THIS
AGREEMENT , made and entered into as of this 1st day of
October, 2004 , by and between Kansas City Southern, a Delaware
corporation (“KCS”) and Robert B. Terry , an
individual (“Executive”).
WHEREAS ,
Executive has been offered employment by KCS and Executive desire
for KCS to continue to employ Executive on the terms and conditions
set forth in this Agreement and to provide an incentive to
Executive to remain in the employ of KCS hereafter, particularly in
the event of any change in control (as herein defined) of KCS, or
Railway, thereby establishing and preserving continuity of
management of KCS.
NOW,
THEREFORE , in consideration of the mutual covenants and
agreements herein contained, it is agreed by and between KCS and
Executive as follows:
1.
Employment . KCS hereby employs Executive as its
Senior Vice President and General Counsel to serve at the
pleasure of the Board of Directors of KCS (the “KCS
Board”) and to have such duties, powers and responsibilities
as may be prescribed or delegated from time to time by the
President or other officer to whom Executive reports, subject to
the powers vested in the KCS Board and in the stockholders of KCS.
Executive shall faithfully perform his duties under this Agreement
to the best of his ability and shall devote substantially all of
his working time and efforts to the business and affairs of KCS and
its affiliates.
(a)
Base Compensation . KCS shall pay Executive as compensation
for his services hereunder an annual base salary at the rate
approved by the KCS Compensation Committee. Such rate shall not be
reduced except as agreed by the parties or except as part of a
general salary reduction program imposed by KCS for non-union
employees and applicable to all officers of KCS, not related to a
Change of Control.
3.
Benefits . During the period of his employment
hereunder, KCS shall provide Executive with coverage under such
benefit plans and programs as are made generally available to
similarly situated employees of KCS, provided (a) KCS shall
have no obligation with respect to any plan or program if Executive
is not eligible for coverage thereunder, and (b) Executive
acknowledges that stock options and other stock and equity
participation awards are granted in the discretion of the KCS Board
or the Compensation Committee of the KCS Board and that Executive
has no right to receive stock options or other equity participation
awards or any particular number or level of stock options or other
awards. In determining contributions, coverage and benefits under
any disability insurance policy and under any cash
compensation-based plan provided to Executive by KCS, it shall be
assumed that the value of Executive’s annual compensation,
pursuant to this Agreement, is 160% of Executive’s
annual base salary. Executive acknowledges that all rights and
benefits under benefit plans and programs shall be governed by the
official text of each plan or program and not by any summary or
description thereof or any provision of this Agreement (except to
the extent that this Agreement expressly
modifies such
benefit plans or programs) and that KCS is not under any obligation
to continue in effect or to fund any such plan or program, except
as provided in Paragraph 7 hereof.
4.
Term and Termination .
The
“Term” of this Agreement shall begin on the date first
written above and continue until terminated as provided in
(a) through (d) of this Section 4.
(a)
Termination by Executive . Executive may terminate this
Agreement and his employment hereunder by providing at least thirty
(30) days advance written notice to KCS, except that in the
event of any material breach of this Agreement by KCS, Executive
may terminate this Agreement and his employment hereunder
immediately upon notice to KCS.
(b)
Death or Disability . This Agreement and Executive’s
employment hereunder shall terminate automatically on the death or
disability of Executive, except to the extent employment is
continued under KCS’s disability plan. For purposes of this
Agreement, Executive shall be deemed to be disabled if he qualifies
for disability benefits under KCS’s long-term disability
plan.
(c)
Termination by KCS For Cause . KCS may terminate this
Agreement and Executive’s employment “for cause”
immediately upon notice to Executive. For purposes of this
Agreement (except for Paragraph 7), termination “for
cause” shall mean termination based upon any one or more of
the following:
(i) Any material
breach of this Agreement by Executive;
(ii)
Executive’s dishonesty involving Railway, KCS, or any
subsidiary of Railway or KCS;
(iii) Gross
negligence or willful misconduct in the performance of
Executive’s duties as determined in good faith by the KCS
Board;
(iv)
Executive’s failure to substantially perform his duties and
responsibilities hereunder, including without limitation
Executive’s willful failure to follow reasonable instructions
of the President or other officer to whom Executive
reports;
(v)
Executive’s breach of an express employment policy of KCS or
its affiliates;
(vi)
Executive’s fraud or criminal activity;
(vii) Embezzlement
or misappropriation by Executive.; or
(viii)
Executive’s breach of his fiduciary duty to Railway, or KCS,
or their affiliates.
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(d)
Termination by KCS Other Than For Cause .
(i) KCS may
terminate this Agreement and Executive’s employment other
than for cause immediately upon notice to Executive, and in such
event, KCS shall provide severance benefits to Executive in
accordance with Paragraph 4(d)(ii) below. Executive
acknowledges and agrees that such severance benefits constitute the
exclusive remedy of Executive upon termination of employment other
than for cause. Notwithstanding any other provision of this
Agreement, as a condition to receiving such severance benefits,
Executive shall execute a full release of claims in favor of KCS
and Railway and their affiliates in the form Attached hereto as
Appendix A.
