Document:

exv10w6

 

EXHIBIT 10.6

LEASE AGREEMENT

Between

THE KANSAS CITY SOUTHERN RAILWAY COMPANY

and

ALABAMA SOUTHERN RAILROAD, INC.

Covering Certain Land and Track

Between Milepost 17 and End of Line at Milepost 78.9 on the

Tuscaloosa Subdivision, and

Between Tuscaloosa at Milepost 0 and End of Line at Milepost 9.3

near Fox, Ala. on the Warrior Branch,

and Between Brookwood Jct. at Milepost 443.5 and Milepost 429.1 at

Brookwood, Ala., on the Brookwood Branch

Effective as of September 25, 2005

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

 

 

CONTENTS

	 	 	 	 	 
	Section	 	 	 	Page No.
	1.
	 	Lease Premises	 	1
	 
	 	 	 	 
	2.
	 	Lease Term	 	5
	 
	 	 	 	 
	3.
	 	Rail Service	 	6
	 
	 	 	 	 
	4.
	 	Rent	 	7
	 
	 	 	 	 
	5.
	 	Conditions — Precedent	 	8
	 
	 	 	 	 
	6.
	 	Maintenance	 	9
	 
	 	 	 	 
	7.
	 	Accounting and Reporting	 	12
	 
	 	 	 	 
	8.
	 	Representations and Warranties	 	12
	 
	 	 	 	 
	9.
	 	Obligations of the Parties	 	13
	 
	 	 	 	 
	10.
	 	Eminent Domain	 	16
	 
	 	 	 	 
	11.
	 	Insurance and Indemnification	 	17
	 
	 	 	 	 
	12.
	 	Taxes	 	19
	 
	 	 	 	 
	13.
	 	Easements, Leases and Licenses	 	19
	 
	 	 	 	 
	14.
	 	Termination	 	19
	 
	 	 	 	 
	15.
	 	Force Majeure	 	21
	 
	 	 	 	 
	16.
	 	Defeasance	 	21
	 
	 	 	 	 
	17
	 	Events of Default	 	21
	 
	 	 	 	 
	18.
	 	Arbitration	 	22
	 
	 	 	 	 
	19.
	 	Compensation for Services	 	24
	 
	 	 	 	 
	20.
	 	Allocation of Income and Expenses	 	24
	 
	 	 	 	 
	21.
	 	Liens	 	24

 

 

	 	 	 	 	 
	Section	 	 	 	Page No.
	22.
	 	Reserved Rights	 	24
	 
	 	 	 	 
	23.
	 	Confidentiality	 	25
	 
	 	 	 	 
	24.
	 	Miscellaneous	 	26

	 	 	 
	Exhibit A

	 	EXHIBITS
	
	 	
	Exhibit A

	 	Map
	 
	 	 
	Exhibit B

	 	Contracts / Agreements
	 
	 	 
	Exhibit C

	 	Interchange Agreement
	 
	 	 
	Exhibit D

	 	Divisions Agreement

3

 

LEASE AGREEMENT

TUSCALOOSA SUBDIVISION, BROOKWOOD AND WARRIOR BRANCHES

          THIS
LEASE AGREEMENT, dated as of this 20th day of July, 2005, by and between THE
KANSAS CITY SOUTHERN RAILWAY COMPANY, a Missouri corporation, (“KCS”) and ALABAMA SOUTHERN
RAILROAD, INC, a Kansas corporation (“LESSEE”).

RECITALS

LESSEE intends to lease from KCS, that certain line of railroad in the State of Alabama,
Between Milepost 17 and End of Line at Milepost 78.9 on the Tuscaloosa Subdivision, and
Between Tuscaloosa at Milepost 0 and End of Line at Milepost 9.3 near Fox, Ala. on the
Warrior Branch, and Between Brookwood Jct. at Milepost 443.5 and Milepost 429.1 at
Brookwood, Ala., on the Brookwood Branchon, a distance of approximately 85.6 miles. The
Tuscaloosa Subdivision, Warrior Branch, and Brookwood Branch are hereinafter referred to
as the “Leased Premises”), and are shown in solid green lines on attached Exhibit “A”.

     B. The parties desire to enter into this Lease setting forth terms and conditions for the use,
management and operation of the Leased Premises described above.

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration,
intending to be legally bound, the parties do hereby agree as follows:

SECTION I. LEASED PREMISES

          SECTION 1.1 KCS does hereby lease to LESSEE and LESSEE does hereby lease from KCS the
Leased Premises described in the Recitals above and the property described in Section 1.2.

          SECTION 1.2 The Leased Premises shall include, without limitation, the right to use
the right of way for railroad operations, tracks, rails, ties, ballast, other track materials,
switches, crossings, bridges, culverts, buildings, crossing, warning devices and any and all
improvements or fixtures affixed to the right-of-way, but specifically exclude any and all items of
personal property not owned by KCS or not affixed to the land, including, without limitation,
railroad rolling stock, locomotives, equipment, machinery, tools, inventories, materials and
supplies. Within ninety (90) days after the Effective Date, as defined in Section 2.1. KCS shall
remove all its personal property from the Leased Premises. Items not so removed shall be deemed
included in the Leased Premises. LESSEE expressly acknowledges that KCS has previously leased
and/or licensed portions of the Leased Premises. This Lease is made subject to those leases and/or
licenses. To the extent that there exists, on the Leased Premises, property

4

 

included in or owned by said prior Lessees, said property may remain on the property to the
extent permitted by the terms of the lease under which it was placed on the property.

          KCS shall retain the ownership of all AEI readers currently on the Leased Premises. KCS and
LESSEE will mutually agree on locations where AEI readers are required to record interchange of
cars under this Agreement. LESSEE will relocate or pay for the relocation, operation and
maintenance of any AEI readers relocated from their current location to record interchange of cars
under this Agreement. KCS will remove, at its cost, from the Leased Premises all AEI readers not
required for recording interchange of cars under this Agreement.

          LESSEE may, at its expense obtain and locate on the Leased Premises, AEI readers at other
locations of its choice on the Leased Premise. Any AEI readers obtained and placed at the expense
of LESSEE shall remain the property of LESSEE and LESSEE shall have the right to remove such
readers for the Leased Premises upon expiration of termination of this Agreement.

          SECTION 1.3 LESSEE shall take the Leased Premises in an “AS IS, WHERE IS” CONDITION
AND WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
TITLE, MERCHANTABILITY, HABITABILITY, OR FITNESS FOR A PARTICULAR PURPOSE and subject to:
(a) reservations or exceptions of record of minerals or mineral rights, including but not limited
to all coal, oil, gas, casing head gasoline and minerals of any nature and character whatsoever
underlying the Leased Premises together with the sole, exclusive and perpetual right to explore
for, remove, and dispose of said minerals by any means or methods suitable to KCS, (b) all
easements, public utility easements and rights-of-way, howsoever created, for crossings, pipelines,
wire lines, fiber optic facilities, roads, streets, highways and other legal purposes; (c) existing
and future building zoning, subdivision and other applicable federal, state, county, municipal and
local laws, ordinances and regulations; (d) encroachments or other conditions that may be revealed
by a survey, title search or inspection of the property; (e) all existing ways, alleys, privileges,
rights, appurtenances and servitudes, howsoever created; (f) any liens of mortgage or deeds of
trust encumbering said property; (g) the KCS’s exclusive right to grant any and all easements,
leases, licenses or rights of occupancy in, on, under, through, above, across or along the Leased
Premises, or any portion thereof, for the purpose of construction, of these rights shall include
but not be limited to, the installation, operation, use, maintenance, repair, replacement,
relocation and reconstruction of any fiber optic facilities, signboards or coal slurry pipeline
PROVIDED, HOWEVER, that the exercise not materially interfere with LESSEE’s railroad operations.

SECTION II. LEASE TERM

     SECTION 2.1 Unless this Agreement is terminated earlier in accordance with Section XV,
LESSEE shall have and hold the Leased Premises unto itself, its successors and assigns, for a term
of ten (10) years, beginning no later than November 15, 2005, or at such earlier date as is
mutually agreed to by both parties in writing: and

5

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the
notation [**].

continuing in effect until August 31, 2015. The “Effective Date” shall be the date five (5)
days after KCS has notified LESSEE in writing that KCS has satisfactory evidence of compliance
with the conditions precedent provided in Section V unless such notice period is waived by
mutual agreement. Promptly following execution of this Agreement, Lessee, at its sole
expense, shall prepare and file such documents as may be required (if any) to secure approval,
or exemption from approval of this transaction by the Surface Transportation Board of the
United States Department of Transportation (“STB”), if such approval or exemption from
approval is necessary or appropriate. LESSEE shall permit KCS to review prior to filing all
documents proposed by LESSEE to be filed with the STB, or any court, to secure legal approval
or exemption of this transaction.

               At least six month prior to the end of the initial ten (10) year term of this Agreement,
either party may provide the other party with written notice of a request to renew the term of this
Agreement. In the event either party provides such notice, the parties will meet to discuss whether
it would be mutually beneficial to extend the term of this Agreement for an additional ten year
term, upon such terms as may be agreed to by the parties. without obligation on either party to
enter into an extension.

     SECTION 2.2 If, subject to the right of KCS to evict or remove LESSEE from the Leased
Premises by all available legal means, LESSEE holds over and remains in possession of the Leased
Premises following expiration of the then current term, original or extended, or following an early
termination of this Lease pursuant to Section XIV, such holding over will create a month-to-month
tenancy only. During any such hold over period, LESSEE agrees to pay to KCS as monthly rent, a sum
of [**] as adjusted pursuant to Section 4.4. Such monthly payments shall be due each month on the
same day of the month as the Anniversary Date of this Lease. Any profits or losses from LESSEE’s
operations during any holdover period shall inure and accrue to the LESSEE.

SECTION III. RAIL SERVICE

     SECTION 3.1 Beginning on the Effective Date and throughout the term of this Lease,
LESSEE shall be entitled to use of the Leased Premises for the operation of common carrier rail
service. KCS further warrants that as of the date of this Lease, there is no other rail carrier to
which KCS has granted rights to use the Leased Premises other than pursuant to joint facility
agreements or arrangements that are superior to those granted herein to LESSEE. During the term of
this Lease, LESSEE shall not grant to any third party the right to operate over the Leased
Premises, nor shall it enter into any commercial or other agreement to move the traffic of any
third party, other than to perform its common carrier obligations under the Interstate Commerce
Commission Termination Act.

6

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

SECTION 3.2 During the term of this Lease, LESSEE:

3.2.1 will not suspend or discontinue its operation as a common carrier by rail over all or
any part of the Leased Premises without first applying for and obtaining from the Surface
Transportation Board (“STB”), and any other regulatory agency with jurisdiction, any
necessary certificate of public convenience and necessity or other approvals or exemptions
from regulation for such discontinuance of operations over the Leased Premises; provided,
however, that LESSEE will not seek such regulatory authority, or if no regulatory authority
is needed, take any action to suspend or discontinue its operations on the Leased Premises,
without first giving KCS six (6) months’ advance written notice of LESSEE’s intent to do
so.

3.2.2 agrees to offer freight transportation services on the Leased Premises, to all
shippers on the Leased Premises as least at the levels in place on the Effective Date of
this Lease Agreement and sufficient to comply with all current contracts with shippers
located on the Leased Premises.

3.2.3 agrees to fulfill all service requirements of existing transportation contracts to
the extent such services involve services formerly provided on Leased Premises. LESSEE
agrees to comply with the terms of all existing agreements related to the use of the Leased
Premises including but not limited to: car cleaning contracts, crossing agreements,
interlocker agreements and joint facility agreements, as shown on Exhibit “B”.

3.2.4 [**]

     SECTION 3.3 Upon suspension or discontinuance of LESSEE’s operations as a rail carrier
of freight over all or any part of the Leased Premises during the term of this Lease or any
extended term hereof, for reasons other than events of force majeure, or a lawful embargo, whether
or not pursuant to necessary and proper regulatory authority as required by Section 3.2 of this
Section III, LESSEE will promptly relinquish to KCS possession of the Leased Premises and this
Lease Agreement will terminate as provided by Section XIV of this Lease; PROVIDED, HOWEVER, any
discontinuance of service or abandonment of any portion(s) of the Leased Premises which are
inconsequential to rail freight service over the Leased Premises generally will be permitted and
will not result in a termination of this Lease or require relinquishment of possession of the
Leased Premises by LESSEE.

SECTION IV. RENT

     SECTION 4.1 LESSEE agrees to pay KCS rent for the Leased Premises, payable annually in
advance on the 1st day of September, the amount of [**] for the annual period for which the rent is
due. In calculating the percentage of revenue

7

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

derived from traffic interchanged to carriers other than KCS, for purposes of this section,
[**]. As additional consideration, Lessee agrees to enter into and fulfill the obligations of the
Divisions Agreement attached hereto and incorporated herein as Exhibit “D”.

     SECTION 4.2 LESSEE shall pay all due rent payments, and all other payments required by
this Lease, to KCS at 427 West 12th Street, P.O.Box 219335, Kansas City, Missouri
64121-9335, or at such other location or individual as may be designated by KCS in writing from
time to time.

     SECTION 4.3 Acceptance by KCS, its successors, assigns or designees of rent or other
payments shall not be deemed to constitute a waiver of any other provision of this Lease.

     SECTION 4.4 As additional security for the payment by LESSEE to KCS of any sums of
money required hereunder to be paid by LESSEE, it is agreed that in the event LESSEE fails,
neglects or refuses to timely pay any sums due and owing to KCS hereunder, KCS may use any and all
sums which it may collect from any third party and which may, in whole or in part, be payable to
LESSEE, as an offset against any and all payments for which LESSEE is delinquent. In addition, any
sums at any time due and payable to LESSEE by KCS may also be used by KCS and credited to KCS’s
account to the extent of any delinquent payment owed by LESSEE to KCS.

