EX-10.51






Exhibit 10.51




EMPLOYMENT AGREEMENT




     THIS AGREEMENT, made and entered into as of the 1st day of April, 2003, by and
between The Kansas City Southern Railway Company, a Missouri corporation (“Railway”), Kansas City
Southern, a Delaware corporation (“KCS”) and Larry M. Lawrence, an individual (“Executive”).



     WHEREAS, Railway, KCS and Executive desire for Railway to employ Executive on the terms and
conditions set forth in this Agreement, and to provide an incentive to Executive to remain in the
employ of Railway hereafter, particularly in the event of any change in control (as herein defined)
of Railway or KCS, thereby establishing and preserving continuity of management of Railway.



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



     1. Employment. Railway hereby employs Executive as its Assistant to the CEO –
Staff Studies and Planning to serve at the pleasure of the Board of Directors of Railway (the
“Railway Board”) and to have such duties, powers and responsibilities as may be prescribed or
delegated from time to time by the President or other officer to whom Executive reports,
subject to the powers vested in the Railway Board and in the stockholder of Railway. Executive shall
faithfully perform his duties under this Agreement to the best of his ability and shall devote
substantially all of his working time and efforts to the business and affairs of Railway and
its affiliates.



     2. Compensation.



          (a) Base Compensation. Railway shall pay Executive as compensation for his
services hereunder an annual base salary at the rate approved by the KCS Compensation




 









 




Committee. Such rate shall not be increased prior to January 1, 2004 and shall not be reduced
except as agreed by the parties or except as part of a general salary reduction program imposed by
Railway for non-union employees and applicable to all officers of Railway.




     3. Benefits. During the period of his employment hereunder, Railway shall provide
Executive with coverage under such benefit plans and programs as are made generally available
to similarly situated employees of Railway, provided (a) Railway shall have no obligation with
respect to any plan or program if Executive is not eligible for coverage thereunder, and (b)
Executive acknowledges that stock options and other stock and equity participation awards are
granted in the discretion of the Board of Directors of KCS (the “KCS Board”) or the
Compensation Committee of the KCS Board and that Executive has no right to receive stock
options or other equity participation awards or any particular number or level of stock
options or other awards. In determining contributions, coverage and benefits under any disability
insurance policy and under any cash compensation-based plan provided to Executive by Railway, it shall
be assumed that the value of Executive’s annual compensation, pursuant to this Agreement, is
145% of Executive’s annual base salary. Executive acknowledges that all rights and benefits
under benefit plans and programs shall be governed by the official text of each plan or
program and not by any summary or description thereof or any provision of this Agreement (except to
the extent that this Agreement expressly modifies such benefit plans or programs) and that neither
Railway nor KCS is under any obligation to continue in effect or to fund any such plan or
program, except as provided in Paragraph 7 hereof.



     4. Termination.



          (a) Termination by Executive. Executive may terminate this Agreement and his
employment hereunder by at least thirty (30) days advance written notice to Railway, except




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that in the event of any material breach of this Agreement by Railway, Executive may terminate
this Agreement and his employment hereunder immediately upon notice to Railway.




          (b) Death or Disability. This Agreement and Executive’s employment
hereunder shall terminate automatically on the death or disability of Executive, except to the
extent employment is continued under Railway’s disability plan. For purposes of this
Agreement, Executive shall be deemed to be disabled if he qualifies for disability benefits
under Railway’s long-term disability plan.




          (c) Termination by Railway For Cause. Railway may terminate this
Agreement and Executive’s employment “for cause” immediately upon notice to Executive. For
purposes of this Agreement (except for Paragraph 7), termination “for cause” shall mean
termination based upon any one or more of the following:





          (i) Any material breach of this Agreement by Executive;




          (ii) Executive’s dishonesty involving Railway, KCS or any subsidiary of Railway or
KCS;




          (iii) Gross negligence or willful misconduct in the performance of Executive’s duties
as determined in good faith by the Railway Board;




          (iv) Willful failure by Executive to follow reasonable instructions of
the President or other officer to whom Executive reports;




          (v) Executive’s fraud or criminal activity; or




          (vi) Embezzlement or misappropriation by Executive.



