Document:

exv10w1

 

Exhibit 10.1

Alkermes Fiscal 2008 Named-Executive Bonus Plan

The Alkermes Fiscal 2008 Named-Executive Bonus Plan (the “Plan”) includes the following
elements:

	 	•	 	Our Philosophy
	 
	 	•	 	Eligibility
	 
	 	•	 	Performance Period Company Objectives
	 
	 	•	 	Size of Company Bonus Pool
	 
	 	•	 	Individual Bonus Targets
	 
	 	•	 	Individual Performance Factor

Our Philosophy

We believe in a pay-for performance approach that combines individual and Company performance with
compensation to reward employees for the work they do to achieve Company goals. This Plan is
designed to:

	 	•	 	provide upside reward for outstanding Company and individual performance
	 
	 	•	 	motivate named-executives to focus on and work together toward achieving Company
and individual goals
	 
	 	•	 	be competitive within our industry

Eligibility

Company named-executives are eligible to participate in the Plan. As of April 1, 2007, the
following named-executives participate in the Plan:

	 	•	 	Chairman of the Board of Directors
	 
	 	•	 	Chief Executive Officer and President
	 
	 	•	 	Vice President, Chief Financial Officer and Treasurer
	 
	 	•	 	Vice President, Corporate Development
	 
	 	•	 	Vice President, General Counsel and Secretary
	 
	 	•	 	Vice President, Science and Development and Chief Medical Officer
	 
	 	•	 	Vice President, Operations

The Performance Period under the Plan consists of the twelve month period from April 1, 2007 to
March 31, 2008. Bonuses will be paid prior to two and one half months after the end of the
Performance Period.

Performance Period Company Objectives

The following are the overall Company Objectives for the Performance Period:

Objective 1

Drive robust supply of RISPERDAL® CONSTA® sales

 

 

Objective 2

Successfully commercialize VIVITROL®

Objective 3

Achieve key development program milestones

Objective 4

Financial performance against budget

The Compensation Committee of the Board of Directors reserves the right to modify the above
objectives at any time during the course of the Performance Period in response to changing business
goals, needs and operations.

Individual Bonus Targets

Individual target bonus ranges as a percentage of base salary are established by the Compensation
Committee for each of the named-executive officers. Bonuses are to be prorated based on the number
of days employed in the Performance Period.

Individual Performance 

Each individual’s bonus under the Plan will be determined by the Compensation Committee of the
Board of Directors of the Company. Individual performance against the Company objectives affects
the determination of each individual’s bonus relative to comparable market bonus amounts. The
percentage of base salary represented by each bonus granted under the Plan shall fall within the
target bonus range.

Size of Plan Bonus Pool

The size of the overall bonus pool under the Plan will equal the aggregate of the individual
bonuses determined by the Compensation Committee under the Plan. The size of the overall bonus pool
under the Plan shall be determined in the absolute discretion of the Compensation Committee.exv10w1

 

    Exhibit 10.1

 

    EMPLOYMENT
    AGREEMENT

 

    THIS AGREEMENT, made and entered into as of this
    10th day of February, 2006, by and between The Kansas City
    Southern Railway Company, a Missouri corporation
    (“Railway”), Kansas City Southern, a Delaware
    corporation (“KCS”) and Richard M. Zuza, an individual
    (“Executive”).

 

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

 

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

 

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

 

    2.  Compensation.

 

    (a) Base Compensation.  Railway
    shall pay Executive as compensation for his services hereunder
    an annual base salary at the rate approved by the Railway’s
    Compensation Committee. Such rate shall not be reduced except as
    agreed by the parties or except as part of a general salary
    reduction program imposed by Railway for non-union employees and
    applicable to all officers of Railway, not related to a Change
    of Control.

 

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

 

    4.  Term and Termination.

 

    The “Term” of this Agreement shall begin on the date
    first written above and continue until terminated as provided in
    (a) through (d) of this Section 4.

 

    (a) Termination by
    Executive.  Executive may terminate this
    Agreement and his employment hereunder by providing at least
    thirty (30) days advance written notice to Railway, except
    that in the event of any material breach of this Agreement by
    Railway, Executive may terminate this Agreement and his
    employment hereunder immediately upon notice to Railway.