SECTION V. CONDITIONS-PRECEDENT

     SECTION 5.1 Prior to the Effective Date and as conditions precedent to either party’s
obligations hereunder:

5.1.1 There shall not be a work stoppage imminent or in effect on the lines of KCS
or any of its affiliated companies as a result of the execution and/or implementation of
this Lease.

5.1.2 LESSEE shall have acquired, at LESSEE’s cost, the right to conduct rail
freight service over the Leased Premises from the Surface Transportation Board (“STB”)
through an application or exemption under 10901 49 U.S.C., and shall have obtained such
judicial, administrative agency or other regulatory approvals, authorizations or exemptions
as may be necessary to enable it to undertake its obligations hereunder.

5.1.3 KCS and LESSEE shall not be prevented from fulfilling their respective
obligations under this Lease as a result of legislative, judicial or administrative action.

8

 

5.1.4 KCS and LESSEE shall execute an interchange agreement in the form attached as
Exhibit “C” whereby KCS and LESSEE will interchange traffic destined to or originating at
Industries located on or served from the Leased Premises.

5.1.5 Upon execution hereof, KCS shall make available for LESSEE’s inspection and
review all contracts, deeds, agreements and documents pertaining to or affecting the Leased
Premises.

     SECTION 5.2 Each party to this Lease shall be responsible for all costs of protection
of its respective employees arising out of STB approval or exemption of this transaction under 49
U.S.C. § 10901 and implementation of the transaction, the exercise or performance by KCS or LESSEE
of any rights or obligations hereunder, the termination of this Lease, or LESSEE’s abandonment or
discontinuance of operations on the Lease Premises, whether such costs are attributable to
protective conditions or benefits imposed by any judicial, regulatory or governmental body or are
required to be paid pursuant to collective bargaining or other agreements. LESSEE shall consider
for employment any of KCS’s employees on the Leased Premises who, in LESSEE’s sole judgment, are
qualified for the positions for which they apply and make proper application therefor. LESSEE
shall give priority-hiring consideration to employees of KCS who work on the Leased Premises.
LESSEE promptly shall notify KCS of the name of each of KCS’s current employees who LESSEE offers
to hire, and also the name of each of these employees who LESSEE actually hires.

SECTION VI. MAINTENANCE, MODIFICATIONS AND IMPROVEMENTS

SECTION 6.1 During the term of this Lease, LESSEE shall:

6.1.1. Maintain the Leased Premises in compliance with all state and federal statues, rules
and regulations and except for track that is classified as excepted track pursuant to 49
C.F.R. Section 213.9 (“Excepted Track”) on the Effective Date, maintain the track on Leased
Premises to at least Class I standards, as defined by the Federal Railroad Administration
(“FRA”) and capable of operating speeds of at least 10 miles an hour, at LESSEE’s own cost
and expense and to a standard that is sufficient to continue rail freight service
commensurate with the needs of the rail users located thereon, provided that if on the
Effective Date the condition of any portion of the Leased Premises is better than Class I
standards, that portion of the Leased Premises shall be maintained at no worse condition
than exists on the Effective Date.

6.1.2. Maintain Excepted Track on the Leased Premises in a condition that operations can be
safely conducted over it at the speed specified in the timetable or track bulletins as of
the Effective Date and that is sufficient to continue rail freight service commensurate
with the needs of the rail users located thereon.

9

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

6.1.3. LESSEE shall protect the Leased Premises against all encroachments or
unauthorized uses. LESSEE will within one hundred eighty (180) days from the Effective
Date, construct at its own expense interchange tracks and other connections or tracks
(wyes, turnouts, etc., including but not limited to building two seventy five (75) car
interchange tracks with yard air in the vicinity of Columbus, Ms., pursuant to the terms
and conditions of the Capital Improvement Agreement executed contemporaneously with this
agreement.

6.1.4 The parties agree that to the extent that traffic volumes decrease on any segment of
the Leased Premises to a level that LESSEE [**]

     SECTION 6.2 In the event KCS shall notifies LESSEE in writing that Lessee has failed
to perform any of its maintenance obligations under this agreement LESSEE shall, within thirty (30)
days of its receipt of such notice, commence necessary repairs and maintenance and shall proceed to
complete same with reasonable diligence. LESSEE may relocate switches and industrial tracks from
one location on the Leased Premises to another location on the Leased Premises upon receiving any
necessary and proper regulatory authority and after ten (10) days’ written notice to KCS. Any
rehabilitation or reconstruction, including but not limited to that necessitated by an Act of God,
will be the sole responsibility of LESSEE. Such maintenance shall include any function which KCS,
but for this Lease, would be required to perform pursuant to any applicable federal, state or
municipal laws ordinances or regulations.

     SECTION 6.3 Nothing herein shall preclude LESSEE, at its sole cost and expense, from
maintaining the Leased Premises to a standard higher than the minimum herein provided, but LESSEE
shall not be required hereunder to do so.

     SECTION 6.4 Except for Reserved Rights, LESSEE’s maintenance obligations hereunder
shall include, but shall not be limited to, buildings, highway grade crossings, grade crossing
signal protection devices, bridges, culverts and other structures, sub-roadbed and all other
improvements on the Leased Premises. [**]

     SECTION 6.5 In connection with its use of the Leased Premises, LESSEE shall have the
right to replace, add to or relay elements of the Leased Premises in the interest of cost or
operating efficiency provided that, a continuous and usable line of railroad between the termini in
effect on the Effective Date is maintained and that all items removed are replaced with similar
items of the same or higher quality, greater weight and higher value and provided that the work
being performed by the LESSEE and the materials being provided by the LESSEE are sufficient to
maintain the trackage to the standards set forth in Section 6.1 and any modifications conform with
KCS’s then current engineering standards. LESSEE shall have the right to apply the net proceeds
from salvaged materials to maintenance or improvement of the Leased Premises; provided that any
such net proceeds not reinvested in the Leased Premises shall be paid

10

 

to KCS. Such requirement shall also apply to all other facilities leased hereunder. Any
repair or replacement of welded rail shall also be welded. LESSEE may make any replacement and
substitute with any material having the same or higher weight and quality as the materials being
replaced, without the prior written consent of the KCS, All maintenance, renewal, retirements,
additions and betterments shall progressively become a part of the Leased Premises and the sole
ownership of KCS.

     On or before June 1st of 2006 and June 1 of each calendar year thereafter, during the term of
this Agreement, LESSEE shall provide KCS with a written summary of all salvage or other materials
removed from the Leased Premises, the proceeds received therefor and the manner in which the
proceeds were reinvested. Failure to either reinvest such proceeds or pay any unreinvested
proceeds to KCS within six (6) months following such reporting date shall, at KCS’s sole
discretion, constitute a Default hereunder.

     SECTION 6.6 LESSEE may from time to time establish or relocate sidetracks or
industrial spur tracks on the Leased Premises. KCS shall have no obligation to bear any cost of
materials, construction or maintenance of said sidetracks or industrial spur tracks outside the
leased right of way. That portion of any such spur track that is constructed upon the Leased
Premises shall become part of the Leased Premises and, upon termination of this Lease, the property
of KCS. Prior to execution of any industry track agreement by LESSEE, Lessee shall obtain KCS’s
written approval. For any industry or Customer track built on the Leased Premises after the
effective date, which is constructed or financed by LESSEE, LESSEE shall be entitled to any and all
track rentals derived therefrom during the term of this Lease. All industry track agreements,
regardless of duration, shall contain provisions indemnifying KCS and holding it harmless from all
liability in connection with the construction, maintenance or operation thereof.

     SECTION 6.7 In the event of a dispute between KCS and LESSEE with respect to LESSEE’s
fulfillment of its duties under this Section VI, it is agreed between the parties that an
inspection by a qualified representative of the FRA shall be arranged by KCS and such
representative shall inspect those segments or portions of track in dispute and his findings in
this regard shall be binding upon the parties.

     SECTION 6.8 LESSEE shall not allow any liens to be placed on the Leased Premises or
encumbrances against the Leased Premises or any portion thereof, and will pay, satisfy, and
discharge all claims or liens for material and labor or either of them used, contracted for, or
employed by LESSEE during the term of this Lease in any construction, repair, maintenance, or
removal on the Leased Premises and any improvements located thereon, whether said improvements are
the property of KCS or of LESSEE, within thirty (30) days of receiving notice of such lien.
LESSEE WILL INDEMNIFY AND SAVE HARMLESS KCS FROM ALL SUCH CLAIMS, LIENS, OR DEMANDS WHATSOEVER. In
the event the Lease is terminated or expires, LESSEE shall return the Leased Premises to KCS free
and clear of any such liens claims and demands.

11

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     SECTION 6.9 During the term of this Agreement, [**]

SECTION VII. ACCOUNTING AND REPORTING

     SECTION 7.1 LESSEE agrees to furnish to KCS audited copies of the financial reports of
Watco Companies, Inc. or any company which directly or indirectly owns a majority interest in
LESSEE audited by an independent accounting firm on an annual basis on or before May 1 of each year
for the term of this lease. Copies of unaudited financial reports pertaining to LESSEE and the
Leased Premises prepared in the normal course of LESSEE’s business shall be provided to Lessor on a
quarterly basis. KCS shall take the same precautions to protect the confidentiality of non-public
financial information provided under this Section that it uses to protect its own confidential
non-public financial information.

SECTION VIII. REPRESENTATIONS AND WARRANTIES

     SECTION 8.1 KCS represents and warrants that:

     8.1.1 It has full statutory power and authority to enter into this Lease and to carry out the
obligations of KCS hereunder.

     8.1.2 Its execution of and performance under this Lease do not violate any statute, rule,
regulation, order, writ, injunction or decree of any court, administrative agency or governmental
body.

     SECTION 8.2 LESSEE represents and warrants that:

     8.2.1 It is a corporation duly organized, validly existing, and in good standing under the
laws of the State of Kansas and by the effective date shall be qualified to do business in the
State of Alabama.

     8.2.3 It has full power and authority to enter into this Lease, and, subject to necessary
judicial and regulatory authority, to carry out its obligations hereunder.

     8.2.3 Upon expiration of the original or any extended term of this Lease or upon termination
hereof by KCS pursuant to Section XIV, LESSEE will bear any and all costs of protection of its
current or future employees, including former employees of KCS that may be employed by LESSEE,
arising from any labor protective conditions imposed by the STB, any other regulatory agency or
statute as a result of LESSEE’s lease or operation of the Leased Premises and any related
agreements or arrangements, or arising as a result of the termination of this Lease. Nothing
contained herein is intended to be for the benefit of any such employee nor should any employee be
considered a third party beneficiary hereunder. Nothing in this Lease shall be

12

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

construed as an assumption by LESSEE of any obligations to KCS’s current or former employees
under collective bargaining or other agreements that may exist or have existed between KCS and its
employees, or any of them.

SECTION IX. OBLIGATIONS OF THE PARTIES

     SECTION 9.1 During the term of this Lease, LESSEE will initiate, contract for and
obtain in its sole name all utility services required for its use of or operations on the Leased
Premises. LESSEE shall pay all bills for water, sewer, gas, telephone and electric service to the
Leased Premises. If KCS is required to, or does pay, any such bills, LESSEE will promptly
reimburse KCS upon receipt of a bill or bills therefor. If the Leased Premises are not billed
separately but as a part of a larger tract or parcel, LESSEE shall pay that portion of such bills
as is attributable to usage on or in connection with the Leased Premises.

     SECTION 9.2 During the term of this Lease, LESSEE will comply with all applicable
federal, state and municipal laws, ordinances, and regulations, and LESSEE will not knowingly do,
or permit to be done, upon or about the Leased Premises, anything forbidden by law, ordinance or
regulation. LESSEE further agrees to use its best efforts to secure all necessary governmental
authority for it to commence operations under this Lease and discontinue operation on the Leased
Premises at the expiration or termination of this Lease, as applicable.

     SECTION 9.3 During the term of this Lease, LESSEE will comply with all federal, state,
and local laws, rules, regulations, and ordinances controlling air, water, noise, hazardous waste,
solid waste, and other pollution or relating to the storage, transport, release, or disposal of
hazardous materials, substances, waste, or other pollutants. LESSEE at its own expense will make
all modifications, repairs, or additions to the Leased Premises, install and bear the expense of
any and all structures, devices, or equipment, and implement and bear the expense of any remedial
action which may be required under any such laws, rules, regulations, ordinances, or judgments
related to actions occurring during the term of this Lease. During the term of this Lease, LESSEE
will not dispose of any wastes of any kind, whether hazardous or not, on the Leased Premises.

     SECTION 9.4

     PRIOR TO THE EFFECTIVE DATE KCS AND LESSEE HAVE CONDUCTED A JOINT INSPECTION OF THE LEASED
PREMISES AND HAVE ESTABLISHED AND AGREED UPON THE CURRENT CONDITIONS AT THE TIME OF THIS LEASE AND
THAT THE LEASED PREMISES ARE SUITABLE FOR SAFELY CONDUCTING THE OPERATIONS CONTEMPLATED BY THE
LEASE. [**]

13

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     [**]

     SECTION 9.5 LESSEE will promptly notify by telephone, the KCS official responsible for
environmental matters and furnish KCS written notice of any and all (i) releases of hazardous
wastes or substances of which it becomes aware which occur during the term of this Lease whenever
such releases are required to be reported to any federal, state, or local authority, and (ii)
alleged water or air permit condition violations, and (iii) any notification received by LESSEE
alleging any violation of any state, federal or local statute, ordinance, ruling, order or
regulation pertaining to environmental protection and or hazardous material, handling
transportation or storage. To the extent practicable, such written notice will identify the
substance releases, the amount released, and the measures undertaken to clean up and remove the
released material and any contaminated soil or water, will identify the nature and extent of the
alleged violation and the measures taken to eliminate the violation, and will certify that LESSEE
has complied with all applicable regulations, orders, judgments or decrees in connection therewith,
or the date by which such compliance is expected. LESSEE will also provide KCS with copies of any
and all reports made to any governmental agency that relate to such releases or such alleged
violations during the term of this Lease.