          (d) Termination by Railway Other Than For Cause.





          (i) Railway may terminate this Agreement and Executive’s employment other than for
cause immediately upon notice to Executive, and in such



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     event, Railway shall provide severance benefits to Executive in accordance with Paragraph 4(d)(ii)
below.





          (ii) Unless the provisions of Paragraph 7 of this Agreement are applicable, if Executive’s
employment is terminated under Paragraph 4(d)(i), Railway shall continue, for a period of one (1)
year following such termination, (a) to pay to Executive as severance pay a monthly amount equal to
one-twelfth (1/12th) of the annual base salary referenced in Paragraph 2(a) above, at the rate in
effect immediately prior to termination, and, (b) to reimburse Executive for the cost (including
state and federal income taxes payable with respect to this reimbursement) of continuing the health
insurance coverage provided pursuant to this Agreement or obtaining health insurance coverage
comparable to the health insurance provided pursuant to this Agreement, and obtaining coverage
comparable to the life insurance provided pursuant to this Agreement, unless Executive is provided
comparable health or life insurance coverage in connection with other employment. The foregoing
obligations of Railway shall continue until the end of such one (1) year period notwithstanding the
death or disability of Executive during said period (except, in the event of death, the obligation
to reimburse Executive for the cost of life insurance shall not continue). In the year in which
termination of employment occurs, Executive shall be eligible to receive benefits under the Railway
Incentive Compensation Plan and any Executive Plan in which Executive participates (the “Executive
Plan”) (if such Plans then are in existence and Executive was entitled to participate immediately
prior to termination) in accordance with the provisions of such plans then applicable, and
severance pay received in such year shall be taken into account for the purpose of determining
benefits, if any, under the Railway Incentive Compensation Plan but not under the Executive Plan.
After the year in which



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termination occurs, Executive shall not be entitled to accrue or receive benefits under the
Railway Incentive Compensation Plan or the Executive Plan with respect to the severance
pay provided herein, notwithstanding that benefits under such plan then are still generally
available to executive employees of Railway. After termination of employment,
Executive shall not be entitled to accrue or receive benefits under any other employee
benefit plan or program, except that Executive shall be entitled to participate in the KCS
Employee Stock Ownership Plan and the KCS 401(k) and Profit Sharing Plan (if Railway
employees then still participate in such plans) in the year of termination of employment
only if Executive meets all requirements of such plans for participation in such year.



     5. Non-Disclosure. During the term of this Agreement and at all times after any
termination of this Agreement, Executive shall not, either directly or indirectly, use or disclose
any Railway trade secret, except to the extent necessary for Executive to perform his duties for
Railway while an employee. For purposes of this Agreement, the term “Railway trade secret”
shall mean any information regarding the business or activities of Railway or any subsidiary or
affiliate, including any formula, pattern, compilation, program, device, method, technique,
process, customer list, technical information or other confidential or proprietary information, that
(a) derives independent economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (b) is the subject of efforts of Railway or its subsidiary or
affiliate that are reasonable under the circumstance to maintain its secrecy. In the event of any
breach of this Paragraph 5 by Executive, Railway shall be entitled to terminate any and all
remaining severance benefits under Paragraph 4(d)(ii) and shall be entitled to pursue such other
legal and equitable remedies as may be available.



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     6. Duties Upon Termination; Survival.



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




          (b) Survival. The provisions of Paragraphs 5, 6(a) and 7 of this Agreement
shall survive any termination of this Agreement by Railway or Executive, and the provisions of
Paragraph 4(d)(ii) shall survive any termination of this Agreement by Railway under Paragraph
4(d)(i).




