UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-4717
KANSAS CITY SOUTHERN
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
427 West 12th Street,
Kansas City, Missouri
(Address of principal
executive offices)
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44-0663509
(I.R.S. Employer
Identification No.)
64105
(Zip
Code)
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816.983.1303
(Registrants telephone
number, including area code)
None
(Former name, former address and
former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer
þ
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting
company
o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class
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Outstanding at April 17, 2008
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Common Stock, $0.01 per share par value
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77,811,846 Shares
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Kansas
City Southern
Form 10-Q
March 31, 2008
Index
2
Kansas
City Southern
Form 10-Q
March 31, 2008
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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Introductory
Comments.
The Consolidated Financial Statements included herein have been
prepared by Kansas City Southern, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission
(SEC). As used herein, KCS or the
Company may refer to Kansas City Southern or, as the
context requires, to one or more subsidiaries of Kansas City
Southern. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
U.S. generally accepted accounting principles
(U.S. GAAP) have been condensed, or omitted
pursuant to such rules and regulations. The Company believes
that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Consolidated
Financial Statements should be read in conjunction with the
consolidated financial statements and the related notes, as well
as Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included in this
Form 10-Q.
Results for the three months ended March 31, 2008, are not
necessarily indicative of the results expected for the full year
ending December 31, 2008.
3
Kansas
City Southern
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Three Months
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Ended March 31,
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2008
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2007
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(In millions, except share and per share amounts)
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(Unaudited)
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Revenues
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$
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450.6
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$
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411.3
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Operating expenses:
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Compensation and benefits
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106.1
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99.9
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Purchased services
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44.9
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46.7
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Fuel
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77.9
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62.5
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Equipment costs
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45.8
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44.9
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Depreciation and amortization
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40.7
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38.1
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Casualties and insurance
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19.0
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19.4
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Materials and other
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32.8
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27.4
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Total operating expenses
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367.2
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338.9
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Operating income
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83.4
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72.4
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Equity in net earnings of unconsolidated affiliates
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4.1
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1.1
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Interest expense
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(39.5
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)
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(39.4
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)
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Foreign exchange gain (loss)
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2.5
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(3.1
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)
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Other income
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3.0
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0.6
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Income before income taxes and minority interest
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53.5
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31.6
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Income tax expense
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15.7
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9.3
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Income before minority interest
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37.8
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22.3
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Minority interest
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0.1
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0.1
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Net income
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37.7
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22.2
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Preferred stock dividends
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4.8
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5.2
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Net income available to common shareholders
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$
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32.9
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$
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17.0
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Earnings per share:
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Basic earnings per share
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$
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0.43
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$
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0.22
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Diluted earnings per share
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$
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0.39
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$
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0.21
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Average shares outstanding
(in thousands):
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Basic
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76,253
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75,611
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Potential dilutive common shares
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21,231
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14,724
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Diluted
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97,484
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90,335
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See accompanying notes to consolidated financial statements.
4
Kansas
City Southern
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March 31,
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December 31,
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2008
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2007
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(In millions,
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except share amounts)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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72.5
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$
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55.5
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Accounts receivable, net
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227.7
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243.4
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Restricted funds
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17.2
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11.5
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Inventories
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96.3
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90.3
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Deferred income taxes
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192.5
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177.8
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Other current assets
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153.9
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67.2
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Total current assets
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760.1
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645.7
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Investments
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56.4
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79.3
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Property and equipment, net of accumulated depreciation of
$871.5 and $871.9 at March 31, 2008 and December 31,
2007, respectively
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3,002.8
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2,917.8
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Concession assets, net of accumulated amortization of $141.8 and
$129.2 at March 31, 2008 and December 31, 2007,
respectively
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1,200.9
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1,215.5
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Other assets
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63.0
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69.9
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Total assets
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$
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5,083.2
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$
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4,928.2
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Debt due within one year
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$
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651.8
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$
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650.9
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Accounts and wages payable
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143.0
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121.1
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Accrued liabilities
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324.3
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326.7
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Total current liabilities
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1,119.1
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1,098.7
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Other liabilities:
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Long-term debt
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1,167.4
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1,105.0
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Deferred income taxes
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529.3
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499.1
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Other noncurrent liabilities and deferred credits
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260.9
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256.1
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Total other liabilities
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1,957.6
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1,860.2
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Minority interest
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240.9
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243.0
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Commitments and contingencies
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Stockholders equity:
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$25 par, 4% noncumulative, preferred stock,
840,000 shares authorized, 649,736 shares issued,
242,170 shares outstanding
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6.1
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6.1
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Series C redeemable cumulative convertible
perpetual preferred stock, $1 par, 4.25%, 385,000 and
400,000 shares authorized, issued and outstanding,
liquidation preference of $192.5 million and
$200 million at March 31, 2008 and December 31,
2007, respectively
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0.4
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0.4
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Series D cumulative convertible perpetual
preferred stock, $1 par, 5.125%, 210,000 shares
authorized, issued and outstanding, liquidation preference of
$210 million at March 31, 2008 and December 31,
2007, respectively
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0.2
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0.2
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$.01 par, common stock, 400,000,000 shares authorized;
92,863,585 shares issued at March 31, 2008 and
December 31, 2007, respectively; 77,791,845 and
76,975,507 shares outstanding at March 31, 2008 and
December 31, 2007, respectively
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0.8
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0.8
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Paid in capital
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556.0
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549.5
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Retained earnings
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1,201.7
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1,168.9
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Accumulated other comprehensive income
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0.4
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0.4
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Total stockholders equity
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1,765.6
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1,726.3
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Total liabilities and stockholders equity
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$
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5,083.2
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$
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4,928.2
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See accompanying notes to consolidated financial statements.
5
Kansas
City Southern
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Three Months Ended
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March 31,
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2008
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2007
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(In millions) (Unaudited)
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Operating activities:
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Net income
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$
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37.7
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$
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22.2
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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40.7
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38.1
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Deferred income taxes
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15.6
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9.2
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Equity in undistributed earnings of unconsolidated affiliates
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(4.1
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)
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(1.1
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)
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Share-based and other deferred compensation
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7.8
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5.0
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Minority interest
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0.1
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0.1
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Distributions from unconsolidated affiliates
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4.0
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Gain on sale of assets
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(1.2
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)
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(0.2
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)
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Changes in working capital items:
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Accounts receivable
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10.0
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34.6
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Inventories
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(6.0
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)
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(4.5
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)
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Other current assets
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(9.2
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)
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(18.8
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)
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Accounts payable and accrued liabilities
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6.3
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(50.3
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)
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Other, net
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17.0
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16.7
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Net cash provided by operating activities
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118.7
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51.0
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Investing activities:
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Capital expenditures
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(92.5
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)
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(58.3
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)
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Proceeds from disposal of property
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2.3
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8.0
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Contribution from NS for MSLLC (net of change in restricted
contribution)
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14.8
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30.7
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Property investments in MSLLC
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(16.9
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)
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(18.8
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)
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Locomotive sales/leaseback timing
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(59.3
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)
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Other, net
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(3.3
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)
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Net cash used for investing activities
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(154.9
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)
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(38.4
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Financing activities:
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Proceeds from issuance of long-term debt
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72.8
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Repayment of long-term debt
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(15.3
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)
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(15.0
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)
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Debt costs
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(0.5
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)
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Proceeds from stock plans
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1.1
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0.1
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Dividends paid
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(4.9
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)
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(8.7
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)
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Net cash provided by (used for) financing activities
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53.2
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(23.6
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)
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Cash and cash equivalents:
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Net increase (decrease) during each period
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17.0
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(11.0
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)
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At beginning of year
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55.5
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79.0
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At end of period
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$
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72.5
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$
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68.0
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|
See accompanying notes to consolidated financial statements.
6
Kansas
City Southern
Notes to
Consolidated Financial Statements
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|
1.
|
Accounting
Policies and Interim Financial Statements.
|
In the opinion of the management of KCS, the accompanying
unaudited consolidated financial statements contain all
adjustments necessary, which are of a normal and recurring
nature, to present fairly the financial position of the Company
as of March 31, 2008, and December 31, 2007, the
results of operations for the three months ended March 31,
2008 and 2007, and cash flows for the three months ended
March 31, 2008 and 2007. Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted.
These consolidated financial statements should be read in
conjunction with the financial statements and accompanying notes
included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007. The results of
operations for the three months ended March 31, 2008, are
not necessarily indicative of the results to be expected for the
full year ending December 31, 2008. Certain prior year
amounts have been reclassified to conform to the current year
presentation.
|
|
2.
|
Share-Based
Compensation.
|
Nonvested Stock.
The Kansas City Southern 1991
Amended and Restated Stock Option and Performance Award Plan
provides for the granting of nonvested stock awards to officers
and other designated employees. The grant date fair value is
based on the average market price of the stock on the date of
the grant. These awards are subject to forfeiture if employment
terminates during the vesting period, which is generally five
year cliff vesting for employees and one year for non-employee
directors. The grant date fair value of nonvested shares, less
estimated forfeitures, is recorded to compensation expense on a
straight-line basis over the vesting period.
A summary of nonvested stock activity is as follows:
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Weighted-
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Average
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Aggregate
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Number of
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Grant Date
|
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Intrinsic
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Shares
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Fair Value
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Value
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In millions
|
|
|
Nonvested stock at December 31, 2007
|
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|
1,014,628
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|
$
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28.80
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|
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Granted
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129,128
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33.78
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Vested
|
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|
(83,945
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)
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26.62
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|
|
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|
Forfeited
|
|
|
(94,308
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)
|
|
|
26.77
|
|
|
|
|
|
|
|
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|
|
|
|
|
Nonvested stock at March 31, 2008
|
|
|
965,503
|
|
|
$
|
29.85
|
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost on nonvested stock was $1.4 million and
$1.6 million for the three months ended March 31, 2008
and 2007, respectively. The total income tax benefit recognized
in the income statement for nonvested stock awards was
$0.5 million and $0.6 million for the three months
ended March 31, 2008 and 2007, respectively.
As of March 31, 2008, $20.1 million of unrecognized
compensation costs related to nonvested stock is expected to be
recognized over a weighted-average period of 1.68 years.
The fair value (at vest date) of shares vested during the three
months ended March 31, 2008, was $2.2 million.
Performance Based Awards.
During 2007, the
Company granted performance based nonvested stock awards. The
awards granted establish an annual target number of shares that
generally vest at the end of a three year requisite service
period following the grant date. In addition to the three year
service condition, the number of nonvested shares to be received
depends on the attainment of performance goals based on the
following annual measures: operating ratio, earnings before
interest, tax, depreciation and amortization (EBITDA) and return
on capital employed. The number of nonvested shares ultimately
earned will range from zero to 200% of the annual target award.
7
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
A summary of performance based nonvested awards activity is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Target Number of
|
|
|
Weighted-Average Grant
|
|
|
|
Shares *
|
|
|
Date Fair Value
|
|
|
Nonvested stock, at December 31, 2007
|
|
|
477,638
|
|
|
$
|
30.82
|
|
Granted
|
|
|
36,081
|
|
|
|
33.95
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(51,500
|
)
|
|
|
29.82
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock, at March 31, 2008
|
|
|
462,219
|
|
|
$
|
31.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
The number of shares earned may range from zero to 200% of the
nonvested stock shown in the table.
|
The performance shares earned in 2007 were 151,633, which was
approximately 120% of the annual target award granted for the
2007 performance period. Over the remaining two year performance
period, participants in the aggregate can earn up to a maximum
of 672,128 shares.
The Company expenses the grant date fair value of the awards
which are probable of being earned based on forecasted annual
performance goals over the three year performance period.
Compensation expense on performance based awards was
$1.6 million and $0.6 million for the three months
ended March 31, 2008 and 2007, respectively. Total income
tax benefit recognized in the income statement for performance
based awards was $0.6 million and $0.2 million for the
three months ended March 31, 2008, and 2007, respectively.
As of March 31, 2008, $4.4 million of unrecognized
compensation cost related to performance based awards is
expected to be recognized over a weighted-average period of
0.94 years. The unrecognized compensation cost includes
only the amount determined to be probable of being earned based
upon the attainment of the annual performance goals.
|
|
3.
|
Earnings
Per Share Data.
|
Basic earnings per common share is computed by dividing income
available to common stockholders by the weighted average number
of common shares outstanding for the period. Restricted stock
granted to employees and officers is included in weighted
average shares for purposes of computing basic earnings per
common share as it is earned. Diluted earnings per share reflect
the potential dilution that could occur if convertible
securities were converted into common stock or stock options
were exercised. The following reconciles the weighted average
shares used for the basic earnings per share computation to the
shares used for the diluted earnings per share computation
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Basic shares
|
|
|
76,253
|
|
|
|
75,611
|
|
Effect of dilution
|
|
|
21,231
|
|
|
|
14,724
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
97,484
|
|
|
|
90,335
|
|
|
|
|
|
|
|
|
|
|
8
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
Potentially dilutive shares excluded from the calculation:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Stock options where the exercise price is greater than the
average market price of common shares
|
|
|
46
|
|
|
|
107
|
|
Convertible debt instruments which are anti-dilutive
|
|
|
|
|
|
|
2,529
|
|
Convertible preferred stock which is anti-dilutive
|
|
|
|
|
|
|
7,000
|
|
The following reconciles net income available to common
stockholders for purposes of basic earnings per share to net
income available to common stockholders for purposes of diluted
earnings per share
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net income available to common stockholders for purposes of
computing basic earnings per share
|
|
$
|
32.9
|
|
|
$
|
17.0
|
|
Effect of dividends on conversion of convertible preferred stock
|
|
|
4.8
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders for purposes of
computing diluted earnings per share
|
|
$
|
37.7
|
|
|
$
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Fair
Value Measurements.
|
In September 2006, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting
Standards No. 157 (SFAS 157), Fair
Value Measurements, which defines fair value, establishes
a framework for measuring fair value and enhances disclosures
regarding fair value measurements. SFAS 157 does not
require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements and is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FASB
FSP 157-2
which delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years. These nonfinancial items
include assets and liabilities such as reporting units measured
at fair value in a goodwill impairment test and nonfinancial
assets acquired and liabilities assumed in a business
combination. Effective January 1, 2008, we adopted
SFAS 157 prospectively for financial assets and liabilities
recognized at fair value on a recurring basis. The partial
adoption of SFAS 157 for financial assets and liabilities
did not have a material impact on our consolidated financial
position, results of operations or cash flows.
SFAS 157 Hierarchy Tables.
The following
tables present information about the Companys financial
assets and liabilities measured at fair value on a recurring
basis as of March 31, 2008, and indicates the fair value
hierarchy of the valuation techniques utilized by the Company to
determine such fair value. In general, fair values determined by
Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company has
the ability to access. Level 2 inputs include quoted prices
for similar assets and liabilities in active markets, and inputs
other than quoted prices that are observable for the asset or
liability. Level 3 inputs are unobservable inputs for the
asset or liability, and include situations where there is
little, if any, market activity for the asset or liability. In
certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such
cases, the level in the fair value hierarchy within which the
fair value measurement in its entirety falls has been determined
based on the lowest level input that is significant to the fair
value measurement in its entirety. The Companys assessment
of the
9
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
significance of a particular input to the fair value in its
entirety requires judgment and considers factors specific to the
asset or liability.
Assets and liabilities measured at fair value on a recurring
basis as of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Assets at
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(i)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23.2
|
|
|
$
|
23.2
|
|
Derivative instruments
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
23.2
|
|
|
$
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
|
Investments with level 1 and/or level 2 inputs are
classified as a level 3 investment in their entirety if it
has at least one significant level 3 input.
|
The following table presents additional information about assets
and liabilities measured at fair value on a recurring basis for
which the Company has utilized Level 3 inputs to determine
fair value.
Changes in level 3 assets measured at fair value on a
recurring basis:
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
37.8
|
|
Total gains/(losses) (realized and unrealized)
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
(14.6
|
)
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
23.2
|
|
|
|
|
|
|
|
|
5.
|
Derivative
Instruments.
|
The Company does not engage in the trading of derivative
financial instruments except where the Companys objective
is to manage fuel price risk, foreign currency fluctuations, and
the variability of forecasted interest payments attributable to
changes in interest rates. In general, the Company enters into
derivative transactions in limited situations based on
managements assessment of current market conditions and
perceived risks. However, management intends to respond to
evolving business and market conditions and in doing so, may
enter into such transactions more frequently as deemed
appropriate.
Forward starting interest rate swap.
On
March 18, 2008, the Company entered into a forward starting
interest rate swap, which has been designated as a cash flow
hedge under SFAS 133. The forward starting interest rate
swap effectively converts interest payments from variable rates
to fixed rates. This swap is highly effective and as a result
there will be de minimus income statement variability
associated with interest payments indexed off the three-month
London InterBank Offered Rate (LIBOR) until
settlement, at which time any gains or losses would be recorded
through interest expense. The hedging instrument has a notional
amount of $75.0 million and forward starting settlements
will occur every quarter beginning June 28, 2008, through
March 28, 2011.
At March 31, 2008, the estimated fair value of the forward
starting interest rate swap was a net asset of $0.1 million
and was included in other assets in the consolidated balance
sheet.
Foreign Exchange Contracts.
The purpose of the
foreign exchange contracts of Kansas City Southern de
México, S.A. de C.V., a wholly-owned subsidiary of the
Company (KCSM), is to limit exposure arising from
exchange rate fluctuations in its Mexican peso-denominated
financial assets and liabilities. Management determines the
nature and quantity of any hedging transactions based upon net
asset exposure and market conditions. As of March 31, 2008,
KCSM had one Mexican peso call option outstanding in the
notional amount of $1.7 million, based on the average
exchange rate of Ps.12.50 per U.S. dollar. This option will
10
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
expire on May 28, 2008. As of March 31, 2007, KCSM had
one Mexican peso call option outstanding in the notional amount
of $1.7 million, based on the average exchange rate of
Ps.14.50 per U.S. dollar. This option expired on
May 30, 2007.
Foreign Currency Balance.
At March 31,
2008, KCSM had monetary assets and liabilities denominated in
Mexican pesos of Ps.2,039 million and Ps.566 million,
respectively. At December 31, 2007, KCSM had financial
assets and liabilities denominated in Mexican pesos of
Ps.1,921 million and Ps.595 million, respectively. At
March 31, 2008 and December 31, 2007, the exchange
rate was Ps.10.70 per U.S. dollar and Ps.10.90 per
U.S. dollar, respectively.
Other comprehensive income refers to revenues, expenses, gains
and losses that under U.S. GAAP are included in
comprehensive income, a component of stockholders equity
within the consolidated balance sheets, rather than net income.
Under existing accounting standards, other comprehensive income
for KCS reflects the net unrealized gain on cash flow hedge, net
of tax, and amortization of prior service credit, net of tax.
KCS total comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
37.7
|
|
|
$
|
22.2
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Net unrealized gain on cash flow hedge, net of tax
|
|
|
0.1
|
|
|
|
|
|
Amortization of prior service credit, net of tax
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
37.8
|
|
|
$
|
22.3
|
|
|
|
|
|
|
|
|
|
|
On February 26, 2008, KCSM entered into a Loan and Security
Agreement (the Loan Agreement) for an aggregate
amount of $72.8 million. KCSM used the proceeds to finance
85% of the purchase price of forty new SD70ACe locomotives (the
Locomotives) delivered and purchased by KCSM in late
2007 and early 2008. KCSM granted the lender a security interest
in the Locomotives to secure the loan. The Loan Agreement
requires KCSM to make thirty equal semi-annual principal
payments of approximately $2.4 million plus interest at an
annual rate of 5.737%, with the final payment due and payable on
February 28, 2023.
The Loan Agreement contains representations, warranties and
covenants typical of such equipment loans. Events of default in
the Loan Agreement include, but are not limited to, certain
payment defaults, certain bankruptcy and liquidation proceedings
and the failure to perform any covenants or agreements contained
in the Loan Agreement. Any event of default could trigger
acceleration of KCSMs payment obligations under the terms
of the Loan Agreement.
|
|
8.
|
Commitments
and Contingencies.
|
Litigation.
The Company is a party to various
legal proceedings and administrative actions, all of which,
except as set forth below, are of an ordinary, routine nature
and incidental to its operations. Included in these proceedings
are various tort claims brought by current and former employees
for job related injuries and by third parties for injuries
related to railroad operations. KCS aggressively defends these
matters and has established liability reserves, which management
believes are adequate to cover expected costs. Although it is
not possible to predict the outcome of any legal proceeding, in
the opinion of management, other than those proceedings
described in detail below, such proceedings and actions should
not, individually, or in the
11
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
aggregate, have a material adverse effect on the Companys
financial condition and liquidity. However, a material adverse
outcome in one or more of these proceedings could have a
material adverse impact on the operating results of a particular
quarter or fiscal year.
Environmental Liabilities.
The Companys
U.S. operations are subject to extensive federal, state and
local environmental laws and regulations. The major
U.S. environmental laws to which the Company is subject
include, among others, the Federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA,
also known as the Superfund law), the Toxic Substances Control
Act, the Federal Water Pollution Control Act, and the Hazardous
Materials Transportation Act. CERCLA can impose joint and
several liabilities for cleanup and investigation costs, without
regard to fault or legality of the original conduct, on current
and predecessor owners and operators of a site, as well as those
who generate, or arrange for the disposal of, hazardous
substances. The Company does not believe that compliance with
the requirements imposed by the environmental legislation will
impair its competitive capability or result in any material
additional capital expenditures, operating or maintenance costs.
The Company is, however, subject to environmental remediation
costs as described below.
The Mexican operations are subject to Mexican federal and state
laws and regulations relating to the protection of the
environment through the establishment of standards for water
discharge, water supply, emissions, noise pollution, hazardous
substances and transportation and handling of hazardous and
solid waste. The Mexican government may bring administrative and
criminal proceedings and impose economic sanctions against
companies that violate environmental laws, and temporarily or
even permanently close non-complying facilities.
The risk of incurring environmental liability is inherent in the
railroad industry. As part of serving the petroleum and
chemicals industry, the Company transports hazardous materials
and has a professional team available to respond to and handle
environmental issues that might occur in the transport of such
materials. Additionally, the Company is a partner in the
Responsible
Care
®
program and, as a result, has initiated additional
environmental, health and safety programs. The Company performs
ongoing reviews and evaluations of the various environmental
programs and issues within the Companys operations, and,
as necessary, takes actions intended to limit the Companys
exposure to potential liability.
The Company owns property that is, or has been, used for
industrial purposes. Use of these properties may subject the
Company to potentially material liabilities relating to the
investigation and cleanup of contaminants, claims alleging
personal injury, or property damage as the result of exposures
to, or release of, hazardous substances. Although the Company is
responsible for investigating and remediating contamination at
several locations, based on currently available information, the
Company does not expect any related liabilities, individually or
collectively, to have a material impact on its financial
position or cash flows. Should the Company become subject to
more stringent cleanup requirements at these sites, discover
additional contamination, or become subject to related personal
or property damage claims, the Company could incur material
costs in connection with these sites.
The Company records liabilities for remediation and restoration
costs related to past activities when the Companys
obligation is probable and the costs can be reasonably
estimated. Costs of ongoing compliance activities to current
operations are expensed as incurred. The Companys recorded
liabilities for these issues represent its best estimates (on an
undiscounted basis) of remediation and restoration costs that
may be required to comply with present laws and regulations.
Although these costs cannot be predicted with certainty,
management believes that the ultimate outcome of identified
matters will not have a material adverse effect on the
Companys consolidated financial position or cash flows.
Environmental remediation expense was $1.8 million and
$1.5 million for the three months ended March 31,
2008, and 2007, respectively, and was included in casualties and
insurance expense on the consolidated statements of income.
Additionally, as of March 31, 2008, KCS had a liability for
environmental
12
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
remediation of $8.9 million. This amount was derived from a
range of reasonable estimates based upon the studies and site
surveys described above and in accordance with SFAS 5.
Casualty Claim Reserves.
The Companys
casualty and liability reserve for its U.S. business
segment is based on actuarial studies performed on an
undiscounted basis. This reserve is based on personal injury
claims filed and an estimate of claims incurred but not yet
reported. While the ultimate amount of claims incurred is
dependent on various factors, it is managements opinion
that the recorded liability is a reasonable estimate of
aggregate future payments. Adjustments to the liability are
reflected as operating expenses in the period in which changes
to estimates are known. Casualty claims in excess of
self-insurance levels are insured up to certain coverage
amounts, depending on the type of claim and year of occurrence.
The activity in the reserve follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
90.0
|
|
|
$
|
117.4
|
|
Accruals, net (includes the impact of actuarial studies)
|
|
|
6.0
|
|
|
|
5.7
|
|
Payments
|
|
|
(3.9
|
)
|
|
|
(43.0
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
92.1
|
|
|
$
|
80.1
|
|
|
|
|
|
|
|
|
|
|
The casualty claim reserve balance as of March 31, 2008, is
based on an updated study of casualty reserves for data through
November 30, 2007 and review of the last four months
experience. The activity for the three months ended
March 31, 2008 primarily relates to the net settlements and
the reserves for Federal Employers Liability Act (FELA),
third-party, and occupational illness claims. The changes to the
reserve in the current year compared to the prior year primarily
reflect a large litigation settlement in 2007 and the current
accruals related to the trend of loss experience since the date
of the prior study.
Reflecting potential uncertainty surrounding the outcome of
casualty claims, it is reasonably possible based on assessments
that future costs to settle casualty claims may range from
approximately $86 million to $101 million. While the
final outcome of these claims cannot be predicted with
certainty, management believes that the $92.1 million
recorded is the best estimate of the Companys future
obligations for the settlement of casualty claims at
March 31, 2008. The most sensitive assumptions for personal
injury accruals are the expected average cost per claim and the
projected frequency rates for the number of claims that will
ultimately result in payment. A 5% increase or decrease in
either the expected average cost per claim or the frequency rate
for claims with payments would result in an approximate
$4.6 million increase or decrease in the Companys
recorded personal injury reserves.
Management believes that previous reserve estimates for prior
claims were reasonable based on current information available.
The Company is continuing its practice of accruing monthly for
estimated claim costs, including any changes, recommended by
studies performed and evaluation of recent known trends; based
on this practice, management believes all accruals are
appropriately reflected.
Antitrust Lawsuit.
As of March 31, 2008,
29 putative class actions were on file against The Kansas City
Southern Railway Company, a wholly-owned subsidiary of the
Company (KCSR), along with the other Class I
U.S. railroads (and, in some cases, the Association of
American Railroads), in various Federal district courts alleging
that the railroads conspired to fix fuel surcharges in violation
of U.S. antitrust laws. On November 6, 2007, the
Judicial Panel on Multidistrict Litigation ordered that these
putative class action cases be consolidated for pretrial
handling before the United States District Court for the
District of Columbia, where the matters remain pending
(the Multidistrict Litigation). In addition, the New
Jersey Attorney General is investigating rail fuel surcharges
and has sought information regarding those surcharges from KCSR
and other railroads. KCSR cooperated with the New Jersey
Attorney Generals request for information while preserving
all of its legal defenses. All of the plaintiffs in the
Multidistrict Litigation filed a Consolidated
13
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
Amended Complaint on April 15, 2008. KCSR was not named as
a defendant in that Consolidated Amended Complaint pursuant to
an agreement with the Multidistrict Litigation plaintiffs to
toll the statute of limitations, and the Multidistrict
Litigation will not proceed with KCSR as a party. In any event,
KCSR maintains there is no merit to the price fixing allegations
asserted against the Company. If KCSR is named as a defendant in
lawsuits making such claims in the future, either in the
Multidistrict Litigation or otherwise, the Company intends to
vigorously contest such allegations.
On March 25, 2008, Archer-Daniels-Midland Company
(ADM) filed a complaint in the United States
District Court for the District of Minnesota against the large
Class I U.S. Railroads and KCSR, alleging that the
railroads conspired to fix fuel surcharges in violation of
U.S. antitrust laws and Minnesota antitrust statutes, or
that fuel surcharges constituted unreasonable practices in
violation of federal statutes. The ADM complaint does not seek
class action status. The complaint has not yet been served upon
KCSR, but if the litigation proceeds, KCSR will vigorously
contest all allegations made by ADM.
Disputes Relating to Payments for the Use of Trackage and
Haulage Rights and Interline Services.
KCSM and
Ferrocarril Mexicano, S.A. de C.V.
(Ferromex)
both initiated administrative proceedings seeking a
determination by the Mexican
Secretaria de Comunicaciones y
Transportes
(Ministry of Communications and
Transportation or SCT) of the rates that the
companies should pay each other in connection with the use of
trackage and haulage rights and interline and terminal services.
The SCT, in March of 2002, issued rulings setting the rates for
trackage and haulage rights. In August of 2002, the SCT issued a
ruling setting the rates for interline and terminal services.
KCSM and Ferromex appealed both rulings. Following the trial and
appellate court decisions, the Mexican Supreme Court in February
of 2006, in a ruling from the bench, sustained KCSMs
appeal of the SCTs trackage and haulage rights ruling,
vacating the ruling and ordering the SCT to issue a new ruling
consistent with the Courts decision. KCSM has not yet
received the written opinion of the Mexican Supreme Court
relating to the interline and terminal services appeal. In
October 2006, KCSM was served with a claim raised by Ferromex in
which Ferromex asked for information concerning the interline
traffic between KCSM and Ferromex from January 2002 through
December 2004. The
29
th
Civil
Court issued an order directing KCSM to allow Ferromex to review
certain account logs. KCSM appealed such order to the
1
st
Civil
District Court and is awaiting a decision. KCSM expects this
litigation to continue over the next few years. KCSM believes
that, based on its assessment of the facts in this case, there
will be no material impact to its financial statements.
Disputes Relating to the Scope of the Mandatory Trackage
Rights.
KCSM and Ferromex are parties to various
civil cases involving disputes over the application and proper
interpretation of the mandatory trackage rights. In August 2002,
the SCT issued rulings determining Ferromexs trackage
rights in Monterrey, Nuevo León. KCSM and Ferromex both
appealed the SCTs rulings. At the Mexican Administrate
Federal Court level, KCSM obtained what it believed were
favorable rulings in April 2005. Ferromex appealed these rulings
and the case was returned to the Mexican Administrative Federal
Court. The Administrative Federal Court issued a ruling on
June 11, 2007, which was served on KCSM on August 8,
2007. In the ruling, the Mexican Administrative Federal Court
reversed the earlier favorable ruling and decided that Ferromex
could use certain auxiliary tracks awarded to KCSM in its
concession. KCSM appealed this ruling at the beginning of
September 2007, arguing that the Mexican Administrative Federal
Court wrongly failed to consider the earlier favorable decision
in making its revised ruling and also failed to consider the
length and limits of the trackage rights included in KCSMs
Concession title. The Company believes that based on its
assessment of the facts in this case, there will be no material
effect on KCS results of operations.
Acquisition of Locomotives.
In April 2007,
KCSR and KCSM entered into definitive purchase agreements with
Electro Motive Diesel, Inc. (EMD) to acquire an
aggregate of 70 locomotives for delivery in October 2007 through
April 2008 at an aggregate cost of approximately
$150 million. KCSM has acquired 40 of the locomotives and
entered into the Loan Agreement as described in Note 7. As
of March 31, 2008, KCSR has acquired 28 of the 30 remaining
locomotives, which was included in other current
14
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
assets in the consolidated balance sheet. The Company received
the remaining 2 locomotives in April of 2008, and entered into a
sale and leaseback transaction as described in Note 11.
The Company strategically manages its rail operations as one
reportable business segment over a single coordinated rail
network that extends from the midwest and southeast portions of
the United States south into Mexico and connects with other
Class I railroads. Financial information reported at this
level, such as revenues, operating income and cash flows from
operations, is used by corporate management, including the
Companys chief operating decision-maker, in evaluating
overall financial and operational performance, market
strategies, as well as the decisions to allocate capital
resources.
The Companys strategic initiatives, which drive its
operational direction, are developed and managed at the
Companys headquarters and targets are communicated to its
various regional activity centers. Corporate management is
responsible for, among others, KCS marketing strategy, the
oversight of large cross-border customer accounts, overall
planning and control of infrastructure and rolling stock, the
allocation of capital resources based upon growth and capacity
constraints over the coordinated network, and other functions
such as financial planning, accounting, and treasury.
The role of each region is to manage the operational activities
and monitor and control costs over the coordinated rail network.
Such cost control is required to ensure that pre-established
efficiency standards set at the corporate level are attained.
The regional activity centers are responsible for executing the
overall corporate strategy and operating plan established by
corporate management as a coordinated system.
The following tables (in millions) provide information by
geographic area pursuant to Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information
(SFAS 131) as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Revenues
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
244.6
|
|
|
$
|
221.1
|
|
Mexico
|
|
|
206.0
|
|
|
|
190.2
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
450.6
|
|
|
$
|
411.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Long-lived Assets
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
2,103.4
|
|
|
$
|
2,045.0
|
|
Mexico
|
|
|
2,100.3
|
|
|
|
2,088.3
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
4,203.7
|
|
|
$
|
4,133.3
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Condensed
Consolidating Financial Information.
|
KCSR has outstanding $200.0 million of
9
1
/
2
% Senior
Notes due 2008 and $200.0 million of
7
1
/
2
% Senior
Notes due 2009 which are unsecured obligations of KCSR, which
are also jointly and severally and fully and unconditionally
guaranteed on an unsecured senior basis by KCS and certain
wholly-owned domestic subsidiaries. As a result, the following
accompanying condensed consolidating financial information
(in millions)
has been prepared and presented pursuant to
SEC
Regulation S-X
Rule 3-10
Financial statements of guarantors and issuers of
guaranteed securities registered or being registered. This
condensed information is not intended to present the financial
position, results of operations and cash flows of the individual
companies or groups of companies in accordance with
U.S. GAAP. For each of these note issues, KCSR registered
exchange notes with the SEC that have substantially identical
terms and associated guarantees; and all of the
15
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
initial senior notes for each issue have been exchanged for
$200.0 million of registered exchange notes for each
respective note issue.
CONDENSED
CONSOLIDATING STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
217.7
|
|
|
$
|
4.1
|
|
|
$
|
237.5
|
|
|
$
|
(8.7
|
)
|
|
$
|
450.6
|
|
Operating expenses
|
|
|
3.2
|
|
|
|
189.4
|
|
|
|
6.2
|
|
|
|
177.5
|
|
|
|
(9.1
|
)
|
|
|
367.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3.2
|
)
|
|
|
28.3
|
|
|
|
(2.1
|
)
|
|
|
60.0
|
|
|
|
0.4
|
|
|
|
83.4
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
40.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
4.2
|
|
|
|
(41.4
|
)
|
|
|
4.1
|
|
Interest expense
|
|
|
(0.5
|
)
|
|
|
(16.3
|
)
|
|
|
(0.3
|
)
|
|
|
(22.6
|
)
|
|
|
0.2
|
|
|
|
(39.5
|
)
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
2.5
|
|
Other income
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
1.5
|
|
|
|
(0.5
|
)
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
36.9
|
|
|
|
14.7
|
|
|
|
(2.4
|
)
|
|
|
45.6
|
|
|
|
(41.3
|
)
|
|
|
53.5
|
|
Income tax expense (benefit)
|
|
|
(0.9
|
)
|
|
|
6.3
|
|
|
|
(0.9
|
)
|
|
|
11.2
|
|
|
|
|
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest
|
|
|
37.8
|
|
|
|
8.4
|
|
|
|
(1.5
|
)
|
|
|
34.4
|
|
|
|
(41.3
|
)
|
|
|
37.8
|
|
Minority interest
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
37.7
|
|
|
$
|
8.4
|
|
|
$
|
(1.5
|
)
|
|
$
|
34.4
|
|
|
$
|
(41.3
|
)
|
|
$
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
198.4
|
|
|
$
|
2.5
|
|
|
$
|
217.4
|
|
|
$
|
(7.0
|
)
|
|
$
|
411.3
|
|
Operating expenses
|
|
|
5.6
|
|
|
|
161.3
|
|
|
|
5.0
|
|
|
|
173.7
|
|
|
|
(6.7
|
)
|
|
|
338.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(5.6
|
)
|
|
|
37.1
|
|
|
|
(2.5
|
)
|
|
|
43.7
|
|
|
|
(0.3
|
)
|
|
|
72.4
|
|
Equity in net earnings (losses) of unconsolidated affiliates
|
|
|
26.4
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(25.2
|
)
|
|
|
1.1
|
|
Interest expense
|
|
|
(1.6
|
)
|
|
|
(13.2
|
)
|
|
|
(0.3
|
)
|
|
|
(24.7
|
)
|
|
|
0.4
|
|
|
|
(39.4
|
)
|
Foreign exchange loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
(3.1
|
)
|
Other income
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
19.2
|
|
|
|
24.4
|
|
|
|
(2.8
|
)
|
|
|
16.0
|
|
|
|
(25.2
|
)
|
|
|
31.6
|
|
Income tax expense (benefit)
|
|
|
(3.1
|
)
|
|
|
9.6
|
|
|
|
(1.0
|
)
|
|
|
3.8
|
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest
|
|
|
22.3
|
|
|
|
14.8
|
|
|
|
(1.8
|
)
|
|
|
12.2
|
|
|
|
(25.2
|
)
|
|
|
22.3
|
|
Minority interest
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
22.2
|
|
|
$
|
14.8
|
|
|
$
|
(1.8
|
)
|
|
$
|
12.2
|
|
|
$
|
(25.2
|
)
|
|
$
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
23.4
|
|
|
$
|
286.2
|
|
|
$
|
2.3
|
|
|
$
|
511.4
|
|
|
$
|
(63.2
|
)
|
|
$
|
760.1
|
|
Investments held for operating purposes and affiliate investment
|
|
|
2,137.4
|
|
|
|
437.4
|
|
|
|
|
|
|
|
557.2
|
|
|
|
(3,075.6
|
)
|
|
|
56.4
|
|
Property and equipment, net
|
|
|
0.1
|
|
|
|
1,357.6
|
|
|
|
217.9
|
|
|
|
1,427.2
|
|
|
|
|
|
|
|
3,002.8
|
|
Concession assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200.9
|
|
|
|
|
|
|
|
1,200.9
|
|
Other assets
|
|
|
1.4
|
|
|
|
22.6
|
|
|
|
|
|
|
|
54.7
|
|
|
|
(15.7
|
)
|
|
|
63.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,162.3
|
|
|
$
|
2,103.8
|
|
|
$
|
220.2
|
|
|
$
|
3,751.4
|
|
|
$
|
(3,154.5
|
)
|
|
$
|
5,083.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
352.0
|
|
|
$
|
421.2
|
|
|
$
|
110.6
|
|
|
$
|
263.0
|
|
|
$
|
(27.7
|
)
|
|
$
|
1,119.1
|
|
Long-term debt
|
|
|
0.2
|
|
|
|
207.4
|
|
|
|
0.5
|
|
|
|
959.3
|
|
|
|
|
|
|
|
1,167.4
|
|
Deferred income taxes
|
|
|
10.8
|
|
|
|
346.9
|
|
|
|
82.1
|
|
|
|
89.5
|
|
|
|
|
|
|
|
529.3
|
|
Other liabilities
|
|
|
32.6
|
|
|
|
133.5
|
|
|
|
16.6
|
|
|
|
129.4
|
|
|
|
(51.2
|
)
|
|
|
260.9
|
|
Minority interest
|
|
|
1.1
|
|
|
|
33.8
|
|
|
|
|
|
|
|
239.8
|
|
|
|
(33.8
|
)
|
|
|
240.9
|
|
Stockholders equity
|
|
|
1,765.6
|
|
|
|
961.0
|
|
|
|
10.4
|
|
|
|
2,070.4
|
|
|
|
(3,041.8
|
)
|
|
|
1,765.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,162.3
|
|
|
$
|
2,103.8
|
|
|
$
|
220.2
|
|
|
$
|
3,751.4
|
|
|
$
|
(3,154.5
|
)
|
|
$
|
5,083.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
24.2
|
|
|
$
|
268.7
|
|
|
$
|
3.0
|
|
|
$
|
405.7
|
|
|
$
|
(55.9
|
)
|
|
$
|
645.7
|
|
Investments held for operating purposes and affiliate investment
|
|
|
2,100.1
|
|
|
|
436.7
|
|
|
|
|
|
|
|
571.3
|
|
|
|
(3,028.8
|
)
|
|
|
79.3
|
|
Property and equipment, net
|
|
|
0.6
|
|
|
|
1,329.7
|
|
|
|
219.5
|
|
|
|
1,368.5
|
|
|
|
(0.5
|
)
|
|
|
2,917.8
|
|
Concession assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215.5
|
|
|
|
|
|
|
|
1,215.5
|
|
Other assets
|
|
|
1.5
|
|
|
|
27.4
|
|
|
|
|
|
|
|
41.0
|
|
|
|
|
|
|
|
69.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,126.4
|
|
|
$
|
2,062.5
|
|
|
$
|
222.5
|
|
|
$
|
3,602.0
|
|
|
$
|
(3,085.2
|
)
|
|
$
|
4,928.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
355.5
|
|
|
$
|
428.7
|
|
|
$
|
111.4
|
|
|
$
|
234.9
|
|
|
$
|
(31.8
|
)
|
|
$
|
1,098.7
|
|
Long-term debt
|
|
|
0.2
|
|
|
|
207.3
|
|
|
|
0.5
|
|
|
|
897.0
|
|
|
|
|
|
|
|
1,105.0
|
|
Deferred income taxes
|
|
|
11.9
|
|
|
|
341.1
|
|
|
|
83.0
|
|
|
|
63.1
|
|
|
|
|
|
|
|
499.1
|
|
Other liabilities
|
|
|
31.6
|
|
|
|
99.2
|
|
|
|
15.7
|
|
|
|
133.6
|
|
|
|
(24.0
|
)
|
|
|
256.1
|
|
Minority interest
|
|
|
0.9
|
|
|
|
31.4
|
|
|
|
|
|
|
|
239.8
|
|
|
|
(29.1
|
)
|
|
|
243.0
|
|
Stockholders equity
|
|
|
1,726.3
|
|
|
|
954.8
|
|
|
|
11.9
|
|
|
|
2,033.6
|
|
|
|
(3,000.3
|
)
|
|
|
1,726.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,126.4
|
|
|
$
|
2,062.5
|
|
|
$
|
222.5
|
|
|
$
|
3,602.0
|
|
|
$
|
(3,085.2
|
)
|
|
$
|
4,928.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding intercompany activity
|
|
$
|
3.4
|
|
|
$
|
63.7
|
|
|
$
|
1.2
|
|
|
$
|
50.4
|
|
|
$
|
|
|
|
$
|
118.7
|
|
Intercompany activity
|
|
|
0.9
|
|
|
|
8.6
|
|
|
|
(0.7
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
|
|
|
4.3
|
|
|
|
72.3
|
|
|
|
0.5
|
|
|
|
41.6
|
|
|
|
|
|
|
|
118.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(43.6
|
)
|
|
|
|
|
|
|
(48.9
|
)
|
|
|
|
|
|
|
(92.5
|
)
|
Contribution from NS for MSLLC (net of change in restricted
contribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
|
|
14.8
|
|
Property investments in MSLLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
(16.9
|
)
|
Locomotives sale/leaseback timing
|
|
|
|
|
|
|
(40.3
|
)
|
|
|
|
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
(59.3
|
)
|
Other investing activities
|
|
|
|
|
|
|
5.5
|
|
|
|
(0.5
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
|
|
|
|
|
|
|
(78.4
|
)
|
|
|
(0.5
|
)
|
|
|
(76.0
|
)
|
|
|
|
|
|
|
(154.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72.8
|
|
|
|
|
|
|
|
72.8
|
|
Repayment of long-term debt
|
|
|
(0.4
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
(15.3
|
)
|
Other financing activities
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used)
|
|
|
(4.2
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
62.0
|
|
|
|
|
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
0.1
|
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
27.6
|
|
|
|
|
|
|
|
17.0
|
|
At beginning of year
|
|
|
(0.2
|
)
|
|
|
27.6
|
|
|
|
0.1
|
|
|
|
28.0
|
|
|
|
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
(0.1
|
)
|
|
$
|
16.9
|
|
|
$
|
0.1
|
|
|
$
|
55.6
|
|
|
$
|
|
|
|
$
|
72.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding intercompany activity
|
|
$
|
(1.7
|
)
|
|
$
|
38.9
|
|
|
$
|
1.7
|
|
|
$
|
12.1
|
|
|
$
|
|
|
|
$
|
51.0
|
|
Intercompany activity
|
|
|
10.4
|
|
|
|
(5.6
|
)
|
|
|
(1.7
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
|
|
|
8.7
|
|
|
|
33.3
|
|
|
|
|
|
|
|
9.0
|
|
|
|
|
|
|
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(37.2
|
)
|
|
|
|
|
|
|
(21.1
|
)
|
|
|
|
|
|
|
(58.3
|
)
|
Proceeds from disposal of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
property
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
|
|
8.0
|
|
Contribution from NS for MSLLC (net of change in restricted
contribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.7
|
|
|
|
|
|
|
|
30.7
|
|
Property investments in MSLLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.8
|
)
|
|
|
|
|
|
|
(18.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
|
|
|
|
|
|
|
(34.1
|
)
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
(38.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.0
|
)
|
Proceeds from stock plans
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Dividends paid
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
|
|
|
(8.6
|
)
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
0.1
|
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
4.7
|
|
|
|
|
|
|
|
(11.0
|
)
|
At beginning of year
|
|
|
0.2
|
|
|
|
36.2
|
|
|
|
|
|
|
|
42.6
|
|
|
|
|
|
|
|
79.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
0.3
|
|
|
$
|
20.4
|
|
|
$
|
|
|
|
$
|
47.3
|
|
|
$
|
|
|
|
$
|
68.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease of Locomotives.