     SECTION 9.6 During the term of this Lease, KCS will have the right, upon five (5) days
prior notice, to enter the Leased Premises for the purpose of inspecting the Leased Premises to
ensure compliance with the requirements of this Lease. If KCS detects any violation, including but
not limited to any contamination of the Leased Premises, which is the responsibility of LESSEE
under this Agreement, KCS will notify LESSEE of the violation. Upon receipt of such notice LESSEE
will take immediate steps to eliminate the violation or remove the contamination to the
satisfaction of any governmental agency with Jurisdiction over the subject matter of the violation.
Should LESSEE inadequately remedy or fail to eliminate the violation, KCS or its representative
will have the right, but not the obligation, to enter the Leased Premises and to take whatever
corrective action KCS reasonably deems necessary to eliminate the violation, at the sole expense of
LESSEE. The above provision shall in no way limit or restrict LESSEE’s right to challenge or
otherwise object to the legitimacy of the interpretation or applicability of any governmental
requirement.

     SECTION 9.7 Regardless of any acquiescence by KCS, LESSEE will:

9.7.1 [**]

9.7.2 Reimburse KCS and its officers, agents, employees, KCS’s parent corporation,
subsidiaries, affiliates, successors, and assigns for all costs and expenses incurred by
KCS or its officers, agents, employees, KCS’s, parent corporation, subsidiaries,
affiliates, successors, and assigns in eliminating or

14

 

     remedying such violations, pollution, or contamination by Lessee as set forth in Section
9.7.1 above.

     9.8 KCS will provide LESSEE, at no cost to LESSEE, access to KCS’ radio towers and local and
base radios as needed to support communications on the Leased Premises. LESSEE, at LESSEE’s
expense, shall be responsible for delivery and implementation of connections between Leased
Premises and other LESSEE related properties.

SECTION X. EMINENT DOMAIN

     SECTION 10.1 In the event that at any time during the term of this Lease the whole or
any part of the Leased Premises shall be taken by any lawful power by the exercise of the right of
eminent domain for any public or quasi-public purpose the following provisions shall be applicable:
To the extent any compensation received by KCS is for improvements paid for by LESSEE, a percentage
of the amount received by KCS for such improvements paid for by LESSEE equal to the amount received
by KCS for such improvement multiplied by percentage which has numerator equal to the number of
years remaining in the then current term of the Agreement and a denominator equal to ten (10).

     10.1.1 If such proceedings shall result in the taking of the whole or a portion of the Leased
Premises that materially interferes with LESSEE’s use of the Leased Premises for railroad purposes,
LESSEE shall have the right, upon written notice to KCS, to terminate this Lease in its entirety.
In that event, and subject to any necessary regulatory approvals or exemptions, this Lease shall
terminate and expire on the date title to the Leased Premises vests in the condemning authority,
and the rent and other sums or charges provided in this Lease shall be adjusted as of the date of
such vesting.

     10.1.2 If such proceeding shall result in the taking of less than all of the Leased Premises
which does not materially interfere with LESSEE’s use of the Leased Premises for railroad purposes,
then the Lease shall continue for the balance of its term as to the part of the Leased Premises
remaining, without any reduction, abatement or effect upon the rent or any other sum or charge to
be paid by the LESSEE under the provisions of this Lease.

     10.1.3 Except as otherwise expressly provided in this Section, KCS shall be entitled to any
and all funds payable for the total or partial taking of the Leased Premises without any
participation by LESSEE; provided, however, that nothing contained herein shall be construed to
preclude LESSEE from prosecuting any claim directly against the condemning authority for loss of
its business or for the value of its leasehold estate.

     10.1.4 Each party shall provide prompt notice to the other party of any eminent domain
proceeding involving the Leased Premises. Each party shall be entitled to participate in any such
proceeding, at its own expense, and to consult with the other party, its attorneys, and experts.
LESSEE and KCS shall make-all reasonable efforts to

15

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

cooperate with each other in the defense of such proceedings and to use their best efforts to
ensure LESSEE’s continued ability to use the Leased Premises for the conduct of freight railroad
operations.

SECTION XI. [**]

     SECTION 11.1 [**]

     SECTION 11.2 IN THE PERFORMANCE OF THIS LEASE, LESSEE SHALL COMPLY WITH ALL APPLICABLE
FEDERAL, STATE AND LOCAL GOVERNMENTAL STATUTES, ORDINANCES, ORDERS AND REGULATIONS. NO PENALTIES,
COSTS OR ADDITIONAL EXPENSE RESULTING FROM FAILURE TO COMPLY WITH ANY SUCH REQUIREMENT SHALL BE
ADDED TO OR FORM THE BASIS FOR ANY PART OF THE LEASE PRICES HEREIN PROVIDED. LESSEE SHALL DEFEND,
INDEMNIFY, SAVE HARMLESS KCS FROM AND AGAINST ALL CLAIMS, ACTIONS OR LEGAL PROCEEDINGS ARISING FROM
THE VIOLATION OR ALLEGED VIOLATION OF ANY LAWS, ORDINANCES, ORDERS OR REGULATIONS TO THE EXTENT
CAUSED OR PERMITTED BY LESSEE.

     SECTION 11.3 LESSEE shall, at its own sole cost and expense, procure the following
kinds of insurance for the term of this agreement commencing as of the date of the Effective Date
and promptly pay when due all premiums for that insurance. Upon the failure of LESSEE to maintain
insurance as provided herein, KCS shall have the right, after giving LESSEE ten days written
notice, to obtain such insurance and LESSEE shall promptly reimburse KCS for that expense. The
following minimum insurance coverage shall be kept in force during the term of this Lease:

     [**]

     SECTION 11.4 LESSEE warrants that this Lease has been reviewed with its insurance
agent(s)/broker(s) and the agent(s)/broker(s) has been instructed to procure the insurance coverage
required herein and name KCS as additional insured with respect to all liabilities assumed by
LESSEE hereunder.

     SECTION 11.5 [**]

     SECTION 11.6 The insurance policy (ies) shall be written by a reputable insurance
company or companies acceptable to KCS or with a current Best’s Insurance Guide Rating of B and
Class X or better. Such insurance company shall be authorized to transact business in the State of
Alabama.

16

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     SECTION 11.7 Insurance coverage provided in the amounts set forth herein shall
not be construed to otherwise relieve LESSEE from liability hereunder in excess of such coverage,
nor shall it preclude LESSEE from taking such other action as is available to it under any other
provision of this Agreement or otherwise in law.

     SECTION XII. TAXES

     SECTION 12.1 [**]

SECTION XIII. EASEMENTS, LEASES AND LICENSES

     SECTION 13.1 Except to the extent specifically provided in other sections of this
Agreement, LESSEE shall not be entitled to receive any revenue from any Reserved Rights as defined
in Section 23.1 of this Agreement or renewals thereof, or attributable to any agreements entered
into by KCS for Reserved Rights following the Effective Date. KCS reserves the exclusive right to
grant easements, licenses, agreements and leases affecting the Leased Premises which do not
materially interfere with the LESSEE’s use of the Leased Premises, KCS shall be responsible for all
duties, maintenance, costs, fencing, insurance, taxes (income, ad valorem, or otherwise), special
assessments and liabilities owed to, on or for said revenues, easements, lease, licenses, or other
agreements.

     SECTION 13.2 Nothing in this Lease shall prevent KCS from selling any portion of the
Leased Premises that are located beyond fifty (50) feet of the centerline of any branch or mainline
track, including areas of any station grounds provided such areas are not being used in connection
with LESSEE’s rail freight operations. All proceeds from such real estate sales shall accrue
solely to KCS and LESSEE shall execute a lease amendment deleting any such sale property from the
description and terms hereof or any other document reasonably necessary to remove the encumbrance
of this Lease from such property. KCS agree to provide LESSEE sixty (60) days notice before is
sells any real property located on or adjacent to the Leased Premises.

     SECTION 13.3 LESSEE shall not execute any encumbrance, lease, easement or any
agreement affecting the Leased Premises, except for new Customer tracks as described in this
agreement

SECTION XIV. TERMINATION

     SECTION 14.1 This Lease may be terminated: as follows:

17

 

14.1.1 By LESSEE or KCS on or at any time prior to the Effective Date if any substantive
condition unacceptable to LESSEE or to KCS is imposed upon the regulatory approvals or
exemptions contemplated by Section V of this Lease for LESSEE’s lease and operation of the
Leased Premises;

14.1.2. Pursuant to Section XVIII upon the occurrence of an Event of Default as provided in
Section XVII;

14.1.3. By KCS upon five (5) days’ notice to LESSEE, as a consequence of an uninterrupted
abandonment or discontinuance of operations, as the case may be, by LESSEE over any line
segment of the Leased Premises (other than an inconsequential abandonment or discontinuance
not affecting rail service generally over the Line) lasting more than seven (7) days, other
than by reason of an event of force majeure, a lawful embargo, or changes
in the demand for service; or

14.1.4. By LESSEE or KCS upon the effective date of regulatory approvals or exemptions to
permit LESSEE to abandon or discontinue rail operations, provided LESSEE shall give KCS
contemporaneous notice of initiation or receipt of documents relating to any such
application, exemption or proceeding;

14.1.5 The termination or expiration of this Agreement will not affect or impair the rights
or obligations of either party arising under this Agreement prior to such termination or
expiration.

     SECTION 14.2 In the event that within 180 days after the Effective Date any of KCS’s
labor organizations cause a work stoppage as a result of this Lease and KCS is unable to obtain an
injunction against such work stoppage or negotiate a satisfactory resolution with the organization
within 48 hours, KCS shall have the right, anytime within such 180 day period, to terminate this
Lease by giving five (5) days’ written notice to LESSEE. In such event LESSEE shall deliver
possession of the Leased Premises to KCS on such 5th day, subject to all necessary prior regulatory
approvals or exemptions, and LESSEE shall comply with the provisions of Sections 14.4 and 14.5,
within such five (5) day period rather than the times stated therein.

     SECTION 14.3 In the event of termination of this Lease, LESSEE shall vacate the Leased
Premises in an orderly manner. Upon any termination resulting from an Event of Default by LESSEE,
KCS, at any time thereafter and subject to all necessary prior regulatory approvals or exemptions,
may re-enter and take possession of the Leased Premises by affording sixty (60) days’ written
notice to LESSEE specifying such Event or Events of Default and that this Lease has terminated.

     SECTION 14.4 At least 60 days prior to the expiration of this Lease, or promptly upon
the earlier termination of this Lease, LESSEE shall submit all necessary applications, petitions
and/or notices to the STB or any successor agency, and shall make when and where due all related
ancillary submissions (including but not limited environmental reports) required to effectuate a
termination of this Lease and a

18

 

discontinuance of LESSEE’s operations hereunder. In the event that LESSEE fails to make such
filings, KCS may make such filings as may be appropriate to effectuate discontinuance of LESSEE’s
operations of the Leased Premises, with LESSEE being responsible for all costs (including but not
limited to filing fees and attorney fees) incurred by KCS in making such filings. In the event KCS
makes such filings, LESSEE will not oppose the relief requested in KCS’s filings. Upon expiration
or earlier termination of this Lease, KCS shall have the right to enter onto and operate the Leased
Premises.

SECTION XV. FORCE MAJEURE

     SECTION 15.1 The prompt and timely performance of all obligations and covenants under
this Lease, including the obligation to make prompt and timely payment of each installment of rent
or any other payment of any nature, is and shall be of the essence of this Lease.

     SECTION 15.2 Either party shall be excused from its obligations under this Lease,
other than payment of rent, to the extent its performance is prevented by an event of Force
Majeure. For purposes of this Lease an event of Force Majeure shall include: strikes, lockouts,
labor disputes, casualties, acts of God, war, terrorist acts, court orders, work stoppages, nuclear
incidents, riots, public disorder, acts of a public enemy, criminal acts or acts or omissions of
other parties or entities, floods, storms, earthquakes, hurricanes, tornadoes, or other sever
weather or climactic conditions, blockade, insurrection, vandalism or sabotage, fire, accident,
wreck, derailment, washout or explosion, embargoes, Association of American Railroads, STB or FRA
orders, other governmental laws, orders or regulations or other such causes beyond the reasonable
control of said party (each a “Force Majeure”). In the event either party is prevented from
performing its obligations under this Lease by a Force Majeure, the party so prevented shall be
excused from its obligations under this Lease, other than payment of rent, to the extent such
performance was prevented by such Force Majeure, The party experiencing Force Majeure shall take
prompt action to remove such causes of Force Majeure insofar as practicable with all reasonable
dispatch, and its obligation to perform the provisions of this Lease shall resume immediately after
such causes have been removed.

SECTION XVI. DEFEASANCE.

     SECTION 16.1 LESSEE shall not make any use of the Leased Premises inconsistent with
KCS’s right, title and interest therein and which may cause the right to use and occupy the Leased
Premises to revert to any party other than KCS. KCS and LESSEE shall make all reasonable efforts
to defend KCS’s title to the Leased Premises against any adverse claims.

