Document:

exv10w19w1

 

EXHIBIT 10.19.1

EXECUTION COPY

SECURITY AGREEMENT

Dated March 30, 2004

from

The Grantors referred to herein

as Grantors

to

THE BANK OF NOVA SCOTIA

as Collateral Agent

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	Section	 	 	 	Page	 
	Section 1.
	 	Grant of Security	 	 	2	 
	Section 2.
	 	Security for Obligations	 	 	6	 
	Section 3.
	 	Grantors Remain Liable	 	 	6	 
	Section 4.
	 	Delivery and Control of Security Collateral	 	 	7	 
	Section 5.
	 	Maintaining the Account Collateral	 	 	7	 
	Section 6.
	 	Investing of Amounts in the L/C Collateral Account	 	 	9	 
	Section 7.
	 	Release of Amounts	 	 	9	 
	Section 8.
	 	Representations and Warranties	 	 	9	 
	Section 9.
	 	Further Assurances	 	 	11	 
	Section 10.
	 	As to Equipment and Inventory	 	 	11	 
	Section 11.
	 	Insurance	 	 	12	 
	Section 12.
	 	Post-Closing Changes; Bailees; Collections on Receivables and Related Contracts	 	 	12	 
	Section 13.
	 	As to Intellectual Property Collateral	 	 	13	 
	Section 14.
	 	Voting Rights; Dividends; Etc.	 	 	13	 
	Section 15.
	 	Transfers and Other Liens; Additional Shares	 	 	15	 
	Section 16.
	 	Collateral Agent Appointed Attorney-in-Fact	 	 	15	 
	Section 17.
	 	Collateral Agent May Perform	 	 	15	 
	Section 18.
	 	The Collateral Agent's Duties	 	 	16	 
	Section 19.
	 	Remedies	 	 	16	 
	Section 20.
	 	Indemnity and Expenses	 	 	19	 
	Section 21.
	 	Amendments; Waivers; Additional Grantors; Etc.	 	 	19	 
	Section 22.
	 	Notices, Etc.	 	 	20	 
	Section 23.
	 	Continuing Security Interest; Assignments under the Credit Agreement	 	 	20	 
	Section 24.
	 	Release; Termination	 	 	20	 

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	Section	 	 	 	Page	 
	Section 25.
	 	Execution in Counterparts	 	 	21	 
	Section 26.
	 	The Mortgages	 	 	21	 
	Section 27.
	 	Governing Law	 	 	21	 

	 	 	 	 	 
	Schedules I

	 	—
	 	Location, Chief Executive Office, Place Where Agreements Are

Maintained, Type Of Organization, Jurisdiction Of Organization And

Organizational Identification Number
	Schedule II

	 	—
	 	Pledged Equity
	Schedule III

	 	—
	 	Locations of Equipment and Inventory
	Schedule IV

	 	—
	 	Changes in Name, Location, Etc.
	Schedule V

	 	—
	 	Patents, Trademarks and Trade Names, Copyrights and Intellectual Property
Agreements
	Schedule VI

	 	—
	 	Account Collateral
	Schedule VII

	 	—
	 	Account Collateral not Subject to Account Control Agreement
	Schedule VIII

	 	—
	 	Securities Accounts
	 
	 	 	 	 
	Exhibits
	 	 	 	 
	 
	 	 	 	 
	Exhibit A

	 	—
	 	Form of Security Agreement Supplement

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SECURITY AGREEMENT

     SECURITY AGREEMENT dated March 30, 2004 made by The Kansas City Southern Railway Company, a
Missouri corporation (the “Borrower”), Kansas
City Southern (the “Parent”), the other Persons
listed on the signature pages hereof and the Additional Grantors (as defined in Section 21) (the
Borrower, the Persons so listed and the Additional Grantors being,
collectively, the “Grantors”),
to The Bank of Nova Scotia, as collateral agent (in such capacity, together with any successor
collateral agent appointed pursuant to Article VII of the Credit Agreement (as hereinafter
defined), the “Collateral Agent”) for the Secured Parties (as defined in the Credit Agreement).

PRELIMINARY STATEMENTS.

     (1) The Borrower has entered into a Credit Agreement dated as of March 30,
2004 (said Agreement, as it may hereafter be amended, amended and restated, supplemented or
otherwise modified from time to time, being the “Credit Agreement”) with the Parent, the
Lender Parties, Morgan Stanley, the Arrangers and the Agents (each as defined therein).

     (2) Pursuant to the Credit Agreement, the Grantors are entering into this
Agreement in order to grant to the Collateral Agent for the ratable benefit of the Secured
Parties
a security interest in the Collateral (as hereinafter defined).

     (3) Each Grantor is the owner of the shares of stock or other Equity Interests
(the “Initial Pledged Equity”) set forth opposite such Grantor’s name on and as otherwise
described in Part I of Schedule II hereto and issued by the Persons named therein and of the
indebtedness (the “Initial Pledged Debt”) set forth opposite such Grantor’s name on and as
otherwise described in Part II of Schedule II hereto and issued by the obligors named therein.

     (4) One or more of the Grantors has security entitlements (the “Pledged
Security Entitlements”) with respect to all the financial assets (the “Pledged Financial
Assets”)
credited from time to time to the investment and securities accounts described on Schedule
VIII
hereto (together with any successor or replacement account, the
“Securities Accounts”).

     (5) Upon the
request of the Collateral Agent, the Borrower will open an 1/c
collateral deposit account (the “L/C Collateral
Account”), in the name of the Collateral Agent
and under the sole control and dominion of the Collateral Agent and subject to the terms of
this Agreement.

     (6) It is a condition precedent to the making of Advances and the issuance of
Letters of Credit by the Lender Parties under the Credit Agreement and the entry into Secured
Hedge Agreements by the Hedge Banks from time to time that the Grantors shall have granted
the assignment and security interest and made the pledge and assignment contemplated by this
Agreement.

     (7) Each Grantor will derive substantial direct and indirect benefit from the
transactions contemplated by the Loan Documents.

KCSR Security Agreement

 

 

     (8) Terms defined in the Credit Agreement and not otherwise defined in this
Agreement are used in this Agreement as defined in the Credit Agreement. Further, unless otherwise
defined in this Agreement or in the Credit Agreement, terms defined in Article 8 or 9 of the UCC
(as defined below) and/or in the Federal Book Entry Regulations (as defined below) are used in this
Agreement as such terms are defined in such Article 8 or 9 and/or the Federal Book Entry
Regulations. “UCC” means the Uniform Commercial Code as in effect, from time to time, in the State
of New York; provided that, if perfection or the effect of perfection or non-perfection or the
priority of any security interest in any Collateral is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial
Code as in effect from time to time in such other jurisdiction for purposes of the provisions
hereof relating to such perfection, effect of perfection or non-perfection or priority. The term
“Federal Book Entry Regulations” means (a) the federal regulations contained in Subpart B
(“Treasury/Reserve Automated Debt Entry System (TRADES)”) governing book-entry securities
consisting of U.S. Treasury bills, notes and bonds and Subpart D (“Additional Provisions”) of 31
C.F.R. Part 357, 31 C.F.R. § 357.2, § 357.10 through § 357.15 and § 357.40 through § 357.45 and (b)
to the extent substantially identical to the federal regulations referred to in clause (a) above
(as in effect from time to time), the federal regulations governing other book-entry securities.

     NOW, THEREFORE, in consideration of the premises and in order to induce the Lender Parties to
make Advances and issue Letters of Credit under the Credit Agreement and to induce the Hedge Banks
to enter into Secured Hedge Agreements from time to time, each Grantor hereby agrees with the
Collateral Agent for the ratable benefit of the Secured Parties as follows:

     Section 1. Grant of Security. Each Grantor hereby grants to the Collateral
Agent, for the ratable benefit of the Secured Parties, a security interest in, such Grantor’s
right, title and interest in and to the following, in each case, as to each type of property
described below, whether now owned or hereafter acquired by such Grantor, wherever located, and
whether now or hereafter existing or arising (collectively, the
“Collateral”):

     (a) all equipment in all of its forms, including, without limitation, all
gondolas, boxcars, tankers, locomotives and railcars of any type (collectively
“Rolling Stock”) (other than any Rolling Stock subject to purchase money financing as of the
date
hereof and any Rolling Stock acquired after the Effective Date that is subject to a
purchase money financing within 180 days of acquisition), all machinery, tools, motor
vehicles, vessels, aircraft, furniture and fixtures, and all parts thereof and all
accessions
thereto and all software related thereto, including, without limitation, software that
is
embedded in and is part of the equipment (any and all such property being the
“Equipment”);

     (b) all inventory in all of its forms, including, without limitation, (i) all raw
materials, work in process, finished goods and materials used or consumed in the
manufacture, production, preparation or shipping thereof, (ii) goods in which such
Grantor has an interest in mass or a joint or other interest or right of any kind
(including,
without limitation, goods in which such Grantor has an interest or right as consignee)
and
(iii) goods that are returned to or repossessed or stopped in transit by such
Grantor), and

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all accessions thereto and products thereof and documents therefor, and all software
related thereto, including, without limitation, software that is embedded in and is part of
the inventory (any and all such property being the
“Inventory”);

     (c) all accounts (including, without limitation, health-care-insurance
receivables), chattel paper (including, without limitation, tangible chattel paper and
electronic chattel paper), instruments (including, without limitation, promissory
notes),
deposit accounts, letter-of-credit rights, general intangibles (including, without
limitation, payment intangibles) and other obligations of any kind, whether or not
arising
out of or in connection with the sale or lease of goods or the rendering of services
and
whether or not earned by performance, and all rights now or hereafter existing in and
to
all supporting obligations and in and to all security agreements, mortgages, Liens,
leases,
letters of credit and other contracts securing or otherwise relating to the foregoing
property (any and all of such accounts, chattel paper, instruments, deposit accounts,
letter-of-credit rights, general intangibles and other obligations, to the extent not
referred
to in clause (d), (e) or (f) below, being the
“Receivables”, and any and all such
supporting
obligations, security agreements, mortgages, Liens, leases, letters of credit and other
contracts being the “Related Contracts”);

     (d) the following
(the “Security Collateral”):

     (i) the
Initial Pledged Equity and the certificates, if any,
representing the Initial Pledged Equity, and all dividends, distributions, return of
capital, cash, instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the Initial
Pledged Equity and all subscription warrants, rights or options issued thereon or
with respect thereto;

     (ii) the
Initial Pledged Debt and the instruments, if any, evidencing the
Initial Pledged Debt, and all interest, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Initial Pledged Debt;

     (iii) all
additional shares of stock and other Equity Interests acquired
after the date hereof, other than Equity Interests of any entity which is not a
Subsidiary or a Subsidiary that is not formed under a jurisdiction in the United
States of America, shall be pledged hereunder) from time to time acquired by such
Grantor in any manner (such shares and other Equity Interests, together with the
Initial Pledged Equity, being the “Pledged Equity”), and the certificates, if any,
representing such additional shares or other Equity Interests, and all dividends,
distributions, return of capital, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares or other Equity Interests and all subscription warrants,
rights or options issued thereon or with respect thereto;