On April 15, 2008
KCSR entered into an Equipment Lease Agreement (the
Lease) for thirty EMD SD70ACe locomotives delivered
to KCSR in February through April 2008. Pursuant to the terms of
the Lease, KCSR agreed to sell the locomotives to the lessor and
to lease the locomotives from the lessor for an initial term of
twenty years under the terms of an operating lease.
19
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Kansas City Southern:
We have reviewed the accompanying consolidated balance sheet of
Kansas City Southern and subsidiaries (the Company) as of
March 31, 2008, and the related consolidated statements of
income and cash flows for the three-month periods ended
March 31, 2008 and 2007. These consolidated financial
statements are the responsibility of the Companys
management.
We conducted our reviews in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of the Company as of
December 31, 2007, and the related consolidated statements
of income, stockholders equity and comprehensive income
and cash flows for the year then ended (not presented herein);
and in our report dated February 15, 2008, we expressed an
unqualified opinion on those consolidated financial statements.
Our report refers to Kansas City Southerns adoption of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, effective
January 1, 2007. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of
December 31, 2007 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
KPMG LLP
Kansas City, Missouri
April 24, 2008
20
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The discussion below, as well as other portions of this
Form 10-Q,
contain forward-looking statements that are not based upon
historical information. Such forward-looking statements are
based upon information currently available to management and
managements perception thereof as of the date of this
Form 10-Q.
Readers can identify these forward-looking statements by the use
of such verbs as expects, anticipates,
believes or similar verbs or conjugations of such
verbs. The actual results of operations of Kansas City Southern
(KCS or the Company) could materially
differ from those indicated in forward-looking statements. The
differences could be caused by a number of factors or
combination of factors including, but not limited to, those
factors identified in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in the Companys annual report on
Form 10-K
for the year ended December 31, 2007, which is on file with
the U.S. Securities and Exchange Commission (File
No. 1-4717)
incorporated by reference and in Part II
Item 1A Risk Factors in the
Form 10-K
and this
Form 10-Q.
Readers are strongly encouraged to consider these factors when
evaluating forward-looking statements. Forward-looking
statements contained in this
Form 10-Q
will not be updated.
This discussion is intended to clarify and focus on the
Companys results of operations, certain changes in its
financial position, liquidity, capital structure and business
developments for the periods covered by the consolidated
financial statements included under Item 1 of this
Form 10-Q.
This discussion should be read in conjunction with those
consolidated financial statements and the related notes, and is
qualified by reference to them.
Critical
Accounting Policies and Estimates.
The Companys discussion and analysis of its financial
position and results of operations is based upon its
consolidated financial statements. The preparation of the
financial statements requires estimation and judgment that
affect the reported amounts of revenue, expenses, assets, and
liabilities. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the accounting for assets
and liabilities that are not readily apparent from other
sources. If the estimates differ materially from actual results,
the impact on the consolidated financial statements may be
material. The Companys critical accounting policies are
disclosed in the 2007 annual report on
Form 10-K.
There have been no significant changes with respect to these
policies during the first three months of 2008.
Overview.
The Company is engaged primarily in the freight rail
transportation business through operating a single coordinated
rail network and operates under one reportable business segment.
The primary operating subsidiaries of the Company consists of
the following: The Kansas City Southern Railway Company
(KCSR), The Texas Mexican Railway Company
(TexMex), Meridian Speedway, LLC
(MSLLC), and Kansas City Southern de México,
S.A. de C.V. (KCSM). The Company generates revenues
and cash flows by providing customers with freight delivery
services within its regions, and throughout North America
through connections with other Class I rail carriers.
Customers conduct business in a number of different industries,
including electric-generating utilities, chemical and petroleum
products, paper and forest products, agriculture and mineral
products, automotive products and intermodal transportation.
Appropriate eliminations and reclassifications have been
recorded in deriving consolidated financial statements.
First
Quarter Analysis.
The Company reported quarterly earnings of $0.39 per diluted
share on consolidated net income of $37.7 million for the
three months ended March 31, 2008, compared to quarterly
earnings of $0.21 per diluted share on consolidated net income
of $22.2 million for the same period ended 2007. The
revenue growth of 9.6% over the first quarter 2008 was primarily
driven by price increases and certain new business growth.
Cash flows from operations increased to $118.7 million as
compared to $51.0 million for the three month periods ended
March 31, 2008 and 2007, respectively, an increase of
$67.7 million from the prior year period.
21
The increase is primarily due to increased net income and
continued improvement in working capital. Capital expenditures
are a significant use of cash flows due to the capital intensive
nature of railroad operations and the Companys growth
strategy. Cash used for capital expenditures for the three
months ended March 31, 2008 was $92.5 million as
compared to $58.3 million for the same period in 2007.
Results
of Operations.
Net income for the first quarter of 2008 increased
$15.5 million compared to the prior year first quarter.
The following summarizes KCS income statement
(in
millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Dollars
|
|
|
Percent
|
|
|
Revenues
|
|
$
|
450.6
|
|
|
$
|
411.3
|
|
|
$
|
39.3
|
|
|
|
10
|
%
|
Operating expenses
|
|
|
367.2
|
|
|
|
338.9
|
|
|
|
28.3
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
83.4
|
|
|
|
72.4
|
|
|
|
11.0
|
|
|
|
15
|
%
|
Equity in net earnings of unconsolidated affiliates
|
|
|
4.1
|
|
|
|
1.1
|
|
|
|
3.0
|
|
|
|
273
|
%
|
Interest expense
|
|
|
(39.5
|
)
|
|
|
(39.4
|
)
|
|
|
(0.1
|
)
|
|
|
0
|
%
|
Foreign exchange gain (loss)
|
|
|
2.5
|
|
|
|
(3.1
|
)
|
|
|
5.6
|
|
|
|
181
|
%
|
Other income
|
|
|
3.0
|
|
|
|
0.6
|
|
|
|
2.4
|
|
|
|
400
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
53.5
|
|
|
|
31.6
|
|
|
|
21.9
|
|
|
|
69
|
%
|
Income tax expense
|
|
|
15.7
|
|
|
|
9.3
|
|
|
|
6.4
|
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
37.8
|
|
|
|
22.3
|
|
|
|
15.5
|
|
|
|
70
|
%
|
Minority interest
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37.7
|
|
|
$
|
22.2
|
|
|
$
|
15.5
|
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues.
The following summarizes revenues (
in millions
) and
carload statistics
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Carloads and Intermodal Units
|
|
|
|
Three Months
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
Change
|
|
|
Ended March 31,
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Dollars
|
|
|
Percent
|
|
|
2008
|
|
|
2007
|
|
|
Units
|
|
|
Percent
|
|
|
Chemical and petroleum
|
|
$
|
86.7
|
|
|
$
|
75.6
|
|
|
$
|
11.1
|
|
|
|
15
|
%
|
|
|
61.6
|
|
|
|
54.6
|
|
|
|
7.0
|
|
|
|
13
|
%
|
Forest products and metals
|
|
|
123.9
|
|
|
|
122.2
|
|
|
|
1.7
|
|
|
|
1
|
%
|
|
|
94.8
|
|
|
|
102.1
|
|
|
|
(7.3
|
)
|
|
|
(7
|
)%
|
Agriculture and minerals
|
|
|
108.8
|
|
|
|
93.8
|
|
|
|
15.0
|
|
|
|
16
|
%
|
|
|
71.8
|
|
|
|
72.9
|
|
|
|
(1.1
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general commodities
|
|
|
319.4
|
|
|
|
291.6
|
|
|
|
27.8
|
|
|
|
10
|
%
|
|
|
228.2
|
|
|
|
229.6
|
|
|
|
(1.4
|
)
|
|
|
(1
|
)%
|
Intermodal and automotive
|
|
|
64.1
|
|
|
|
56.5
|
|
|
|
7.6
|
|
|
|
13
|
%
|
|
|
151.3
|
|
|
|
152.1
|
|
|
|
(0.8
|
)
|
|
|
(1
|
)%
|
Coal
|
|
|
47.0
|
|
|
|
45.1
|
|
|
|
1.9
|
|
|
|
4
|
%
|
|
|
72.8
|
|
|
|
75.1
|
|
|
|
(2.3
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carload revenues, units and intermodal units
|
|
|
430.5
|
|
|
|
393.2
|
|
|
|
37.3
|
|
|
|
9
|
%
|
|
|
452.3
|
|
|
|
456.8
|
|
|
|
(4.5
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
20.1
|
|
|
|
18.1
|
|
|
|
2.0
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues(i)
|
|
$
|
450.6
|
|
|
$
|
411.3
|
|
|
$
|
39.3
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Included in revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge
|
|
$
|
41.6
|
|
|
$
|
30.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008, revenues
increased $39.3 million compared to the same period in
2007, primarily due to certain new business growth, rate
increases, and increased fuel surcharge
22
participation compared to last year, partially offset by a
decrease in overall carload/unit volumes except in the chemical
and petroleum commodity group. The following discussion provides
an analysis of revenues by commodity group.
|
|
|
Chemical and petroleum.
Revenues increased
$11.1 million for the three months ended March 31,
2008, compared to the same period in 2007, due to increased
traffic volumes from new business, primarily related to soda ash
in the chemicals channel and plastics products, and targeted
rate increases.
|
|
|
Forest products and metals.
Revenues increased
$1.7 million for the three months ended March 31,
2008, compared to the same period in 2007 due to targeted rate
increases primarily in paper products, partially offset by
decreases in volume due to the declining housing market which
impacted the lumber products channel and declines in beer
traffic volume in the military and other channel.
|
|
|
Agriculture and minerals.
Revenues increased
$15.0 million for the three months ended March 31,
2008, compared to the same period in 2007 due to higher rates
and volume in certain channels. Although overall volume in
agriculture and minerals were slightly lower than the prior
year, increases in operational metrics such as train velocity
over certain corridors increased capacity and volume in certain
channels. Grain traffic accounted for the majority of the
increase in revenues and cross border traffic into Mexico was
strong in the first quarter. Volume in the first quarter was
adversely affected by wetter than normal weather in the south
slowing shipments in certain channels resulting in a reduction
to certain beneficial customer inventories.
|
|
|
Intermodal and automotive.
Revenues increased
$7.6 million in the intermodal and automotive sectors for
the three months ended March 31, 2008, compared to the same
period in 2007 primarily due to the increase in volume of
automotive business driven by the increased production of
U.S. automotives and new intermodal containerized business
originating from the port of Lázaro Cárdenas,
primarily offset by volume reductions related to certain haulage
business.
Coal.
Revenue increased $1.9 million for
the three months ended March 31, 2008, compared to the same
period in 2007 due to increased length of haul and rate
increases, partially offset in the quarter by lower current
period volumes due to stockpile level growth at electric
generating plants in prior periods and unplanned current period
utility maintenance outages.
23
Operating
Expenses.
Operating expenses for the three months ended March 31,
2008 increased $28.3 million when compared to the same
period in 2007 as shown below
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Dollars
|
|
|
Percent
|
|
|
Compensation and benefits
|
|
$
|
106.1
|
|
|
$
|
99.9
|
|
|
$
|
6.2
|
|
|
|
6
|
%
|
Purchased services
|
|
|
44.9
|
|
|
|
46.7
|
|
|
|
(1.8
|
)
|
|
|
(4
|
)%
|
Fuel
|
|
|
77.9
|
|
|
|
62.5
|
|
|
|
15.4
|
|
|
|
25
|
%
|
Equipment costs
|
|
|
45.8
|
|
|
|
44.9
|
|
|
|
0.9
|
|
|
|
2
|
%
|
Depreciation and amortization
|
|
|
40.7
|
|
|
|
38.1
|
|
|
|
2.6
|
|
|
|
7
|
%
|
Casualties and insurance
|
|
|
19.0
|
|
|
|
19.4
|
|
|
|
(0.4
|
)
|
|
|
(2
|
)%
|
Materials and other
|
|
|
32.8
|
|
|
|
27.4
|
|
|
|
5.4
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
367.2
|
|
|
$
|
338.9
|
|
|
$
|
28.3
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits.
Compensation and
benefits increased $6.2 million for the three months ended
March 31, 2008, compared to the same period in 2007.
Increased Compensation and benefits expense is primarily due to
annual wage and salary rate increases, new collective bargaining
agreements which became effective July 1, 2007 and an
increase in the Mexico statutory profit sharing expense.
Purchased services.
Purchased services
decreased $1.8 million for the three months ended
March 31, 2008, compared to the same period in 2007. The
reduction reflects the increased use of facilities jointly used
by the Company and other railroads primarily resulting from
increased volume at those facilities, and increases in freight
car repairs being offset by an increase in overhead costs
capitalized by the Company as compared to the prior year.
Fuel.
Fuel expense increased $15.4 for the
three months ended March 31, 2008, compared with the same
period in 2007, primarily due to higher diesel fuel prices
partially offset by lower consumption in certain parts of the
network, and increased fuel efficiency partially driven by older
locomotives being replaced with new locomotives through a
strategic initiative in 2007 and 2008.
Equipment costs.
Equipment costs increased
$0.9 million for the three months ended March 31,
2008, compared to the same period in 2007, primarily due to an
increase in locomotive lease expense partially offset by lower
car hire expense.
Depreciation and amortization.
Depreciation
and amortization expenses for the quarter ended March 31,
2008 increased $2.6 million, compared to the same period in
2007, primarily due to increases in the asset base reflecting
continued capital expenditures.
Casualties and insurance.
Casualties and
insurance expenses decreased $0.4 million for the three
months ended March 31, 2008, compared to the same period in
2007, primarily due to lower than estimated freight loss and
damage, as well as a reduction in insurance costs, partially
offset by higher derailment costs resulting from fewer but more
costly derailments in the first quarter of 2008.
Materials and other.
Materials and other
expense increased $5.4 million for the three months ended
March 31, 2008, compared to the same period in 2007, due to
lower sale and use tax in the first quarter of 2007 as a result
of a favorable tax ruling, higher employee expenses and
increased materials and supplies used for the maintenance of
freight cars and locomotives.
24
Non-Operating
Expenses.
Equity in Net Earnings (Losses) of Unconsolidated
Affiliates.
Equity in earnings from
unconsolidated affiliates was $4.1 million for the three
month period ended March 31, 2008, compared to
$1.1 million for the same periods in 2007. Significant
components of this change follow:
|
|
|
|
|
Equity in earnings from the operations of PCRC was
$1.5 million for the three month period ended
March 31, 2008, compared to $0.9 million for the same
period in 2007. The increase is primarily due to increased
freight revenue driven by higher volume.
|
|
|
|
Equity in earnings of Southern Capital Corporation, LLC
(Southern Capital) was $1.3 million for the
three month period ended March 31, 2008, compared to
$1.0 million for the same period in 2007. The increase is
primarily attributed to additional revenue based on increased
lease income as well as reduction of interest and administrative
expenses.
|
|
|
|
KCSMs equity in earnings of Ferrocarril y Terminal del
Valle de México, S.A. de C.V. (FTVM) was
$1.3 million for the three month period ended
March 31, 2008, compared to loss in earnings of
$0.8 million for the same period in 2007. The increase for
the three months ended March 31, 2008 is due to a prior
year loss recorded in the first quarter of 2007 by FTVM
resulting from adjustments to revenue related to the storage of
containers and freight car equipment.
|
Interest Expense.
Interest expense increased
by $0.1 million for the three months ended March 31,
2008, compared to the same period in 2007 mainly due to higher
average debt balance primarily offset by lower average interest
rates due to KCSMs refinancing of higher interest rate
debt in the second quarter of 2007 and lower market interest
rates compared to 2007.
Foreign Exchange.
For the three months ended
March 31, 2008, the foreign exchange gain was
$2.5 million compared to a foreign exchange loss of
$3.1 million for the same period in 2007, due to
fluctuations in the U.S. dollar versus the Mexican peso
exchange rates.
Other Income.
Other income for the three
months ended March 31, 2008, was $3.0 million which
consists primarily of miscellaneous interest, dividend income
and gain on sale of property. For the three months ended
March 31, 2007, other income was $0.6 million which
consisted of miscellaneous interest income and dividend income.
Income Tax Expense.
For the three months ended
March 31, 2008, the income tax provision was
$15.7 million as compared to $9.3 million for the
three months ended March 31, 2007. The effective income tax
rate was 29.3% and 29.4% for the three months ended
March 31, 2008 and 2007, respectively. The lower
consolidated tax rate for the quarter is primarily a result of
changes in the foreign exchange rates.
Liquidity
and Capital Resources.
Overview.
KCS primary uses of cash are to support operations;
maintain and improve its railroad and information systems
infrastructure; pay debt service and preferred stock dividends;
acquire new and maintain existing locomotives, rolling stock and
other equipment; and meet other obligations. See Cash Flow
Information below.
As of March 31, 2008, KCS has a debt capitalization ratio
(total debt as a percentage of total debt plus equity) of
50.7 percent. Its primary sources of liquidity are cash
flows generated from operations, borrowings under its revolving
credit facilities and access to debt and equity capital markets.
Although KCS has had more than adequate access to the capital
markets, as a non-investment grade company, the financial terms
under which funding is obtained often contain restrictive
covenants. The covenants constrain financial flexibility by
restricting or prohibiting certain actions, including the
ability to incur additional debt for any purpose other than
refinancing existing debt, create or suffer to exist additional
liens, make prepayments of particular debt, pay dividends on
common stock, make capital investments, engage in transactions
with stockholders and
25
affiliates, issue capital stock, sell certain assets, and engage
in mergers and consolidations or in sale-leaseback transactions.
On March 31, 2008, total available liquidity (the
unrestricted cash balance plus revolving credit facility
availability) was approximately $149 million.
As a result of KCS acquiring a controlling interest in KCSM,
KCSM has become subject to the terms and conditions of the
indentures governing KCSRs two senior notes issues. The
restrictive covenants of these indentures limit the ability of
KCSM to incur additional debt for any purpose other than the
refinancing of existing debt and certain new asset financing.
The Company was in compliance with all of its debt covenants as
of March 31, 2008.
The Company believes, based on current expectations, that cash
and other liquid assets, operating cash flows, access to capital
markets, and other available financing resources will be
sufficient to fund anticipated operating, capital and debt
service requirements and other commitments through 2008.
However, KCS operating cash flow and financing
alternatives can be unexpectedly impacted by various factors,
some of which are outside of its control. For example, if KCS
was to experience a substantial reduction in revenues or a
substantial increase in operating costs or other liabilities,
its operating cash flows could be significantly reduced.
Additionally, the Company is subject to economic factors
surrounding capital markets and its ability to obtain financing
under reasonable terms is subject to market conditions. Recent
volatility in capital markets and the tightening of market
liquidity could impact KCS access to capital. Further,
KCS cost of debt can be impacted by independent rating
agencies, which assign debt ratings based on certain credit
measurements such as interest coverage and leverage ratios.
On March 19, 2008, Standard & Poors Ratings
Services (S&P) raised the KCS senior unsecured
debt ratings for both KCSR and KCSM to BB- from B, S&P also
maintained the Companys outlook as developing.
On February 26, 2008, KCSM entered into a Loan and Security
Agreement (the Loan Agreement) for an aggregate
amount of $72.8 million. KCSM used the proceeds to finance
85% of the purchase price of forty new SD70ACe locomotives (the
Locomotives) delivered and purchased by KCSM in late
2007 and early 2008. KCSM granted the lender a security interest
in the Locomotives to secure the loan. The Loan Agreement
requires KCSM to make thirty equal semi-annual payments of
approximately $2.4 million plus interest at an annual rate
of 5.737%, with the final payment due and payable on
February 28, 2023.
The Loan Agreement contains representations, warranties and
covenants typical of such equipment loans. Events of default in
the Loan Agreement include, but are not limited to, certain
payment defaults, certain bankruptcy and liquidation proceedings
and the failure to perform any covenants or agreements contained
in the Loan Agreement. Any event of default could trigger
acceleration of KCSMs payment obligations under the terms
of the Loan Agreement.
Cash
Flow Information.
Summary cash flow data follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows provided by (used for):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
118.7
|
|
|
$
|
51.0
|
|
Investing activities
|
|
|
(154.9
|
)
|
|
|
(38.4
|
)
|
Financing activities
|
|
|
53.2
|
|
|
|
(23.6
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
17.0
|
|
|
|
(11.0
|
)
|
Cash and cash equivalents beginning of year
|
|
|
55.5
|
|
|
|
79.0
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
72.5
|
|
|
$
|
68.0
|
|
|
|
|
|
|
|
|
|
|
26
During the three months ended March 31, 2008, the
consolidated cash position increased $17.0 million from
December 31, 2007, primarily attributable to strong cash
flows from operating activities. As compared to the three months
ended March 31, 2007, cash flow from operating activities
increased $67.7 million as a result of improved operating
performance and an improvement in working capital position. Net
investing cash outflows increased $116.5 million due to a
higher level of capital expenditures for KCS and the purchase of
locomotives which will be financed in the second quarter.
Financing activity cash inflows increased $76.8 million due
to the proceeds from financing locomotives purchased in December
2007 and January 2008.
KCS cash flow from operations has historically been
sufficient to fund operations, roadway capital expenditures,
other capital improvements and debt service. External sources of
cash (principally bank debt, public debt, preferred stock and
leases) have been used to refinance existing indebtedness and to
fund acquisitions, new investments and equipment additions.
Capital
Expenditures.
Capital improvements for roadway track structures have
historically been funded with cash flows from operations. KCS
has historically used internally generated cash flows or lease
financing for equipment acquisition.
The following summarizes the cash capital expenditures by type
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Maintenance of way
|
|
|
|
|
|
|
|
|
Track
|
|
$
|
42.1
|
|
|
$
|
27.6
|
|
Other
|
|
|
7.4
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
Total maintenance of way
|
|
|
49.5
|
|
|
|
31.4
|
|
Maintenance of equipment
|
|
|
8.6
|
|
|
|
6.0
|
|
Transportation capacity
|
|
|
20.0
|
|
|
|
7.1
|
|
Locomotive acquisitions
|
|
|
10.8
|
|
|
|
8.8
|
|
Information technology
|
|
|
2.0
|
|
|
|
1.9
|
|
Other
|
|
|
1.6
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
92.5
|
|
|
$
|
58.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
There was no material change during the quarter from the
information set forth in Part II, Item 7A.
Quantitative and Qualitative Disclosure about Market
Risk in the Annual Report on
Form 10-K
for the year ended December 31, 2007.
|
|
Item 4.
|
Controls
and Procedures.
|
(a) Disclosure Controls and Procedures
As of the end of the fiscal quarter for which this Quarterly
Report on
Form 10-Q
is filed, the Companys Chief Executive Officer and Chief
Financial Officer have each reviewed and evaluated the
effectiveness of the Companys disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have each
concluded that the Companys current disclosure controls
and procedures are effective to ensure that information required
to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and include
controls and procedures designed to ensure that information
required to be disclosed by the Company in such reports is
accumulated and communicated to the
27
Companys management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
(b) Changes in Internal Control over Financial
Reporting
There have not been any changes in the Companys internal
control over financial reporting that occurred during the fiscal
quarter for which this Quarterly Report on
Form 10-Q
is filed that have materially affected, or are reasonably likely
to materially affect, the Companys internal controls over
financial reporting.
|
|
Item 4T.
|
Controls
and Procedures.
|
Not applicable.
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
For information related to the Companys settlements and
other legal proceedings, see Note 8, Commitments and
Contingencies under Part I, Item 1, of this quarterly
report on
Form 10-Q.
There were no material changes during the quarter in the Risk
Factors disclosed in Item 1A Risk
Factors in our annual report on
Form 10-K
for the year ended December 31, 2007.
|
|
Item 2.
|
Unregistered
Sale of Equity Securities and Use of Proceeds.
|
None
|
|
Item 3.
|
Defaults
upon Senior Securities.
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None
|
|
Item 5.
|
Other
Information.
|
None
28
|
|
|
|
|
Exhibit No.
|
|
|
|
|
10
|
.1
|
|
Loan and Security Agreement, dated as of February 26, 2008,
between Kansas City Southern de México, S.A. de C.V. and
Export Development Canada is attached to this
Form 10-Q
as Exhibit 10.1
|
|
10
|
.2
|
|
Participation Agreement (KCSR
2008-1)
dated as of April 1, 2008, among KCSR, KCSR
2008-1
Statutory Trust (acting through U.S. Bank Trust National
Association, no in its individual capacity, but solely as Owner
Trustee) (KCSR
2008-1
Statutory Trust), U.S. Bank Trust National
Association (only in its individual capacity as expressly
provided therein), MetLife Capita, Limited Partnership (as Owner
Participant), Wilmington Trust Company (as Indenture
Trustee) and Export Development Canada (as Loan Participant), is
attached to this
Form 10-Q
as Exhibit 10.2
|
|
10
|
.3
|
|
Equipment Lease Agreement (KCSR
2008-1)
dated as of April 1, 2008, between KCSR
2008-1
Statutory Trust (as Lessor) and KCSR (as Lessee), is attached to
this
Form 10-Q
as Exhibit 10.3
|
|
15
|
.1
|
|
Letter regarding unaudited interim financial information is
attached to this
Form 10-Q
as Exhibit 15.1
|
|
31
|
.1
|
|
Principal Executive Officers Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 is attached
to this
Form 10-Q
as Exhibit 31.1
|
|
31
|
.2
|
|
Principal Financial Officers Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 is attached
to this
Form 10-Q
as Exhibit 31.2
|
|
32
|
.1
|
|
Principal Executive Officers Certification furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
is attached to this
Form 10-Q
as Exhibit 32.1
|
|
32
|
.2
|
|
Principal Financial Officers Certification furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
is attached to this
Form 10-Q
as Exhibit 32.2
|
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized and in
the capacities indicated on April 24, 2008.
Kansas City Southern
|
|
|
|
|
/s/ Patrick
J. Ottensmeyer
|
Patrick J. Ottensmeyer
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Michael K. Borrows
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
30
EXHIBIT 10.1
Loan and Security Agreement
by and between
Kansas City Southern de México, S.A. de C.V.
and
Export Development Canada
February 26, 2008
Table of Contents
|
|
|
|
|
|
|
Section
|
|
Heading
|
|
Page
|
|
|
|
|
|
|
|
|
Article I
|
|
Definitions
|
|
|
1
|
|
|
|
|
|
|
|
|
Section 1.1.
|
|
Definitions
|
|
|
1
|
|
Section 1.2.
|
|
Directly or Indirectly
|
|
|
1
|
|
|
|
|
|
|
|
|
Article II
|
|
Closing Date
|
|
|
1
|
|
|
|
|
|
|
|
|
Section 2.1.
|
|
Closing
|
|
|
1
|
|
|
|
|
|
|
|
|
Article III
|
|
Funding of Loan
|
|
|
2
|
|
|
|
|
|
|
|
|
Section 3.1.
|
|
Funding
|
|
|
2
|
|
Section 3.2.
|
|
Notice and Closing
|
|
|
2
|
|
Section 3.3.
|
|
Administration Fee
|
|
|
2
|
|
|
|
|
|
|
|
|
Article IV
|
|
The Notes
|
|
|
2
|
|
|
|
|
|
|
|
|
Section 4.1.
|
|
Notes
|
|
|
2
|
|
Section 4.2.
|
|
Method of Payment
|
|
|
3
|
|
Section 4.3.
|
|
Application of Payments to Principal Amount and Interest
|
|
|
3
|
|
Section 4.4.
|
|
Termination of Interest
|
|
|
3
|
|
Section 4.5.
|
|
Transfer of Notes
|
|
|
3
|
|
Section 4.6.
|
|
Loss, Theft, Etc. of Notes
|
|
|
4
|
|
Section 4.7.
|
|
Payment of Transfer Taxes
|
|
|
4
|
|
Section 4.8.
|
|
Prepayments
|
|
|
4
|
|
Section 4.9.
|
|
Equally and Ratably Secured
|
|
|
6
|
|
|
|
|
|
|
|
|
Article V
|
|
Grant of Security
|
|
|
6
|
|
|
|
|
|
|
|
|
Article VI
|
|
Closing Conditions
|
|
|
7
|
|
|
|
|
|
|
|
|
Article VII
|
|
Covenants of the Borrower
|
|
|
8
|
|
|
|
|
|
|
|
|
Section 7.1.
|
|
Payment of the Notes
|
|
|
8
|
|
Section 7.2.
|
|
Marking of Equipment
|
|
|
8
|
|
Section 7.3.
|
|
Maintenance of Equipment; Casualty Occurrences; Eminent Domain
|
|
|
8
|
|
Section 7.4.
|
|
Possession of Equipment; Assignments
|
|
|
10
|
|
Section 7.5.
|
|
Insurance
|
|
|
12
|
|
Section 7.6.
|
|
Borrowers Indemnities
|
|
|
14
|
|
Section 7.7.
|
|
The Lenders Inspection Rights
|
|
|
18
|
|
Section 7.8.
|
|
Merger Covenant
|
|
|
18
|
|
Section 7.9.
|
|
Financial Statements
|
|
|
18
|
|
Section 7.10.
|
|
Increased Costs
|
|
|
20
|
|
Section 7.11.
|
|
Withholding Tax Indemnity
|
|
|
21
|
|
|
|
|
|
|
|
|
Section
|
|
Heading
|
|
Page
|
|
|
|
|
|
|
|
|
Section 7.12.
|
|
Discharge of Liens
|
|
|
23
|
|
Section 7.13.
|
|
Recording; Payment of Expenses
|
|
|
24
|
|
Section 7.14.
|
|
Further Assurances
|
|
|
24
|
|
Section 7.15.
|
|
Compliance with Laws
|
|
|
25
|
|
|
|
|
|
|
|
|
Article VIII
|
|
Events of Default; Remedies Upon An Event of Default
|
|
|
25
|
|
|
|
|
|
|
|
|
Section 8.1.
|
|
Events of Default
|
|
|
25
|
|
Section 8.2.
|
|
Rights and Remedies Upon Default
|
|
|
26
|
|
Section 8.3.
|
|
Waiver of Default
|
|
|
27
|
|
Section 8.4.
|
|
Obligations of Borrower Not Affected by Remedies
|
|
|
28
|
|
Section 8.5.
|
|
Borrower to Deliver Equipment to Lender
|
|
|
28
|
|
Section 8.6.
|
|
Lender Appointed Attorney-in-Fact
|
|
|
28
|
|
Section 8.7.
|
|
Lender May Perform
|
|
|
29
|
|
Section 8.8.
|
|
Remedies Cumulative
|
|
|
29
|
|
Section 8.9.
|
|
Applications of Proceeds Received From Disposition of the Collateral
|
|
|
30
|
|
|
|
|
|
|
|
|
Article IX
|
|
Miscellaneous
|
|
|
30
|
|
|
|
|
|
|
|
|
Section 9.1.
|
|
Continuing Security Interest; Termination
|
|
|
30
|
|
Section 9.2.
|
|
Notices
|
|
|
31
|
|
Section 9.3.
|
|
Entire Agreement; Severability
|
|
|
31
|
|
Section 9.4.
|
|
Amendments
|
|
|
32
|
|
Section 9.5.
|
|
Counterparts
|
|
|
32
|
|
Section 9.6.
|
|
Security Agreement
|
|
|
32
|
|
Section 9.7.
|
|
Governing Law
|
|
|
32
|
|
Section 9.8.
|
|
Waiver of Jury Trial
|
|
|
32
|
|
Section 9.9.
|
|
Powers and Rights Not Waived; Remedies Cumulative
|
|
|
32
|
|
Section 9.10.
|
|
Exempted Transaction
|
|
|
32
|
|
Section 9.11.
|
|
Reproduction of Documents
|
|
|
33
|
|
Section 9.12.
|
|
Tax Disclosure
|
|
|
33
|
|
Section 9.13.
|
|
Jurisdiction, Court Proceedings
|
|
|
34
|
|
Section 9.14.
|
|
Judgment Currency
|
|
|
34
|
|
Section 9.15.
|
|
Business Days
|
|
|
35
|
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Section 9.16.
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Effect of Headings
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Section 9.17.
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Participations
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Appendix A Definitions
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Exhibit A Form of Note
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Exhibit B Form of Loan Request
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Exhibit C Closing Conditions
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Exhibit D Form of Borrowers Officers Certificate
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Exhibit E Loan and Security Agreement Supplement
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-ii-
Loan and Security Agreement
This
Loan and Security Agreement
(the
Agreement
), dated as of February 26, 2008, is
made by and between
Kansas City Southern de México, S.A. de C.V
., a corporation
incorporated under the laws of Mexico (together with its permitted successors and assigns,
Borrower
) and
Export Development Canada
, a corporation established by an Act of
Parliament of Canada (together with its permitted successors and assigns,
Lender
).
Recitals
Whereas
, the Borrower has requested that the Lender make the Loan to the Borrower in
an aggregate principal amount not to exceed $72,750,000.00, and the Lender has indicated its
willingness to make the Loan provided that the Loan is secured by a lien and security interest in
favor of the Lender against certain locomotives of the Borrower as set forth herein.
Now, Therefore
, in consideration of the premises and agreements herein contained and
for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
Article I
Definitions
Section 1.1. Definitions
. Unless the context otherwise requires, all capitalized terms used
herein without definition shall have the respective meanings set forth in Appendix A hereto for all
purposes hereof; and the rules of interpretation set forth in Appendix A hereto shall apply to this
Agreement.
Section 1.2. Directly or Indirectly.
Where any provision in this Agreement refers to action
to be taken by any Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
Article II
Closing Date
Section 2.1. Closing.
(a) Subject to the terms and conditions hereof, this Agreement shall be
effective as of the date the conditions precedent set forth in Exhibit C hereto shall have been
satisfied or waived (the
Closing Date
).
(b) All documents and instruments required to be delivered on the Closing Date and in
connection with the Loan pursuant to this Agreement shall be delivered at the offices of Chapman
and Cutler LLP, 111 West Monroe Street, Suite 1700, Chicago, Illinois 60603 (other
than the Notes and the Pledge Agreement, which shall be delivered at the offices of Ritch Mueller),
or at such other location as the Lender and the Borrower may mutually agree.
Article III
Funding of Loan
Section 3.1. Funding
. (a)
Loan
. Prior to 11:00 A.M., New York City time, on the Closing
Date, the Lender shall make a loan (the
Loan
) to the Borrower by making available to the Borrower
by wire transfer immediately available funds in an amount equal to the Requested Loan Amount as set
forth in the Loan Request in accordance with the wiring instructions set forth therein;
provided,
that the terms and conditions for the Loan set forth herein have been satisfied by 11:00 A.M. New
York time on the Closing Date. The aggregate amount of the Loan required to be made as above
provided shall not exceed the product of the Financing Percentage and the aggregate Equipment Cost
of the Equipment being financed on the Closing Date. The Loan funded hereunder is to reimburse the
Borrower for payments made by the Borrower to the Manufacturer for the acquisition of the Equipment
by the Borrower.
(b)
Waiver; Business Day.
The funding by the Lender of the Loan shall be deemed a waiver of
the Loan Request. The Closing Date shall be a Business Day.
Section 3.2. Notice and Closing.
Not later than 1:00 P.M., New York City time, on the
Business Day preceding the Closing Date, the Borrower shall deliver to the Lender a request (a
Loan Request
) by facsimile or other form of electronic communication or telephone (to be promptly
confirmed in writing) substantially in the form of Exhibit B hereto setting forth:
(i) the Closing Date;
(ii) the Requested Loan Amount; and
(iii) the number and type of Units for which settlement of the purchase price will be
made on the Closing Date and the Equipment Cost of such Units.
Section 3.3. Administration Fee
. Within 30 days after the date hereof, the Borrower shall pay
to the Lender an administration fee in an amount equal to 0.2% of the Aggregate Commitment Amount.
Article IV
The Notes
Section 4.1. Notes.
The Loan shall be evidenced by non-negotiable Notes which qualify as
pagarés
under Mexican law, executed by the Borrower
and issued to the Lender, substantially in the form of Exhibit A attached hereto. The Notes issued
with respect to the Loan shall be issued in 30 series and shall be designated Series 1 Notes
through and including Series 30 Notes (such Notes to be issued in the principal amounts and with
the maturity dates specified in Schedule II to the Loan and Security Agreement Supplement dated the
Closing Date). The Lender shall be entitled to receive a single Note, of each Series, on the
Closing Date in an
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aggregate principal amount equal to the amount of the Loan made by the Lender on
the Closing Date.
The principal amount of and interest on each Note issued pursuant to the provisions of this
Agreement shall be payable as set forth in the form thereof contained in Exhibit A. Interest on
the Notes shall accrue at the Debt Rate and shall be computed on the basis of a 360-day year of
twelve 30-day months on the principal amount thereof remaining unpaid from time to time from and
including the date thereof to but excluding the date of payment. Principal shall be paid in equal
semi-annual installments.
Each Note outstanding hereunder shall be identical except in respect of the Series, principal
amount and maturity date thereof.
Section 4.2. Method of Payment
. (a) The principal of, and Make-Whole Amount, if any, and
interest on each Note will be payable in U.S. dollars in immediately available funds to the Lender
at Citibank N.A., New York, New York, USA, ABA No. 021000089, Account No. 36236357, SWIFT CITIUS33,
Reference: 880-41109, for the account of Export Development Canada, without any presentment or
surrender of any Note, except that the holder of a Note shall promptly surrender such Note to the
Borrower upon payment in full of the principal amount of and interest on such Note and such other
sums payable to such holder hereunder with respect to such Note.
(b) Subject to Section 7.11, payments in respect of the Notes shall be reduced by any taxes,
fees or other charges required by applicable law to be withheld at the source.
Section 4.3. Application of Payments to Principal Amount and Interest
. In the case of each
Note, each payment of principal thereof and Make-Whole Amount, if any, and interest thereon shall
be applied,
first,
to the payment of accrued but unpaid interest on such Note then due thereunder,
second,
to the payment of the unpaid principal amount of such Note then due thereunder and,
third,
to the payment of Make-Whole Amount, if any, then due thereon. Any prepayment of less than the
entire outstanding principal amount of all Series of Notes pursuant to Section 4.8(b) shall be
applied pro rata in accordance with the outstanding principal amounts thereof.
Section 4.4. Termination of Interest
. The Lender shall have no further interest in, or other
right with respect to, any Equipment when and if the principal amount of and interest on all the
Notes and all other sums payable to the Lender hereunder and under such Notes shall have been paid
in full.
Section 4.5. Transfer of Notes
. The Borrower shall cause to be kept at its principal office a
register for the registration and transfer of
the Notes (hereinafter called the
Note Register
) and the Borrower will register or transfer or
cause to be registered or transferred as hereinafter provided any Notes issued pursuant to this
Agreement. A holder of a Note intending to transfer such Note to a new payee, or to exchange any
Note or Notes held by it for a Note or Notes of a different denomination or denominations, may
surrender such Note or Notes to the Borrower, together with a written request from such holder for
the issuance of a new Note or
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Notes, specifying the denomination or denominations (each of which
shall be not less than $1,000.00 (or, if less, the outstanding principal amount of such Note) or
such smaller denomination as may be necessary due to the original issuance of Notes of the
applicable maturity in an aggregate principal amount not evenly divisible by $1,000.00), and, in
the case of a surrender for registration of transfer, the name and address of the transferee or
transferees. Promptly upon receipt of such documents, the Borrower will issue a new Note or Notes
in the same aggregate principal amount, of the same Series, in the form set forth in Exhibit A, as
the case may be, in the same maturity and bearing the same interest rate as the Note or Notes
surrendered, in such denomination or denominations and payable to such payee or payees as shall be
specified in the written request from such holder. All Notes issued upon any registration of
transfer or exchange of Notes shall be the valid obligations of the Borrower evidencing the same
respective obligations, and entitled to the same security and benefits under this Agreement, as the
Notes surrendered upon such registration of transfer or exchange.