     7. Continuation of Employment Upon Change in Control.



          (a) Continuation of Employment. Subject to the terms and conditions of this Paragraph
7, in the event of a Change in Control (as defined in Paragraph 7(d)) at any time during the term
of this Agreement, Executive agrees to remain in the employ of Railway for a period of three years
(the “Three-Year Period”) from the date of such Change in Control (the “Control Change Date”).
Railway agrees to continue to employ Executive for the Three-Year Period. During the Three-Year
Period, (i) the Executive’s position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time during the 12 month
period immediately before the Control Change Date and (ii) the Executive’s services shall be
performed at the location where Executive was employed immediately before the Control Change Date
or at any other location less than 40 miles from such former location.




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During the Three-Year Period, Railway shall continue to pay to Executive an annual base salary on
the same basis and at the same intervals as in effect prior to the Control Change Date at a rate
not less than 12 times the highest monthly base salary paid or payable to the Executive by Railway
in respect of the 12-month period immediately before the Control Change Date.




          (b) Benefits. During the Three-Year Period, Executive shall be entitled to
participate, on the basis of his executive position, in each of the following Railway or KCS plans
(together, the “Specified Benefits”) in existence, and in accordance with the terms thereof, at
the Control Change Date:





          (i) any benefit plan, and trust fund associated therewith, related to (a) life,
health, dental, disability, accidental death and dismemberment insurance or accrued but
unpaid vacation time, (b) profit sharing, thrift or deferred savings (including deferred
compensation, such as under Sec. 401(k) plans), (c) retirement or pension benefits, (d)
ERISA excess benefits and similar plans and (e) tax favored employee stock ownership (such
as under ESOP, and Employee Stock Purchase programs); and




          (ii) any other benefit plans hereafter made generally available to
executives of Executive’s level or to the employees of Railway generally.



     In addition, Railway and KCS shall use their best efforts to cause all outstanding options
held by Executive under any stock option plan of KCS or its affiliates to become immediately
exercisable on the Control Change Date and to the extent that such options are not vested and are
subsequently forfeited, the Executive shall receive a lump-sum cash payment within 5 days after
the options are forfeited equal to the difference between the fair market value of the shares of
stock subject to the non-vested, forfeited options determined as of the date such options are
forfeited and the exercise price for such options. During the Three-Year Period Executive shall
be entitled to participate, on the basis of his executive position, in any incentive compensation



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plan of Railway or KCS in accordance with the terms thereof at the Control Change Date; provided
that if under Railway or KCS programs or Executive’s Employment Agreement in existence immediately
prior to the Control Change Date, there are written limitations on participation for a designated
time period in any incentive compensation plan, such limitations shall continue after the Control
Change Date to the extent so provided for prior to the Control Change Date.




     If the amount of contributions or benefits with respect to the Specified Benefits or any
incentive compensation is determined on a discretionary basis under the terms of the Specified
Benefits or any incentive compensation plan immediately prior to the Control Change Date, the
amount of such contributions or benefits during the Three-Year Period for each of the Specified
Benefits shall not be less than the average annual contributions or benefits for each Specified
Benefit for the three plan years ending prior to the Control Change Date and, in the case of any
incentive compensation plan, the amount of the incentive compensation during the Three-Year Period
shall not be less than 75% of the maximum that could have been paid to the Executive under the
terms of the incentive compensation plan.



          (c) Payment. With respect to any plan or agreement under which Executive
would be entitled at the Control Change Date to receive Specified Benefits or incentive
compensation as a general obligation of Railway which has not been separately funded
(including specifically, but not limited to, those referred to under Paragraph 7(b)(i)(d)
above), Executive shall receive within five (5) days after such date full payment in cash (discounted
to the then present value on the basis of a rate of seven percent (7%) per annum) of all amounts
to which he is then entitled thereunder.




