exv10w41



 





Exhibit 10.41




 


Equipment Lease Agreement





(KCSR 2006-1)



dated as of August 2, 2006




between




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,

Lessor




and




The Kansas City Southern Railway Company,

Lessee




33 SD70ACe Locomotives







     Certain of the right, title and interest of Lessor in and to this Lease, the Equipment
covered hereby and the Rent due and to become due hereunder have been assigned as collateral
security to, and are subject to a security interest in favor of, Wells Fargo Bank Northwest,
National Association, as Indenture Trustee under a Trust Indenture and Security Agreement (KCSR
2006-1), dated as of August 2, 2006 between said Indenture Trustee, as secured party, and
Lessor, as debtor. Information concerning such security interest may be obtained from Indenture
Trustee at its address set forth in Section 20 of this Lease. This Lease Agreement has been
executed in several counterparts, only that counterpart to be deemed the original counterpart for
chattel paper purposes contains the receipt therefor executed by Wells Fargo Bank Northwest,
National Association, as Indenture Trustee, on the signature page thereof. See Section 26.2 for
information concerning the rights of the original holder and the holders of the various
counterparts hereof.



 





     Memorandum of Equipment Lease Agreement (KCSR 2006-1) filed with the Surface Transportation
Board pursuant to 49 U.S.C. § 11301 on August 10, 2006 at 9:17 a. m., Recordation Number 26496, and
deposited in the Office of the Registrar General of Canada pursuant to Section 105 of the Canada
Transportation Act on August 10, 2006 at 10:55 a. m.



 









 





Table of Contents




	 	 	 	 	 	 	 
	Section	 	Heading	 	Page	 
	 
	Section 1.
	 	Definitions	 	 	 1	 
	 
	 	 	 	 	 	 
	Section 2.
	 	Acceptance and Leasing of Equipment	 	 	 1	 
	 
	 	 	 	 	 	 
	Section 3.
	 	Term and Rent	 	 	 1	 
	Section 3.1.
	 	Lease Term	 	 	1	 
	Section 3.2.
	 	Basic Rent	 	 	2	 
	Section 3.3.
	 	Supplemental Rent	 	 	2	 
	Section 3.4.
	 	Adjustment of Rent	 	 	3	 
	Section 3.5.
	 	Manner of Payments	 	 	3	 
	 
	 	 	 	 	 	 
	Section 4.
	 	Ownership and Marking Of Equipment	 	 	 3	 
	Section 4.1.
	 	Retention of Title	 	 	3	 
	Section 4.2.
	 	Duty to Number and Mark Equipment	 	 	3	 
	Section 4.3.
	 	Prohibition against Certain Designations	 	 	4	 
	 
	 	 	 	 	 	 
	Section 5.
	 	Disclaimer of Warranties; Right of Quiet Enjoyment	 	 	 4	 
	Section 5.1.
	 	Disclaimer of Warranties	 	 	4	 
	Section 5.2.
	 	Quiet Enjoyment	 	 	5	 
	 
	 	 	 	 	 	 
	Section 6.
	 	Return of Equipment; Storage	 	 	 5	 
	Section 6.1.
	 	General	 	 	5	 
	Section 6.2.
	 	Condition of Equipment	 	 	6	 
	Section 6.3.
	 	Storage	 	 	6	 
	 
	 	 	 	 	 	 
	Section 7.
	 	Liens	 	 	 7	 
	 
	 	 	 	 	 	 
	Section 8.
	 	Maintenance; Operation; Sublease	 	 	 7	 
	Section 8.1.
	 	Maintenance	 	 	7	 
	Section 8.2.
	 	Operation	 	 	8	 
	Section 8.3.
	 	Sublease	 	 	8	 
	 
	 	 	 	 	 	 
	Section 9.
	 	Modifications	 	 	 9	 
	Section 9.1.
	 	Required Modifications	 	 	9	 
	Section 9.2.
	 	Optional Modifications	 	 	9	 
	Section 9.3.
	 	Removal of Proprietary and Communications Equipment	 	 	9	 
	Section 9.4.
	 	Retention of Equipment by Lessor	 	 	9	 
	 
	 	 	 	 	 	 
	Section 10.
	 	Voluntary Termination	 	 	10	 






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	Section	 	Heading	 	Page	 
							
	Section 10.1.
	 	Right of Termination	 	 	10	 
	Section 10.2.
	 	Sale of Equipment	 	 	10	 
	Section 10.3.
	 	Retention of Equipment by Lessor	 	 	11	 
	Section 10.4.
	 	Termination of Lease	 	 	12	 
	 
	 	 	 	 	 	 
	Section 11.
	 	Loss, Destruction, Requisition, Etc	 	 	12	 
	Section 11.1.
	 	Event of Loss	 	 	12	 
	Section 11.2.
	 	Replacement or Payment upon Event of Loss	 	 	12	 
	Section 11.3.
	 	Rent Termination	 	 	13	 
	Section 11.4.
	 	Disposition of Equipment; Replacement of Unit	 	 	13	 
	Section 11.5.
	 	Eminent Domain	 	 	14	 
	 
	 	 	 	 	 	 
	Section 12.
	 	Insurance	 	 	15	 
	Section 12.1.
	 	Property Damage and Public Liability Insurance	 	 	15	 
	Section 12.2.
	 	Proceeds of Insurance	 	 	16	 
	Section 12.3.
	 	Additional Insurance	 	 	16	 
	 
	 	 	 	 	 	 
	Section 13.
	 	Reports; Inspection	 	 	17	 
	Section 13.1.
	 	Duty of Lessee to Furnish	 	 	17	 
	Section 13.2.
	 	Lessor’s Inspection Rights	 	 	17	 
	 
	 	 	 	 	 	 
	Section 14.
	 	Events of Default	 	 	17	 
	 
	 	 	 	 	 	 
	Section 15.
	 	Remedies	 	 	19	 
	Section 15.1.
	 	Remedies	 	 	19	 
	Section 15.2.
	 	Cumulative Remedies	 	 	22	 
	Section 15.3.
	 	No Waiver	 	 	22	 
	Section 15.4.
	 	Lessee’s Duty to Return Equipment Upon Default	 	 	22	 
	Section 15.5.
	 	Specific Performance; Lessor Appointed Lessee’s Agent	 	 	22	 
	 
	 	 	 	 	 	 
	Section 16.
	 	Filings; Further Assurances	 	 	23	 
	Section 16.1.
	 	Filings	 	 	23	 
	Section 16.2.
	 	Further Assurances	 	 	23	 
	Section 16.3.
	 	Expenses	 	 	23	 
	 
	 	 	 	 	 	 
	Section 17.
	 	Lessor’s Right to Perform	 	 	23	 
	 
	 	 	 	 	 	 
	Section 18.
	 	Assignment	 	 	24	 
	Section 18.1.
	 	Assignment by Lessor	 	 	24	 
	Section 18.2.
	 	Assignment by Lessee	 	 	24	 
	Section 18.3.
	 	Sublessee’s Performance and Rights	 	 	24	 
	 
	 	 	 	 	 	 
	Section 19.
	 	Net Lease, etc	 	 	24	 






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	Section	 	Heading	 	Page	 
	 
	Section 20.
	 	Notices	 	 	25	 
	 
	 	 	 	 	 	 
	Section 21.
	 	Concerning Indenture Trustee	 	 	27	 
	Section 21.1.
	 	Limitation of Indenture Trustee’s Liabilities	 	 	27	 
	Section 21.2.
	 	Right, Title and Interest of Indenture Trustee under Lease	 	 	27	 
	 
	 	 	 	 	 	 
	Section 22.
	 	Termination Upon Purchase by Lessee; Options to Renew	 	 	27	 
	Section 22.1.
	 	Termination upon Purchase by Lessee	 	 	27	 
	Section 22.2.
	 	Renewal Option at Expiration of Basic Term	 	 	27	 
	Section 22.3.
	 	[Reserved]	 	 	28	 
	Section 22.4.
	 	Determination of Fair Market Rental Value	 	 	28	 
	Section 22.5.
	 	Stipulated Loss Value During Renewal Term	 	 	28	 
	 
	 	 	 	 	 	 
	Section 23.
	 	Lessee’s Options to Purchase Equipment; Purchase of Beneficial Interest	 	 	28	 
	 
	 	 	 	 	 	 
	Section 24.
	 	Limitation of Lessor’s Liability	 	 	31	 
	 
	 	 	 	 	 	 
	Section 25.
	 	Filing in Mexico	 	 	31	 
	 
	 	 	 	 	 	 
	Section 26.
	 	Miscellaneous	 	 	31	 
	Section 26.1.
	 	Governing Law; Severability	 	 	31	 
	Section 26.2.
	 	Execution in Counterparts	 	 	32	 
	Section 26.3.
	 	Headings and Table of Contents; Section References	 	 	32	 
	Section 26.4.
	 	Successors and Assigns	 	 	32	 
	Section 26.5.
	 	True Lease	 	 	32	 
	Section 26.6.
	 	Amendments and Waivers	 	 	32	 
	Section 26.7.
	 	Survival	 	 	32	 
	Section 26.8.
	 	Business Days	 	 	33	 
	Section 26.9.
	 	Directly or Indirectly	 	 	33	 
	Section 26.10.
	 	Incorporation by Reference	 	 	33	 
	Section 26.11.
	 	Entitlement to §1168 Benefits	 	 	33	 
	Section 26.12.
	 	Waiver of Jury Trial	 	 	33	 
	 
	 	 	 	 	 	 
	Attachments to Equipment Lease Agreement:	 	 	 	 
	 
	 	 	 	 	 	 
	Exhibit A      – Form of Lease Supplement	 	 	 	 
	Appendix A  – Definitions	 	 	 	 






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Equipment Lease Agreement

(KCSR 2006-1)




     This Equipment Lease Agreement (KCSR 2006-1), dated as of August 2, 2006 (this
“Lease”), between KCSR TRUST 2006-1, a Delaware statutory trust (“Lessor”), acting through
Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity
except as expressly stated herein, but solely as trustee 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”), and The Kansas City
Southern Railway Company, a Missouri corporation (“Lessee”),



Witnesseth:




Section 1. Definitions.




     Unless the context otherwise requires, all capitalized terms used herein without definition
shall have the respective meanings set forth in Appendix A hereto for all purposes of this Lease.



Section 2. Acceptance and Leasing of Equipment.




     Lessor hereby agrees (subject to satisfaction or waiver of the conditions applicable to the
Delivery Date set forth in Section 4.1 of the Participation Agreement), simultaneously with the
delivery of each Unit of Equipment from the applicable Seller to Lessor, and acceptance thereof by
Lessor, to accept on behalf of Lessor delivery of such Unit of Equipment from such Seller, as
evidenced by the execution and delivery by Lessee (as the authorized representative of Lessor) of a
Certificate of Acceptance with respect to such Unit and thereafter to lease such Unit to Lessee
hereunder. Lessee further agrees (subject to satisfaction or waiver of the conditions applicable
to the Closing Date for such Unit set forth in Article IV of the Participation Agreement) to
execute and deliver a Lease Supplement covering such Unit. Lessor hereby authorizes one or more
employees or agents of Lessee, designated by Lessee, to act on behalf of Lessor as its authorized
representative or representatives to accept delivery of the Equipment and to execute and deliver
such Certificate of Acceptance, all in accordance with Sections 2.1(a) and 2.3(b) of the
Participation Agreement. Lessee hereby agrees that such acceptance of delivery by such authorized
representative or representatives on behalf of Lessor shall, without further act, irrevocably
constitute acceptance by Lessee of such Unit for all purposes of this Lease.



Section 3. Term and Rent.




     Section 3.1. Lease Term. The interim term of this Lease (the “Interim Term”) shall commence
for each Unit on the Delivery Date for such Unit and shall terminate at 11:59 P.M. (New York City
time) on the day before the Basic Term Commencement Date for such Unit. The basic term of this
Lease (the “Basic Term”) for each Unit shall commence on the Closing Date for such



 









 







Unit and,
subject to earlier termination
pursuant to Sections 10, 11, 15, 22.1 and 23, shall expire at 11:59 P.M. (New York City time) on
the Basic Term Expiration Date for such Unit. Subject and pursuant to Section 22.2, Lessee may
elect one or more Renewal Terms with respect to any Unit.