SECTION XVII. EVENTS OF DEFAULT AND BREACH

     SECTION 17.1 The following shall be Events of Default:

19

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

17.1.1 Failure by LESSEE to make payments of rent when due.

17.1.2 The filing of any involuntary bankruptcy, receivership or arrangement proceeding by
KCS, LESSEE or any holding company having an interest in LESSEE, which filing is not
dismissed within sixty (60) days.

     17.2 Upon the occurrence of a default included in 17.1; or any breach of any material
term of this Agreement not considered a default under Section 17.1 the injured party shall notify
the breaching party in writing and specify the breach and what corrective action is desired to cure
the breach.

     17.3 If, upon the expiration of ten (10) days from the receipt of said notice or time
specified in 17.2, the breach has not been cured (or, if such breach cannot be cured within 10
days, steps have not been taken to effect such cure and pursued with all due diligence within said
period), the injured party shall have the right, at its sole option, to cure the breach if possible
and be reimbursed by the breaching party for the cost thereof, including any and all reasonable
attorney’s fees, and for any reasonably foreseeable consequential damages.

     17.4 Nothing herein shall prevent the injured party from resorting to any other remedy
permitted under this Lease or at law or equity, including seeking damages and/or specific
performance, as shall be necessary or appropriate to make the injured party whole in the premises.
Failure of the injured party to demand or enforce a cure for breach in one instance shall not be
deemed a waiver of its right to do so for any subsequent breach by the breaching party.

     SECTION 17.5 The failure of either party hereto to enforce at any time any of the
provisions of this Lease or to exercise any right or option which is herein provided shall in no
way be construed to be a waiver of such provisions as to the future, nor in any way to affect the
validity of this Lease or any part hereof or the right of either party to thereafter enforce each
and every such provision and to exercise any such right or option. No waiver of any breach of this
Lease shall be held to be a waiver of any other or subsequent breach.

SECTION XVIII. ARBITRATION

     SECTION 18.1 If at any time a question or controversy involving an amount less than
[**]shall arise between the parties hereto in connection with the Agreement upon which the parties
cannot agree, the parties will follow the dispute resolution procedures set forth in this Section
19. No arbitrator shall have authority to change the terms or provisions of this Agreement.

20

 

     SECTION 18.2 Any dispute arising out of or relating in any way to this Agreement shall
be subject to arbitration under this Section in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Any party may, upon 10 days’ prior notice to the other party
or parties, refer the matter to arbitration hereunder. The arbitrator shall be jointly selected by
the parties, but, if they do not agree on an arbitrator within thirty (30) days after demand for
arbitration is made by a party, they shall request that the arbitrator be designated by the
American Arbitration Association.

     SECTION 18.3 Until any award is made upon questions submitted to arbitration, the
business, settlements and payments to be transacted and made and other performance under the
Agreement shall continue to be transacted and made in the manner and form existing prior to the
time such questions arose. Any such damages in such an award shall earn interest from the date the
damages were initially incurred until paid at the corporate “prime rate” as reported in The Wall
Street Journal on the date of the Award.

     SECTION 18.4 The arbitrator shall have the power to require the performance of acts
found to be required by this Agreement and to require the cessation or nonperformance of acts found
to be prohibited by this Agreement. The arbitrator shall not have the power to award consequential
or punitive damages. No award under this Section may change the terms of this Agreement.

     SECTION 18.5 The arbitrator shall make an award in writing, shall be final, binding
and conclusive on all parties to the arbitration when delivered to them.

     SECTION 18.6 Any party may, within ten (10) days of delivery of the award, seek
clarification or reconsideration of the award from the arbitrator. The other party or parties
shall be provided an opportunity for a response thereto within twenty (20) days of receipt thereof.
The arbitrator shall make the decision granting or denying such clarification or reconsideration
in writing, within sixty (60) days of receipt of a petition for such clarification or
reconsideration, which shall then be final, binding and conclusive on all parties to the
arbitration when delivered to them.

     SECTION 18.7 Each party to the arbitration shall pay the fees and expenses of its own
witnesses, exhibits and counsel. The compensation, costs, and expenses of the arbitrator shall be
paid in equal shares by the parties to the arbitration.

     SECTION 18.8 The parties may conduct such reasonable discovery as will facilitate a
prompt and efficient resolution of the issues in dispute; provided that the arbitrator may
provide for and place such limitations on the conduct of such discovery as the arbitrator may deem
appropriate. The books and papers of the parties, as far as they relate to the matter submitted
for arbitration, shall be open to the examination of the arbitrator.

     SECTION 18.9 All proceedings relating to any such arbitration, and all testimony,
written submissions and award of the arbitrator therein, shall be private and

21

 

confidential as among the parties, and shall not be disclosed to any other person, except as
required by law and except as reasonably necessary to prosecute or defend any judicial action to
enforce, vacate or modify such arbitration award.

     SECTION 18.10 The location of any arbitration proceeding held hereunder shall be
agreed upon by the parties, or, if they are unable to agree, in Kansas City, Missouri.

SECTION XIX. COMPENSATION FOR SERVICES ON LEASED PREMISES

     For the term of this Lease, LESSEE agrees to comply with and be legally bound by the terms and
provisions of the Association of American Railroads’ practices, rules, agreements, and circulars
such as OT-5, claim handling, as it applies to lading and equipment damage occurring while in
LESSEE’s possession, etc.

SECTION XX. ALLOCATION OF INCOME AND EXPENSES

     This is an absolute, pure net lease; and, except as otherwise expressly provided in this
Lease, LESSEE shall have and hereby assumes all duties and obligations with relation to the repair,
maintenance, existence and operation of the Leased Premises and all other improvements or fixtures
now or hereafter located during the Term of this Lease, irrespective of law or custom.

SECTION XXI. (INTENTIONALLY OMITTED)

SECTION XXII RESERVED RIGHTS

     SECTION 22.1 KCS reserves unto itself, its affiliates, subsidiaries, parents,
successors and/or assigns, the following property rights hereinafter collectively referred to as
the “Reserved Rights” the following:

22.1.1 All existing agreements, leases, or licenses with third parties, including any
affiliates of KCS, whether recorded or not, except those assigned to LESSEE under this
Lease if any; and

22.1.2 The exclusive right to prepare and enter into future agreements, leases, licenses or
occupations with third parties; and

22.1.3 The right, by any commercially reasonable means, to install, construct, operate,
maintain, repair, renew, replace, and remove utility systems and their associated and
appurtenant equipment and facilities as well as the right to attach the utility systems and
related facilities to existing bridges, and to install them in existing tunnels, and the
right of ingress and egress for access purposes; and

22

 

22.1.4 The right, by any commercially reasonable means, to install, construct, operate,
maintain, repair, renew, replace, and remove commercial poster panels and towers and their
associated and appurtenant equipment and facilities as well as the right to attach the
commercial poster panels and towers and related facilities to existing bridges and to
install them in existing tunnels, and the right of ingress and egress for access purposes;
and

22.1.5 The right to amend this Lease at any time, in its sole discretion, to exclude from
the Lease Premises any portion of the land for the purpose of conveying such properties to
third parties, provided that the same does not materially interfere with LESSEE’s
continuing freight operations or the safety thereof, does not require LESSEE to incur or
expend any incremental costs, and does not substantially increase LESSEE’s risk (i.e.
insurance and indemnity will be required for LESSEE’s benefit); and

22.1.6 All rights to and the right to convey all minerals, mineral rights, and air rights
in, on or under the Leased Premises. 

     SECTION 22.2 KCS shall retain any rentals, fees or other payments associated with the
Reserved Rights. KCS shall be responsible for any duties required to be performed pursuant to the
Reserved Rights including but not limited to all maintenance, costs, fencing, insurance, taxes
(income, ad valorem, or otherwise) , special assessments, and liabilities owed to, on, or for said
reserved rights.

     SECTION 22.3 KCS’s exercise of the Reserved Rights in this Section 23 shall not
unreasonably interfere with LESSEE’s present or reasonably contemplated freight operations under
this Lease.

SECTION XXIII. CONFIDENTIALITY

     SECTION 23.1 Each party hereto covenants that all information and documents concerning
the other party known to, or received or reviewed by, the first party, its employees, agents or
representatives, in connection with this Lease and the transactions contemplated hereby shall be
maintained in confidence and not disclosed or utilized (other than in connection with the
transactions contemplated hereby) by the first party, its employees, agents or representatives,
without the other party’s prior written consent, unless (i) such information and documents were,
are now, or become generally available to the public (but not as a result of a breach of any duty
of confidentiality by which the first party, or any of its employees, agents and representatives,
is bound), (ii) such information and documents were known to first party prior to their disclosure
to the first party by the other party in connection with this Lease, as demonstrated by the first
party’s written records, (iii) such information and documents are disclosed by a third party, or
(iv) such items are required to be disclosed pursuant to a judicial order or applicable law, rule
or regulation or to the parties’ insurers. Notwithstanding anything herein to the contrary, each
party may disclose (without prior notification to, or approval or consent by, the other party), to
taxing authorities and/or to such party’s representatives, outside counsel and advisors, any

23

 

confidential information that is required to be disclosed in connection with such party’s tax
filings, reports, claims, audits, and litigation.

     SECTION 23.2 In the event that either party hereto, or any of its employees, agents,
representatives, becomes legally compelled to disclose any such information or documents, the
disclosing party shall provide the other party with prompt notice before such disclosure so that
the other party may seek a protective order or other appropriate remedy or waive compliance with
the provisions of this Lease, or both. In the event that such protective order or other remedy is
not obtained, or that the other party waives compliance with the provisions of this Lease, the
disclosing party shall furnish only that portion of the information or documents that it is advised
by written opinion of counsel is legally required.

     SECTION 23.3 It is agreed that money damages would not be a sufficient remedy or any
breach of this Section 24 and that either party hereto shall be entitled to specific performance as
a remedy for any such breach. Such remedy shall not be deemed to be the exclusive remedy for
breach of this Section 24 but shall be in addition to all other remedies available at law or in
equity. Each party hereto further agrees and covenants that it shall not use any information or
document that it obtains or has obtained in connection with this Lease in any judicial or
administrative proceeding brought against the other party, except in a proceeding brought
hereunder. With respect to any judicial or administrative proceeding brought by a third party
challenging any provision of this Lease or relating to any action or inaction required by this
Lease, the party against whom such proceeding is brought may use for purposes of defending such
proceeding information or documents that it obtains or has obtained in connection with this Lease;
provided, however, that the party against whom such proceeding is brought shall consult with and
obtain the written consent of the other party prior to such use of information or documents.

SECTION XXIV. MISCELLANEOUS

     SECTION 24.1 Entire Agreement. This Lease expresses the entire agreement
between the parties and supersedes all prior oral or written agreements, commitments, or
understandings with respect to the matters provided for herein, and no modification of this Lease
shall be binding upon the party affected unless set forth in writing and duly executed by the
affected party.

     SECTION 24.2 Notices. All notices, demands, requests or other communications
which may be or are required to be given, served or sent by either party to the other pursuant to
this Lease shall be in writing and shall be deemed to have been properly given or sent:

     24.2.1 If intended for KCS, by mailing by registered or certified mail, return receipt
requested, with postage prepaid, addressed to KCS at:

President

The Kansas City Southern Railway Company

24

 

Cathedral Square Headquarters Building

427 West 12th Street

Kansas City, Missouri 64105

24.2.2 If intended for LESSEE by mailing by registered or certified mail, return receipt
requested with postage prepaid, addressed to LESSEE at:

Executive Vice President Strategic Development

Alabama Southern Railroad, Inc.

315 W. Third Street

Pittsburg, KS 66762

24.2.3 Each notice, demand, request or communication which shall be mailed by registered or
certified mail to either party in the manner aforesaid shall be deemed sufficiently given,
served or sent for all purposes at the time such notice, demand, request or communication
shall be either received by the addressee or refused by the addressee upon presentation.
Either party may change the name of the recipient of any notice, or his or her address, at
any time by complying with the foregoing procedure.

     SECTION 24.3 Employee Claims. LESSEE agrees to defend, indemnify and hold
harmless KCS from any claims of LSLESSEE employees alleging they are employees of KCS.

     SECTION 24.4 Binding Effect. This Lease shall be binding upon and inure to
the benefit of KCS and LESSEE, and shall be binding upon the successors and assigns of LESSEE,
subject to the limitations hereinafter set forth. LESSEE may not assign its rights under this
Lease or any interest therein, or attempt to have any other person assume its obligations under
this Lease through merger or otherwise, without the prior written consent of KCS.

     SECTION 24.5 Severability. If fulfillment of any provision hereof or any
transaction related hereto shall involve transcending the limit of validity prescribed by law, then
the obligation to be fulfilled shall be reduced to the limit of such validity; and if any clause or
provision herein contained operates or would prospectively operate to invalidate this Lease in
whole or in part, then such clause or provision only shall be held ineffective, as though not
herein contained, and the remainder of this Lease shall remain operative and in full force and
effect.

     SECTION 24.6 Headings. Article headings used in this Lease are inserted for
convenience of reference only and shall not be deemed to be a part of this Lease for any purpose.

     SECTION 24.7 Governing Law. This Lease shall be governed and construed in
accordance with the laws of the State of Missouri

25

 

     SECTION 24.8 Amendment. No modification, addition, deletion, change, or
amendments to this Lease or any of the Appendices shall be effective unless and until such
modification, addition or amendment is in writing and signed by the parties.

     SECTION 24.9 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their
behalf, as of the ___day of ___, 2005.