 

 

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

 

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

 

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

 

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

 

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

 

    (iv) Executive’s failure to substantially perform his
    duties and responsibilities hereunder, including without
    limitation Executive’s willful failure to follow reasonable
    instructions of the President or other officer to whom Executive
    reports;

 

    (v) Executive’s breach of an express employment policy
    of Railway or its affiliates;

 

    (vi) Executive’s fraud or criminal activity;

 

    (vii) Embezzlement or misappropriation by Executive; or

 

    (viii) Executive’s breach of his fiduciary duty to
    Railway, or KCS, or their affiliates.

 

    (d) Termination by Railway Other Than For
    Cause.

 

    (i) Railway may terminate this Agreement and
    Executive’s employment other than for cause immediately
    upon notice to Executive, and in such event, Railway shall
    provide severance benefits to Executive in accordance with
    Paragraph 4(d)(ii) below. Executive acknowledges and agrees
    that such severance benefits constitute the exclusive remedy of
    Executive upon termination of employment other than for cause.
    Notwithstanding any other provision of this Agreement, as a
    condition to receiving such severance benefits, Executive shall
    execute a full release of claims in favor of Railway and KCS and
    their affiliates in the form Attached hereto as Appendix A.

 

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

    

    2

 

    benefits under any other employee benefit plan or program,
    except that Executive shall be entitled to participate in the
    KCS Section 401(k) and Profit Sharing Plan and the KCS
    Employee Stock Ownership Plan (if Railway employees then still
    participate in such plans) in the year of termination of
    employment only if Executive meets all requirements of such
    plans for participation in such year.

 

    5.  Confidentiality and Non-Disclosure.

 

    (a) Executive understands and agrees that he will be given
    Confidential Information (as defined below) during his
    employment with Railway relating to the business of Railway, KCS
    and/or their
    affiliates, in exchange for his agreement herein. Executive
    hereby expressly agrees to maintain in strictest confidence and
    not to use in any way (including without limitation in any
    future business relationship of Executive), publish, disclose or
    authorize anyone else to use, publish or disclose in any way,
    any Confidential Information relating in any manner to the
    business or affairs of Railway, KCS
    and/or their
    affiliates. Executive agrees further not to remove or retain any
    figures, calculations, letters, documents, lists, papers, or
    copies thereof, which embody Confidential Information of
    Railway, KCS
    and/or their
    affiliates, and to return, prior to Executive’s termination
    of employment for any reason, any such information in
    Executive’s possession. If Executive discovers, or comes
    into possession of, any such information after his termination
    he shall promptly return it to Railway. Executive acknowledges
    that the provisions of this paragraph are consistent with
    Railway’s policies and procedures to which Executive, as an
    employee of Railway, is bound.

 

    (b) For purposes of this Agreement, “Confidential
    Information” includes, but is not limited to, information
    in the possession of, prepared by, obtained by, compiled by, or
    that is used by Railway, KCS or their affiliates or customers,
    and: (i) is proprietary to, about, or created by Railway,
    KCS or their affiliates or customers; (ii) gives Railway,
    KCS or their affiliates or customers some competitive business
    advantage, the opportunity of obtaining such advantage, or
    disclosure of which might be detrimental to the interest of
    Railway, KCS or their affiliates or customers; and (iii) is
    not typically disclosed by Railway, KCS or their affiliates or
    customers, or known by persons who are not employed by Railway,
    KCS or their affiliates or customers. Without in any way
    limiting the foregoing and by way of example, Confidential
    Information shall include: information pertaining to
    Railway’s, KCS’s or their affiliates’ business
    operations such as financial and operational information and
    data, operational plans and strategies, business and marketing
    strategies, pricing information, plans for various products and
    services, and acquisition and divestiture planning.