          (d) Change in Control. For purposes of this Agreement, a “Change in
Control” shall be deemed to have occurred if:




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          (i) for any reason at any time less than seventy-five percent (75%) of the members of the KCS
Board shall be individuals who fall into any of the following categories: (a) individuals who were
members of the KCS Board on the date of the Agreement; or (b) individuals whose election, or
nomination for election by KCS’s stockholders, was approved by a vote of at least seventy-five
percent (75%) of the members of the KCS Board then still in office who were members of the KCS
Board on the date of the Agreement; or (c) individuals whose election, or nomination for election,
by KCS’s stockholders, was approved by a vote of at least seventy-five percent (75%) of the
members of the KCS Board then still in office who were elected in the manner described in (a) or
(b) above, or




          (ii) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the “Exchange Act”)) other than KCS shall have become after September 18,
1997, according to a public announcement or filing, the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of Railway or KCS
representing thirty percent (30%) (or, with respect to Paragraph 7(c) hereof, 40%) or more
(calculated in accordance with Rule 13d-3) of the combined voting power of Railway’s or KCS’s then
outstanding voting securities; or




          (iii) the stockholders of Railway or KCS shall have approved a merger, consolidation or
dissolution of Railway or KCS or a sale, lease, exchange or disposition of all or substantially all
of Railway’s or KCS’s assets, if persons who were the beneficial owners of the combined voting
power of Railway’s or KCS’s voting securities immediately before any such merger, consolidation,
dissolution, sale, lease, exchange or



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disposition do not immediately thereafter, beneficially own, directly or indirectly, in
substantially the same proportions, more than 60% of the combined voting power of any
corporation or other entity resulting from any such transaction.



          (e) Termination After Control Change Date. Notwithstanding any other provision of this
Paragraph 7, at any time after the Control Change Date, Railway may terminate the employment of
Executive (the “Termination”), but unless such Termination is for Cause as defined in subparagraph
(g) or for disability, within five (5) days of the Termination Railway shall pay to Executive his
full base salary through the Termination, to the extent not theretofore paid, plus a lump sum
amount (the “Special Severance Payment”) equal to the product (discounted to the then present value
on the basis of a rate of seven percent (7%) per annum) of (i) 160% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) Two; and Specified Benefits (excluding any incentive
compensation) to which Executive was entitled immediately prior to Termination shall continue until
the end of the 3-year period (“Benefits Period”) beginning on the date of Termination. If any plan
pursuant to which Specified Benefits are provided immediately prior to Termination would not permit
continued participation by Executive after Termination, then Railway shall pay to Executive within
five (5) days after Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received under such plan if Executive had been fully vested in the average
annual contributions or benefits in effect for the three plan years ending prior to the Control
Change Date (regardless of any limitations based on the earnings or performance of Railway or KCS)
and a continuing participant in such plan to the end of the Benefits Period. Following the end of
the Benefits Period, Railway shall continue to provide to the Executive and the Executive’s family
the following benefits (“Post-Period Benefits”): (1) prior to the Executive’s attainment of age
sixty (60), health, prescription and dental benefits equivalent to those then applicable to




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active peer executives of Railway) and their families, as the same may be modified from time to
time, and (2) following the Executive’s attainment of age sixty (60) (and without regard to the
Executive’s period of service with Railway) health and prescription benefits equivalent to those
then applicable to retired peer executives of Railway and their families, as the same may be
modified from time to time. The cost to the Executive of such Post-Period Benefits shall not
exceed the cost of such benefits to active or retired (as applicable) peer executives, as the same
may be modified from time to time. Notwithstanding the preceding two sentences of this Paragraph
7(e), if the Executive is covered under any health, prescription or dental plan provided by a
subsequent employer, then the corresponding type of plan coverage (i.e., health, prescription or
dental), required to be provided as Post-Period Benefits under this Paragraph 7(e) shall cease.
The Executive’s rights under this Paragraph 7(e) shall be in addition to, and not in lieu of, any
post-termination continuation coverage or conversion rights the Executive may have pursuant to
applicable law, including without limitation continuation coverage required by Section 4980 of the
Code. Nothing in this Paragraph 7(e) shall be deemed to limit in any manner the reserved right of
Railway, in its sole and absolute discretion, to at any time amend, modify or terminate health,
prescription or dental benefits for active or retired employees generally.