Prior to the due presentment for registration of transfer of a Note, the Borrower shall deem
and treat the registered holder of such Note as the absolute owner and holder of such Note for the
purpose of receiving payment of all amounts payable with respect to such Note and for all other
purposes and shall not be affected by any notice to the contrary.
Section 4.6. Loss, Theft, Etc. of Notes.
If any Note shall become mutilated, destroyed, lost
or stolen, the Borrower shall, upon the written request of the holder of such Note, issue in
replacement thereof, a new Note in the form set forth in Exhibit A, payable to the same holder in
the same principal amount, dated the same date, of the same Series, of the same maturity, bearing
the same interest rate and dated the same date as the Note so mutilated, destroyed, lost or stolen.
If the Note being replaced has become mutilated, such Note shall be surrendered to the Borrower.
If the Note being replaced has been destroyed, lost or stolen, the holder of such Note shall
furnish to the Borrower such security or indemnity as may be required by it to save the Borrower
harmless and evidence satisfactory to the Borrower of the destruction, loss or theft of such Note
and of the ownership thereof.
Section 4.7. Payment of Transfer Taxes
. Upon and as a condition to the transfer of any Note or
Notes pursuant to Section 4.5, the Borrower may require from the party requesting such new Note or
Notes payment of a sum to reimburse the Borrower for, or to provide funds for the payment of, any
tax or other governmental charge in connection therewith.
Section 4.8. Prepayments
. (a) If any Unit or Units have suffered or been deemed to have
suffered a Casualty Occurrence, the Notes shall be prepaid in whole or in part by the Borrower on
the date which is the monthly anniversary of the
Closing Date if such Unit or Units are not replaced pursuant to Section 7.3 hereof on the relevant
date determined pursuant to Section 7.3 hereof, at a price equal to the sum of (i) as to principal
thereof, an amount equal to the product obtained by multiplying the aggregate unpaid principal
amount of the Notes as at the date of such prepayment (after deducting therefrom the principal
installment, if any, due on the date of such prepayment) by a fraction, the numerator of which
shall be the Equipment Cost of such Unit or Units of Equipment and the denominator of which shall
be the aggregate Equipment Cost of all Units of Equipment subject to the Lien of this Agreement
immediately prior to the date of such prepayment and (ii) as to interest, the aggregate amount of
interest accrued and
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unpaid in respect of the principal amount to be prepaid pursuant to clause (i)
above to but not including the date of prepayment (after deducting therefrom any principal
installment due on or prior to the date of such prepayment), but without the payment of any
Make-Whole Amount.
(b) All Notes issued at any time outstanding hereunder may be prepaid in whole or in part upon
the request of the Borrower at any time on a date selected by the Borrower at a price equal to the
unpaid principal amount thereof together with accrued but unpaid interest thereon, plus, an amount
equal to the Make-Whole Amount, if any, applicable in respect of the principal amount of such Notes
to be prepaid pursuant to this Section 4.8(b) on the date of such prepayment.
(c) If at any time as a result of a Change in Tax Law (as defined below) the Borrower is or
becomes obligated to make any increased payments pursuant to Section 7.11 hereof in respect of any
payment of interest or other amounts on account of any of the Notes or this Agreement in excess of
the amounts payable without regard to such Change in Tax Law, the Borrower may give the Lender
irrevocable written notice (a
Tax Prepayment Notice
) of the prepayment of the Notes on a
specified prepayment date (which shall be a Business Day not less than 30 days nor more than 60
days after the date of such notice) and the circumstances giving rise to the obligation of the
Borrower to make any increased payments and the amount thereof and stating that all of the Notes
shall be prepaid on the date of such prepayment at 100% of the principal amount so prepaid together
with interest accrued thereon to the date of such prepayment (but without the payment of any
Make-Whole Amount), unless the Lender gives Borrower written notice no more than 20 days after
receipt of the Tax Prepayment Notice (or, if earlier, the tenth day prior to the date for the
payment giving rise to such increased payments), that it seeks to reject such prepayment (a
Tax
Prepayment Rejection Notice
). The form of Tax Prepayment Rejection Notice shall also accompany
the Tax Prepayment Notice and shall state that execution and delivery thereof by the Lender shall
operate as a permanent waiver of its right to receive the increased payments arising as a result of
the circumstances described in the Tax Prepayment Notice in respect of all future payments of
interest or other amounts (but not of the Lenders right to receive any increased payments that
arise out of circumstances not described in the Tax Prepayment Notice or which exceed the amount of
the increased payment described in the Tax Prepayment Notice), which waiver shall be binding upon
all subsequent transferees of any Note. The Tax Prepayment Notice having been given, the principal
amount of the Notes together with interest accrued thereon to the date of such prepayment (but
without the payment of any Make-Whole Amount) shall become due and payable on such prepayment date,
unless the Lender shall timely give a Tax Prepayment Rejection Notice.
No prepayment pursuant to this Section 4.8(c) shall affect the obligation of the Borrower to
pay increased payments in respect of any payment made on or prior to the date of such prepayment.
The Borrower may not offer to prepay, or prepay, Notes pursuant to this Section 4.8(c) (i) if
an Event of Default then exists, (ii) until the Borrower shall have taken commercially reasonable
steps to mitigate the requirement to make the related increased payments or (iii) if the obligation
to make such increased payments directly results or resulted from actions taken by the Borrower
(other than actions required to be taken under applicable law), and any Tax
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Prepayment Notice given
pursuant to this Section 4.8(c) shall certify to the foregoing and describe such mitigation steps,
if any.
For purposes of this Section 4.8(c):
Change in Tax Law
means (individually or collectively
with one or more prior changes) (i) an amendment to, or change in, any law, treaty, rule or
regulation of Mexico after the date of the Closing Date, or an amendment to, or change in, an
official interpretation or application of such law, treaty, rule or regulation after the date of
the Closing Date, which amendment or change is in force and continuing and meets the opinion and
certification requirements described below or (ii) in the case of any other jurisdiction that
becomes a Taxing Jurisdiction after the date of the Closing Date, an amendment to, or change in,
any law, treaty, rule or regulation of such jurisdiction, or an amendment to, or change in, an
official interpretation or application of such law, treaty, rule or regulation, in any case after
such jurisdiction shall have become a Taxing Jurisdiction, which amendment or change is in force
and continuing and meets such opinion and certification requirements. No such amendment or change
shall constitute a Change in Tax Law unless the same would in the opinion of the Borrower (which
shall be evidenced by an Officers Certificate of the Borrower and supported by a written opinion
of counsel having recognized expertise in the field of taxation in the Taxing Jurisdiction, both of
which shall be delivered to the Lender prior to or concurrently with the Tax Prepayment Notice in
respect of such Change in Tax Law) affect the deduction or require the withholding of any Tax
imposed by such Taxing Jurisdiction on any payment payable on the Notes.
(d) If the Borrower shall desire to prepay Notes pursuant to Section 4.8(b) above, it shall
deliver a Request to the Lender giving notice of the exercise of such right of prepayment and
specifying the aggregate principal amount of Notes to be prepaid, the date fixed for prepayment
(which date shall be at least 45 days after the delivery of such Request or such shorter period of
time as shall be satisfactory to the Lender) and shall state that payment of such amount, together
with accrued interest thereon and Make-Whole Amount, if any, will be made on the date of such
prepayment and that on and after such date interest on the principal amount of the Notes to be
prepaid will cease to accrue.
Section 4.9. Equally and Ratably Secured
. All Notes at any time outstanding under this
Agreement shall be equally and ratably secured hereby without preference, priority or distinction
on account of the date or dates or the actual time or times of the issue or maturity of such Notes
so that all Notes at any time issued and outstanding hereunder shall have the same rights, Liens
and preferences under and by virtue of this Agreement.
Article V
Grant of Security
In consideration of the premises described herein, the indebtedness described in the Notes,
and as security for the prompt and complete payment of the principal of, interest on and Make-Whole
Amount, if any, with respect to the Notes, and all other amounts due with respect to the Notes from
time to time outstanding hereunder and all other amounts due hereunder and the performance and
observance by the Borrower of all the agreements, covenants and
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provisions herein and in the Notes
all for the benefit of the holders of the Notes, and for the uses and purposes and subject to the
terms and provisions hereof, and in consideration of the premises and of the covenants herein
contained, and of the acceptance of the Notes by the Lender, the Borrower does hereby grant to
Lender, its successors and assigns, for the security and benefit of the holders of the Notes from
time to time, a continuing security interest, in and to all of the Borrowers right, title and
interest to the following described property, rights, interests and privileges, whether now owned
or hereafter acquired, wherever located and whether now existing or hereafter arising from time to
time (collectively, the
Collateral
):
(a) the Equipment and all replacements of any Units thereof and substitutions therefor
in which Borrower shall from time to time acquire an interest, all as more particularly
described in the Loan and Security Agreement Supplement executed and delivered on the
Closing Date or any such replacements thereof or substitutions therefor, as provided in this
Agreement;
(b) subject to Sections 7.3(b) and 7.5(c), all requisition proceeds with respect to the
Equipment or any Unit thereof (to the extent of Borrowers interest therein);
(c) all warranties or representations made or given to the Borrower, expressly or
impliedly, by the Manufacturer under the purchase agreements to which it is a party relating
to the Equipment and all claims for damages in respect of such Equipment arising as a result
of any default by the Manufacturer under any purchase agreement; and
(d) all proceeds, rents, issues, profits, products, revenues and other income from or
on account of the property, rights and privileges subjected or required to be subjected to
the lien of this Agreement.
For so long as this Agreement is in effect, the Borrower agrees that at any time and from time
to time, upon the written request of the Lender, the Borrower will promptly and duly execute and
deliver or cause to be executed and delivered any and all such further instruments and documents as
the Lender may deem desirable in obtaining the full benefits of this assignment and of the rights
and powers herein granted.
Article VI
Closing Conditions
The obligation of the Lender to make the Loan hereunder shall be subject to the satisfaction
or waiver of the conditions precedent set forth in Exhibit C attached hereto on or before the
Closing Date (except as otherwise indicated).
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Article VII
Covenants of the Borrower
Section 7.1. Payment of the Notes
. The Borrower shall promptly pay the principal and interest
on the Notes when due and punctually perform and observe all of the covenants, agreements and
provisions contained herein, in the Notes and in any other instrument given as security for the
Notes.
Section 7.2. Marking of Equipment
. The Borrower agrees that at or before the Closing Date,
the Borrower shall affix and maintain on each Unit the reporting mark, if any, and identification
number listed in the Loan and Security Agreement Supplement for such Unit and such other markings
as from time to time may be required by law or to protect the interest of the Lender in such Units.
In case any of such marks shall at any time be removed, defaced or destroyed before the
termination of the Lien provided for herein, the Borrower shall promptly cause the same to be
restored or replaced. The Borrower shall not change, or permit to be changed, the reporting mark
of any of the Equipment at any time covered hereby (or any reporting mark which may have been
substituted as herein provided) except in accordance with a statement of new reporting marks to be
substituted therefor which shall be filed and recorded as provided in Section 7.13 hereof.
The Equipment may be lettered with the name, initials or insignia of the Borrower, or of any
Affiliate or any lessee of the Borrower which is permitted to use the Equipment as herein provided,
or may be lettered in some other appropriate manner, for convenience of identification of the
interest of the Borrower, or such Affiliate or lessee therein. Except as aforesaid, during the
term of this Agreement, the Borrower shall not allow the name of any Person to be placed on any of
the Equipment as a designation if the right, title and interest of the Lender therein would thereby
be impaired or invalidated. The Lender shall, upon the Request of the Borrower, consent to the
placing of the name of any specified Person upon any Unit as a designation if there shall have been
delivered to the Lender an Opinion of Counsel to the effect that such designation will not impair
or invalidate the right, title and interest of the Lender in or to such Unit.
Section 7.3. Maintenance of Equipment; Casualty Occurrences; Eminent Domain
.
(a)
Maintenance of Equipment.
The Borrower, at its own cost and expense, shall service,
maintain, repair and keep each Unit (i) in good repair and operating condition, ordinary
wear and tear excepted, (ii) in accordance with (a) prudent U.S. Class I railroad industry
maintenance practices in existence from time to time and (b) manufacturers recommendations to the
extent required to maintain such manufacturers warranties in effect with respect to such Unit,
(iii) in a manner consistent with service, maintenance, overhaul and repair practices used by the
Borrower in respect of equipment owned or leased by the Borrower similar in type to such Unit and
without discrimination between owned and leased equipment and (iv) in compliance, in all material
respects, with all applicable laws and regulations, including any applicable United States EPA
Regulations and any applicable AAR Mechanical Standards and Federal Railroad Administration
regulations as applicable to continued use by the Borrower;
provided, however,
that the Borrower
may, in good faith and by appropriate proceedings diligently conducted,
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contest the validity or
application of any such law, regulation, requirement or rule in any reasonable manner which does
not materially adversely affect the rights or interests of the Lender in the Equipment or hereunder
or otherwise expose the Lender to criminal sanctions or any material civil liability.
(b)
Casualty Occurrences.
Whenever any Unit shall suffer a Casualty Occurrence, the Borrower
shall within 60 days after a responsible officer of the Borrower shall have actual knowledge of
such occurrence give the Lender notice of such occurrence (such notice to include the amount,
description, reporting marks and road numbers of all the Units of Equipment that have suffered a
Casualty Occurrence) and of its election to perform one of the following options (it being agreed
that if the Borrower shall not have given notice of such election within such 60 days after such
actual knowledge of such occurrence, the Borrower shall be deemed to have elected to perform the
option set forth in the following clause (1)) (1) on or before a Payment Date selected by the
Borrower that is within 90 days after a responsible officer of the Borrower shall have actual
knowledge of the Casualty Occurrence, the Borrower shall transfer to the Lender immediately
available funds in an amount equal to the amount required to prepay that portion of the Notes that
are to be prepaid on account of such Casualty Occurrence on such Payment Date pursuant to Section
4.8(a) hereof or (2) so long as no Event of Default shall have occurred and be continuing, as
promptly as practicable, and in any event on or before the Business Day next preceding the 175th
day next following the date on which a responsible officer of the Borrower shall have actual
knowledge of the Casualty Occurrence, the Borrower shall grant to the Lender a Lien on a
replacement Unit of similar type and capable of performing comparable function as the replaced Unit
(a
Replacement Unit
) with a current fair market value, utility and remaining useful life at least
equal to such replaced Unit, assuming such replaced Unit was in the condition and repair required
by the terms hereof immediately prior to such Casualty Occurrence;
provided
that, if the Borrower
shall not perform its obligation to effect such replacement under this clause (2) during the period
of time provided herein, then the Borrower shall pay on a Payment Date selected by the Borrower
that is within 180 days after a responsible officer of the Borrower shall have actual knowledge of
the occurrence of a Casualty Occurrence to the Lender the amounts specified in clause (1) above.
Prior to or at the time of any such conveyance and as a condition to such replacement, the Borrower
will, at its own expense:
(i) duly execute a Loan and Security Agreement Supplement which shall subject such
Replacement Unit to this Agreement and cause such Loan and Security Agreement Supplement to
be delivered to the Lender for execution and, upon such
execution, cause such supplement or appropriate evidence thereof to be filed, recorded or
deposited in every public office where the supplement (or appropriate evidence thereof)
covering the replaced Unit shall have been filed, recorded or deposited;
(ii) duly execute a Pledge Agreement Supplement which shall subject such Replacement
Unit to the Pledge Agreement and cause such Pledge Agreement Supplement to be delivered to
the Lender for execution and, upon such execution, cause such supplement or appropriate
evidence thereof to be filed, recorded or deposited in every public office where the
supplement (or appropriate evidence thereof) covering the replaced Unit shall have been
filed, recorded or deposited and the Borrower shall deliver
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to the Lender evidence of the
presentment for registration of the filing and evidence of the recordation of such Pledge
Agreement Supplement in such public office(s) promptly following the Borrowers receipt of
the same;
(iii) furnish to the Lender an Officers Certificate certifying that the Replacement
Unit is free and clear of all Liens other than Permitted Liens;
(iv) furnish to the Lender an Opinion or Opinions of Counsel to the effect that all
filings, recordings and other action necessary to perfect the Lenders interests in the
United States of America and Canada in the Replacement Unit have been accomplished;
(v) furnish to the Lender a certificate of a qualified engineer (who may be the chief
mechanical officer employed by the Borrower) certifying that the Replacement Unit has a fair
market value, utility and remaining useful life at least equal to the Unit replaced thereby
(assuming that such replaced Unit was maintained in the condition required by the terms of
this Agreement); and
(vi) pay all of the Lenders reasonable costs and expenses (including reasonable
attorneys fees (including, without limitation, reasonable attorneys fees of U.S. and
Mexican counsel)) incurred in connection with such replacement or substitution.
Upon the compliance by the Borrower with the terms of this Section 7.3(b), the Lender shall,
upon the written request of the Borrower, execute and deliver to, or as directed in writing by, the
Borrower an appropriate instrument (in due form for recording) furnished by the Borrower releasing
the replaced Unit or Units of Equipment from the Lien of this Agreement. Notwithstanding anything
to the contrary contained herein, the Borrower or its designee shall be entitled to any amounts
arising from the disposition of any Unit suffering a Casualty Occurrence, plus any awards,
insurance (other than insurance maintained by the Lender for its own account in accordance with
Section 7.5(d)) or other proceeds and damages (including any Association of American Railroads
interline settlement paid upon a Casualty Occurrence) received by the Borrower or the Lender by
reason of such Casualty Occurrence. For all purposes hereof, each Replacement Unit shall, after
such conveyance, be deemed Collateral hereunder with the same Cost as the Unit it replaced.
In the event of the substitution of a Replacement Unit, all provisions of this Agreement
relating to the Unit or Units being replaced shall be applicable to such Replacement Unit with the
same force and effect as if such Replacement Unit was the same Unit being replaced.
Section 7.4. Possession of Equipment; Assignments
. (a) The Borrower shall be entitled to the
possession of the Equipment and to the use of the Equipment by it or any Affiliate in the general
operation of the Borrowers or any such Affiliates freight rail business upon lines of railroad
owned or operated by it or any such Affiliate, upon lines of railroad over which the Borrower or
any such Affiliate has trackage or other operating rights or over which railroad equipment of the
Borrower or any such Affiliate is regularly operated pursuant to contract and on railroad lines of
other railroads in Mexico, the United States and Canada, in the usual interchange of traffic or in
through or run-through service and shall be entitled to permit the use
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of the Equipment upon lines
of railroad of connecting and other carriers in the usual interchange of traffic or pursuant to
through or run-through agreements;
provided
the Borrower shall use the Equipment only for the
purpose and in the manner for which it was designed and intended and in compliance, in all material
respects, with all laws, regulations and guidelines of any governmental body, the Association of
American Railroads and the Federal Railroad Administration and their successors and assigns.
Nothing in this Section 7.4(a) shall be deemed to constitute permission by the Lender to any Person
that acquires possession of any Unit to take any action inconsistent with the terms and provisions
of this Agreement. The rights of any person that acquires possession of any Unit pursuant to this
Section 7.4(a) shall be subject and subordinate to the rights of the Lender hereunder.
(b) Except as otherwise provided in this Section 7.4(b) or in the case of any requisition for
use by an agency or instrumentality of the Mexican government, the Borrower will not, without the
prior written consent of the Lender, assign any of its rights hereunder;
provided, however,
that
the Borrower, so long as no Event of Default shall have occurred and be continuing under this
Agreement, shall have the right, without the prior written consent of the Lender, to lease any Unit
to or permit its use by a user organized under the federal laws or the laws of any state of Mexico,
organized under the federal laws or the laws of any state of the United States or organized under
the federal laws or the laws of any province of Canada, for use by such lessee or user upon lines
of railroad owned or operated by the Borrower, any Affiliate of the Borrower, such lessee or user
or by a railroad company or companies organized under the federal laws or the laws of any state of
Mexico, organized under the federal laws or the laws of any state of the United States or organized
under the federal laws or the laws of any province of Canada, over which the Borrower, such
Affiliate of the Borrower, such lessee or user or such railroad company or companies has trackage
or other operating rights, and upon lines of railroad of connecting and other carriers in the usual
interchange of traffic or pursuant to through or run-through service agreements;
provided
such
lessee shall not, at the time of such lease, be insolvent or subject to insolvency or bankruptcy
proceedings. Each lease shall be expressly subject and subordinate to this Agreement. Prior to
entering into a lease for a period in excess of one year, Borrower shall have received written
consent from the Lender. No lease shall in any way discharge or diminish any of the Borrowers
obligations hereunder, and the Borrower shall remain primarily liable hereunder for the performance
of all the terms, conditions and provisions of this Agreement to the same extent as if such lease
had not been entered into. Nothing in this
Section 7.4(b) shall be deemed to constitute permission to any Person in possession of any Unit
pursuant to any such lease to take any action inconsistent with the terms and provisions of this
Agreement.
Notwithstanding anything to the contrary contained herein, any conveyance, transfer or lease,
directly or indirectly, of all or substantially all of the assets of the Borrower in accordance
with Section 7.8 shall not be deemed a breach of this covenant.
(c) Notwithstanding anything to the contrary contained herein (but subject to Section 9.17
hereof), the Lender shall not assign, transfer or convey any Notes or any of its interest under
this Agreement or the Pledge Agreement or any other document executed in connection therewith
unless such assignment, transfer or conveyance shall be of all, but not less than all, of the Notes
outstanding under this Agreement and all of its rights and interest under
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this Agreement, the
Pledge Agreement and any other documents executed in connection therewith, it being understood that
no assignment, transfer or conveyance of the Notes by the Lender may occur separately from any
assignment, transfer or conveyance by the Lender of all of its rights and interest under this
Agreement, the Pledge Agreement and any other documents executed in connection therewith. The
Borrower agrees to reasonably cooperate with any such transfer, assignment or conveyance,
including, without limitation, execution and delivery of replacement Notes and a replacement Pledge
Agreement. The Lender agrees to pay Borrowers reasonable costs in connection with an assignment
under this Section 7.4(c).
Section 7.5. Insurance
.
(a)
Coverages
. The Borrower will, at its own expense, cause to be carried and maintained (i)
all risk property insurance in respect of the Units of Equipment and (ii) public liability
insurance against loss or damage for personal injury, death or property damage suffered upon, in or
about any premises occupied by the Borrower or occurring as a result of the use, maintenance or
operation of the Units of Equipment in such amounts and against such risks, with such insurance
companies and with such terms (including co-insurance, deductibles, limits of liability and loss
payment provisions) as are customary under the Borrowers risk management program and in keeping
with risks assumed by U.S. Class I railroads generally,
provided, however,
that the Borrower may
self-insure with respect to any or all of the above if customary under such risk management program
and in keeping with risks assumed by U.S. Class I Railroads generally;
provided
that in no event
shall such self-insurance or policy deductibles exceed $10,000,000 per occurrence in the case of
property insurance and $15,000,000 per deductible in the case of public liability insurance. Such
coverage may provide for deductible amounts as are customary under the Borrowers risk management
program and in keeping with risks assumed by U.S. Class I Railroads generally. Notwithstanding the
foregoing, all insurance coverages (including, without limitation, self-insurance) with respect to
the Equipment required under this Agreement shall be comparable to, and no less favorable than,
insurance coverages applicable to equipment owned or leased by the Borrower which is comparable to
the Equipment. The Borrower shall, at its own expense, be entitled to make all proofs of loss and
take all other steps necessary to collect the proceeds of such insurance.
If any insurance required by this Agreement shall not be available to the Borrower at renewal
on a commercially reasonable basis on substantially the same terms and conditions as then carried
by the Borrower and the obtaining of such insurance is, in the Borrowers reasonable judgment,
commercially impracticable (taking into account both terms and premiums), the Borrower shall obtain
a written report of an independent insurance advisor of recognized national standing, chosen by the
Borrower and reasonably acceptable to the Lender confirming in reasonable detail that such
insurance, in respect of amount or scope of coverage, is not so available on a commercially
reasonable basis from insurers of recognized standing who provide insurance to the railroad
industry. During any period with respect to which any insurance is not so available, the Borrower
shall nevertheless maintain such insurance to the extent, with respect to amount and scope of
coverage, that it is available on a commercially reasonable basis from insurers of recognized
standing who provide insurance to the railroad industry. If any insurance which was previously
discontinued because of its commercial
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unavailability later becomes available, in the Borrowers
reasonable judgment, on a commercially reasonable basis, the Borrower shall reinstate such
insurance.
(b)
Certificate of Insurance
. The Borrower shall, on or prior to the Closing Date, furnish
the Lender with a certificate signed by the insurer or an independent insurance broker showing the
insurance then maintained, if any, with respect to the Units of Equipment financed on the Closing
Date. The Lender may, but not more than once in any twelve-month period, request from the Borrower
and the Borrower shall promptly thereafter furnish to the Lender, an Officers Certificate or, at
the Borrowers option, such a certificate signed by an independent insurance broker, setting forth
all insurance maintained by the Borrower pursuant to Section 7.5(a) above and describing such
policies, if any, including the amounts of coverage, any deductible amounts and the names of the
insurance providers. Such public liability insurance shall name the Lender as an additional
insured with respect to such public liability insurance then maintained as its interest may appear
and such all risk property insurance shall name the Lender as loss payee. The Borrower agrees that
such insurer or such broker will provide written notice to the Lender at least 30 days prior to the
cancellation or lapse of any insurance required to be maintained by the Borrower in accordance with
Section 7.5(a) above. Any insurance maintained pursuant to this Section 7.5 shall (i) provide
insurers waiver of its right of subrogation with respect to public liability insurance and all
risk property insurance, set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability against any additional insured except for claims as shall
arise from the willful misconduct or gross negligence of such additional insured, (ii) to the
extent commercially available, provide that such all risk property insurance as to the interest of
the Lender shall not be invalidated by any action or inaction of the Borrower or any other Person
(other than such claimant), regardless of any breach or violation of any warranty, declaration or
condition contained in such policies by the Borrower or any other Person (other than such
claimant), and (iii) provide that all such insurance is primary without right of contribution from
any other insurance which might otherwise be maintained by the Lender and shall expressly provide a
severability of interest clause. Any insurance maintained by the Lender shall not be considered
co-insurance with any insurance maintained by the Borrower.
(c)
Proceeds of Insurance.
The entire proceeds of any property or casualty insurance or
third-party payments for damages or a Casualty Occurrence with respect to any Unit
(including any Association of American Railroads interline settlements) received by the Lender
shall be promptly paid over to, and retained by, the Borrower;
provided, however,
any such amount
which is payable to the Borrower shall not be paid to the Borrower, or if it has been previously
paid directly to the Borrower shall not be retained by the Borrower, if at the time of such payment
an Event of Default shall have occurred and be continuing, but shall be paid to and held by the
Lender as security for the obligations of the Borrower under this Agreement.
(d)
Additional Insurance.
At any time the Lender may but shall not be required to at its own
expense carry insurance with respect to its interest in the Equipment,
provided
that such insurance
does not interfere with the Borrowers ability to insure the Equipment as required by this Section
7.5 or adversely affect the Borrowers insurance or the cost thereof, it being understood that all
salvage rights to each Unit and all primary subrogation rights shall remain with the Borrowers
insurers at all times. Any insurance payments received from policies
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maintained by the Lender
pursuant to the previous sentence shall be retained by the Lender without reducing or otherwise
affecting the Borrowers obligations hereunder.
Section 7.6. Borrowers Indemnities
.
(a)
Claims Defined
. For the purposes of this Section 7.6,
Claims
shall mean any and all
costs, expenses, liabilities, obligations, losses, damages, penalties, actions or suits or claims
of whatsoever kind or nature (whether or not on the basis of negligence, strict or absolute
liability or liability in tort) which may be imposed on, or asserted against, an Indemnified
Person, as defined herein, or any Unit and, except as otherwise expressly provided in this Section
7.6, shall include, but not be limited to, all reasonable out-of-pocket costs, disbursements and
expenses (including legal fees and expenses) paid or incurred by an Indemnified Person in
connection therewith or related thereto.
(b)
Indemnified Person Defined
. For the purposes of this Section 7.6,
Indemnified Person
means the Lender and its directors, officers, employees, successors and permitted assigns, agents
and servants (the directors, officers, employees, successors and permitted assigns, agents and
servants of the Lender together with the Lender being referred to herein collectively as the
Related Indemnitee Group
of the Lender),
provided
that as a condition of any obligations of the
Borrower to pay any indemnity or perform any action under this Section 7.6 with respect to any
persons who are not signatories hereto, such persons at the written request of the Borrower shall
expressly agree in writing to be bound by all the terms of this Section 7.6. In the event that any
Indemnified Person fails, after notice to such Indemnified Person referring to this sentence, to
comply with any duty or obligation under Section 7.6(e) and (f), such Indemnified Person shall not
be entitled to indemnity under this Section 7.6 to the extent such failure to comply has a material
adverse effect on the Borrowers ability to defend any such Claim.
(c)
Claims Indemnified
. Whether or not the Funding occurs with respect to any Equipment, and
subject to the exclusions stated in subsection (d) below, the Borrower agrees to indemnify,
protect, defend and hold harmless each Indemnified Person on an After-Tax Basis
against Claims resulting from or arising out of or related to (whether or not such Indemnified
Person shall be indemnified as to such Claim by any other Person):
(i) this Agreement or any other document or any of the transactions contemplated hereby
and thereby or resulting herefrom or therefrom and the enforcement thereof and hereof;
(ii) the ownership, lease, operation, modification, non-use, maintenance, lease
financing, substitution, control, repair, storage, alteration, violation of law with respect
to any Unit (including applicable securities laws and environmental law), transfer or other
disposition of any Unit, overhaul, testing or registration of any Unit (including, without
limitation, injury, death or property damage of passengers, shippers or others, and
environmental control, noise and pollution regulations) whether or not in compliance with
the terms hereof;
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(iii) the manufacture, design, purchase, acceptance, rejection, delivery, nondelivery
or condition of any Unit (including, without limitation, latent and other defects, whether
or not discoverable, and any claim for patent, trademark, or copyright infringement);
(iv) any breach of or failure to perform or observe, or any other non-compliance with,
any covenant, condition or agreement to be performed by, or other obligation of, the
Borrower under this Agreement, or the falsity when made of any representation or warranty of
the Borrower in this Agreement or in any document or certificate delivered in connection
therewith; and
(v) the offer, sale and delivery by the Borrower of the Notes.
(d)
Claims Excluded
. The following are excluded from the agreement to indemnify under this
Section 7.6:
(i) Claims with respect to any Unit to the extent attributable to acts or events
occurring after (A) in the case of the occurrence of a Casualty Occurrence with respect to
such Unit under Section 7.3 hereof, the last to occur of (x) if an Event of Default exists,
the elimination of such Event of Default and the payment of all amounts due under this
Agreement, (y) the payment of all amounts due from the Borrower in connection with any such
event and (z) the release of the Lien on such Unit in accordance with the terms herein or
(B) in all other cases, with respect to such Unit, the earlier to occur of (y) if an Event
of Default exists, the elimination of such Event of Default and the payment of all amounts
due under this Agreement and (z) the release of the Lien on such Unit in accordance with the
terms herein;
(ii) with respect to any particular Indemnified Person, Claims which are Taxes except
Taxes described in Section 7.11. Except as expressly provided in this Agreement (including
the foregoing sentence), the Borrowers entire obligation with respect to Taxes and losses
of tax benefits being fully set out in Section 7.11;
(iii) with respect to any particular Indemnified Person, Claims to the extent
attributable to the gross negligence or willful misconduct of (other than gross negligence
or willful misconduct imputed as a matter of law to such Indemnified Person solely by reason
of its interest in the Equipment), or to the breach of any contractual obligation by, or the
falsity or inaccuracy of any representation or warranty of such Indemnified Person or any of
such Indemnified Persons Related Indemnitee Group;
(iv) with respect to any particular Indemnified Person, Claims to the extent
attributable to any transfer (other than pursuant to Section 7.3 or Article VIII hereof) by
such Indemnified Person of any interest in the Units of Equipment or this Agreement;
(v) with respect to any particular Indemnified Person, any Claim to the extent
attributable to the offer, sale or disposition (voluntary or involuntary) by or on behalf of
such Indemnified Person of the Notes, any interest in this Agreement, or any similar
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security, other than a transfer by such Indemnified Person of its interests in any Unit
pursuant to Section 7.3 hereof or otherwise attributable to or following an Event of Default
that has occurred and is continuing;
(vi) any Claim to the extent attributable to the authorization or giving or
unreasonable withholding by such Indemnified Person of any future amendments, supplements,
modifications, alterations, waivers or consents with respect to any of this Agreement, other
than such as have been requested by or consented to by the Borrower or necessary or required
to effectuate the purpose or intent of this Agreement or as are expressly required by this
Agreement;
(vii) any Claim which relates to a cost, fee or expense payable by a Person other than
the Borrower or the Borrower pursuant to this Agreement;
(viii) any Claim which is an ordinary and usual operating or overhead expense of such
Indemnified Person other than such expenses attributable to the occurrence of an Event of
Default hereunder;
(ix) with respect to any particular Indemnified Person, any Claim resulting from the
imposition of any Lenders Lien attributable to such Indemnified Person; or
(x) with respect to any particular Indemnified Person, any Claim, to the extent the
risk thereof has been expressly assumed by such Indemnified Person in connection with the
exercise by such Indemnified Person of the right of inspection granted under Section 7.7
hereof.
(e)
Insured Claims
. In the case of any Claim indemnified by the Borrower hereunder which is
covered by a policy of insurance maintained by the Borrower pursuant to Section 7.5 of this
Agreement or otherwise, each Indemnified Person agrees to provide reasonable cooperation at the
expense of the Borrower to the insurers in the exercise of their rights to investigate, defend or
compromise such Claim as may be required to retain the benefits of such insurance with respect to
such Claim.
(f)
Claims Procedure
. An Indemnified Person shall, upon becoming aware of any Claim for which
indemnification is sought, promptly notify the Borrower of such Claim;
provided, however,
that,
notwithstanding the last sentence of Section 7.6(b), the failure to give such notice shall not
release the Borrower from any of its obligations under this Section 7.6, except to the extent that
such failure to give notice shall have a material adverse effect on the Borrowers ability to
defend such claim or recover proceeds under any insurance policies maintained by the Borrower.
Subject to the rights of insurers under policies of insurance maintained by the Borrower, the
Borrower shall have the right in each case at the Borrowers sole expense to investigate, and the
right in its sole discretion to defend or compromise, any Claim for which indemnification is sought
under this Section 7.6 and the Indemnified Person shall cooperate with all reasonable requests of
the Borrower in connection therewith;
provided
that no right to defend or compromise such Claim
shall exist on the part of the Borrower with respect to any Indemnified Person if (1) an Event of
Default shall have occurred and be
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continuing or (2) such Claim would entail a significant risk to
the Lender of any criminal liability;
provided, further,
that no right to compromise or settle such
Claim shall exist unless the Borrower agrees in writing to pay the amount of such settlement or
compromise. In any case in which any action, suit or proceeding is brought against any Indemnified
Person in connection with any Claim, the Borrower may, and upon such Indemnified Persons request
will, at the Borrowers expense resist and defend such action, suit or proceeding, or cause the
same to be resisted or defended by counsel selected by the Borrower and reasonably acceptable to
such Indemnified Person and, in the event of any failure by the Borrower to do so, the Borrower
shall pay all costs and expenses (including, without limitation, reasonable attorneys fees and
expenses) incurred by such Indemnified Person in connection with such action, suit or proceeding.
Where the Borrower or the insurers under a policy of insurance maintained by the Borrower undertake
the defense of an Indemnified Person with respect to a Claim, no additional legal fees or expenses
of such Indemnified Person in connection with the defense of such Claim shall be indemnified
hereunder unless such fees or expenses were incurred at the request of the Borrower or such
insurers;
provided, however,
that if in the written opinion of counsel to such Indemnified Person
an actual or potential material conflict exists where it is advisable for such Indemnified Person
to be represented by separate counsel, the reasonable fees and expenses of any such separate
counsel shall be paid by the Borrower. Subject to the requirements of any policy of insurance, an
Indemnified Person may participate at its own expense in any judicial proceeding controlled by the
Borrower pursuant to the preceding provisions;
provided
that such partys participation does not,
in the opinion of the independent counsel appointed by the Borrower or its insurers to conduct such
proceedings, interfere with such control; and such participation shall not constitute a waiver of
the indemnification provided in this Section 7.6(f). Nothing contained in this Section 7.6(f)
shall be deemed to require an Indemnified Person to contest any Claim or to assume responsibility
for or control of any judicial proceeding with respect thereto.
(g)
Subrogation
. If a Claim indemnified by the Borrower under this Section 7.6 is paid by the
Borrower and/or an insurer under a policy of insurance maintained by the Borrower, the Borrower
and/or such insurer, as the case may be, shall be subrogated to the extent of such payment to the
rights and remedies of the Indemnified Person (other than under insurance policies maintained by
such Indemnified Person) on whose behalf such Claim was paid with respect to the transaction or
event giving rise to such Claim. So long as no Event of Default
shall have occurred and be continuing, should an Indemnified Person receive any refund, in whole or
in part, with respect to any Claim paid by the Borrower hereunder, it shall promptly pay over the
amount refunded (but not in excess of the amount the Borrower or any of its insurers has paid in
respect of such Claim paid or payable by such Indemnified Person on account of such refund) to the
Borrower.
(h)
Waiver of Certain Claims
. The Borrower hereby waives and releases any Claim now or
hereafter existing against any Indemnified Person arising out of death or personal injury to
personnel of the Borrower, loss or damage to property of the Borrower, or the loss of use of any
property of the Borrower, which may result from or arise out of the condition, use or operation of
the Equipment during the term of this Agreement, including without limitation any latent or patent
defect whether or not discoverable.
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(i)
Conflicting Provisions
. The general indemnification provisions of this Section 7.6 are
not intended to waive or supersede any specific provisions of, or any rights or remedies of the
Borrower under, this Agreement to the extent such provisions apply to any Claim.
Section 7.7. The Lenders Inspection Rights
. The Lender shall have the right, but not the
obligation, at its sole cost and expense (unless, in the case of any such expense, an Event of
Default shall have occurred and be continuing) and risk (including, without limitation, the risk of
personal injury or death), by its authorized representatives, to the extent within the Borrowers
control: on not more than one occasion in any 12-month period (unless an Event of Default shall
have occurred and be continuing) or during the last 12 months prior to the final maturity of the
Notes, to inspect the Equipment and the Borrowers records with respect thereto, during the
Borrowers normal business hours and upon reasonable prior notice to the Borrower;
provided,
however,
that the Borrower shall not be liable for any injury to, or the death of, any Person
exercising, either on behalf of the Lender or any prospective user, the rights of inspection
granted under this Section 7.7 except as may result or arise from the Borrowers gross negligence
or willful misconduct. No inspection pursuant to this Section 7.7 shall interfere with the use,
operation or maintenance of the Equipment or the normal conduct of the Borrowers business, and the
Borrower shall not be required to undertake or incur any additional liabilities in connection
therewith.
Section 7.8. Merger Covenant
. The Borrower shall not consolidate with or merge into any other
Person or convey, transfer or lease substantially all of its assets as an entirety to any Person
unless (i) the Person formed by such consolidation or into which the Borrower is merged or the
Person which acquires by conveyance, transfer or lease substantially all of the assets of the
Borrower as an entirety shall execute and deliver to the Lender an agreement containing the
assumption by such successor corporation of the due and punctual performance and observance of each
covenant and condition of this Agreement to be performed or observed by the Borrower, (ii)
immediately after giving effect to such transaction, no Event of Default shall have occurred solely
as a result of such consolidation or merger or such conveyance, transfer or lease and (iii) such
transaction does not result in a Material Adverse Effect. Upon such consolidation or merger, or
any conveyance, transfer or lease of substantially all of the assets of the Borrower as an entirety
in accordance with this Section 7.8, the successor corporation formed by such consolidation or into
which the
Borrower is merged or to which such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Borrower under this Agreement with
the same effect as if such successor corporation had been named as the Borrower herein. If the
Borrower shall have consolidated with or merged into any other Person or conveyed, transferred or
leased substantially all of its assets, such assets to include the Equipment and the Borrowers
interest in this Agreement, the Person owning such interest after such event shall deliver to the
Lender an opinion of counsel (which counsel may be such Persons in-house counsel) confirming that
the assumption agreement pursuant to which such Person assumed the obligations of the Borrower
shall have been duly authorized, executed and delivered by such Person and that such agreement is
the legal, valid and binding obligation of such Person, enforceable against such Person in
accordance with its terms.
Section 7.9. Financial Statements
. The Borrower shall furnish the following to the Lender:
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(i) unless included in a Form 10-Q delivered or deemed delivered under clause (iii)
below, as soon as available and in any event within 60 days after the end of each quarterly
period, except the last, of each fiscal year, consolidated balance sheets of the Borrower,
and its consolidated Subsidiaries as at the end of such period, together with the related
consolidated statements of income and cash flows of the Borrower and its consolidated
Subsidiaries for the period beginning on the first day of such fiscal year and ending on the
last day of such quarterly period, setting forth in each case (except for the consolidated
balance sheet) in comparative form the figures for the corresponding periods of the previous
fiscal year, all in reasonable detail and prepared in accordance with U.S. generally
accepted accounting principles and certified by any Vice President, the Treasurer, the Chief
Financial Officer, the Chief Accounting Officer or any Assistant Treasurer of the Borrower;
(ii) unless included in a Form 10-K delivered or deemed delivered under clause (iii)
below, as soon as available and in any event within 120 days after the last day of each
fiscal year, a copy of the Borrowers annual audited report covering the operations of the
Borrower and its consolidated Subsidiaries, including consolidated balance sheets, and
related consolidated statements of income and retained earnings and consolidated statement
of cash flows of the Borrower and its consolidated Subsidiaries for such fiscal year,
setting forth in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail and prepared in accordance with U.S. generally accepted accounting
principles applied on a consistent basis, which statements will have been certified by a
firm of independent public accountants of recognized national standing selected by the
Borrower;
(iii) as soon as available, one copy of each Annual Report on Form 10-K (or any
successor form), Quarterly Report on Form 10-Q (or any successor form) and Form 8-K filed by
the Borrower with the SEC or any successor agency,
provided
that, as long as the Borrower is
subject to informational requirements of the Securities Exchange Act of 1934 and in
accordance therewith files reports and other information with the SEC, the Lender shall be
deemed to have been furnished the foregoing reports and forms at the
time the Lender may electronically access such reports and forms by means of the SECs
homepage on the internet or at the Borrowers homepage on the internet,
provided, further,
in the event that the Borrower shall cease to be subject to such informational requirements,
the Borrower will provide the Lender with 90 days advance written notice and thereafter the
Borrower shall directly furnish such reports and forms to the Lender;
(iv) as soon as available and in any event within 120 days after the last day of each
fiscal year, a certificate signed by any Vice President, the Treasurer, the Chief Financial
Officer, the Chief Accounting Officer or any Assistant Treasurer of the Borrower stating
that he/she has reviewed the activities of the Borrower during such year and that the
Borrower during such year has kept, observed, performed and fulfilled each and every
covenant, obligation and condition contained herein, or if an Event of Default shall exist
or if an event has occurred and is continuing which, with the giving of notice or the
passage of time or both, would constitute an Event of Default, specifying such Event of
Default and all such events and the nature and status thereof; and
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(v) from time to time, such additional information kept by the Borrower in the ordinary
course of business reasonably related to the transactions contemplated hereby as the Lender
may reasonably request.