     (iv) all additional indebtedness from time to time owed to such Grantor
(such indebtedness, together with the Initial Pledged Debt, being the “Pledged

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Debt”) and the
instruments, if any, evidencing such indebtedness, and all
interest, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all of
such indebtedness;

     (v) the Securities Accounts, all Pledged Security Entitlements with
respect to all Pledged Financial Assets from time to time credited to the Securities
Accounts, and all Pledged Financial Assets, and all dividends, distributions, return
of capital, interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for any
or all of such Pledged Security Entitlements or such Pledged Financial Assets and
all subscription warrants, rights or options issued thereon or with respect thereto;

     (vi) all other investment property (including, without limitation, all (A)
securities, whether certificated or uncertificated, (B) security entitlements, (C)
securities accounts, (D) commodity contracts and (E) commodity accounts) in which
such Grantor has now, or acquires from time to time hereafter, any right, title or
interest in any manner, and the certificates or instruments, if any, representing or
evidencing such investment property, and all dividends, distributions, return of
capital, interest, distributions, value, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such investment property and all subscription warrants,
rights or options issued thereon or with respect thereto;

     (e) each of the
Intellectual Property Agreements (as hereinafter defined) and
each Hedge Agreement to which such Grantor is now or may hereafter become a party, in
each case as such agreements may be amended, amended and restated, supplemented or
otherwise modified from time to time (collectively, the
“Assigned Agreements”),
including, without limitation, (i) all rights of such Grantor to receive moneys due and
to
become due under or pursuant to the Assigned Agreements, (ii) all rights of such
Grantor
to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to
the
Assigned Agreements, (iii) claims of such Grantor for damages arising out of or for
breach of or default under the Assigned Agreements and (iv) the right of such Grantor
to
terminate the Assigned Agreements, to perform thereunder and to compel performance
and otherwise exercise all remedies thereunder (all such Collateral being the
“Agreement Collateral”);

     (f) the following
(collectively, the “Account Collateral”):

     (i) the L/C
Collateral Account and all deposit accounts including,
without limitation, those listed on Schedule VI hereto (the
“Deposit Accounts”), and
all funds and financial assets from time to time credited thereto (including,
without limitation, all Cash Equivalents), all interest, dividends, distributions,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such funds and
financial assets, and all certificates and instruments, if any, from time to time
representing or evidencing the L/C Collateral Account and the Deposit Accounts;

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     (ii) all promissory
notes, certificates of deposit, checks and other instruments
from time to time delivered to or otherwise possessed by the Collateral Agent for or on behalf of
such Grantor, including, without limitation, those delivered or possessed in substitution for or in
addition to any or all of the then existing Account Collateral; and

     (iii) all interest,
dividends, distributions, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in exchange for any or
all of the then existing Account Collateral; and

     (g) the following
(collectively, the “Intellectual Property Collateral”):

     (i) all patents,
patent applications, utility models and statutory invention
registrations, all inventions claimed or disclosed therein and all improvements thereto
(“Patents”);

     (ii) all
trademarks, service marks, domain names, trade dress, logos, designs, slogans,
trade names, business names, corporate names and other source identifiers, whether registered or
unregistered (provided that no security interest shall be granted in United States intent-to-use
trademark applications to the extent that, and solely during the period in which, the grant of a
security interest therein would impair the validity or enforceability of such intent-to-use
trademark applications under applicable federal law), together, in each case, with the goodwill
symbolized thereby (“Trademarks”);

     (iii) all
copyrights, including, without limitation, copyrights in Computer Software (as
hereinafter defined), internet web sites and the content thereof, whether registered or
unregistered (“Copyrights”);

     (iv) all
computer software, programs and databases (including, without limitation, source
code, object code and all related applications and data files), firmware and documentation and
materials relating thereto, together with any and all maintenance rights, service rights,
programming rights, hosting rights, test rights, improvement rights, renewal rights and
indemnification rights and any substitutions, replacements, improvements, error corrections,
updates and new versions of any of the foregoing
(“Computer Software”);

     (v) all
confidential and proprietary information, including, without limitation,
know-how, trade secrets, manufacturing and production processes and techniques, inventions,
research and development information, databases and data, including, without limitation, technical
data, financial, marketing and business data, pricing and cost information, business and marketing
plans and customer and supplier lists and information (collectively,
“Trade Secrets”),
and all
other intellectual, industrial and intangible property of any type, including, without limitation,
industrial designs and mask works;

     (vi) all
registrations and applications for registration for any of the foregoing,
including, without limitation, those registrations and applications for

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registration set forth in Schedule V hereto, together with all reissues, divisions,
continuations, continuations-in-part, extensions, renewals and reexaminations
thereof;

     (vii) all tangible embodiments of the foregoing, all rights in the
foregoing provided by international treaties or conventions, all rights
corresponding thereto throughout the world and all other rights of any kind
whatsoever of such Grantor accruing thereunder or pertaining thereto;

     (viii) all agreements, permits, consents, orders and franchises relating to
the license, development, use or disclosure of any of the foregoing to which such
Grantor, now or hereafter, is a party or a beneficiary, including, without
limitation, the agreements set forth in Schedule V hereto
(“Intellectual Property Agreements”); and

     (ix) any and all claims for damages and injunctive relief for past,
present and future infringement, dilution, misappropriation, violation, misuse or
breach with respect to any of the foregoing, with the right, but not the obligation,
to sue for and collect, or otherwise recover, such damages;

     (h) all books and records (including, without limitation, customer lists, credit
files, printouts and other computer output materials and records) of such Grantor pertaining
to any of the Collateral; and

     (i) all proceeds of, collateral for, income, royalties and other payments now or
hereafter due and payable with respect to, and supporting obligations relating to, any and
all of the Collateral (including, without limitation, proceeds, collateral and supporting
obligations that constitute property of the types described in clauses (a) through (h) of
this Section 1 and this clause (h)) and, to the extent not otherwise included, all (A)
payments under insurance (whether or not the Collateral Agent is the loss payee thereof), or
any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral, (B) tort claims, including, without
limitation, all commercial tort claims and (C) cash.

     Section 2. Security for Obligations. This Agreement secures, in the case of
each Grantor, the payment of all Obligations of such Grantor now or hereafter existing under the
Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal,
reimbursement obligations, interest, fees, premiums, penalties, indemnifications, contract causes
of action, costs, expenses or otherwise (all such Obligations being
the “Secured Obligations”).

     Section 3. Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included
in such Grantor’s Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been executed, (b) the
exercise by the Collateral Agent of any of the rights hereunder shall not release any Grantor from
any of its duties or obligations under the contracts and agreements included in the Collateral and
(c) no Secured Party shall have any obligation or liability under the contracts and agreements

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included in the Collateral by reason of this Agreement or any other Loan Document, nor shall
any Secured Party be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

     Section 4. Delivery and Control of Security Collateral. (a) All certificates or
instruments representing or evidencing Security Collateral (other than instruments consisting of
promissory notes, a security interest in which may be perfected by filing, provided that such
instruments shall not be pledged as collateral and delivered to a third party) shall be delivered
to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral
Agent shall have the right, at any time and for reasonable credit purposes and with notice to the
applicable Grantor, to transfer to or to register in the name of the Collateral Agent or any of its
nominees any or all of the Security Collateral, subject only to the revocable rights specified in
Section 14(a).

     (b) With respect to any Security Collateral with a value in excess of $500,000
in which any Grantor has any right, title or interest and that constitutes an uncertificated
security,
such Grantor will cause the issuer thereof either (i) to register the Collateral Agent as the
registered owner of such security or (ii) to agree in an authenticated record with such
Grantor
and the Collateral Agent that such issuer will comply with instructions with respect to such
security originated by the Collateral Agent without further consent of such Grantor, such
authenticated record to be in form and substance satisfactory to the Collateral Agent.

     (c) With respect to each Securities Account in which the Collateral Agent is
not the entitlement holder, such Grantor will cause the securities intermediary with respect
to
such security entitlement either (i) to identify in its records the Collateral Agent as the
entitlement holder of such security entitlement against such securities intermediary or (ii)
to
agree in an authenticated record with such Grantor and the Collateral Agent that such
securities
intermediary will comply with entitlement orders (that is, notifications communicated to such
securities intermediary directing transfer or redemption of the financial asset to which such
Grantor has a security entitlement) originated by the Collateral Agent without further consent
of
such Grantor, such authenticated record to be in form and substance satisfactory to the
Collateral
Agent (such agreement being a “Securities Account Control
Agreement”).

     (d) No Grantor will change or add any securities intermediary that maintains
any Securities Account in which any of the Collateral is credited or carried, or change or add
any
such Securities Account, in each case without first complying with the above provisions of
this
Section 4 in order to perfect the security interest granted hereunder in such Collateral.

     (f) Upon the request of the Collateral Agent upon the occurrence and during the
continuance of an Event of Default, such Grantor will notify each such issuer of Pledged Debt that
such Pledged Debt is subject to the security interest granted hereunder.

     Section 5. Maintaining the Account Collateral. So long as any Advance or any
other Obligation of any Loan Party under any Loan Document shall remain unpaid, any

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Letter of Credit shall be outstanding, any Secured Hedge Agreement shall be in effect or
any Lender Party shall have any Commitment:

     (a) Each Grantor will maintain all Account Collateral only with the Collateral
Agent or with banks (the “Pledged Account Banks”) that have agreed, in a record
authenticated by the Grantor, the Collateral Agent and the Pledged Account Banks, to
comply with instructions originated by the Collateral Agent directing the disposition
of
funds in the Account Collateral without the further consent of the Grantor to the
Account
Collateral, which authenticated record shall be in form and substance satisfactory to
the
Collateral Agent (the “Account Control Agreement”); provided, however, this Section
5(a) shall not apply to any payroll and deposit accounts listed in Schedule VII hereto
(the “Excluded Accounts”). The Grantors will not at any time maintain more than $25
million in the aggregate in all Excluded Accounts for a period exceeding five
consecutive
Business Days.

     (b) Except with respect to Excluded Accounts, each Grantor agrees that it will
not add any bank that maintains a deposit account for such Grantor or open any new
deposit account with any then existing Pledged Account Bank unless (i) the Collateral
Agent shall have received prior written notice of such additional bank or such new
deposit account and (ii) the Collateral Agent shall have received, in the case of a
bank or
Pledged Account Bank that is not the Collateral Agent, an Account Control Agreement
authenticated by such new bank and such Grantor, or a supplement to an existing
Account Control Agreement with such then existing Pledged Account Bank, covering
such new deposit account (and, upon the receipt by the Collateral Agent of such Account
Control Agreement or supplement, Schedule VI hereto shall be automatically amended to
include such Deposit Account). Each Grantor agrees that it will not terminate any bank
as a Pledged Account Bank or terminate any Account Collateral (other than an Excluded
Account), except that the Grantor may terminate a Deposit Account, and terminate a bank
as a Pledged Account Bank with respect to such Deposit Account, if it gives the
Collateral Agent at least 10 days’ prior written notice of such termination (and, upon
such
termination, Schedule VI hereto shall be automatically amended to delete such Pledged
Account Bank and Deposit Account).