 

    (c). In the event of any breach of this Paragraph 5 by
    Executive, Railway shall be entitled to terminate any and all
    remaining severance benefits under Paragraph 4(d)(ii) and
    shall be entitled to pursue such other legal and equitable
    remedies as may be available. Executive acknowledges,
    understands and agrees that Railway, KCS
    and/or their
    affiliates will suffer immediate and irreparable harm if
    Executive fails to comply with any of his obligations under
    Paragraph 5 of this Agreement, and that monetary damages
    alone will be inadequate to compensate Railway, KCS or their
    affiliates for such breach. Accordingly, Executive agrees that
    Railway, KCS
    and/or their
    affiliates shall, in addition to any other remedies available to
    it at law or in equity, be entitled to temporary, preliminary,
    and permanent injunctive relief and specific performance to
    enforce the terms of Paragraph 5 without the necessity of
    proving inadequacy of legal remedies or irreparable harm or
    posting bond.

 

    6.  Duties Upon Termination; Survival.

 

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

 

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

    

    3

 

 

    7.  Continuation of Employment Upon Change in
    Control.

 

    (a) Continuation of
    Employment.  Subject to the terms and
    conditions of this Paragraph 7, in the event of a Change in
    Control (as defined in Paragraph 7(d)) at any time during
    the term of this Agreement, Executive agrees to remain in the
    employ of Railway for a period of three years (the “Three
    Year Period”) from the date of such Change in Control (the
    “Control Change Date”). Railway agrees to continue to
    employ Executive for the Three Year Period. During the Three
    Year Period, (i) the Executive’s position (including
    offices, titles, reporting requirements and responsibilities),
    authority and duties shall be at least commensurate in all
    material respects with the most significant of those held,
    exercised and assigned at any time during the 12 month
    period immediately before the Control Change Date and
    (ii) the Executive’s services shall be performed at
    the location where Executive was employed immediately before the
    Control Change Date or at any other location less than
    40 miles from such former location. During the Three Year
    Period, Railway shall continue to pay to Executive an annual
    base salary on the same basis and at the same intervals as in
    effect prior to the Control Change Date at a rate not less than
    12 times the highest monthly base salary paid or payable to the
    Executive by Railway in respect of the
    12-month
    period immediately before the Control Change Date.

 

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

 

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

 

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

 

    In addition, Railway and KCS shall use their best efforts to
    cause all outstanding options held by Executive under any stock
    option plan of KCS or its affiliates to become immediately
    exercisable on the Control Change Date and to the extent that
    such options are not vested and are subsequently forfeited, the
    Executive shall receive a lump-sum cash payment within
    5 days after the options are forfeited equal to the
    difference between the fair market value of the shares of stock
    subject to the non-vested, forfeited options determined as of
    the date such options are forfeited and the exercise price for
    such options. During the Three-Year Period Executive shall be
    entitled to participate, on the basis of his executive position,
    in any incentive compensation plan of KCS, or Railway in
    accordance with the terms thereof at the Control Change Date;
    provided that if under KCS, or Railway programs or
    Executive’s Employment Agreement in existence immediately
    prior to the Control Change Date, there are written limitations
    on participation for a designated time period in any incentive
    compensation plan, such limitations shall continue after the
    Control Change Date to the extent so provided for prior to the
    Control Change Date.

 

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

 

    (c) Payment.  With respect to any
    plan or agreement under which Executive would be entitled at the
    Control Change Date to receive Specified Benefits or incentive
    compensation as a general obligation of Railway which has not
    been separately funded (including specifically, but not limited
    to, those referred to

    

    4

 

    under Paragraph 7(b)(i)(D) above), Executive shall receive
    within five (5) days after such date full payment in cash
    of all amounts to which he is then entitled thereunder.

 

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

 

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

 

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

 

    (iii) the stockholders of Railway or KCS shall have
    approved a merger, consolidation or dissolution of Railway or
    KCS or a sale, lease, exchange or disposition of all or
    substantially all of Railway’s or KCS’s assets, if
    persons who were the beneficial owners of the combined voting
    power of Railway’s or KCS’s voting securities
    immediately before any such merger, consolidation, dissolution,
    sale, lease, exchange or disposition do not immediately
    thereafter, beneficially own, directly or indirectly, in
    substantially the same proportions, more than 60% of the
    combined voting power of any corporation or other entity
    resulting from any such transaction.