     Section 3.2. Basic Rent. (a) Lessee and Lessor hereby agree that no Rent (other than
Supplemental Rent, if any) shall be payable to Lessor during the Interim Term. Lessee hereby
agrees to pay Lessor Basic Rent for each Unit throughout the Basic Term applicable thereto on the
first Rent Payment Date and in consecutive semi-annual installments thereafter payable on each Rent
Payment Date. Each such payment of Basic Rent shall be in an amount equal to the product of the
Equipment Cost for such Unit multiplied by the Basic Rent percentage for such Unit set forth
opposite such Rent Payment Date on Schedule 2 to the Lease Supplement for such Type of Equipment
(as such Schedule 2 shall be adjusted pursuant to Section 2.6 of the Participation Agreement for
the applicable Type of Equipment). Basic Rent shall be payable on the Rent Payment Dates as set
forth in Schedule 2 to the Lease Supplement for the applicable Type of Equipment. Basic Rent shall
be allocated and accrued for use of the Units as specified in Schedule 5 to the Lease Supplement
for the applicable Type of Equipment. For the avoidance of doubt, and notwithstanding anything to
the contrary herein, the parties agree that irrespective of Lessee’s payment obligation on each
Rent Payment Date, Lessee’s liability on account of the use of each Unit shall be allocated to each
Lease period in the amount set forth in Schedule 5 to the Lease Supplement for the applicable Type
of Equipment. Basic Rent allocated to any Lease period shall be further allocated ratably to each
day within such Lease period. Basic Rent shall be allocated to each calendar year in the Lease
Term based upon the assumption that each calendar year in the Lease Term is 360 days, consisting of
four 90-day quarters and twelve 30-day months. It is the intention of Lessor and Lessee that the
allocations of Basic Rent to each Lease period in the amount set forth in Schedule 3B constitute
specific allocations of fixed rent within the meaning of Treasury Regulation section
1.467-1(c)(2)(ii).



     (b) Anything contained herein or in the Participation Agreement to the contrary
notwithstanding, each installment of Basic Rent (both before and after any adjustment pursuant to
Section 2.6 of the Participation Agreement) shall be, under any circumstances and in any event, in
an amount at least sufficient for Lessor to pay in full as of the due date of such amount, any
payment of principal of and interest on the Equipment Notes required to be paid by Lessor pursuant
to the Indenture on such due date.



     Section 3.3. Supplemental Rent. Lessee also agrees to pay to Lessor, or to whomsoever shall be
entitled thereto, any and all Supplemental Rent, promptly as the same shall become due and owing,
or where no due date is specified, promptly after demand by the Person entitled thereto, and in the
event of any failure on the part of Lessee to pay any Supplemental Rent, Lessor shall have all
rights, powers and remedies provided for herein or by law or equity or otherwise as in the case of
nonpayment of Basic Rent. Without limiting the generality of the foregoing, Lessee will pay, as
Supplemental Rent, (i) on demand, to the extent permitted by applicable law, an amount equal to
interest at the applicable Late Rate on any part of any installment of Basic Rent not paid when due
for any period for which the same shall be overdue and on any payment of Supplemental Rent not paid
when due or demanded, as the case may be, for the period from such due date or demand until the
same shall be paid, (ii) in the case of the termination of this Lease with respect to any Unit on
the applicable Termination Date, an amount equal to the Positive Make-Whole Amount, if any, with
respect to the principal amount of each



- 2 -









 







Equipment Note to be prepaid as a result of such
termination and any Positive Make-Whole Amount due on the Equipment Notes upon their acceleration
pursuant to Section 4.02 of the Indenture by reason of a Lease Event of Default (except in the case
of a termination pursuant to Section 9.1 hereof and in connection with which Lessor exercises its
right to retain the applicable Units pursuant to Section 9.4), (iii) in the case of any refunding
or refinancing pursuant to Section 11.2 of the Participation Agreement or any prepayment pursuant
to Section 2.10(d) of the Indenture, on the date specified in the agreement referred to in Section
11.2(a) of the Participation Agreement or Section 2.10(d) of the Indenture, as applicable, an
amount equal to the Positive Make-Whole Amount, if any, with respect to the principal amount of
each Equipment Note outstanding on the Refunding Date, (iv) on demand, any payments required under
the Tax Indemnity Agreement or Article VII of the Participation Agreement and (v) all amounts
payable by Lessor under Section 11.19 of the Participation Agreement. All Supplemental Rent to be
paid pursuant to this Section 3.3 shall be payable in the type of funds and in the manner set forth
in Section 3.5.



     Section 3.4. Adjustment of Rent. Lessee and Lessor agree that the Basic Rent, Stipulated Loss
Value and Termination Value percentages shall be adjusted to the extent provided in Section 2.6 of
the Participation Agreement.



     Section 3.5. Manner of Payments. All Rent (other than Supplemental Rent payable to Persons
other than Lessor, which shall be payable to such other Persons in accordance with written
instructions furnished to Lessee by such Persons, as otherwise provided in any of the Operative
Agreements or as required by law) shall be paid by Lessee to Lessor at its office at Rodney Square
North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention: Corporate Trust
Administration. All Rent shall be paid by Lessee in funds consisting of lawful currency of the
United States of America, which shall be immediately available to the recipient not later than
12:00 noon (New York City time) on the date of such payment, provided that so long as the Indenture
shall not have been discharged pursuant to the terms thereof, Lessor hereby directs, and Lessee
agrees, that all Rent (excluding Excepted Property) payable to Lessor and assigned to Indenture
Trustee shall be paid directly to Indenture Trustee at the times and in funds of the type specified
in this Section 3.5 at the office of Indenture Trustee at 299 South Main Street, 12th Floor, MAC:
U1228-120, Salt Lake City, Utah 84111, Attention: Corporate Trust Department, or at such other
location in the United States of America as Indenture Trustee may otherwise direct.



Section 4. Ownership and Marking Of Equipment.




     Section 4.1. Retention of Title. Lessor shall and hereby does retain full legal title to and
ownership of the Equipment notwithstanding the delivery of the Equipment to Lessee hereunder.



     Section 4.2. Duty to Number and Mark Equipment. On or before the Closing Date, Lessee shall
cause each Unit to be numbered with the reporting mark shown on the Lease Supplement for such Unit
dated the Closing Date and, within 30 days of the Closing Date and at all times thereafter, shall
cause each Unit to be plainly, distinctly, permanently and conspicuously marked by a plate or
stencil printed in contrasting colors upon each side of each Unit, in letters not less than one
inch in height, a legend substantially as follows:



- 3 -









 





“Subject to a Security Agreement recorded

with the Surface Transportation Board”

or

“Ownership subject to a Security Agreement filed

with the Surface Transportation Board”



with appropriate changes thereof and additions thereto as from time to time may be required by law
in order to protect Lessor’s right, title and interest in and to such Unit, its rights under this
Lease and the rights of Indenture Trustee. Except as provided hereinabove, Lessee will not place
any such Units in operation or exercise any control or dominion over the same until the required
legend shall have been so marked on both sides thereof, and will replace promptly any such word or
words in such legend which may be removed, defaced, obliterated or destroyed. Lessee will not
change the reporting mark of any Unit except in accordance with a statement of new reporting marks
to be substituted therefor, which statement shall be delivered to Lessor by Lessee and a supplement
to this Lease and the Indenture with respect to such new reporting marks shall be filed or recorded
by Lessee in all public offices where this Lease and the Indenture shall have been filed or
recorded, in each case promptly after a Responsible Officer of Lessee obtains actual knowledge of
such change.




     Section 4.3. Prohibition against Certain Designations. Except as above provided, Lessee will
not allow the name of any Person to be placed on any Unit as a designation that might reasonably be
interpreted as a claim of ownership; provided, however, that subject to the delivery of the
statement specified in the last sentence of Section 4.2, Lessee may cause the Equipment to be
lettered with the names or initials or other insignia customarily used by Lessee or any permitted
sublessees or any of their respective Affiliates on railroad equipment used by it of the same or a
similar type.



Section 5. Disclaimer of Warranties; Right of Quiet Enjoyment.




     Section 5.1. Disclaimer of Warranties. Without waiving any claim Lessee may have against any
seller, supplier or manufacturer, Lessee acknowledges and agrees that, (i) each Unit is of a
size, design, capacity and manufacture selected by and acceptable to Lessee, (ii) Lessee is
satisfied that each Unit is suitable for its purposes, (iii) neither Lessor nor Owner Participant
is a manufacturer or a dealer in property of such kind, (iv) each Unit is leased hereunder subject
to all applicable laws and governmental regulations now in effect or hereinafter adopted, and (v)
Lessor leases and Lessee takes each Unit 
“as-is”, “where-is” and “with all faults”, and Lessee acknowledges that neither Lessor, as
Lessor or in its individual capacity, nor Owner Participant makes nor shall be deemed to have made,
and each expressly disclaims, any and all rights, claims, warranties or representations either
express or implied, as to the value, condition, fitness for any particular purpose, design,
operation, merchantability thereof or as to the title of the equipment, the quality of the material
or workmanship thereof or conformity thereof to specifications, freedom from patent, copyright or
trademark infringement, the absence of any latent or other defect, whether or not discoverable, or
as to the absence of any obligations based on strict liability in tort or any other express or
implied representation or



- 4 -









 







warranty whatsoever with respect thereto, except that Lessor, in its
individual capacity, represents and warrants that on the Delivery Date, Lessor shall have received
whatever title to the Equipment delivered on or prior to the Delivery Date as was conveyed to
Lessor by the applicable Seller and each Unit will be free of Lessor’s Liens attributable to Lessor
in its individual capacity. During the Lease Term so long as no Event of Default shall have
occurred and be continuing, Lessor hereby appoints and constitutes Lessee its agent and
attorney-in-fact during the Lease Term to assert and enforce, from time to time, in the name and
for the account of Lessor and Lessee, as their interests may appear, but in all cases at the sole
cost and expense of Lessee, whatever claims and rights Lessor may have as owner of the Equipment
against the manufacturers or any prior owner thereof.



     Section 5.2. Quiet Enjoyment. Each party to this Lease acknowledges notice of, and consents
in all respects to, the terms of this Lease, and expressly, severally and as to its own actions
only, agrees that, notwithstanding any other provision of any of the Operative Agreements, so long
as no Lease Event of Default has occurred and is continuing, it shall not take or cause to be taken
any action inconsistent with Lessee’s rights under this Lease or otherwise through its own actions
in any way interfere with or interrupt the quiet enjoyment of the use, operation and possession of
any Unit by Lessee.



Section 6. Return of Equipment; Storage.




     Section 6.1. General. (a) On the expiration of the Lease Term with respect to any Unit which
has not been purchased by Lessee, Lessee will, at its own cost and expense, deliver possession of
such Unit to Lessor at not more than three interchange points on the tracks of Lessee in the U.S.,
f.o.b. such interchange point, as Lessor may reasonably designate to Lessee in writing at least 90
days before the end of the Lease Term or, in the absence of such designation, as Lessee may
reasonably select or, if Lessor has requested storage pursuant to Section 6.3, to the location
determined in accordance with Section 6.3. Upon expiration of the Lease Term with respect to such
Unit, compliance with the terms hereof and tender of such Unit at the location determined in
accordance with this Section 6.1(a), this Lease and the obligation to pay Basic Rent and all other
Rent for such Unit accruing subsequent to such expiration (except for Supplemental Rent obligations
with respect to such Unit surviving pursuant to the Participation Agreement or the Tax Indemnity
Agreement or which have otherwise accrued but not been paid as of the date of the expiration of the
Lease Term) shall terminate.



     (b) In the event any Unit is not returned as hereinabove provided at the expiration of the
Lease Term with respect to such Unit, Lessee may retain custody and control of such Unit so long as
Lessee is attempting to remedy any condition delaying such return, and in any case the covenants of
Lessee (other than with respect to Basic Rent) under this Lease (including those pertaining to
indemnities, Liens, maintenance and insurance) shall continue with respect to such Unit until such
return of such Unit and, regardless of whether such delay shall be attributable to Lessee or any
permitted sublessee, Lessee shall pay holdover rent to Lessor for the first 60 days in an amount
equal to the daily equivalent of rent during the preceding term, and thereafter in an amount equal
to 120% of the daily equivalent of the greater of (i) the arithmetic average of the Basic Rent
during the Basic Term for such Unit (or, if the failure to return occurs after a Renewal Term, the
arithmetic average of the Basic Rent paid during the Renewal Term for such



- 5 -









 







Unit) and (ii) the Fair
Market Rental Value for such Unit. The provision for payment pursuant to the immediately preceding
sentence shall not be in abrogation of Lessor’s right under Section 6.1 (a) to have such Unit
returned to it hereunder.



     Section 6.2. Condition of Equipment. Each Unit when returned to Lessor pursuant to Section
6.1(a) shall (i) be in the condition required by Sections 8.1 and 9.3, (ii) be capable of
performing the functions for which it was designed covered by Section 8.1 and (iii) be free and
clear of all Liens except Lessor’s Liens and Permitted Liens, provided that Lessee agrees to
promptly discharge any such Permitted Lien upon return of the Unit with Lessor’s sole remedy for
any breach of this clause (iii) being damages at law or specific performance at equity. To the
extent that any maintenance or overhaul logs are kept by Lessee with respect to any Unit returned
pursuant to Section 6.1 and such maintenance logs are customarily made available to the purchaser
of equipment of a type similar to such Unit, upon the request of Lessor and at Lessee’s expense,
such maintenance and overhaul logs shall be made available to Lessor or its designee upon the
return of such Unit. Except as expressly provided in this Section 6.2, there will be no further
requirements imposed upon Lessee with respect to the condition of any Unit upon its return in
accordance with the provisions of Section 6.1 hereof and this Section 6.2.