Section 7.10. Increased Costs
. (a) In the event of (x) a Regulatory Change or (y) a judgment
being rendered after the Closing Date which subjects or imposes any increase in the actual cost to
the Lender of agreeing to make or making, funding or maintaining the Loan evidenced by the Notes,
then, within twenty (20) days after delivery to the Borrower of an Officers Certificate of the
Lender setting forth in reasonable detail the event giving rise to such increase in cost and the
basis for the determination of the amount of such increase in cost, the Borrower shall pay to the
Lender such amount as shall be necessary to reimburse the Lender for such increase in respect of
any period which is no more than ninety (90) days prior to such demand;
provided, however,
that the
Lender shall not be entitled to assert any claim under this Section 7.10(a) in respect of Taxes.
Such Officers Certificate shall, in the absence of manifest error, be binding and conclusive on
the Borrower. The Lender shall notify the Borrower as soon as possible of the occurrence of the
event by reason of which it is entitled to make a claim as described in this Section 7.10(a), but
the failure to give such notice shall not affect the obligations of the Borrower hereunder. In
determining the amount of compensation payable by the Borrower under this Section 7.10(a), the
Lender shall use reasonable efforts to minimize the compensation payable by the Borrower including
using reasonable efforts to obtain refunds or credit and any compensation paid by the Borrower,
which is later determined not to have been properly payable, shall forthwith be reimbursed by such
holder to the Borrower.
(b) For purposes of Section 7.10(a),
Regulatory Change
means with respect to the Lender (i)
any change after the Closing Date in the laws or regulations of Mexico or any State thereof, the
United States or any State thereof, France, Germany, The Netherlands, Switzerland, United Kingdom
or Canada or the adoption or making after such date of any interpretation, directive or request
applying to a class of banks including the Lender, as the case may be, of or under any law or
regulation (whether or not having the force of law) of Mexico or any State
thereof or Canada by any court or governmental or monetary authority charged with the
interpretation or administration thereof and in addition, (ii) any change after the Closing Date in
any regulation, guideline or requirement or in the interpretation or administration thereof
(whether or not having the force of law) issued by any governmental or monetary authority applying
to a class of banks including the Lender, as the case may be, or the bank holding company of
Lender, as the case may be (including any change after the Closing Date in the regulations,
guidelines or requirements or interpretations or administration of any of the foregoing
implementing the proposals for a risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled International Convergence of
Capital Measurement and Capital Standards (commonly known as Basel II) dated June 2004, as
modified and supplemented from time to time).
(c) The Lender shall, if seeking compensation under this Section 7.10, use commercially
reasonable efforts (at its own expense) to mitigate the amount of compensation, including
designating a different lending office if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the reasonable judgment of the Lender, result in any
non-
de minimis
economic, legal or regulatory disadvantage to the Lender. The
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Borrower shall not be
required to make payments under this Section 7.10 to the Lender if (A) a claim hereunder arises
solely through circumstances peculiar to the Lender and which do not affect commercial banks in the
jurisdiction of organization of the Lender generally or (B) the claim arises out of a voluntary
relocation by the Lender of its lending office (it being understood that any such relocation
effected pursuant to the first sentence of this Section 7.10(c) is not
voluntary
), or (C) the
Lender is not seeking similar compensation for such costs from its borrowers generally in similarly
situated commercial loans.
(d) If at any time the Borrower is or becomes obligated to make any payment of increased cost
pursuant to this Section 7.10, the Borrower may give the Lender irrevocable written notice (an
Increased Cost Prepayment Notice
) of the prepayment of the Notes on a specified prepayment date
(which shall be a Business Day not less than 30 days nor more than 60 days after the date of such
notice) and the circumstances giving rise to the obligation of the Borrower to make such payment of
increased cost and the amount thereof and stating that all of the Notes shall be prepaid on the
date of such prepayment at 100% of the principal amount so prepaid together with interest accrued
thereon to the date of such prepayment (but without the payment of any Make-Whole Amount), unless
the Lender gives Borrower written notice no more than 20 days after receipt of the Increased Cost
Prepayment Notice (or, if earlier, the tenth day prior to the date for the payment giving rise to
such payment of increased cost), that it seeks to reject such prepayment (an
Increased Cost
Rejection Notice
). The form of Increased Cost Rejection Notice shall also accompany the Increased
Cost Prepayment Notice and shall state that execution and delivery thereof by the Lender shall
operate as a permanent waiver of its right to receive the payment of increased cost arising as a
result of the circumstances described in the Increased Cost Prepayment Notice (but not of the
Lenders right to receive any payments of increased cost that arise out of circumstances not
described in the Increased Cost Prepayment Notice or which exceed the amount of the payment of
increased cost described in the Increased Cost Prepayment Notice), which waiver shall be binding
upon all subsequent transferees of any Note. The Increased Cost Prepayment Notice having been
given, the principal amount of the Notes together with interest accrued thereon to the date of such
prepayment (but without the
payment of any Make-Whole Amount) shall become due and payable on such prepayment date, unless the
Lender shall timely give an Increased Cost Rejection Notice.
Section 7.11. Withholding Tax Indemnity
. (a) All payments whatsoever under this Agreement and
the Notes will be made by the Borrower free and clear of withholding or deduction for any present
or future Taxes by or on behalf of any jurisdiction from or through which the Borrower makes such
payments (hereinafter a
Taxing Jurisdiction
) imposed or levied on payments of interest, unless
the withholding or deduction of such Tax is compelled by law.
If any deduction or withholding for any Tax of a Taxing Jurisdiction imposed or levied on
payments of interest or other sums payable to Lender by the Borrower shall at any time be required
in respect of any amounts to be paid by the Borrower under this Agreement or the Notes, the
Borrower will pay to the Lender such additional amounts such that after the reduction for the
amount of Taxes withheld (and any Taxes withheld with respect to such additional amounts), shall be
not less than the amounts then due and payable to the Lender under the terms of this Agreement or
the Notes before the assessment of such Tax. In the event the Borrower
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withholds any Taxes on
payments under this Agreement or the Notes, the Borrower shall pay the full amount representing
such withholding to the relevant Taxing Jurisdiction within the time allowed for payment under
applicable law and shall deliver to Lender a receipt evidencing such payment;
provided
that no
payment of any additional amounts shall be required to be made for or on account of any Tax that
would not have been imposed but for the delay or failure by the Lender (following a written request
by the Borrower) in the filing with the relevant Taxing Jurisdiction of Forms (as defined below)
that are required to be filed by the Lender to avoid or reduce such Taxes,
provided
that the filing
of such Forms would not (in the Lenders reasonable judgment) result in any confidential or
proprietary income tax return information being revealed, either directly or indirectly, to any
Person and such delay or failure could have been lawfully avoided by the Lender, and
provided
further
that the Lender shall be deemed to have satisfied the requirements of this paragraph upon
the good faith completion and submission of such Forms as may be specified in a written request of
the Borrower no later than 60 days after receipt by the Lender of such written request (accompanied
by copies of such Forms and related instructions, if any, all in the English language or with an
English translation thereof). Notwithstanding anything herein to the contrary, in no event shall
the Borrower be obligated to pay such additional amounts to a holder of the Notes to the extent
imposed (i) because the Lender is not a resident of the United States or any State thereof, France,
Germany, The Netherlands, Switzerland, United Kingdom or Canada for purposes of the treaty for the
avoidance of double taxation between Mexico and such taxing jurisdiction, (ii) by reason of any
Lender (other than the initial Lender) that is not a Mexican financial institution, or its
assignees or participants, if any, failing to make reasonable commercial efforts, consisting of
timely making any necessary filing and taking related action, to maintain its registration for the
purposes of Article 195(I) or Article 196(II) of the Mexican Income Tax (
Ley del Impuesto Sobre la
Renta
) or any successor provision with Hacienda or (iii) (other than with respect to the initial
Lender) at a rate of withholding in excess of 4.9%.
By acceptance of any Note, the Lender agrees, subject to the limitations of the second
paragraph of this Section 7.11(a), that it will from time to time with reasonable promptness (x)
duly complete and deliver to or as reasonably directed by the Borrower all such forms,
certificates, documents and returns provided to the Lender by the Borrower (collectively, together
with instructions for completing the same,
Forms
) required to be filed by or on behalf of the
Lender in order to avoid or reduce any such Tax pursuant to the provisions of an applicable
statute, regulation or administrative practice of the relevant Taxing Jurisdiction or of a tax
treaty between Mexico and such Taxing Jurisdiction and (y) provide the Borrower with such
information with respect to the Lender as the Borrower may reasonably request in order to complete
any such Forms,
provided
that nothing in this Section 7.11 shall require the Lender to provide
information with respect to any such Form or otherwise if in the opinion of the Lender such Form or
disclosure of information would involve the disclosure of tax return or other information that is
confidential or proprietary to the Lender, and
provided further
that the Lender shall be deemed to
have complied with its obligation under this paragraph with respect to any Form if such Form shall
have been duly completed and delivered by the Lender to the Borrower or mailed to the appropriate
taxing authority, whichever is applicable, within 60 days following a written request of the
Borrower (which request shall be accompanied by copies of such Form and English translations of any
such Form not in the English language) and, in the case of a transfer of any Note, at least 90 days
prior to the relevant interest payment date.
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On or before the Closing Date, the Borrower will furnish the Lender with copies of the
appropriate Form (and English translation if required as aforesaid) currently required to be filed
in Mexico pursuant to the second paragraph of this Section 7.11(a), if any, and in connection with
the transfer of any Note the Borrower will furnish the transferee of such Note with copies of any
Form and English translation then required.
If any payment is made by the Borrower to or for the account of the Lender after deduction for
or on account of any Taxes, and increased payments are made by the Borrower pursuant to this
Section 7.11, then, if the Lender determines that it has received or been granted a tax benefit
with respect to such Taxes or such increased payments, the Lender shall, to the extent it can do so
without prejudice to the retention of the amount of such tax benefit, reimburse to the Borrower
such amount as the Lender shall determine to be attributable to the relevant Taxes or deduction or
withholding or increased payments. Nothing herein contained shall interfere with the right of the
Lender to arrange its tax affairs in whatever manner it thinks fit and, in particular, the Lender
shall not be under any obligation to claim relief from its corporate profits or similar tax
liability in respect of such Tax in priority to any other claims, reliefs, credits or deductions
available to it or (other than as set forth in clause (ii) above) oblige the Lender to disclose any
information relating to its tax affairs or any computations in respect thereof.
If the Borrower makes payment to or for the account of the Lender and the Lender is entitled
to a refund of the Tax to which such payment is attributable upon the making of a filing (other
than a Form described above), then the Lender shall, as soon as practicable after receiving written
request from the Borrower (which shall specify in reasonable detail and supply the refund forms to
be filed) use reasonable efforts to complete and deliver such refund forms to or as directed by the
Borrower, subject, however, to the same limitations with respect to Forms as are set forth above.
The obligations of the Borrower under this Section 7.11 shall survive the payment or transfer
of any Note and the provisions of this Section 7.11 shall also apply to successive transferees of
the Notes.
(b) The Lender shall, if seeking increased payments under this Section 7.11 (other than with
respect to the Mexican withholding taxes applicable to interest payments on the date hereof), use
commercially reasonable efforts (at its own expense) to mitigate the amount of increased payments,
including designating a different lending office if such designation will avoid the need for, or
reduce the amount of, such increased payments and will not, in the reasonable judgment of the
Lender, result in any economic, legal or regulatory disadvantage to the Lender.
Section 7.12. Discharge of Liens.
The Borrower will not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to any Units of Equipment or the Borrowers
interest therein under this Agreement, except Permitted Liens, and the Borrower shall promptly, at
its own expense, take such action as may be necessary to duly discharge (by bonding or otherwise)
any such Lien not excepted above if the same shall arise at any time.
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Section 7.13. Recording; Payment of Expenses.
(a) On or prior to the Closing Date, the
Borrower will, at its own expense, (i) cause this Agreement and the Loan and Security Agreement
Supplement dated the Closing Date, or appropriate evidence thereof, to be duly filed and recorded
with the STB in accordance with 49 U.S.C. § 11301, (ii) cause this Agreement and the Loan and
Security Agreement Supplement dated the Closing Date, or appropriate evidence thereof, to be
deposited with the Registrar General of Canada pursuant to Section 105 of the Canada Transportation
Act, and (iii) prepare and present for filing all statements, notices, registrations or instruments
required by or customarily filed with the Public Registry of Commerce of the Federal District
(
Registro Público de Comercio del Distrito Federal
) with respect to the Equipment and the Pledge
Agreement and provide evidence of such presentment for filing to the Lender.
(b) The Borrower, at its sole expense, shall (i) promptly prepare and file all statements,
notices, registrations or instruments required by or customarily filed with the Mexican Railroad
Registry (
Registro Ferroviario Mexicano
) with respect to the Equipment and the Pledge Agreement and
(ii) provide the Lender with evidence of the completion of the registration of any statements,
notices, registrations or instruments with the Mexican Railroad Registry (
Registro Ferroviario
Mexicano
) and the Public Registry of Commerce of the Federal District (
Registro Público de Comercio
del Distrito Federal
) with respect to the Equipment and the Pledge Agreement promptly following its
receipt of the same. The Lender hereby appoints and constitutes the Borrower its agent and
attorney-in-fact to file, record or register, in the name and for the account of the Lender and the
Borrower, as their interests may appear, statements or notices required by the Mexican Railroad
Registry (
Registro Ferroviario Mexicano
).
(c) The Borrower shall pay the out-of-pocket fees and expenses incurred by the Lender in
connection with the execution and delivery of this Agreement and the transactions contemplated
hereby, including the reasonable fees and expenses of counsel to the Lender,
within thirty (30) days of the Borrowers receipt of a written request from the Lender for payment
of such expenses. Notwithstanding anything contained herein to the contrary, if the transactions
contemplated hereby are not consummated as a result of the Lenders default in its obligations to
consummate the transactions hereunder after the conditions specified in Article VI to be satisfied
on the Closing Date have been satisfied or waived, the Lender shall pay its own fees and expenses
(including the fees and expenses of its special counsel).
Section 7.14. Further Assurances
. The Borrower will duly execute and deliver to the Lender
such further documents and assurances and take such further action as the Lender may from time to
time reasonably request in order to effectively carry out the intent and purpose of this Agreement
and the Pledge Agreement and to establish and protect the rights and remedies created in favor of
the Lender hereunder, including, without limitation, if requested by the Lender, the execution and
delivery of supplements or amendments hereto, in recordable form, subjecting to this Agreement and
the Pledge Agreement any Replacement Unit and the recording or filing of counterparts hereof or
thereof in accordance with the laws of such jurisdiction as the Lender may from time to time deem
advisable;
provided
that this sentence is not intended to impose upon Borrower any additional
liabilities not otherwise contemplated by this Agreement and the Pledge Agreement.
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Section 7.15. Compliance with Laws
. The Borrower will comply with all applicable laws and
regulations, including, without limitation, environmental laws and laws and regulations relating to
corruption and bribery, provided that, in the case of such laws and regulations (other than laws
and regulations relating to corruption and bribery), the Borrower need comply only to the extent
necessary to ensure that non-compliance with such laws could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Nothing contained herein shall prohibit
the Borrower from, in good faith and by appropriate proceedings diligently conducted, contesting
the validity or application of any laws and regulations in any reasonable manner so long as such
contest does not materially adversely affect the rights or interests of the Lender in the Equipment
or hereunder or otherwise expose the Lender to criminal sanctions or any material civil liability.
Article VIII
Events of Default; Remedies Upon An Event of Default
Section 8.1. Events of Default
. The following events shall constitute Events of Default
hereunder (whether any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and each such Event of
Default shall be deemed to exist and continue so long as, but only as long as, it shall not have
been remedied:
(a) default by the Borrower in making any payment when due of principal of, or
Make-Whole Amount, if any, or interest on, any Note or Notes and the continuance of such
default unremedied for 5 Business Days after such payment shall become due
hereunder or default by the Borrower in making any other payment when due of any other
amount owing with respect to any Note or Notes or in connection with the transactions
contemplated hereby and the continuance of such default unremedied for 30 days after receipt
by the Borrower of written notice of such failure from the Lender and demanding the same be
remedied; or
(b) any representation or warranty made by the Borrower in this Agreement, the Pledge
Agreement or any agreement related thereto is untrue or incorrect in any material respect as
of the date of issuance or making thereof and such untruth or incorrectness shall continue
to be material and unremedied for a period of 30 days after receipt by the Borrower of
written notice specifying such incorrectness, stating that such incorrectness is a default
hereunder and requiring it to be remedied from the Lender or from any holder of a Note;
provided
that, if such untruth or incorrectness is capable of being remedied, no such
untruth or incorrectness shall constitute an Event of Default hereunder for a period of 180
days after receipt of such notice so long as the Borrower is diligently proceeding to remedy
such untruth or incorrectness; or
(c) the Borrower is in default in the payment of any principal of or premium or
make-whole amount or interest on any indebtedness for borrowed money that is outstanding in
an aggregate principal amount of at least $25,000,000 (or the equivalent
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thereof in any
other applicable currency as determined in good faith by the Lender in the case of any
indebtedness for borrowed money denominated in a currency other than U.S. Dollars) beyond
any period of grace provided with respect thereto and as a consequence of such default such
indebtedness has become, or has been declared, due and payable before its stated maturity or
before its regularly scheduled dates of payment; or
(d) other than as set forth in clauses (a), (b) or (c), any failure by the Borrower to
observe or perform any covenant to be observed or performed by the Borrower hereunder, under
the Notes or under the Pledge Agreement and such failure shall continue unremedied for 30
days after receipt by the Borrower of a written notice thereof from the Lender and demanding
the same to be remedied;
provided
that, if such failure is capable of being remedied (but
only in a manner other than solely by the payment of money), no such failure shall
constitute an Event of Default hereunder for a period of 180 days after such notice so long
as the Borrower is diligently proceeding to remedy such failure; or
(e) the Borrower shall (i) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts under any
bankruptcy (concurso mercantil), insolvency or other similar law now or hereafter in effect,
or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or (ii) consent to any such relief
or to the appointment of or taking possession by any such official in any voluntary case or
other proceeding commenced against it, or (iii) admit in writing its inability to pay its
debts generally as they come due, or (iv) make a general assignment for the benefit of
creditors, or (v) take any corporate action to authorize any of the foregoing; or
(f) an involuntary case or other proceeding shall be commenced against the Borrower
seeking liquidation, reorganization or other relief with respect to it or its debts under
any bankruptcy (concurso mercantil), insolvency or other similar law now or hereafter in
effect, or seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of 90 days.
Section 8.2. Rights and Remedies Upon Default
. Upon the occurrence and during the continuance
of any Event of Default, Lender shall have the right to exercise all of the remedies conferred
hereunder, under the Notes and any other document executed in connection herewith, including,
without limitation, the Pledge Agreement and any and all rights and remedies available under the NY
UCC, and Lender shall have all the rights and remedies of a secured party, and Lender may proceed
to protect and enforce its rights by an action at law, suit in equity, or other appropriate
proceeding, whether for the specific performance of any agreement contained herein or in any Notes,
or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or otherwise. Without limitation, the
Lender shall have the following rights and powers:
(a) (i) If an Event of Default described in Section 8.1(e) or Section 8.1(f) above has
occurred, the entire unpaid principal amount and all accrued and unpaid
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interest under the
Notes, together with Make-Whole Amount, if any, applicable thereto, shall automatically
become immediately due and payable and (ii) if any other Event of Default has occurred the
Lender shall have the right to declare the entire unpaid principal and all accrued and
unpaid interest under the Notes, together with Make-Whole Amount, if any, applicable
thereto, immediately due and payable and upon such declaration, such principal and interest
shall become immediately due and payable without presentment, demand, protest or further
notice, all of which are hereby waived.
(b) In case of the happening of any Event of Default, the Lender may by its agents
enter upon the railroads and premises of the Borrower or other premises where any of the
Collateral may be located and take possession of all or any part of the Collateral and
withdraw the same from said railroads and premises, retaining all payments which up to that
time may have been made on account of rent for the Collateral and otherwise, and shall be
entitled to collect, receive and retain all unpaid per diem, mileage or other charges of any
kind earned by the Collateral or any part thereof, and may lease the Collateral or any part
thereof, or, with or without retaking possession thereof (but only after declaring due and
payable the entire amount of the Notes payable by the Borrower as provided for in Section
8.2(a) hereof), may sell the same or any part thereof, free from any and all claims of the
Borrower at law or in equity, in one lot and as an entirety or in separate lots, insofar as
may be necessary to perform and fulfill the obligations hereunder, at public or private
sale, for cash or upon credit, in its discretion, and may proceed otherwise to enforce its
rights and the rights of the holders of the Notes in the manner herein provided. Upon any
such sale, the Lender itself may bid for the property offered for sale or any part thereof.
Any such sale may be held or conducted at such place and at such time as the Lender may
specify, or as may be required by law, and
without gathering at the place of sale of the Collateral to be sold, and in general in such
manner as the Lender may determine, but so that the Borrower may and shall have a reasonable
opportunity to bid at any such sale. Upon such taking possession or withdrawal or lease or
sale of the Collateral, the Borrower shall cease to have any rights and remedies in respect
of the Collateral hereunder, and all such rights and remedies shall be deemed thenceforth to
have been waived and surrendered by the Borrower. No such taking possession, withdrawal,
lease or sale of the Collateral by the Lender shall be a bar to the recovery by the Lender
from the Borrower of amounts then or thereafter due and payable, and the Borrower shall be
and remain liable for the same until such sums shall have been realized which, when added to
the proceeds of the lease or sale of the Collateral, shall be sufficient for the discharge
and payment in full of all of the Notes.
(c) Notwithstanding anything to the contrary contained in this Section 8.2, after the
occurrence and during continuation of an Event of Default all remedies exercised under
Mexican law with respect to Units located in Mexico shall be exercised pursuant to the terms
and conditions of the Pledge Agreement.
Section 8.3. Waiver of Default
. If at any time after the principal of all the Notes shall
have been declared and have become due and payable, or if at any time after the entire amount of
Notes shall have been declared due and payable, all as provided in Section 8.2 hereof, all expenses
of the Lender occasioned by the Borrowers default, and all other sums which shall
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have become due
and payable by the Borrower hereunder shall be paid by the Borrower before any sale or lease by the
Lender of any of the Collateral and every other default in the observance or performance of any
covenant or condition hereof shall be made good or secured to the satisfaction of the Lender, or
provision deemed by the Lender to be adequate shall be made therefor, then, and in every such case,
the Lender shall, by written notice to the Borrower, waive the default by reason of which there
shall have been such declaration or declarations and the consequences of such default, but no such
waiver shall extend to or affect any subsequent default or impair any right consequent thereon.
Section 8.4. Obligations of Borrower Not Affected by Remedies
. No retaking of possession of
the Equipment by the Lender, nor any withdrawal, lease or sale thereof, nor any action or failure
or omission to act against the Borrower or in respect of the Collateral, on the part of the Lender
or on the part of the holder of any Note, nor any delay or indulgence granted to the Borrower by
the Lender or by any such holder, shall affect the obligations of the Borrower hereunder. The
Borrower hereby waives presentation and demand in respect of any of the Notes and waives notice of
presentation, of demand and of any default in the payment of the principal of and interest on the
Notes.
Section 8.5. Borrower to Deliver Equipment to Lender
. In case the Lender shall demand
possession of the Equipment pursuant to the provisions hereof the Borrower shall forthwith deliver
possession of the Equipment to the Lender. For the purpose of delivering possession of any Unit of
Equipment to the Lender, the Borrower shall at its own cost, expense and risk:
(i) forthwith place such Equipment upon such storage tracks of the Borrower or, at the
expense of the Borrower, on any other storage tracks, as the Borrower may select;
(ii) permit the Lender to store such Equipment on such tracks without charge for
insurance, rent or storage until the earlier of (x) three months after such demand for
storage and (y) the date such Equipment is sold, leased or otherwise disposed of by the
Lender and during such period of storage the Borrower shall continue to maintain all
insurance required by Section 7.5 hereof; and
(iii) transport the Equipment to the Borrowers nearest point of interchange with a
railroad in the 48 contiguous United States, when directed by the Lender.
It is hereby expressly covenanted and agreed that the performance of this covenant is of the
essence of this Agreement and that, upon application to any court having jurisdiction in the
premises, the Lender shall be entitled to a decree against the Borrower requiring the specific
performance thereof.
Section 8.6. Lender Appointed Attorney-in-Fact
. Borrower hereby irrevocably appoints the
Lender as Borrowers attorney-in-fact, with full authority in the place and stead of the Borrower
and in the name of the Borrower, from time to time upon the occurrence and continuation of an Event
of Default, in the Lenders discretion to take any action and to execute
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any instrument that the
Lender may deem necessary or advisable to accomplish the purpose of this Agreement, including:
(a) To ask for, demand, collect, sue for, recover, compound, receive and give
acquaintance and receipts for moneys due and to become due under or in respect of the
Collateral;
(b) To receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clause (a) above;
(c) To file any claims or take any action or institute any proceedings that the Lender
may reasonably deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Lender with respect to any of the Collateral;
(d) To pay or discharge taxes or Liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Lender in its sole discretion, any such payments made by the Lender
to become obligations of the Borrower to the Lender, due and payable immediately without
demand;
(e) To sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with any accounts, contract rights or general intangibles and other
documents relating to the Collateral; and
(f) Generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the Lender were
the absolute owner thereof for all purposes, and to do, at the Lenders option and the
Borrowers expense, at any time or from time to time, all acts and things that the Lender
deems necessary to protect, preserve or realize upon the Collateral and the Lenders
security interest therein in order to effect the intent of this Agreement, all as fully and
effectively as the Borrower might do.
Section 8.7. Lender May Perform
. If Borrower fails to perform any agreement contained herein,
the Lender may itself perform, or cause performance of, such agreement, and the reasonable expenses
of the Lender, including reasonable attorneys fees and expenses, incurred in connection therewith
shall be payable by the Borrower.
Section 8.8
.
Remedies Cumulative
. Each and every right, power and remedy given to the Lender
specifically or otherwise in this Agreement shall be cumulative and shall be in addition to every
other right, power and remedy herein specifically given or now or hereafter existing at law, in
equity or by statute, and each and every right, power and remedy whether specifically herein given
or otherwise existing may be exercised from time to time and as often and in such order as may be
deemed expedient by the Lender, and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to
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exercise at the same time or
thereafter any other right, power or remedy. No delay or omission by the Lender in the exercise of
any right, remedy or power or in the pursuit of any remedy shall impair any such right, power or
remedy or be construed to be a waiver of any default on the part of the Borrower or to be an
acquiescence therein.
Section 8.9. Applications of Proceeds Received From Disposition of the Collateral
. All
proceeds received by the Lender in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral following an Event of Default shall be applied in the
following order of priority:
(a) First, to the payment of all costs and expenses of such sale, collection or
realization, including reasonable compensation to the Lender and its agents and counsel, and
all other expenses, liabilities and advances made or incurred by the Lender in connection
therewith, and all amounts for which the Lender is entitled to indemnification under the
Notes, this Agreement and the Pledge Agreement and to the payment of all costs and expenses
paid or incurred by the Lender in connection with the exercise of any right or remedy under
this Agreement, all in accordance with this Agreement, the Notes and the Pledge Agreement;
(b) Next, to satisfaction of the Borrowers obligations under this Agreement, the
Pledge Agreement and the Notes; and
(c) Thereafter, to the extent of any excess proceeds, to the payment to or upon the
order of the Borrower or to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.
If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Lender is legally entitled, the Borrower will be
liable for the deficiency, together with interest thereon, at the Late Rate, and the reasonable
fees of any attorneys employed by the Lender to collect such deficiency. To the extent permitted
by applicable law, the Borrower waives all claims, damages and demands against the Lender arising
out of the repossession, removal, retention or sale of the Collateral.
Article IX
Miscellaneous
Section 9.1. Continuing Security Interest; Termination
. (a) This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full force and effect until
the payment in full of the Borrowers obligations under the Notes and hereunder, (ii) be binding
upon the Borrower, its successors and assigns, and (iii) inure, together with the rights and
remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees and
assigns.
(b) Immediately upon the payment in full of the Borrowers obligations under the Notes, this
Agreement and the security interest granted hereby shall terminate and all rights to
-30-
the Collateral
shall revert to the Borrower. Upon any such termination, the Lender shall execute and deliver to,
or as directed in writing by, the Borrower an appropriate instrument (in due form for recording)
furnished by the Borrower releasing the Collateral from the Lien of this Agreement within thirty
(30) days of the Lenders receipt of a written request therefor from the Borrower.
Section 9.2. Notices
. (a) Unless otherwise expressly specified or permitted by the terms
hereof, all communications and notices provided for herein shall be in writing or by a
telecommunications device capable of creating a written record (including electronic mail), and any
such notice shall become effective (a) upon personal delivery thereof, including, without
limitation, by overnight mail and courier service, (b) in the case of notice by United States mail,
certified or registered, postage prepaid, return receipt requested, upon receipt thereof, or (c) in
the case of notice by such a telecommunications device, upon transmission thereof, provided such
transmission is promptly confirmed in writing by either of the methods set forth in clauses (a) and
(b) above, in each case addressed to the following Person at its respective address set forth below
or at such other address as such Person may from time to time designate by written notice to the
other Persons listed below:
(i) to the Borrower, at Kansas City Southern de México, S.A. de C.V., Montes Urales
#625, Col. Lomas de Chapultepec C.P., 11000 Mexico, DF, Attention: Director Jurídico
Ejecutivo, Facsimile No.: 011 5255 9178 5604, with a copy to (i) in the case of mail
delivery, Kansas City Southern, P.O. Box 219335, Kansas City, MO 64121-9335, Attention:
Senior Vice President Finance & Treasurer, Facsimile No.: (816) 983-1198, and (ii) in
the case of courier and similar delivery, Kansas City Southern, 427 West 12th Street, Kansas
City, MO 64105, Attention: Senior Vice President Finance & Treasurer, Facsimile No.:
(816) 983-1198, and Kansas City Southern, 427 West 12th Street, Kansas City, MO 64105,
Attention: Senior Vice President & General Counsel, Facsimile No.: (816) 983-1227; and
(ii) If to Lender at Export Development Canada, 151 OConnor Street, Ottawa, Ontario
K1A 1K3 Canada, Attention: Loan Services and Asset Management-Transportation, Facsimile No.:
(613) 598-2514 (Loan Services) and (613) 598-3186 (Asset Management-Transportation).
Section 9.3. Entire Agreement; Severability
. (a) This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and is intended to supersede all
prior negotiations, understandings and agreements with respect thereto. No provision of this
Agreement may be modified or amended except by a written agreement specifically referring to this
Agreement and signed by the parties hereto.
(b) In the event that any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial
construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid,
prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid,
prohibited or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement is
held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such
-31-
jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such provision or the other
provisions of this Agreement and without affecting the validity or enforceability of such provision
or the other provisions of this Agreement in any other jurisdiction.
Section 9.4. Amendments
. No amendment, modification, termination or waiver of any provision
of this Agreement, and no consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender and, in the case of any such
amendment or modification, by the Borrower. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
Section 9.5. Counterparts
. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same
instrument.
Section 9.6. Security Agreement
. This Agreement shall constitute a security agreement as
defined in the NY UCC, and the Borrower hereby grants to Lender a security interest within the
meaning of the NY UCC in favor of the Lender in the Collateral, the proceeds thereof and other
rights described herein.
Section 9.7. Governing Law
. This Agreement and any extensions, amendments, modifications,
renewals or supplements hereto shall be governed by and construed in accordance with the internal
laws and decisions (as opposed to conflicts of law provisions) of the State of New York;
provided,
however,
that the parties shall be entitled to all rights conferred by any applicable Federal
statute, rule or regulation.
Section 9.8. Waiver of Jury Trial
.
Each party hereto knowingly, irrevocably, voluntarily
and intentionally waives any right it may have to a trial by jury in respect of any action,
proceeding or counterclaim based on or arising out of, under or in connection with any of the
transaction documents, or any course of conduct, course of dealing, statement (whether verbal or
written) or actions of any party thereto
.
Section 9.9. Powers and Rights Not Waived; Remedies Cumulative.
No delay or failure on the
part of the holder of any Note in the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same preclude any other or further
exercise thereof, or the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to, and are not exclusive of, any rights or remedies any such
holder would otherwise have.
Section 9.10. Exempted Transaction
. (a) The Borrower agrees that (i) the Notes constitute an
extension of credit to a business entity for an amount greater than two hundred fifty thousand
dollars ($250,000.00) for purposes of New York General Obligations Law § 5-501(6)(a), (ii) the
payment obligations evidenced by this Agreement and the Notes are exempted transactions under the
Truth in Lending Act, 15 U.S.C. § 1601,
et seq.,
(iii) the
-32-
proceeds of the indebtedness evidenced
by the Notes will not be used for the purchase of registered equity securities within the purview
of Regulation U issued by the Board of Governors of the Federal Reserve System and (iv) on the
maturity date of any Note, the Lender shall not have any obligation to refinance the indebtedness
evidenced by such Note or to extend further credit to the Borrower.
(b) The Lender represents and warrants that, as of the date hereof and as of the Closing Date
(and the purchase of a Note by the Lender on the Closing Date shall constitute a reaffirmation by
the Lender of these representations and warranties as of such date), it is purchasing the Notes for
its own account and not with a view to the distribution thereof,
provided
that (i) the disposition
of the Lenders property shall at all times be within the Lenders control and (ii) any disposition
of the Notes and the Lenders interest in this Agreement, the Pledge Agreement and any documents
executed in connection therewith, shall be in accordance with the terms hereof. The Lender
understands that the Notes have not been registered under the
Securities Act of 1933 (the
Securities Act
) and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required by law, and that
the Borrower is not required to register the Notes.
Section 9.11. Reproduction of Documents
. This Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the parties hereto on the Closing Date (except the Notes), and
(c) financial statements, certificates and other information previously or hereafter furnished
pursuant hereto, may be reproduced by the parties hereto by any photographic, photostatic,
microfilm, microcard, miniature photographic, electronic or other similar process and the parties
hereto may destroy any original document so reproduced. The parties agree to accept delivery of
all of the foregoing documents in electronic format in lieu of original closing transcripts. The
parties further agree and stipulate that, to the extent permitted by applicable law, any such
reproduction, in electronic format or otherwise, shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the original is in existence
and whether or not such reproduction was made in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in
evidence. This Section 9.11 shall not prohibit the parties hereto from contesting any such
reproduction to the same extent that it could contest the original, or from introducing evidence to
demonstrate the inaccuracy of any such reproduction.
Section 9.12. Tax Disclosure
. Notwithstanding anything herein to the contrary, each party
hereto (and each employee, representative or other agent of such person) may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax structure of the
transactions described in this Agreement, and all materials of any kind (including opinions or
other tax analyses) that are provided to the person related to such tax treatment and tax
structure. The preceding sentence is intended to cause the transaction contemplated hereby to be
treated as not having been offered under conditions of confidentiality for purposes of U.S.
Treasury Regulation §1.6011-4(b)(3) and shall be construed in a manner consistent with such
purpose.
-33-
Section 9.13. Jurisdiction, Court Proceedings
. Any suit, action or proceeding against any
party to this Agreement arising out of or relating to this Agreement or any transaction
contemplated hereby may be brought in any Federal or state court located in New York, New York, and
each such party hereby submits to the non-exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding and to the courts of its corporate domicile in any action or
suit against it as a defendant. Each of the parties to this Agreement (that is a resident of the
United States of America), in the event that service of process by mail is permitted by applicable
law, each such party irrevocably consents to the service of process in any such suit, action or
proceeding in such courts by the mailing of such process by registered or certified mail, postage
prepaid, at its address for notices provided for in Section 9.2. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted by law. Each such
party irrevocably agrees not to assert any objection which it may ever have to the laying of venue
of
any such suit, action or proceeding in any Federal or state court located in New York, New York,
including without limitation, objections regarding jurisdiction to which they may be entitled by
reason of their current or future domiciles; and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
The Borrower hereby irrevocably designates, appoints and empowers CT Corporation as its lawful
agent to receive for and on its behalf service of process in the State of New York in any action or
proceeding described in this Section 9.13 and irrevocably consents to the service of process
outside the territorial jurisdiction of said courts in any such action or proceeding. Any service
made on such agent or its successor shall be effective when delivered regardless of whether notice
thereof is given to affected party. If any person or firm designated as agent hereunder shall no
longer serve as agent of such party to receive service of process in the State of New York, the
Borrower shall be obligated promptly to appoint a successor to so serve; and, unless and until such
successor is appointed and the parties hereto notified of the same in writing, service upon the
last designated agent shall be good and effective. The parties to this Agreement agree that a
final judgment in any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Section 9.14. Judgment Currency
. This is an international transaction in accordance with
which the specification of Dollars is of the essence, and Dollars shall be the currency of account
in the case of all obligations under this Agreement and the Notes. The payment obligations of the
parties under this Agreement and the Notes shall not be discharged by an amount paid in a currency
or in a place other than that specified with respect to such obligations, whether pursuant to a
judgment or otherwise, to the extent that the amount so paid on prompt conversion to Dollars and
transfer to the specified place of payment under normal banking procedures does not yield the
amount of Dollars, in such place, due under this Agreement and the Notes, as the case may be. In
the event that any payment, whether pursuant to a judgment or otherwise, upon conversion and
transfer does not result in payment of such amount of Dollars in the specified place of payment,
the obligee of such payment shall have a separate cause of action against the party making the same
for the additional amount necessary to yield the amount due and owing under this Agreement and the
Notes. If, for the purpose of obtaining a judgment in any court with respect to any obligation of
a party under any of this Agreement or any Note or any of the agreements contemplated thereby, it
shall be necessary to convert to any other currency any
-34-
amount in Dollars due thereunder and a
change shall occur between the rate of exchange applied in making such conversion and the rate of
exchange prevailing on the date of payment of such judgment, the respective judgment debtor agrees
to pay such additional amounts (if any) as may be necessary to insure that the amount paid on the
date of payment is the amount in such other currency which, when converted into Dollars and
transferred to New York, New York, in accordance with normal banking procedures, will result in the
amount then due under this Agreement or any Note, as the case may be, in Dollars. Any amount due
from the respective judgment debtor shall be due as a separate debt and shall not be affected by or
merged into any judgment being obtained for any other sum due under or in respect of this Agreement
or any Note. In no event, however, shall the respective judgment debtor be required to pay a
larger amount in such other currency at the rate of exchange in effect on the date of payment than
the amount of Dollars stated to be due under this
Agreement or any Note, as the case may be, so that in any event the obligations of the respective
judgment debtor under this Agreement or such Note, as the case may be, will be effectively
maintained as Dollar obligations.
Section 9.15. Business Days
. If any payment is to be made hereunder or any action is to be
taken hereunder on any date that is not a Business Day, such payment or action otherwise required
to be made or taken on such date shall be made or taken on the immediately succeeding Business Day
with the same force and effect as if made or taken on such scheduled date and as to any payment
(provided any such payment is made on such succeeding Business Day) no interest shall accrue on the
amount of such payment from and after such scheduled date to the time of such payment on such next
succeeding Business Day.
Section 9.16. Effect of Headings
. The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
Section 9.17. Participations
. (a) The Lender may at any time, without the consent of, or
notice to, the Borrower, sell participations to any Person (other than a natural person or the
Borrower or the Borrowers Affiliates or Subsidiaries) (each, a
Participant
) in all or a portion
of the Lenders rights and/or obligations under this Agreement (including all or a portion of the
Loan owing to it);
provided
that (i) the Lenders obligations under this Agreement shall remain
unchanged, (ii) the Lender shall remain solely responsible to the Borrower for the performance of
such obligations and (iii) the Borrower shall continue to deal solely and directly with the Lender
in connection with the Lenders rights and obligations under this Agreement.
Any agreement or instrument pursuant to which the Lender sells such a participation shall
provide that the Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement;
provided
that such agreement
or instrument may provide that the Lender will not, without the consent of the Participant, agree
to any amendment, waiver or other modification that affects such Participant. Subject to clause
(b) below, the Borrower agrees that each Participant shall be entitled to the benefits of Sections
7.10 and 7.11 to the same extent as if it were the Lender and had acquired its interest by
assignment pursuant to Section 7.4(c).
(b) A Participant shall not be entitled to receive any greater payment under Section 7.10 or
Section 7.11 than the Lender would have been entitled to receive with respect to the
-35-
participation
sold to such Participant, unless the sale of the participation to such Participant is made with the
Borrowers prior written consent.
-36-
In Witness Whereof
, the parties have caused this Agreement to be duly executed and
delivered by their respective officers thereunto duly authorized as of the date first above
written.
|
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|
|
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Kansas City Southern de México, S.A. de C.V.,
a corporation incorporated under the laws of Mexico
|
|
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By:
|
/s/ Paul J. Weyandt
|
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|
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Name:
|
Paul J. Weyandt
|
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Title:
|
Attorney-in-fact and Treasurer
|
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Export Development Canada,
a corporation
established by Act of Parliament of Canada,
as Lender
|
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By:
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/s/ Karen Morandin
|
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Name:
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Karen Morandin
|
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Title:
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Financing Manager
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By:
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Christine Cavanagh
|
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Name:
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Christine Cavanagh
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Title:
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International Contracts Specialist
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-37-
Definitions
General Provisions
The following terms shall have the following meanings for all purposes of the Loan Agreement
referred to below, unless otherwise defined in the Loan Agreement or the context thereof shall
otherwise require and such meanings shall be equally applicable to both the singular and the plural
forms of the terms herein defined. In the case of any conflict between the provisions of this
Appendix A and the provisions of the main body of the Loan Agreement, the provisions of the main
body of the Loan Agreement shall control the construction of the Loan Agreement.