(ii) Unless the
provisions of Paragraph 7 of this Agreement are applicable, if
Executive’s employment is terminated under
Paragraph 4(d)(i), KCS shall continue, for a period of one
(1) year following such termination, (a) to pay to
Executive as severance pay a monthly amount equal to one-twelfth
(1/12th) of the annual base salary referenced in Paragraph 2(a)
above, at the rate in effect immediately prior to termination, and,
(b) to reimburse Executive for the cost (including state and
federal income taxes payable with respect to this reimbursement) of
continuing the health insurance coverage provided pursuant to this
Agreement or obtaining health insurance coverage comparable to the
health insurance provided pursuant to this Agreement, and obtaining
coverage comparable to the life insurance provided pursuant to this
Agreement, unless Executive is provided comparable health or life
insurance coverage in connection with other employment. The
foregoing obligations of KCS shall continue until the end of such
one (1) year period notwithstanding the death or disability of
Executive during said period (except, in the event of death, the
obligation to reimburse Executive for the cost of life insurance
shall not continue). In the year in which termination of employment
occurs, Executive shall be eligible to receive benefits under the
KCS Incentive Compensation Plan and any Executive Plan in which
Executive participates (the “Executive Plan”) (if such
Plans then are in existence and Executive was entitled to
participate immediately prior to termination) in accordance with
the provisions of such plans then applicable, and severance pay
received in such year shall be taken into account for the purpose
of determining benefits, if any, under the KCS Incentive
Compensation Plan but not under the Executive Plan. After the year
in which termination occurs, Executive shall not be entitled to
accrue or receive benefits under the KCS Incentive Compensation
Plan or the Executive Plan with respect to the severance pay
provided herein, notwithstanding that benefits under such plan
there are still generally available to executive employees of KCS.
After termination of employment, Executive shall not be entitled to
accrue or receive benefits under any other employee benefit plan or
program, except that Executive shall be entitled to participate in
the KCS Section 401(k) and Profit Sharing Plan and the KCS Employee
Stock Ownership Plan (if KCS employees then still participate in
such plans) in the year of termination of employment only if
Executive meets all requirements of such plans for participation in
such year.
5.
Confidentiality and Non-Disclosure .
(a) Executive
understands and agrees that he will be given Confidential
Information (as defined below) during his employment with KCS
relating to the business of
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KCS, Railway,
and/or their affiliates, in exchange for his agreement herein.
Executive hereby expressly agrees to maintain in strictest
confidence and not to use in any way (including without limitation
in any future business relationship of Executive), publish,
disclose or authorize anyone else to use, publish or disclose in
any way, any Confidential Information relating in any manner to the
business or affairs of KCS, Railway, and/or their affiliates.
Executive agrees further not to remove or retain any figures,
calculations, letters, documents, lists, papers, or copies thereof,
which embody Confidential Information of KCS, Railway, and/or their
affiliates, and to return, prior to Executive’s termination
of employment for any reason, any such information in
Executive’s possession. If Executive discovers, or comes into
possession of, any such information after his termination he shall
promptly return it to KCS. Executive acknowledges that the
provisions of this paragraph are consistent with KCS’s
policies and procedures to which Executive, as an employee of KCS,
is bound.
(b) For
purposes of this Agreement, “Confidential Information”
includes, but is not limited to, information in the possession of,
prepared by, obtained by, compiled by, or that is used by KCS,
Railway, or their affiliates or customers and (i) is
proprietary to, about, or created by KCS, Railway, or their
affiliates or customers; (ii) gives KCS, Railway, or their
affiliates or customers some competitive business advantage, the
opportunity of obtaining such advantage, or disclosure of which
might be detrimental to the interest of KCS, Railway, or their
affiliates or customers; and (iii) is not typically disclosed
by KCS, Railway, or their affiliates or customers, or known by
persons who are not employed by KCS, Railway, or their affiliates
or customers. Without in any way limiting the foregoing and by way
of example, Confidential Information shall include: information
pertaining to KCS’s, Railway’s, or their
affiliates’ business operations such as financial and
operational information and data, operational plans and strategies,
business and marketing strategies, pricing information, plans for
various products and services, and acquisition and divestiture
planning.
(c) In
the event of any breach of this Paragraph 5 by Executive,
Railway shall be entitled to terminate any and all remaining
severance benefits under Paragraph 4(d)(ii) and shall be
entitled to pursue such other legal and equitable remedies as may
be available. Executive acknowledges, understands and agrees that
KCS, Railway, and/or their affiliates will suffer immediate and
irreparable harm if Executive fails to comply with any of his
obligations under Paragraph 5 of this Agreement, and that
monetary damages alone will be inadequate to compensate KCS,
Railway, or their affiliates for such breach. Accordingly,
Executive agrees that KCS, Railway, and/or their affiliates shall,
in addition to any other remedies available to it at law or in
equity, be entitled to temporary, preliminary, and permanent
injunctive relief and specific performance to enforce the terms of
Paragraph 5 without the necessity of proving inadequacy of
legal remedies or irreparable harm or posting bond.
6.
Duties Upon Termination; Survival .