     Section 6.3. Storage. Upon the expiration of the Lease Term with respect to each Unit, upon
written request of Lessor received at least 60 days prior to the end of the Lease Term with respect
to such Unit, Lessee shall permit Lessor to store each such Unit, free of charge, except as
provided below, at such location on the tracks of Lessee used by Lessee for the storage of surplus
rolling stock or locomotives or rolling stock or locomotives available for sale as shall be
reasonably designated by Lessee (taking into account, among other things, Lessee’s storage
capacity, security and access) for a period (the “Storage Period”) beginning on the expiration of
the Lease Term and ending not more than 45 days after the later of the expiration of the Lease Term
with respect to Units of such Type of Equipment or the date on which 50% of all Units to be
returned at the expiration of the Lease Term have been returned; provided that with respect to any
Unit returned after the expiration of the Lease Term for such Unit, the Storage Period for such
Unit shall begin on the date of return of such Unit and end 45 days thereafter. Any storage
facilities provided by Lessee pursuant to this Section 6.3 shall, in all cases, be at the cost to
Lessor of insurance and Lessee’s out-of-pocket costs in connection with providing any services not
contemplated hereby to be provided during the Storage Period and at the risk of Lessor, including
but not limited to any deterioration of any Unit
caused by moisture or any weather-related cost to the extent such cost arises during such period of
storage and not as a result of Lessee’s violation of its obligations under this Lease (except, with
respect to any injury to, or death of, any person exercising, either on behalf of Lessor or any
prospective purchaser or user, the inspection rights granted pursuant to this Section 6.3, Lessee’s
gross negligence or willful misconduct). With respect to the Units stored pursuant hereto, Lessee
will carry and maintain with respect to stored Units, during the Storage Period, under Lessee’s
insurance policies, property damage insurance and public liability insurance with respect to third
party personal and property damage as Lessee then maintains in respect of equipment owned or leased
by it similar in type to the Equipment; provided that (i) Lessor pays all incremental costs
associated with such insurance coverage, (ii) such insurance coverage does not negatively impact
upon Lessee’s loss insurance rating and (iii) any coverage provided is above Lessee’s deductibles
or self-insurance retention amounts. On not more than one occasion with respect to each stored
Unit and upon not



- 6 -









 







less than 15 days’ prior written notice from Lessor to Lessee (which notice shall
specify the transportation of no less than all of the Units of any or each Type of Equipment),
Lessee will, during the Storage Period, transport such Units, at Lessee’s cost and expense, to a
destination or interchange point, f.o.b., such destination or interchange point, on Lessee’s lines
in the U.S. reasonably specified by Lessee, whereupon Lessee shall have no further liability or
obligation with respect to such Units. During the Storage Period, Lessee will permit Lessor or any
person designated by it, including the authorized representative or representatives of any
prospective purchaser or user of such Unit, to inspect the same; provided, however, that such
inspection shall not interfere with the normal conduct of Lessee’s business and such person shall
be insured to the reasonable satisfaction of Lessee with respect to any risks incurred in
connection with any such inspections and Lessee (except in the case of Lessee’s gross negligence or
willful misconduct) shall not be liable for any injury to, or the death of, any person exercising,
either on behalf of Lessor or any prospective purchaser or user, the rights of inspection granted
pursuant hereto. Lessee shall not be required to store the Equipment after the Storage Period. If
Lessee stores any Unit after the Storage Period, such storage shall be at the sole expense and risk
of Lessor.



Section 7. Liens.




     Lessee will not directly or indirectly create, incur, assume or suffer to exist any Lien on or
with respect to any Units or Lessee’s leasehold interest therein under this Lease or on the Trust
Estate, except Permitted Liens, and Lessee shall promptly, at its own expense, take such action as
may be necessary to duly discharge (by bonding or otherwise) any such Lien not excepted above if
the same shall arise at any time.



Section 8. Maintenance; Operation; Sublease.




     Section 8.1. Maintenance. Lessee, at its own cost and expense, shall service, maintain,
repair and keep each Unit (i) in good repair and operating condition, ordinary wear and tear
excepted, (ii) in accordance with (a) prudent Class I railroad industry maintenance practices in
existence from time to time and (b) manufacturer’s recommendations to the extent required to
maintain such manufacturer’s warranties in effect with respect to such Unit, (iii) in a manner
consistent with service, maintenance, overhaul and repair
practices used by Lessee in respect of equipment owned or leased by Lessee similar in type to such
Unit and without discrimination between owned and leased Units, (iv) in compliance, in all material
respects, with all applicable laws and regulations, including any applicable United States EPA
Regulations and any applicable AAR Mechanical Standards and Federal Railroad Administration
regulations as applicable to continued use by Lessee; provided, however, that Lessee may, in good
faith and by appropriate proceedings diligently conducted, contest the validity or application of
any such law, regulation, requirement or rule in any reasonable manner which does not materially
adversely affect the rights or interests of Lessor and Indenture Trustee in the Equipment or
hereunder or otherwise expose Lessor, Indenture Trustee or any Participant to criminal sanctions or
release Lessee from the obligation to return the Equipment in compliance with the provisions of
Section 6.2.



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     Section 8.2. Operation. Lessee shall be entitled to the possession of the Equipment and to
the use of the Equipment by it or any Affiliate in the general operation of Lessee’s or any such
Affiliate’s freight rail business upon lines of railroad owned or operated by it or any such
Affiliate, upon lines of railroad over which Lessee or any such Affiliate has trackage or other
operating rights or over which railroad equipment of Lessee or any such Affiliate is regularly
operated pursuant to contract and on railroad lines of other railroads (including in connection
with barge-related rail transportation) in the United States, Canada and Mexico, in the usual
interchange of traffic or in through or run-through service and shall be entitled to permit the use
of the Equipment upon lines of railroad of connecting and other carriers in the usual interchange
of traffic or pursuant to through or run-through agreements; provided Lessee shall use the
Equipment only for the purpose and in the manner for which it was designed and intended and in
compliance, in all material respects, with all laws, regulations and guidelines of any governmental
body, the Association of American Railroads, the Federal Railroad Administration and the Surface
Transportation Board and their successors and assigns. Nothing in this Section 8.2 shall be deemed
to constitute permission by Lessor to any Person that acquires possession of any Unit to take any
action inconsistent with the terms and provisions of this Lease and any of the other Operative
Agreements. The rights of any person that acquires possession of any Unit pursuant to this Section
8.2 shall be subject and subordinate to the rights of Lessor hereunder.



     Section 8.3. Sublease. So long as no Specified Default or Event of Default shall have
occurred and be continuing, Lessee shall have the right, without the prior written consent of
Lessor, to sublease any Unit to or permit its use by a user incorporated under the federal laws or
the laws of any state of the United States, organized under the federal laws or the laws of any
province of Canada or organized under the federal laws or the laws of any state of Mexico, for use
by such sublessee or user upon lines of railroad owned or operated by Lessee, any Affiliate of
Lessee, such sublessee or user or by a railroad company or companies incorporated under the federal
laws or laws of any state of the United States, organized under the federal laws or the laws of any
province in Canada or organized under the federal laws or the laws of any state of Mexico, over
which Lessee, such Affiliate of Lessee, such sublessee or user or such railroad company or
companies has trackage or other operating rights, and upon lines of railroad of connecting and
other carriers in the usual interchange of traffic or pursuant to through or run-through service
agreements; provided such sublessee shall not, at the time of such sublease, be insolvent or
subject to insolvency or bankruptcy proceedings. Each
sublease shall be subject and subordinate to this Lease (including the duration of the sublease
term, which term may not expire after the expiration of the Basic Term or any Renewal Term then in
effect) and no such sublease shall contain a purchase option. No sublease shall in any way
discharge or diminish any of Lessee’s obligations hereunder, and Lessee shall remain primarily
liable hereunder for the performance of all the terms, conditions and provisions of this Lease and
the other Lessee Agreements to the same extent as if such sublease had not been entered into.
Nothing in this Section 8.3 shall be deemed to constitute permission to any Person in possession of
any Unit pursuant to any such sublease to take any action inconsistent with the terms and
provisions of this Lease or any of the other Operative Agreements.



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Section 9. Modifications.




     Section 9.1. Required Modifications. In the event the Association of American Railroads, the
United States Department of Transportation, or any other United States, Canadian or Mexican
federal, state or local governmental authority having jurisdiction over the operation, safety or
use of any Unit requires that such Unit be altered, replaced or modified (a “Required
Modification”), Lessee agrees to make such Required Modification at its own expense; provided,
however, that Lessee may, in good faith and by appropriate proceedings diligently conducted,
contest the validity or application of any such law, regulation, requirement or rule in any
reasonable manner which does not materially adversely affect the rights or interests of Lessor and
Indenture Trustee in the Equipment or hereunder or otherwise expose Lessor, Indenture Trustee or
any Participant to criminal sanctions or relieve Lessee of the obligation to return the Equipment
in compliance with the provisions of Section 6.2. Subject to Section 9.3, title to any Required
Modification shall immediately vest in Lessor. Notwithstanding anything herein to the contrary, if
Lessee determines in good faith that any Required Modification to a Unit would be economically
impractical, it shall provide written notice of such determination to Lessor and the parties hereto
shall treat such Unit as if an Event of Loss had occurred as of the date of such written notice
with respect to such Unit and the provisions of Sections 11.2, 11.3 and 11.4 with respect to rent,
termination and disposition shall apply with respect to such Unit unless Lessor, within 15 Business
Days of such notice, elects to retain such Unit pursuant to Section 9.4.



     Section 9.2. Optional Modifications. Lessee at any time may modify, alter or improve any Unit
(a “Modification”); provided that no Modification shall diminish in more than a de minimis respect
the current fair market value, utility, or remaining useful life of such Unit below the current
fair market value, utility, or remaining useful life thereof immediately prior to such
Modification, assuming such Unit was then in the condition required to be maintained by the terms
of this Lease. Title to any Non-Severable Modifications shall be immediately vested in Lessor.
Title to any Severable Modifications shall remain with Lessee. If Lessee shall at its cost cause
such Severable Modifications to be made to any Unit and such Severable Modifications are reasonably
necessary for the economic operation of any such Unit, Lessor shall have the right, prior to the
return of such Unit to Lessor hereunder, to purchase such Severable Modifications (other than
Severable Modifications consisting of proprietary or communications equipment) at their then Fair
Market Sales Value (taking into account their actual condition). If Lessor does not elect to
purchase such Severable
Modifications, Lessee may remove, and shall remove if requested by Lessor, such Severable
Modifications at Lessee’s cost and expense.



     Section 9.3. Removal of Proprietary and Communications Equipment. Notwithstanding anything to
the contrary contained herein, Lessee shall at all times own and be entitled to remove at Lessee’s
cost and expense, any Severable Modification consisting of proprietary or communications equipment
from any Unit prior to the return of such Unit; provided that if Lessee removes such Severable
Modification that is (i) a Required Modification and (ii) such equipment is not customarily
provided by the user, Lessee shall replace such proprietary or communications equipment with
non-proprietary equipment of comparable utility.



     Section 9.4. Retention of Equipment by Lessor. Notwithstanding the provisions of the last
sentence of Section 9.1, Lessor may irrevocably elect by written notice to Lessee, no later



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than 15
Business Days after receipt of Lessee’s notice of determination of economic impracticality pursuant
to Section 9.1, not to declare an Event of Loss as provided in Section 9.1, whereupon Lessee shall
not be liable for the Stipulated Loss Value for the affected Units or any Positive Make-Whole
Amount in respect of the principal amount of the Equipment Notes to be prepaid in accordance with
Section 2.10(b) of the Indenture in connection therewith but shall (i) deliver the affected Units
to Lessor in the same manner and in the same condition as if delivery were made pursuant to Section
6 (except that Lessee shall not be required to correct the conditions which gave rise to the notice
of economic impracticality), treating the applicable date for payment specified in Section 11.2(ii)
as the termination date of the Lease Term with respect to the affected Units, and (ii) pay to
Lessor, or to the Persons entitled thereto, all Basic Rent and Supplemental Rent due and owing on
such termination date and unpaid. If Lessor elects to retain the affected Units as provided in
this Section 9.4, then Lessor shall pay, or cause to be paid, to Indenture Trustee in funds of the
type and in an amount equal to the outstanding principal amount of the Equipment Notes issued in
respect of such affected Units and all accrued interest to the date of prepayment of such Equipment
Note on such termination date plus any Positive Make-Whole Amount in respect of the principal
amount of the Equipment Notes to be prepaid in accordance with Section 2.10(b) of the Indenture.
If Lessor shall fail to perform any of its obligations pursuant to this Section 9.4 on the
scheduled termination date for any affected Unit, the parties hereto shall treat such Unit as if an
Event of Loss had occurred as of the date of Lessee’s written notice with respect to such Unit
pursuant to Section 9.1 and the provisions of Sections 11.2, 11.3 and 11.4 with respect to rent,
termination and disposition shall apply with respect to such Unit and Lessor shall thereafter no
longer be entitled to exercise its election to retain such affected Units.