          (f) Resignation After Control Change Date. In the event of a Change in Control as
defined in Paragraph 7(d), thereafter, upon good reason (as defined below), Executive may, at any
time during the 3-year period following the Change in Control, in his sole discretion, on not less
than thirty (30) days’ written notice (the “Notice of Resignation”) to the Secretary of Railway and
effective at the end of such notice period, resign his employment with Railway (the “Resignation”).
Within five (5) days of such a Resignation, Railway shall pay to Executive his full base salary
through the effective date of such Resignation, to the extent not theretofore paid, plus a lump sum
amount equal to the Special Severance Payment (computed as provided in the




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first sentence of Paragraph 7(e), except that for purposes of such computation all references to
“Termination” shall be deemed to be references to “Resignation”). Upon Resignation of Executive,
Specified Benefits to which Executive was entitled immediately prior to Resignation shall continue
on the same terms and conditions as provided in Paragraph 7(e) in the case of Termination
(including equivalent payments provided for therein), and Post-Period Benefits shall be provided
on the same terms and conditions as provided in Paragraph 7(e) in the case of Termination. For
purposes of this Agreement, “good reason” means any of the following:





          (i) the assignment to the Executive of any duties inconsistent in any respect with the
Executive’s position (including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by Section 7(a)(i), or any other
action by Railway which results in a diminution or other material adverse change in such
position, authority or duties;




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




          (iii) Railway’s requiring the Executive to be based at any office or location other
than the location described in Section 7(a)(ii);




          (iv) any other material adverse change to the terms and conditions of the Executive’s
employment; or




          (v) any purported termination by Railway of the Executive’s
employment other than as expressly permitted by this Agreement (any such purported
termination shall not be effective for any other purpose under this Agreement).


A passage of time prior to delivery of the Notice of Resignation or a failure by the Executive to
include in the Notice of Resignation any fact or circumstance which contributes to a showing of




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Good Reason shall not waive any right of the Executive under this Agreement or preclude the
Executive from asserting such fact or circumstance in enforcing rights under this Agreement.




          (g) Termination for Cause After Control Change Date. Notwithstanding any other
provision of this Paragraph 7, at any time after the Control Change Date, Executive may be
terminated by Railway “for cause.” Cause means commission by the Executive of any felony or
willful breach of duty by the Executive in the course of the Executive’s employment; except that
Cause shall not mean:





          (i) bad judgment or negligence;




          (ii) any act or omission believed by the Executive in good faith to have been in or
not opposed to the interest of Railway (without intent of the Executive to gain, directly
or indirectly, a profit to which the Executive was not legally entitled);




          (iii) any act or omission with respect to which a determination could properly have
been made by the Railway Board that the Executive met the applicable standard of conduct
for indemnification or reimbursement under Railway’s by-laws, any applicable
indemnification agreement, or applicable law, in each case in effect at the time of such
act or omission; or




          (iv) any act or omission with respect to which Notice of Termination of the Executive
is given more than 12 months after the earliest date on which any member of the Railway
Board, not a party to the act or omission, knew or should have known of such act or
omission.


Any Termination of the Executive’s employment by Railway for Cause shall be communicated to the
Executive by Notice of Termination.