(a)
Duties . Upon termination of this Agreement by KCS or
Executive for any reason, Executive shall immediately sign such
written resignations from all positions as an officer, director or
member of any committee or board of KCS, and Railway and all direct
and indirect subsidiaries and affiliates of KCS and Railway as may
be requested by KCS and shall sign such other documents and papers
relating to Executive’s employment, benefits and benefit
plans as KCS may reasonably request.
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(b)
Survival . The provisions of Paragraphs 5, 6(a) and 7 of
this Agreement shall survive any termination of this Agreement by
KCS, Railway or Executive, and the provisions of
Paragraph 4(d)(ii) shall survive any termination of this
Agreement by KCS under Paragraph 4(d)(i).
7.
Continuation of Employment Upon Change in Control
.
(a)
Continuation of Employment . Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control
(as defined in Paragraph 7(d)) at any time during the term of
this Agreement, Executive agrees to remain in the employ of KCS for
a period of three years (the “Three Year Period”) from
the date of such Change in Control (the “Control Change
Date”). KCS agrees to continue to employ Executive for the
Three Year Period. During the Three Year Period, (i) the
Executive’s position (including offices, titles, reporting
requirements and responsibilities), authority and duties shall be
at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 12 month period immediately before the Control
Change Date and (B) the Executive’s services shall be
performed at the location where Executive was employed immediately
before the Control Change Date or at any other location less than
40 miles from such former location. During the Three Year Period,
KCS shall continue to pay to Executive an annual base salary on the
same basis and at the same intervals as in effect prior to the
Control Change Date at a rate not less than 12 times the highest
monthly base salary paid or payable to the Executive by KCS in
respect of the 12-month period immediately before the Control
Change Date.
(b)
Benefits . During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in
each of the following KCS plans (together, the “Specified
Benefits”) in existence, and in accordance with the terms
thereof, at the Control Change Date:
(i) any benefit
plan, and trust fund associated therewith, related to:
(A) life, health, dental, disability, accidental death and
dismemberment insurance or accrued but unpaid vacation time;
(B) profit sharing, thrift or deferred savings (including
deferred compensation, such as under Sec. 401(k) plans);
(C) retirement or pension benefits; (D) ERISA excess benefits
and similar plans and (E) tax favored employee stock ownership
(such as under ESOP, and Employee Stock Purchase programs);
and
(ii) any other
benefit plans hereafter made generally available to executives of
Executive’s level or to the employees of KCS
generally.
In addition, KCS
shall use its best efforts to cause all outstanding options held by
Executive under any stock option plan of KCS or its affiliates to
become immediately exercisable on the Control Change Date and to
the extent that such options are not vested and are subsequently
forfeited, the Executive shall receive a lump-sum cash payment
within 5 days after the options are forfeited equal to the
difference between the fair market value of the shares of stock
subject to the non-vested, forfeited options determined as of the
date such options are forfeited and the exercise price for such
options. During the Three Year Period Executive shall be entitled
to participate, on the basis of his executive position, in any
incentive compensation plan of KCS, in accordance with the terms
thereof at the Control Change Date; provided that if
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under
KCS’s programs or Executive’s Employment Agreement in
existence immediately prior to the Control Change Date, there are
written limitations on participation for a designated time period
in any incentive compensation plan, such limitations shall continue
after the Control Change Date to the extent so provided for prior
to the Control Change Date.
If the amount of
contributions or benefits with respect to the Specified Benefits or
any incentive compensation is determined on a discretionary basis
under the terms of the Specified Benefits or any incentive
compensation plan immediately prior to the Control Change Date, the
amount of such contributions or benefits during the Three-Year
Period for each of the Specified Benefits shall not be less than
the average annual contributions or benefits for each Specified
Benefit for the three plan years ending prior to the Control Change
Date and, in the case of any incentive compensation plan, the
amount of the incentive compensation during the Three Year Period
shall not be less than 75% of the maximum that could have been paid
to the Executive under the terms of the incentive compensation
plan.
(c)
Payment . With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive
Specified Benefits or incentive compensation as a general
obligation of KCS which has not been separately funded (including
specifically, but not limited to, those referred to under
Paragraph 7(b)(i)(D) above), Executive shall receive within
five (5) days after such date full payment in cash of all
amounts to which he is then entitled thereunder.
(d)
Change in Control . For purposes of this Agreement, a
“Change in Control” shall be deemed to have occurred
if:
(i) for any reason
at any time less than seventy-five percent (75%) of the members of
the KCS Board shall be individuals who fall into any of the
following categories: (A) individuals who were members of the KCS
Board on the date of the Agreement; or (B) individuals whose
election, or nomination for election by KCS’s stockholders,
was approved by a vote of at least seventy-five percent (75%) of
the members of the KCS Board then still in office who were members
of the KCS Board on the date of the Agreement; or
(C) individuals whose election, or nomination for election, by
KCS’s stockholders, was approved by a vote of at least
seventy-five percent (75%) of the members of the KCS Board then
still in office who were elected in the manner described in
(A) or (B) above, or
(ii) any
“person” (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the
“Exchange Act”)) other than KCS shall have become after
September 18,
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