Section 10. Voluntary Termination.




     Section 10.1. Right of Termination. So long as no Specified Default or Event of Default shall
have occurred and be continuing, Lessee shall have the right, at its option at any time or from
time to time on or after the fifth anniversary of the Closing Date, to terminate this Lease with
respect to, at the sole discretion of Lessee, either all or a Minimum Number of Units of Equipment
of any or each Type of Equipment
(the “Terminated Units”), if Lessee determines in good faith (as evidenced by a certificate
executed by the Chief Financial Officer of Lessee), that such Units have become obsolete or surplus
to Lessee’s requirements, by delivering at least 90 days’ prior notice to Lessor and Indenture
Trustee specifying a proposed date of termination for such Units (the “Termination Date”), which
date shall be a Determination Date, any such termination to be effective on the Termination Date.
Except as expressly provided herein, there will be no conditions to Lessee’s right to terminate
this Lease with respect to the Terminated Units pursuant to this Section 10.1. So long as Lessor
shall not have given Lessee a notice of election to retain the Terminated Units in accordance with
Section 10.3, Lessee may withdraw the termination notice referred to above at any time prior to
five days before the scheduled Termination Date, whereupon this Lease shall continue in full force
and effect; provided that Lessee shall pay all reasonable costs of Lessor, Indenture Trustee, Loan
Participant and Owner Participant incurred in connection with any proposed or withdrawn
termination.



     Section 10.2. Sale of Equipment. During the period from the date of such notice given
pursuant to Section 10.1 to the Termination Date, Lessee, as exclusive agent for Lessor and at



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Lessee’s sole cost and expense, shall use reasonable efforts to obtain bids from Persons other than
Lessee or Affiliates thereof for the cash purchase of the Terminated Units, and Lessee shall
promptly, and in any event at least five Business Days prior to the proposed date of sale, certify
to Lessor in writing the amount and terms of each such bid, the proposed date of such sale and the
name and address of the party submitting such bid. Unless Lessor shall have elected to retain the
Terminated Units in accordance with Section 10.3, on the Termination Date: (i) Lessee shall,
subject to receipt (x) by Lessor of all amounts owing to Lessor pursuant to the next sentence, and
(y) by the persons entitled thereto of all unpaid Supplemental Rent due on or before the
Termination Date, deliver the Terminated Units to the bidder, if any, which shall have submitted
the highest all cash bid prior to such date (or to such other bidder as Lessee and Lessor shall
agree), in the same manner and condition as if delivery were made to Lessor pursuant to Section 6
and (ii) Lessor shall, without recourse or warranty (except as to the absence of any Lessor’s Lien)
simultaneously therewith sell the Terminated Units to such bidder. The total selling price
realized at such sale shall be paid to Lessor for distribution pursuant to Section 3.02 of the
Indenture and, in addition and anything to the contrary notwithstanding, on the Termination Date,
Lessee shall pay to Lessor, or to the Persons entitled thereto, (A) all unpaid Basic Rent with
respect to such Terminated Units due and payable on or prior to the Termination Date, (B) the
excess, if any, of (1) the Termination Value for the Terminated Units computed as of the
Termination Date, over (2) the net cash sales proceeds (after deduction of applicable transaction
expenses and sales or transfer taxes, if any, due or to become due as a consequence of such sale)
of the Terminated Units, (C) an amount equal to the Positive Make-Whole Amount, if any, in respect
of the principal amount of the Equipment Notes to be prepaid in accordance with Section 2.10(a) of
the Indenture and (D) any other Supplemental Rent due and payable as of such Termination Date. If
no sale shall have occurred, this Lease shall continue in full force and effect with respect to
such Units; provided that if such sale shall not have occurred solely because of Lessee’s failure
to pay the amounts required to be paid pursuant to the immediately preceding sentence, Lessee shall
have no further right to terminate this Lease with respect to such Units, and such failure to pay
such amounts shall be deemed a withdrawal of the termination notice referred to in Section 10.1.
If Lessor elects not to exercise its right to retain the Terminated Units as provided in Section
10.3, Lessee, in acting
as agent for Lessor, shall have no liability to Lessor for failure to obtain the best price, shall
act in its sole discretion and shall be under no duty to solicit bids publicly or in any particular
market. Lessee’s sole interest in acting as agent shall be to sell the Units at a price that
reduces or eliminates Lessee’s obligation to pay the amount provided in this Section 10.2. On the
Termination Date, upon receipt by Lessor of the amounts owing to Lessor pursuant to the third
sentence of this Section 10.2, Lessor shall pay, or cause to be paid, to Indenture Trustee in
immediately available funds an amount equal to the outstanding principal amount of the Equipment
Notes issued in respect of such Terminated Units, all accrued interest to the date of prepayment of
such Equipment Notes and the Positive Make-Whole Amount, if any, in respect of such Equipment Notes
on such Termination Date.



     Section 10.3. Retention of Equipment by Lessor. Notwithstanding the provisions of Sections
10.1 and 10.2, Lessor may irrevocably elect by written notice to Lessee, no later than 30 days
after receipt of Lessee’s notice of termination, not to sell the Terminated Units on the
Termination Date, whereupon Lessee shall (i) deliver the Terminated Units to Lessor in the same
manner and condition as if delivery were made to Lessor pursuant to Section 6, treating the



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Termination Date as the termination date of the Lease Term with respect to the Terminated Units,
and (ii) pay to Lessor, or to the Persons entitled thereto, all Basic Rent and Supplemental Rent
due and owing on the Termination Date and unpaid including an amount equal to any Positive
Make-Whole Amount in respect of the principal amount of the Equipment Notes to be prepaid in
accordance with Section 2.10(a) of the Indenture. If Lessor elects not to sell the Terminated
Units as provided in this Section 10.3, then Lessor shall pay, or cause to be paid, to Indenture
Trustee in immediately available funds an amount equal to the outstanding principal amount of the
Equipment Notes issued in respect of such Terminated Units and all accrued interest to the date of
prepayment of such Equipment Note on such Termination Date. If Lessor shall fail to perform any of
its obligations pursuant to this Section 10.3 and as a result thereof this Lease shall not be
terminated with respect to the Terminated Units on a proposed Termination Date, Lessor shall
thereafter no longer be entitled to exercise its election to retain such Terminated Units and
Lessee may at its option at any time thereafter submit a new termination notice pursuant to Section
10.1 with respect to such Terminated Units specifying a proposed Termination Date occurring not
earlier than five days from the date of such notice.



     Section 10.4. Termination of Lease. In the event of any such sale and receipt by Lessor and
Indenture Trustee of all of the amounts provided herein, and upon compliance by Lessee with the
other provisions of this Section 10, the Lease Term for the Terminated Units shall end and the
obligation to pay Basic Rent and all other Rent for such Terminated Units (except for Supplemental
Rent obligations with respect to such Terminated Units surviving pursuant to the Participation
Agreement or the Tax Indemnity Agreement or which have otherwise accrued but not been paid as of
the date of the expiration of the Lease Term) shall terminate.



Section 11. Loss, Destruction, Requisition, Etc.




     Section 11.1. Event of Loss. In the event that any Unit (i) shall suffer destruction, damage,
contamination or wear which, in Lessee’s good faith opinion, makes repair uneconomic or renders
such Unit unfit for commercial use, (ii) shall suffer theft or disappearance, (iii) shall be
permanently returned to the manufacturer pursuant to any warranty or patent indemnity provisions,
(iv) shall have title thereto taken or appropriated by any governmental authority under the power
of eminent domain or otherwise, (v) shall be taken or requisitioned for use by any governmental
authority (other than the United States government or any agency or instrumentality thereof) under
the power of eminent domain or otherwise and such taking or requisition is continuing in excess of
180 days or, if earlier, on the last day of the Basic Term or any Renewal Term then in effect, or
(vi) shall be taken or requisitioned for use by the United States government or any agency or
instrumentality thereof and such taking or requisition is continuing on the last day of the Basic
Term or any Renewal Term then in effect (any such occurrence being hereinafter called an “Event of
Loss”), Lessee, in accordance with the terms of Section 11.2, shall promptly and fully inform
Lessor and Indenture Trustee of such Event of Loss.



     Section 11.2. Replacement or Payment upon Event of Loss. Upon the occurrence of an Event of
Loss or the deemed occurrence of an Event of Loss pursuant to Section 9.1 with respect to any Unit,
Lessee shall within 60 days after a Responsible Officer of Lessee shall have actual knowledge of
such occurrence or deemed occurrence give Lessor and Indenture Trustee notice of



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such occurrence or
deemed occurrence of such Event of Loss and of its election to perform one of the following options
(it being agreed that if Lessee shall not have given notice of such election within such 60 days
after such actual knowledge of such occurrence or deemed occurrence, Lessee shall be deemed to have
elected to perform the option set forth in the following paragraph (ii)):




     (i) As promptly as practicable, and in any event on or before the Business Day next
preceding the 175th day next following the date on which a Responsible Officer of Lessee
shall have actual knowledge of the occurrence or deemed occurrence of such Event of Loss,
Lessee shall comply with Section 11.4(b) and shall convey or cause to be conveyed to Lessor
a Replacement Unit to be leased to Lessee hereunder, such Replacement Unit to be free and
clear of all Liens (other than Permitted Liens) and to have a current fair market value,
utility, and remaining useful life at least equal to the Unit so replaced (assuming such
Unit was in the condition required to be maintained by the terms of this Lease); provided
that, if Lessee shall not perform its obligation to effect such replacement under this
paragraph (i) during the period of time provided herein, then Lessee shall pay on a
Determination Date selected by Lessee that is within 180 days after a Responsible Officer of
Lessee shall have actual knowledge of the occurrence or deemed occurrence of such Event of
Loss to Lessor, or in the case of Supplemental Rent, to the Person entitled thereto, the
amounts specified in paragraph (ii) below; or




     (ii) on or before a Determination Date selected by Lessee that is within 180 days after
a Responsible Officer of Lessee shall have actual knowledge of the occurrence or deemed
occurrence of such Event of Loss, Lessee shall pay or cause to be paid on the applicable
Determination Date to Lessor or, in the case of Supplemental Rent, to the Persons entitled
thereto, in funds of the type specified in Section 3.5, (A) an amount equal to the
Stipulated Loss Value of each such Unit determined as of such Determination Date, (B) all
unpaid Basic Rent with respect to each such Unit due on or prior to such Determination Date,
and (C) without duplication, all Supplemental Rent (including any Positive Make-Whole
Amount) due and payable as of such Determination Date, it being understood that until such
Stipulated Loss Value is paid, there shall be no abatement or reduction of Basic Rent.



     Section 11.3. Rent Termination. Upon the payment of all sums required to be paid pursuant to
Section 11.2(ii) hereof in respect of any Unit or Units for which Lessee has elected to pay or
deemed to have elected to pay pursuant to the proviso to Section 11.2(i) the amounts specified in
paragraph 11.2(ii), the Lease Term with respect to such Unit or Units and the obligation to pay
Rent for such Unit or Units (except for Supplemental Rent obligations with respect to such Unit or
Units surviving pursuant to the Participation Agreement or the Tax Indemnity Agreement or which
have otherwise accrued but not been paid as of the date of the expiration of the Lease Term) shall
terminate; provided that Lessee shall be obligated to pay all Rent in respect of such Unit or Units
which has accrued up to and including the date of payment of Stipulated Loss Value pursuant to
Section 11.2.



     Section 11.4. Disposition of Equipment; Replacement of Unit. (a) Upon the payment of all
sums required to be paid pursuant to Section 11.2 in respect of any Unit or Units, Lessor will



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convey to Lessee or its designee all right, title and interest of Lessor in and to such Unit or
Units, “as is”, “where is”, without recourse or warranty, except for a warranty against Lessor’s
Liens, and shall execute and deliver to Lessee or its designee such bills of sale and other
documents and instruments as Lessee or its designee may reasonably request to evidence such
conveyance. As to each separate Unit so disposed of, Lessee or its designee shall be entitled to
any amounts arising from such disposition, plus any awards, insurance (other than insurance
maintained by Lessor or Owner Participant for its own account in accordance with Section 12.3) or
other proceeds and damages (including any Association of American Railroads interline settlement
paid upon an Event of Loss) received by Lessee, Lessor or Indenture Trustee by reason of such Event
of Loss after having paid the Stipulated Loss Value attributable thereto.