	 	 	 	 	 	 	 
	 	 	THE KANSAS CITY SOUTHERN RAILWAY
	 

	 	 	 	COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Michael R. Haverty 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	Chairman of the Board 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Arthur L. Shoener 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	President 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Alabama Southern Railroad, Inc.
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Edward McKechnie 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	Executive V.P. and Assistant Secretary 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Craig Richey 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	General Counsel and Assistant Secretary 	 	 
	 

	 	 	 	 	 	 

26exv10w7

 

EXHIBIT 10.7

LEASE AGREEMENT

Between

THE KANSAS CITY SOUTHERN RAILWAY COMPANY

and

ARKANSAS SOUTHERN RAILROAD, INC.

Covering Certain Land and Track

Between a point not including the 601 track switch at Ashdown, Ark.,

approximately Milepost 32 and End of Line at Milepost 0 near

Nashville, Ark., on the Nashville Branch

Effective as of September 25, 2005

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

 

 

CONTENTS

	 	 	 	 	 	 	 
	Section	 	 	 	Page No.	 
	1.
	 	Lease Premises	 	 	1	 
	 

	2.
	 	Lease Term	 	 	5	 
	 

	3.
	 	Rail Service	 	 	6	 
	 

	4.
	 	Rent	 	 	7	 
	 

	5.
	 	Conditions – Precedent	 	 	8	 
	 

	6.
	 	Maintenance	 	 	9	 
	 

	7.
	 	Accounting and Reporting	 	 	12	 
	 

	8.
	 	Representations and Warranties	 	 	12	 
	 

	9.
	 	Obligations of the Parties	 	 	13	 
	 

	10.
	 	Eminent Domain	 	 	16	 
	 

	11.
	 	Insurance and Indemnification	 	 	17	 
	 

	12.
	 	Taxes	 	 	19	 
	 

	13.
	 	Easements, Leases and Licenses	 	 	19	 
	 

	14.
	 	Termination	 	 	19	 
	 

	15.
	 	Force Majeure	 	 	21	 
	 

	16.
	 	Defeasance	 	 	21	 
	 

	17
	 	Events of Default	 	 	21	 
	 

	18.
	 	Arbitration	 	 	22	 
	 

	19.
	 	Compensation for Services	 	 	24	 
	 

	20.
	 	Allocation of Income and Expenses	 	 	24	 
	 

	21.
	 	Liens	 	 	24	 

2

 

	 	 	 	 	 	 	 
	Section	 	 	 	Page No.	 
	22.
	 	Reserved Rights	 	 	24	 
	 
	23.
	 	Confidentiality	 	 	25	 
	 
	24.
	 	Miscellaneous	 	 	26	 

EXHIBITS

	 	 	 
	Exhibit A

	 	Map
	 
	Exhibit B

	 	Contracts / Agreements
	 
	Exhibit C

	 	Interchange Agreement
	 
	Exhibit D

	 	Divisions Agreement

3

 

LEASE AGREEMENT

NASHVILLE BRANCH

     THIS
LEASE AGREEMENT, dated as of this 20th day of July, 2005, by and between THE
KANSAS CITY SOUTHERN RAILWAY COMPANY, a Missouri corporation, (“KCS”) and ARKANSAS SOUTHERN
RAILROAD, INC, a Kansas corporation (“LESSEE”).

RECITALS

     A. LESSEE intends to lease from KCS, that certain line of railroad in the State of Arkansas,
on the Nashville Branch extending between a point between a point not including the 601 track
switch at Ashdown, Ark., approximately Milepost 32 and End of Line at Milepost 0 near Nashville,
Ark. a distance of approximately 32 miles. The Nashville Branch is hereinafter referred to as the
“Leased Premises”), and are shown in solid green lines on attached Exhibit “A”.

     B. The parties desire to enter into this Lease setting forth terms and conditions for the use,
management and operation of the Leased Premises described above.

     NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration,
intending to be legally bound, the parties do hereby agree as follows:

SECTION I. LEASED PREMISES

     SECTION 1.1 KCS does hereby lease to LESSEE and LESSEE does hereby lease from KCS the
Leased Premises described in the Recitals above and the property described in Section 1.2.

     SECTION 1.2 The Leased Premises shall include, without limitation, the right to use
the right of way for railroad operations, tracks, rails, ties, ballast, other track materials,
switches, crossings, bridges, culverts, buildings, crossing, warning devices and any and all
improvements or fixtures affixed to the right-of-way, but specifically exclude any and all items of
personal property not owned by KCS or not affixed to the land, including, without limitation,
railroad rolling stock, locomotives, equipment, machinery, tools, inventories, materials and
supplies. Within ninety (90) days after the Effective Date, as defined in Section 2.1. KCS shall
remove all its personal property from the Leased Premises. Items not so removed shall be deemed
included in the Leased Premises. LESSEE expressly acknowledges that KCS has previously leased
and/or licensed portions of the Leased Premises. This Lease is made subject to those leases and/or
licenses. To the extent that there exists, on the Leased Premises, property included in or owned
by said prior Lessees, said property may remain on the property to the extent permitted by the
terms of the lease under which it was placed on the property.

4

 

     KCS shall retain the ownership of all AEI readers currently on the Leased Premises. KCS and
LESSEE will mutually agree on locations where AEI readers are required to record interchange of
cars under this Agreement. LESSEE will relocate or pay for the relocation, operation and
maintenance of any AEI readers relocated from their current location to record interchange of cars
under this Agreement. KCS will remove, at its cost, from the Leased Premises all AEI readers not
required for recording interchange of cars under this Agreement.

     LESSEE may, at its expense obtain and locate on the Leased Premises, AEI readers at other
locations of its choice on the Leased Premise. Any AEI readers obtained and placed at the expense
of LESSEE shall remain the property of LESSEE and LESSEE shall have the right to remove such
readers for the Leased Premises upon expiration of termination of this Agreement.

     SECTION 1.3 LESSEE shall take the Leased Premises in an “AS IS, WHERE IS” CONDITION
AND WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
TITLE, MERCHANTABILITY, HABITABILITY, OR FITNESS FOR A PARTICULAR PURPOSE and subject to:
(a) reservations or exceptions of record of minerals or mineral rights, including but not limited
to all coal, oil, gas, casing head gasoline and minerals of any nature and character whatsoever
underlying the Leased Premises together with the sole, exclusive and perpetual right to explore
for, remove, and dispose of said minerals by any means or methods suitable to KCS, (b) all
easements, public utility easements and rights-of-way, howsoever created, for crossings, pipelines,
wire lines, fiber optic facilities, roads, streets, highways and other legal purposes; (c) existing
and future building zoning, subdivision and other applicable federal, state, county, municipal and
local laws, ordinances and regulations; (d) encroachments or other conditions that may be revealed
by a survey, title search or inspection of the property; (e) all existing ways, alleys, privileges,
rights, appurtenances and servitudes, howsoever created; (f) any liens of mortgage or deeds of
trust encumbering said property; (g) the KCS’s exclusive right to grant any and all easements,
leases, licenses or rights of occupancy in, on, under, through, above, across or along the Leased
Premises, or any portion thereof, for the purpose of construction, of these rights shall include
but not be limited to, the installation, operation, use, maintenance, repair, replacement,
relocation and reconstruction of any fiber optic facilities, signboards or coal slurry pipeline
PROVIDED, HOWEVER, that the exercise not materially interfere with LESSEE’s railroad operations.

SECTION II. LEASE TERM

     SECTION 2.1 Unless this Agreement is terminated earlier in accordance with Section XV,
LESSEE shall have and hold the Leased Premises unto itself, its successors and assigns, for a term
of ten (10) years, beginning no later than November 15, 2005, or at such earlier date as is
mutually agreed to by both parties in writing: and continuing in effect until August 31, 2015. The
“Effective Date” shall be the date five (5) days after KCS has notified LESSEE in writing that KCS
has satisfactory evidence of compliance with the conditions precedent provided in Section V unless
such notice

5

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

period is waived by mutual agreement. Promptly following execution of this Agreement, Lessee,
at its sole expense, shall prepare and file such documents as may be required (if any) to secure
approval, or exemption from approval of this transaction by the Surface Transportation Board of the
United States Department of Transportation (“STB”), if such approval or exemption from approval is
necessary or appropriate. LESSEE shall permit KCS to review prior to filing all documents proposed
by LESSEE to be filed with the STB, or any court, to secure legal approval or exemption of this
transaction.

     At least six month prior to the end of the initial ten (10) year term of this Agreement,
either party may provide the other party with written notice of a request to renew the term of this
Agreement. In the event either party provides such notice, the parties will meet to discuss whether
it would be mutually beneficial to extend the term of this Agreement for an additional ten year
term, upon such terms as may be agreed to by the parties. without obligation on either party to
enter into an extension.

     SECTION 2.2 If, subject to the right of KCS to evict or remove LESSEE from the Leased
Premises by all available legal means, LESSEE holds over and remains in possession of the Leased
Premises following expiration of the then current term, original or extended, or following an early
termination of this Lease pursuant to Section XIV, such holding over will create a month-to-month
tenancy only. During any such hold over period, LESSEE agrees to pay to KCS as monthly rent, a sum
[**] as adjusted pursuant to Section 4.4. Such monthly payments shall be due each month on the same
day of the month as the Anniversary Date of this Lease. Any profits or losses from LESSEE’s
operations during any holdover period shall inure and accrue to the LESSEE.

SECTION III. RAIL SERVICE

     SECTION 3.1 Beginning on the Effective Date and throughout the term of this Lease,
LESSEE shall be entitled to use of the Leased Premises for the operation of common carrier rail
service. KCS further warrants that as of the date of this Lease, there is no other rail carrier to
which KCS has granted rights to use the Leased Premises other than pursuant to joint facility
agreements or arrangements that are superior to those granted herein to LESSEE. During the term of
this Lease, LESSEE shall not grant to any third party the right to operate over the Leased
Premises, nor shall it enter into any commercial or other agreement to move the traffic of any
third party, other than to perform its common carrier obligations under the Interstate Commerce
Commission Termination Act.

     SECTION 3.2 During the term of this Lease, LESSEE:

3.2.1 will not suspend or discontinue its operation as a common carrier by rail over all or
any part of the Leased Premises without first applying for and

6

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

3.2.2 obtaining from the Surface Transportation Board (“STB”), and any other
regulatory agency with jurisdiction, any necessary certificate of public convenience and
necessity or other approvals or exemptions from regulation for such discontinuance of
operations over the Leased Premises; provided, however, that LESSEE will not seek such
regulatory authority, or if no regulatory authority is needed, take any action to suspend
or discontinue its operations on the Leased Premises, without first giving KCS six (6)
months’ advance written notice of LESSEE’s intent to do so.

3.2.3 agrees to offer freight transportation services on the Leased Premises, to all
shippers on the Leased Premises as least at the levels in place on the Effective Date of
this Lease Agreement and sufficient to comply with all current contracts with shippers
located on the Leased Premises.

3.2.4 agrees to fulfill all service requirements of existing transportation contracts to
the extent such services involve services formerly provided on Leased Premises. LESSEE
agrees to comply with the terms of all existing agreements related to the use of the Leased
Premises including but not limited to: car cleaning contracts, crossing agreements,
interlocker agreements and joint facility agreements, as shown on Exhibit “B”.

3.2.4 [**]

     SECTION 3.3 Upon suspension or discontinuance of LESSEE’s operations as a rail carrier
of freight over all or any part of the Leased Premises during the term of this Lease or any
extended term hereof, for reasons other than events of force majeure, or a lawful embargo, whether
or not pursuant to necessary and proper regulatory authority as required by Section 3.2 of this
Section III, LESSEE will promptly relinquish to KCS possession of the Leased Premises and this
Lease Agreement will terminate as provided by Section XIV of this Lease; PROVIDED, HOWEVER, any
discontinuance of service or abandonment of any portion(s) of the Leased Premises which are
inconsequential to rail freight service over the Leased Premises generally will be permitted and
will not result in a termination of this Lease or require relinquishment of possession of the
Leased Premises by LESSEE.

SECTION IV. RENT

     SECTION 4.1 LESSEE agrees to pay KCS rent for the Leased Premises, payable annually in
advance on the 1st day of September, the amount of [**] for the annual period for which the rent is
due. In calculating the percentage of revenue derived from traffic interchanged to carriers other
than KCS, for purposes of this section, [**]. As additional consideration, Lessee agrees to enter
into and fulfill the

7

 

obligations of the Divisions Agreement attached hereto and incorporated herein as Exhibit “D”.

     SECTION 4.2 LESSEE shall pay all due rent payments, and all other payments required by
this Lease, to KCS at 427 West 12th Street, P.O.Box 219335, Kansas City, Missouri
64121-9335, or at such other location or individual as may be designated by KCS in writing from
time to time.

     SECTION 4.3 Acceptance by KCS, its successors, assigns or designees of rent or other
payments shall not be deemed to constitute a waiver of any other provision of this Lease.

     SECTION 4.4 As additional security for the payment by LESSEE to KCS of any sums of
money required hereunder to be paid by LESSEE, it is agreed that in the event LESSEE fails,
neglects or refuses to timely pay any sums due and owing to KCS hereunder, KCS may use any and all
sums which it may collect from any third party and which may, in whole or in part, be payable to
LESSEE, as an offset against any and all payments for which LESSEE is delinquent. In addition, any
sums at any time due and payable to LESSEE by KCS may also be used by KCS and credited to KCS’s
account to the extent of any delinquent payment owed by LESSEE to KCS.

SECTION V. CONDITIONS-PRECEDENT

     SECTION 5.1 Prior to the Effective Date and as conditions precedent to either party’s
obligations hereunder:

5.1.1 There shall not be a work stoppage imminent or in effect on the lines of KCS
or any of its affiliated companies as a result of the execution and/or implementation of
this Lease.

