronic format or otherwise, shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in
evidence. This Section 11.14 shall not prohibit the parties hereto or any holder of Equipment
Notes from contesting any such reproduction to the same extent that it could contest the original,
or from introducing evidence to demonstrate the inaccuracy of any such reproduction.



     Section 11.15. Tax Disclosure. Notwithstanding anything herein to the contrary, each party
hereto (and each employee, representative or other agent of such person) may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax structure of the
transactions described in this Agreement, and all materials of any kind (including opinions or
other tax analyses) that are provided to the person related to such tax treatment and tax
structure. The preceding sentence is intended to cause the transaction contemplated hereby to be
treated as not having been offered under conditions of confidentiality for purposes of U.S.
Treasury Regulation §1.6011-4(b)(3) and shall be construed in a manner consistent with such
purpose.



     Section 11.16. Bankruptcy of Trust or Trust Estate. If (i) all or any part of the Trust
Estate becomes the property of a debtor, or the Trust becomes a debtor, subject to the
reorganization provisions of Title 11 of the United States Code, as amended from time to time, (ii)
pursuant to such reorganization provisions Owner Participant is required, by reason of Owner
Participant being held to have recourse liability to the debtor or the trustee of the debtor
directly or indirectly, to make payment on account of any amount payable as principal of or
interest on any Equipment Note, and (iii) Indenture Trustee or Loan Participant actually receives
any Excess Amount as defined below, which reflects any payment by Owner Participant on account of
clause (ii) above, Indenture Trustee or Loan Participant, as the case may be, shall promptly refund
to Owner Participant such Excess Amount. For purposes of this Section 11.16, “Excess



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Amount” means the amount by which such payment exceeds the amount which would have been received by
Indenture Trustee or Loan Participant if Owner Participant has not become subject to the recourse
liability referred to in clause (ii) above. This Section 11.16 shall not be applicable to the
extent Owner Participant is Lessee or an Affiliate of Lessee.



     Section 11.17. Transaction Intent. It is the intent of Lessee that the Lease will be treated
as an operating lease for accounting and financial reporting purposes. In the event that the
transactions contemplated by the Operative Agreements are not treated for accounting and financial
reporting purposes in a manner consistent with such intent, then, so long as no Lease Event of
Default has occurred and is continuing, at Lessee’s reasonable request and at its sole cost and
expense, each of the parties hereto hereby agrees that it shall reasonably cooperate with Lessee to
restructure the transactions contemplated by the Operative Agreements to accomplish such intended
treatment; provided that any such restructuring does not in any non-de minimis way adversely affect
any of such Person’s rights or interests in the Equipment or any Operative Agreement, or cause any
such Person to incur any additional risks or to incur any additional costs or expenses not
otherwise satisfactorily indemnified by Lessee (which costs and expenses indemnity must be
satisfactory to each such Person).



     Section 11.18. Jurisdiction, Court Proceedings. Any suit, action or proceeding against any
party to this Agreement or any other Operative Agreement arising out of or relating to this
Agreement, any other Operative Agreement or any transaction contemplated hereby or thereby may be
brought in any Federal or state court located in New York, New York, and each such party hereby
submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action or
proceeding. To the extent that service of process by mail is permitted by applicable law, each
such party irrevocably consents to the service of process in any such suit, action or proceeding in
such courts by the mailing of such process by registered or certified mail, postage prepaid, at its
address for notices provided for in Section 11.4. Each such party irrevocably agrees not to assert
any objection which it may ever have to the laying of venue of any such suit, action or proceeding
in any Federal or state court located in New York, New York, and any claim that any such suit,
action or proceeding brought in any such court has been brought in an inconvenient forum.



     Section 11.19. Increased Costs. (a) In the event of (x) a Regulatory Change or (y) a judgment
being rendered after the Closing Date which subjects or imposes any increase in the actual cost to
any holder of Equipment Notes of agreeing to make or making, funding or maintaining the loan
evidenced by the Equipment Notes, then, within twenty (20) days after delivery to Owner Trustee,
Indenture Trustee and Lessee of an Officer’s Certificate of such holder setting forth in reasonable
detail the event giving rise to such increase in cost and the basis for the determination of the
amount of such increase in cost, Owner Trustee shall pay to such holder such amount as shall be
necessary to reimburse such holder for such increase in respect of any period which is no more than
ninety (90) days prior to such demand; provided, however, that no holder shall be entitled to
assert any claim under this Section 11.19(a) in respect of Taxes. Such Officer’s Certificate
shall, in the absence of manifest error, be binding and conclusive on Owner Trustee. Each holder
shall notify Owner Trustee, Indenture Trustee and Lessee as soon as possible of the occurrence of
the event by reason of which it is entitled to make a claim as described in this Section 11.19(a),
but the failure to give such notice shall not



-54-









 







affect the obligations of Owner Trustee hereunder. In determining the amount of compensation
payable by Owner Trustee under this Section 11.19(a), the relevant holder shall use reasonable
efforts to minimize the compensation payable by Owner Trustee including using reasonable efforts to
obtain refunds or credit and any compensation paid by Owner Trustee, which is later determined not
to have been properly payable, shall forthwith be reimbursed by such holder to Owner Trustee.