Unless the context otherwise requires, (i) references to agreements shall be deemed to mean
and include such agreements as the same may be amended, supplemented and otherwise modified from
time to time, and (ii) references to parties to agreements shall be deemed to include the permitted
successors and assigns of such parties.
Defined Terms
AAR Mechanical Standards
shall mean the rules, standards and supplements thereto of the
Mechanical Division of the Association of American Railroads, as the same may be in effect from
time to time.
Affiliate
of any Person shall mean any other Person which directly or indirectly controls,
or is controlled by, or is under a common control with, such Person. The term
control
means the
possession, directly or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms
controlling
and
controlled
shall have meanings correlative to the
foregoing.
After-Tax Basis
means with respect to any payment to be received by a Person, the amount of
such payment plus a further payment or payments so that the net amount received by such Person,
after deducting from such payment and such further payment the amount of all Taxes actually imposed
on the Person receiving such payments by any U.S. federal, state or local or foreign taxing
authority with respect to such payments (net of any current credits, deductions or other Tax
benefits actually arising from the payment by such Person of any amount, including Taxes, with
respect to the payment received or arising by reason of the receipt or accrual by such Person of
the payment received) is equal to the original payment required to be received.
Aggregate Commitment Amount
means $72,764,000.00.
Average Life Date
means, with respect to the prepayment of any Note, the date that follows
the prepayment date by a period equal to the number of days equal to the quotient obtained by
dividing (a) the sum of the products obtained by multiplying (i) the amount of each remaining
principal payment on such Note by (ii) the number of days from and including the
Appendix A
(to Loan and Security Agreement)
-38-
prepayment date to but excluding the scheduled payment date of such principal payment by (b)
the unpaid principal amount of such Note.
Borrower
shall mean Kansas City Southern de México, S.A. de C.V., a corporation incorporated
under the laws of Mexico, and any corporation which succeeds thereto by merger or consolidation or
which acquires all or substantially all of the assets thereof.
Business Day
means any day other than a Saturday or Sunday or other day on which banks in
Mexico City, Mexico, New York, New York or Ottawa, Canada, are authorized or obligated to be
closed.
Casualty Occurrence
shall mean, with respect to any Unit, the occurrence of any of the
following: (i) the destruction, damage, contamination, wear or unsuitability of such Unit which, in
the Borrowers good faith opinion, makes repair uneconomic or renders such Unit unfit for
commercial use, (ii) theft or disappearance of such Unit, (iii) the permanent return of such Unit
to the manufacturer pursuant to any warranty or patent indemnity provisions, (iv) the taking of
title of such Unit or appropriation of such Unit by any governmental authority under the power of
eminent domain or otherwise, (v) the taking or requisition for use of such Unit by the Mexican
government or any agency or instrumentality thereof under the power of eminent domain or otherwise
for a continuous period in excess of 365 days or (vi) the taking or requisition for use of such
Unit by any governmental authority (other than the Mexican government or any agency or
instrumentality thereof) under the power of eminent domain or otherwise for a continuous period in
excess of 180 days.
Change in Tax Law
shall have the meaning set forth in Section 4.8(c) of the Loan Agreement.
Claims
shall have the meaning set forth in Section 7.6 of the Loan Agreement.
Closing Date
shall have the meaning set forth in Section 2.1(a) of the Loan Agreement.
Collateral
shall have the meaning set forth in Article V of the Loan Agreement.
Debt Rate
shall mean, with respect to any Note, as of the date of determination, a rate
equal to the scheduled rate of interest per annum borne by such Note calculated on the basis of a
360-day year and twelve 30-day months.
Discount Rate
means for purposes of the calculation of the Make-Whole Amount due on a
prepayment of any Note, the per annum rate equal to the sum of (i) the yield of U.S. Treasury
Securities maturing on the Average Life Date of such Note, as determined by interpolation, if
necessary, between the most recent average yields for two series of United States Treasury
securities, (A) one maturing as close as possible to, but earlier than, the Average Life Date of
such Note and (B) the other maturing as close as possible to, but later than, the Average Life Date
of such Note as indicated on Bloomberg screen IRSB18 (or such other pages as may
A-2
be substituted by Bloomberg), at 11:00 A.M. New York City time on the second Business Day
preceding the date of such prepayment plus (ii) 0.50%.
Dollars, U.S. Dollars
and
$
shall mean lawful currency of the United States.
Equipment
shall mean collectively those locomotives described in the Loan and Security
Agreement Supplements and the Pledge Agreement and in any supplement thereto as applicable,
together with any and all accessions, additions, improvements and replacements from time to time
incorporated or installed in any item thereof and
Unit
shall mean individually the various items
thereof.
Equipment Cost
shall mean, for each Unit, the cost thereof as set forth in Schedule 1 to the
Loan and Security Agreement Supplement for such Unit.
Event of Default
shall mean any event specified in Section 8.1 of the Loan Agreement to be
an Event of Default.
Financing Percentage,
shall mean the percentage specified in the Loan Request delivered
pursuant to Section 3.2 of the Loan Agreement relating to the Loan, which is the percentage of the
Equipment Cost intended to be financed through the Loan, and which shall not exceed 85%.
Forms
shall have the meaning set forth in Section 7.11 of the Loan Agreement.
Fund, Funded
or
Funding
means the funding by the Lender of the Loan as described in
Article III of the Loan Agreement.
Governmental Authority
shall mean any branch of power (whether administrative, legislative
or judicial) of any state, any nation or government, any state or other political or administrative
subdivision thereof, any central bank (or similar monetary or regulatory authority) and any entity
exercising executive, legislative, judicial, regulatory or administrative authority of or
pertaining to government.
The word
holder
shall mean the registered owner of a Note.
Indemnified Person
shall have the meaning set forth in Section 7.6 of the Loan Agreement.
Late Rate
shall mean the lesser of 1% over the Debt Rate and the maximum interest rate from
time to time permitted by law.
Lender
shall have the meaning specified in the introductory paragraph to the Loan Agreement.
Lenders Lien
shall mean any Lien against the Equipment or any part thereof that results
from any act of, or any failure to act by, or as a result of any claim against, the Lender
A-3
arising out of any event or condition unrelated to the transactions contemplated by the
Agreement, excluding any tax, assessment or charge for which the Borrower is obliged to indemnify
the Lender thereunder.
Lien
shall mean any mortgage, pledge, security interest, lien, encumbrance, lease, exercise
of rights, claim, disposition of title or other charge of any kind on property.
Loan
shall have the meaning set forth in Section 3.1(a) of the Loan Agreement.
Loan Agreement
or
Agreement
shall mean the Loan and Security Agreement dated as of
February 26, 2008 by and between the Borrower and the Lender, as amended, supplemented or otherwise
modified from time to time. The term Loan Agreement or Agreement shall include each Loan and
Security Agreement Supplement entered into pursuant to the terms of the Loan Agreement.
Loan and Security Agreement Supplement
shall mean a Loan and Security Agreement Supplement
dated the Closing Date or the date that any Replacement Unit is subjected to the Loan Agreement, as
applicable, substantially in the form of Exhibit E to the Loan Agreement, between the Borrower and
the Lender, covering the Units described therein.
Loan Request
shall have the meaning set forth in Section 3.2 of the Loan Agreement.
Make-Whole Amount
shall mean, with respect to the principal amount of a Note to be prepaid
on any prepayment date, the amount equal the product obtained by multiplying (a) the excess, if
any, of (i) the sum of the present values of all the remaining scheduled payments of principal and
interest from the prepayment date to maturity of such Note, discounted semi-annually on each
scheduled payment date at a rate equal to the Discount Rate, based on a 360-day year of twelve
30-day months, over (ii) the aggregate unpaid principal amount of such Note by (b) a fraction the
numerator of which shall be the principal amount of such Note to be prepaid on such prepayment date
and the denominator of which shall be the aggregate unpaid principal amount of such Note;
provided
that the aggregate unpaid principal amount of such Note for the purposes of clause (a)(ii) and (b)
of this definition shall be determined after deducting the principal installment, if any, due on
such prepayment date.
Manufacturer
shall mean Electro-Motive Diesel, Inc.
Material Adverse Effect
means a material adverse effect on the (a) financial condition or
operations of the Borrower and its Subsidiaries, taken as a whole or (b) Borrowers ability to
perform its obligations under this Agreement or (c) the validity or enforceability of this
Agreement, the Pledge Agreement or the Notes.
Mexico
shall mean the
Estados Unidos Mexicanos
(United Mexican States).
Note Register
shall have the meaning set forth in Section 4.5 of the Loan Agreement.
A-4
Notes
shall mean the promissory notes of any Series, each to be substantially in the form
therefor set forth in Exhibit A of the Loan Agreement issued by the Borrower and secured as
provided in Article V of the Loan Agreement, and shall include any notes issued in exchange
therefor or replacement thereof pursuant to Section 4.5 or Section 4.6 of the Loan Agreement.
NY UCC
shall mean the Uniform Commercial Code of the State of New York New York.
Officers Certificate
shall mean a certificate signed by either the Chairman of the Board,
the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer, the
President, any Vice President, the Treasurer, any Assistant Treasurer or any Attorney-in-Fact
authorized to execute and deliver any such certificate.
Opinion of Counsel
shall mean an opinion in writing signed by legal counsel who may be (1)
an employee of or counsel to the Borrower or (2) other counsel acceptable to the Lender.
Participant
shall have the meaning specified in Section 9.17 of the Loan Agreement.
Payment Date
shall mean each date on which payments of principal or interest on the Notes
are scheduled to be made.
Permitted Liens
with respect to the Equipment and each Unit thereof, shall mean: (i) the
interest of the Borrower and any lessee as provided in any lease permitted pursuant to Section
7.4(b) of the Loan Agreement; (ii) any Liens thereon for taxes, assessments, levies, fees and other
governmental and similar charges not due and payable or the amount or validity of which is being
contested in good faith by appropriate proceedings so long as there exists no material risk of
sale, forfeiture, loss, or loss of use of any Unit or any interest therein or any risk of criminal
liability or risk of material civil liability on the Lender; (iii) any Liens of mechanics,
suppliers, materialmen, laborers, employees, repairmen and other like Liens arising in the ordinary
course of the Borrowers (or if a lease is then in effect, any lessees) business securing
obligations which are not due and payable or the amount or validity of which is being contested so
long as there exists no material risk of sale, forfeiture, loss, or loss of use of any Unit or any
risk of criminal liability or risk of material civil liability on the Lender; (iv) the Lien and
security interest granted to the Lender under and pursuant to the Loan Agreement and the Pledge
Agreement; (v) Liens arising out of any judgment or award against the Borrower (or any lessee
permitted pursuant to Section 7.4(b) of the Loan Agreement) with respect to which an appeal or
proceeding for review is being presented in good faith and with respect to which there shall have
been secured a stay of execution pending such appeal or proceeding for review; or (vi) salvage
rights of insurers under insurance policies maintained pursuant to Section 7.5 of the Loan
Agreement.
Person
shall mean any individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
A-5
Pledge Agreement
shall mean that certain Pledge Agreement (contrato de prenda sin
transmisión de posesión), to be entered into by and between the Borrower, as pledgor and the
Lender, as pledgee, in order to create a pledgor-in-possession security interest (prenda sin
transmisión de posesión) in the Collateral, in accordance with the provisions of Mexicos General
Law of Negotiable Instruments and Credit Transactions (Título Segundo, Capítulo IV, Sección VII de
la Ley General de Títulos y Operaciones de Crédito), as such agreement may be amended, supplemented
or otherwise modified from time to time.
Pledge Agreement Supplement
shall mean a Pledge Agreement Supplement dated the date that any
Replacement Unit is subjected to the Pledge Agreement, as applicable, duly executed and notarized
by the parties thereto and in the form agreed to by the Borrower, as pledgor and the Lender, as
pledgee, covering the Units described therein.
Regulatory Change
shall have the meaning specified in Section 7.10(a) of the Loan Agreement.
Rejection Notice
shall have the meaning set forth in Section 4.8(c) of the Loan Agreement.
Related Indemnitee Group
shall have the meaning set forth in Section 7.6 of the Loan
Agreement.
Replacement Unit
shall have the meaning set forth in Section 7.3(b) of the Loan Agreement.
Request
shall mean a written request for the action therein specified, delivered to the
Lender and signed on behalf of the Borrower by the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer, the Chief Accounting Officer, the President, any Vice
President, the Treasurer, any Assistant Treasurer or any Attorney-in-Fact authorized to execute and
deliver any such request.
Requested Loan Amount
shall mean the amount of the Loan as requested by the Borrower
pursuant to the Loan Request.
SEC
shall mean the Securities and Exchange Commission.
Securities Act
shall have the meaning specified in Section 9.10(b) of the Loan Agreement.
Series
shall mean one of the series of Notes described in Section 4.1 of the Loan Agreement.
Subsidiary
of any Person shall mean any corporation, association, or other business entity
of which more than 50% (by number of votes) of the voting stock at the time outstanding shall at
the time be owned, directly or indirectly, by such Person or by any other corporation,
A-6
association or trust which is itself a Subsidiary within the meaning of this definition, or
collectively by such Person and any one or more such Subsidiaries.
Surface Transportation Board
or
STB
means the Surface Transportation Board of the United
States Department of Transportation and any agency or instrumentality of the United States
Government succeeding to its functions.
Tax Prepayment Notice
shall have the meaning set forth in Section 4.8(c) of the Loan
Agreement.
Taxes
means all fees, taxes, levies, assessments, charges or withholdings of any nature
imposed by any Governmental Authority, together with any penalties, fines or interest thereon or
additions thereto.
Taxing Jurisdiction
shall have the meaning set forth in Section 7.11 of the Loan Agreement.
Transfer
shall have the meaning set forth in Article V of the Loan Agreement.
Unit
shall have the meaning set forth in the definition of Equipment.
A-7
PAGARÉ
PROMISSORY NOTE
NON NEGOTIABLE
U.S.$
FOR VALUE RECEIVED, Kansas City Southern de México, S.A. DE C.V., a
sociedad anónima de capital variable
organized and existing under the laws of the United Mexican States (the
Obligor
), by this Promissory Note
hereby unconditionally promises to pay to the order of
Export Development Canada
(the
Holder
) the principal sum of U.S.$
(
DOLLARS 00/100, CURRENCY OF THE UNITED STATES OF
AMERICA) (the
Principal),
on
(the
Principal Payment Date
).
If the Principal Payment Date or any Interest Payment Date (as defined below) falls on a day which is not a Business Day (as such term is defined below), such payment shall be made on the succeeding Business Day.
The Obligor also unconditionally promises to pay interest on the outstanding and unpaid Principal amount of this Promissory Note (the
Interest
) on each August 28 and February 28 (each an
Interest Payment Date
)
from the date hereof until the date the principal amount hereof is paid in full, at a rate per annum equal to 5.7365% (the
Debt Rate
). Except as set forth in the next paragraph, interest shall be payable in arrears
on each Interest Payment Date.
Any principal amount and (to the extent permitted by applicable law) Interest not paid when due under this Promissory Note, shall bear delinquent interest from the date of such non-payment until paid in full, payable
on demand, at a rate per annum equal to the sum of 1.00% plus the Debt Rate.
Interest hereunder shall be calculated on the basis of a 360-day year of twelve 30-day months.
For purposes of this Promissory Note, the following terms shall have the following meanings:
Business Day
means any day other than a Saturday or a Sunday or a day on which banking institutions are authorized or required to close in New York, New York, or in Mexico City, Mexico, or in Ottawa, Canada.
Mexico
means the United Mexican States.
All payments by the Obligor hereunder shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. All payments hereunder shall be made in United States dollars and in immediately
available funds not later than 2:00 p.m., New York City time, on the date specified herein, at Citibank N.A., New York, New York, USA, ABA No. 021000089, Account No. 36236357, SWIFT CITIUS33, Reference: 880-41109, for
the account of Export Development Canada. All payments received by the Holder after 2:00 p.m., New York City time, shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall
continue to accrue.
The Obligor agrees to reimburse upon demand, in like manner, all out-of-pocket costs and expenses of the Holder hereof, incurred in connection with the enforcement of this Promissory Note (including, without
limitation, all legal fees and expenses).
NO
NEGOCIABLE
E.U.A.$
POR VALOR RECIBIDO, Kansas City Southern de México, S.A. de C.V., una sociedad anónima de capital
variable constituida y existente de conformidad con las leyes de los Estados Unidos Mexicanos (la
Obligada
), por este Pagaré promete incondicionalmente pagar a la orden de
Export Development
Canada
(el
Tenedor
) la suma principal de E.U.A. $
(
DÓLARES 00/100, MONEDA
DE CURSO LEGAL EN LOS ESTADOS UNIDOS DE AMÉRCIA) (el
Principal),
el
(la
Fecha de Pago de
Principal
).
Si la Fecha de Pago de Principal o cualquier Fecha de Pago de Intereses (según dicho término se define
más adelante) coincide con una fecha que no sea un Día Hábil (según dicho término se define más
adelante), el pago correspondiente deberá ser efectuado en el Día Hábil inmediato siguiente.
La Obligada asimismo promete incondicionalmente pagar intereses sobre el saldo insoluto del monto
Principal de este Pagaré (los
Intereses)
cada día 28 de agosto y 28 de febrero (cada una de dichas
fechas, una
Fecha de Pago de Intereses
), desde la fecha de este Pagaré hasta la fecha en que el monto
del Principal sea pagado en su totalidad, a una tasa anual igual a
5.7365% (la
Tasa de Inter
és). Salvo
lo dispuesto en el siguiente párrafo, los Intereses serán pagaderos en forma vencida, en cada Fecha de
Pago de Intereses.
Cualquier monto de principal y (en la medida permitida por la legislación aplicable) de Intereses que no
sea pagado cuando sea debido conforme a este Pagaré, devengará intereses moratorios desde la fecha de
falta de pago y hasta que tal suma sea pagada en su totalidad, pagaderos a la vista, a una tasa anual
igual a la Tasa de Interés más 1% (uno por ciento).
Los intereses conforme a este Pagaré serán calculados sobre la base de un año de 360 días, de doce meses
de 30 días.
Para efectos de este Pagaré, los siguientes términos tendrán los siguientes significados:
Día Hábil
significa cualquier día que no sea sábado o domingo o cualquier día en que los bancos están
autorizados u obligados a cerrar en las ciudades de Nueva York, Nueva York, México, Distrito Federal, o
en Ottawa, Canadá.
México
significa los Estados Unidos Mexicanos.
Todos los pagos que la Obligada esté obligada a realizar conforme al presente Pagaré, deberán efectuarse
sin condición, compensación, deducción o defensa. Todos los pagos que deba realizar la Obligada conforme
al presente deberán efectuarse en dólares de los Estados Unidos de América y en fondos inmediatamente
disponibles a más tardar a las 2:00 pm., hora de la Ciudad de Nueva York, en las fechas establecidas en
este Pagaré, en Citibank N.A., Nueva York, Nueva York, Estados Unidos de América, ABA No. 021000089,
Cuenta No. 36236357, SWIFT CITIUS33, Referencia: 880-41109, a nombre de Export Development Canada. Todos
los pagos recibidos por el Tenedor después de las 2:00 pm., hora de la Ciudad de Nueva York, se
considerán recibidios en el siguiente Día Hábil y cualquier interés o cargo aplicable continuará
devengandose.
La Obligada acuerda reembolsar a la vista, en la misma forma, todos los costos y gastos incurridos por el
Tenedor, en relación con el cobro de este Pagaré (incluyendo, sin limitación, todos los costos y gastos
legales.
Exhibit A
(to Loan and Security Agreement)
This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America;
provided
that if any legal action or proceeding (other than an action to
enforce a judgment obtained outside Mexico) is brought by the Holder in connection with this Promissory Note in any competent court in Mexico, then, solely for such purpose, this Promissory Note shall be deemed to be
an instrument made under and governed by the laws of Mexico.
The Obligor submits itself to the non-exclusive jurisdiction of any Federal or state court located in New York, New York or any courts sitting in the City of Mexico, Federal District, Mexico., in any legal action or
proceeding arising out of or with respect to this Promissory Note. The Obligor hereby expressly and irrevocably waives all rights of jurisdiction in any action or proceeding arising out of or relating to this
Promissory Note which it may now or hereafter be afforded by law and any right to which the Obligor may be entitled on account of place of residence or domicile.
The Obligor hereby waives diligence, demand, protest, presentment, notice of dishonor or any other notice or demand whatsoever.
This Promissory Note is No. [
] of a series of thirty (30) promissory notes (collectively, the
Notes
). The failure to pay any amount payable when due under any outstanding Note shall entitle the Holder to demand
the immediate payment of all amounts payable under the remaining outstanding Notes.
This Promissory Note is executed both in English and Spanish-language versions, which together constitute a single instrument;
provided
that in case of doubt as to the proper interpretation of this Promissory Note,
the English version shall govern, except in connection with an action or proceeding brought in any court in Mexico in connection with this Promissory Note, in which case, the Spanish version shall be controlling.
This Promissory Note consists of 2 (two) pages.
For purposes of Article 128 of the General Law on Negotiable instruments and Credit Transactions, the date of presentation of this Promissory Note is extended until
, in the understanding that such
extension shall not be deemed to prevent presentment of this Promissory Note prior to such date.
IN WITNESS WHEREOF, the Obligor has duly executed this Promissory Note as of the date mentioned below.
Este Pagaré se regirá e interpretará de conformidad con las leyes del Estado de Nueva York, Estados Unidos de América, en el entendido que, si cualquier acción legal o procedimiento (distinto de una acción para
ejecutar un sentencia obtenida fuera de México) es iniciado por el Tenedor en relación con este Pagaré en cualquier tribunal competente en México, entonces, solo para dicho propósito, este Pagaré se considerará un
instrumento hecho y regido de conformidad con las leyes de México.
La Obligada se somete a la jurisdicción no exclusiva de cualquier tribunal federal o estatal ubicado en Nueva York, Nueva York o cualesquiera tribunales ubicados en la Ciudad de México, Distrito Federal, México, en
relación con cualquier acción legal o procedimiento derivado de o en relación con este Pagaré. La Obligada renuncia expresa e irrevocablemente a cualquiesquiera derechos de jurisdicción que la ley le confiera en
relación con cualquier acción o procedimiento relacionado con el presente Pagaré, y a cualquier otro fuero que la ley le confiera en virtud de su domicilio presente o futuro.
La Obligada en este acto renuncia a cualquier diligencia, requerimiento, protesto, presentación, notificación o requerimiento de cualquier naturaleza.
Este Pagaré es el No. [
] de una serie de treinta (30) pagarés (conjuntamente, los Pagarés). En caso de incumplimiento en el pago de cualquier cantidad que sea exigible conforme a cualesquiera de los Pagarés, el
Tenedor tendrá derecho a exigir el pago inmediato de todas y cualesquiera cantidades pagaderas conforme a los demás Pagarés
Este Pagaré se suscribe en versiones en inglés y español, y ambas versiones constituyen un solo documento, en el entendido, que en caso de conflicto o duda con la debida interpretación de este Pagaré, la versión en
inglés prevalecerá, excepto en relación con cualquier acción o procedimiento iniciado en México en relación con este Pagaré, en cuyo caso, prevalecerá la versión en español.
Este Pagaré consiste de 2 (dos) páginas.
Para efectos de lo dispuesto por el Artículo 128 de la Ley General de Títulos y Operaciones de Crédito, la fecha de presentación de este Pagaré se extiende hasta el
, en el entendido que dicha extensión no
impedirá la presentación de este Pagaré con anterioridad a dicha fecha.
EN VIRTUD DE LO CUAL, el suscrito ha celebrado debidamente este Pagaré en la fecha abajo mencionada.
México, Distrito Federal, a 28 de febrero de 2008.
Mexico City, Federal District, Mexico, February 28, 2008.
Kansas City Southern de México, S.A. de C.V.
Address/Dirección:
Montes Urales No. 625
Col. Lomas de Chapultepec
11000 México, D.F. México
By/Por
Name/Nombre: José Guillermo Zozaya Délano
Cargo/Title:
President and Executive Representative/ Presidente y Representante Ejecutivo
A-2 of 2
Loan Request
___________, 20__
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To:
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Export Development Canada, as lender (
Lender
) under that
certain Loan and Security Agreement dated as of February
26, 2008 between the Kansas City Southern de México, S.A.
de C.V., as borrower and the Lender (the
Agreement
) (all
capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Agreement,
unless the context otherwise requires).
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From:
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Kansas City Southern de México, S.A. de C.V.
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Re:
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Loan Request
|
1. The Closing Date is February ___, 2008.
2. The undersigned hereby requests the Loan in the amount of $72,750,000.00. The Financing
Percentage relating to the requested Loan is 85%.
3. Set forth on Annex A is a description of number and type of Units of Equipment for which
settlement of the purchase price will be made on the Closing Date with the proceeds of this Loan
and the Equipment Cost of such Units.
4. The undersigned hereby certifies that the requested Loan complies with the limitations and
conditions set forth in Section 3.1(a) of the Agreement and all conditions to the Loan set forth in
Article VI of the Agreement have been fully satisfied or waived.
5. The undersigned requests that the Loan be sent by wire transfer in accordance with the
payment instructions attached hereto as Annex B.
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Kansas City Southern de México, S.A. de
C.V.
|
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By:
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Name:
|
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Title:
|
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Exhibit B
(to Loan and Security Agreement)
Annex A
to Loan Request
|
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Equipment Cost
|
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Equipment
|
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Quantity
|
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Per Unit
|
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Reporting Marks
|
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EMD SD70ACe
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40
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$
|
2,140,123
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KCSM 4060 through
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Locomotives
|
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KCSM 4099, inclusive
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B-2
Annex B
to Loan Request
Wiring Instructions
|
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Borrower:
|
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Kansas City Southern de Mexico, S.A. de C.V.
|
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Lender
|
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Export Development Canada
|
On February 28, 2008, the Lender
will wire funds to the Borrower in the total
amount of $72,750,000.00. The wire instructions for this transfer are as follows:
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Bank:
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Bank of America
|
ABA #:
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026009593
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Account#:
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6290826870
|
Account Name:
|
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Kansas City Southern de Mexico, S.A. de C.V.
|
Attention:
|
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Paul J. Weyandt (816) 983-1802
|
Reference:
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KCSM-EDC Loan and Security Agreement
|
B-3
Conditions Precedent
The obligation of the Lender to make the Loan to the Borrower on the Closing Date shall be
subject to the following conditions precedent:
(1)
Execution of the Loan and Security Agreement.
On or before the Closing Date, the
Loan and Security Agreement (the
Agreement
) between Export Development Canada, as Lender
(the
Lender
) and Kansas City Southern de México, S.A. de C.V. (the
Borrower
) shall be in
full force and effect and shall be satisfactory in form and substance to the Lender, shall
have been duly executed and delivered by the Lender and the Borrower (except that the
execution and delivery of the Agreement by a party thereto shall not be a condition
precedent to such partys obligations hereunder), and executed counterparts of the Agreement
shall have been delivered to Lender or its counsel on or before the Closing Date.
(2)
Loan Request
. The Lender shall have received the Loan Request from the Borrower
relating to the Loan requested to be made on the Closing Date.
(3)
Notes
. The Lender (or special Mexican counsel to the Lender) shall have received
the Notes issued on the Closing Date.
(4)
Loan and Security Agreement Supplement
. A Loan and Security Agreement Supplement
shall be in full force and effect and shall be satisfactory in form and substance to the
Lender, shall have been duly executed and delivered by the Lender and the Borrower (except
that the execution and delivery of the Agreement by a party thereto shall not be a condition
precedent to such partys obligations hereunder), and executed counterparts of the Loan and
Security Agreement Supplement shall have been delivered to Lender or its counsel on or
before the Closing Date
(5)
Recordation and Filing.
On or before the Closing Date, the Borrower will (i) cause
the Agreement and the Loan and Security Agreement Supplement dated the Closing Date or
appropriate evidence thereof, to be duly filed, recorded and deposited (A) with the Surface
Transportation Board in conformity with 49 U.S.C. § 11301 and (B) with the Registrar General
of and pursuant to Section 105 of the Canada Transportation Act and (ii) prepare and present
for filing all statements, notices, registrations or instruments required by or customarily
filed with the Public Registry of Commerce of the Federal District (
Registro Público de
Comercio del Distrito Federal
) with respect to the Equipment and the Pledge Agreement and
provide evidence of such presentment for filing to the Lender.
(6)
Officers Certificate of the Borrower.
On the Closing Date, the Lender shall have
received an Officers Certificate dated such date from the Borrower, substantially in the
form attached to the Agreement as Exhibit D.
Exhibit C
(to Loan and Security Agreement)
(7)
Opinions of Counsel.
On the Closing Date, the Lender and the Borrower shall have
received the favorable written opinion of each of (A) internal counsel to the Borrower and
special counsel to the Borrower, (B) Alvord and Alvord, special STB counsel and (C) McCarthy
Tétrault LLP, special Canadian counsel;
provided
that receipt by the Borrower of a favorable
written opinion from counsel to the Borrower shall not be a condition precedent to such
Borrowers obligations hereunder. In addition, the Lender shall have received a favorable
written opinion of Ritch Mueller, special Mexican counsel.
(8)
Insurance Certificate.
On or before the Closing Date, the Lender shall have
received a certificate relating to insurance that is required pursuant to Section 7.5 of the
Agreement.
(9)
Corporate Documents.
The Lender shall have received such documents and evidence
with respect to the Borrower as such party may reasonably request in order to establish the
authority for the consummation of the transactions contemplated by the Agreement, the taking
of all corporate and other proceedings in connection therewith and compliance with the
conditions herein or therein set forth and the incumbency of all officers signing the
Agreement, including, without limitation, certified copies of (i) the charter (acta
constitutiva) and the current bylaws (estatutos sociales) of the Borrower, (ii) the relevant
corporate resolutions approving the transactions contemplated by the Agreement and (iii) the
powers of attorney of the Borrower, authorizing the making and performance by the Borrower
of the Agreement, the Notes and the Pledge Agreement on its behalf.
(10)
No Threatened Proceedings.
No action or proceeding shall have been instituted nor
shall governmental action be threatened before any court or governmental agency, nor shall
any order, judgment or decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Closing Date, to set aside, restrain, enjoin or
prevent the completion and consummation of any of the Agreement or the transactions
contemplated hereby or thereby.
(11)
Governmental Actions.
All actions, if any, required to have been taken on or
prior to the Closing Date in connection with the transactions contemplated by the Agreement
on the Closing Date shall have been taken by any governmental or political agency,
subdivision or instrumentality of the United States and all orders, permits, waivers,
exemptions, authorizations and approvals of such entities required to be in effect on the
Closing Date in connection with such transactions contemplated by the Agreement on the
Closing Date shall have been issued, and all such orders, permits, waivers, exemptions,
authorizations and approvals shall be in full force and effect, on the Closing Date.
(12)
Pledge Agreement
. The Pledge Agreement shall have been prepared in form and
substance satisfactory to the Lender and the Lender shall have received an original
counterpart of the Pledge Agreement, duly executed and delivered by the Borrower and the
Lender before a Mexican notary public.
C-2
Form of Officers Certificate of
Kansas City Southern de México, S.A. de C.V.
The undersigned certifies that he is the
of
Kansas City Southern de
México, S.A. de C.V.
(the
Borrower
) and that, as such, he is authorized to execute this
Certificate on behalf of the Borrower, and further certifies that (i) the Borrower has performed
and complied with all agreements and conditions contained in the Loan and Security Agreement dated
as of February 26, 2008, between Export Development Canada and
the Borrower (the
Agreement
) which
are required to be performed or complied with by the Borrower on or before the date hereof
(capitalized terms used herein without definition have the meanings assigned to them in the
Agreement) and (ii) the representations and warranties of the Borrower set forth below are true and
correct in all material respects on and as of the date hereof, except to the extent that such
representations and warranties relate solely to an earlier date (in which case such representations
and warranties were true and correct on and as of such earlier date):
(a) the Borrower is a corporation duly organized and validly existing under the laws of
Mexico, is duly licensed or qualified in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its ability to enter into and perform its
obligations under the Agreement, the Notes and the Pledge Agreement, has the corporate power
and authority to carry on its business as now conducted, and has the requisite power and
authority to execute, deliver and perform its obligations under the Agreement, the Notes and
the Pledge Agreement;
(b) each of the Agreement, the Notes and the Pledge Agreement has been duly authorized
by all necessary corporate action (no shareholder approval being required), executed and
delivered by the Borrower, and constitutes the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency and similar laws and by
general principles of equity;
(c) the execution, delivery and performance by the Borrower of the Agreement, the Notes
and the Pledge Agreement and compliance by the Borrower with all of the provisions thereof
do not and will not contravene any law or regulation, or any order of any court or
governmental authority or agency applicable to or binding on the Borrower or any of its
properties, or contravene the provisions of, or constitute a default by the Borrower under,
or result in the creation of any Lien (except for Permitted Liens) upon the property of the
Borrower under its Charter or By-laws or any material indenture, mortgage, contract or other
agreement or instrument to which the Borrower is a party or by which the Borrower or any of
its property is bound or affected;
(d) except for those matters discussed in the financial statements of the Borrower
referred to in paragraph (e) below, there are no proceedings pending or, to the
knowledge of the Borrower, threatened against the Borrower in any court or before any
governmental authority or arbitration board or tribunal which individually or in the
Exhibit D
(to Loan and Security Agreement)
aggregate would materially and adversely affect the financial condition of the Borrower or
impair the ability of the Borrower to perform its obligations under the Agreement or which
questions the validity of the Agreement, the Notes and the Pledge Agreement or any action
taken or to be taken pursuant thereto;
(e) the audited consolidated balance sheet and consolidated statements of income and
retained earnings and cash flows of the Borrower for the fiscal year ended December 31,
2007, fairly present, in conformity with U.S. generally accepted accounting principles, the
consolidated financial position of the Borrower as of such date and the results of its
operations for the period then ended. Since December 31, 2007, there has been no material
adverse change in such financial condition or results of operations;
(f) the Equipment is covered by the insurance required by Section 7.5 of the Agreement
and all premiums due prior to the Closing Date in respect of such insurance shall have been
paid in full;
(g) no Event of Default has occurred and is continuing and no Casualty Occurrence has
occurred;
(h) the Borrower has good and marketable title to the Equipment; and
(i) no authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body in Mexico is required for the due execution,
delivery or performance by the Borrower of the Agreement.
In
Witness
Whereof
, the undersigned has hereunto subscribed his/her
name this ___ day of
, 2008.
D-2
Loan and Security Agreement Supplement No. ___
Between
Kansas City Southern de México, S.A. de C.V.,
as Borrower
and
Export Development Canada,
as Lender
___ EMD SD70ACe Locomotives
Dated
___, 2008
Memorandum of Loan and Security Agreement Supplement No. ___ filed with the Surface
Transportation Board pursuant to 49 U.S.C. §11301 on
___, 2008, at ___:___.M.,
Recordation Number _______, and deposited in the Office of the Registrar General of Canada pursuant
to Section 105 of the Canada Transportation Act on
___, 2008, at ___:__ __.M.
Exhibit E
(to Loan and Security Agreement)
Loan and Security Agreement Supplement No. ___
Loan and Security Agreement Supplement No. ___
dated
___, 2008 by and
between
Kansas City Southern de México, S.A.
de C.V
., a corporation incorporated
under the laws of Mexico (together with its successors and permitted
assigns, the
Borrower
) and
Export Development Canada
a corporation established by an Act of Parliament of Canada
(together with its successors and permitted assigns, the
Lender
).
Whereas
, the Loan and Security Agreement, dated as of February 26, 2008 (as amended,
supplemented or restated and in effect from time to time, the
Loan Agreement
) between the
Borrower and the Lender provides for the execution and delivery of supplements thereto (each a
Loan and Security Agreement Supplement
and collectively,
Loan and Security Agreement
Supplements
) substantially in the form hereof which shall particularly describe the Equipment
(such term and other terms defined in the Loan Agreement being used herein as therein defined) and
any Replacement Units included in the Collateral and shall specifically mortgage such Units of
Equipment or Replacement Units, as the case may be, to the Lender (terms used in this instrument
having the meanings assigned thereto in the Loan Agreement);
Whereas
, the Loan Agreement relates to the Units of Equipment described in Schedule I
hereto and made a part hereof;
Now
,
therefore
, in order to secure the prompt payment of the principal of,
Make-Whole Amount, if any, and interest on all of the Notes from time to time outstanding under the
Loan Agreement and the performance and observance by the Borrower of all the agreements, covenants
and provisions in the Loan Agreement and in the Notes for the benefit of the holders of the Notes,
subject to the terms and conditions of the Loan Agreement and the Notes, and in consideration of
the premises and of the covenants contained in the Loan Agreement and of the acceptance of the
Notes by the Lender, the Borrower does hereby unconditionally and irrevocably grant a continuing
security interest in and to all of the Borrowers right, title and interest to (i) the property
comprising the Equipment described in Schedule I attached hereto, (ii) all requisition proceeds
with respect to the Equipment described in Schedule I attached hereto (to the extent of Borrowers
interest therein), (iii) all warranties or representations made or given to the Borrower, expressly
or impliedly, by the Manufacturer under the purchase agreements to which it is a party relating to
the Equipment and all claims for damages in respect of such Equipment arising as a result of any
default by the Manufacturer under any purchase agreement, and (iv) all proceeds, rents, issues,
profits, products, revenues and other income from or on account of the foregoing, to the Lender,
its successors and assigns, for the security and benefit of the holders from time to time of the
Notes.
To have and to hold all and singular the aforesaid property unto the Lender, its successors
and assigns, for the benefit and security of the holders from time to time of the Notes and for the
uses and purposes and subject to the terms and provisions set forth in the Loan Agreement.
E-2
This Loan and Security Agreement Supplement shall be construed as supplemental to the Loan
Agreement and shall form a part thereof; and the Loan Agreement is hereby incorporated by reference
herein to the same extent as if fully set forth herein and is hereby ratified, approved and
confirmed in all respects.
This Loan and Security Agreement Supplement shall be governed by and construed in accordance
with the laws of the State of New York, including all matters of construction, validity and
performance.
In Witness Whereof
, the parties hereto have caused this Loan and Security Agreement
Supplement to be duly executed, as of the day and year first above written.
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Export Development Canada
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By:
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Name:
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Title:
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Executed on this ___ day of February, 2008.
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By:
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Name:
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Title:
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Executed on this ___ day of February, 2008.
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Kansas City Southern de México, S.A. de
C.V.
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By:
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Name:
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Title:
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Executed on this ___ day of February, 2008.
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E-3
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State of
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)
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)
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SS.:
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County of
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)
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On this ___ day of
February, 2008, before me personally appeared _______________________________________ to
me personally known, who being by me duly sworn, says that (s)he is the ________________________________ of
Export Development Canada
,
that said instrument was signed on February ___, 2008, on
behalf of said corporation by authority of its Board of Directors and (s)he acknowledged that the
execution of the foregoing instrument was the free act and deed of said corporation.
In Witness Whereof
, I have hereunto set my hand and official seal on the date above
mentioned.
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Name:
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Notary Public
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My Commission Expires:
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Residing in _______________________________________
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(Seal)
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State of
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)
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)
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SS.:
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County of
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)
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On this ___ day of
February, 2008, before me personally appeared _____________________ to
me personally known, who being by me duly sworn, says that (s)he is the __________________ of
Export Development Canada
, that said instrument was signed on
February ___, 2008, on
behalf of said corporation by authority of its Board of Directors and (s)he acknowledged that the
execution of the foregoing instrument was the free act and deed of said corporation.
In Witness Whereof
, I have hereunto set my hand and official seal on the date above
mentioned.
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Name:
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Notary Public
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My Commission Expires:
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Residing in _________________________________________
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(Seal)
E-4
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(Seal)
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State of
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)
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)
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SS.:
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County of
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)
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On this ___
day of February, 2008, before me personally appeared ______________________________ to
me personally known, who being by me duly sworn, says that (s)he is the _______________________________ of
Kansas City Southern de México, S.A de C.V.
, that said instrument was signed on February
___, 2008, on behalf of said corporation by authority of its Board of Directors; and (s)he
acknowledged that the execution of the foregoing instrument was the free act and deed of said
corporation.
In Witness Whereof
, I have hereunto set my hand and official seal on the date above
mentioned.