 

    (e) Termination After Control Change
    Date.  Notwithstanding any other provision of
    this Paragraph 7, at any time after the Control Change
    Date, Railway may terminate the employment of Executive (the
    “Termination”), but unless such Termination is for
    Cause as defined in subparagraph (g) or for
    disability, within five (5) days of the Termination Railway
    shall pay to Executive his full base salary through the
    Termination, to the extent not theretofore paid, plus a lump sum
    amount (the “Special Severance Payment”) equal to the
    product of (i) 160% of his annual base salary specified in
    Paragraph 7(a) multiplied by (ii) Two; and Specified
    Benefits (excluding any incentive compensation) to which
    Executive was entitled immediately prior to Termination shall
    continue until the end of the
    3-year
    period (“Benefits Period”) beginning on the date of
    Termination. If any plan pursuant to which Specified Benefits
    are provided immediately prior to Termination would not permit
    continued participation by Executive after Termination, then
    Railway shall pay to Executive within five (5) days after
    Termination a lump sum payment equal to the amount of Specified
    Benefits Executive would have received under such plan if
    Executive had been fully vested in the average annual
    contributions or benefits in effect for the three plan years
    ending prior to the Control Change Date (regardless of any
    limitations based on the earnings or performance of KCS, or
    Railway) and a continuing participant in such plan to the end of
    the Benefits Period. Following the end of the Benefits Period,
    Railway shall continue to provide to the Executive and the
    Executive’s family the following benefits
    (“Post-Period Benefits”): (1) prior to the
    Executive’s attainment of age sixty (60), health,
    prescription and dental benefits equivalent to those then
    applicable to active peer executives of Railway) and their
    families, as the same may be modified from time to time, and
    (2) following the Executive’s attainment of age sixty
    (60) (and without regard to the Executive’s period of
    service with Railway) health and prescription benefits
    equivalent to those then applicable to retired peer executives
    of Railway and their families immediately prior to the Change of
    Control. The cost to the Executive of such Post-Period Benefits
    shall not exceed the cost of such benefits to active or retired
    (as applicable) peer executives immediately prior to the Change
    of Control. Notwithstanding the preceding two sentences of this
    Paragraph 7(e), if the Executive is covered under any
    health, prescription or dental plan provided by a subsequent
    employer, then the corresponding type of plan coverage (i.e.,
    health,

    

    5

 

    prescription or dental), required to be provided as Post-Period
    Benefits under this Paragraph 7(e) shall cease. The
    Executive’s rights under this Paragraph 7(e) shall be
    in addition to, and not in lieu of, any post-termination
    continuation coverage or conversion rights the Executive may
    have pursuant to applicable law, including without limitation
    continuation coverage required by Section 4980 of the Code.
    Nothing in this Paragraph 7(e) shall be deemed to limit in
    any manner the reserved right of Railway, in its sole and
    absolute discretion, to at any time amend, modify or terminate
    health, prescription or dental benefits for active or retired
    employees generally.

 

    (f) Resignation After Control Change
    Date.  In the event of a Change in Control as
    defined in Paragraph 7(d), thereafter, upon good reason (as
    defined below), Executive may, at any time during the three-year
    period following the Change in Control, in his sole discretion,
    on not less than thirty (30) days’ written notice (the
    “Notice of Resignation”) to the Secretary of Railway
    and effective at the end of such notice period, resign his
    employment with Railway (the “Resignation”). Within
    five (5) days of such a Resignation, Railway shall pay to
    Executive his full base salary through the effective date of
    such Resignation, to the extent not theretofore paid, plus a
    lump sum amount equal to the Special Severance Payment (computed
    as provided in the first sentence of Paragraph 7(e), except
    that for purposes of such computation all references to
    “Termination” shall be deemed to be references to
    “Resignation”). Upon Resignation of Executive,
    Specified Benefits to which Executive was entitled immediately
    prior to Resignation shall continue on the same terms and
    conditions as provided in Paragraph 7(e) in the case of
    Termination (including equivalent payments provided for
    therein), and Post-Period Benefits shall be provided on the same
    terms and conditions as provided in Paragraph 7(e) in the
    case of Termination. For purposes of this Agreement, “good
    reason” means any of the following:

 

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

 

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

 

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

 

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

 

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

 

    A passage of time prior to delivery of the Notice of Resignation
    or a failure by the Executive to include in the Notice of
    Resignation any fact or circumstance which contributes to a
    showing of Good Reason shall not waive any right of the
    Executive under this Agreement or preclude the Executive from
    asserting such fact or circumstance in enforcing rights under
    this Agreement.