     (b) For purposes of Section 11.19(a), “Regulatory Change” means with respect to any holder of
an Equipment Note (i) any change after the Closing Date in the laws or regulations of the United
States or any State thereof or the District of Columbia or the Republic of Germany or the adoption
or making after such date of any interpretation, directive or request applying to a class of banks
including such holder of an Equipment Note, as the case may be, of or under any law or regulation
(whether or not having the force of law) of the United States or any State thereof, or the District
of Columbia or the Republic of Germany by any court or governmental or monetary authority charged
with the interpretation or administration thereof and in addition, (ii) any change after the
Closing Date in any regulation, guideline or requirement or in the interpretation or administration
thereof (whether or not having the force of law) issued by any governmental or monetary authority
applying to a class of banks including such holder of an Equipment Note, as the case may be, or the
bank holding company of such holder of an Equipment Note, as the case may be (including any change
after the Closing Date in the regulations, guidelines or requirements or interpretations or
administration of any of the foregoing implementing the proposals for a risk-based capital
framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its
paper entitled “International Convergence of Capital Measurement and Capital Standards” (commonly
known as Basel II) dated June 2004, as modified and supplemented from time to time).



     (c) The holder of any Equipment Note seeking compensation under this Section 11.19 will use
commercially reasonable efforts (at its own expense) to mitigate the amount of compensation,
including designating a different lending office for such holder if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of
such holder, result in any non-de minimis economic, legal or regulatory disadvantage to such
holder. The Owner Trustee shall not be required to make payments under this Section 11.19 to any
holder of an Equipment Note if (A) a claim hereunder arises solely through circumstances peculiar
to such holder and which do not affect commercial banks in the jurisdiction of organization of such
holder generally or (B) the claim arises out of a voluntary relocation by such holder of its
lending office (it being understood that any such relocation effected pursuant to the first
sentence of this Section 11.19(c) is not “voluntary”), or (C) such holder is not seeking similar
compensation for such costs from its borrowers generally in similarly situated commercial loans.



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     In Witness Whereof, the parties hereto have caused this Participation Agreement to be
executed and delivered, all as of the date first above written.



	 	 	 	 	 
	Lessee:  	The Kansas City Southern Railway Company

 	 
	 	By:  	/s/ Paul J. Weyandt
 	 
	 	 	Name:  	Paul J. Weyandt 	 
	 	 	Title:  	Senior Vice President-Finance &
Treasurer 	 
	 



	 	 	 	 	 
	Owner Trustee: 	KCSR Trust 2006-1, acting
through Wilmington Trust Company,
not in its individual capacity, except where otherwise expressly provided,
but solely as Owner Trustee
 	 
	 
	 	By:  	J. Christopher Murphey
 	 
	 	 	Name:  	J. Christopher Murphey 	 
	 	 	Title:  	Financial Services Officer 	 
	 



	 	 	 	 	 
	Owner Participant: 	 HSH Nordbank AG, New York Branch

 	 
	 	By:  	/s/ Edward I. Sproull
 	 
	 	 	Name:  	Edward I. Sproull 	 
	 	 	Title:  	Senior Vice President, Leasing Americas 	 
	 



	 	 	 	 	 
	 	 	 
	 	By:  	                        /s/ Ann E. Hardy
 	 
	 	 	Name:  	Ann E. Hardy 	 
	 	 	Title:  	Vice President, Leasing Americas 	 



 









 






	 	 	 	 	 



	 	 	 	 	 
	Indenture Trustee:       	Wells Fargo Bank Northwest, National Association

 	 
	 	By:  	/s/ Val T. Orton
 	 
	 	 	Name:  	Val T. Orton 	 
	 	 	Title:  	Vice President 	 
	 



	 	 	 	 	 
	Loan Participant:          	DVB Bank AG

 	 
	 	By:  	/s/ Joseph P. Devoe
 	 
	 	 	Name:  	Joseph P. Devoe 	 
	 	 	Title:  	Senior Vice President 	 
	 



	 	 	 	 	 
	 	 	 
	 	By:  	                               /s/ Alec A. Tasooji
 	 
	 	 	Name:  	Alec A. Tasooji 	 
	 	 	Title:  	Assistant Vice President