     (b) At the time of or prior to any replacement of any Unit, Lessee, at its own expense, will
(A) furnish Lessor with a full warranty bill of sale and an assignment of warranties with respect
to the Replacement Unit, (B) cause a Lease Supplement substantially in the form of Exhibit A
hereto, subjecting such Replacement Unit to this Lease, duly executed by Lessee, to be delivered to
Lessor for execution and, upon such execution, to be filed for recordation in the same manner as
provided for the original Lease Supplement in Section 16.1, (C) so long as the Indenture shall not
have been satisfied and discharged, cause an Indenture Supplement substantially in the form of
Exhibit A to the Indenture for such Replacement Unit, to be delivered to Lessor and to Indenture
Trustee for execution and, upon such execution, to be filed for
recordation in the same manner as provided for the original Indenture Supplement in Section 16.1,
(D) furnish Lessor with an opinion of Lessee’s counsel (which may be Lessee’s internal counsel), to
the effect that (w) Lessor (and Indenture Trustee, as assignee of Lessor) shall be entitled to the
benefits of Section 1168 of the Bankruptcy Code in respect of such Replacement Unit to the same
extent that Lessor (and Indenture Trustee, as assignee of Lessor) was entitled to such benefits in
respect of the Unit being replaced, (x) the bill of sale referred to in clause (A) above
constitutes an effective instrument for the conveyance of title to the Replacement Unit to Lessor,
(y) good and marketable title to the Replacement Unit has been delivered to Lessor, free and clear
of all Liens (other than Permitted Liens), and (z) all filings, recordings and other action
necessary or appropriate to perfect and protect Lessor’s and Indenture Trustee’s respective
interests in the Replacement Unit have been accomplished, and (E) furnish Lessor with a certificate
of a qualified engineer (who may be the system chief mechanical officer of Lessee) certifying that
the Replacement Unit has a fair market value, utility and remaining useful life at least equal to
the Unit so replaced (assuming such Unit was in the condition required to be maintained by the
terms of this Lease). For all purposes hereof, upon passage of title thereto to Lessor, the
Replacement Unit shall be deemed part of the property leased hereunder and the Replacement Unit
shall be deemed a “Unit” of Equipment as defined herein. Upon such passage of title, Lessor will
transfer to Lessee, without recourse or warranty (except as to Lessor’s Liens), all Lessor’s right,
title and interest in and to the replaced Unit, and upon such transfer, Lessor will request in
writing that Indenture Trustee execute and deliver to Lessee an appropriate instrument releasing
such replaced Unit from the lien of the Indenture.



     Section 11.5. Eminent Domain. In the event that during the Lease Term the use of any Unit is
requisitioned or taken by any governmental authority under the power of eminent domain or otherwise
for a period which does not constitute an Event of Loss, Lessee’s obligation to pay all
installments of Basic Rent shall continue for the duration of such requisitioning or taking.



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Lessee shall be entitled to receive and retain for its own account all sums payable for any such
period by such governmental authority as compensation for requisition or taking of possession. Any
amount referred to in this Section 11.5 which is payable to Lessee shall not be paid to Lessee, or
if it has been previously paid directly to Lessee, shall not be retained by Lessee, if at the time
of such payment a Specified Default or an Event of Default shall have occurred and be continuing,
but shall be paid to and held by Lessor as security for the obligations of Lessee under this Lease,
and upon the earlier of (i) 200 days after Lessor shall have received such amount provided Lessor
has not proceeded to exercise remedies under Section 15 and (ii) such time as there shall not be
continuing any Specified Default or Event of Default, such amount shall be paid to Lessee.



Section 12. Insurance.




     Section 12.1. Property Damage and Public Liability Insurance.



          (a) Coverages. Lessee will, at all times prior to the return of the Units to Lessor, at its
own expense, cause to be carried and maintained all risk property insurance in respect of the Units
and public liability insurance against loss or damage for personal injury, death or property damage
suffered upon, in or about any premises occupied by Lessee or occurring as a result of the use,
maintenance or operation of the Units in an amount not less than $200,000,000, and against such
risks, with such insurance companies and with such terms (including co-insurance, deductibles,
limits of liability and loss payment provisions) as are customary under Lessee’s risk management
program and in keeping with risks assumed by Class I railroads generally but in no event shall such
self-insurance or deductibles exceed $15,000,000 per occurrence; provided, however, that Lessee may
self insure with respect to any or all of the above risks if customary under such risk management
program and in keeping with risks assumed by Class I railroads generally. Such coverage may
provide for deductible amounts as are customary under Lessee’s risk management program and in
keeping with risks assumed by Class I railroads generally. Notwithstanding the foregoing, all
insurance coverages (including, without limitation, self-insurance) with respect to the Units
required under this Lease shall be comparable to, and no less favorable than, insurance coverages
applicable to equipment owned or leased by Lessee which is comparable to the Units. Lessee shall,
at its own expense, be entitled to make all proofs of loss and take all other steps necessary to
collect the proceeds of such insurance.




          If any insurance required by this Lease shall not be available to Lessee at renewal on a
commercially reasonable basis on substantially the same terms and conditions as then carried by
Lessee and the obtaining of such insurance is, in Lessee’s reasonable judgment, commercially
impracticable (taking into account both terms and premiums), Lessee shall obtain a written report
of an independent insurance advisor of recognized national standing, chosen by Lessee and
reasonably acceptable to Lessor confirming in reasonable detail that such insurance, in respect of
amount or scope of coverage, is not so available on a commercially reasonable basis from insurers
of recognized standing who provide insurance to the railroad industry. During any period with
respect to which any insurance is not so available, Lessee shall nevertheless maintain such
insurance to the extent, with respect to amount and scope of coverage, that it is available on a
commercially reasonable basis from insurers of recognized standing who provide insurance to the
railroad industry. If any insurance which was previously discontinued because of its




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commercial unavailability later becomes available, in Lessee’s reasonable judgment, on a commercially
reasonable basis, Lessee shall reinstate such insurance.




          (b) Certificate of Insurance. Lessee shall, on or prior to the Delivery Date for any Unit,
furnish Lessor and Indenture Trustee with a certificate signed by the insurer or an independent
insurance broker showing the insurance then maintained, if any, with respect to the Units delivered
on the Delivery Date. Lessor or Indenture Trustee may, but not more than once in any twelve-month
period, request from Lessee and Lessee shall promptly thereafter furnish to Lessor and Indenture
Trustee, an Officer’s Certificate or, at Lessee’s option, such a certificate signed by an
independent insurance broker, setting forth all insurance maintained by Lessee pursuant to Section
12.1(a) above and describing such policies, if any, including the amounts of coverage, any
deductible amounts and the names of the insurance providers. Such public liability insurance and
all risk property insurance shall name Owner Participant, Loan Participant, Lessor, Wilmington
Trust Company and Indenture Trustee (each, an “Insured Party”) as an additional insured with
respect to such public liability insurance then maintained as their respective interests may
appear. Lessee agrees that such insurer or such broker will provide written notice to each Insured
Party at least 30 days prior to the cancellation or lapse of any insurance required to be
maintained by Lessee in accordance with Section 12.1(a) above. Any insurance maintained pursuant to
this Section 12 shall (i) provide insurer’s waiver of its right of subrogation with respect to
public
liability insurance and all risk property insurance, set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability against any additional
insured except for claims as shall arise from the willful misconduct or gross negligence of such
additional insured, (ii) to the extent commercially available, provide that such all risk property
insurance as to the interest of Lessor, Owner Participant, Loan Participant, Wilmington Trust
Company and Indenture Trustee shall not be invalidated by any action or inaction of Lessee or any
other Person (other than such claimant), regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by Lessee or any other Person (other than such
claimant), and (iii) provide that all such insurance is primary without right of contribution from
any other insurance which might otherwise be maintained by Lessor, Indenture Trustee or Owner
Participant and shall expressly provide a severability of interest clause. Any insurance
maintained by Lessor or Owner Participant shall not be considered co-insurance with any insurance
maintained by Lessee.




     Section 12.2. Proceeds of Insurance. The entire proceeds of any property insurance or
third-party payments for damages or an Event of Loss with respect to any Unit (including any
Association of American Railroads interline settlements) received by Lessor or Indenture Trustee
shall be promptly paid over to, and retained by, Lessee; provided, however, if a Specified Default
or an Event of Default shall have occurred and be continuing, such proceeds shall be paid over to
Lessor to be held as security for Lessee’s obligations hereunder and under the other Operative
Agreements.



     Section 12.3. Additional Insurance. At any time Lessor (either directly or in the name of
Owner Participant), Indenture Trustee or Owner Participant may at its own expense carry insurance
with respect to its interest in the Units, provided that such insurance does not interfere with
Lessee’s ability to insure the Units as required by this Section 12 or adversely affect Lessee’s
insurance or the cost thereof, it being understood that all salvage rights to each Unit and



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all
primary subrogation rights shall remain with Lessee’s insurers at all times. Any insurance
payments received from policies maintained by Lessor, Indenture Trustee or Owner Participant
pursuant to the previous sentence shall be retained by Lessor, Indenture Trustee or Owner
Participant, as the case may be, without reducing or otherwise affecting Lessee’s obligations
hereunder.



Section 13. Reports; Inspection.




     Section 13.1. Duty of Lessee to Furnish. On or before June 30, 2007, and on or before each
June 30 thereafter, Lessee will furnish to Lessor, Owner Participant, Loan Participant and
Indenture Trustee (i) an accurate statement, as of the preceding December 31, showing the reporting
marks of the Units then leased hereunder, identifying each Unit that may have suffered an Event of
Loss during the 12 months ending on such December 31 (or since the Delivery Date, in the case of
the first such statement) and (ii) such other information regarding the condition or repair of the
Equipment as Lessor or Owner Participant may reasonably request.



     Section 13.2. Lessor’s Inspection Rights. Lessor, Owner Participant, Loan Participant and
Indenture Trustee each shall have the
right, but not the obligation, at their respective sole cost and expense (unless, in the case of
any such expense, an Event of Default shall have occurred and be continuing) and risk (including,
without limitation, the risk of personal injury or death), by their respective authorized
representatives, to the extent within Lessee’s control: on not more than one occasion in any
12-month period with respect to each Type of Equipment (unless an Event of Default shall have
occurred and be continuing) or during the last 12 months of the Lease Term, to inspect the
Equipment and Lessee’s records with respect thereto, during Lessee’s normal business hours and upon
reasonable prior notice to Lessee; provided, however, that Lessee shall not be liable for any
injury to, or the death of, any Person exercising, either on behalf of Lessor, Owner Participant,
Indenture Trustee, Loan Participant or any prospective user, the rights of inspection granted under
this Section 13.2 except as may result or arise from Lessee’s gross negligence or willful
misconduct. No inspection pursuant to this Section 13.2 shall interfere with the use, operation or
maintenance of the Equipment or the normal conduct of Lessee’s business, and Lessee shall not be
required to undertake or incur any additional liabilities in connection therewith.



Section 14. Events of Default.




     The following events shall constitute Events of Default hereunder (whether any such event
shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) and each such Event of Default shall be deemed to exist
and continue so long as, but only as long as, it shall not have been remedied:




     (a) Lessee shall fail to make any payment of (i) Basic Rent within 5 Business Days
after the same shall have become due or (ii) EBO Fixed Purchase Price, Stipulated Loss Value
or Termination Value after the same shall have become due and such failure shall continue
unremedied for a period of 10 Business Days after receipt by Lessee of



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written notice of such failure from Lessor, Owner Participant, Loan Participant or Indenture Trustee; or




     (b) Lessee shall fail to make any payment of any other Supplemental Rent, including
indemnity or tax indemnity payments, after the same shall have become due and such failure
shall continue unremedied for a period of 30 days after receipt by Lessee of written notice
of such failure from Lessor, Owner Participant, Loan Participant or Indenture Trustee
(provided that notice of non-payment of any Excepted Payment may only be given by Owner
Participant); or




     (c) any representation or warranty made by Lessee in this Lease or in the Participation
Agreement is untrue or incorrect in any material respect as of the date of issuance or
making thereof and such untruth or incorrectness shall continue to be material and
unremedied for a period of 30 days after receipt by Lessee of written notice thereof from
Lessor, Owner Participant, Loan Participant or Indenture Trustee; provided that, if such
untruth or incorrectness is capable of being remedied, no such untruth or incorrectness
shall constitute an Event of Default hereunder for a period of 365 days after receipt of
such notice so long as Lessee is diligently proceeding to remedy such untruth or
incorrectness; or




     (d) Lessee shall (i) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect, or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any substantial
part of its property, or (ii) consent to any such relief or to the appointment of or taking
possession by any such official in any voluntary case or other proceeding commenced against
it, or (iii) admit in writing its inability to pay its debts generally as they come due, or
(iv) make a general assignment for the benefit of creditors, or (v) take any corporate
action to authorize any of the foregoing; or




     (e) an involuntary case or other proceeding shall be commenced against Lessee seeking
liquidation, reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 90 days; or