5.1.2 LESSEE shall have acquired, at LESSEE’s cost, the right to conduct rail
freight service over the Leased Premises from the Surface Transportation Board (“STB”)
through an application or exemption under 10901 49 U.S.C., and shall have obtained such
judicial, administrative agency or other regulatory approvals, authorizations or exemptions
as may be necessary to enable it to undertake its obligations hereunder.

5.1.3 KCS and LESSEE shall not be prevented from fulfilling their respective
obligations under this Lease as a result of legislative, judicial or administrative action.

5.1.4 KCS and LESSEE shall execute an interchange agreement in the form attached as
Exhibit “C” whereby KCS and LESSEE will interchange traffic destined to or originating at
Industries located on or served from the Leased Premises.

8

 

5.1.5 Upon execution hereof, KCS shall make available for LESSEE’s inspection and
review all contracts, deeds, agreements and documents pertaining to or affecting the Leased
Premises.

     SECTION 5.2 Each party to this Lease shall be responsible for all costs of protection
of its respective employees arising out of STB approval or exemption of this transaction under 49
U.S.C. § 10901 and implementation of the transaction, the exercise or performance by KCS or LESSEE
of any rights or obligations hereunder, the termination of this Lease, or LESSEE’s abandonment or
discontinuance of operations on the Lease Premises, whether such costs are attributable to
protective conditions or benefits imposed by any judicial, regulatory or governmental body or are
required to be paid pursuant to collective bargaining or other agreements. LESSEE shall consider
for employment any of KCS’s employees on the Leased Premises who, in LESSEE’s sole judgment, are
qualified for the positions for which they apply and make proper application therefor. LESSEE
shall give priority-hiring consideration to employees of KCS who work on the Leased Premises.
LESSEE promptly shall notify KCS of the name of each of KCS’s current employees who LESSEE offers
to hire, and also the name of each of these employees who LESSEE actually hires.

SECTION VI. MAINTENANCE, MODIFICATIONS AND IMPROVEMENTS

     SECTION 6.1 During the term of this Lease, LESSEE shall:

6.1.1. Maintain the Leased Premises in compliance with all state and federal statues, rules
and regulations and except for track that is classified as excepted track pursuant to 49
C.F.R. Section 213.9 (“Excepted Track”) on the Effective Date, maintain the track on Leased
Premises to at least Class I standards, as defined by the Federal Railroad Administration
(“FRA”) and capable of operating speeds of at least 10 miles an hour, at LESSEE’s own cost
and expense and to a standard that is sufficient to continue rail freight service
commensurate with the needs of the rail users located thereon, provided that if on the
Effective Date the condition of any portion of the Leased Premises is better than Class I
standards, that portion of the Leased Premises shall be maintained at no worse condition
than exists on the Effective Date.

6.1.2. Maintain Excepted Track on the Leased Premises in a condition that operations can be
safely conducted over it at the speed specified in the timetable or track bulletins as of
the Effective Date and that is sufficient to continue rail freight service commensurate
with the needs of the rail users located thereon.

6.1.3. LESSEE shall protect the Leased Premises against all encroachments or unauthorized
uses.

9

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

6.1.4 The parties agree that to the extent that traffic volumes decrease on any
segment of the Leased Premises to a level that [**].

     SECTION 6.2 In the event KCS shall notifies LESSEE in writing that Lessee has failed
to perform any of its maintenance obligations under this agreement LESSEE shall, within thirty (30)
days of its receipt of such notice, commence necessary repairs and maintenance and shall proceed to
complete same with reasonable diligence. LESSEE may relocate switches and industrial tracks from
one location on the Leased Premises to another location on the Leased Premises upon receiving any
necessary and proper regulatory authority and after ten (10) days’ written notice to KCS. Any
rehabilitation or reconstruction, including but not limited to that necessitated by an Act of God,
will be the sole responsibility of LESSEE. Such maintenance shall include any function which KCS,
but for this Lease, would be required to perform pursuant to any applicable federal, state or
municipal laws ordinances or regulations.

     SECTION 6.3 Nothing herein shall preclude LESSEE, at its sole cost and expense, from
maintaining the Leased Premises to a standard higher than the minimum herein provided, but LESSEE
shall not be required hereunder to do so.

     SECTION 6.4 Except for Reserved Rights, LESSEE’s maintenance obligations hereunder
shall include, but shall not be limited to, buildings, highway grade crossings, grade crossing
signal protection devices, bridges, culverts and other structures, sub-roadbed and all other
improvements on the Leased Premises. [**]

     SECTION 6.5 In connection with its use of the Leased Premises, LESSEE shall have the
right to replace, add to or relay elements of the Leased Premises in the interest of cost or
operating efficiency provided that, a continuous and usable line of railroad between the termini in
effect on the Effective Date is maintained and that all items removed are replaced with similar
items of the same or higher quality, greater weight and higher value and provided that the work
being performed by the LESSEE and the materials being provided by the LESSEE are sufficient to
maintain the trackage to the standards set forth in Section 6.1 and any modifications conform with
KCS’s then current engineering standards. LESSEE shall have the right to apply the net proceeds
from salvaged materials to maintenance or improvement of the Leased Premises; provided that any
such net proceeds not reinvested in the Leased Premises shall be paid to KCS. Such requirement
shall also apply to all other facilities leased hereunder. Any repair or replacement of welded
rail shall also be welded. LESSEE may make any replacement and substitute with any material having
the same or higher weight and quality as the materials being replaced, without the prior written
consent of the KCS, All maintenance, renewal, retirements, additions and betterments shall
progressively become a part of the Leased Premises and the sole ownership of KCS.

10

 

     On or before June 1st of 2006 and June 1 of each calendar year thereafter, during the term of
this Agreement, LESSEE shall provide KCS with a written summary of all salvage or other materials
removed from the Leased Premises, the proceeds received therefor and the manner in which the
proceeds were reinvested. Failure to either reinvest such proceeds or pay any unreinvested
proceeds to KCS within six (6) months following such reporting date shall, at KCS’s sole
discretion, constitute a Default hereunder.

     SECTION 6.6 LESSEE may from time to time establish or relocate sidetracks or
industrial spur tracks on the Leased Premises. KCS shall have no obligation to bear any cost of
materials, construction or maintenance of said sidetracks or industrial spur tracks outside the
leased right of way. That portion of any such spur track that is constructed upon the Leased
Premises shall become part of the Leased Premises and, upon termination of this Lease, the property
of KCS. Prior to execution of any industry track agreement by LESSEE, Lessee shall obtain KCS’s
written approval. For any industry or Customer track built on the Leased Premises after the
effective date, which is constructed or financed by LESSEE, LESSEE shall be entitled to any and all
track rentals derived therefrom during the term of this Lease. All industry track agreements,
regardless of duration, shall contain provisions indemnifying KCS and holding it harmless from all
liability in connection with the construction, maintenance or operation thereof.

     SECTION 6.7 In the event of a dispute between KCS and LESSEE with respect to LESSEE’s
fulfillment of its duties under this Section VI, it is agreed between the parties that an
inspection by a qualified representative of the FRA shall be arranged by KCS and such
representative shall inspect those segments or portions of track in dispute and his findings in
this regard shall be binding upon the parties.

     SECTION 6.8 LESSEE shall not allow any liens to be placed on the Leased Premises or
encumbrances against the Leased Premises or any portion thereof, and will pay, satisfy, and
discharge all claims or liens for material and labor or either of them used, contracted for, or
employed by LESSEE during the term of this Lease in any construction, repair, maintenance, or
removal on the Leased Premises and any improvements located thereon, whether said improvements are
the property of KCS or of LESSEE, within thirty (30) days of receiving notice of such lien.
LESSEE WILL INDEMNIFY AND SAVE HARMLESS KCS FROM ALL SUCH CLAIMS, LIENS, OR DEMANDS WHATSOEVER. In
the event the Lease is terminated or expires, LESSEE shall return the Leased Premises to KCS free
and clear of any such liens claims and demands.

     SECTION 6.9 During the term of this Agreement, LESSEE shall be[**].

SECTION VII. ACCOUNTING AND REPORTING

     SECTION 7.1 LESSEE agrees to furnish to KCS audited copies of the financial reports of
Watco Companies, Inc. or any company which directly or indirectly owns a majority interest in
LESSEE audited by an independent accounting firm on an

11

 

annual basis on or before May 1 of each year for the term of this lease. Copies of unaudited
financial reports pertaining to LESSEE and the Leased Premises prepared in the normal course of
LESSEE’s business shall be provided to Lessor on a quarterly basis. KCS shall take the same
precautions to protect the confidentiality of non-public financial information provided under this
Section that it uses to protect its own confidential non-public financial information.

SECTION VIII. REPRESENTATIONS AND WARRANTIES

     SECTION 8.1 KCS represents and warrants that:

     8.1.1 It has full statutory power and authority to enter into this Lease and to carry out the
obligations of KCS hereunder.

     8.1.2 Its execution of and performance under this Lease do not violate any statute, rule,
regulation, order, writ, injunction or decree of any court, administrative agency or governmental
body.

     SECTION 8.2 LESSEE represents and warrants that:

     8.2.1 It is a corporation duly organized, validly existing, and in good standing under the
laws of the State of Kansas and by the effective date shall be is qualified to do business in the
State of Arkansas.

     8.2.3 It has full power and authority to enter into this Lease, and, subject to necessary
judicial and regulatory authority, to carry out its obligations hereunder.

     8.2.3 Upon expiration of the original or any extended term of this Lease or upon termination
hereof by KCS pursuant to Section XIV, LESSEE will bear any and all costs of protection of its
current or future employees, including former employees of KCS that may be employed by LESSEE,
arising from any labor protective conditions imposed by the STB, any other regulatory agency or
statute as a result of LESSEE’s lease or operation of the Leased Premises and any related
agreements or arrangements, or arising as a result of the termination of this Lease. Nothing
contained herein is intended to be for the benefit of any such employee nor should any employee be
considered a third party beneficiary hereunder. Nothing in this Lease shall be construed as an
assumption by LESSEE of any obligations to KCS’s current or former employees under collective
bargaining or other agreements that may exist or have existed between KCS and its employees, or any
of them.

SECTION IX. OBLIGATIONS OF THE PARTIES

     SECTION 9.1 During the term of this Lease, LESSEE will initiate, contract for and
obtain in its sole name all utility services required for its use of or operations on the Leased
Premises. LESSEE shall pay all bills for water, sewer, gas, telephone and electric service to the
Leased Premises. If KCS is required to, or does

12

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

pay, any such bills, LESSEE will promptly reimburse KCS upon receipt of a bill or bills
therefor. If the Leased Premises are not billed separately but as a part of a larger tract or
parcel, LESSEE shall pay that portion of such bills as is attributable to usage on or in connection
with the Leased Premises.

     SECTION 9.2 During the term of this Lease, LESSEE will comply with all applicable
federal, state and municipal laws, ordinances, and regulations, and LESSEE will not knowingly do,
or permit to be done, upon or about the Leased Premises, anything forbidden by law, ordinance or
regulation. LESSEE further agrees to use its best efforts to secure all necessary governmental
authority for it to commence operations under this Lease and discontinue operation on the Leased
Premises at the expiration or termination of this Lease, as applicable.

     SECTION 9.3 During the term of this Lease, LESSEE will comply with all federal, state,
and local laws, rules, regulations, and ordinances controlling air, water, noise, hazardous waste,
solid waste, and other pollution or relating to the storage, transport, release, or disposal of
hazardous materials, substances, waste, or other pollutants. LESSEE at its own expense will make
all modifications, repairs, or additions to the Leased Premises, install and bear the expense of
any and all structures, devices, or equipment, and implement and bear the expense of any remedial
action which may be required under any such laws, rules, regulations, ordinances, or judgments
related to actions occurring during the term of this Lease. During the term of this Lease, LESSEE
will not dispose of any wastes of any kind, whether hazardous or not, on the Leased Premises.

     SECTION 9.4

     PRIOR TO THE EFFECTIVE DATE KCS AND LESSEE HAVE CONDUCTED A JOINT INSPECTION OF THE LEASED
PREMISES AND HAVE ESTABLISHED AND AGREED UPON THE CURRENT CONDITIONS AT THE TIME OF THIS LEASE AND
THAT THE LEASED PREMISES ARE SUITABLE FOR SAFELY CONDUCTING THE OPERATIONS CONTEMPLATED BY THE
LEASE. [**]

     [**]

     SECTION 9.5 LESSEE will promptly notify by telephone, the KCS official responsible for
environmental matters and furnish KCS written notice of any and all (i) releases of hazardous
wastes or substances of which it becomes aware which occur during the term of this Lease whenever
such releases are required to be reported to any federal, state, or local authority, and (ii)
alleged water or air permit condition violations, and (iii) any notification received by LESSEE
alleging any violation of any state, federal or local statute, ordinance, ruling, order or
regulation pertaining to environmental protection and or hazardous material, handling
transportation or storage.

13

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

To the extent practicable, such written notice will identify the substance releases, the
amount released, and the measures undertaken to clean up and remove the released material and any
contaminated soil or water, will identify the nature and extent of the alleged violation and the
measures taken to eliminate the violation, and will certify that LESSEE has complied with all
applicable regulations, orders, judgments or decrees in connection therewith, or the date by which
such compliance is expected. LESSEE will also provide KCS with copies of any and all reports made
to any governmental agency that relate to such releases or such alleged violations during the term
of this Lease.