          (h) Gross-up for Certain Taxes. If it is determined (by the reasonable computation of
Railway’s independent auditors, which determinations shall be certified to by




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such auditors and set forth in a written certificate (“Certificate”) delivered to the Executive)
that any benefit received or deemed received by the Executive from Railway or KCS pursuant to this
Agreement or otherwise (collectively, the “Payments”) is or will become subject to any excise tax
under Section 4999 of the Code or any similar tax payable under any United States federal, state,
local or other law (such excise tax and all such similar taxes collectively, “Excise Taxes”), then
Railway shall, immediately after such determination, pay the Executive an amount (the “Gross-up
Payment”) equal to the product of:





          (i) the amount of such Excise Taxes; multiplied by




          (ii) the Gross-up Multiple (as
defined in Paragraph 7(k)). 

          The Gross-up Payment is intended to compensate the Executive for
the Excise Taxes and any federal, state, local or other income or excise taxes or other
taxes payable by the Executive with respect to the Gross-up Payment.




          Railway shall cause the preparation and delivery to the Executive of a Certificate
upon request at any time. Railway shall, in addition to complying with this Paragraph 7(h),
cause all determinations and certifications under Paragraphs 7(h)-(o) to be made as soon as
reasonably possible and in adequate time to permit the Executive to prepare and file the
Executive’s individual tax returns on a timely basis.



          (i) Determination by the
Executive.





          (i) If Railway shall fail (a) to deliver a Certificate to the Executive or (B) to pay
to the Executive the amount of the Gross-up Payment, if any, within 14 days after receipt
from the Executive of a written request for a Certificate, or if at any time following
receipt of a Certificate the Executive disputes the amount of the Gross-up Payment set forth
therein, the Executive may elect to demand the payment of the amount which the Executive, in
accordance with an opinion of counsel to the Executive



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(“Executive Counsel Opinion”), determines to be the Gross-up Payment. Any such demand by
the Executive shall be made by delivery to Railway of a written notice which specifies the
Gross-up Payment determined by the Executive and an Executive Counsel Opinion regarding
such Gross-up Payment (such written notice and opinion collectively, the “Executive’s
Determination”). Within 14 days after delivery of the Executive’s Determination to Railway,
Railway shall either (a) pay the Executive the Gross-up Payment set forth in the
Executive’s Determination (less the portion of such amount, if any, previously paid to the
Executive by Railway) or (b) deliver to the Executive a Certificate specifying the Gross-up
Payment determined by Railway’s independent auditors, together with an opinion of Railway’s
counsel (“Railway Counsel Opinion”), and pay the Executive the Gross-up Payment specified
in such Certificate. If for any reason Railway fails to comply with clause (b) of the
preceding sentence, the Gross-up Payment specified in the Executive’s Determination shall
be controlling for all purposes.




          (ii) If the Executive does not make a request for, and Railway does not deliver to the
Executive, a Certificate, Railway shall, for purposes of Paragraph 7(j), be deemed to have
determined that no Gross-up Payment is due.



          (j) Additional Gross-up Amounts. If, despite the initial conclusion of Railway and/or
the Executive that certain Payments are neither subject to Excise Taxes nor to be counted in
determining whether other Payments are subject to Excise Taxes (any such item, a “Non-Parachute
Item”), it is later determined (pursuant to subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, final IRS determination or judgment of a court of
competent jurisdiction or Railway’s independent auditors) that any of the Non-Parachute Items are
subject to Excise Taxes, or are to be counted in determining whether any Payments are subject to
Excise Taxes, with the result that the amount of Excise Taxes payable by the






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Executive is greater than the amount determined by Railway or the Executive pursuant to Paragraph
7(h) or Paragraph 7(i), as applicable, then Railway shall pay the Executive an amount (which shall
also be deemed a Gross-up Payment) equal to the product of:





          (i) the sum of (a) such additional Excise Taxes and (b) any interest, fines,
penalties, expenses or other costs incurred by the Executive as a result of having taken a
position in accordance with a determination made pursuant to Paragraph 7(h); multiplied by




          (ii) the Gross-up Multiple.