     (f) other than as set forth in clauses (g), (h), or (i), Lessee shall fail to observe
or perform any other of the covenants or agreements to be observed or performed by Lessee
hereunder or under the Participation Agreement and such failure shall continue unremedied
for 30 days after notice from Lessor, Owner Participant or Indenture Trustee to Lessee,
specifying the failure and demanding the same to be remedied; provided that, if such failure
is capable of being remedied, no such failure shall constitute an Event of Default hereunder
for a period of 365 days after receipt of such notice so long as Lessee is diligently
proceeding to remedy such failure; or



- 18 -









 






     (g) Lessee shall make or permit any unauthorized assignment or transfer of this Lease
in violation of Section 18.2 and such unauthorized assignment or transfer shall continue
unremedied for 30 days after receipt by Lessee of written notice of such violation from
Lessor, Owner Participant, Loan Participant or Indenture Trustee; or




     (h) Lessee shall fail to maintain the public liability insurance required by Section
12.1, if any, with respect to any Unit while such Unit is operated in service and such
failure shall continue unremedied for 30 days after receipt by Lessee of written notice of
such failure from Lessor, Owner Participant, Loan Participant or Indenture Trustee; or




     (i) Lessee shall enter into any consolidation, merger or conveyance in violation of
Section 6.8 of the Participation Agreement and such violation shall continue unremedied for
30 days after receipt by Lessee of written notice of such failure from Lessor, Owner
Participant, Loan Participant or Indenture Trustee;


provided that, notwithstanding anything to the contrary contained in this Lease, any failure of
Lessee to perform or observe any covenant or agreement herein shall not constitute an Event of
Default if such failure is caused solely by reason of an event referred to in the definition of
“Event of Loss” so long as Lessee is continuing to comply with the applicable terms of Section 11.
Lessor (or, for so long as rent payments are being made directly to it, Indenture Trustee) shall
notify
Lessee promptly upon Lessee’s failure to make any payment of Basic Rent, after the same shall have
become due; provided that the giving of such notice by Lessor or Indenture Trustee, as applicable,
shall not be a condition to the start of the 10 Business Days period referred to in paragraph (a)
of this Section 14 and the failure or delay in giving such notice shall not affect the occurrence
of an Event of Default under such Section 14(a) and Lessee agrees Lessor and Indenture Trustee
shall incur no liability nor be in breach hereunder for failure or delay in giving such notice.




Section 15. Remedies.




     Section 15.1. Remedies. Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, Lessor may, at its option, declare this Lease
to be in default by a written notice to Lessee (provided that upon the occurrence of an Event of
Default under Section 14(d) or 14(e), this Lease shall automatically be in default without the need
for any declaration by Lessor and any giving of notice); Lessor may do one or more of the following
as Lessor in its sole discretion shall elect, to the extent permitted by, and subject to compliance
with any mandatory requirements of, applicable law then in effect:




     (a) proceed by appropriate court action or actions, either at law or in equity, to
enforce performance by Lessee of the applicable covenants of this Lease or to recover
damages for the breach thereof;




     (b) by notice in writing to Lessee, cancel this Lease, whereupon all right of Lessee to
the possession and use of the Equipment shall absolutely cease and terminate, but Lessee
shall remain liable as hereinafter provided; and thereupon, Lessor may



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demand that Lessee,
and Lessee shall, upon written demand of Lessor and at Lessee’s expense forthwith return all
of the Equipment to Lessor or its order in the manner and condition required by, and
otherwise in accordance with all of the provisions of Section 6, except Section 6.1(b) and
those provisions relating to periods of notice; or Lessor may by its agents enter upon the
premises of Lessee or other premises where any of the Equipment may be located and take
possession of and remove all or any of the Units and thenceforth hold, possess and enjoy the
same free from any right of Lessee, or its successor or assigns, to use such Units for any
purpose whatever;




     (c) sell any Unit at public or private sale, as Lessor may determine, free and clear of
any rights of Lessee and without any duty to account to Lessee with respect to such sale or
for the proceeds thereof (except to the extent required by paragraph (f) below if Lessor
elects to exercise its rights under said paragraph in which case such sale shall be
conducted at arm’s length and on a commercially reasonable basis), in which event Lessee’s
obligation to pay Basic Rent and Supplemental Rent (other than any Supplemental Rent owed
with respect to Lessee’s indemnification obligations under Section 7.1 or 7.2 of the
Participation Agreement, except for claims in respect of such Unit attributable to acts or
events occurring after the delivery of such Unit to the purchaser thereof) with respect to
such Unit hereunder due for any periods subsequent to the date of such sale shall terminate;




     (d) hold, keep idle or lease to others any Unit as Lessor in its sole discretion may
determine, free and clear of any rights of Lessee and without any duty to account to Lessee
with respect to such action or inaction or for any proceeds with respect thereto, except
that Lessee’s obligation to pay Basic Rent and Supplemental Rent (other than any
Supplemental Rent owed with respect to Lessee’s indemnification obligations under Section
7.1 or 7.2 of the Participation Agreement, except for claims in respect of such Unit
attributable to acts or events occurring after the return of such Unit to Lessor in
accordance with the terms hereof) with respect to such Unit due for any periods subsequent
to the date upon which Lessee shall have been deprived of possession and use of such Unit
pursuant to this Section 15 and prior to the Determination Date specified in paragraph (e)
or (g) below shall be reduced by the net proceeds, if any, received by Lessor from leasing
such Unit to any Person other than Lessee;




     (e) whether or not Lessor shall have exercised, or shall thereafter at any time
exercise, any of its rights under paragraph (a), (b) or (c) above with respect to any Unit,
Lessor, by written notice to Lessee specifying a payment date (which date shall be a
Determination Date for the purposes of computing Stipulated Loss Value) which shall be not
earlier than 30 days after the date of such notice, may demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent for such Unit
due on or after the Determination Date), (x) any unpaid Basic Rent due prior to the
Determination Date so specified, plus (y) whichever of the amounts referred to in
subparagraphs (i) and (ii) below as Lessor, in its sole discretion, shall specify in such
notice, plus (iii) all other Supplemental Rent due as of the date of payment, including
interest, to the extent permitted by applicable law, at the Late Rate on such amounts from



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the date due (and in the case of the amount referred to in subparagraphs (i) and (ii) below,
such Determination Date) to the date of actual payment:




     (i) an amount with respect to each Unit which represents the excess of the
present value, at the time of such payment date, of all rentals for such Unit which
would otherwise have accrued hereunder from such payment date for the remainder of
the Basic Term or any Renewal Term then in effect over the then present value of the
then Fair Market Rental Value of such Unit (taking into account its actual
condition) for such period computed by discounting from the end of such Term to such
payment date rentals which Lessor reasonably estimates to be obtainable for the use
of such Unit during such period, such present value to be computed in each case on a
basis of a rate per annum equal to the Debt Rate, compounded semiannually from the
respective dates upon which rentals should have been payable hereunder had this
Lease not been terminated; or




     (ii) an amount equal to the excess, if any, of the Stipulated Loss Value for
such Unit computed as of the payment date specified in such notice over the Fair
Market Sales Value of such Unit (taking into account its actual condition) as of the
payment date specified in such notice;




     (f) so long as any Unit has not been sold pursuant to paragraph (c) above, by notice to
Lessee, require Lessee to pay to Lessor on demand on any Determination Date, and Lessee
hereby agrees that it will so pay Lessor, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of Basic Rent due on or after such Determination Date) (i) any
unpaid Basic Rent due prior to the Determination Date so specified, plus (ii) an amount
equal to the Stipulated Loss Value for such Unit computed as of such Determination Date,
plus (iii) all other Supplemental Rent due as of the date of payment, including interest, to
the extent permitted by applicable law, at the Late Rate on such amounts from the date due
(and in the case of the amount referred to in clause (ii), such Determination Date) to the
date of actual payment; and upon such payment of liquidated damages, Lessor shall transfer,
or cause to be transferred, to Lessee, at Lessee’s cost and expense, on an “as-is, where-is”
basis and without recourse or warranty (except as to the absence of Lessor’s Liens), the
rights and interests of Lessor in and to the Equipment and the Lease, and Lessor and Owner
Participant, at Lessee’s cost and expense, shall execute and deliver such documents
evidencing such transfer and take such further action as may be required to effect such
transfer; and




     (g) if Lessor shall have sold any Unit pursuant to paragraph (c) above, Lessor, in lieu
of exercising its rights under paragraph (e) above with respect to such Unit may, if it
shall so elect, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due on
or after the date of such sale) (i) any unpaid Basic Rent due prior to the date of such
sale, plus (ii) the amount, if any, by which the Stipulated Loss Value of such Unit computed
as of the Determination Date immediately preceding the date of
such sale or, if such sale
occurs on a Determination Date, then computed as of such Determination Date, exceeds the net
proceeds of such sale, plus (iii) all other Supplemental Rent due as of the date of



- 21 -









 







payment,
including interest, to the extent permitted by applicable law, at the Late Rate on such
amounts from the date due (and in the case of the amount referred to in clause (ii), such
Determination Date) to the date of actual payment.



          In addition, Lessee shall be liable, except as otherwise provided above, for any and all
unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for
legal fees and other costs and expenses incurred by reason of the occurrence of any Event of
Default or the exercise of Lessor’s remedies with respect thereto, including without limitation the
repayment in full of any costs and expenses necessary to be expended in repairing any Unit in order
to cause it to be in compliance with all maintenance and regulatory standards imposed by this
Lease.




     Section 15.2. Cumulative Remedies. The remedies in this Lease provided in favor of Lessor
shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other
remedies in its favor existing at law or in equity.



     Section 15.3. No Waiver. No delay or omission to exercise any right, power or remedy accruing
to Lessor upon any breach or default by Lessee under this Lease shall impair any such right, power
or remedy of Lessor, nor shall any such
delay or omission be construed as a waiver of any breach or default, or of any similar breach or
default hereafter occurring; nor shall any waiver of a single breach or default be deemed a waiver
of any subsequent breach or default.



     Section 15.4. Lessee’s Duty to Return Equipment Upon Default. If Lessor or any assignee of
Lessor shall terminate this Lease pursuant to this Section 15 and shall have provided to Lessee the
written demand specified in Section 15.1(b), Lessee shall forthwith deliver possession of such
Units to Lessor. For the purpose of delivering possession of any Unit to Lessor as above required,
Lessee shall at its own cost, expense and risk:




     (i) forthwith place such Equipment upon such storage tracks of Lessee or, at the
expense of Lessee, on any other storage tracks, as Lessee may select;




     (ii) permit Lessor to store such Equipment on such tracks without charge for insurance,
rent or storage until the earlier of (x) six months after such demand for storage and (y)
the date such Equipment is sold, leased or otherwise disposed of by Lessor and during such
period of storage Lessee shall continue to maintain all insurance required by Section 12
hereof; and




     (iii) transport the Equipment to any point of interchange on Lessee’s lines in the 48
contiguous United States with a railroad, when directed by Lessor.


All Equipment returned shall be in the condition required by Section 6.2 hereof.




     Section 15.5. Specific Performance; Lessor Appointed Lessee’s Agent. The assembling,
delivery, storage and transporting of the Equipment as provided in Section 15.4 are of the essence
of this Lease, and upon application to any court of equity having jurisdiction in the premises,
Lessor shall be entitled to a decree against Lessee requiring specific performance of



- 22 -









 







the covenants
of Lessee so to assemble, deliver, store and transport the Equipment. Without in any way limiting
the obligation of Lessee under the provisions of Section 15.4, Lessee hereby irrevocably appoints
Lessor as the agent and attorney of Lessee, with full power and authority, at any time while Lessee
is obligated to deliver possession of any Units to Lessor pursuant to this Section 15, to demand
and take possession of such Unit in the name and on behalf of Lessee from whosoever shall be at the
time in possession of such Unit.



Section 16. Filings; Further Assurances.




     Section 16.1. Filings. On or prior to the Closing Date for each Unit, Lessee will (i) cause
this Lease, the Lease Supplement dated the Closing Date, the Indenture and the Indenture Supplement
dated the Closing Date, or appropriate evidence thereof, to be duly filed and recorded with the STB
in accordance with 49 U.S.C. § 11301, (ii) cause this Lease, the Lease Supplement dated the Closing
Date, the Indenture and the Indenture Supplement dated the Closing Date, or appropriate evidence
thereof, to be deposited
with the Registrar General of Canada pursuant to Section 105 of the Canada Transportation Act and
cause notice of such deposit to be forthwith given in The Canada Gazette in accordance with said
Section 105, and (iii) cause or permit such other filings and notices to be filed or made as
necessary or appropriate to perfect the right, title and interest of Indenture Trustee in the
Indenture Estate and to protect the interests of Owner Participant, and will furnish Lessor and
Indenture Trustee proof thereof.