     (c) Upon any termination by a Grantor of any Deposit Account (other than an
Excluded Account) by such Grantor, or any Pledged Account Bank with respect thereto,
such Grantor will immediately (i) transfer all funds and property held in such
terminated
Deposit Account to another Deposit Account listed in Schedule VI and (ii) notify all
Obligors that were making payments to such Deposit Account to make all future
payments to another Deposit Account listed in Schedule VI hereto so that the Collateral
Agent shall have a continuously perfected security interest in such Account Collateral,
funds and property. Each Grantor agrees to terminate any or all Account Collateral and
Account Control Agreements upon request by the Collateral Agent.

     (d) The Collateral Agent shall have sole right, upon the occurrence and during
the continuance of an Event of Default under Sections 6.01(a) or 6.01(f), to direct the
disposition of funds with respect to each of the L/C Collateral Account and the Deposit
Accounts; and it shall be a term and condition of each of the L/C Collateral Account
and

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the Deposit Accounts, notwithstanding any term or condition to the contrary in any other
agreement relating to the L/C Collateral Account or the Deposit Accounts, as the case may
be, that, upon the occurrence and during the continuance on an Event of Default under
Sections 6.01(a) or 6.01(f), no amount (including, without limitation, interest on Cash
Equivalents credited thereto) will be paid or released to or for the account of, or
withdrawn by or for the account of, the Borrower or any other Person from the L/C Collateral
Account or the Deposit Accounts, as the case may be.

     (e) The Collateral Agent may, at any time and without notice to, or consent from,
the Grantor, transfer, or direct the transfer of, funds from the Account Collateral to
satisfy the Grantor’s payment obligations under the Loan Documents if an Event of Default
under Sections 6.01(a) or 6.01(f) shall have occurred and be continuing.

     Section 6. Investing of Amounts in the L/C Collateral Account. The
Collateral Agent will, subject to the provisions of Sections 5, 7 and 19, from time to time
(a) invest, or direct the applicable Pledged Account Bank to invest, amounts received with
respect to the L/C Collateral Account in such Cash Equivalents credited to (A) the L/C Collateral
Account as the Borrower may select or (B) in the case of Cash Equivalents consisting of
Securities Collateral, a securities account in which the Collateral Agent is the securities
intermediary or a securities account subject to a Securities Account Control Agreement, and
(b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest
other
proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash
Equivalents credited in the same manner. Interest and proceeds that are not invested or
reinvested in Cash Equivalents as provided above shall be deposited and held in the relevant L/C
Collateral Account. In addition, the Collateral Agent shall have the right at any time to
exchange, or direct the applicable Pledged Account Bank to exchange, such Cash Equivalents for
similar Cash Equivalents of smaller or larger determinations, or for other Cash Equivalents,
credited to the L/C Collateral Account.

     Section 7. Release of Amounts. So long as no Default under Section 6.01(a) or
(f) of the Credit Agreement shall have occurred and be continuing, the Collateral Agent will pay
and release, and/or direct the applicable Pledged Account Bank to pay and release to the
Administrative Agent to be applied to the Obligations of the Borrower under Letters of Credit, such
amount, if any, as is then on deposit in the L/C Collateral Account to the extent required to
satisfy Obligations under the Letter of Credit Facility.

     Section 8. Representations and Warranties. Each Grantor represents and
warrants as follows:

     (a) Such Grantor’s exact legal name, as defined in Section 9-503(a) of the UCC,
is correctly set forth in Schedule 1 hereto. Such Grantor has only the trade names, domain
names and marks listed on Schedule V hereto. Such Grantor is located (within the meaning of
Section 9-307 of the UCC) and has its chief executive office and the office in which it
maintains the original copies of each Related Contract to which such Grantor is a party and
all originals of all chattel paper that evidence Receivables of such Grantor, in the state
or jurisdiction set forth in Schedule I hereto. The information set forth in Schedule I
hereto with respect to such Grantor is true and accurate in all material

9

 

respects. Such Grantor has not previously changed its name, location, chief executive
office, place where it maintains its agreements, type of organization, jurisdiction of
organization or organizational identification number from those set forth in Schedule I
hereto except as disclosed in Schedule IV hereto.

     (b) Substantially all of the Equipment (other than Rolling Stock and mobile
Equipment) and substantially all of the Inventory of such Grantor as of the date hereof
are located at the places specified therefor in Schedule III hereto. All Security
Collateral
consisting of certificated securities have been delivered to the Collateral Agent.

     (c) Such Grantor is the legal and beneficial owner of the Collateral of such
Grantor free and clear of any Lien, except for the security interest created under this
Agreement or permitted under the Credit Agreement. No effective financing statement or
other instrument similar in effect covering all or any part of such Collateral or
listing
such Grantor or any trade name of such Grantor as debtor is on file in any recording
office, including, without limitation, the STB, except such as may have been filed in
favor of the Collateral Agent relating to the Loan Documents or as otherwise permitted
under the Credit Agreement.

     (d) The Pledged Equity pledged by such Grantor hereunder has been duly
authorized and validly issued and is fully paid and non-assessable. With respect to the
Pledged Equity that is an uncertificated security, such Grantor has caused the issuer
thereof either (i) to register the Collateral Agent as the registered owner of such
security
or (ii) to agree in an authenticated record with such Grantor and the Collateral Agent
that
such issuer will comply with instructions with respect to such security originated by
the
Collateral Agent without further consent of such Grantor. If such Grantor is an issuer
of
Pledged Equity, such Grantor confirms that it has received notice of such security
interest.

     (e) The Initial Pledged Equity pledged by such Grantor constitutes the
percentage of the issued and outstanding Equity Interests of the issuers thereof
indicated
on Schedule II hereto and all of the Initial Pledged Equity owned by such Grantor is
listed on Schedule II hereto.

     (f) As of the date of delivery of Schedule VI pursuant to the terms of the
Credit Agreement, such Grantor has no deposit accounts, other than the Account
Collateral listed on Schedule VI hereto, as such Schedule VI may be amended from time
to time pursuant to Section 5(c), and legal, binding and enforceable Account Control
Agreements are (or shall be provided as specified in the Credit Agreement) in effect
for
each deposit account that constitutes Account Collateral (other than Account Collateral
consisting of deposit accounts maintained with the Collateral Agent and Excluded
Accounts).

     (g) Except as otherwise contemplated in the Credit Agreement and this
Agreement, all filings and other actions (including, without limitation, actions
necessary
to obtain control of Collateral as provided in Section 9-106 of the UCC with respect to
the Pledged Equity) necessary to perfect the security interest in the Collateral of
such

10

 

Grantor created under this Agreement have been duly made or taken and are in full force
and effect, and this Agreement creates in favor of the Collateral Agent for the benefit of
the Secured Parties a valid and, together with such filings and other actions, perfected
first priority security interest in the Collateral of such Grantor (other than Liens
expressly permitted to be prior to the security interest of the Secured Parties under the
Credit Agreement), securing the payment of the Secured Obligations.

     (h) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body or any other third party is required for
(i) the grant by such Grantor of the security interest granted hereunder or for the
execution, delivery or performance of this Agreement by such Grantor, or (ii) the exercise
by the Collateral Agent of its voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as may be required
in connection with the disposition of any portion of the Security Collateral by laws
affecting the offering and sale of securities generally.

     Section 9.
Further Assurances. (a) Each Grantor agrees that from time to time,
at the expense of such Grantor, such Grantor will promptly execute and deliver, or otherwise
authenticate, all further instruments and documents, and take all further action that may be
reasonably necessary, or that the Collateral Agent may reasonably request, in order to perfect and
protect any pledge or security interest granted or purported to be granted by such Grantor
hereunder or to enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral of such Grantor.

     (b) Each Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, including, without limitation,
one
or more financing statements indicating that such financing statements cover all assets or all
personal property (or words of similar effect) of such Grantor, in each case without the
signature
of such Grantor, and regardless of whether any particular asset described in such financing
statements falls within the scope of the UCC or the granting clause of this Agreement. A
photocopy or other reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement where permitted by
law.
Each Grantor hereby authorizes the Collateral Agent to file one or more filings covering the
Rolling Stock and related accessories with the STB as the Collateral Agent determines is
necessary to obtain a first priority security interest in such property. Each Grantor ratifies
its
authorization for the Collateral Agent to have filed such financing statements, continuation
statements, other filings or amendments filed prior to the date hereof.

     (c) Each Grantor will furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral of such Grantor and
such other reports in connection with such Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.

     Section 10. As to Equipment and Inventory. Each Grantor will use its best efforts
to give the Collateral Agent prior notice of the transfer of any material Equipment (other than
Rolling Stock and mobile Equipment) from the places therefor specified in Section 8(b).

11

 

     Section 11. Insurance. (a) Each Grantor will cause all insurance policies
required to be maintained under the Credit Agreement to be endorsed or otherwise amended to include
a Lender’s loss payable endorsement, in form and substance satisfactory to the Collateral Agent.
Each such policy shall in addition name the Collateral Agent as additional insured thereunder
(without representation or warranty by or obligation upon the Collateral Agent). Each Grantor will,
if so requested by the Collateral Agent, deliver to the Collateral Agent original or duplicate
policies of such insurance and, as often as the Collateral Agent may reasonably request, a report
of a reputable insurance broker with respect to such insurance.

     (b) Reimbursement under any liability insurance maintained by any Grantor pursuant to this
Section 11 may be paid directly to the Person who shall have incurred liability covered by such
insurance.

     Section 12. Post-Closing Changes; Bailees; Collections on Receivables and Related
Contracts. (a) No Grantor will change its name, type of organization, jurisdiction of
organization, organizational identification number or location from those set forth in Section 8(a)
of this Agreement without giving written notice to the Collateral Agent, prior to or within 30 days
thereafter, and taking all action reasonably required by the Collateral Agent for the purpose of
perfecting or protecting the security interest granted by this Agreement. No Grantor will become
bound by a security agreement authenticated by another Person (determined as provided in Section
9-203(d) of the UCC) without giving the Collateral Agent 30 days’ prior written notice thereof and
taking all action required by the Collateral Agent to ensure that the perfection and first priority
nature of the Collateral Agent’s security interest in the Collateral will be maintained. Each
Grantor will hold and preserve its records relating to the Collateral, including, without
limitation, the Assigned Agreements, and will permit representatives of the Collateral Agent at any
time during normal business hours to inspect and make abstracts from such records and other
documents. If the Grantor does not have an organizational identification number and later obtains
one, it will forthwith notify the Collateral Agent of such organizational identification number.