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Name:
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Notary Public
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My Commission Expires:
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Residing in
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(S
eal)
E-5
Schedule I
to
Loan and Security Agreement Supplement No. ___
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Equipment Cost
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Equipment
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Quantity
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Per Unit
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Reporting Marks
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EMD SD70ACe
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___
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$
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KCSM
through
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Locomotives
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KCSM
, inclusive
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E-6
Schedule II
to
Loan and Security Agreement Supplement No. ___
Terms of Notes
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Note
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Series
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Principal Amount
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Interest Rate
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Final Maturity
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Series 1 Note
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$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2008
|
|
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Series 2 Note
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$
|
2,425,000.00
|
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|
5.7365
|
%
|
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February 28, 2009
|
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Series 3 Note
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$
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2,425,000.00
|
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5.7365
|
%
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August 28, 2009
|
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Series 4 Note
|
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$
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2,425,000.00
|
|
|
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5.7365
|
%
|
|
February 28, 2010
|
|
|
|
|
|
|
|
|
|
|
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|
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Series 5 Note
|
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$
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2,425,000.00
|
|
|
|
5.7365
|
%
|
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August 28, 2010
|
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Series 6 Note
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$
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2,425,000.00
|
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|
|
5.7365
|
%
|
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February 28, 2011
|
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Series 7 Note
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$
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2,425,000.00
|
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5.7365
|
%
|
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August 28, 2011
|
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Series 8 Note
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$
|
2,425,000.00
|
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|
5.7365
|
%
|
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February 28, 2012
|
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Series 9 Note
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$
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2,425,000.00
|
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5.7365
|
%
|
|
August 28, 2012
|
|
|
|
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Series 10 Note
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$
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2,425,000.00
|
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5.7365
|
%
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February 28, 2013
|
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Series 11 Note
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$
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2,425,000.00
|
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5.7365
|
%
|
|
August 28, 2013
|
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|
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Series 12 Note
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$
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2,425,000.00
|
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|
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5.7365
|
%
|
|
February 28, 2014
|
|
|
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Series 13 Note
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$
|
2,425,000.00
|
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5.7365
|
%
|
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August 28, 2014
|
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Series 14 Note
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$
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2,425,000.00
|
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5.7365
|
%
|
|
February 28, 2015
|
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Series 15 Note
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|
$
|
2,425,000.00
|
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|
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5.7365
|
%
|
|
August 28, 2015
|
|
|
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Series 16 Note
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|
$
|
2,425,000.00
|
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|
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5.7365
|
%
|
|
February 28, 2016
|
E-7
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Note
|
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Series
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Principal Amount
|
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Interest Rate
|
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Final Maturity
|
|
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Series 17 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2016
|
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|
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Series 18 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2017
|
|
|
|
|
|
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|
|
|
|
|
|
Series 19 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2017
|
|
|
|
|
|
|
|
|
|
|
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|
|
Series 20 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2018
|
|
|
|
|
|
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|
|
|
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|
|
Series 21 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 22 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 23 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 24 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 25 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 26 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 27 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 28 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 29 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
August 28, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 30 Note
|
|
$
|
2,425,000.00
|
|
|
|
5.7365
|
%
|
|
February 28, 2023
|
E-8
EXHIBIT 10.2
Participation Agreement
(KCSR 2008-1)
dated as of April 1, 2008
among
The Kansas City Southern Railway Company,
as Lessee
KCSR 2008-1 Statutory Trust
, acting through
U.S. Bank Trust National Association,
not in its individual capacity, but solely as Owner Trustee
,
U.S. Bank Trust National Association,
only in its individual capacity as expressly provided herein,
MetLife Capital, Limited Partnership
,
as Owner Participant
Wilmington Trust Company,
as Indenture Trustee
and
Export Development Canada
,
as Loan Participant
30 SD70ACe Locomotives
Table of Contents
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Section
|
|
Heading
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Page
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Article I
|
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Definitions; Interpretation of This Agreement
|
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2
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Section 1.1.
|
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Definitions
|
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2
|
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Section 1.2.
|
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Directly or Indirectly
|
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2
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Article II
|
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Sale and Purchase; Participation in the Equipment Cost; Delivery Date; Transaction Costs; Adjustments
|
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3
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Section 2.1.
|
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Sale and Purchase
|
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3
|
|
Section 2.2.
|
|
Participation in Equipment Cost
|
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3
|
|
Section 2.3.
|
|
Delivery Date; Procedure for Participation
|
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4
|
|
Section 2.4.
|
|
Owner Participants Instructions to Owner Trustee; Satisfaction of Conditions
|
|
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5
|
|
Section 2.5.
|
|
Expenses
|
|
|
6
|
|
Section 2.6.
|
|
Calculation of Adjustments to Basic Rent, Stipulated Loss Value, Termination Value and Fixed Purchase Price; Confirmation and
Verification
|
|
|
8
|
|
Section 2.7.
|
|
Optional Postponement of Closing Date
|
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|
11
|
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Article III
|
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Representations and Warranties
|
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12
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Section 3.1.
|
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Representations and Warranties of Trust Company and Owner Trustee
|
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12
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Section 3.2.
|
|
Representations and Warranties of Lessee
|
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14
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Section 3.3.
|
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Representations and Warranties of Indenture Trustee
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16
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Section 3.4.
|
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Representations, Warranties and Covenants Regarding Beneficial Interest
|
|
|
17
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Section 3.5.
|
|
Representations and Warranties of Loan Participant
|
|
|
18
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Section 3.6.
|
|
Representations and Warranties of Owner Participant
|
|
|
19
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Section 3.7.
|
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Opinion Acknowledgment
|
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20
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Article IV
|
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Conditions Precedent
|
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20
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Section 4.1.
|
|
Conditions Precedent to Closing Date; Conditions Precedent of Each Participant and Indenture Trustee to the Delivery Date
|
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20
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Section 4.2.
|
|
Additional Conditions Precedent to the Obligations of Loan Participant
|
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25
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Section 4.3.
|
|
Additional Conditions Precedent to the Obligations of Owner Participant
|
|
|
26
|
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Section 4.4.
|
|
Conditions Precedent to the Obligation of Lessee
|
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|
26
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|
-i-
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Section
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Heading
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Page
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Article V
|
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Financial and Other Reports of Lessee
|
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27
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Article VI
|
|
Certain Covenants of the Participants, Trustees and Lessee
|
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28
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Section 6.1.
|
|
Restrictions on Transfer of Beneficial Interest
|
|
|
28
|
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Section 6.2.
|
|
Lessors Liens Attributable to Owner Participant
|
|
|
31
|
|
Section 6.3.
|
|
Lessors Liens Attributable to Trust Company
|
|
|
31
|
|
Section 6.4.
|
|
Liens Created by Indenture Trustee and Loan Participant
|
|
|
32
|
|
Section 6.5.
|
|
Covenants of Owner Trustee, Trust Company, Owner Participant and Indenture Trustee
|
|
|
33
|
|
Section 6.6.
|
|
Amendments to Operative Agreements
|
|
|
33
|
|
Section 6.7.
|
|
Section 1168
|
|
|
34
|
|
Section 6.8.
|
|
Merger Covenant
|
|
|
34
|
|
Section 6.9.
|
|
Additional Filings
|
|
|
34
|
|
Section 6.10.
|
|
Owner Participant an Affiliate of Lessee
|
|
|
35
|
|
Section 6.11.
|
|
Taxes
|
|
|
35
|
|
Section 6.12.
|
|
Compliance with Laws
|
|
|
35
|
|
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|
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Article VII
|
|
Lessees Indemnities
|
|
|
35
|
|
|
|
|
|
|
|
|
Section 7.1.
|
|
General Tax Indemnity
|
|
|
35
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|
Section 7.2.
|
|
General Indemnification and Waiver of Certain Claims
|
|
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43
|
|
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|
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Article VIII
|
|
Lessees Right of Quiet Enjoyment
|
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48
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Article IX
|
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[
Reserved
]
|
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48
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Article X
|
|
Successor Indenture Trustee
|
|
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48
|
|
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Article XI
|
|
Miscellaneous
|
|
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49
|
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Section 11.1.
|
|
Consents
|
|
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49
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Section 11.2.
|
|
Refinancing
|
|
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49
|
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Section 11.3
|
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Amendments and Waivers
|
|
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51
|
|
Section 11.4.
|
|
Notices
|
|
|
52
|
|
Section 11.5.
|
|
Survival
|
|
|
54
|
|
Section 11.6.
|
|
No Guarantee of Debt
|
|
|
54
|
|
Section 11.7.
|
|
Successors and Assigns
|
|
|
54
|
|
Section 11.8.
|
|
Business Day
|
|
|
54
|
|
Section 11.9.
|
|
Governing Law
|
|
|
55
|
|
Section 11.10.
|
|
Severability
|
|
|
55
|
|
Section 11.11.
|
|
Counterparts
|
|
|
55
|
|
Section 11.12.
|
|
Headings and Table of Contents
|
|
|
55
|
|
Section 11.13.
|
|
Limitations of Liability
|
|
|
55
|
|
Section 11.14.
|
|
Reproduction of Documents
|
|
|
56
|
|
-ii-
|
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Section
|
|
Heading
|
|
Page
|
|
|
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|
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|
Section 11.15.
|
|
Tax Disclosure
|
|
|
56
|
|
Section 11.16.
|
|
Bankruptcy of Trust or Trust Estate
|
|
|
56
|
|
Section 11.17.
|
|
Transaction Intent
|
|
|
57
|
|
Section 11.18.
|
|
Jurisdiction, Court Proceedings
|
|
|
57
|
|
Section 11.19.
|
|
Disclosures by Lender
|
|
|
57
|
|
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|
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|
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|
|
Attachments To Participation Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 1
|
|
Description of Equipment; Equipment Cost
|
|
|
|
|
Schedule 2
|
|
[Reserved]
|
|
|
|
|
Schedule 3
|
|
Pricing Assumptions and indicative schedules
|
|
|
|
|
Exhibit A
|
|
Certificate of Acceptance
|
|
|
|
|
Exhibit B
|
|
Bill of Sale
|
|
|
|
|
Exhibit C
|
|
Assignment of Warranties
|
|
|
|
|
-iii-
Participation Agreement
(KCSR 2008-1)
This
Participation Agreement
(KCSR 2008-1), dated as of April 1, 2008 (this
Agreement
or this
Participation Agreement
), among (i)
The Kansas City Southern Railway
Company
, a Missouri corporation (herein, together with its successors and permitted assigns,
called the
Lessee
), (ii)
KCSR 2008-1 Statutory Trust
, a Delaware statutory trust (the
Trust
), acting through
U.S. Bank Trust National Association
, a national banking
association, not in its individual capacity, but solely as trustee of the Trust created under the
Trust Agreement (as hereinafter defined) (in its capacity as Owner Trustee, together with its
successors and permitted assigns, called the
Owner Trustee
), (iii)
U.S. Bank Trust National
Association
, a national banking association, only in its individual capacity as expressly
provided herein (herein, together with its successors and permitted assigns, called
Trust Company
), (iv)
MetLife Capital, Limited Partnership
, a Delaware limited partnership (herein,
together with its successors and permitted assigns, called the
Owner Participant
), (v)
Wilmington Trust Company
, a Delaware banking corporation, not in its individual capacity
except as expressly provided herein, but as trustee under the Indenture (as hereinafter defined)
(herein in such capacity, together with its successors and permitted assigns, called the
Indenture
Trustee
), and (vi)
Export Development Canada
, a corporation established by an Act of
Parliament of Canada (
Lender
; together with its successors and permitted assigns, the
Loan
Participant
).
Witnesseth:
Whereas
, concurrently with the execution and delivery of this Agreement, Owner
Participant and Trust Company have entered into the Trust Agreement (KCSR 2008-1) pursuant to which
Owner Trustee agrees, among other things, to hold the Trust Estate for the benefit of Owner
Participant thereunder on the terms specified in the Trust Agreement, subject, however, to the lien
created under the Indenture and, on the Delivery Date, subject to the terms and conditions hereof,
to purchase the Equipment from the Seller and concurrently therewith lease the Equipment to Lessee;
Whereas
, concurrently with the execution and delivery of this Agreement, the Trust
has entered into the Indenture with Indenture Trustee pursuant to which the Trust agrees, among
other things, for the benefit of the holder or holders of the Equipment Notes, (i) to issue to Loan
Participant on the Delivery Date Equipment Notes as evidence of the loan made by Loan Participant
on the Delivery Date in connection with the financing of the Equipment Cost of the Units of
Equipment to be delivered on or prior to the Delivery Date and (ii) on the Delivery Date, to
execute and deliver an Indenture Supplement granting to Indenture Trustee a security interest in
all of the Units of Equipment delivered on or prior to the Delivery Date (and it is the intention
of the parties hereto that Indenture Trustee have, for the benefit of the holders of the Equipment
Notes, such a security interest in all of the Units of Equipment delivered on or prior the Delivery
Date);
Whereas
, pursuant to the terms of the Trust Agreement, Owner Trustee, on behalf of
the Trust, is authorized and directed by Owner Participant (i) on the Delivery Date, to accept
delivery of the Bill of Sale evidencing the purchase and transfer of title of each Unit of
Equipment to the Trust; and (ii) on the Closing Date, to execute and deliver the Lease relating to
the Equipment pursuant to which, subject to the terms and conditions set forth therein, the Trust
agrees to lease to Lessee, and Lessee agrees to lease from the Trust, on such date, each Unit of
Equipment to be delivered on or prior to the Delivery Date, such lease and delivery to be evidenced
by the execution and delivery of a Lease Supplement covering such Units subject to the condition
subsequent that the Seller shall receive the purchase price for the Equipment on the Delivery Date;
and (iii) on the Delivery Date, to execute and deliver an Assignment of Warranties covering the
Equipment delivered by the Seller on or prior to the Delivery Date whereby the Seller assigns to
the Trust, subject however, to the lien created under the Indenture, the Sellers rights and
interest under the purchase agreement between the Seller and the manufacturers of such Equipment;
Whereas
, concurrently with the execution and delivery of this Agreement, Lessee and
Owner Participant have entered into the Tax Indemnity Agreement relating to the Equipment;
Whereas
, the proceeds from the sale of the Equipment Notes to Loan Participant on the
Delivery Date will be applied, together with the equity contribution made by Owner Participant
pursuant to this Agreement on the Delivery Date, to effect the purchase of the Units of Equipment
to be delivered on the Delivery Date;
Now, therefore
, in consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:
Article I
Definitions; Interpretation of This Agreement
Section 1.1. Definitions.
The capitalized terms used in this Agreement (including the
foregoing recitals) and not otherwise defined herein shall have the respective meanings specified
in Appendix A to the Lease, unless the context hereof shall otherwise require. All references to
Sections, Schedules and Exhibits herein are to Sections, Schedules and Exhibits of this Agreement
unless otherwise indicated.
Section 1.2. Directly or Indirectly.
Where any provision in this Agreement refers to action
to be taken by any Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
-2-
Article II
Sale and Purchase; Participation in the Equipment Cost;
Delivery Date; Transaction Costs; Adjustments
Section 2.1. Sale and Purchase.
(a) Subject to the terms and conditions hereof and on the
basis of the representations and warranties set forth herein, on the Delivery Date, Seller agrees
to sell to the Trust and the Trust agrees to purchase from Seller the Units of Equipment to be
delivered on the Delivery Date as described in Schedule 1 and Seller agrees to deliver each such
Unit to the Trust and Lessee agrees to accept delivery of such Unit under the Lease, such lease,
delivery and acceptance of the Units under the Lease to be conclusively evidenced by the execution
and delivery by Lessee of a Certificate of Acceptance covering such Unit in the form attached
hereto as Exhibit A (a
Certificate of Acceptance
) and dated the date of such delivery and
acceptance, subject to the condition subsequent that the Seller shall receive the purchase price
for such Unit as herein provided.
(b)
Settlement of Purchase Price.
Subject to the terms and conditions hereof and on the basis
of the representations and warranties set forth herein, on the applicable date specified in the
Delivery Date Notice delivered by Lessee pursuant to Section 2.3 (the
Delivery Date
), the Trust
will pay to the Seller a purchase price equal to the Equipment Cost with respect to each Unit
delivered by the Seller on the Delivery Date and accepted under the Lease but which settlement of
the purchase price has not occurred;
provided
,
however
, that the Trust shall not be obligated to
pay the purchase price for any Unit that shall suffer an Event of Loss on or prior to the Delivery
Date, and
provided further
, that the date of the delivery of Units under the Lease shall occur on
or after the date hereof and on or prior to April 30, 2008.
Section 2.2. Participation in Equipment Cost.
(a)
Equity Participation.
Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, Owner Participant agrees to participate on the
Delivery Date in the payment of the Equipment Cost for the Units delivered on the Delivery Date by
making an equity investment in the beneficial ownership of the Trust in an amount equal to the sum
of the products of the Equipment Cost for the Units of Equipment delivered on or prior to the
Delivery Date and the percentage set forth opposite Owner Participants name on Schedule 8 to the
Lease Supplement dated the Delivery Date (the
Owner Participants Commitment
). Owner Participant
shall make the Owner Participants Commitment available by causing the Qualified Intermediary to
pay to Owner Trustee at the account referenced below an amount equal to the QI Proceeds. In the
event the QI Proceeds in an amount equal to the Owner Participants Commitment are not so paid to
Owner Trustee, Owner Participant shall make available the balance of the Owner Participants
Commitment required hereby. The aggregate amount of Owner Participants Commitment required to be
made as above provided in the payment of the Equipment Cost on the Delivery Date shall not exceed
$15,650,234.46 (which amount includes Transaction Costs). In no event shall the Equipment Cost for
any Unit exceed the fair market value of such Unit as set forth in the Appraisal referred to in
Section 4.3(a) hereof. Owner Participants Commitment to be paid by Owner Participant on the
Delivery Date
-3-
shall be paid to
Owner Trustee at an account with Owner Trustee to be held and applied by Owner Trustee as provided
in Section 2.3.
(b)
Debt Participation.
Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, Loan Participant agrees to participate on the
Delivery Date in the payment of the Equipment Cost for the Units delivered on or prior to the
Delivery Date by making a secured loan, to be evidenced by the Equipment Notes, to Owner Trustee in
an amount equal to the sum of the products of the Equipment Cost for the Units of Equipment
delivered on the Delivery Date and the percentage set forth opposite Loan Participants name on
Schedule 8 to the Lease Supplement dated the Delivery Date (the
Loan Participants Commitment
).
The aggregate amount of Loan Participants Commitment required to be made as above provided in the
payment of the Equipment Cost on the Delivery Date shall not exceed the amount set forth opposite
Loan Participants name on Schedule 2 hereto (the
Total Loan Participant Commitment
).
(c)
Like Kind Exchange Agreements
. Notwithstanding the following paragraph, Owner Participant
shall be responsible for making the Owner Participants Commitment (including the QI Proceeds) in
accordance with the provisions of this Agreement if the Qualified Intermediary fails to make such
commitment available, and any assignment contemplated by the following paragraph shall not release
Owner Participant or the Trust from any of their respective obligations hereunder or under any
other Operative Agreement.
Notwithstanding anything herein to the contrary, but without limiting the preceding paragraph
of this Section, the parties hereto consent to the transfer of the Units by Seller to the Trust
through a transaction or series of transactions that are intended to qualify as a like-kind
exchange under Section 1031 of the Code pursuant to and consistent with the Qualified Intermediary
Exchange Agreement. The parties hereto acknowledge that such transaction or series of transactions
may involve the assignment of rights (but not the obligations) to purchase equipment (but no other
rights) of Owner Participant and the Trust under this Agreement to the Qualified Intermediary.
Notwithstanding any such assignment, however, title to the Units shall transfer directly from
Seller to the Trust, and the parties hereto agree and acknowledge the assignment of the rights (but
not the obligations) to purchase equipment (but no other rights) of Owner Participant and the Trust
pursuant to this Agreement to the Qualified Intermediary, in respect of any matter relating to such
like-kind exchange;
provided
,
however
that Owner Participant expressly acknowledges and agrees that
the other parties hereto have no responsibility for the tax treatment of any such like-kind
exchange to Owner Participant.
Section 2.3. Delivery Date; Procedure for Participation.
(a)
Delivery Date Notice.
Not later
than 1:00 P.M., New York City time, on the Business Day preceding the Delivery Date, Lessee shall
give Owner Participant, Indenture Trustee, Owner Trustee and Loan Participant notice (a
Delivery
Date Notice
) by facsimile or other form of telecommunication or telephone (to be promptly
confirmed in writing) of the Delivery Date, which Delivery Date Notice shall specify in reasonable
detail the number and type of Units to be delivered and accepted under the Lease that are being
purchased on such date, the aggregate Equipment Cost of such Units, and the respective amounts of
Owner Participants Commitment and Loan Participants Commitment required to be paid with respect
to such Units. Prior to 11:00 A.M., New York City time, on the
-4-
Delivery Date, Owner Participant shall make the amount of Owner Participants Commitment and Loan
Participant shall make the amount of its Loan Participants Commitment required to be paid on the
Delivery Date available to Owner Trustee, by transferring or delivering such amounts, in funds
immediately available, to Owner Trustee, at U.S. Bank Trust National Association, Goodwin Square,
225 Asylum Street, 23rd Floor, Hartford, Connecticut 06103, Facsimile No.: (860) 241-6897,
Telephone No.: (860) 241-6820, ABA #091000022, Account Number: 173103321050, Credit To: OBI
Corporate Trust, HTFD, Account Name: KCSR 2008-1 Trust. The making available by Owner Participant
of the amount of its Commitment for the Equipment Cost shall be deemed a waiver of the Delivery
Date Notice by Owner Participant and Owner Trustee and the making available by Loan Participant of
the amount of its Commitment for the Equipment Cost shall be deemed a waiver of the Delivery Date
Notice by Loan Participant and Indenture Trustee (with respect to Loan Participant).
(b)
Delivery.
The closing with respect to the purchase and lease of the Units on the Delivery
Date (the
Delivery
) shall take place at 11:00 A.M., New York City time on the Delivery Date at
the offices of Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603, or at such
other place or time as the parties hereto shall agree. Upon receipt by Owner Trustee on the
Delivery Date of the full amount of Owner Participants Commitment and Loan Participants
Commitment in respect of the Units to be purchased on the Delivery Date, and subject to the
conditions set forth in Section 4 to be fulfilled on the Delivery Date having been fulfilled to the
satisfaction of Owner Participant and Loan Participant or waived by Owner Participant or Loan
Participant, as the case may be, the Trust shall, pay to, or to the order of, the Seller, from the
funds then held by it, in immediately available funds, an amount equal to the Equipment Cost for
such Units purchased from the Seller. Each of Owner Participant, Owner Trustee, Loan Participant,
Indenture Trustee, and Lessee shall take all actions required to be taken by it in connection
therewith and pursuant to this Section 2.3(b).
Section 2.4. Owner Participants Instructions to Owner Trustee; Satisfaction of Conditions.
(a) Owner Participant agrees that the making available to Owner Trustee of the amount of its
Commitment for the Units delivered on or prior to the Delivery Date in accordance with the terms of
this Article II shall constitute, without further act, authorization and direction by Owner
Participant to Owner Trustee, subject, on the Delivery Date, to the conditions set forth in
Sections 4.1 and 4.3 to be fulfilled on the Delivery Date having been fulfilled on the Delivery
Date to the satisfaction of Owner Participant or waived by Owner Participant, to take the
applicable actions specified in Section 3.01 of the Trust Agreement with respect to the Units on
the Delivery Date.
(b) Owner Participant agrees, in the case of any Replacement Unit substituted pursuant to
Section 11.4 of the Lease, that Owner Trustee is authorized and directed to take the actions
specified in Section 11.4 of the Lease with respect to such Replacement Unit upon due compliance
with the terms and conditions set forth in such Section 11.4 of the Lease with respect to such
Replacement Unit.
(c) Owner Participant agrees that the authorization by Owner Participant or its counsel to
Owner Trustee to release to the Seller, the Owner Participants Commitment with respect to the
Units delivered on or prior to the Delivery Date shall constitute, without further act, notice
-5-
and confirmation that all conditions set forth in Sections 4.1 and 4.3 to be fulfilled on the
Delivery Date were either met to the satisfaction of Owner Participant or, if not so met, were in
any event waived by it with respect to such Units.
Section 2.5. Expenses.
(a) If Owner Participant shall have made its investment provided for
in Section 2.2(a) and the transactions contemplated by this Agreement are consummated, either Owner
Participant will promptly pay (or reimburse Lessee, if Lessee shall have previously made such
payment), or Owner Trustee will promptly pay (or reimburse Lessee, if Lessee shall have previously
made such payment), with funds Owner Participant hereby agrees to pay to Owner Trustee for such
purpose, the following (the
Transaction Costs
):
(i) the cost of reproducing and printing the Operative Agreements, the Equipment Notes,
if any, including all costs and fees in connection with the initial filing and recording of
appropriate evidence of the Lease, the Indenture and any other document required to be filed
or recorded pursuant to the provisions hereof or of any other Operative Agreement;
(ii) the reasonable fees and expenses of Hunton & Williams LLP, special counsel to
Owner Participant in the amount separately agreed to by Owner Participant and Lessee, for
their services rendered in connection with the negotiation, execution and delivery of this
Participation Agreement and the Operative Agreements related hereto;
(iii) the reasonable fees and expenses of Vedder Price P.C., special counsel to Loan
Participant, for their services rendered in connection with the negotiation, execution and
delivery of this Participation Agreement and the Operative Agreements related hereto;
(iv) the reasonable fees and expenses of Morris James LLP, special counsel to Indenture
Trustee (up to the amount separately agreed to by Indenture Trustee and Lessee), for their
services rendered in connection with the negotiation, execution and delivery of this
Participation Agreement and the Operative Agreements related hereto;
(v) the reasonable fees and expenses of Chapman and Cutler LLP, special counsel to
Lessee, for their services rendered in connection with the negotiation, execution and
delivery of this Participation Agreement and the Operative Agreements related hereto;
(vi) the reasonable fees and expenses of Shipman & Goodwin LLP, special counsel to
Owner Trustee (up to the amount separately agreed to by Owner Trustee and Lessee) and the
reasonable fees and expenses of local counsel to Owner Trustee, if any (in the amount
separately agreed to by Owner Trustee and Lessee), for their services rendered in connection
with the negotiation, execution and delivery of this Participation Agreement and the
Operative Agreements related hereto;
(vii) the initial fees and expenses of Owner Trustee;
-6-
(viii) the initial fees and expenses of Indenture Trustee;
(ix) the fees of an equipment appraiser, for their services rendered in connection with
delivering the Appraisal required by Section 4.3(a);
(x) the fees of JPMorgan Capital Corporation;
(xi) the reasonable fees and expenses of Alvord and Alvord, special STB counsel, for
their services rendered in connection with the consummation of the transactions contemplated
by the Operative Agreements;
(xii) the reasonable fees and expenses of McCarthy Tétrault LLP, special Canadian
counsel, for their services rendered in connection with the consummation of the transactions
contemplated by the Operative Agreements; and
(xiii) the reasonable fees and expenses of Lessees independent accountants, in
connection with the transactions contemplated by the Operative Agreements; and
(xiv) the up-front fee of the Loan Participant (in the amount separately agreed to by
Loan Participant and Lessee), in connection with the transactions contemplated by the
Operative Agreements;
provided
,
however
, that if such Transaction Costs exceed the amount of Transaction Costs used in
calculating Basic Rent and other amounts pursuant to Section 2.6(a) hereof on the Delivery Date as
set forth on Schedule 3 hereto, Lessee shall pay such excess;
provided further
,
however
, that, in
such event, Owner Participant shall designate which Transaction Costs shall be payable by Lessee.
Notwithstanding the foregoing, Transaction Costs shall not include internal costs and expenses
such as salaries and overhead of whatsoever kind or nature nor costs incurred by parties to this
Participation Agreement pursuant to arrangements with third parties for services (other than those
expressly referred to above), such as computer time procurement, financial analysis and consulting,
advisory services, and costs of a similar nature.
(b) Upon the consummation of the transactions contemplated by this Agreement, Lessee agrees to
pay when due: (i) the reasonable expenses of Owner Trustee, Indenture Trustee and the Participants
incurred subsequent to the delivery of the Equipment, including reasonable fees and expenses of
their counsel, in connection with any waivers, supplements, amendments, modifications or
alterations which are (A) requested by Lessee in connection with any of the Operative Agreements or
(B) necessary or required to comply with applicable law or to effectuate the purpose or intent of
any Operative Agreement (excluding costs incurred in connection with any adjustment pursuant to
Section 2.6, except as expressly provided in Section 2.6(b)); (ii) the reasonable ongoing fees and
expenses of Owner Trustee under the Trust Agreement, including fees and expenses incurred in
connection with the enforcement of obligations of Lessee under the Operative Agreements; and (iii)
the reasonable ongoing fees and expenses of Indenture Trustee under the Operative Agreements,
including fees and expenses
-7-
incurred in connection with the enforcement of obligations of Lessee under the Operative
Agreements.
(c) Notwithstanding the foregoing provisions of this Section 2.5, except as specifically
provided in Section 7.2, Lessee shall have no liability for any costs or expenses relating to any
voluntary transfer of Owner Participants interest in the Equipment including any transfer prior to
the Delivery Date of Owner Participants obligation to fund its participation pursuant to Article
II (other than during the continuance of an Event of Default or in connection with the exercise of
remedies as provided in Section 15 of the Lease, Lessees exercise of any purchase option pursuant
to Section 23 of the Lease, Lessees exercise of its termination rights pursuant to Section 10 of
the Lease or the transfer to Lessee of any Unit which has been the subject of an Event of Loss
pursuant to Section 11 of the Lease) and no such costs or expenses shall constitute Transaction
Costs and Lessee will not have any obligation with respect to the costs and expenses resulting from
any voluntary transfer of any equity interest by any transferee of Owner Participant, whenever
occurring (other than during the continuance of an Event of Default or in connection with the
exercise of remedies as provided in Section 15 of the Lease, Lessees exercise of any purchase
option pursuant to Section 23 of the Lease, Lessees exercise of its termination rights pursuant to
Section 10 of the Lease or the transfer to Lessee of any Unit which has been the subject of an
Event of Loss pursuant to Section 11 of the Lease).
Section 2.6. Calculation of Adjustments to Basic Rent, Stipulated Loss Value, Termination
Value and Fixed Purchase Price; Confirmation and Verification.
(a)
Schedules.
Basic Rent, Stipulated Loss Values, Termination Values, EBO Fixed Purchase
Price, FPO Purchase Price, amortization schedules for the Equipment Notes, and Pricing Assumptions
for the Delivery Date is set forth on Schedule 3 hereto, and such schedules shall operate as
indicative schedules for the Delivery Date (the
Indicative Schedules
). Basic Rent, Stipulated
Loss Values, Termination Values, EBO Fixed Purchase Price, FPO Purchase Price and amortization
schedules for the Equipment Notes for the Delivery Date will be adjusted as provided below. On the
Delivery Date, (i) Lessee and Owner Trustee shall enter into a Lease Supplement which shall include
as exhibits thereto schedules in the forms of Schedule 3 hereto which include the actual Basic
Rent, Rent Payment Dates, Stipulated Loss Values, Termination Values, Allocated Rent, EBO Fixed
Purchase Price, EBO Fixed Purchase Price Date, FPO Purchase Price, and amortization schedules for
the Equipment Notes in each case in respect of the Units to be settled on or prior to the Delivery
Date, and shall attach a list of the Units to be financed on such date and (ii) the Trust shall
enter into an Indenture Supplement which shall attach a list of the Units to be financed on such
date.
(b)
Calculation of Adjustments.
In the event that (A) any Pricing Assumption relating to
the Units to be purchased on the Delivery Date is determined to be inaccurate or have changed with
respect to the Delivery Date, or (B) on or prior to the Delivery Date (1) there shall have occurred
a Change in Tax Law and (2)(x) after having been advised in writing by Owner Participant of such
Change in Tax Law and the proposed adjustment to the payments of Basic Rent resulting therefrom,
Lessee shall have waived its right under Section 4.4 of this Agreement to decline to proceed with
the transaction or (y) the Owner Participant has been advised in writing by Lessee of such Change
in Tax Law and the proposed adjustment to the payments of
-8-
Basic Rent resulting therefrom, or (C) a refinancing or refunding as contemplated by Section 11.2
occurs or (D) any amount is paid by Lessee to Owner Participant pursuant to Section 5.5(i) or
5.5(iii) of the Tax Indemnity Agreement, or (E) Lessee elects to make payments to Owner Participant
pursuant to Section 5.5(ii) of the Tax Indemnity Agreement, then, in each case, Owner Participant
shall recalculate the payments or amounts, as the case may be, of Basic Rent, Stipulated Loss
Values, Termination Values, Allocated Rent, EBO Fixed Purchase Price and FPO Purchase Price (except
that in the case of events described in clause (D) or (E) above, Owner Participant shall
recalculate the Stipulated Loss Values, Termination Values, EBO Fixed Purchase Price and FPO
Purchase Price only):
(i) to preserve the Net Economic Return that Owner Participant would have realized had
there been no change in the Pricing Assumptions or had such Change in Tax Law not occurred
or had such refunding or refinancing not occurred or had such amount not been paid by Lessee
under Section 5.5(i) or 5.5(iii) of the Tax Indemnity Agreement or had Lessee not elected to
make such payment under Section 5.5(ii) of the Tax Indemnity Agreement or had a
reoptimization of the debt not occurred, and
(ii) to minimize to the greatest extent possible, consistent with the foregoing clause
(i), the sum of the present value of the payments of Basic Rent through and including the
EBO Fixed Purchase Price Date, and the EBO Fixed Purchase Price (all present values for
purposes of the foregoing being computed using the relevant Debt Rate, semiannually
compounded, and discounting to the Closing Date).
In performing any such recalculation and in determining Owner Participants Net Economic Return,
Owner Participant shall utilize the same methods, tax constraints and assumptions originally used
to calculate the payments of Basic Rent, Stipulated Loss Values, Termination Values, EBO Fixed
Purchase Price and FPO Purchase Price with respect to the Basic Term (other than those assumptions
changed as a result of any of the events described in clauses (A) through (E) of the preceding
sentence necessitating such recalculation; it being agreed that such recalculation shall reflect
solely any changes of assumptions or facts resulting directly from the event or events
necessitating such recalculation). Such adjustments shall comply (to the extent the original
structure complied) with Section 467 of the Code and the Regulations and the requirements of
Sections 4.02(5), 4.07(1) and (2) and 4.08(1) of Revenue Procedure 2001-29, as amended ((and such
that the Lease could not be treated as a disqualified leaseback or long term agreement within
the meaning of Section 467 of the Code), and in the case of any refinancing governed by Section
11.2, shall comply with Treasury Regulation Sections 1.467-1(f)(6)(i) and 1.861-10(T)(b)(9) or any
successor thereto) whether the term of the Lease is deemed to commence with respect to any Unit on
the Delivery Date therefor and end on the Basic Term Expiration Date or is deemed to commence on
the date of the refinancing and end on the Basic Term Expiration Date.
(c)
Confirmation and Verification.
Upon completion of any recalculation described above in
this Section 2.6, a duly authorized officer of Owner Participant shall provide a certificate to
Lessee either (x) stating that the payments of Basic Rent, Stipulated Loss Values, Termination
Values, EBO Fixed Purchase Price and FPO Purchase Price with respect to the Basic Term as are then
set forth in the Lease do not require change, or (y) setting forth such
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adjustments to the payments of Basic Rent, Stipulated Loss Values, Termination Values, EBO Fixed
Purchase Price or FPO Purchase Price with respect to the Basic Term as have been calculated by
Owner Participant in accordance with Section 2.6(b) above. Such certificate shall describe in
reasonable detail the basis for any such adjustments. If Lessee shall so request, the
recalculation of any such adjustments described in this Section 2.6 shall be verified by a
nationally recognized firm of independent accountants selected by Owner Participant and reasonably
acceptable to Lessee and any such recalculation of such adjustment as so verified shall be binding
on Lessee and Owner Participant. Such accounting firm shall be requested to make its determination
within 30 days. Owner Participant shall provide to a representative of such accounting firm, on a
confidential basis, such information as it may reasonably require (but excluding any books, records
or tax returns), including the original assumptions used by Owner Participant and the methods used
by Owner Participant in the original calculation of, and any recalculation of, Basic Rent,
Stipulated Loss Values, Termination Values, EBO Fixed Purchase Price and FPO Purchase Price and
such other information as is necessary to determine whether the computation is accurate and in
conformity with the provisions of this Agreement. The reasonable costs of such verification shall
be borne by Lessee, unless as a result of such verification process (1) the payments of Basic Rent
certified by Owner Participant pursuant to this Section 2.6(c) are adjusted and such adjustment
causes the sum of the present value of the payments of Basic Rent through and including the EBO
Fixed Purchase Price Date and the present value of the EBO Fixed Purchase Price (all present values
for purposes of the foregoing being computed using the relevant Debt Rate, semiannually compounded,
and discounting to the Closing Date) to decline by 10 basis points or more from the sum of the
present value of the payments of Basic Rent through and including the EBO Fixed Purchase Price Date
and the present value of the EBO Fixed Purchase Price (all present values for purposes of the
foregoing being computed using the relevant Debt Rate, semiannually compounded, and discounting to
the Closing Date) certified by Owner Participant pursuant to this Section 2.6(c), or (2) any
payment of Stipulated Loss Value, Termination Value, EBO Fixed Purchase Price or FPO Purchase Price
is adjusted and such adjustment causes such Stipulated Loss Value, Termination Value, EBO Fixed
Purchase Price or FPO Purchase Price to decline by 10 basis points or more from such Stipulated
Loss Value, Termination Value, EBO Fixed Purchase Price or FPO Purchase Price certified by Owner
Participant pursuant to this Section 2.6(c), in which case Owner Participant shall be responsible
for the reasonable costs of such verification.
(d) Notwithstanding the foregoing, any adjustment made to the payments of Basic Rent or to
Stipulated Loss Values or Termination Values, EBO Fixed Purchase Price or FPO Purchase Price with
respect to the Basic Term, pursuant to the foregoing, shall comply with the following requirements:
(i) each installment of Basic Rent, as so adjusted, under any circumstances and in any event, will
be in an amount at least sufficient for Owner Trustee to pay in full as of the due date of such
installment any payment of principal of and interest on the Equipment Notes required to be paid on
the due date of such installment of Basic Rent and (ii) on any date on which Stipulated Loss Value,
Termination Value, EBO Fixed Purchase Price or FPO Purchase Price, as so adjusted, is scheduled to
be payable, such Stipulated Loss Value, Termination Value, EBO Fixed Purchase Price or FPO Purchase
Price, under any circumstances and in any event, will be an amount which, together with any other
amounts required to be paid by Lessee under the Lease will be at least sufficient to pay in full,
as of the date of payment thereof, the aggregate unpaid principal of the Equipment Notes,
Make-Whole Amount, if any, and all unpaid interest
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on the Equipment Notes, accrued to the date on which such amount is paid in accordance with the
terms of the Lease.
(e)
Invoices.
All invoices in respect of Transaction Costs shall be directed to Owner
Participant at the address set forth in Section 11.4, with a copy to Lessee.
Section 2.7. Optional Postponement of Closing Date.
(a) The scheduled Delivery Date (the
originally scheduled Delivery Date being referred to herein as the
Scheduled Delivery Date
for
purposes of this Section 2.7) may be postponed from time to time for any reason (but to a date no
later than April 30, 2008) if Lessee gives Owner Participant, Indenture Trustee, Loan Participant
and Owner Trustee telex, telegraphic, facsimile or telephonic (confirmed in writing) notice of such
postponement and notice of the date to which such Scheduled Delivery Date has been postponed, such
notice of postponement to be received by each party no later than 1:00 P.M., New York City time, on
the Business Day immediately before the originally Scheduled Delivery Date or subsequent scheduled
Delivery Date, and in the event of such postponement, the term
Delivery Date
as used in this
Agreement shall mean the date to which the Scheduled Delivery Date has been postponed.
(b) In the event any Participant funds its Commitment in accordance with Section 2.3 hereof
and there occurs any postponement of the Delivery Date pursuant to this Section 2.7, or if on an
originally Scheduled Delivery Date or subsequent scheduled Delivery Date not postponed as above
provided any Unit is not delivered or, if delivered, is not accepted by Owner Trustees
representative for any reason: (i) Lessee will reimburse each Participant that has funded its
Commitment to the Owner Trustee on the Scheduled Delivery Date in accordance with Section 2.3
hereof for the loss of the use of its funds with respect to each such Unit occasioned by such
postponement or failure to deliver or accept (unless such failure to accept is caused by a default
by such Participant hereunder) by paying to such Participant on demand interest on the amount of
its Commitment funded in accordance with Section 2.3 hereof at an interest rate equal to the Debt
Rate for the period from and including the Scheduled Delivery Date to but excluding the earlier of
the date upon which such funds are returned prior to 1:00 P.M. (New York City time) or the actual
date of delivery;
provided
that Lessee shall in any event pay to each Participant at least one (1)
days interest at such rate on the amount of such funds, unless such Participant shall have
received, prior to 12:00 P.M. (New York City time) on the Business Day preceding the Scheduled
Delivery Date, a notice of postponement of the Scheduled Delivery Date pursuant to Section 2.7(a),
and (ii) Owner Trustee will return on the earlier of the second Business Day following the
Scheduled Delivery Date or April 30, 2008, or earlier, if so instructed by Lessee, any funds which
it shall have received from Owner Participant and/or Loan Participant as its Commitment for such
Units, absent joint instruction from Lessee and Owner Participant to retain such funds until the
specified date of postponement established under Section 2.7(a).
(c) Owner Trustee agrees that, in the event it has received telephonic notice (to be confirmed
promptly in writing) from Lessee on the Scheduled Delivery Date for any Unit or Units that such
Unit or Units have not been tendered for delivery, or, if so tendered, have not been accepted by
the representative of Owner Trustee, it will if instructed in the aforementioned notice from Lessee
(which notice shall specify the Securities to be purchased) use reasonable
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best efforts to invest,
at the risk of Lessee (except as provided below with respect to Owner
Trustees gross negligence or willful misconduct), the funds received by it from Owner Participant
and Loan Participant with respect to such Unit or Units in Permitted Investments in accordance with
Lessees instructions. Any such Permitted Investments purchased by Owner Trustee upon instructions
from Lessee shall be held in trust by Owner Trustee for the benefit of the Participant whose funds
are invested in Permitted Investments upon instructions from Lessee and any net profits on the
investment of such funds (including interest), if any, shall be for the account of and shall on the
Delivery Date, or on the date such funds are returned to Owner Participant and/or Loan Participant,
be paid over to, the Lessee. Lessee shall pay to Owner Trustee on the Delivery Date (if such Unit
or Units are delivered and accepted pursuant hereto) the amount of any net loss on the investment
of such funds invested at the instruction of Lessee. If the funds furnished by Owner Participant
and/or Loan Participant with respect to such Unit or Units are required to be returned to Owner
Participant and/or Loan Participant, Lessee shall, on the date on which such funds are so required
to be returned, reimburse Owner Trustee, for the benefit of Owner Participant and/or Loan
Participant, for any net losses incurred on such investments. Owner Trustee shall not be liable
for failure to invest such funds or for any losses incurred on such investments except for its own
willful misconduct or gross negligence. In order to obtain funds for the payment of the Equipment
Cost for such Unit or Units or to return funds furnished by Owner Participant and/or Loan
Participant to Owner Trustee for the benefit of Owner Participant and/or Loan Participant with
respect to such Unit or Units, Owner Trustee is authorized to sell any Permitted Investments
purchased as aforesaid with the funds received by it from Owner Participant and/or Loan Participant
in connection with such Unit or Units.
(d) Notwithstanding the provisions of Section 2.7(a), no Participant shall be under any
obligation to make its Commitment available beyond 5:00 P.M. (New York City time) on April 30,
2008.
Article III
Representations and Warranties
Section 3.1. Representations and Warranties of Trust Company and Owner Trustee.