 

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

 

    (i) bad judgment or negligence;

 

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

 

    (iii) any act or omission with respect to which a
    determination could properly have been made by the Railway Board
    that the Executive met the applicable standard of conduct for
    indemnification or

    

    6

 

    reimbursement under Railway’s by-laws, any applicable
    indemnification agreement, or applicable law, in each case in
    effect at the time of such act or omission; or

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

    (i) Determination by the Executive.

 

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

 

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

 

    (j) Additional
    Gross-up
    Amounts.  If, despite the initial conclusion
    of Railway
    and/or the
    Executive that certain Payments are neither subject to Excise
    Taxes nor to be counted in determining whether other Payments
    are subject to Excise Taxes (any such item, a
    “Non-Parachute Item”), it is later determined
    (pursuant to

    

    7

 

    subsequently-enacted provisions of the Code, final regulations
    or published rulings of the IRS, final IRS determination or
    judgment of a court of competent jurisdiction or Railway’s
    independent auditors) that any of the Non-Parachute Items are
    subject to Excise Taxes, or are to be counted in determining
    whether any Payments are subject to Excise Taxes, with the
    result that the amount of Excise Taxes payable by the Executive
    is greater than the amount determined by Railway or the
    Executive pursuant to Paragraph 7(h) or
    Paragraph 7(i), as applicable, then Railway shall pay the
    Executive an amount (which shall also be deemed a
    Gross-up
    Payment) equal to the product of:

 

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

 

    (ii) the
    Gross-up
    Multiple.

 

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

 

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

 

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

 

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

 

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

 

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

 

    (iv) permit Railway to participate in any proceedings
    relating to such claim; provided, however, that Railway shall
    bear and pay directly all costs and expenses (including
    additional interest and penalties) incurred in connection with
    such contest and shall indemnify and hold the Executive
    harmless, on an after-tax basis, for any Excise Tax or income
    tax, including related interest and penalties, imposed as a
    result of such representation and payment of costs and expenses.
    Without limiting the foregoing, Railway shall control all
    proceedings in connection with such contest and, at its sole
    option, may pursue or forego any and all administrative appeals,
    proceedings, hearings and conferences with the taxing authority
    in respect of such claim and may, at its sole option, either
    direct the Executive to pay the tax claimed and sue for a refund
    or contest the claim in any permissible manner. The Executive
    agrees to prosecute such

    

    8

 

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

 

    (n) Refunds.  If, after the receipt
    by the Executive of an amount advanced by Railway pursuant to
    Paragraph 7(m), the Executive receives any refund with
    respect to such claim, the Executive shall (subject to
    Railway’s complying with the requirements of
    Paragraph 7(m)) promptly pay Railway the amount of such
    refund (together with any interest paid or credited thereon
    after taxes applicable thereto). If, after the receipt by the
    Executive of an amount advanced by Railway pursuant to
    Paragraph 7(m), a determination is made that the Executive
    shall not be entitled to a full refund with respect to such
    claim and Railway does not notify the Executive in writing of
    its intent to contest such determination before the expiration
    of 30 days after such determination, then the applicable
    part of such advance shall be forgiven and shall not be required
    to be repaid and the amount of such advance shall offset, to the
    extent thereof, the amount of
    Gross-up
    Payment required to be paid. Any contest of a denial of refund
    shall be controlled by Paragraph 7(m).

 

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

 

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

 

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

 

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

 

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

    

    9

 

    Secretary, or, in the case of the Executive, to him at at
    427 West 12th Street, Kansas City, Missouri 64105, or
    to such other address as a party shall designate by notice to
    the other party.

 

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

 

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

 

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

 

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

 

    15.  Entire Agreement.  This
    Agreement constitutes the entire agreement among the parties
    with respect to the subject matter hereof and terminates and
    supersedes all other prior agreements and understandings, both
    written and oral, between the parties with respect to the terms
    of Executive’s employment or severance arrangements.