     (b) Except as otherwise provided in this subsection (b), each Grantor will continue to
collect, at its own expense, all amounts due or to become due to such Grantor under the Receivables
and Related Contracts. In connection with such collections, the Collateral Agent shall have the
right at any time, upon the occurrence and during the continuance of an Event of Default under
Section 6.01(a) or (f) of the Credit Agreement and upon written notice to such Grantor of its
intention to do so, to notify the Obligors under any Receivables and Related Contracts of the
assignment of such Receivables and Related Contracts to the Collateral Agent and to direct such
Obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to
the Collateral Agent and, upon such notification and at the expense of such Grantor, to enforce
collection of any such Receivables and Related Contracts, to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as such Grantor might have
done, and to otherwise exercise all rights with respect to such Assigned Agreements, Receivables
and Related Contracts, including, without limitation, those set forth in Section 9-607 of
the UCC. After receipt by any Grantor of the notice from the Collateral Agent referred to in the
proviso to the preceding sentence, (i) all amounts and proceeds (including, without limitation,
instruments) received by such Grantor in respect of the Receivables and Related Contracts of such
Grantor shall be received in trust for the benefit of the

12

 

Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be
forthwith paid over to the Collateral Agent in the same form as so received (with any necessary
indorsement) to be deposited in the collateral account and either (A) released to such Grantor upon
the waiver or cure of such Event of Default or (B) if any Event of Default under Section 6.01(a) or
(f) of the Credit Agreement shall have occurred and be continuing, applied as provided in Section
19(b) and (ii) such Grantor will not adjust, settle or compromise the amount or payment of any
Receivable or amount due on any Assigned Agreement or Related Contract, release wholly or partly
any Obligor thereof, or allow any credit or discount thereon.

     Section 13. As to Intellectual Property Collateral. (a) With respect to each item
of its Intellectual Property Collateral which in its reasonable business judgment is material to
its business, each Grantor agrees to take, at its expense, all necessary steps, including, without
limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other
governmental authority, to (i) maintain the validity and enforceability of such Intellectual
Property Collateral and maintain such Intellectual Property Collateral in full force and effect,
and (ii) pursue the registration and maintenance of each patent, trademark, or copyright
registration or application which in its reasonable business judgment is material to its business,
now or hereafter included in such Intellectual Property Collateral of such Grantor. No Grantor
shall, without the written consent of the Collateral Agent, discontinue use of or otherwise abandon
any Intellectual Property Collateral which is material to its business, or abandon any right to
file an application for patent, trademark, or copyright for any such Intellectual Property
Collateral, unless such Grantor shall have previously determined that such use or the pursuit or
maintenance of such Intellectual Property Collateral is no longer desirable in the conduct of such
Grantor’s business and that the loss thereof would not be reasonably likely to have a Material
Adverse Effect, in which case, such Grantor will give prompt notice of any such abandonment to the
Collateral Agent.

     (b) Each Grantor agrees that should it obtain an ownership interest in any item of the
type set forth in Section l(g) that is not on the date hereof a part of the Intellectual Property
Collateral “After-Acquired Intellectual Property”)
(i) the provisions of this Agreement shall
automatically apply thereto, and (ii) any such After-Acquired Intellectual Property and, in the
case of trademarks, the goodwill symbolized thereby, shall automatically become part of the
Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect
thereto.

     Section 14. Voting Rights; Dividends; Etc. (a) So long as no Default under Section
6.01(a) or (f) of the Credit Agreement shall have occurred and be continuing;

     (i) Each Grantor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Security Collateral of such Grantor or any part thereof
for any purpose with respect to the Securities Accounts; provided however, that such Grantor
will not exercise or refrain from exercising any such right if such action would be
inconsistent with the provisions of the Loan Documents or any Securities Account Control
Agreement.

     (ii) Each Grantor shall be entitled to receive and retain any and all dividends,
interest and other distributions paid in respect of the Security Collateral of such Grantor
if

13

 

and to the extent that the payment thereof is not otherwise prohibited by the terms of
the Loan Documents; provided, however, that if an Event of Default under Section 6.01(a) or
(f) of the Credit Agreement shall have occurred and be continuing, any and all

     (A) dividends, interest and other distributions paid or payable other
than in cash in respect of, and instruments and other property received,
receivable
or otherwise distributed in respect of, or in exchange for, any Security
Collateral,

     (B) dividends and other distributions paid or payable in cash in respect
of any Security Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus and

     (C) cash paid, payable or otherwise distributed in respect of principal
of, or in redemption of, or in exchange for, any Security Collateral

shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Security
Collateral and shall, if received by such Grantor, be received in trust for the benefit of
the Collateral Agent, be segregated from the other property or funds of such Grantor and be
forthwith delivered to the Collateral Agent as Security Collateral in the same form as so
received (with any necessary indorsement).

     (iii) The Collateral Agent will execute and deliver (or cause to be executed and
delivered) to each Grantor all such proxies and other instruments as such Grantor may
reasonably request for the purpose of enabling such Grantor to exercise the voting and other
rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments that it is authorized to receive and retain pursuant to
paragraph (ii) above.

     (b) Upon the occurrence and during the continuance of a Default under Section
6.01(a) or (f) of the Credit Agreement:

     (i) All rights of each Grantor (x) to exercise or refrain from exercising the
voting and other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 14(a)(i) shall, upon notice to such Grantor by the Collateral Agent, cease and
(y) to receive the dividends, interest and other distributions that it would otherwise be
authorized to receive and retain pursuant to Section 14(a)(ii) shall automatically cease,
and all such rights shall thereupon become vested in the Collateral Agent, which shall
thereupon have the sole right to exercise or refrain from exercising such voting and other
consensual rights and to receive and hold as Security Collateral such dividends, interest
and other distributions.

     (ii) All dividends, interest and other distributions that are received by any
Grantor contrary to the provisions of paragraph (i) of this Section 14(b) shall be received
in trust for the benefit of the Collateral Agent, shall be segregated from other funds of
such Grantor and shall be forthwith paid over to the Collateral Agent as Security Collateral
in the same form as so received (with any necessary indorsement).

14

 

     (iii) The Collateral Agent shall be authorized to send to each securities
intermediary as defined in and under any Securities Account Control Agreement a Notice of
Exclusive Control as defined in and under such Securities Account Control Agreement.

     Section 15. Transfers and Other Liens; Additional Shares. (a) Each Grantor agrees
that it will not (i) sell, assign or otherwise dispose of, or grant any option with respect to, any
of the Collateral, other than sales, assignments and other dispositions of Collateral, and options
relating to Collateral, permitted under the terms of the Credit Agreement, or (ii) create or suffer
to exist any Lien upon or with respect to any of the Collateral of such Grantor except for the
pledge, assignment and security interest created under this Agreement and Liens permitted under the
Credit Agreement.

     (b) Each Grantor agrees that it will (i) cause each issuer of the Pledged Equity pledged
by such Grantor not to issue any Equity Interests or other securities in addition to or in
substitution for the Pledged Equity issued by such issuer, except to such Grantor, and (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all
additional Equity Interests or other securities of each issuer of the Pledged Equity.

     Section 16. Collateral Agent Appointed Attornev-in-Fact. Each Grantor hereby
irrevocably appoints the Collateral Agent such Grantor’s attorney-in-fact, with full authority in
the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to
time, upon the occurrence and during the continuance of an Event of Default, in the Collateral
Agent’s discretion, to take any action and to execute any instrument that the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Agreement, including, without
limitation:

     (a) to obtain and adjust insurance required to be paid to the Collateral Agent
pursuant to Section 11,

     (b) to ask for, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in respect of any of
the Collateral,

     (c) to receive, indorse and collect any drafts or other instruments, documents
and chattel paper, in connection with clause (a) or (b) above,

     (d) to file any claims or take any action or institute any proceedings that the
Collateral Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce compliance with the terms and conditions of any
Assigned Agreement or the rights of the Collateral Agent with respect to any of the
Collateral, and

     (e) to settle, compromise, compound, adjust or defend any actions, suits or
proceedings relating to all or any of the Collateral.

     Section 17. Collateral Agent May Perform. If any Grantor fails to perform any
agreement contained herein, the Collateral Agent may, as the Collateral Agent deems necessary

15

 

to protect the security interest granted hereunder in the Collateral, to protect the value
thereof or to do any other act or thing necessary to carry out the purposes of this Agreement as
fully and completely as though the Collateral Agent were the absolute owner of the Collateral for
all purposes, but without any obligation to do so, itself perform, or cause performance of, such
agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be
payable by such Grantor under Section 20.

     Section 18. The Collateral Agent’s Duties. (a) The powers conferred on the
Collateral Agent hereunder are solely to protect the Secured Parties’ interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of
any Collateral in its possession and the accounting for moneys actually received by it hereunder,
the Collateral Agent shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not any Secured Party has or is deemed to have knowledge of such matters, or
as to the taking of any necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable
care in the custody and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which it accords its own property.

     (b) Anything contained herein to the contrary notwithstanding, the Collateral Agent may
from time to time, when the Collateral Agent deems it to be necessary, appoint one or more
subagents (each a “Subagent”) for the Collateral Agent hereunder with respect to all or any part of
the Collateral. In the event that the Collateral Agent so appoints any Subagent with respect to any
Collateral, (i) the assignment and pledge of such Collateral and the security interest granted in
such Collateral by each Grantor hereunder shall be deemed for purposes of this Security Agreement
to have been made to such Subagent, in addition to the Collateral Agent, for the ratable benefit of
the Secured Parties, as security for the Secured Obligations of such Grantor, (ii) such Subagent
shall automatically be vested, in addition to the Collateral Agent, with all rights, powers,
privileges, interests and remedies of the Collateral Agent hereunder with respect to such
Collateral, and (iii) the term “Collateral Agent,” when used herein in relation to any rights,
powers, privileges, interests and remedies of the Collateral Agent with respect to such Collateral,
shall include such Subagent; provided, however, that no such Subagent shall be authorized to take
any action with respect to any such Collateral unless and except to the extent expressly authorized
in writing by the Collateral Agent.

     Section 19. Remedies. If any Event of Default shall have occurred and be
continuing:

     (a) The Collateral Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party upon default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may: (i) require each Grantor to, and each
Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent
forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and
make it available to the Collateral Agent at a place and time to be designated by the
Collateral Agent that is reasonably convenient to both parties; (ii) without notice except
as specified below, sell the Collateral or any part thereof in one or more parcels at
public

16

 

or private sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the Collateral Agent may deem
commercially reasonable; (iii) occupy any premises owned or leased by any of the Grantors
where the Collateral or any part thereof is assembled or located for a reasonable period in
order to effectuate its rights and remedies hereunder or under law, without obligation to
such Grantor in respect of such occupation; and (iv) exercise any and all rights and
remedies of any of the Grantors under or in connection with the Collateral, or otherwise in
respect of the Collateral, including, without limitation, (A) any and all rights of such
Grantor to demand or otherwise require payment of any amount under, or performance of any
provision of, the Assigned Agreements, the Receivables, the Related Contracts and the other
Collateral, (B) withdraw, or cause or direct the withdrawal, of all funds with respect to
the Account Collateral and (C) exercise all other rights and remedies with respect to the
Assigned Agreements, the Receivables, the Related Contracts and the other Collateral,
including, without limitation, those set forth in Section 9-607 of the UCC. In case any sale
of all or any part of the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by the Collateral Agent until the sale price is paid by
the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability
in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so
sold and, in case of any such failure, such Collateral may be sold again upon like notice.
At any public (or, to the extent permitted by law, private) sale made pursuant to this
Section, any Secured Party may bid for or purchase, free (to the extent permitted by law)
from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all
said rights being also hereby waived and released to the extent permitted by law), the
Collateral or any part thereof offered for sale and may make payment on account thereof by
using any claim then due and payable to such Secured Party from any Grantor as a credit
against the purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability to any
Grantor therefor. For purposes hereof, a written agreement to purchase the Collateral or any
portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to
carry out such sale pursuant to such agreement and no Grantor shall be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Collateral Agent shall have entered into such an agreement all Events of
Default shall have been remedied and the Obligations paid in full. As an alternative to
exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a
suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or
any portion thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver. Each Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten days’ notice to
such Grantor of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Collateral Agent shall not
be obligated to make any sale of Collateral regardless of notice of sale having been given.
The Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.