     SECTION 9.6 During the term of this Lease, KCS will have the right, upon five (5) days
prior notice, to enter the Leased Premises for the purpose of inspecting the Leased Premises to
ensure compliance with the requirements of this Lease. If KCS detects any violation, including but
not limited to any contamination of the Leased Premises, which is the responsibility of LESSEE
under this Agreement, KCS will notify LESSEE of the violation. Upon receipt of such notice LESSEE
will take immediate steps to eliminate the violation or remove the contamination to the
satisfaction of any governmental agency with Jurisdiction over the subject matter of the violation.
Should LESSEE inadequately remedy or fail to eliminate the violation, KCS or its representative
will have the right, but not the obligation, to enter the Leased Premises and to take whatever
corrective action KCS reasonably deems necessary to eliminate the violation, at the sole expense of
LESSEE. The above provision shall in no way limit or restrict LESSEE’s right to challenge or
otherwise object to the legitimacy of the interpretation or applicability of any governmental
requirement.

     SECTION 9.7 Regardless of any acquiescence by KCS, LESSEE will:

9.7.1 [**]

9.7.2 Reimburse KCS and its officers, agents, employees, KCS’s parent corporation,
subsidiaries, affiliates, successors, and assigns for all costs and expenses incurred by
KCS or its officers, agents, employees, KCS’s, parent corporation, subsidiaries,
affiliates, successors, and assigns in eliminating or remedying such violations, pollution,
or contamination by Lessee as set forth in Section 9.7.1 above.

     9.8 KCS will provide LESSEE, at no cost to LESSEE, access to KCS’ radio towers and local and
base radios as needed to support communications on the Leased Premises. LESSEE, at LESSEE’s
expense, shall be responsible for delivery and implementation of connections between Leased
Premises and other LESSEE related properties.

SECTION X. EMINENT DOMAIN

14

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     SECTION 10.1 In the event that at any time during the term of this Lease the
whole or any part of the Leased Premises shall be taken by any lawful power by the exercise of the
right of eminent domain for any public or quasi-public purpose the following provisions shall be
applicable: To the extent any compensation received by KCS is for improvements paid for by LESSEE,
a percentage of the amount received by KCS for such improvements paid for by LESSEE equal to the
amount received by KCS for such improvement multiplied by percentage which has numerator equal to
the number of years remaining in the then current term of the Agreement and a denominator equal to
ten (10).

     10.1.1 If such proceedings shall result in the taking of the whole or a portion of the Leased
Premises that materially interferes with LESSEE’s use of the Leased Premises for railroad purposes,
LESSEE shall have the right, upon written notice to KCS, to terminate this Lease in its entirety.
In that event, and subject to any necessary regulatory approvals or exemptions, this Lease shall
terminate and expire on the date title to the Leased Premises vests in the condemning authority,
and the rent and other sums or charges provided in this Lease shall be adjusted as of the date of
such vesting.

     10.1.2 If such proceeding shall result in the taking of less than all of the Leased Premises
which does not materially interfere with LESSEE’s use of the Leased Premises for railroad purposes,
then the Lease shall continue for the balance of its term as to the part of the Leased Premises
remaining, without any reduction, abatement or effect upon the rent or any other sum or charge to
be paid by the LESSEE under the provisions of this Lease.

     10.1.3 Except as otherwise expressly provided in this Section, KCS shall be entitled to any
and all funds payable for the total or partial taking of the Leased Premises without any
participation by LESSEE; provided, however, that nothing contained herein shall be construed to
preclude LESSEE from prosecuting any claim directly against the condemning authority for loss of
its business or for the value of its leasehold estate.

     10.1.4 Each party shall provide prompt notice to the other party of any eminent domain
proceeding involving the Leased Premises. Each party shall be entitled to participate in any such
proceeding, at its own expense, and to consult with the other party, its attorneys, and experts.
LESSEE and KCS shall make-all reasonable efforts to cooperate with each other in the defense of
such proceedings and to use their best efforts to ensure LESSEE’s continued ability to use the
Leased Premises for the conduct of freight railroad operations.

SECTION XI. [**]

     SECTION 11.1 [**]

15

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     SECTION 11.2 IN THE PERFORMANCE OF THIS LEASE, LESSEE SHALL COMPLY WITH ALL
APPLICABLE FEDERAL, STATE AND LOCAL GOVERNMENTAL STATUTES, ORDINANCES, ORDERS AND REGULATIONS. NO
PENALTIES, COSTS OR ADDITIONAL EXPENSE RESULTING FROM FAILURE TO COMPLY WITH ANY SUCH REQUIREMENT
SHALL BE ADDED TO OR FORM THE BASIS FOR ANY PART OF THE LEASE PRICES HEREIN PROVIDED. LESSEE SHALL
DEFEND, INDEMNIFY, SAVE HARMLESS KCS FROM AND AGAINST ALL CLAIMS, ACTIONS OR LEGAL PROCEEDINGS
ARISING FROM THE VIOLATION OR ALLEGED VIOLATION OF ANY LAWS, ORDINANCES, ORDERS OR REGULATIONS TO
THE EXTENT CAUSED OR PERMITTED BY LESSEE.

     SECTION 11.3 LESSEE shall, at its own sole cost and expense, procure the following
kinds of insurance for the term of this agreement commencing as of the date of the Effective Date
and promptly pay when due all premiums for that insurance. Upon the failure of LESSEE to maintain
insurance as provided herein, KCS shall have the right, after giving LESSEE ten days written
notice, to obtain such insurance and LESSEE shall promptly reimburse KCS for that expense. The
following minimum insurance coverage shall be kept in force during the term of this Lease:

     [**]

     SECTION 11.4 LESSEE warrants that this Lease has been reviewed with its insurance
agent(s)/broker(s) and the agent(s)/broker(s) has been instructed to procure the insurance coverage
required herein and name KCS as additional insured with respect to all liabilities assumed by
LESSEE hereunder.

     SECTION 11.5 [**]

     SECTION 11.6 The insurance policy (ies) shall be written by a reputable insurance
company or companies acceptable to KCS or with a current Best’s Insurance Guide Rating of B and
Class X or better. Such insurance company shall be authorized to transact business in the State of
Arkansas.

     SECTION 11.7 Insurance coverage provided in the amounts set forth herein shall not be
construed to otherwise relieve LESSEE from liability hereunder in excess of such coverage, nor
shall it preclude LESSEE from taking such other action as is available to it under any other
provision of this Agreement or otherwise in law.

     SECTION XII. TAXES

16

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     SECTION 12.1 [**]

SECTION XIII. EASEMENTS, LEASES AND LICENSES

     SECTION 13.1 Except to the extent specifically provided in other sections of this
Agreement, LESSEE shall not be entitled to receive any revenue from any Reserved Rights as defined
in Section 23.1 of this Agreement or renewals thereof, or attributable to any agreements entered
into by KCS for Reserved Rights following the Effective Date. KCS reserves the exclusive right to
grant easements, licenses, agreements and leases affecting the Leased Premises which do not
materially interfere with the LESSEE’s use of the Leased Premises, KCS shall be responsible for all
duties, maintenance, costs, fencing, insurance, taxes (income, ad valorem, or otherwise), special
assessments and liabilities owed to, on or for said revenues, easements, lease, licenses, or other
agreements.

     SECTION 13.2 Nothing in this Lease shall prevent KCS from selling any portion of the
Leased Premises that are located beyond fifty (50) feet of the centerline of any branch or mainline
track, including areas of any station grounds provided such areas are not being used in connection
with LESSEE’s rail freight operations. All proceeds from such real estate sales shall accrue
solely to KCS and LESSEE shall execute a lease amendment deleting any such sale property from the
description and terms hereof or any other document reasonably necessary to remove the encumbrance
of this Lease from such property. KCS agree to provide LESSEE sixty (60) days notice before is
sells any real property located on or adjacent to the Leased Premises.

     SECTION 13.3 LESSEE shall not execute any encumbrance, lease, easement or any
agreement affecting the Leased Premises, except for new Customer tracks as described in this
agreement

SECTION XIV. TERMINATION

     SECTION 14.1 This Lease may be terminated: as follows:

14.1.1 By LESSEE or KCS on or at any time prior to the Effective Date if any substantive
condition unacceptable to LESSEE or to KCS is imposed upon the regulatory approvals or
exemptions contemplated by Section V of this Lease for LESSEE’s lease and operation of the
Leased Premises;

14.1.2. Pursuant to Section XVIII upon the occurrence of an Event of Default as provided in
Section XVII;

17

 

14.1.3. By KCS upon five (5) days’ notice to LESSEE, as a consequence of an uninterrupted
abandonment or discontinuance of operations, as the case may be, by LESSEE over any line
segment of the Leased Premises (other than an inconsequential abandonment or discontinuance
not affecting rail service generally over the Line) lasting more than seven (7) days, other
than by reason of an event of force majeure, a lawful embargo, or changes
in the demand for service; or

14.1.4. By LESSEE or KCS upon the effective date of regulatory approvals or exemptions to
permit LESSEE to abandon or discontinue rail operations, provided LESSEE shall give KCS
contemporaneous notice of initiation or receipt of documents relating to any such
application, exemption or proceeding;

14.1.5 The termination or expiration of this Agreement will not affect or impair the rights
or obligations of either party arising under this Agreement prior to such termination or
expiration.

     SECTION 14.2 In the event that within 180 days after the Effective Date any of KCS’s
labor organizations cause a work stoppage as a result of this Lease and KCS is unable to obtain an
injunction against such work stoppage or negotiate a satisfactory resolution with the organization
within 48 hours, KCS shall have the right, anytime within such 180 day period, to terminate this
Lease by giving five (5) days’ written notice to LESSEE. In such event LESSEE shall deliver
possession of the Leased Premises to KCS on such 5th day, subject to all necessary prior regulatory
approvals or exemptions, and LESSEE shall comply with the provisions of Sections 14.4 and 14.5,
within such five (5) day period rather than the times stated therein.

     SECTION 14.3 In the event of termination of this Lease, LESSEE shall vacate the Leased
Premises in an orderly manner. Upon any termination resulting from an Event of Default by LESSEE,
KCS, at any time thereafter and subject to all necessary prior regulatory approvals or exemptions,
may re-enter and take possession of the Leased Premises by affording sixty (60) days’ written
notice to LESSEE specifying such Event or Events of Default and that this Lease has terminated.

     SECTION 14.4 At least 60 days prior to the expiration of this Lease, or promptly upon
the earlier termination of this Lease, LESSEE shall submit all necessary applications, petitions
and/or notices to the STB or any successor agency, and shall make when and where due all related
ancillary submissions (including but not limited environmental reports) required to effectuate a
termination of this Lease and a discontinuance of LESSEE’s operations hereunder. In the event that
LESSEE fails to make such filings, KCS may make such filings as may be appropriate to effectuate
discontinuance of LESSEE’s operations of the Leased Premises, with LESSEE being responsible for all
costs (including but not limited to filing fees and attorney fees) incurred by KCS in making such
filings. In the event KCS makes such filings, LESSEE will not oppose the relief requested in KCS’s
filings. Upon expiration or earlier termination of this Lease, KCS shall have the right to enter
onto and operate the Leased Premises.

18

 

SECTION XV. FORCE MAJEURE

     SECTION 15.1 The prompt and timely performance of all obligations and covenants under
this Lease, including the obligation to make prompt and timely payment of each installment of rent
or any other payment of any nature, is and shall be of the essence of this Lease.

     SECTION 15.2 Either party shall be excused from its obligations under this Lease,
other than payment of rent, to the extent its performance is prevented by an event of Force
Majeure. For purposes of this Lease an event of Force Majeure shall include: strikes, lockouts,
labor disputes, casualties, acts of God, war, terrorist acts, court orders, work stoppages, nuclear
incidents, riots, public disorder, acts of a public enemy, criminal acts or acts or omissions of
other parties or entities, floods, storms, earthquakes, hurricanes, tornadoes, or other sever
weather or climactic conditions, blockade, insurrection, vandalism or sabotage, fire, accident,
wreck, derailment, washout or explosion, embargoes, Association of American Railroads, STB or FRA
orders, other governmental laws, orders or regulations or other such causes beyond the reasonable
control of said party (each a “Force Majeure”). In the event either party is prevented from
performing its obligations under this Lease by a Force Majeure, the party so prevented shall be
excused from its obligations under this Lease, other than payment of rent, to the extent such
performance was prevented by such Force Majeure, The party experiencing Force Majeure shall take
prompt action to remove such causes of Force Majeure insofar as practicable with all reasonable
dispatch, and its obligation to perform the provisions of this Lease shall resume immediately after
such causes have been removed.

SECTION XVI. DEFEASANCE.

     SECTION 16.1 LESSEE shall not make any use of the Leased Premises inconsistent with
KCS’s right, title and interest therein and which may cause the right to use and occupy the Leased
Premises to revert to any party other than KCS. KCS and LESSEE shall make all reasonable efforts
to defend KCS’s title to the Leased Premises against any adverse claims.

SECTION XVII.  EVENTS OF DEFAULT AND BREACH

     SECTION 17.1 The following shall be Events of Default:

17.1.1 Failure by LESSEE to make payments of rent when due.

17.1.2 The filing of any involuntary bankruptcy, receivership or arrangement proceeding by
KCS, LESSEE or any holding company having an interest in LESSEE, which filing is not
dismissed within sixty (60) days.

19

 

Portions of this document have been redacted pursuant to a Request for Confidential
Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation
[**].

     17.2 Upon the occurrence of a default included in 17.1; or any breach of any
material term of this Agreement not considered a default under Section 17.1 the injured party shall
notify the breaching party in writing and specify the breach and what corrective action is desired
to cure the breach.