    

    10

 

    IN WITNESS WHEREOF, the parties hereto have executed this
    Agreement as of the 10th day of February, 2006.

 

    THE KANSAS CITY SOUTHERN RAILWAY COMPANY

 

			
	 	    By: 
	
    /s/  Arthur
    L. Shoener

    Arthur L. Shoener, President and CEO

 

    KANSAS CITY SOUTHERN

 

			
	 	    By: 
	
    /s/  Michael
    R. Haverty

    Michael R. Haverty, Chairman, President, 

    and CEO

 

    EXECUTIVE

 

			
	 	     
	
    /s/  Richard
    M. Zuza

    Richard M. Zuza

    

    11

 

    Appendix A

 

    WAIVER
    AND RELEASE

 

    In consideration of the benefits described in the Employment
    Agreement, I do hereby fully waive all claims and release The
    Kansas City Southern Railway Company (KCSR), and its affiliates,
    parents, subsidiaries, successors, assigns, directors and
    officers, fiduciaries, employees and agents, as well as any
    employee benefit plans from liability and damages related in any
    way to any claim I may have against or KCSR. This waiver and
    release includes, but is not limited to all claims, causes of
    action and rights under Title VII of the Civil Rights Act
    of 1964, as amended; the Civil Rights Act of 1991; the
    Age Discrimination in Employment Act of 1967, as amended;
    the Civil Rights Act of 1866; the American with Disabilities Act
    of 1990; the Rehabilitation Act of 1973; the Older Workers
    Benefit Protection Act of 1990; the Employee Retirement Income
    Security Act of 1974, as amended; the Worker Adjustment and
    Retraining Notification Act; the Family and Medical Leave Act;
    the Federal Employers Liability Act; the Railway Labor Act,
    including bumping rights, rights to file a grievance, rights to
    a hearing (whether before any company official, any system,
    group, regional or special adjustment board, the National
    Railroad Adjustment Board, or any other entity), and any rights
    to arbitration thereunder; the Missouri Human Rights Act, the
    Kansas Act Against Discrimination, the Kansas and Missouri
    Workers’ Compensation acts, and all local state and federal
    statutes and regulations; all claims arising from labor
    protective conditions imposed by the Interstate Commerce
    Commission or the Surface Transportation Board; all any KCSR
    incentive or benefit plan or program, and any rights under any
    collective bargaining agreement, including seniority rights,
    bumping rights and reinstatement rights, rights to file or
    assert a grievance or other complaint, rights to a hearing, or
    rights to arbitration under such agreement; and all rights under
    common law such as breach of contract, tort or personal injury
    of any sort.

 

    I understand that this Agreement and Release also precludes me
    from recovering any relief as a result of any lawsuit, grievance
    or claims brought on my behalf and arising out of my employment
    or resignation of, or separation from employment, provided that
    nothing in this Agreement and this Release may affect my
    entitlement, if any, to workers’ compensation or
    unemployment compensation. Additionally, nothing in this
    Agreement and Release prohibits me from communications with,
    filing a complaint with, or full cooperation in the
    investigations of, any governmental agency on matters within
    their jurisdictions. However, as stated above, this Agreement
    and Release does prohibit me from recovering any relief,
    including monetary relief, as a result of such activities.

 

    If any term, provision, covenant, or restriction of this
    Agreement and Release is held by a court of competent
    jurisdiction to be invalid, void or unenforceable, the remainder
    of this Agreement and Release and the other terms, provisions,
    covenants and restrictions hereof shall remain in full force and
    effect and shall in no way be affected, impaired or invalidated.
    I understand and agree that, in the event of breach by me of any
    of the terms and conditions of this Agreement and Release, the
    Railway will be entitled to recover all costs and expenses as a
    result of my breach, including but not limited to, reasonable
    attorneys’ fees and costs.

 

    I have read this Agreement and Release and I understand all of
    its terms. I enter into and sign this Agreement and Release
    knowingly and voluntarily, with full knowledge of what it means.

 

	 	 	 
	
    
Employee
    Signature
    
	
 
	
    
Date
    

	
 
	
 
	
 

	
    
Employee
    Name (Please Print)
    
	
 
	
    
Social
    Security Number
    

    

    A-1

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