17

 

     (b) Any cash held by or on behalf of the Collateral Agent and all cash
proceeds received by or on behalf of the Collateral Agent in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral may, in
the
discretion of the Collateral Agent, be held by the Collateral Agent as collateral for,
and/or
then or at any time thereafter applied (after payment of any amounts payable to the
Collateral Agent pursuant to Section 20) in whole or in part by the Collateral Agent
for
the ratable benefit of the Secured Parties against, all or any part of the Secured
Obligations, in the following manner:

     (i) first, paid to the Agents for any amounts then owing to the Agents
pursuant to Section 9.04 of the Credit Agreement or otherwise under the Loan
Documents, ratably in accordance with such respective amounts then owing to the
Agents; and

     (ii) second, ratably (A) paid to the Lender Parties and the Hedge Banks,
respectively, for any amounts then owing to them, in their capacities as such, under
the Loan Documents ratably in accordance with such respective amounts then owing to
such Lender Parties and the Hedge Banks, provided that, for purposes of this Section
19, the amount owing to any such Hedge Bank pursuant to any Secured Hedge Agreement
to which it is a party (other than any amount therefore accrued and unpaid) shall be
deemed to be equal to the agreement value therefor and (B) deposited as Collateral
in the L/C Collateral Account up to an amount equal to 100% of the aggregate
Available Amount of all outstanding Letters of Credit, provided that in the event
that any such Letter of Credit is drawn, the Collateral Agent shall pay to the
Issuing Bank that issued such Letter of Credit the amount held in the L/C Collateral
Account in respect of such Letter of Credit, provided further that, to the extent
that any such Letter of Credit shall expire or terminate undrawn and as a result
thereof the amount of the Collateral in the L/C Collateral Account shall exceed 100%
of the aggregate Available Amount of all then outstanding Letters of Credit, such
excess amount of such Collateral shall be applied in accordance with the remaining
order of priority set out in this Section 19(b).

Any surplus of such cash or cash proceeds held by or on the behalf of the Collateral Agent
and remaining after payment in full of all the Secured Obligations shall be paid over to the
applicable Grantor or to whomsoever may be lawfully entitled to receive such surplus.

     (c) All payments received by any Grantor under or in connection with any
Assigned Agreement or otherwise in respect of the Collateral shall be received in trust
for
the benefit of the Collateral Agent, shall be segregated from other funds of such
Grantor
and shall be forthwith paid over to the Collateral Agent in the same form as so
received
(with any necessary indorsement).

     (d) The Collateral Agent may, without notice to any Grantor except as
required by law and at any time or from time to time, charge, set-off and otherwise
apply

18

 

all or any part of the Secured Obligations against any funds held with respect to
the Account Collateral or in any other deposit account.

     (e) In the event of any sale or other disposition of any of the Intellectual
Property Collateral of any Grantor, the goodwill symbolized by any Trademarks subject to
such sale or other disposition shall be included therein, and such Grantor shall supply to
the Collateral Agent or its designee such Grantor’s know-how and expertise, and documents
and things relating to any Intellectual Property Collateral subject to such sale or other
disposition, and such Grantor’s customer lists and other records and documents relating to
such Intellectual Property Collateral and to the manufacture, distribution, advertising and
sale of products and services of such Grantor.

     Section 20. Indemnity and Expenses. (a) Each Grantor jointly and severally agrees
to indemnify, defend and save and hold harmless each Secured Party and each of their Affiliates and
their respective officers, directors, employees, agents and advisors
(each, an “Indemnified Party”)
from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in
connection with or resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except to the extent such claim, damage, loss, liability or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party’s gross negligence or willful misconduct.

     (b) Each Grantor will upon demand pay to the Collateral Agent the amount of any and all
reasonable expenses, including, without limitation, the reasonable fees and expenses of its counsel
and of any experts and agents, that the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale
of, collection from or other realization upon, any of the Collateral of such Grantor, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent or the other Secured Parties
hereunder or (iv) the failure by such Grantor to perform or observe any of the provisions hereof.

     Section 21.
Amendments; Waivers: Additional Grantors; Etc. (a) No amendment or
waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed by the Collateral
Agent, and then such waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No failure on the part of the Collateral Agent or any other
Secured Party to exercise, and no delay in exercising any right hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.

     (b) Upon the execution and delivery, or authentication, by any Person of a security
agreement supplement in substantially the form of Exhibit A
hereto (each a “Security Agreement Supplement”), (i) such Person shall be referred to as
an “Additional Grantor” and shall be and
become a Grantor hereunder, and each reference in this Agreement and the other Loan Documents to
“Grantor” shall also mean and be a reference to such Additional Grantor,

19

 

and each reference in this Agreement and the other Loan Documents to “Collateral” shall also
mean and be a reference to the Collateral of such Additional Grantor, and (ii) the supplemental
schedules I-IX attached to each Security Agreement Supplement shall be incorporated into and become
a part of and supplement Schedules I-IX, respectively, hereto, and the Collateral Agent may attach
such supplemental schedules to such Schedules; and each reference to such Schedules shall mean and
be a reference to such Schedules as supplemented pursuant to each Security Agreement Supplement.

     Section 22.
Notices, Etc. All notices and other communications provided for
hereunder shall be either (i) in writing (including telegraphic, telecopier or telex communication)
and mailed, telegraphed, faxed, telexed or otherwise delivered or (ii) by electronic mail (if
electronic mail addresses are designated as provided below) confirmed immediately in writing, in
the case of the Borrower or the Collateral Agent, addressed to it at its address specified in the
Credit Agreement and, in the case of each Grantor other than the Borrower, addressed to it at its
address set forth opposite such Grantor’s name on the signature pages hereto or on the signature
page to the Security Agreement Supplement pursuant to which it became a party hereto; or, as to any
party, at such other address as shall be designated by such party in a written notice to the other
parties. All such notices and other communications shall, when mailed, telegraphed, faxed, telexed,
sent by electronic mail or otherwise, be effective when deposited in the mails, delivered to the
telegraph company, telecopied, confirmed by telex answerback, sent by electronic mail and confirmed
in writing, or otherwise delivered (or confirmed by a signed receipt), respectively, addressed as
aforesaid; except that notices and other communications to the Collateral Agent shall not be
effective until received by the Collateral Agent. Delivery by facsimile of an executed counterpart
of any amendment or waiver of any provision of this Agreement or of any Security Agreement
Supplement or Schedule hereto shall be effective as delivery of an original executed counterpart
thereof.

     Section 23. Continuing Security Interest; Assignments under the Credit
Agreement. This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of
the Secured Obligations other than under indemnification provisions for which claims have not been
asserted, (ii) the Termination Date and (iii) the termination or expiration of all Letters of
Credit and all Secured Hedge Agreements which have not otherwise been provided for in a manner
satisfactory to the Issuing Bank or the Hedge Bank, as the case may be, (b) be binding upon each
Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the
Collateral Agent hereunder, to the benefit of the Secured Parties and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender
Party may assign or otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement (including, without limitation, all or any portion of its Commitments, the
Advances owing to it and the Note or Notes, if any, held by it) to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof granted to such
Lender Party herein or otherwise, in each case as provided in Section 9.07 of the Credit Agreement.

     Section 24. Release; Termination. (a) Upon any sale, lease, transfer or other
disposition of any item of Collateral of any Grantor in accordance with the terms of the Loan
Documents (other than sales of Inventory in the ordinary course of business), the Collateral Agent
will, at such Grantor’s expense, execute and deliver to such Grantor such documents as

20

 

such Grantor shall reasonably request to evidence the release of such item of Collateral from
the assignment and security interest granted hereby; provided, however, that (i) at the time of
such request and such release no Default shall have occurred and be continuing, (ii) such Grantor
shall have delivered to the Collateral Agent, at least ten Business Days prior to the date of the
proposed release, a written request for release describing the item of Collateral and the terms of
the sale, lease, transfer or other disposition in reasonable detail, including, without limitation,
the price thereof and any expenses in connection therewith, together with a form of release for
execution by the Collateral Agent and a certificate of such Grantor to the effect that the
transaction is in compliance with the Loan Documents and as to such other matters as the Collateral
Agent may request and (iii) the proceeds of any such sale, lease, transfer or other disposition
required to be applied, or any payment to be made in connection therewith, in accordance with
Section 2.06 of the Credit Agreement shall, to the extent so required, be paid or made to, or in
accordance with the instructions of, the Collateral Agent when and as required under Section 2.06
of the Credit Agreement.

     (b) Upon the latest of (i) the payment in full in cash of the Secured
Obligations other than under indemnification provisions for which claims have not been asserted,
(ii) the Termination Date and (iii) the termination or expiration of all Letters of Credit and all
Secured Hedge Agreements which have not otherwise been provided for in a manner satisfactory to the
Issuing Bank or the Hedge Bank, as the case may be, the pledge and security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the applicable Grantor. Upon any
such termination, the Collateral Agent will, at the applicable Grantor’s expense, execute and
deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such
termination.

     Section 25. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of
an original executed counterpart of this Agreement.

     Section 26. The Mortgages. In the event that any of the Collateral hereunder is
also subject to a valid and enforceable Lien under the terms of any Mortgage and the terms of such
Mortgage are inconsistent with the terms of this Agreement, then with respect to such Collateral,
the terms of such Mortgage shall be controlling in the case of fixtures and real estate leases,
letting and licenses of, and contracts and agreements relating to the lease of, real property, and
the terms of this Agreement shall be controlling in the case of all other Collateral.

     Section 27. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.

21

 

     IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized as of the date first above written.

	 	 	 	 	 
	 	 	THE KANSAS CITY SOUTHERN

RAILWAY COMPANY
	 
	 	 	 	 
	

	 	By
	 	/s/ Paul J. Weyandt
	

	 	 	 	 
	

	 	 	 	Name: Paul J. Weyandt

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	KANSAS CITY SOUTHERN
	 
	 	 	 	 
	

	 	By
	 	/s/ Paul J. Weyandt
	

	 	 	 	 
	

	 	 	 	Name: Paul J. Weyandt

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	SOUTHERN INDUSTRIAL SERVICES, INC.
	 
	 	 	 	 
	

	 	By
	 	/s/ Ronald G. Russ
	

	 	 	 	 
	

	 	 	 	Name: Ronald G. Russ

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	TRANS-SERVE, INC.
	 
	 	 	 	 
	

	 	By
	 	/s/ Ronald G. Russ
	

	 	 	 	 
	

	 	 	 	Name: Ronald G. Russ

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	VEALS, INC.
	 
	 	 	 	 
	

	 	By
	 	/s/ Ronald G. Russ
	

	 	 	 	 
	

	 	 	 	Name: Ronald G. Russ

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	SIS BULK HOLDING, INC.
	 