     17.3 If, upon the expiration of ten (10) days from the receipt of said notice or time
specified in 17.2, the breach has not been cured (or, if such breach cannot be cured within 10
days, steps have not been taken to effect such cure and pursued with all due diligence within said
period), the injured party shall have the right, at its sole option, to cure the breach if possible
and be reimbursed by the breaching party for the cost thereof, including any and all reasonable
attorney’s fees, and for any reasonably foreseeable consequential damages.

     17.4 Nothing herein shall prevent the injured party from resorting to any other remedy
permitted under this Lease or at law or equity, including seeking damages and/or specific
performance, as shall be necessary or appropriate to make the injured party whole in the premises.
Failure of the injured party to demand or enforce a cure for breach in one instance shall not be
deemed a waiver of its right to do so for any subsequent breach by the breaching party.

     SECTION 17.5 The failure of either party hereto to enforce at any time any of the
provisions of this Lease or to exercise any right or option which is herein provided shall in no
way be construed to be a waiver of such provisions as to the future, nor in any way to affect the
validity of this Lease or any part hereof or the right of either party to thereafter enforce each
and every such provision and to exercise any such right or option. No waiver of any breach of this
Lease shall be held to be a waiver of any other or subsequent breach.

SECTION XVIII. ARBITRATION

     SECTION 18.1 If at any time a question or controversy involving an amount less than
[**] shall arise between the parties hereto in connection with the Agreement upon which the parties
cannot agree, the parties will follow the dispute resolution procedures set forth in this Section
19. No arbitrator shall have authority to change the terms or provisions of this Agreement.

     SECTION 18.2 Any dispute arising out of or relating in any way to this Agreement shall
be subject to arbitration under this Section in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Any party may, upon 10 days’ prior notice to the other party
or parties, refer the matter to arbitration hereunder. The arbitrator shall be jointly selected by
the parties, but, if they do not agree on an arbitrator within thirty (30) days after demand for
arbitration is made by a party,

20

 

they shall request that the arbitrator be designated by the American Arbitration Association.

     SECTION 18.3 Until any award is made upon questions submitted to arbitration, the
business, settlements and payments to be transacted and made and other performance under the
Agreement shall continue to be transacted and made in the manner and form existing prior to the
time such questions arose. Any such damages in such an award shall earn interest from the date the
damages were initially incurred until paid at the corporate “prime rate” as reported in The Wall
Street Journal on the date of the Award.

     SECTION 18.4 The arbitrator shall have the power to require the performance of acts
found to be required by this Agreement and to require the cessation or nonperformance of acts found
to be prohibited by this Agreement. The arbitrator shall not have the power to award consequential
or punitive damages. No award under this Section may change the terms of this Agreement.

     SECTION 18.5 The arbitrator shall make an award in writing, shall be final, binding
and conclusive on all parties to the arbitration when delivered to them.

     SECTION 18.6 Any party may, within ten (10) days of delivery of the award, seek
clarification or reconsideration of the award from the arbitrator. The other party or parties
shall be provided an opportunity for a response thereto within twenty (20) days of receipt thereof.
The arbitrator shall make the decision granting or denying such clarification or reconsideration
in writing, within sixty (60) days of receipt of a petition for such clarification or
reconsideration, which shall then be final, binding and conclusive on all parties to the
arbitration when delivered to them.

     SECTION 18.7 Each party to the arbitration shall pay the fees and expenses of its own
witnesses, exhibits and counsel. The compensation, costs, and expenses of the arbitrator shall be
paid in equal shares by the parties to the arbitration.

     SECTION 18.8 The parties may conduct such reasonable discovery as will facilitate a
prompt and efficient resolution of the issues in dispute; provided that the arbitrator may
provide for and place such limitations on the conduct of such discovery as the arbitrator may deem
appropriate. The books and papers of the parties, as far as they relate to the matter submitted
for arbitration, shall be open to the examination of the arbitrator.

     SECTION 18.9 All proceedings relating to any such arbitration, and all testimony,
written submissions and award of the arbitrator therein, shall be private and confidential as among
the parties, and shall not be disclosed to any other person, except as required by law and except
as reasonably necessary to prosecute or defend any judicial action to enforce, vacate or modify
such arbitration award.

21

 

     SECTION 18.10 The location of any arbitration proceeding held hereunder shall be
agreed upon by the parties, or, if they are unable to agree, in Kansas City, Missouri.

SECTION XIX. COMPENSATION FOR SERVICES ON LEASED PREMISES

     For the term of this Lease, LESSEE agrees to comply with and be legally bound by the terms and
provisions of the Association of American Railroads’ practices, rules, agreements, and circulars
such as OT-5, claim handling, as it applies to lading and equipment damage occurring while in
LESSEE’s possession, etc.

SECTION XX. ALLOCATION OF INCOME AND EXPENSES

     This is an absolute, pure net lease; and, except as otherwise expressly provided in this
Lease, LESSEE shall have and hereby assumes all duties and obligations with relation to the repair,
maintenance, existence and operation of the Leased Premises and all other improvements or fixtures
now or hereafter located during the Term of this Lease, irrespective of law or custom.

SECTION XXI. (INTENTIONALLY OMITTED)

SECTION XXII RESERVED RIGHTS

     SECTION 22.1 KCS reserves unto itself, its affiliates, subsidiaries, parents,
successors and/or assigns, the following property rights hereinafter collectively referred to as
the “Reserved Rights” the following:

22.1.1 All existing agreements, leases, or licenses with third parties, including any
affiliates of KCS, whether recorded or not, except those assigned to LESSEE under this
Lease if any; and

22.1.2 The exclusive right to prepare and enter into future agreements, leases, licenses or
occupations with third parties; and

22.1.3 The right, by any commercially reasonable means, to install, construct, operate,
maintain, repair, renew, replace, and remove utility systems and their associated and
appurtenant equipment and facilities as well as the right to attach the utility systems and
related facilities to existing bridges, and to install them in existing tunnels, and the
right of ingress and egress for access purposes; and

22.1.4 The right, by any commercially reasonable means, to install, construct, operate,
maintain, repair, renew, replace, and remove commercial poster panels and towers and their

associated and appurtenant equipment and facilities as well as the right to attach the
commercial poster panels and towers and related

22

 

facilities to existing bridges and to install them in existing tunnels, and the right of
ingress and egress for access purposes; and

22.1.5 The right to amend this Lease at any time, in its sole discretion, to exclude from
the Lease Premises any portion of the land for the purpose of conveying such properties to
third parties, provided that the same does not materially interfere with LESSEE’s
continuing freight operations or the safety thereof, does not require LESSEE to incur or
expend any incremental costs, and does not substantially increase LESSEE’s risk (i.e.
insurance and indemnity will be required for LESSEE’s benefit); and

22.1.6 All rights to and the right to convey all minerals, mineral rights, and air rights
in, on or under the Leased Premises. 

     SECTION 22.2 KCS shall retain any rentals, fees or other payments associated with the
Reserved Rights. KCS shall be responsible for any duties required to be performed pursuant to the
Reserved Rights including but not limited to all maintenance, costs, fencing, insurance, taxes
(income, ad valorem, or otherwise) , special assessments, and liabilities owed to, on, or for said
reserved rights.

     SECTION 22.3 KCS’s exercise of the Reserved Rights in this Section 23 shall not
unreasonably interfere with LESSEE’s present or reasonably contemplated freight operations under
this Lease.

SECTION XXIII. CONFIDENTIALITY

     SECTION 23.1 Each party hereto covenants that all information and documents concerning
the other party known to, or received or reviewed by, the first party, its employees, agents or
representatives, in connection with this Lease and the transactions contemplated hereby shall be
maintained in confidence and not disclosed or utilized (other than in connection with the
transactions contemplated hereby) by the first party, its employees, agents or representatives,
without the other party’s prior written consent, unless (i) such information and documents were,
are now, or become generally available to the public (but not as a result of a breach of any duty
of confidentiality by which the first party, or any of its employees, agents and representatives,
is bound), (ii) such information and documents were known to first party prior to their disclosure
to the first party by the other party in connection with this Lease, as demonstrated by the first
party’s written records, (iii) such information and documents are disclosed by a third party, or
(iv) such items are required to be disclosed pursuant to a judicial order or applicable law, rule
or regulation or to the parties’ insurers. Notwithstanding anything herein to the contrary, each
party may disclose (without prior notification to, or approval or consent by, the other party), to
taxing authorities and/or to such party’s representatives, outside counsel and advisors, any
confidential information that is required to be disclosed in connection with such party’s tax
filings, reports, claims, audits, and litigation.

23

 

     SECTION 23.2 In the event that either party hereto, or any of its employees, agents,
representatives, becomes legally compelled to disclose any such information or documents, the
disclosing party shall provide the other party with prompt notice before such disclosure so that
the other party may seek a protective order or other appropriate remedy or waive compliance with
the provisions of this Lease, or both. In the event that such protective order or other remedy is
not obtained, or that the other party waives compliance with the provisions of this Lease, the
disclosing party shall furnish only that portion of the information or documents that it is advised
by written opinion of counsel is legally required.

     SECTION 23.3 It is agreed that money damages would not be a sufficient remedy or any
breach of this Section 24 and that either party hereto shall be entitled to specific performance as
a remedy for any such breach. Such remedy shall not be deemed to be the exclusive remedy for
breach of this Section 24 but shall be in addition to all other remedies available at law or in
equity. Each party hereto further agrees and covenants that it shall not use any information or
document that it obtains or has obtained in connection with this Lease in any judicial or
administrative proceeding brought against the other party, except in a proceeding brought
hereunder. With respect to any judicial or administrative proceeding brought by a third party
challenging any provision of this Lease or relating to any action or inaction required by this
Lease, the party against whom such proceeding is brought may use for purposes of defending such
proceeding information or documents that it obtains or has obtained in connection with this Lease;
provided, however, that the party against whom such proceeding is brought shall consult with and
obtain the written consent of the other party prior to such use of information or documents.

SECTION XXIV. MISCELLANEOUS

     SECTION 24.1 Entire Agreement. This Lease expresses the entire agreement
between the parties and supersedes all prior oral or written agreements, commitments, or
understandings with respect to the matters provided for herein, and no modification of this Lease
shall be binding upon the party affected unless set forth in writing and duly executed by the
affected party.

     SECTION 24.2 Notices. All notices, demands, requests or other communications
which may be or are required to be given, served or sent by either party to the other pursuant to
this Lease shall be in writing and shall be deemed to have been properly given or sent:

     24.2.1 If intended for KCS, by mailing by registered or certified mail, return receipt
requested, with postage prepaid, addressed to KCS at:

President

The Kansas City Southern Railway Company

Cathedral Square Headquarters Building

427 West 12th Street

Kansas City, Missouri 64105

24

 

24.2.2 If intended for LESSEE by mailing by registered or certified mail, return receipt
requested with postage prepaid, addressed to LESSEE at:

Executive Vice President Strategic Development

Arkansas Southern Railroad, Inc.

315 W. Third Street

Pittsburg, KS 66762

24.2.3 Each notice, demand, request or communication which shall be mailed by registered or
certified mail to either party in the manner aforesaid shall be deemed sufficiently given,
served or sent for all purposes at the time such notice, demand, request or communication
shall be either received by the addressee or refused by the addressee upon presentation.
Either party may change the name of the recipient of any notice, or his or her address, at
any time by complying with the foregoing procedure.

     SECTION 24.3 Employee Claims. LESSEE agrees to defend, indemnify and hold
harmless KCS from any claims of LSLESSEE employees alleging they are employees of KCS.

     SECTION 24.4 Binding Effect. This Lease shall be binding upon and inure to
the benefit of KCS and LESSEE, and shall be binding upon the successors and assigns of LESSEE,
subject to the limitations hereinafter set forth. LESSEE may not assign its rights under this
Lease or any interest therein, or attempt to have any other person assume its obligations under
this Lease through merger or otherwise, without the prior written consent of KCS.

     SECTION 24.5 Severability. If fulfillment of any provision hereof or any
transaction related hereto shall involve transcending the limit of validity prescribed by law, then
the obligation to be fulfilled shall be reduced to the limit of such validity; and if any clause or
provision herein contained operates or would prospectively operate to invalidate this Lease in
whole or in part, then such clause or provision only shall be held ineffective, as though not
herein contained, and the remainder of this Lease shall remain operative and in full force and
effect.

     SECTION 24.6 Headings. Article headings used in this Lease are inserted for
convenience of reference only and shall not be deemed to be a part of this Lease for any purpose.

     SECTION 24.7 Governing Law. This Lease shall be governed and construed in
accordance with the laws of the State of Missouri

     SECTION 24.8 Amendment. No modification, addition, deletion, change, or
amendments to this Lease or any of the Appendices shall be effective unless and until such
modification, addition or amendment is in writing and signed by the parties.

25

 

     SECTION 24.9 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their
behalf, as of the 20th day of July, 2005.

	 	 	 	 	 
	 	 	THE KANSAS CITY SOUTHERN RAILWAY
	 	 	                         COMPANY
	 
	 	 	 	 
	 

	 	By:	 	/s/ Michael R. Haverty 
	 

	 	 	 	 
	 

	 	Title:	 	Chairman of the Board 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	/s/ Arthur L. Shoener 
	 

	 	 	 	 
	 

	 	Title:	 	President 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Arkansas Southern Railroad, Inc.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Edward McKechnie 
	 

	 	 	 	 
	 

	 	Title:	 	Executive V.P. and Assistant Secretary 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	/s/ Craig Richey 
	 

	 	 	 	 
	 

	 	Title:	 	General Counsel and Assistant Secretary 
	 

	 	 	 	 

26

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