          (k) Gross-up Multiple. The Gross-up Multiple shall equal a fraction, the numerator of
which is one (1.0), and the denominator of which is one (1.0) minus the sum, expressed as a
decimal fraction, of the rates of all federal, state, local and other income and other taxes and
any Excise Taxes applicable to the Gross-up Payment; provided that, if such sum exceeds 0.8, it
shall be deemed equal to 0.8 for purposes of this computation. (If different rates of tax are
applicable to various portions of a Gross-up Payment, the weighted average of such rates shall be
used.)




          (l) Opinion of Counsel. “Executive Counsel Opinion” means a legal opinion of
nationally recognized executive compensation counsel that there is a reasonable basis to support a
conclusion that the Gross-up Payment determined by the Executive has been calculated in accord with
this Paragraph 7 and applicable law. “Company Counsel Opinion” means a legal opinion of nationally
recognized executive compensation counsel that (i) there is a reasonable basis to support a
conclusion that the Gross-up Payment set forth in the Certificate of Railway’s independent auditors
has been calculated in accord with this Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the Gross-up Payment determined by the Executive.








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          (m) Amount Increased or Contested. The Executive shall notify Railway in writing of
any claim by the IRS or other taxing authority that, if successful, would require the payment by
Railway of a Gross-up Payment. Such notice shall include the nature of such claim and the date on
which such claim is due to be paid. The Executive shall give such notice as soon as practicable,
but no later than 10 business days, after the Executive first obtains actual knowledge of such
claim; provided, however, that any failure to give or delay in giving such notice shall affect
Railway’s obligations under this Paragraph 7 only if and to the extent that such failure results
in actual prejudice to Railway. The Executive shall not pay such claim less than 30 days after the
Executive gives such notice to Railway (or, if sooner, the date on which payment of such claim is
due). If Railway notifies the Executive in writing before the expiration of such period that it
desires to contest such claim, the Executive shall:





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




          (ii) take such action in connection with contesting such claim as Railway reasonably
requests in writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by Railway;




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




          (iv) permit Railway to participate in any proceedings relating to such claim; provided, however, that Railway shall
bear and pay directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax, including related
interest and penalties, imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing,




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Railway shall control all proceedings in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner. The Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as Railway shall determine; provided, however, that if
Railway directs the Executive to pay such claim and sue for a refund, Railway shall advance
the amount of such payment to the Executive, on an interest-free basis and shall indemnify
the Executive, on an after-tax basis, for any Excise Tax or income tax, including related
interest or penalties, imposed with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. The Railway’s control of the contest shall be
limited to issues with respect to which a Gross-up Payment would be payable. The Executive
shall be entitled to settle or contest, as the case may be, any other issue raised by the
IRS or other taxing authority.



          (n) Refunds. If, after the receipt by the Executive of an amount advanced by Railway
pursuant to Paragraph 7(m), the Executive receives any refund with respect to such claim, the
Executive shall (subject to Railway’s complying with the requirements of Paragraph 7(m)) promptly
pay Railway the amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Railway
pursuant to Paragraph 7(m), a determination is made that the Executive shall not be entitled to a
full refund with respect to such claim and Railway does not






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notify the Executive in writing of its intent to contest such determination before the expiration
of 30 days after such determination, then the applicable part of such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-up Payment required to be paid. Any contest of a denial of refund
shall be controlled by Paragraph 7(m).




          (o) Expenses. If any dispute should arise under this Agreement after the Control
Change Date involving an effort by Executive to protect, enforce or secure rights or benefits
claimed by Executive hereunder, Railway shall pay (promptly upon demand by Executive accompanied
by reasonable evidence of incurrence) all reasonable expenses (including attorneys’ fees) incurred
by Executive in connection with such dispute, without regard to whether Executive prevails in such
dispute except that Executive shall repay Railway any amounts so received if a court having
jurisdiction shall make a final, nonappealable determination that Executive acted frivolously or
in bad faith by such dispute. To assure Executive that adequate funds will be made available to
discharge Railway’s obligations set forth in the preceding sentence, Railway has established a
trust and upon the occurrence of a Change in Control shall promptly deliver to the trustee of such
trust to hold in accordance with the terms and conditions thereof that sum which the Railway Board
shall have determined is reasonably sufficient for such purpose.