	 	 	 	 
	

	 	By
	 	/s/ Ronald G. Russ
	

	 	 	 	 
	

	 	 	 	Name: Ronald G. Russ

Title: Vice President & Treasurer

KCSR Security Agreement

 

 

	 	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	PABTEX GP, LLC
	 
	 	 	 	 
	

	 	By
	 	/s/ Paul J. Weyandt
	

	 	 	 	 
	

	 	 	 	Name: Paul J. Weyandt

Title: Authorized Representative
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	PABTEX, L.P.
	 
	 	 	 	 
	

	 	By
	 	/s/ Paul J. Weyandt
	

	 	 	 	 
	

	 	 	 	Name: Paul J. Weyandt

Title: Authorized Representative
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	GATEWAY EASTERN RAILWAY COMPANY
	 
	 	 	 	 
	

	 	By
	 	/s/ Paul J. Weyandt
	

	 	 	 	 
	

	 	 	 	Name: Paul J. Weyandt

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	SCC HOLDINGS, LLC
	 
	 	 	 	 
	

	 	By
	 	/s/ Paul J. Weyandt
	

	 	 	 	 
	

	 	 	 	Name: Paul J. Weyandt

Title: Authorized Representative
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	SOUTHERN DEVELOPMENT COMPANY
	 
	 	 	 	 
	

	 	By
	 	/s/ Ronald G. Russ
	

	 	 	 	 
	

	 	 	 	Name: Ronald G. Russ

Title: Vice President & Treasurer
	 
	 	 	 	 
	Address for Notices:

P.O. Box 219335

Kansas City, Missouri 64121-9335	 	THE KANSAS CITY NORTHERN RAILWAY COMPANY
	 
	 	 	 	 
	

	 	By
	 	/s/ Ronald G. Russ
	

	 	 	 	 
	

	 	 	 	Name: Ronald G. Russ

Title: Vice President & Chief Financial Officer

KCSR Security Agreement

 

 

SCHEDULE I:

[GRANTOR INFORMATION]

 

 

SCHEDULE II:

[PLEDGED EQUITY]

 

 

SCHEDULE III:

[LOCATION OF EQUIPMENT AND INVENTORY]

 

 

SCHEDULE IV:

[CHANGES IN NAME, LOCATION, ETC.]

 

 

SCHEDULE V:

[INTELLECTUAL PROPERTY]

 

 

SCHEDULE VI:

[ACCOUNT COLLATERAL]

 

 

SCHEDULE VII:

[ACCOUNT COLLATERAL

NOT SUBJECT TO ACCOUNT CONTROL AGREEMENTS]

 

 

SCHEDULE VIII:

[SECURITIES ACCOUNTS]

 

 

Exhibit A to the

Security Agreement

FORM OF SECURITY AGREEMENT SUPPLEMENT

[Date of Security Agreement Supplement]

The Bank of Nova Scotia,

as the Collateral Agent for the

Secured Parties referred to in the

Credit Agreement referred to below

600 Peachtree Street, N.E.

Suite 2700

Atlanta, Georgia 30308

Attn:                               

[Name of Borrower]

Ladies and Gentlemen:

     Reference is made to (i) the Credit Agreement dated as of March 30, 2004 (as amended, amended
and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among
Kansas City Southern Railway Company, a Missouri corporation, as the Borrower, the Lender Parties
party thereto, The Bank of Nova Scotia, as collateral agent (together with any successor collateral
agent appointed pursuant to Article VII of the Credit Agreement, the “Collateral Agent”), and The
Bank of Nova Scotia, as administrative agent for the Lender Parties, and (ii) the Security
Agreement dated March 30, 2004 (as amended, amended and restated, supplemented or otherwise
modified from time to time, the “Security Agreement”) made by the Grantors from time to time party
thereto in favor of the Collateral Agent for the Secured Parties. Terms defined in the Credit
Agreement or the Security Agreement and not otherwise defined herein are used herein as defined in
the Credit Agreement or the Security Agreement.

     SECTION 1. Grant of Security. The undersigned hereby grants to the Collateral Agent,
for the ratable benefit of the Secured Parties, a security interest in, all of its right, title and
interest in and to all of the Collateral of the undersigned, whether now owned or hereafter
acquired by the undersigned, wherever located and whether now or hereafter existing or arising,
including, without limitation, the property and assets of the undersigned set forth on the attached
supplemental schedules to the Schedules to the Security Agreement.

     SECTION 2. Security for Obligations. The grant of a security interest in, the
Collateral by the undersigned under this Security Agreement Supplement and the Security Agreement
secures the payment of all Obligations of the undersigned now or hereafter existing under or in
respect of the Loan Documents, whether direct or indirect, absolute or contingent,

 

 

2

and whether for principal, reimbursement obligations, interest, premiums, penalties, fees,
indemnifications, contract causes of action, costs, expenses or otherwise.

     SECTION 3. Supplements to Security Agreement Schedules. The undersigned has attached
hereto supplemental Schedules I through VII to Schedules I through VII, respectively, to the
Security Agreement, and the undersigned hereby certifies, as of the date first above written, that
such supplemental schedules have been prepared by the undersigned in substantially the form of the
equivalent Schedules to the Security Agreement and are complete and correct.

     SECTION 4. Representations and Warranties. The undersigned hereby makes each
representation and warranty set forth in Section 8 of the Security Agreement (as supplemented by
the attached supplemental schedules) to the same extent as each other Grantor.

     SECTION 5. Obligations Under the Security Agreement. The undersigned hereby agrees, as
of the date first above written, to be bound as a Grantor by all of the terms and provisions of the
Security Agreement to the same extent as each of the other Grantors. The undersigned further
agrees, as of the date first above written, that each reference in the Security Agreement to an
“Additional Grantor” or a “Grantor” shall also mean and be a reference to the undersigned.

     SECTION 6. Governing Law. This Security Agreement Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	[NAME OF ADDITIONAL GRANTOR]
	 
	 	 	 	 
	

	 	By	 	 
	

	 	 	 	 
	

	 	 	 	Title:
	 
	 	 	 	 
	

	 	 	 	Address for notices:exv10w10

 

EXHIBIT 10.10

CONFIDENTIAL

January 21, 1998

Mr. Stephen M. Simes

1173 RFD

Long Grove, IL 60047

Dear Stephen:

     I am pleased to confirm our agreement with you concerning your employment by Ben-Abraham
Technologies, Inc. (the “Company”), which is subject to review, approval, and ratification by the
Company’s Board of Directors.

	I.  	Employment. Subject to the terms and conditions described in this Employment
Agreement (the “Agreement”), the Company agrees to employ you as the President, Chief
Operating Officer, and Executive Vice Chairman of the Company, and you accept this employment
on the following terms and conditions.
	 
	II.  	Duties.

	 	1.  	You agree to spend substantially all of your business hours on the Company’s
business. You will diligently perform the duties of your position, within guidelines
to be determined by Avi Ben-Abraham, who is the Company’s Chief Executive Officer and
the Chairman of the Board of Directors. In particular, you will actively manage the
day-to-day business of the Company and shall set corporate policies, under the
direction of the Board of Directors. More particularly, your duties shall include the
day-to-day responsibility for running and administering the Company. Said
responsibilities shall include, but not be limited to, the following specific areas:
shareholder relations, fundraising, Nasdaq listing, direction of R&D, licensing and
other business development activities, budgeting and fiscal controls, and all personnel
matters. You will report to Dr. Ben-Abraham, who will be responsible for evaluating
your job performance in accordance with the Company’s annual performance review
process. The Company agrees that during the term of this Agreement, as it may be
extended, no one other than Dr. Ben-Abraham shall serve as CEO, except you.
	 
	 	2.  	During the term of this Agreement, you will also serve as a Director of the
Company and will perform all such duties incident to such service. Towards this end,
the Company shall nominate you as a nominee for director and solicit proxies for your
election for so long as this Agreement is in effect.
	 
	     	3.  	While you are employed by the Company, except as otherwise permitted by the
Company’s Conflict of Interest policy or this Agreement, you will not engage in any
business activity or outside employment that conflicts with the Company’s interests or
adversely affect the performance of your duties for the Company.

 

 

Mr. Stephen M. Simes

January 21, 1998

Page 2

CONFIDENTIAL

	 	4.  	You shall be based at, and shall perform your duties at an office located in,
Chicago, Illinois, or the surrounding suburban area, where the corporate headquarters
of the Company shall also be located. The Company agrees that the other officers and
executives of the Company (except for those who are directly involved in the research
and development activities of the Company that are currently conducted in Atlanta,
Georgia) shall also be located in the same corporate headquarters. However, you shall
also travel to other locations at such times as may be appropriate for the performance of your
duties under this Agreement.

	III.  	Term. This Agreement is effective January 20, 1998 (the “Effective Date”), and will
terminate on December 31, 2000, unless earlier terminated pursuant to Section V of this
Agreement (the “Base Term”). Commencing January 1, 2001, and on each January 1st thereafter,
the term of your employment will be automatically extended for three (3) additional years
unless on or before October 1st immediately preceding any such extension, either party gives
written notice to the other of the cessation of further extensions, in which case no further
automatic extensions will occur. In the event that the Company elects not to renew this
Agreement other than for “cause” as defined herein, you will be paid the amount described in
Section V.C.2 below.
	 
	IV.  	Compensation.

	 	A.  	Base Salary. The Company agrees to pay you an annual base salary of
Two Hundred Thirty Thousand Dollars ($230,000) in accordance with the Company’s
standard payroll practices (“Base Salary”). Beginning January 20, 1999 or sooner if
you raise Two Million Dollars ($2,000,000), your Base Salary shall be increased to Two
Hundred and Fifty Thousand Dollars ($250,000). In subsequent years, the Board of
Directors shall have the sole discretion to establish your Base Salary, except that, at
a minimum, it shall be adjusted upward consistent with changes to the Consumer Price
Index.
	 
	 	B.  	Annual Bonus. You will be eligible to receive an annual performance
bonus not to exceed 50% of your Base Salary in effect during the year under review.
The amount of said bonus shall be determined in the sole discretion of the Compensation
Committee and approved by the Board of Directors.
	 
	 	C.  	Options.

	 	1.  	Upon execution of this Agreement, the Company will grant you six
hundred thousand (600,000) stock options to purchase Subordinate Voting Shares
of stock of the Company at the lowest permissible price when this agreement is
executed, one hundred thousand of which shall vest at the time of the grant.
The remainder shall vest in twelve equal quarterly installments over the Initial
Term of this Agreement with the first installment vesting on April 21, 1998.
The remaining unvested options shall vest immediately upon a termination without
cause by the Company.

 

 

Mr. Stephen M. Simes

January 21, 1998

Page 3

CONFIDENTIAL

	 	2.  	Upon execution of this Agreement, the Company agrees to grant you
a combination of an additional four hundred thousand (400,000) Subordinate
Voting Shares and/or stock options to purchase Subordinate Voting Shares of
stock of the Company during the Initial Term of this Agreement at the lowest
permissible price when this agreement is executed. Exercise of these options
shall be subject to the stock price being equal to or greater than One Dollar
($1.00) per share at the time the options and/or shares vest. These options
shall vest in twelve equal quarterly installments over the Initial Term of this
Agreement and shall be exercisable at such time as the foregoing condition
precedent is satisfied.
	 