     Section 16.2. Further Assurances. Lessee will duly execute and deliver to Lessor such further
documents and assurances and take such further action as Lessor may from time to time reasonably
request in order to effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created in favor of Lessor hereunder, including, without
limitation, if requested by Lessor, the execution and delivery of supplements or amendments hereto,
in recordable form, subjecting to this Lease any Replacement Unit and the recording or filing of
counterparts hereof or thereof in accordance with the laws of such jurisdiction as Lessor may from
time to time deem advisable; provided that this sentence is not intended to impose upon Lessee any
additional liabilities not otherwise contemplated by this Lease.



     Section 16.3. Expenses. Except as provided in Section 2.5 of the Participation Agreement,
Lessee will pay all costs, charges and expenses (including reasonable attorneys’ fees) incident to
any such filing, refiling, recording and rerecording or depositing and redepositing of any such
instruments or incident to the taking of such action.



Section 17. Lessor’s Right to Perform.




          If Lessee fails to make any payment required to be made by it hereunder or fails to perform or
comply with any of its other agreements contained herein and such failure can be cured with the
payment of money, Lessor or Indenture Trustee may itself make such payment or perform or comply
with such agreement, after giving not less than five Business Days’ prior notice thereof to Lessee
(except in the event that an Indenture Event of Default resulting solely from an Event of Default
shall have occurred and be continuing, in which event Lessor or Indenture Trustee may effect such
payment, performance or compliance to the extent necessary

- 23 -









 








to cure such Indenture Event of Default
with notice given concurrently with such payment, performance or compliance) in a reasonable
manner, but shall not be obligated hereunder to do so, and the amount of such payment and of the
reasonable expenses of Lessor or Indenture Trustee, as the case may be, incurred in connection with
such payment or the performance of or compliance with such agreement, as the case may be, together
with interest thereon at the Late Rate, to the extent permitted by applicable law, shall be deemed
to be Supplemental Rent, payable by Lessee to Lessor or Indenture Trustee, as the case may be, on
demand.




Section 18. Assignment.




     Section 18.1. Assignment by Lessor. Lessee and Lessor hereby confirm that concurrently with
the execution and delivery of this
Lease, Lessor has executed and delivered to Indenture Trustee the Indenture, which assigns as
collateral security and grants a security interest to Indenture Trustee in, to and under this Lease
and certain of the Rent payable hereunder, all as more explicitly set forth in the Granting Clause
of the Indenture. Lessor agrees that it shall not otherwise assign or convey its right, title and
interest in and to this Lease, the Equipment or any Unit, except as expressly permitted by and
subject to the provisions of this Lease, the Participation Agreement, the Trust Agreement and the
Indenture.



     Section 18.2. Assignment by Lessee. Except as otherwise provided in Section 8.3 or in the
case of any requisition for use by an agency or instrumentality of the United States government
referred to in Section 11.1, Lessee will not, without the prior written consent of Lessor, assign
any of its rights hereunder, except as provided in Section 6.8 of the Participation Agreement.



     Section 18.3. Sublessee’s Performance and Rights. Any obligation imposed on Lessee in this
Lease shall require only that Lessee perform or cause to be performed such obligation, even if
stated herein as a direct obligation, and the performance of any such obligation by any permitted
assignee, sublessee or transferee under an assignment, sublease or transfer agreement then in
effect and permitted by the terms of this Lease shall constitute performance by Lessee and
discharge such obligation by Lessee. Except as otherwise expressly provided herein, any right
granted to Lessee in this Lease shall grant Lessee the right to exercise such right or permit such
right to be exercised by any such assignee, sublessee or transferee, provided that Lessee’s renewal
option set forth in Section 22.2 may be exercised only by Lessee itself or by any assignee or
transferee of, or successor to, Lessee in a transaction permitted by Section 6.8 of the
Participation Agreement. The inclusion of specific references to obligations or rights of any such
assignee, sublessee or transferee in certain provisions of this Lease shall not in any way prevent
or diminish the application of the provisions of the two sentences immediately preceding with
respect to obligations or rights in respect of which specific reference to any such assignee,
sublessee or transferee has not been made in this Lease.



Section 19. Net Lease, etc.




          This Lease is a net lease and Lessee’s obligation to pay all Rent payable hereunder shall be
absolute and unconditional under any and all circumstances of any character including, without
limitation, any abatement of Rent or setoff against Rent; nor, except as otherwise

- 24 -









 








expressly
provided herein, shall this Lease terminate, or the respective obligations of Lessor or Lessee be
otherwise affected, by reason of any defect in, damage to or loss or destruction of, or
requisitioning of, any Unit, by condemnation or otherwise, the prohibition of Lessee’s use of any
Unit, the interference with such use by any Person or the lack of right, power or authority of
Lessor or any other Person to enter into this Lease or any other Operative Agreement, or for any
other cause, whether similar or dissimilar to the foregoing, any present or future law to the
contrary notwithstanding, it being the intention of the parties hereto that the Rent payable by
Lessee hereunder shall continue to be payable in all events unless the obligation to pay the same
shall be terminated in accordance with the terms of this Lease. To the extent permitted by
applicable law, Lessee hereby waives any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease with respect to any Unit, except in accordance with the express terms
hereof. If for any reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise, except as specifically provided herein, Lessee nonetheless agrees to
the maximum extent permitted by law, to pay to Lessor or to Indenture Trustee, as the case may be,
an amount equal to each installment of Basic Rent and all Supplemental Rent due and owing, at the
time such payment would have become due and payable in accordance with the terms hereof had this
Lease not been terminated in whole or in part. Nothing contained herein shall be construed to
waive any claim which Lessee might have under any of the Operative Agreements or otherwise or to
limit the right of Lessee to make any claim it might have against Lessor or any other Person or to
pursue such claim in such manner as Lessee shall deem appropriate.




Section 20. 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 the case of notice by such a
telecommunications device, upon transmission thereof, provided such transmission is promptly
confirmed in writing by either of the methods set forth in clauses (a) and (b) above, in each case
addressed to the following Person at its respective address set forth below or at such other
address as such Person may from time to time designate by written notice to the other Persons
listed below:




	 	 	 
	If to Lessor:

	 	KCSR Trust 2006-1
	 

	 	c/o 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






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	With copies to:

	 	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 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
	 
	 	 
	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






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Section 21. Concerning Indenture Trustee.




     Section 21.1. Limitation of Indenture Trustee’s Liabilities. Notwithstanding any provision
herein or in any of the other Operative Agreements to the contrary, 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, including, but not limited to, Article VI thereof.



     Section 21.2. Right, Title and Interest of Indenture Trustee under Lease. It is understood
and agreed that the right, title and interest of Indenture Trustee in, to and under this Lease and
the Rent due and to become due hereunder shall by the express terms granting and conveying the same
be subject to the interest of Lessee in and to the Equipment.



Section 22. Termination Upon Purchase by Lessee; Options to Renew.




     Section 22.1. Termination upon Purchase by Lessee. If Lessee shall have exercised its option
to purchase any Unit pursuant to Section 23 and shall not have elected to purchase Owner
Participant’s Beneficial Interest pursuant to Section 23(c), upon payment by Lessee of the purchase
price with respect to such Unit as provided in Section 23, and upon payment by Lessee of all Rent
then due and payable under this Lease with respect to such Unit, the Lease Term shall end with
respect to such Unit and the obligations of Lessee to pay Rent hereunder with respect to such Unit
(except for Supplemental Rent obligations surviving pursuant to the Participation Agreement or the
Tax Indemnity Agreement or which have otherwise accrued but not been paid as of the date of such
payment) shall cease.



     Section 22.2. Renewal Option at Expiration of Basic Term. (a) So long as no Specified Default
or Event of Default shall have occurred and be continuing and subject to Section 22.1, Lessee shall
have the right, upon not less than 90 days’ prior notice to Lessor prior to the end of the Basic
Term for any Type of Equipment for which a renewal option is being elected hereunder, to renew this
Lease with respect to, at the sole discretion of Lessee, either all of the Units or a Minimum
Number of any or each Type of Equipment, for one Renewal Term of (i) either one year or five years,
in the sole discretion of Lessee, in the case of Type A Equipment, and (ii) either one year or
three years, in the sole discretion of Lessee, in the case of Type B Equipment (the “Fixed Rate
Renewal Term”), commencing on the Renewal Term Commencement Date for such Units. All of the
provisions of this Lease, other than Section 10, shall be applicable during any such Fixed Rate
Renewal Term for such Units, except that the Stipulated Loss Values for such Units shall be
determined in accordance with Section 22.5 hereof, and Basic Rent for such Units shall be payable
in semi-annual installments in arrears and shall be equal to the lesser of Fair Market Rental Value
for such Units and the amount for such Type of Equipment set forth in Schedule 7 to Lease
Supplement No. 1.



     (b) So long as no Specified Default or Event of Default shall have occurred and be continuing,
Lessee shall have the right, upon not less than 90 days’ prior notice to Lessor at the end of the
Basic Term, the Fixed Rate Renewal Term or any Fair Market Renewal Term with



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respect to any Type of
Equipment for which a renewal option is being elected hereunder, as the case may be, pursuant to
this Section, to renew this Lease with respect to, at the sole discretion of Lessee, either all of
the Units or a Minimum Number of any or each Type of Equipment for one or more successive Renewal
Terms of not less than one year each (each a “Fair Market Renewal Term”), commencing at the end of
the Fixed Rate Renewal Term or the end of any Fair Market
Renewal Term for such Type of Equipment, as the case may be; provided that with respect to Units of
any Type of Equipment, the aggregate duration of the Fair Market Renewal Terms for such Units, when
added to the duration of the Basic Term, the prior Fixed Rate Renewal Term and all prior Fair
Market Renewal Terms for such Units, shall not in any event exceed either (i) 80% of the estimated
useful life of such Units, or (ii) the point at which such Units are estimated to have a Fair
Market Sales Value of 20% of the original Equipment Cost of such Units (without giving effect to
inflation or deflation since the Delivery Date for such Units), in each case as determined by
appraisal (in accordance with the procedures set forth in the definition of “Fair Market Sales
Value”), completed at a point prior to the end of the Basic Term, the Fixed Rate Renewal Term or
the current Fair Market Renewal Term, as the case may be, selected by Lessee. Basic Rent for any
such Renewal Term shall be equal to the then Fair Market Rental Value for such Units and shall be
payable in semiannual installments in arrears. All other provisions of this Lease, other than
Section 10, shall be applicable during any such Renewal Term for such Units, except that the
Stipulated Loss Values for such Units shall be determined in accordance with Section 22.5.



     Section 22.3. [Reserved].



     Section 22.4. Determination of Fair Market Rental Value. Lessee may notify Lessor that Lessee
desires a determination of the Fair Market Rental Value of such Units for a Renewal Term commencing
upon the Renewal Term Commencement Date. Lessee’s request for a determination of Fair Market
Rental Value shall not obligate Lessee to exercise any of the options provided in Section 22.2.



     Section 22.5. Stipulated Loss Value During Renewal Term. During any Renewal Term, the
Stipulated Loss Value of any Unit shall be determined by amortizing the Fair Market Sales Value of
such Unit as of the first day of such Renewal Term down to the Fair Market Sales Value of such Unit
as of the last day of such Renewal Term at the implicit interest rate imputed when discounting on a
semiannual basis the renewal rents and the Fair Market Sales Value as of the last day of such
Renewal Term back to the Fair Market Sales Value as of the first day of such Renewal Term.



     Section 23. Lessee’s Options to Purchase Equipment; Purchase of Beneficial
Interest.



          (a) So long as no Specified Default or Event of Default shall have occurred and be continuing,
Lessee shall have the option:





     (i) upon not less than 120 days’ prior irrevocable notice to Lessor to purchase on the
Basic Term Expiration Date or the Business Day next following the expiration of any Renewal
Term then in effect for any Type of Equipment for which a purchase option



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is being elected
hereunder, at the sole discretion of Lessee, either all or a Minimum
Number of Units of any or each Type of Equipment at a price equal to the Fair Market Sales
Value for such Units;




     (ii) upon not less than 90 days’ prior irrevocable notice to Lessor to purchase on the
EBO Fixed Purchase Price Date for any Type of Equipment for which a purchase option is being
elected hereunder, at the sole discretion of Lessee, either all of the Units of Equipment or
a Minimum Number of Units of any or each Type of Equipment at a price equal to the EBO Fixed
Purchase Price for such Type of Equipment (as such EBO Fixed Purchase Price may be adjusted
from time to time pursuant to and in accordance with Section 2.6 of the Participation
Agreement); and




     (iii) upon not less than 90 days’ prior irrevocable notice to Lessor to purchase, at
any time, any Unit of Equipment if Lessee determines and provides to Owner Trustee and Owner
Participant a certificate executed by the Chief Financial Officer of Lessee to the effect
that the cost of any improvements thereto required by Section 8.1(iv) would exceed 20% of
the Fair Market Sales Value of such Unit as of such date, at a price equal to the Stipulated
Loss Value as of such date for such Unit.