          (p) Prevailing Provisions. On and after the Control Change Date, the provisions of
this Paragraph 7 shall control and take precedence over any other provisions of this Agreement
which are in conflict with or address the same or a similar subject matter as the provisions of
this Paragraph 7.




     8. Mitigation and Other Employment. After a termination of
Executive’s employment pursuant to Paragraph 4(d)(i) or a Change in Control as defined in Paragraph
7(d),



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Executive shall not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, and except as otherwise specifically provided
in Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph 7(e) with respect
to health, prescription and dental benefits, no such other employment, if obtained, or
compensation or benefits payable in connection therewith shall reduce any amounts or benefits to
which Executive is entitled hereunder. Such amounts or benefits payable to Executive under this
Agreement shall not be treated as damages but as severance compensation to which Executive is
entitled because Executive’s employment has been terminated.




     9. KCS Not an Obligor. Notwithstanding that KCS has executed this Agreement, it
shall have no obligation for the payment of salary, benefits, or other compensation hereunder,
and all such obligations shall be the sole responsibility of Railway.



     10. Notice. Notices and all other communications to either party pursuant to this
Agreement shall be in writing and shall be deemed to have been given when personally
delivered, delivered by facsimile or deposited in the United States mail by certified or
registered mail, postage prepaid, addressed, in the case of Railway or KCS, to Railway or KCS at 427 West
12th Street, Kansas City, Missouri 64105, Attention: Secretary, or, in the case of the
Executive, to him at 427 West 12th Street, Kansas City, Missouri 64105, or to such other
address as a party shall designate by notice to the other party.



     11. Amendment. No provision of this Agreement may be amended, modified, waived
or discharged unless such amendment, waiver, modification or discharge is agreed to in writing
signed by Executive and the President of Railway and the President of KCS. No waiver by any
party hereto at any time of any breach by another party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party shall be deemed a



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waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent
time.




     12. Successors in Interest. The rights and obligations of Railway and KCS under this
Agreement shall inure to the benefit of and be binding in each and every respect upon the
direct and indirect successors and assigns of Railway and KCS, regardless of the manner in which such
successors or assigns shall succeed to the interest of Railway and KCS hereunder, and this
Agreement shall not be terminated by the voluntary or involuntary dissolution of Railway or
KCS or by any merger or consolidation or acquisition involving Railway or KCS, or upon any
transfer of all or substantially all of Railway’s or KCS’s assets, or terminated otherwise
than in accordance with its terms. In the event of any such merger or consolidation or transfer of
assets, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the
surviving corporation or the corporation or other person to which such assets shall be
transferred. Neither this Agreement nor any of the payments or benefits hereunder may be pledged, assigned
or transferred by Executive either in whole or in part in any manner, without the prior
written consent of Railway.



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



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



     15. Entire Agreement. This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and terminates and supersedes all other
prior



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agreements and understandings both written and oral, between the parties with respect to the terms
of Executive’s employment or severance arrangements.




     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 1st
day of April, 2003.



	 	 	 	 	 
	 	THE KANSAS CITY SOUTHERN RAILWAY COMPANY

 	 
	 	By 	/s/ Michael R. Haverty
 	 
	 	 	Michael R. Haverty, Chairman, President & CEO 
	 	 	 
	 
	 	KANSAS CITY SOUTHERN

 	 
	 	By 	/s/ Michael R. Haverty
 	 
	 	 	Michael  R. Haverty, Chairman, President & CEO
	 
	 	EXECUTIVE

 	 
	 	/s/ Larry M. Lawrence
 	 
	 	 	Larry M. Lawrence 
	 	 	 
	 




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