	 	3.  	In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, reverse stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in the corporate
structure or shares of the Company, (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), in order to prevent dilution or enlargement of your rights, the
Company (or the board of the surviving corporation) shall make appropriate
adjustment as to the number of securities subject to this Option.

	 	   	All of the options granted pursuant to this Section IV.C.3 (the “Anti-Dilution
Options”) shall automatically vest in accordance with the same vesting schedule set
forth in Sections IV.C.1 and IV.C.2 above. (As an illustration, if 200,000 of the
1,000,000 shares and/or options granted pursuant to Section IV.C.1 and IV.C.2 above
were vested at the time of the grant of the Anti-Dilution Options pursuant to this
Section IV.C.3, then 20% of the Anti-Dilution Options would automatically vest
immediately at the time of the grant, and the remaining 80% would vest simultaneously
with the vesting of the remaining shares and/or options granted pursuant to Section
IV.C.1 and IV.C.2).
	 
	 	   	In the event that your employment is terminated by the Company other than for
justifiable cause (as hereinafter defined), or if the Company elects not to renew
this Agreement, or if you are not nominated by the Company for reelection to the
Board of Directors other than for justifiable cause (as hereinafter defined), all outstanding stock options and shares that are
held by you or your estate will immediately become exercisable and all restrictions
against disposition, if any, which have not otherwise lapsed shall immediately lapse,
and the period within which they may be exercised will be one year following such
termination of employment.
	 
	 	D.  	Benefits. In addition to the other compensation to be paid under this
Section IV, you will be entitled to participate in all benefit plans available to all
full-time, eligible employees hereafter established by the Company, in accordance with
the terms and conditions of such plans, which the Company shall adopt promptly

 

 

Mr. Stephen M. Simes

January 21, 1998

Page 4

CONFIDENTIAL

	 	   	following the date hereof. These plans shall include, but not be limited to, the
following: a 401(k) plan; group hospitalization, health, dental, disability (for which
the Company agrees to obtain the maximum long-term disability insurance benefit allowed
by applicable law), and term life insurance (in the amount of $1.1 million); and
supplementary long-term disability insurance.
	 
	 	E.  	Reimbursement of Business Expenses. In addition to payment of
compensation under this Section IV, the Company agrees to reimburse you for all
reasonable out-of-pocket business expenses incurred by you on behalf of the Company,
provided that you properly account to the Company for all such expenses in accordance
with the rules and regulations of the Internal Revenue Service promulgated under the
Internal Revenue Code of 1986, as amended, and in accordance with the standard policies
of the Company relating to reimbursement of business expenses.
	 
	 	F.  	Automobile Allowance. The Company shall provide you with a monthly
stipend of One Thousand Dollars ($1,000.00) for your automobile use.
	 
	 	G.  	Vacation. You are entitled to four (4) weeks of paid vacation per
calendar year.

	V.  	Termination.

	 	A.  	Early Termination. Subject to the respective continuing obligations of
the parties pursuant to Sections VI, VII and VIII, this Section sets forth the terms
for early termination of this Agreement.
	 
	 	B.  	Termination for Cause. The Company may terminate this Agreement and
your employment immediately for cause. For this purpose, “cause” means any of the
following: (1) fraud, (2) theft or embezzlement of the Company’s assets, (3) a
violation of law involving moral turpitude, (4) your repeated and willful failure to
follow instructions of the Board provided that the conduct has not ceased or the
offense cured within thirty (30) days following written warning from the Company that
sets forth in reasonable detail the facts claimed to provide the basis for such
termination. In the event of termination for cause pursuant to this Section V.B, you
will be paid at the usual rate your annual Base Salary, car allowance, and any
out-of-pocket expenses, through the date of termination specified in any notice of
termination and any amounts to which you are entitled under any Company benefit plan in
accordance with the terms of such plan.
	 
	 	C.  	Termination Without Cause. Either you or the Company may terminate
this Agreement and your employment without cause on thirty (30) days written notice.
In the event of termination of this Agreement and of employment pursuant to this
Section V.C, compensation will be paid as follows:

	 	1.  	if the termination is by you without cause, you will be paid at
the usual rate of your annual Base Salary, car allowance, and any out-of-pocket
expenses incurred on behalf of the Company and accounted for pursuant

 

 

Mr. Stephen M. Simes

January 21, 1998

Page 5

CONFIDENTIAL

	 	   	to Section IV.E through the date of termination specified in such notice (but not to exceed
thirty (30) days from the date of such notice); or
	 
	 	2.  	Notwithstanding any provision to the contrary contained herein,
in the event your employment is terminated by the Company at any time for any
reason other than justifiable cause, disability or death, the Company shall:

     (i) pay you a severance benefit, in a lump sum payable no later than
the fifth business day following the date of termination, an amount equal to
your total compensation over the preceding twelve months, including the car
allowance;

     (ii) continue to provide you, at the Company’s expense, with term
life insurance, as provided herein until the earlier of (A) the expiration of
the “Severance Period” (which shall mean the longer of these two periods: one
year from the date of termination or the remaining term of this Agreement), or
(B) your obtaining full-time employment;

     (iii) continue to allow you to participate, at the Company’s
expense, in the Company’s group hospitalization, health, dental and disability
insurance programs until the earlier of (A) the expiration of the Severance
Period, or (B) your becoming eligible to participate in another employer’s
corresponding group insurance and disability plans;

     (iv) provide you with outplacement services at a qualified agency
selected by you and the use of an office and reasonable secretarial support
for one year (unless you become otherwise employed within such period);

     (v) reimburse out-of-pocket expenses incurred by you on behalf of the
Company and accounted pursuant to Section IV.E; and

     (vi) reimburse you for any and all unused vacation days accrued to
the date of such termination.

	 	D.  	Termination for Good Reason. You may terminate this Agreement upon
thirty (30) days written notice to the Company for good reason. For this purpose,
“good reason” means: (i) the assignment to you of any duties inconsistent with your
positions, duties, responsibilities and status with the Company as of the date hereof, or a change in
your reporting responsibilities, titles or offices, or any removal of you from or any
failure to re-elect you to any of such positions; (ii) the failure of the Company to
continue in effect any fringe benefit or compensation plan, retirement plan, life
insurance plan, health or disability plan in which you were participating (except as
such change is prompted in good faith by a change in the law), or the taking of any
action by the Company, which could reasonably be expected to adversely affect your
participation in or materially reduce your benefits under any such plans or deprive
you of any material fringe benefit

 

 

Mr. Stephen M. Simes

January 21, 1998

Page 6

CONFIDENTIAL

	 	   	enjoyed by you, (iii) the reduction of your salary
or car allowance or failure to increase such salary as is provided in Section IV.A
above, or any other breach of this Agreement by the Company; or (iv) the occurrence
of a Change in Control as defined in Section IX. In any such case the Company will
pay you the amounts, and provide you the benefits, all as set forth in Section V.C.2
above.
	 
	 	E.  	Termination In The Event of Death or Permanent Disability. This
agreement and your employment will terminate in the event of your death or permanent
disability.

	 	1.  	In the event of your death, Base Salary and car allowance will be
terminated as of the end of the month in which death occurs.
	 
	 	2.  	For the purposes of this Agreement, the term “disability” shall
mean your inability, due to illness, accident or any other physical or mental
incapacity, to substantially perform your duties for a period of four (4)
consecutive months or for a total of six (6) months (whether or not consecutive)
in any twelve (12) month period during the term of this Agreement.
	 
	 	3.  	Upon your “disability”, the Company shall have the right to
terminate your employment. Notwithstanding any inability to perform your
duties, you shall be entitled to receive your compensation (including bonuses,
if any) as provided herein until the later of (i) the date of your termination
of employment for disability in accordance with this Agreement, or (ii) the date
upon which you begin to receive long-term disability insurance benefits under
the policy provided by the Company pursuant to this Agreement. Any termination
pursuant to Section V.E.2 shall be effective on the date thirty (30) days after
which you shall have received written notice of the Company’s election to
terminate.

	 	F.  	Entire Termination Payment.

	 	1.  	The compensation provided for in Sections V.B, V.C, V.D and V.E
for early termination of this Agreement will constitute your sole remedy for
such termination. You will not be entitled to any other termination or
severance payment which might otherwise be payable to you under any other
agreement between you and the Company or under any policy of the Company. This
Section will not have any effect on distributions to which you may be entitled
at termination from any qualified tax plan or any other plan (other than a
severance payment or similar plan).
	 
	 	2.  	Notwithstanding any other provisions of this Agreement or any
other agreement, contract or understanding heretofore or hereafter entered into
between you and the Company, if any “payments” (including, without limitation,
any benefits or transfers of property or the acceleration of the vesting of any
benefits) in the nature of compensation under any 

 

 

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	 	   	arrangement that is considered
contingent on a Change in Control for purposes of Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”), together with any other payments
that you have the right to receive from the Company or any corporation that is a
member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard
to Section 1504(b) of the Code) of which the Company is a member, would
constitute a “parachute payment” (as defined in Section 280G of the Code),
such payments will be reduced to the largest amount as will result in no
portion of such payments being subject to the excise tax imposed by Section
4999 of the Code; provided, however, that you will be entitled to designate
those payments that will be reduced or eliminated in order to comply with the
foregoing provision.

	 	G.  	Required Resignations Upon Early Termination or Expiration. You agree
that upon any termination of your employment with the Company or expiration of this
Employment Agreement, such termination or expiration under this Agreement will
automatically and without further action be deemed to constitute your simultaneous
resignation from all director, officer, trustee, agent and any other positions within
the Company, all of its affiliates (including but not limited to any entity that is a
shareholder of the Company and any subsidiaries and any parent of the Company), the
Company’s employee benefit plans, trusts and foundations (charitable or otherwise) or
any other similar position associated with the Company. Simultaneously upon such
termination of employment or expiration of this employment agreement, you agree to
execute and deliver to the Company any and all documents, agreements, certificates,
letters or other written instruments confirming all such resignations.

	VI.  	Inventions.

	 	A.  	You agree that all Inventions (as defined below) you make, conceive, reduce to
practice or author (either alone or with others) during or within one year after the
term of this Agreement will be the Company’s sole and exclusive property. You will,
with respect to any such Invention: (i) keep current, accurate, and complete records,
which will belong to the Company and be kept and stored on the Company’s premises while
you are employed by the Company; (ii) promptly and fully disclose the existence and
describe the nature of the Invention to the Company in writing (and without request);
(iii) assign (and you do hereby assign) to the Company all of your rights to the
Invention, any applications you make for patents or copyrights in any country, and any
patents or copyrights granted to you in any country; and (iv) acknowledge and deliver
promptly to the Company any written instruments, and perform any other acts necessary
in the Company’s opinion to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain patents and/or copyrights
on the Invention and to vest the entire right and title to the Invention in the
Company.