          Not less than 180 days prior to the expiration of the Basic Term or any Renewal Term, as
applicable, Lessee agrees to provide Lessor with a good faith, non-binding indication of its
current intention with respect to whether it will exercise the option set forth in clause (a)(i)
above.




          (b) If Lessee shall have exercised its option to purchase any Unit pursuant to Sections
23(a)(i) or 23(a)(iii) and shall have requested a determination of Fair Market Sales Value at least
120 days prior to the date of such purchase, Owner Trustee and Lessee shall comply in a timely
manner with their respective obligations set forth in the definition of “Fair Market Sales Value.”
If Lessee shall have exercised its option to purchase any Unit hereunder, and so long as Lessee has
not exercised its option to purchase the Beneficial Interest pursuant to Section 23(c) below, on
the date of such purchase (x) Owner Trustee shall, subject to the payment in full of all amounts
referred to in clauses (y) and (z) below, assign, transfer and convey to Lessee all right, title
and interest of Owner Trustee in and to each Unit being purchased on such date on an “as is, where
is” basis, without recourse or warranty except as to Lessor’s Liens attributable to Owner Trustee
or Owner Participant other than Permitted Liens, (y) Lessee shall pay, by 12:00 noon (New York City
time) on such date by wire transfer in immediately available funds, to Owner Trustee the Fair
Market Sales Value or the EBO Fixed Purchase Price, as the case may be, with respect to the Units
purchased on such date plus any sales, use or other similar taxes imposed on such purchase or
transfer, and (z) Lessee shall pay pursuant to Section 22.1 (i) all Basic Rent due and payable on
or prior to such date of purchase plus all other Supplemental Rent due and payable as of such date
of purchase, including, in respect of any Positive Make-Whole Amount with respect to any Equipment
Note due and payable on such date of purchase.




          (c) If Lessee shall have exercised its option pursuant to Section 23(a)(ii) or 23(a)(iii)
above and shall have elected to purchase all but not less than all of the Units, Lessee shall have
the option to purchase the Beneficial Interest from Owner Participant and shall assume all of the

- 29 -









 








rights and obligations of Owner Participant under each of the Operative Agreements to which Owner
Participant is a party (other than any obligations or liabilities of Owner Participant incurred
on or prior to the applicable purchase date, which obligations and liabilities shall remain the
sole responsibility of Owner Participant); provided, however, Lessee shall not entitled to exercise
such option unless Indenture Trustee and Loan Participant shall have received an opinion of counsel
stating that Indenture Trustee and Loan Participant shall be entitled to the benefits of Section
1168 of the Bankruptcy Code (or any successor provision) to the same extent as immediately prior to
Lessee’s exercise of this option and the bankruptcy or insolvency of Lessee or Owner Participant
shall not preclude Indenture Trustee, as assignor of Lessor, from exercising Lessor’s rights under
the Lease, such opinion to be reasonably satisfactory to Indenture Trustee and Loan Participant.
On the applicable purchase date (x) Lessee shall pay any unpaid Basic Rent due and payable on or
prior to such date of purchase and any other Rent then due and payable and such amounts shall be
distributed as provided in the Indenture and the Trust Agreement and (y) Lessee shall pay to Owner
Participant, in immediately available funds, an amount equal to the excess of the applicable
purchase price over an amount equal to the sum of the principal of, and any accrued and unpaid
interest on, the outstanding Equipment Notes on such date after taking into account any payments of
principal or interest made in respect of the outstanding Equipment Notes on such date plus any
sales, use or other similar taxes imposed on such purchase or transfer, and upon payment and (in
the case of clause (x) above) distribution of the amounts set forth in clauses (x) and (y) above,
Owner Participant will assign, transfer and convey to Lessee, without recourse or warranty except
as to Lessor’s Liens attributable to Owner Trustee or Owner Participant other than Permitted Liens,
all of Owner Participant’s right, title and interest in and to the Beneficial Interest. If Lessee
shall have exercised the option to purchase the Beneficial Interest from Owner Participant as
described above, Owner Participant shall receive on the applicable purchase date a release in form
and substance satisfactory to it, from all liabilities under the Operative Agreements (other than
those liabilities set forth in the first sentence of this Section 23(c)).




          (d) In the event that Lessee shall exercise its option set forth in Section 23(a)(ii), Lessee
may, at its option, either (i) pay the entire purchase price for such Units on the purchase date
therefor or (ii) with respect to any Type of Equipment pay the purchase price for such Units in
installments, each such installment to be payable on each date set forth on Schedule 8 to Lease
Supplement No. 1 and in an amount equal to the product of the percentage set forth in column [4] of
Schedule 8 to Lease Supplement No. 1 with respect to the applicable Type of Equipment and the
Equipment Cost for such Units, provided, however, that such amount payable on the first such date
for each relevant Type of Equipment shall be not less than the amount of principal on the Series of
Equipment Notes corresponding to such Type of Equipment subject to prepayment on such date pursuant
to Section 2.10(c) of the Indenture. Lessee shall elect its payment option in the applicable
notice given pursuant to Section 23(a)(ii); provided, however, that if at the time of the exercise
of Lessee’s option pursuant to Section 23(a)(ii) the senior unsecured obligations of Lessee shall
not be rated at least investment grade by Standard & Poor’s Ratings Services or Moody’s Investors
Service, Inc. or a comparable rating by another credit rating agency of recognized national
standing, Lessee shall not be entitled to elect the option specified in clause (ii) above unless
(x) as a condition to such purchase, Lessee shall secure its obligation to pay the purchase price
installments by granting to Lessor a perfected security interest in the applicable Units, pursuant
to documentation reasonably satisfactory to Lessor and the Owner


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Participant and, and (y) upon
satisfaction of such condition, Lessor shall transfer all its right, title and interest in and to
such Units to Lessee on the EBO Fixed Purchase Price Date, in accordance with and subject to the
other conditions specified in this Section 23 (except that payment of the installment
of the purchase price payable on the EBO Fixed Purchase Price Date shall be required in lieu of
payment of the full purchase price). All reasonable costs and expenses of Lessor and the Owner
Participant incurred in connection with Lessee’s election of the option specified in clause (ii)
above shall be paid by Lessee.




Section 24. Limitation of Lessor’s Liability.




     It is expressly agreed and understood that all representations, warranties and undertakings of
Lessor hereunder (except as expressly provided herein) shall be binding upon Lessor only in its
capacity as Owner Trustee under the Trust Agreement and in no case shall Wilmington Trust Company
be personally liable for or on account of any statements, representations, warranties, covenants or
obligations stated to be those of Lessor hereunder, except that Lessor (or any successor Owner
Trustee) shall be personally liable for its gross negligence or willful misconduct or for its
breach of its covenants, representations and warranties contained herein to the extent covenanted
or made in its individual capacity.



Section 25. Filing in Mexico.




     In the event that during the Lease Term (A) a central filing system becomes available in
Mexico for the filing or recording of security interests or ownership rights in railroad rolling
stock, (B) 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 and (C) Lessee
has not previously taken such action in accordance with the requirements of Section 16.1 hereof,
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 this Lease, the Indenture or any supplements hereto or thereto (or
appropriate evidence thereof) and any financing statements or other instruments as may be necessary
or reasonably required to maintain, so long as the Indenture or this 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 this Lease and the ownership interest of Lessor in each Unit to the
extent such protection is available pursuant to such filing or recording in Mexico.



Section 26. Miscellaneous.




     Section 26.1. Governing Law; Severability. This Lease and any extensions, amendments,
modifications, renewals or supplements hereto shall be governed by and construed in accordance with
the internal laws and decisions (as opposed to conflicts of law provisions) of the State of New
York; provided, however, that the parties shall be entitled to all rights conferred by any
applicable Federal statute, rule or regulation. Whenever possible, each provision of this Lease
shall be interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Lease shall be prohibited by or invalid under the laws of any jurisdiction, such



- 31 -









 







provision, as to such jurisdiction, shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions of
this Lease in any other jurisdiction.



     Section 26.2. Execution in Counterparts. This Lease may be executed in any number of
counterparts, each executed counterpart constituting an original and in each case such counterparts
shall constitute but one and the same instrument; provided, however, that to the extent that this
Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code) no
security interest in this Lease may be created through the transfer or possession of any
counterpart hereof other than the counterpart bearing the receipt therefor executed by Indenture
Trustee on the signature page hereof, which counterpart shall constitute the only “original” hereof
for purposes of the Uniform Commercial Code.



     Section 26.3. Headings and Table of Contents; Section References. The headings of the
sections of this Lease 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. All
references herein to numbered sections, unless otherwise indicated, are to sections of this Lease.



     Section 26.4. Successors and Assigns. This Lease shall be binding upon and shall inure to the
benefit of, and shall be enforceable by, the parties hereto and their respective permitted
successors and assigns.



     Section 26.5. True Lease. It is the intent of the parties to this Lease that it be, and this
Lease shall be, a single and indivisible true lease of the Equipment for all purposes, including,
without limitation, for Federal income tax purposes. Lessor shall at all times be the owner of
each Unit which is the subject of this Lease for all purposes, this Lease conveying to Lessee no
right, title or interest in any Unit except as lessee. Nothing contained in this Section 26.5
shall be construed to limit Lessee’s use or operation of any Unit or constitute a representation,
warranty or covenant by Lessee as to tax consequences.



     Section 26.6. Amendments and Waivers. No term, covenant, agreement or condition of this Lease
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; provided, however, that any breach or default, once waived in
writing, unless otherwise specified in such waiver, shall not be deemed continuing for any purpose
of the Operative Agreements.



     Section 26.7. 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 Lease, 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 Closing Date regardless of any investigation made by any such party or on behalf of any such
party.



- 32 -









 





     Section 26.8. Business Days. If any payment is to be made hereunder or any action is to be
taken hereunder on any date that is not a Business Day, such payment or action otherwise required
to be made or taken on such date shall be made or taken on the immediately succeeding Business Day
with the same force and effect as if
made or taken on such scheduled date and as to any payment (provided any 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 26.9. Directly or Indirectly. Where any provision in this Lease 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.



     Section 26.10. Incorporation by Reference. The payment obligations set forth in the Tax
Indemnity Agreement and Sections 7.1 and 7.2 of the Participation Agreement are hereby incorporated
by reference.



     Section 26.11. Entitlement to §1168 Benefits. It is the intent of the parties that Lessor (and
Indenture Trustee as assignee of Lessor under the Indenture) shall be entitled to the benefits of
Section 1168 of the Bankruptcy Code with respect to the right to repossess any Unit and to enforce
any of its other rights or remedies as provided herein, and in any circumstances where more than
one construction of the terms and conditions of this Lease is possible, a construction which would
preserve such benefits shall control over any construction which would not preserve such benefits
or would render them doubtful. To the extent consistent with the provisions of Section 1168 of the
Bankruptcy Code or any analogous section of the Bankruptcy Code or other applicable law, it is
hereby expressly agreed and provided that, notwithstanding any other provision of the Bankruptcy
Code, any right of Lessor to take possession of any Unit and to enforce any of its other rights or
remedies in compliance with the provisions of this Lease shall not be affected by the provisions of
Section 362 or 363 of the Bankruptcy Code or any analogous provision of any superseding statute or
any power of a bankruptcy court to enjoin such undertaking or possession.



     Section 26.12. Waiver of Jury Trial. The parties hereto voluntarily and intentionally
waive any rights they may have to a trial by jury in respect of any litigation based hereon, or
arising out of, under, or in connection with this Lease or any other Operative Agreement, or any
course of conduct, course of dealing, statements (whether verbal or written) or actions of any of
the parties hereto and thereto. The parties hereto hereby agree that they will not seek to
consolidate any such litigation with any other litigation in which a jury trial has not or cannot
be waived.



- 33 -









 





     In Witness Whereof, Lessor and Lessee have caused this Lease to be duly executed and
delivered on the day and year first above written.



	 	 	 	 	 
	 	 	Lessor:
	 
	 	 	 	 
	 	 	KCSR Trust 2006-1, acting through
	 	 	Wilmington Trust company, not in
	 	 	its individual capacity, but solely as Owner Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ J. Christopher Murphey
	 

	 	 	 	 
	 

	 	 	 	Name: J. Christopher Murphey
	 

	 	 	 	Title: Financial Services Officer
	 
	 	 	 	 
	 	 	Lessee:
	 
	 	 	 	 
	 	 	The Kansas City Southern Railway Company
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Paul J. Weyandt
	 

	 	 	 	 
	 

	 	 	 	Name: Paul J. Weyandt
	 

	 	 	 	Title: Senior Vice President-Finance & Treasurer






Receipt of the original counterpart

of the foregoing Lease is hereby

acknowledged this ___day of August,

2006.




Wells Fargo Bank Northwest, National

    Association, as Indenture Trustee




	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 







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