Each of Trust
Company and Owner Trustee represents and warrants to Owner Participant, Indenture Trustee, Loan
Participant and Lessee, notwithstanding the provisions of Section 11.13 or any similar provision in
any other Operative Agreement, that, as of the date hereof and as of the Closing Date and the
Delivery Date (unless any such representation is specifically made as of one date):
(a) Trust Company is a national banking association duly organized and validly existing in
good standing under the laws of the United States and has full corporate power and authority to
carry on its business as now conducted and to enter into and perform its obligations hereunder and
under the Trust Agreement and (assuming due authorization, execution and delivery of the Trust
Agreement by Owner Participant) has full power and authority, as Owner Trustee and/or, to the
extent expressly provided herein or therein to enter into and perform its obligations under each of
the Owner Trustee Agreements;
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(b) Owner Trustee and, to the extent expressly provided therein, Trust Company, has duly
authorized, executed and delivered the Trust Agreement and (assuming the due authorization,
execution and delivery of the Trust Agreement by Owner Participant) has duly authorized, executed
and delivered, or in the case of the Lease Supplement and the Indenture Supplement (each dated the
Delivery Date) will on the Delivery Date execute and deliver, each of the other Owner Trustee
Agreements (other than the Equipment Notes) and, as of the Delivery Date, the Equipment Notes to be
delivered on the Delivery Date; and the Trust Agreement constitutes a legal, valid and binding
obligation of Trust Company, enforceable against Trust Company or Owner Trustee, as the case may
be, in accordance with its terms except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors generally and by
general equity principles;
(c) assuming the due authorization, execution and delivery of the Trust Agreement by Owner
Participant, each of the Owner Trustee Agreements (other than the Trust Agreement) to which it is a
party constitutes, or when entered into will constitute, a legal, valid and binding obligation of
Trust Company or Owner Trustee, as the case may be, enforceable against Trust Company or Owner
Trustee, as the case may be, in accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by general equity principles;
(d) neither the execution and delivery by Trust Company or Owner Trustee, as the case may be,
of the Owner Trustee Agreements or the Equipment Notes to be delivered on the Delivery Date, nor
the consummation by Trust Company or Owner Trustee, as the case may be, of any of the transactions
contemplated hereby or thereby, nor the compliance by Trust Company or Owner Trustee, as the case
may be, with any of the terms and provisions hereof and thereof, (i) requires or will require any
approval of its stockholders, or approval or consent of any trustees or holders of any indebtedness
or obligations of it, or (ii) violates or will violate its Articles of Association or by-laws, or
contravenes or will contravene any provision of, or constitutes or will constitute a default under,
or results or will result in any breach of, or results or will result in the creation of any Lien
(other than as permitted under the Lease) upon its property under, any indenture, mortgage, chattel
mortgage, deed of trust, conditional sale contract, bank loan or credit agreement, license or other
agreement or instrument to which it is a party or by which it is bound, or contravenes or will
contravene any law, governmental rule or regulation of the United States of America governing the
banking or trust powers of Owner Trustee, or any judgment or order applicable to or binding on it;
(e) there are no pending or threatened actions or proceedings against Trust Company or Owner
Trustee before any court or administrative agency which individually or in the aggregate, if
determined adversely to it, would materially adversely affect the ability of Trust Company or Owner
Trustee, as the case may be, to perform its obligations under the Trust Agreement, the other Owner
Trustee Agreements or the Equipment Notes to be delivered on the Delivery Date;
(f) its location as such term is used in Section 9-307 of the Uniform Commercial Code is
located in Delaware and the place where its records concerning the Equipment and all its interest
in, to and under all documents relating to the Trust Estate, is located at Goodwin Square, 225
Asylum Street, 23rd Floor, Hartford, Connecticut 06103, and Trust Company agrees to give
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Owner Participant, Indenture Trustee and Lessee written notice of any relocation of said location
or said place from its present location within 60 days of the date thereof;
(g) no consent, approval, order or authorization of, giving of notice to, or registration
with, or taking of any other action in respect of, any governmental authority or agency regulating
the banking or trust powers of Trust Company, is required for the execution and delivery of, or the
carrying out by, Trust Company or Owner Trustee, as the case may be, of any of the transactions
contemplated hereby or by the Trust Agreement or of any of the transactions contemplated by any of
the other Owner Trustee Agreements, other than any such consent, approval, order, authorization,
registration, notice or action as has been duly obtained, given or taken, it being understood that
no representation is being made herein with respect to the ICC Termination Act or any other such
laws, governmental rules or regulations specific to the Equipment;
(h) on the Delivery Date, Owner Trustees right, title and interest in and to the Equipment
delivered on the Delivery Date shall be free of any Lessors Liens attributable to Trust Company
and neither Owner Trustee nor Trust Company has conveyed any interest in the Trust Estate to any
Person or subjected the Trust Estate to any lien except as permitted pursuant to the Operative
Agreements;
(i) on the Delivery Date, the proceeds received by Owner Trustee from Owner Participant on the
Delivery Date pursuant to the Trust Agreement will be administered by it in accordance with Article
IV of the Trust Agreement;
(j) on the Delivery Date, the Trust shall receive from the Seller such title to the Units of
Equipment delivered on or prior to the Delivery Date as was conveyed to it by the Seller, subject
to the rights of Owner Trustee and Lessee under the Lease and the security interest created
pursuant to the Indenture and the Indenture Supplement dated the Delivery Date; and
(k) the Trust is a Delaware statutory trust in good standing created pursuant to the Delaware
Statutory Trust Act, chapter 38 of Title 12 of the Delaware Code and the Trust Agreement.
Section 3.2. Representations and Warranties of Lessee.
Lessee represents and warrants to
Owner Trustee, Trust Company, Indenture Trustee, Loan Participant and Owner Participant that, as of
the date hereof and as of the Closing Date and the Delivery Date (unless any such representation is
specifically made as of one date):
(a) Lessee is a corporation duly organized, validly existing, and in good standing under the
laws of the State of Missouri, is a railroad as defined in Section 101 of the Bankruptcy Code, is
a Class I railroad as defined in 49 CFR Part 12011-1, is duly licensed or qualified and in good
standing in each jurisdiction in which the failure to so qualify would have a material adverse
effect on its ability to enter into and perform its obligations under the Lessee Agreements, has
the corporate power and authority to carry on its business as now conducted, and has the requisite
power and authority to execute, deliver and perform its obligations under the Lessee Agreements;
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(b) the Lessee Agreements have been duly authorized by all necessary corporate action (no
shareholder approval being required), executed and delivered (or in the case of the Lease
Supplement dated the Delivery Date, will on the Delivery Date have been duly executed and
delivered) by Lessee, and constitute (or in the case of the Lease Supplement dated the Delivery
Date, will on the Delivery Date constitute) the legal, valid and binding obligation of Lessee,
enforceable against Lessee in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency and similar laws and by general principles of equity;
(c) the execution, delivery and performance by Lessee of each Lessee Agreement and compliance
by Lessee with all of the provisions thereof do not and will not contravene any law or regulation,
or any order of any court or governmental authority or agency applicable to or binding on Lessee or
any of its properties, or contravene the provisions of, or constitute a default by Lessee under, or
result in the creation of any Lien (except for Permitted Liens) upon the property of Lessee under
its Certificate of Incorporation or by-laws or any material indenture, mortgage, contract or other
agreement or instrument to which Lessee is a party or by which Lessee or any of its property is
bound or affected;
(d) except for those matters discussed in the financial statements provided to the
Participants under Section 3.2(e), there are no proceedings pending or, to the knowledge of Lessee,
threatened against Lessee in any court or before any governmental authority or arbitration board or
tribunal which individually or in the aggregate would materially and adversely affect the financial
condition of Lessee or impair the ability of Lessee to perform its obligations under the Lessee
Agreements or which questions the validity of any Lessee Agreement or any action taken or to be
taken pursuant thereto;
(e) the audited consolidated balance sheet and consolidated statements of income and retained
earnings and cash flows of KCS for the fiscal year ended December 31, 2007, fairly present, in
conformity with generally accepted accounting principles, the consolidated financial position of
KCS as of such date and the results of its operations for the period then ended. Since December
31, 2007, there has been no material adverse change in such financial condition or results of
operations;
(f) neither the nature of Lessee nor its businesses or properties, nor any relationship
between Lessee and any other Person, nor any circumstances in connection with the execution and
delivery by Lessee of the Lessee Agreements, is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, or the giving of notice to, any
governmental authority on the part of Lessee in connection with the execution and delivery by
Lessee of the Lessee Agreements, other than notices required to be filed with the STB, which
notices shall have been filed on or prior to the Delivery Date and except as contemplated by
Section 3.2(g) hereof;
(g) all filings and other actions necessary to protect the rights of Trust under the Lease,
and to perfect the security interest of Indenture Trustee under the Indenture in the Indenture
Estate as against creditors of and purchasers from the Trust, will have been made on or prior to
the Delivery Date and the Indenture will on the Delivery Date create a valid and perfected lien and
security interest in the Indenture Estate, subject to any Lessors Liens and Permitted Liens;
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(h) on the Delivery Date, the Equipment is covered by the insurance required by Section 12 of
the Lease and all premiums due prior to the Delivery Date in respect of such insurance shall have
been paid in full;
(i) Lessee has timely filed all United States Federal income tax returns and all other
material tax returns which (to its knowledge) are required to be filed by it and has paid all taxes
due pursuant to such returns or pursuant to any assessment made against Lessee or any of its assets
(other than assessments, the payment of which is being contested in good faith by Lessee) and no
tax liens have been filed and no claims are being asserted with respect to any such taxes, fees or
other charges which could reasonably be expected to have a materially adverse effect on its ability
to perform its obligations under the Lessee Agreements;
(j) the (i) location (as such term is used in Section 9-307 of the Uniform Commercial Code)
of Lessee is the State of Missouri, and the place where its records concerning the Equipment and
all of its interests in, to and under all documents relating to the Equipment are and will be kept,
is located at Kansas City, Missouri, and (ii) The Kansas City Southern Railway Company is its true
legal name as registered in the jurisdiction of its organization, its federal employer
identification number is 44-6000758 and its organizational identification number designated by its
jurisdiction of organization is R00000513;
(k) no Lease Default has occurred and is continuing and no Event of Loss has occurred;
(l) Lessee is not an investment company or an affiliated person of an investment company
within the meaning of the Investment Company Act of 1940;
(m) the acquisition by Owner Participant of the Beneficial Interest for its own account will
not constitute a prohibited transaction within the meaning of Section 4975(c)(1)(A) through (D) of
the Code. The representation made by Lessee in the preceding clause is made in reliance upon and
subject to the accuracy of the representation of Owner Participant in Section 3.6(h) of this
Agreement;
(n) on the Delivery Date, the Bill of Sale dated the Delivery Date shall convey to the Trust
good and marketable title to the Units being delivered on the Delivery Date, in each case free and
clear of all claims, Liens and encumbrances of any nature, except Permitted Liens of the type
described in clauses (iii), (iv) or (v) of the definition thereof; and
(o) in the event of a the bankruptcy of Lessee, the Trust, as Lessor under the Lease, and
Indenture Trustee (on behalf of the holders of the Equipment Notes), as secured party (and the
assignee of the Trusts rights under the Lease pursuant to the Indenture) will be entitled to the
benefits of Section 1168 of the Bankruptcy Code against Lessee with respect to the Units originally
delivered under the Lease.
Section 3.3. Representations and Warranties of Indenture Trustee.
Indenture Trustee
represents and warrants to Owner Participant, Owner Trustee, Trust Company, Loan Participant and
Lessee that, as of the date hereof and as of the Closing Date and the Delivery Date (unless any
such representation is specifically made as of one date):
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(a) Indenture Trustee is a banking corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware and has the full corporate power, authority and
legal right under the laws of the State of Delaware and the laws of the United States pertaining to
its banking, trust and fiduciary powers to execute, deliver and carry out the terms of each of the
Indenture Trustee Agreements;
(b) the execution, delivery and performance by Indenture Trustee of each of the Indenture
Trustee Agreements have been duly authorized by Indenture Trustee and will not violate its
Certificate of Incorporation or by-laws or the provisions of any indenture, mortgage, contract or
other agreement to which it is a party or by which it is bound or any laws, rules or regulations of
the United States or the State of Delaware (or any governmental subdivision of either thereof)
pertaining to its banking, trust or fiduciary powers;
(c) each Indenture Trustee Agreement, when executed and delivered, will constitute its legal,
valid and binding obligation enforceable against it in accordance with its terms;
(d) there are no proceedings pending or, to the knowledge of Indenture Trustee, threatened,
and to the knowledge of Indenture Trustee there is no existing basis for any such proceedings,
against or affecting Indenture Trustee in or before any court or before any governmental authority
or arbitration board or tribunal which, individually or in the aggregate, if adversely determined,
might impair the ability of Indenture Trustee to perform its obligations under the Indenture
Trustee Agreements;
(e) no authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body of the United States or the State of Delaware, in each
case pertaining to the banking, trust or fiduciary powers of Indenture Trustee, is required for the
due execution, delivery and performance by Indenture Trustee of the Indenture Trustee Agreements,
except as have been previously obtained, given or taken;
(f) Indenture Trustee is not in default under any of the Indenture Trustee Agreements;
(g) neither Indenture Trustee, nor any Person authorized to act on behalf of Indenture
Trustee, has directly or indirectly offered any interest in the Trust Estate or the Equipment Notes
or any other Operative Agreement or any security similar to either thereof for sale to, or
solicited offers to buy any of the same from, or otherwise approached or negotiated with respect to
any of the same with, any Person other than Loan Participant; and
(h) there are no Taxes which may be imposed on or asserted against the Indenture Estate or any
part thereof or any interest therein, Trust Company, Owner Trustee or Owner Participant by any
state or local government or taxing authority in connection with the execution, delivery or
performance by Indenture Trustee of the Indenture Trustee Agreements or the authentication of the
Equipment Notes.
Section 3.4. Representations, Warranties and Covenants Regarding Beneficial Interest.
(a) The
Trust represents and warrants to Lessee, Indenture Trustee, Loan Participant and Owner Participant
that, as of the date hereof and as of the Closing Date and the Delivery Date, neither
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the Trust nor any Person authorized or employed by the Trust as agent or otherwise in connection
with the placement of the Beneficial Interest or any similar interest has offered any of the
Beneficial Interest or any similar interest or any of the Equipment Notes or any similar interest
for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated
with respect thereto with, any prospective purchaser.
(b) Lessee represents and warrants to Owner Trustee, Indenture Trustee, Loan Participant and
Owner Participant that, as of the date hereof and as of the Closing Date, it has not offered any of
the Beneficial Interest for sale to, or solicited offers to buy any thereof from, any Person other
than Owner Participant and not more than 36 other prospective institutional investors.
(c) Both the Trust and Lessee agree severally but not jointly that neither the Trust nor
Lessee nor anyone acting on behalf of the Trust or Lessee will offer the Beneficial Interest or any
part thereof or any similar interest for issue or sale to any prospective purchaser, or solicit any
offer to acquire any of the Beneficial Interest or any part thereof so as to bring the issuance and
sale of the Beneficial Interest or any part thereof within the provisions of Section 5 of the
Securities Act of 1933, as amended.
(d) Lessee represents that Lessee has not retained or employed any broker, finder or financial
advisor (other than JPMorgan Capital Corporation) to act on its behalf in connection with the
transactions contemplated hereby and it has not authorized any broker, finder or financial advisor
retained or employed by any other Person to so act.
Section 3.5. Representations and Warranties of Loan Participant.
Loan Participant represents
and warrants to Owner Trustee, Indenture Trustee, Owner Participant and Lessee that, as of the date
hereof and as of the Closing Date and the Delivery Date (and the purchase of an Equipment Note by
Loan Participant on the Delivery Date shall constitute a reaffirmation by Loan Participant of each
of these representations and warranties as of such date):
(a) Loan Participant has the full power, authority and legal right under the laws of its
jurisdiction of organization to execute, deliver and perform the terms of this Agreement;
(b) the execution and delivery by Loan Participant of this Agreement and its performance
hereunder and under the Equipment Notes have been duly authorized by all necessary action on its
part. It has duly and validly executed and delivered this Agreement;
(c) assuming the due authorization, execution and delivery by the other parties hereto, this
Agreement constitutes, and its obligations under the Equipment Notes will constitute, its legal,
valid, and binding obligations enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency and similar laws and by general
principles of equity;
(d) Loan Participant is acquiring the Equipment Notes to be issued to it on the Delivery Date
for the purpose of investment and not with a view to the distribution thereof, and that, except as
permitted or contemplated by the terms of the Operative Agreements, Loan Participant
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has no present intention of selling, negotiating or otherwise disposing of such Equipment Notes; it
being understood, however, that the disposition of Loan Participants property shall at all times
be and remain within its control; and
(e) Loan Participant is acquiring the Equipment Notes with funds that do not constitute plan
assets, and the term plan assets shall have the meaning specified in Department of Labor
Regulation §2510.3-101.
Section 3.6. Representations and Warranties of Owner Participant.
Owner Participant
represents and warrants to Owner Trustee, Trust Company, Indenture Trustee, Loan Participant and
Lessee that, as of the date hereof and as of the Closing Date and the Delivery Date (unless any
such representation is specifically made as of one date):
(a) Owner Participant is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the power and authority to carry on its
business as now conducted;
(b) Owner Participant has the limited partnership power and authority to enter into the Owner
Participant Agreements and to perform its obligations thereunder, and such execution, delivery and
performance do not and will not contravene any law or any order of any court or governmental
authority or agency applicable to or binding on Owner Participant, or contravene the provisions of,
or constitute a default under, or result in the creation of any Lien (other than the leasehold
interest of Lessee under the Lease and the security interest of Indenture Trustee under the
Indenture) upon the Equipment under, its organization documents or any material indenture,
mortgage, contract or other agreement or instrument to which Owner Participant is a party or by
which it or any of its property or the Equipment may be bound or affected;
(c) the Owner Participant Agreements have been duly authorized by all necessary limited
partnership action on the part of Owner Participant, do not require any approval not already
obtained of the partners of Owner Participant or any approval or consent not already obtained of
any trustee or holders of indebtedness or obligations of Owner Participant, have been duly executed
and delivered by Owner Participant and (assuming the due authorization, execution and delivery by
each other party thereto) constitute the legal, valid and binding obligations of Owner Participant,
enforceable against Owner Participant in accordance with their respective terms except as
enforceability may be limited by applicable bankruptcy, insolvency and similar laws and by general
principles of equity;
(d) no authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due execution, delivery or
performance by Owner Participant of the Trust Agreement, the Tax Indemnity Agreement and this
Agreement, it being understood that no representation or warranty is being made herein with respect
to the ICC Termination Act or any other laws, governmental rules or regulations specific to the
Equipment;
(e) the Trust Estate is free of any Lessors Liens attributable to Owner Participant;
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(f) there are no pending or, to the knowledge of Owner Participant, threatened actions or
proceedings before any court or administrative agency which would materially adversely affect Owner
Participants financial condition or its ability to perform its obligations under the Trust
Agreement, the Tax Indemnity Agreement, this Agreement or any other Owner Participant Agreement;
(g) as of the Delivery Date, Owner Participant is purchasing the Beneficial Interest to be
acquired by it on the Delivery Date for its account with no present intention of distributing such
Beneficial Interest or any part thereof in any manner which would violate the Securities Act of
1933, as amended, but without prejudice, however, to the right of Owner Participant at all times to
sell or otherwise dispose of all or any part of such Beneficial Interest under a registration
statement under the Securities Act of 1933, as amended, or under an exemption from such
registration available under such Act. Owner Participant acknowledges that its Beneficial Interest
has not been registered under the Securities Act of 1933, as amended, and that neither Owner
Trustee nor Lessee contemplates filing, or is legally required to file, any such registration
statement;
(h) with respect to the sources of the amount to be advanced by Owner Participant pursuant to
Section 2.2(a), no part of such amounts constitutes assets of any employee benefit plan (other than
a government plan exempt from the coverage of ERISA); and
(i) Owner Participant has a tangible net worth, as determined in accordance with generally
accepted accounting principles, of not less than $75,000,000.00 (without regard to the transactions
contemplated hereby).
Section 3.7. Opinion Acknowledgment.
Each of the parties hereto, with respect to such party,
expressly consents to the rendering by its counsel of the opinions referred to in Section 4.1(a)(2)
and Section 4.1(b)(7) and acknowledges that such opinions shall be deemed to be rendered at the
request and upon the instructions of such party, each of whom has consulted with and has been
advised by its counsel as to the consequences of such request, instructions and consent.
Article IV
Conditions Precedent
Section 4.1. Conditions Precedent to Closing Date; Conditions Precedent of Each Participant
and Indenture Trustee to the Delivery Date.
(a)
Closing Conditions.
The obligation of any Person to participate in the transactions
contemplated hereby on the Closing Date shall be subject to the following conditions precedent on
or before the Closing Date:
(1)
Execution of Operative Agreements.
This Agreement, the Trust Agreement, the Lease,
the Indenture, shall each be satisfactory in form and substance to the parties thereto,
shall have been duly executed and delivered by the parties thereto
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(except that the execution and delivery of this Agreement and the other documents
referred to above by a party hereto or thereto shall not be a condition precedent to such
partys obligations hereunder), shall each be in full force and effect and executed
counterparts of each shall have been delivered to each such party or its counsel; and no
event shall have occurred and be continuing that constitutes a Lease Default or an Indenture
Default.
(2)
Opinions of Counsel.
Owner Trustee, Indenture Trustee, Loan Participant, Owner
Participant and Lessee shall have received the favorable written opinion of each of (A)
internal counsel to Lessee and special counsel to Lessee, (B) counsel to Owner Trustee, (C)
internal counsel to Owner Participant and special counsel to Owner Participant and (D)
counsel to Indenture Trustee, each in form and scope satisfactory to each such party;
provided
that receipt by a party hereto of a favorable written opinion from counsel to such
party shall not be a condition precedent to such partys obligations hereunder;
provided
further
that, such opinions shall be dated the Closing Date.
(3)
Tax Indemnity Agreement.
The Tax Indemnity Agreement shall be satisfactory in form
and substance to Owner Participant and Lessee, shall have been duly executed and delivered
by Lessee and Owner Participant, and shall be in full force and effect.
(4)
Corporate Documents.
Each of the parties shall have received such documents and
evidence with respect to Lessee, Owner Participant, Owner Trustee, the Trust and Indenture
Trustee as such party may reasonably request in order to establish the authority for the
consummation of the transactions contemplated by this Agreement and the other Operative
Agreements, the taking of all corporate and other proceedings in connection therewith and
compliance with the conditions herein or therein set forth and the incumbency of all
officers signing any of the Operative Agreements.
(5)
Representations and Warranties
. The representations and warranties of each of the
parties hereto shall be true and correct in all material respects on the Closing Date.
(b)
Delivery Date Conditions.
The obligation of each Participant, the Owner Trustee and
Indenture Trustee to participate in the transactions contemplated hereby on the Delivery Date shall
be subject to the following conditions precedent (except that paragraph (16) shall not be a
condition precedent to Owner Participants obligations hereunder and paragraph (17) shall not be a
condition precedent to Loan Participants obligations):
(1)
Execution of Operative Agreements.
On or before the Delivery Date, each of the
documents referred to in Section 4.1(a)(1) and Section 4.1(a)(3) shall be in full force and
effect and the Equipment Notes to be issued on the Delivery Date, an Assignment of
Warranties in respect of the Units to be purchased by the Trust from the Seller on the
Delivery Date, a Lease Supplement and an Indenture Supplement, in each case with respect to
the Units to be purchased on the Delivery Date, shall each be
satisfactory in form and substance to such Participant and Indenture Trustee, shall have
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been duly executed and delivered by the parties thereto (except that the execution and
delivery of the documents referred to above by a party thereto shall not be a condition
precedent to such partys obligations hereunder), shall each be in full force and effect and
executed counterparts of each shall have been delivered to such Participant and Indenture
Trustee or its counsel on or before the Delivery Date; and no event shall have occurred and
be continuing that constitutes a Lease Default or an Indenture Default.
(2)
Recordation and Filing.
On or before the Delivery Date, Lessee will cause the
Lease, a Lease Supplement with respect to the Units to be purchased on the Delivery Date,
the Indenture, an Indenture Supplement with respect to the Units to be purchased on the
Delivery Date, or appropriate evidence thereof, to be duly filed, recorded and deposited (A)
with the Surface Transportation Board in conformity with 49 U.S.C. § 11301, (B) with the
Registrar General of Canada pursuant to Section 105 of the Canada Transportation Act and (C)
in such other places within the United States, Canada or Mexico as Owner Trustee, Indenture
Trustee and any Participant may reasonably request for the protection of the Trusts title
to the Equipment and interest in the Lease, or the security interest of Indenture Trustee in
the Equipment and the Lease, and will furnish Indenture Trustee, Owner Trustee and each
Participant proof thereof.
(3)
Officers Certificate of Lessee.
On the Delivery Date, Owner Trustee, Indenture
Trustee, Loan Participant and Owner Participant shall have received an Officers Certificate
dated such date from Lessee, to the effect that the representations and warranties of Lessee
contained in Section 3.2 and Section 3.4(b) are true and correct in all material respects on
the Delivery Date with the same effect as though made on and as of said date, except to the
extent that such representations and warranties relate solely to an earlier date (in which
case such representations and warranties were true and correct on and as of such earlier
date), and that Lessee has performed and complied with all agreements and conditions herein
contained which are required to be performed or complied with by Lessee on or before said
date.
(4)
Officers Certificates of Trust Company and Owner Trustee.
On the Delivery Date,
Lessee, Indenture Trustee, Loan Participant and Owner Participant shall have received an
Officers Certificate dated such date from each of Trust Company and Owner Trustee, to the
effect that the representations and warranties of each of Trust Company and Owner Trustee
contained in Section 3.1 and of Owner Trustee contained in Section 3.4(a) are true and
correct in all material respects on the Delivery Date with the same effect as though made on
and as of said date, except to the extent that such representations and warranties relate
solely to an earlier date (in which case such representations and warranties were true and
correct on and as of such earlier date), and that Owner Trustee has performed and complied
with all agreements and conditions herein contained which are required to be performed or
complied with by Owner Trustee on or before said date.
(5)
Officers Certificate of Indenture Trustee.
On the Delivery Date, Lessee, Owner
Trustee, Loan Participant and Owner Participant shall have received an Officers
Certificate dated such date from Indenture Trustee, to the effect that the representations
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and warranties of Indenture Trustee contained in Section 3.3 are true and correct in all
material respects on the Delivery Date with the same effect as though made on and as of said
date, except to the extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties were true and correct on and
as of such earlier date), and that Indenture Trustee has performed and complied with all
agreements and conditions herein contained which are required to be performed or complied
with by Indenture Trustee on or before said date.
(6)
Officers Certificate of Owner Participant.
On the Delivery Date, Lessee, Owner
Trustee, Indenture Trustee, and Loan Participant shall have received an Officers
Certificate dated such date from Owner Participant, to the effect that the representations
and warranties of Owner Participant contained in Section 3.6 are true and correct in all
material respects on the Delivery Date with the same effect as though made on and as of said
date, except to the extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties were true and correct on and
as of such earlier date), and that Owner Participant has performed and complied with all
agreements and conditions herein contained which are required to be performed or complied
with by Owner Participant on or before said date.
(7)
Opinions of Counsel.
On the Delivery Date, Owner Trustee, Indenture Trustee, Loan
Participant and Owner Participant shall have received the favorable written opinion of each
of (A) internal counsel to Lessee and special counsel to Lessee, (B) counsel to Owner
Trustee, (C) internal counsel to Owner Participant and special counsel to Owner Participant
and (D) counsel to Indenture Trustee, each in form and scope satisfactory to each
Participant, (E) Alvord and Alvord, special STB counsel, and (F) McCarthy Tétrault LLP,
special Canadian counsel;
provided
that receipt by a party hereto of a favorable written
opinion from counsel to such party shall not be a condition precedent to such partys
obligations hereunder.
(8)
Title.
On the Delivery Date, after giving effect to the transactions contemplated
hereby and by the other Operative Agreements, Owner Trustee shall have good and marketable
title to each Unit to be purchased on the Delivery Date, free and clear of all Liens, except
Permitted Liens of the type described in clause (iii), (iv) and (v) of the definition
thereof.
(9)
Bills of Sale.
On the Delivery Date, the Seller shall have delivered to Owner
Trustee (with copies to Indenture Trustee, Loan Participant and Owner Participant) a Bill of
Sale in the form attached hereto as Exhibit B with respect to the applicable Units being
purchased on the Delivery Date, such Bill of Sale dated the Delivery Date for such Units,
transferring to Owner Trustee good and marketable title to such Units and warranting to
Owner Trustee that at the time of delivery of each such Unit, the Seller had legal title
thereto and good and lawful right to sell the same, and title thereto was free of all
claims, liens and encumbrances of any nature, except Permitted Liens of the type described
in clause (iii), (iv) and (v) of the definition thereof.
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(10)
Certificates of Acceptance.
On the Delivery Date, Lessee shall have delivered to
Owner Trustee (with copies to Indenture Trustee, Loan Participant and Owner Participant) a
Certificate of Acceptance with respect to each Unit being purchased on the Delivery Date,
such Certificate of Acceptance executed on and dated the Delivery Date for such Unit.
(11)
Insurance Certificate.
On or before the Delivery Date, Indenture Trustee, Loan
Participant, Owner Trustee and Owner Participant shall have received a certificate
evidencing the insurance that is required pursuant to Section 12 of the Lease.
(12)
Corporate Documents.
Each of the Participants shall have received such documents
and evidence with respect to Lessee, Owner Participant, Owner Trustee and Indenture Trustee
as the Participants may reasonably request in order to establish the authority for the
consummation of the transactions contemplated by this Agreement and the other Operative
Agreements, the taking of all corporate and other proceedings in connection therewith and
compliance with the conditions herein or therein set forth and the incumbency of all
officers signing any of the Operative Agreements.
(13)
No Threatened Proceedings.
No action or proceeding shall have been instituted nor
shall governmental action be threatened before any court or governmental agency, nor shall
any order, judgment or decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Delivery Date, to set aside, restrain, enjoin or
prevent the completion and consummation of this Agreement or any of the other Operative
Agreements or the transactions contemplated hereby or thereby.
(14)
Delivery Date Notice.
Prior to the Delivery Date, Indenture Trustee and the
Participants shall have received the written notice of the Delivery Date required pursuant
to Section 2.3(a).
(15)
No Illegality.
No change shall have occurred after the date of the execution and
delivery of this Agreement in applicable law or regulations thereunder or interpretations
thereof by regulatory authorities that, in the opinion of such Participant or its counsel,
would make it illegal for such Participant to enter into any transaction contemplated by the
Operative Agreements.
(16)
Owner Participants Commitment.
Owner Participant shall have made available its
Commitment with respect to the Units delivered on the Delivery Date in accordance with
Sections 2.2(a) and 2.3.
(17)
Loan Participants Commitment.
Loan Participant shall have made available its
Commitment with respect to the Units delivered on the Delivery Date in accordance with
Sections 2.2(b) and 2.3.
(18)
Consents.
All approvals and consents of any trustees or holders of any
indebtedness or obligations of Lessee which are required in connection with the
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transactions contemplated by this Agreement and the other Operative Agreements shall have
been duly obtained and be in full force and effect.
(19)
Governmental Actions.
All actions, if any, required to have been taken on or
prior to the Delivery Date in connection with the transactions contemplated by this
Agreement and the other Operative Agreements on the Delivery Date shall have been taken by
any governmental or political agency, subdivision or instrumentality of the United States
and all orders, permits, waivers, exemptions, authorizations and approvals of such entities
required to be in effect on the Delivery Date in connection with such transactions
contemplated by this Agreement and the other Operative Agreements on the Delivery Date shall
have been issued, and all such orders, permits, waivers, exemptions, authorizations and
approvals shall be in full force and effect, on the Delivery Date.
(20)
Representations and Warranties
. The representations and warranties of each of the
parties hereto shall be true and correct in all material respects on the Delivery Date.
Section 4.2. Additional Conditions Precedent to the Obligations of Loan Participant.
The
obligation of Loan Participant to advance funds for the Equipment Notes to be purchased by it
pursuant to Section 2.2(b) on the Delivery Date shall be subject to the additional conditions that:
(a)
Equipment Notes.
The Equipment Notes to be delivered on the Delivery Date shall
have been duly authorized, executed and delivered to Loan Participant by a duly authorized
officer of Owner Trustee and duly authenticated by Indenture Trustee.
(b)
Debt Appraisal Letter.
On or before the Delivery Date, Loan Participant shall have
received a letter from the equipment appraiser setting forth the appraisers opinion as to
the fair market value of the applicable Units and that such fair market value is not less
than the Equipment Cost for such Units.
(c)
Original Counterparts of Lease and Lease Supplement
. The original counterpart of
the Lease and the Lease Supplement dated the Delivery Date shall have been delivered to
Indenture Trustee.
(d)
Security Interest
. On the Delivery Date, after giving effect to the transactions
contemplated hereby and by the other Operative Agreements, Indenture Trustee shall have a
perfected security interest in the applicable Equipment, the Lease and the other property
constituting the Indenture Estate, free of all Liens, except Permitted Liens.
(e)
Opinion.
On the Delivery Date, Loan Participant shall have received the opinion of
Vedder Price P.C., addressed to Loan Participant, in form and substance satisfactory to Loan
Participant.
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Section 4.3. Additional Conditions Precedent to the Obligations of Owner Participant
. The
obligation of Owner Participant to provide the funds specified with respect to it in Section 2.2(a)
on the Delivery Date with respect to any Unit to be purchased on the Delivery Date shall be subject
to the following additional conditions:
(a)
Appraisal
. On or before the Delivery Date, Owner Participant shall have received
an opinion (the
Appraisal
) of an equipment appraiser reasonably satisfactory in form and
substance to Owner Participant.
(b)
Opinion with Respect to Certain Tax Aspects
. On or before the Delivery Date, Owner
Participant shall have received the opinion of Hunton & Williams LLP, addressed to Owner
Participant, in form and substance satisfactory to Owner Participant, containing such
counsels favorable opinion with respect to the Federal income tax aspects of the
transaction contemplated hereby.
(c)
No Tax Law Change
. No Change in Tax Law shall have occurred nor shall a judicial
opinion on a tax issue have been rendered on or prior to the Delivery Date which change, if
enacted, adopted or made effective, or such judicial opinion, would, in the reasonable
opinion of Owner Participant, render it disadvantageous or inadvisable for Owner Participant
to enter into the transactions contemplated by the Operative Agreements unless Lessee shall
indemnify Owner Participant to Owner Participants reasonable satisfaction for such Change
in Tax Law or, if such change can be compensated for by an adjustment to Basic Rent, unless
Lessee agrees to an adjustment to Basic Rent in accordance with the principles of Section
2.6 of this Agreement to preserve Owner Participants Net Economic Return.
(d)
No Change in Accounting
. No change shall have been promulgated by the Financial
Accounting Standards Board on or prior to the Delivery Date that would prevent the Owner
Participant from accounting for the transactions set forth in the Operative Agreements as a
leveraged lease in accordance with Statement of Financial Accounting Standards 13.
Section 4.4. Conditions Precedent to the Obligation of Lessee
. The obligation of Lessee to
participate in the transactions contemplated hereby on the Delivery Date shall be subject to the
following conditions precedent:
(a)
Corporate Documents
. On or before the Delivery Date, Lessee shall have received
such documents and evidence with respect to Owner Participant, Owner Trustee and Indenture
Trustee as Lessee may reasonably request in order to establish the consummation of the
transactions contemplated by this Agreement, the taking of all corporate and other
proceedings in connection therewith and compliance with the conditions herein or therein set
forth.
(b)
Operative Agreements
. On or before the Delivery Date, each of the documents
referred to in Section 4.1(b)(1) shall be in full force and effect.
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(c)
Representations and Warranties True
. On the Delivery Date, the representations and
warranties of Owner Trustee, Indenture Trustee, Loan Participant and Owner Participant
contained in Section 3 hereof shall be true and correct in all material respects as of the
Delivery Date as though made on and as of such date, and Lessee shall have received an
Officers Certificate dated such date from each of Owner Trustee as described in Section
4.1(b)(4), Owner Participant as described in Section 4.1(b)(6) and Indenture Trustee as
described in Section 4.1(b)(5), addressed to Lessee and certifying as to the foregoing
matters insofar as they relate to Owner Trustee, Owner Participant and Indenture Trustee, as
the case may be.
(d)
Opinions of Counsel
. On the Delivery Date, Lessee shall have received the opinions
of counsel for Owner Trustee and Indenture Trustee referred to in Section 4.1(b)(7),
addressed to Lessee.
(e)
No Threatened Proceedings
. No action or proceeding shall have been instituted nor
shall governmental action be threatened before any court or governmental agency, nor shall
any order, judgment or decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Delivery Date, to set aside, restrain, enjoin or
prevent the completion and consummation of this Agreement or the transactions contemplated
hereby.
(f)
No Tax Law Change
. Lessee shall not be obligated to carry out the transactions
contemplated on the Delivery Date if a Change in Tax Law shall have occurred after the date
of execution hereof and on or prior to the Delivery Date which would, in the reasonable
opinion of Lessee, result in an adjustment pursuant to Section 2.6 which would increase by
more than 50 basis points the present value (discounted at an interest rate per annum equal
to the Debt Rate) of all payments of Basic Rent payable for the Units to be delivered on or
prior to the Delivery Date.
Article V
Financial and Other Reports of Lessee
Lessee agrees that it will furnish directly to each Participant the following:
(a) unless included in a Form 10-Q delivered or deemed delivered under clause (c)
below, as soon as available and in any event within 60 days after the end of each quarterly
period, except the last, of each fiscal year, consolidated balance sheets of KCS, and its
consolidated Subsidiaries as at the end of such period, together with the related
consolidated statements of income and cash flows of KCS and its consolidated Subsidiaries
for the period beginning on the first day of such fiscal year and ending on the last day of
such quarterly period, setting forth in each case (except for the consolidated balance
sheet) in comparative form the figures for the corresponding periods of the previous fiscal
year, all in reasonable detail and prepared in accordance with generally accepted accounting
principles and certified by any Vice President, the Treasurer, the Chief Financial Officer
or any Assistant Treasurer of KCS;
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(b) unless included in a Form 10-K delivered or deemed delivered under clause (c)
below, as soon as available and in any event within 120 days after the last day of each
fiscal year, a copy of KCSs annual audited report covering the operations of KCS and its
consolidated Subsidiaries, including consolidated balance sheets, and related consolidated
statements of income and retained earnings and consolidated statement of cash flows of KCS
and its consolidated Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable detail and
prepared in accordance with generally accepted accounting principles applied on a consistent
basis, which statements will have been certified by a firm of independent public accountants
of recognized national standing selected by KCS;
(c) as soon as available, one copy of each Annual Report on Form 10-K (or any successor
form), Quarterly Report on Form 10-Q (or any successor form) and Form 8-K filed by KCS with
the SEC or any successor agency,
provided
that, as long as KCS is subject to informational
requirements of the Securities Exchange Act of 1934 and in accordance therewith files
reports and other information with the SEC, each Participant shall be deemed to have been
furnished the foregoing reports and forms at the time such Participant may electronically
access such reports and forms by means of the SECs homepage on the internet or at KCSs
homepage on the internet,
provided
,
further
, in the event that KCS shall cease to be subject
to such informational requirements, Lessee will provide each Participant with 90 days
advance written notice and thereafter Lessee shall directly furnish such reports and forms
to each Participant; and
(d) as soon as available and in any event within 120 days after the last day of each
fiscal year, a certificate signed by any Vice President, the Treasurer, the Chief Financial
Officer or any Assistant Treasurer of Lessee stating that he/she has reviewed the activities
of Lessee during such year and that Lessee during such year has kept, observed, performed
and fulfilled each and every covenant, obligation and condition contained herein and in the
Lease, or if a Lease Event of Default shall exist or if an event has occurred and is
continuing which, with the giving of notice or the passage of time or both, would constitute
a Lease Event of Default, specifying such Lease Event of Default and all such events and the
nature and status thereof.
If at any time Lessee shall become subject to the public reporting requirements of the SEC or
Lessee shall cease to be a consolidated subsidiary of KCS, then the reporting requirements of
paragraphs (a) through (c) above shall apply directly to Lessee.
Article VI
Certain Covenants of the Participants, Trustees and Lessee
Section 6.1. Restrictions on Transfer of Beneficial Interest
. Owner Participant agrees that
it shall not sell, convey, assign, pledge, mortgage or otherwise transfer any of its Beneficial
Interest, except to Lessee in accordance with Section 23(c) of the Lease (to which transfer
Indenture Trustee hereby consents), unless:
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(a) the Person to whom such transfer is to be made (a
Transferee
) is (i) a Person
that is organized as a corporation, limited liability company, partnership or other legal
entity under the laws of the United States or any state or territory thereof or the District
of Columbia with tangible net worth or, in the case of a bank or lending institution,
combined capital or surplus at the time of such transfer of at least US $75,000,000 (without
regard to the transactions contemplated hereby), all of the foregoing determined in
accordance with generally accepted accounting principles or (ii) any United States
subsidiary or United States affiliate of any such institutional or corporate investor if
such investor guarantees the obligations so assumed by such subsidiary or affiliate pursuant
to an instrument or instruments reasonably satisfactory to Lessee, Owner Trustee and
Indenture Trustee or (iii) any United States subsidiary or United States affiliate of the
transferring Owner Participant if the transferring Owner Participant remains liable for all
obligations of Owner Participant under each of the Operative Agreements;
(b) neither the Transferee nor any of its Affiliates shall be (i) directly involved in
the rail transportation business (it being understood that operating lessors and passive
equity and debt investors (including lessors) in railroad rolling stock and facilities are
not directly involved in the rail transportation business), (ii) a competitor of Lessee in
Lessees primary business, (iii) at the time of the proposed transfer, a substantial
investor in Lessee or any Affiliate of Lessee attempting a merger, acquisition or other
takeover of Lessee or any Affiliate of Lessee which merger, acquisition or other takeover
shall not have been approved by the Board of Directors of Lessee or such Affiliate or
otherwise be perceived by Lessee or such Affiliate to be hostile to the management of Lessee
or such Affiliate, (iv) an adverse plaintiff or defendant in any then-existing litigation or
any then-existing third-party arbitration involving Lessee or an Affiliate of Lessee, or (v)
the potential plaintiff in any litigation which has been threatened, in writing, against
Lessee or an Affiliate of Lessee;
provided
that if a Specified Default or an Event of
Default shall have occurred and be continuing, the requirements set forth above in this
subsection (b) shall not apply to such transfer;
(c) Indenture Trustee, Lessee and Owner Trustee shall have received 30 days (10 days
in the case of a transfer to an Affiliate) prior written notice of such transfer specifying
the name and address of any proposed Transferee and such additional information as shall be
necessary to determine whether the proposed transfer satisfies the requirements of this
Section 6.1 and Section 8.01 of the Trust Agreement;
(d) such Transferee enters into an agreement or agreements in form and substance
reasonably satisfactory to Lessee, Owner Trustee and Indenture Trustee whereby such
Transferee confirms that it shall be deemed a party to this Agreement and each other
Operative Agreement to which the transferring Owner Participant is a party, and agrees to be
bound by all the terms of, and to undertake all of the obligations and liabilities of the
transferring Owner Participant contained in, this Agreement and such other Operative
Agreements and in which the Transferee shall make representations and warranties comparable
to those of Owner Participant contained herein and therein;
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(e) such transfer complies in all respects with and does not violate any applicable
law, including any applicable Federal securities law and the securities law of any
applicable state;
(f) an opinion of counsel of the Transferee (which counsel shall be either Hunton &
Williams LLP, internal counsel to the Transferee or another counsel reasonably acceptable to
Lessee and Indenture Trustee), confirming (i) the existence, power and authority of, and due
authorization, execution and delivery of all relevant documentation by, the Transferee (with
appropriate reliance on certificates of corporate officers or public officials as to matters
of fact), (ii) that each agreement referred to in subparagraph (d) above is the legal,
valid, binding and enforceable obligation of the Transferee subject to the customary
exceptions, (iii) compliance of the transfer with the registration provisions of applicable
laws and regulations including Federal securities laws and securities laws of the
Transferees domicile and other jurisdictions reasonably identified by Lessee as potentially
applicable to the transfer, and (iv) other matters as Lessee or Indenture Trustee may
reasonably request, shall be provided, prior to such transfer, to Lessee, Indenture Trustee
and Owner Trustee, which opinion shall be in form and substance reasonably satisfactory to
each of them;
(g) except as specifically consented to in writing by Lessee and Indenture Trustee, the
terms of the Operative Agreements shall not be altered;
(h) all reasonable fees, expenses and charges of the parties hereto (including without
limitation, legal fees and expenses of special counsel or, in the case of Lessee, if no
special counsel is used, the allocable costs of internal counsel at standard
interdepartmental rates) incurred in connection with each transfer of such Beneficial
Interest shall be paid by Owner Participant;
(i) after giving effect to such transfer, the cumulative number of transfers of the
Beneficial Interest pursuant to the terms of this Section 6.1 shall not exceed six (6) (not
including up to two transfers in the aggregate to an Affiliate of a transferring Owner
Participant);
(j) such transfer (i) does not involve the use of an amount which constitutes assets of
an employee benefit plan (other than a government plan exempt from the coverage of ERISA) or
(ii) will not constitute a prohibited transaction;
(k) after giving effect to such transfer, the Beneficial Interest shall be held by not
more than two (2) Owner Participants at the same time;
(l) such transfer shall not occur prior to the Closing Date;
(m) as a result of such transfer, no Indenture Default attributable to Owner
Participant or Owner Trustee shall have occurred and be continuing; and
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(n) Owner Participant shall deliver an Officers Certificates to the parties hereto
certifying as to compliance with the transfer requirements contained herein.