 

 

Mr. Stephen M. Simes

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	 	B.  	“Inventions,” as used in this Section, means any discoveries, improvements,
creations, ideas and inventions, including without limitation software and artistic and
literary works (whether or not they are described in writing or reduced to practice) or
other works of authorship (whether or not they can be patented or copyrighted) that:
(i) relate directly to the Company’s business or the Company’s research or development
during the term of this Agreement; (ii) result from any work you perform for the
Company; (iii) use the Company’s equipment, supplies, facilities or trade secret
information; or (iv) you develop during any time that Section II above obligates you to
perform your employment duties.
	 
	 	   	The requirements of this Section do not apply to an Invention for which no equipment,
supplies, facility or trade secret information of the Company was used and which was
developed entirely on your own time, and which neither (1) relates directly to the
Company’s business or to the Company’s actual or demonstrably anticipated research or
development, nor (2) results from any work you performed for the Company. Except as
previously disclosed to the Company in writing, you do not have, and will not assert,
any claims to or rights under any Inventions as having been made, conceived, authored
or acquired by you prior to your employment by the Company.

	VII.  	Proprietary Information.

	 	A.  	Except as required in your duties to the Company, you will never, either during
or after your employment by the Company, use or disclose Proprietary Information to any
person not authorized by the Company to receive it. When your employment with the
Company ends, you will promptly turn over to the Company all records and any
compositions, articles, devices, apparatus and other items that disclose, describe or
embody Proprietary Information, including all copies, reproductions and specimens of
the Proprietary Information in your possession, regardless of who prepared them.
	 
	 	B.  	“Proprietary Information,” as used in this Section VII, means any nonpublic
information concerning the Company, including information relating to the Company’s
research, product development, engineering, purchasing, product costs, accounting,
leasing, servicing, manufacturing, sales, marketing, administration and finances. This
information includes, without limitation: (i) trade secret information about the
Company and its products; (ii) “Inventions,” as defined in Section VI.B; (iii)
information concerning any of the Company’s past, current or possible future products.
Proprietary Information or confidential information also includes any information which
is not generally disclosed and which is useful or helpful to the Company and/or which
would be useful or helpful to competitors. More specific examples include financial
data, sales figures for individual projects or groups of projects, planned new projects
or planned advertising programs, areas where the Company intends to expand, lists of
suppliers, lists of customers, wage and salary data, capital investment plans,
projected earnings, changes in management or policies of the Company, testing

 

 

Mr. Stephen M. Simes

January 21, 1998

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CONFIDENTIAL

	 	   	data, manufacturing methods, suppliers’ prices to us, or any plans we may have for improving
any of our products. This information is confidential or Proprietary Information
regardless of its form, e.g. oral, written, electronic or other, and whether or not it
is labeled as “proprietary” or “confidential.” The Company’s Proprietary Information
or confidential information includes our information and that of our affiliates and
third parties concerning or relating to us.

	VIII.  	Competitive Activities.

	 	A.  	You agree that during your employment with the Company, you will not alone, or
in any capacity with another person or entity, (i) directly or indirectly engage in any
employment or activity that competes with the Company’s business at the time your
employment with the Company ends, within any state in the United States or within
Canada, (ii) interfere with the Company’s relationships with any of its current or
potential customers.
	 
	 	B.  	You also agree that for a period of one year after the termination of this
Agreement for any one of the following reasons: (i) for “cause” as defined above, (ii)
voluntarily by you without “good reason” as defined above; or (iii) in the event of a
non-renewal of the Agreement by you other than for “good reason”, you will abide by
clauses (ii) and (iii) of Section VIII.A above.

	IX.  	Change in Control.

	 	A.  	For purposes of this Agreement, a “Change in Control” of the Company will mean
the following:

(i) the sale, lease, exchange or other transfer, directly or indirectly, of
substantially all of the assets of the Company (in one transaction or in a
series of related transactions) to a person or entity that is not controlled
by the Company;

(ii) the approval by the shareholders of the Company of any plan or proposal
for the liquidation or dissolution of the Company;

(iii) a change in control of the Company of a nature that would be required to
be reported in response to Item 5(f) of Schedule 14A of Regulation 14A or to
Item 1 of Form 8-K promulgated under the Securities Exchange Act of 1934, as amended
(the “Act”), provided that, without limitation, a Change in Control shall be
deemed to have occurred if (i) any “person” (as such term is used in Sections
13(d) and 14(d)(2) of the Act) is or shall become the beneficial owner,
directly or indirectly, of securities of the Company representing 30% or more
of the Company’s then outstanding securities; or (ii) during any period of
twenty-four (24) consecutive months, individuals who at the beginning of such
period constitute the entire Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for

 

 

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January 21, 1998

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CONFIDENTIAL

election by the Company’s stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.

	 	B.  	If a Change in Control occurs, the Option will become immediately exercisable
in full and will remain exercisable for the remainder of its term, regardless of
whether you remain in the employ or service of the Company.
	 
	 	C.  	For purposes of this Section IX, you shall be entitled to the severance
benefits provided in Section V.D if the date of termination occurs either (i) while
there is to the Company’s knowledge actively pending a proposed transaction, which, if
consummated, could reasonably be expected to result within one (1) year in a Change in
Control, or (ii) within two (2) years following a Change in Control; unless, in the
case of either (i) or (ii), your employment is terminated or this Agreement is not
renewed because of death or disability or by the Company for “cause” or voluntarily by
you other than for “good reason”.

	X.  	Miscellaneous.

	 	A.  	No Adequate Remedy. You understand that if you fail to fulfill your
obligations under this Agreement, the damages to the Company would be very difficult to
determine. Therefore, in addition to any other rights or remedies available to the
Company at law, in equity, or by statute, you hereby consent to the specific
enforcement of this Agreement by the Company through an injunction or restraining order
issued by an appropriate court.
	 
	 	B.  	Governing Law. The laws of Illinois will govern the validity,
construction, and performance of this Agreement.
	 
	 	C.  	Arbitration. Any and all disputes which arise concerning the rights,
duties or obligations of either party under any provision of this Agreement shall be
resolved exclusively by binding arbitration in accordance with the following terms and
conditions. The party seeking arbitration shall commence a proceeding in arbitration
in Chicago, Illinois under the Rules of the American Arbitration Association. Within
one month from one of the party’s request for arbitration, the party requesting
arbitration shall appoint one arbitrator and within one month of the date of such
appointment, the other party shall appoint an arbitrator. Within three weeks of the
date that the second arbitrator is appointed, and prior to any examination of the
merits of the case, the two arbitrators shall mutually select a third arbitrator. If
either of the parties fails to appoint an arbitrator or if the two arbitrators fail to
appoint the third arbitrator within the periods referred to above, one shall be
appointed in accordance with the Rules within fifteen (15) days of the expiry date of
the respective period referred to above. The three arbitrators so selected shall
constitute the arbitral panel. The arbitral panel shall make its decisions by the
majority of its members. The arbitral panel shall render its decision and award in
writing within ninety (90) days from its final constitution.

 

 

Mr. Stephen M. Simes

January 21, 1998

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CONFIDENTIAL

	 	   	There shall be no appeal
from the decision and award of the arbitral panel, which shall be final and binding on
the parties and may be entered in any court having jurisdiction thereof.
	 
	 	D.  	Rights in the Event of Dispute. If, with respect to any alleged
failure by the Company to comply with any of the terms of this Agreement, you hire
legal counsel with respect to this Agreement or institute any negotiations or institute or respond to legal action to
assert or defend the validity of, enforce your rights under, or recover damages for
breach of this Agreement, the Company shall pay, as they are incurred, your actual
expenses for attorneys’ fees and disbursements, together with such additional
payments, if any, as may be necessary so that the net-after-tax payments to you equal
such fees and disbursements, provided that such payments shall be reimbursed by you
to the Company if the Arbitration panel rules in favor of the Company and further
decides that such reimbursement is appropriate. Further, pending the resolution of
any such claim or dispute, you shall not be deemed terminated for purposes of this
Agreement.
	 
	 	E.  	Mitigation. You are not required to mitigate the amount of any
payments to be made pursuant to this Agreement by seeking other employment or
otherwise, nor shall the amount of any payments provided for in this Agreement be
reduced by any compensation earned by you as the result of your self-employment or your
employment by another employer after the date of termination of your employment with
the Company.
	 
	 	F.  	Construction. Wherever possible, each provision of this agreement will
be interpreted so that it is valid under the applicable law. If any provision of this
agreement is to any extent invalid under the applicable law, that provision will still
be effective to the extent it remains valid under the applicable law. The remainder of
this agreement also will continue to be valid, and the entire agreement will continue
to be valid in other jurisdictions.
	 
	 	G.  	Waivers. No failure or delay by either the Company or you in
exercising any right or remedy under this agreement will waive any provision of the
agreement. Nor will any single or partial exercise by either the Company or you of any
right or remedy under this agreement preclude either the Company or you from otherwise
or further exercising these rights or remedies, or any other rights or remedies granted
by any law or any related document.
	 
	 	H.  	Entire Agreement. This Agreement is the entire agreement between the
parties and replaces all other oral negotiations, commitments, writings and
understandings between the parties concerning the matters in this agreement. This
Agreement can only be modified by mutual written consent of the parties. You
acknowledge that you have been advised to seek legal counsel to review this Agreement
with you before you sign it.

 

 

Mr. Stephen M. Simes

January 21, 1998

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CONFIDENTIAL

	 	I.  	Successors and Assigns. Except as otherwise provided in Section IX,
this Agreement will be binding upon and inure to the benefit of the successors and
assigns of the Company whether by way of merger, consolidation, operation of law,
purchase or other acquisition of substantially all of the assets or business of the
Company, and any such successor or assign will absolutely and unconditionally assume
all of the Company’s obligations under this Agreement.
	 
	 	J.  	Notices. All notices, requests and demands given to or made pursuant
hereto will, except as otherwise specified herein, be in writing and be delivered or
mailed to any such party at its address which:

 

 

Mr. Stephen M. Simes

January 21, 1998

Page 13

CONFIDENTIAL

	 	1.  	In the case of the Company will be:

                                        Ben-Abraham Technologies

                                        225 Peachtree Street, NE

                                        Suite 1400, South Tower

                                        Atlanta, GA 30303

                                        Attention: Avi Ben-Abraham, CEO

	 	2.  	In the case of employee will be:

                                        Stephen M. Simes

                                        1173 RFD

                                        Long Grove, IL 60047

	 	   	Any party may, by notice to the other party, designate a changed address. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, will be deemed
dispatched on the registered date or that date stamped on the certified mail receipt, and
will be deemed received within the second business day thereafter or when it is actually
received, whichever is sooner.

	 	K.  	Captions. The various headings or captions in this agreement are for
convenience only and will not affect the meaning or interpretation of this agreement.

       Would you please confirm that this agreement is in accordance with your understanding and that
you have received a copy of this letter by signing an dating it where indicated below, and
returning an executed copy for our records.

Very truly yours,

BEN-ABRAHAM TECHNOLOGIES, INC.

/s/ Avi Ben-Abraham

*By: Avi Ben-Abraham, M.D.

Its: Chief Executive Officer

Agreed to and confirmed as of January 21, 1998:

	 
	/s/ Stephen M. Simes

	

	Stephen M. Simes

	*	 	Subject to approval by the Company’s Board of Directors.

/s/ ABA

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