Upon any such transfer, (i) except as the context otherwise requires, such Transferee shall be
deemed the Owner Participant for all purposes, and shall enjoy the rights and privileges and
perform the obligations of Owner Participant to the extent of the interest transferred hereunder
and under each other Operative Agreement to which Owner Participant is a party, and, except as the
context otherwise requires, each reference in this Agreement and each other Operative Agreement to
the Owner Participant shall thereafter be deemed to include such Transferee for all purposes to
the extent of the interest transferred and (ii) the transferor, except as provided in Section
6.1(h) hereof, shall be released from all obligations hereunder and under each other Operative
Agreement to which such transferor is a party or by which such transferor is bound to the extent
such obligations are expressly assumed by a Transferee; and provided, further, that in no event
shall any such transfer or assignment waive or release the transferor from any liability on account
of any breach existing immediately prior to such transfer of any of its representations,
warranties, covenants or obligations set forth in the Operative Agreements or for any fraudulent or
willful misconduct. Any transfer or assignment of the Beneficial Interest in violation of this
Section 6.1 shall be void and of no effect.
Section 6.2. Lessors Liens Attributable to Owner Participant
. Owner Participant hereby
unconditionally agrees with and for the benefit of the other parties to this Agreement that Owner
Participant will not directly or indirectly create, incur, assume or suffer to exist any Lessors
Liens on or against any part of the Trust Estate or the Equipment arising out of any act or
omission of or claim against Owner Participant, and Owner Participant agrees that it will, at its
own cost and expense, take such action as may be necessary to duly discharge and satisfy in full
any such Lessors Lien (by bonding or otherwise, so long as Lessees operation and use of the
Equipment is not impaired);
provided
that Owner Participant may contest any such Lessors Lien in
good faith by appropriate proceedings so long as such proceedings do not involve any material
danger of the sale, forfeiture or loss of the Equipment or any interest therein and do not
interfere with the use, operation, or possession of the Equipment by Lessee under the Lease or the
rights of Indenture Trustee under the Indenture and the other Operative Agreements or the rights of
Loan Participant under the Operative Agreements. Owner Participant hereby indemnifies and holds
harmless Lessee, Indenture Trustee, Indenture Estate, Owner Trustee and Loan Participant from and
against any loss, cost or expense (including reasonable legal fees and expenses) which may be
suffered or incurred by any of them as the result of the failure of Owner Participant to discharge
and satisfy any such Lessors Lien.
Section 6.3. Lessors Liens Attributable to Trust Company
. Trust Company, hereby
unconditionally agrees with and for the benefit of the other parties to this Agreement that Trust
Company will not directly or indirectly create, incur, assume or suffer to exist any Lessors Liens
on or against any part of the Trust Estate or the Equipment arising out of any act or omission of
or claim against Trust Company, and Trust Company agrees that it will, at its own cost and expense,
take such action as may be necessary to duly discharge and satisfy in full (i) any such Lessors
Lien attributable to Trust Company (by bonding or otherwise, so long as Lessees operation and use
of the Equipment is not impaired) and (ii) any other liens or encumbrances attributable to Trust
Company on any part of the Trust Estate or the Indenture Estate which result
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from claims against Trust Company not related to the ownership of the Equipment, the administration
of the Trust Estate or the Indenture Estate or the transactions contemplated by the Operative
Agreements;
provided
that Trust Company or Owner Trustee may contest any such Lessors Lien in good
faith by appropriate proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture or loss of the Equipment or any interest therein and do not interfere with the
use, operation, or possession of the Equipment by Lessee under the Lease or the rights of Indenture
Trustee under the Indenture and the other Operative Agreements or the rights of Loan Participant
under the Operative Agreements. Trust Company hereby indemnifies and holds harmless Lessee,
Indenture Trustee, the Indenture Estate, Owner Participant, Seller and Loan Participant from and
against any loss, cost or expense (including reasonable legal fees and expenses) which may be
suffered or incurred by any of them as the result of the failure of Trust Company to discharge and
satisfy any Lessors Lien attributable to Trust Company.
Section 6.4. Liens Created by Indenture Trustee and Loan Participant
. (a) Indenture Trustee
covenants and agrees with Lessee, Owner Trustee, Owner Participant and Loan Participant that it
shall not cause or permit to exist any Lien on the Equipment or all or any portion of the Trust
Estate or the Indenture Estate arising as a result of (i) claims against Indenture Trustee not
related to its interest in the Equipment and the Trust Estate, or to the administration of the
Indenture Estate pursuant to the Indenture, (ii) acts of Indenture Trustee not contemplated by, or
failure of Indenture Trustee to take any action it is expressly required to perform by, the
Operative Agreements, (iii) claims against Indenture Trustee relating to Taxes or expenses that are
not indemnified against by Lessee pursuant to Section 7 attributable to the actions of Indenture
Trustee, or (iv) claims against Indenture Trustee arising out of the transfer by Indenture Trustee
of all or any portion of its interest in the Equipment, the Indenture Estate or the Operative
Agreements, other than a transfer permitted by the Operative Agreements and that Indenture Trustee
will, at its own cost and expense (and without any right of reimbursement from any other party
hereto), promptly take such action as may be necessary duly to discharge any such Lien;
provided
that Indenture Trustee may contest any such Lien in good faith by appropriate proceedings so long
as such proceedings do not involve any material danger of the sale, forfeiture or loss of the
Equipment or any interest therein and do not interfere with the use, operation, or possession of
the Equipment by Lessee under the Lease, the rights of the Trust under the Operative Agreements or
the rights of Loan Participant under the Operative Agreements. Indenture Trustee further agrees to
indemnify and hold harmless each of the other parties hereto from and against any loss,
out-of-pocket cost and expenses (including reasonable legal fees and expenses) incurred, in each
case, as a result of the imposition or enforcement of any such Lien.
(b) Loan Participant covenants and agrees with Lessee, Owner Trustee, Owner Participant and
Indenture Trustee that it shall not cause or permit to exist any Lien on the Equipment or all or
any portion of the Trust Estate or the Indenture Estate arising as a result of (i) claims against
Loan Participant not related to its interest in the Equipment and the Trust Estate, (ii) acts of
Loan Participant not contemplated by, or failure of Loan Participant to take any action it is
expressly required to perform under, the Operative Agreements, (iii) claims against Loan
Participant relating to Taxes or expenses that are not indemnified against by Lessee pursuant to
Article VII or (iv) claims against Loan Participant arising out of the transfer by Loan
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Participant of all or any portion of its interest in the Equipment, the Indenture Estate or the
Operative Agreements, other than a transfer permitted by the Operative Agreements and that Loan
Participant will, at its own cost and expense (and without any right of reimbursement from Lessee),
promptly take such action as may be necessary duly to discharge any such Lien;
provided
that Loan
Participant may contest any such Lien in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or loss of the Equipment or
any interest therein and do not interfere with the use, operation, or possession of the Equipment
by Lessee under the Lease or the rights of the Trust or Indenture Trustee under the Operative
Agreements. Loan Participant further agrees to indemnify and hold harmless each of the other
parties hereto from and against any loss, out-of-pocket cost and expenses (including reasonable
legal fees and expenses) incurred, in each case, as a result of the imposition or enforcement of
any such Lien.
Section 6.5. Covenants of Owner Trustee, Trust Company, Owner Participant and Indenture
Trustee
. Owner Participant, and Owner Trustee and Trust Company, hereby agree, severally and not
jointly, with Lessee, Loan Participant and Indenture Trustee (i) to comply with all of the terms of
the Trust Agreement applicable to it in its respective capacity, (ii) not to amend, supplement, or
otherwise modify any provision of the Trust Agreement in such a manner as to adversely affect the
rights of any such party without the prior written consent of such party and (iii) not to terminate
or revoke the Trust Agreement or the trust created by the Trust Agreement and such trust shall not
be subject to revocation or termination by Owner Participant prior to the payment in full and
discharge of the Equipment Notes and all other indebtedness secured by the Indenture and the final
discharge thereof pursuant to Section 10.01 thereof or prior to the expiration or early termination
of the Lease and the payment in full and discharge of the Equipment Notes and all other
indebtedness secured by the Indenture and the final discharge thereof pursuant to Section 10.01
thereof. Each of Owner Trustee and Indenture Trustee agrees, for the benefit of Lessee and Owner
Participant, to comply with the provisions of the Indenture and not to amend, supplement, or
otherwise modify any provision of the Indenture in such a manner as to adversely affect the rights
of any such party without the prior written consent of such party. Notwithstanding any provision
herein or in any of the Operative Agreements to the contrary, Indenture Trustees obligation to
take or refrain from taking any actions, or to use its discretion (including, but not limited to,
the giving or withholding of consent or approval and the exercise of any rights or remedies under
such Operative Agreements), and any liability therefor, shall, in addition to any other limitations
provided herein or in the other Operative Agreements, be limited by the provisions of the
Indenture.
Section 6.6. Amendments to Operative Agreements
. The Trustees and Participants will not
terminate the Operative Agreements to which Lessee is not or will not be a party, except in
accordance with the Operative Agreements in effect on the date hereof (as amended, modified or
supplemented from time to time in accordance with the terms hereof and of the other Operative
Agreements), or amend, supplement, waive or modify such Operative Agreements in any manner that
increases the obligations or liabilities, or decreases the rights, of Lessee under the Operative
Agreements, without, in each such case, the prior written consent of Lessee. Owner Participant and
the Trustees (as applicable) agree that, in any event, they will not amend Section 2.01, 2.02,
2.05, 2.10, the provisions of the proviso of Section 4.03(a), Article III or Article IX of the
Indenture or Section 4.01, 9.01, 10.01 or 12.01 of the Trust Agreement without the prior written
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consent of Lessee;
provided
that, in respect of Section 2.01, 2.02, 2.05 or 2.10 of the Indenture
or Article III of the Indenture, if an Event of Default shall have occurred and is continuing, such
consent right of Lessee shall not be applicable so long as any amendment, modification, supplement
or waiver in respect thereof does not increase the obligations or liabilities, or decrease the
rights, of Lessee under the Operative Agreements.
Section 6.7. Section 1168
. Lessee shall at all times remain a railroad, as such term is
defined in Section 101 (44) of the U.S. Bankruptcy Code, such that Lessees obligations under the
Lease shall be subject to the provisions of Section 1168 of the U.S. Bankruptcy Code. Lessee shall
not take any action which would cause Section 1168 to cease to be applicable to this transaction
or, in connection with any bankruptcy proceedings involving Lessee or any of its Affiliates, take a
position in the United State Bankruptcy Court that is inconsistent with the rights of Lessor under
such Section 1168.
Section 6.8. Merger Covenant
. Lessee shall not consolidate with or merge into any other
Person or convey, transfer or lease substantially all of its assets as an entirety to any Person
unless (i) the Person formed by such consolidation or into which Lessee is merged or the Person
which acquires by conveyance, transfer or lease substantially all of the assets of Lessee as an
entirety shall execute and deliver to Owner Trustee, Owner Participant, Loan Participant and
Indenture Trustee an agreement containing the assumption by such successor corporation of the due
and punctual performance and observance of each covenant and condition of this Agreement and each
of the other Lessee Agreements to be performed or observed by Lessee, (ii) immediately after giving
effect to such transaction, no Lease Event of Default shall have occurred solely as a result of
such consolidation or merger or such conveyance, transfer or lease and (iii) Lessor shall be
entitled to the benefits of Section 1168 of the Bankruptcy Code to the same extent as immediately
prior to such merger, consolidation or transfer. Upon such consolidation or merger, or any
conveyance, transfer or lease of substantially all of the assets of Lessee as an entirety in
accordance with this Section 6.8, the successor corporation formed by such consolidation or into
which Lessee is merged or to which such conveyance, transfer or lease is made shall succeed to, and
be substituted for, and may exercise every right and power of, Lessee under this Agreement and the
other Operative Agreements with the same effect as if such successor corporation had been named as
Lessee herein. If Lessee shall have consolidated with or merged into any other Person or conveyed,
transferred or leased substantially all of its assets, such assets to include Lessees leasehold
interest in the Lease, the Person owning such leasehold interest after such event shall deliver to
Owner Participant, Loan Participant and Indenture Trustee, an opinion of counsel (which counsel may
be such Persons in-house counsel) confirming that the assumption agreement pursuant to which such
Person assumed the obligations of Lessee shall have been duly authorized, executed and delivered by
such Person and that such agreement is the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with its terms.
Section 6.9. Additional Filings
. In the event that during the Lease Term (i) a central filing
system becomes available in Mexico for the filing or recording of security interests or ownership
rights in railroad rolling stock and (ii) Lessee elects as a business practice to conduct such
filings or recordings with respect to equipment owned or leased by Lessee that is used in a manner
similar to the Units, then Lessee will take, or cause to be taken, at Lessees cost and
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expense, such action with respect to the filing or recording of the Lease, the Indenture or any
supplements thereto and any other instruments as may be necessary or reasonably required to
maintain, so long as the Indenture or the Lease is in effect and such central filing system remains
available, the benefit of such filing or recording in Mexico for the protection of the security
interest created by the Indenture and any security interest that may be claimed to have been
created by the Lease and the ownership interest of Owner Trustee in each Unit to the extent such
protection is available pursuant to such filing or recording in Mexico.
Section 6.10. Owner Participant an Affiliate of Lessee
. If at any time the original or any
successor Owner Participant shall be an Affiliate of Lessee, such Owner Participant and Lessee
agree that, notwithstanding any provision of the Indenture to the contrary, they will not modify,
amend or supplement any provision of the Lease or this Agreement or give, or permit Owner Trustee
to give, any consent, waiver, authorization or approval thereunder if any such action would
adversely affect in a material manner Indenture Trustee or any holder of an Equipment Note unless
such action shall have been consented to by a Majority In Interest.
Section 6.11. Taxes
. Lessee shall pay and discharge all Taxes imposed upon Lessee or upon its
income, profits or properties prior to the date on which penalties attach thereto except for those
Taxes which are being contested in good faith through appropriate proceedings and for which
adequate reserves are being maintained.
Section 6.12. Compliance with Laws.
The Lessee will comply with all applicable laws and
regulations, including, without limitation, environmental laws and laws and regulations relating to
corruption and bribery, provided that, in the case of such laws and regulations (other than laws
and regulations relating to corruption and bribery), the Lessee need comply only to the extent
necessary to ensure that non-compliance with such laws could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Nothing contained herein shall prohibit
the Lessee from, in good faith and by appropriate proceedings diligently conducted, contesting the
validity or application of any laws and regulations in any reasonable manner so long as such
contest does not materially adversely affect the rights or interests of the Owner Trustee, the
Indenture Trustee or the Participants in the Equipment or hereunder or otherwise expose such
parties to criminal sanctions or any material civil liability.
Article VII
Lessees Indemnities
Section 7.1. General Tax Indemnity
.
(a)
Tax Indemnitee Defined
. For purposes of this Section 7.1,
Tax Indemnitee
means Owner
Participant, its Affiliates, Owner Trustee, Trust Company, the Trust, the Trust Estate, Indenture
Trustee, Loan Participant, and each of their respective successors or assigns permitted under the
terms of the Operative Agreements and, with respect to any taxes, shall also include any affiliated
or combined group of which such Tax Indemnitee is, or may become, a member if consolidated or
combined returns are filed for such group for purposes of such taxes.
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(b)
Taxes Indemnified
. Subject to the exclusions stated in subsection (c) below, Lessee
agrees to indemnify and hold harmless each Tax Indemnitee on an After-Tax Basis against all fees,
taxes, levies, assessments, charges or withholdings of any nature, together with any penalties,
fines or interest thereon or additions thereto (
Taxes
) imposed upon any Tax Indemnitee, Lessee or
all or any part of the Equipment by any federal, state or local government, political subdivision,
or taxing authority in the United States, by any government or taxing authority of or in a foreign
country or by any international authority, upon, with respect to or in connection with:
(i) the Equipment or any part of any of the Equipment or interest therein;
(ii) the acquisition, financing, use or operation with respect to the Equipment or any
part of any of the Equipment or interest therein;
(iii) payments of Rent or the receipts, income or earnings arising therefrom;
(iv) any or all of the Operative Agreements or any payments made with respect to the
Equipment Notes; or otherwise with respect to the transactions contemplated by or resulting
from the Operative Agreements, including any payments thereunder and the exercise of rights
and remedies thereunder; or
(v) in the case of Owner Participant and Owner Trustee, any withholding tax and
penalties and interest thereon imposed in respect of Equipment Notes held by a Loan
Participant who is not a U.S. Person (as defined in Section 7701(a)(30) of the Code).
(c)
Taxes Excluded
. The indemnity provided for in paragraph (b) above shall not extend to any
of the following:
(i) Taxes which are based upon, measured by or in respect to gross or net income or
gross or net receipts (including, but not limited to, (X) commercial activity taxes,
business activity taxes and other similar taxes that are based upon, measured by or in
respect of such income or receipts and (Y) all Taxes which are in substitution for, in the
nature of, or in lieu of a gross or net income tax or gross or net receipts tax); Taxes on
items of preference or any minimum tax; business and occupation taxes; franchise taxes; or
Taxes based upon the Owner Participants or the Lessors capital stock or net worth;
provided
that there shall not be excluded under this subparagraph (i) any sales, use,
property, stamp, license, rental, ad valorem or Taxes in the nature thereof or any Taxes
imposed by any government or taxing authority of or in a foreign country if, and to the
extent, such Taxes would have been imposed had the sole connection between the Tax
Indemnitee and such foreign country been the presence in such country of any Unit or any
part thereof or the presence or activities of the Lessee or any sublessee or user of the
Equipment in, or the making of payments from, such country (for the avoidance of doubt,
Taxes imposed on the Loan Participant by withholding or deduction that are otherwise
excluded solely under this clause (i) shall be indemnified to the extent provided in Section
7.1(j) hereof);
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(ii) Taxes imposed with respect to any period after the earliest of (x) the return of
possession of the Equipment to Owner Participant or the placement of the Equipment in
storage at the request of Owner Participant, in either case pursuant to Section 6 of the
Lease and only so long as no Lease Event of Default shall have occurred and be continuing,
(y) the termination of the Lease Term pursuant to Section 22.1 of the Lease, or (z) the
discharge in full of Lessees obligation to pay the Termination Value or the Stipulated Loss
Value and all other amounts due, if any, under Section 10 or 11.2 of the Lease, as the case
may be, with respect to the Equipment;
provided
that the exclusion set forth in this clause
(ii) shall not apply to Taxes to the extent such Taxes relate to events occurring or matters
arising prior to or simultaneously with such time (including Taxes on or with respect to any
payment to a Tax Indemnitee due after the termination or expiration of the Lease if such
payment relates to events occurring or matters arising prior to or simultaneously with such
time);
(iii) Taxes of a Tax Indemnitee which arise out of or are caused by any breach by such
Tax Indemnitee of any of its representations, warranties or covenants in any of the
Operative Agreements, or the gross negligence or willful misconduct of such Tax Indemnitee;
(iv) Taxes which become payable as a result of a sale, assignment, transfer or other
disposition (whether voluntary or involuntary) by a Tax Indemnitee of all or any portion of
its interest in the Equipment or any part thereof, the Trust Estate or any of the Operative
Agreements or rights created thereunder other than a disposition attributable to (v) a Lease
Event of Default (but only while a Lease Event of Default has occurred and is continuing),
(w) an Event of Loss, (x) the exercise by Lessee of the termination right pursuant to
Section 10 of the Lease, (y) the exercise by Lessee of the purchase rights pursuant to
Section 23 of the Lease and (z) the replacement, substitution, subleasing or interchange of
any Unit by any Lessee Person;
(v) Taxes imposed with respect to any fees received by Indenture Trustee or Owner
Trustee for services rendered in its capacity as trustee;
(vi) Taxes which have been included in the Equipment Cost;
(vii) Taxes for which Lessee is obligated to indemnify Owner Participant under the Tax
Indemnity Agreement;
(viii) Taxes which result from Owner Trustees engaging on behalf of the Trust Estate
acting upon the instruction of Owner Participant in transactions other than those permitted
or contemplated by the Operative Agreements unless attributable to the exercise of default
remedies pursuant to Article V of the Trust Agreement;
(ix) Taxes imposed pursuant to Sections 6707, 6707A or 6708 of the Code;
(x) As to any Tax Indemnitee any Taxes imposed as a result of any modification,
amendment, supplement, consent, or waiver to any Operative Agreement
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entered into by such Tax Indemnitee or any related Tax Indemnitee thereof other than any
modification, amendment, supplement, consent, or waiver (A) consented to in writing,
requested in writing or initiated by the Lessee or requested in connection with any
modification, amendment, supplement, consent or waiver in writing by or initiated by the
Lessee, (B) while a Lease Event of Default shall have occurred and is continuing or (C) that
is required by the Operative Agreements or by law;
(xi) Taxes imposed against a particular Indemnified Person resulting from any
prohibited transaction, within the meaning of Section 4975(c)(1) of the Code, occurring with
respect to the purchase or holding of Equipment Notes or circumstances when such Indemnified
Person or any Person in such Indemnified Persons Related Indemnitee Group caused such
purchase or holding and knew it would constitute such a prohibited transaction;
(xii) Taxes imposed on a Tax Indemnitee to the extent resulting from a failure of such
Tax Indemnitee to provide any certificate, documentation, or other evidence requested by
Lessee in a timely manner and required under applicable law as a condition to the allowance
of a reduction in such Tax, but only if such Tax Indemnitee was legally eligible to provide
such certificate, document or other evidence (based on a good faith judgment of such Tax
Indemnitee that it is legally entitled and eligible to do so) without unindemnified adverse
consequences (other than certain de minimis costs) unless resulting from the failure by the
Lessee to perform its obligations under Section 7.1(i);
(xiii) Taxes imposed on a Tax Indemnitee to the extent consisting of interest,
penalties, fines or additions to Tax in connection with the filing of, or failure to file,
any tax return, the payment of, or failure to pay any Tax, or the conduct of any proceeding
in respect thereof, unless resulting from the failure by Lessee to perform its obligations
under Section 7.1(i) hereof;
(xiv) Taxes imposed against a transferee of a Tax Indemnitee to the extent of the
excess of such Taxes over the amount of such Taxes which would have been imposed had there
not been a transfer by such original Tax Indemnitee of the interest of such Tax Indemnitee
in the Equipment, the Equipment Notes or the Trust Estate;
provided, however,
this clause
(xiv) shall not apply to Taxes imposed by withholding or deduction on a transferee of a Loan
Participant if the transferee is a resident of Canada, France, Germany, The Netherlands,
Austria, Italy, Switzerland or the United Kingdom for purposes of the tax convention on
income taxes between such country and the United States;
(xv) Taxes imposed by reason of the failure of the Owner Trust to be subject to the
provisions of the Code regarding grantor trusts; and
(xvi) Taxes that would not have been imposed but for Owner Participant engaging in
transactions governed or intended to be governed by Section 1031 of the Code in connection
with the transactions contemplated by the Operative Agreements.
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(d)
All Tax Obligations in This Section, Etc.
Notwithstanding any other provision anywhere
contained in the Operative Agreements except as expressly provided therein, it is understood that
(i) all of the Lessees obligations with respect to Taxes are set forth in this Section 7.1 and in
the Tax Indemnity Agreement, and if Lessee shall be required under any provision of the Operative
Agreements to pay any other tax not described in this sentence, it shall be entitled to prompt
reimbursement of such amount from the party whose tax liability was paid and (ii) except as
provided in Section 6.2, with respect to the Owner Participant, and Section 6.3, with respect to
the Trust Company, the Owner Participant and the Trust Company shall have no obligations with
respect to Taxes or other charges to the Indenture Trustee under Sections 5.09 or 7.01 of the
Indenture, or otherwise.
(e)
Reverse Indemnity
. If any Tax Indemnitee shall realize a tax benefit as a result of any
Taxes paid or indemnified against by Lessee under this Section 7.1 (whether by way of deduction,
credit, allocation or apportionment or otherwise, except to the extent taken into account in
determining Lessees obligations under Section 7.1(b)), such Tax Indemnitee shall pay to Lessee an
amount equal to the amount of such tax benefit, increased by the Tax Indemnitees additional saved
taxes attributable to the payment being made to Lessee hereunder (a
reverse gross-up
),
provided
that (i) the Tax Indemnitee shall not be obligated to make a payment to Lessee pursuant to this
subsection (e) as long as a Lease Event of Default shall have occurred and be continuing or (ii) to
the extent the amount of such payment by the Tax Indemnitee to Lessee would exceed the amount of
all prior payments by Lessee to the Tax Indemnitee pursuant to paragraph (b) less the amount of all
prior payments by the Tax Indemnitee of tax benefits pursuant to this paragraph (e), such excess
shall not be paid but shall instead be carried forward and shall reduce Lessees obligations to
make subsequent payments under paragraph (b) to the Tax Indemnitee. The foregoing proviso shall
not apply to any reverse gross-up. The Tax Indemnitee shall in good faith use diligence in filing
its tax returns and in dealing with taxing authorities to seek and claim any such tax benefit and
to minimize the Taxes indemnifiable by Lessee under paragraph (b). Any subsequent loss or
disallowance of such reduction in Taxes realized by the Tax Indemnitee shall be treated as Taxes
subject to Lessees indemnity obligation pursuant to this Section 7.1.
(f)
Refund
. Upon receipt by a Tax Indemnitee of a refund or credit of all or part of any
Taxes paid or indemnified against by Lessee, such Tax Indemnitee shall pay to Lessee an amount
equal to the amount of such refund plus any interest received by or credited to such Tax Indemnitee
with respect to such refund increased or decreased, as the case may be, by the Tax Indemnitees net
additional or saved taxes attributable to the receipt of such amounts from the taxing authority and
the payment being made to Lessee hereunder. The Tax Indemnitee shall in good faith use diligence
in filing its Tax returns and in dealing with taxing authorities to seek and claim any such refund
and to minimize the Taxes indemnifiable by Lessee pursuant to paragraph (b).
(g)
Procedures
. Any amount payable to a Tax Indemnitee pursuant to paragraph (b) shall be
paid within 30 days after receipt of a written demand therefor from
such Tax Indemnitee accompanied by a written statement describing in reasonable detail the basis
for such indemnity and the computation of the amount so payable,
provided
that such amount need not
be paid prior to the later of (i) the date which is 3 days prior to the date on which such Taxes
are required to be
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paid or (ii) in the case of amounts which are being contested pursuant to
paragraph (h) hereof, the time such contest (including all appeals) is finally resolved. Any
amount payable to Lessee pursuant to paragraph (e) or (f) shall be paid within 30 days after the
Tax Indemnitee realizes a tax benefit giving rise to a payment under paragraph (e) or receives a
refund giving rise to a payment under paragraph (f), as the case may be, and shall be accompanied
by a written statement by the Tax Indemnitee setting forth in reasonable detail the basis for
computing the amount of such payment. Within 15 days following Lessees receipt of any computation
from the Tax Indemnitee, Lessee may request that an accounting firm selected by Lessee and
reasonably acceptable to the Tax Indemnitee determine whether such computations of the Tax
Indemnitee are correct. Such accounting firm shall be requested to make the determination
contemplated by this paragraph (g) within 30 days of its selection. In the event such accounting
firm shall determine that such computations are incorrect, then such firm shall determine what it
believes to be the correct computations. The Tax Indemnitee shall cooperate with such accounting
firm and supply it with all information necessary to permit it to accomplish such determination,
provided
that such accounting firm shall have entered into a confidentiality agreement reasonably
satisfactory to such Tax Indemnitee. The computations of such accounting firm shall be final,
binding and conclusive upon the parties and Lessee shall have no right to inspect the books,
records or tax returns of the Tax Indemnitee to verify such computation or for any other purpose.
All fees and expenses of the accounting firm payable under this Section 7.1(g) shall be borne by
Lessee,
provided
,
however
, that such fees and expenses shall be borne by the Tax Indemnitee if the
amount determined by such firm is (1) in the case of any amount payable by Lessee, less than the
amount determined by the Tax Indemnitee by 5% of the amount determined by such firm, and (2) in the
case of any amount payable by the Tax Indemnitee, more than the amount determined by the Tax
Indemnitee by 5% of the amount determined by such firm.
(h)
Contest
. If a written claim is made against a Tax Indemnitee for Taxes with respect to
which Lessee may be liable for indemnity hereunder, the Tax Indemnitee shall promptly give Lessee
notice in writing of such claim after its receipt and shall furnish Lessee with copies of the claim
and all other writings received from the taxing authority relating to the claim;
provided
,
however
,
that failure to notify Lessee shall not relieve Lessee of any obligation to indemnify the Tax
Indemnitee hereunder unless such failure shall effectively preclude Lessees ability to initiate or
continue the contest of such claim. The Tax Indemnitee shall not pay such claim prior to 30 days
after providing Lessee with such written notice, unless required to do so by law or unless deferral
of payment would cause adverse consequences to the Tax Indemnitee. The Tax Indemnitee shall in
good faith, with due diligence and at Lessees expense, if requested in writing by Lessee, contest
(including pursuing all appeals) in the name of the Tax Indemnitee (or, if requested by Lessee and
permissible as a matter of law, in the name of Lessee), or shall at Lessees option permit Lessee
to contest in either the name of Lessee or with the Tax
Indemnitees consent, which consent shall not be unreasonably withheld, in the name of the Tax
Indemnitee, the validity, applicability or amount of such Taxes by,
(i) resisting payment thereof if practical;
(ii) not paying the same except under protest if protest is necessary and proper;
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(iii) if the payment be made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings; or
(iv) taking such other reasonable action as is reasonably requested by Lessee from
time to time.
Notwithstanding the foregoing provisions of this paragraph (h), the Tax Indemnitee shall not
be required to contest, or permit Lessee to contest, a claim unless (A) Lessee shall have agreed in
writing to pay on an After-Tax Basis to the Tax Indemnitee on demand all reasonable out-of-pocket
costs and expenses which the Tax Indemnitee may incur in connection with contesting such claim, (B)
no Lease Event of Default shall have occurred and be continuing, (C) such contest will not result
in any material danger of the sale, forfeiture or loss of any of the Units unless Lessee shall have
provided security reasonably acceptable to the Tax Indemnitee, and there is no risk of imposition
of any criminal penalties as a result of such Tax Claim, (D) if such contest involves payment of
such Tax, Lessee will either lend to the Tax Indemnitee on an interest-free basis (without
reduction for any Tax savings that the Tax Indemnitee may realize as a result of the payment of
such Tax), which loan will be repaid in full by the Tax Indemnitee upon the conclusion of the
contest or pay such Tax Indemnitee the amount payable by Lessee pursuant to Section 7.1(a) above
with respect to such Tax, and (E) upon request of a Tax Indemnitee, Lessee furnishes such Tax
Indemnitee with an opinion of Lessees counsel that there is a reasonable basis for the position to
be asserted in such contest and in the case of an appeal, that there is a substantial likelihood
that the adverse decision will be reversed or substantially modified on appeal. If a Tax
Indemnitee is obligated to contest a claim under this paragraph (h), such Tax Indemnitee shall not
compromise or settle such claim without the express written permission of Lessee. If it does so in
the absence of such permission, Lessees obligation to indemnify with respect to such claim shall
terminate. If a Tax Indemnitee is obligated to contest a claim under this paragraph (h), such Tax
Indemnitee may at any time decline to take further action with respect to the contest of such claim
if such Tax Indemnitee shall first waive in writing its right to any indemnity payment by Lessee in
respect of such claim (other than the expenses of such contest).
(i)
Reports
. In case any report, return or statement is required to be filed with respect to
Taxes for which Lessee has an indemnity obligation under this Section 7.1, Lessee shall at Lessees
expense timely file the same (except for any such report, return or statement (x) which the
relevant Tax Indemnitee has notified Lessee in writing that such Tax Indemnitee intends to file or
(y) which Lessee is not permitted to file, in which
event Lessee shall timely (but in no event later than 30 days prior to the due date for such
report, return or statement) provide at Lessees expense such Tax Indemnitee with such information
reasonably available to Lessee as is reasonably necessary for preparing such report, return or
statement), provided that such Tax Indemnitee shall have furnished Lessee with such information,
not within the control of Lessee, as is in such Tax Indemnitees control and is reasonably
available to such Tax Indemnitee and reasonably necessary to file such report, return or statement.
Lessee shall either file such report, return or statement so as to show the ownership of the
Equipment by the Trust or, where Lessee is not permitted to so file, shall notify the Tax
Indemnitee of such requirement and prepare and deliver such report, return or statement to the Tax
Indemnitee within a reasonable time prior to the time such report, return or statement is to be
filed.
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(j)
Withholding
. The following provisions shall apply solely with respect to the Loan
Participant.
(i) Lessee covenants and agrees to pay or cause to be paid all Taxes which are imposed
by withholding or deduction as a result of a Change in Tax Law on or with respect to the
payment of principal or interest under the Equipment Notes or of any other sums payable to
Loan Participant by Lessee or Owner Trustee under the Operative Agreements, including all
additional amounts and penalties payable in respect of any delay or failure of Lessee to
pay any such Taxes. Lessee shall not be required to pay or discharge any such withholding
Taxes so long as it shall in good faith and by appropriate administrative or legal
proceedings contest the validity thereof in a reasonable manner which will not affect or
endanger the right, title or interest of Owner Trustee or the security interest of
Indenture Trustee in the Indenture Estate, and Lessee shall reimburse Owner Trustee and
Loan Participant for any damages or expenses resulting from such failure to pay or
discharge. If any such withholding Taxes are deducted or withheld from any such payments,
Lessee hereby agrees to promptly remit to Loan Participant the equivalent of the amounts so
deducted or withheld such that Loan Participant receives a net sum equal to the sum which
it would have received had no such deduction or withholding been made, and Lessee shall pay
all such withholding Taxes and deliver to Loan Participant proof of payment of all such
withholding Taxes within 30 days of the due date for such payment;
provided, however
,
Lessee shall be released from its obligations under this Section 7.1(j) with respect to
U.S. withholding Taxes resulting from the failure of the Loan Participant to provide at
Lessees request a properly completed form W-8BEN or W-8ECI or such other information or
certificates permitted under applicable law that would exempt or reduce such withholding.
Notwithstanding any provision to the contrary in the Operative Agreements, neither Owner
Participant, Trust Company nor Owner Trustee shall have any liability with respect to any
such withholding Taxes and Lessee will indemnify Owner Trustee, Trust Company and Owner
Participant for any such withholding Taxes to the extent provided in Sections 7.1(b) and
(c).
(ii) (A) If circumstances arise which have resulted or would result in any Taxes
imposed by withholding or deduction indemnified under Section 7.1(j)(i) (
Withholding
Taxes
) being imposed with respect to payments to Loan Participant; then, without in any
way limiting, reducing or otherwise qualifying the rights of Loan Participant under Section
7.1(j)(i), Loan Participant shall promptly upon becoming aware of the same provide written
notice to the Lessee (including in such notice a good faith estimate of the amount of any
such Withholding Taxes) (
Withholding Notice
). The Loan Participant and Lessee shall
consult in good faith and shall each use its reasonable good faith efforts to avoid or
mitigate the amount of any such Withholding Taxes, including, without limitation, by
reaching a mutually acceptable agreement to a transfer by the Loan Participant of its
Equipment Notes and its rights hereunder and under the other Operative Agreements to
another existing branch, office or subsidiary of the Loan Participant, or a sale, for an
amount equal to the Purchase Price (as defined in clause (B) below), of such participation
and rights to a third party reasonably acceptable to Lessee which is not affected by the
circumstances having the results described above or which
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would be subject to a lesser
amount of Withholding Taxes than the Loan Participant (any such solution, a
Mutually
Acceptable Arrangement
).
(B) Loan Participant agrees that if Lessee and Loan Participant do not reach a
Mutually Acceptable Arrangement within thirty (30) days of Lessees receipt of a
Withholding Notice, Lessee may elect by providing written notice to the Loan Participant
within sixty (60) days of Lessees receipt of its Withholding Notice to refinance the
Equipment Notes pursuant to Section 11.2 hereof (in the case of a Loan Participant not a
resident of Canada for purposes of the Convention between the United States of America and
Canada with Respect to Taxes on Income and on Capital, without, however, the payment of
Make-Whole Amount) or to require the affected Loan Participant to sell its Equipment Note
to a third party willing to purchase the Loan Participants Equipment Note for a purchase
price (the
Purchase Price
) equal to the sum of the principal amount of the Loan
Participants interest in the Equipment Note plus accrued interest thereon, if any, that
would be payable to the Loan Participant if the Equipment Notes were prepaid on the date of
such purchase (plus, in the case of a Loan Participant that is a resident of Canada for
purposes of the Convention between the United States of America and Canada with Respect to
Taxes on Income and on Capital, the Make-Whole Amount). The affected Loan Participant may
give written notice to Lessee within thirty (30) days of its receipt of Lessees notice of
its intent to refinance the Equipment Notes or require the sale of the affected Equipment
Note that it waives its right to indemnification for Withholding Taxes with respect to such
Change in Tax Law, in which event such affected Loan Participant shall not be entitled to
indemnification in respect thereof and this Section 7.1(j)(ii) shall no longer apply with
respect to such Withholding Taxes.
Section 7.2. General Indemnification and Waiver of Certain Claims
.
(a)
Claims Defined
. For the purposes of this Section 7.2,
Claims
shall mean any and all
costs, expenses, liabilities, obligations, losses, damages, penalties, actions or suits or claims
of whatsoever kind or nature (whether or not on the basis of negligence, strict or absolute
liability or liability in tort) which may be imposed on, incurred by, suffered by or asserted
against an Indemnified Person, as defined herein, or any Unit and, except as otherwise expressly
provided in this Section 7.2, shall include, but not be limited to, all reasonable out-of-pocket
costs, disbursements and expenses (including legal fees and expenses) paid or incurred by an
Indemnified Person in connection therewith or related thereto.
(b)
Indemnified Person Defined
. For the purposes of this Section 7.2,
Indemnified Person
means Owner Participant, Owner Trustee, Trust Company, the Trust, Indenture Trustee, Loan
Participant, and each of their respective directors, officers, employees, shareholders, constituent
investors or partners, Affiliates, successors and permitted assigns, agents and servants, the Trust
Estate and the Indenture Estate (the respective directors, officers, employees, shareholders,
constituent investors or partners, Affiliates, successors and permitted assigns, agents and
servants of Owner Participant, Trust Company and Indenture Trustee, as applicable, together with
Owner Participant, Owner Trustee and Indenture Trustee, as the case may be, being referred to
herein collectively as the
Related Indemnitee Group
of Owner Participant, Owner Trustee and
Indenture Trustee, but not Trust Company respectively),
provided
that as a
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condition of any
obligations of Lessee to pay any indemnity or perform any action under this Section 7.2 with
respect to any persons who are not signatories hereto, such persons at the written request of
Lessee shall expressly agree in writing to be bound by all the terms of this Section 7.2. In the
event that any Indemnified Person fails, after notice to such Indemnified Person referring to this
sentence, to comply with any duty or obligation under Section 7.2(e) and (f), such Indemnified
Person shall not be entitled to indemnity under this Section 7.2 to the extent such failure to
comply has a material adverse effect on Lessees ability to defend any such Claim.
(c)
Claims Indemnified
. Whether or not any Unit is accepted under the Lease, or a closing
occurs with respect thereto, and subject to the exclusions stated in subsection (d) below, Lessee
agrees to indemnify, protect, defend and hold harmless each Indemnified Person on an After-Tax
Basis against Claims resulting from or arising out of or related to (whether or not such
Indemnified Person shall be indemnified as to such Claim by any other Person):
(i) this Agreement or any other Operative Agreement or any of the transactions
contemplated hereby and thereby or resulting herefrom or therefrom and the enforcement
thereof and hereof;
(ii) the ownership, lease, operation, possession, modification, use, non-use,
maintenance, sublease, financing, refinancing, substitution, control, repair, storage,
alteration, violation of law with respect to any Unit (including applicable securities
laws, ERISA and environmental law), transfer or other disposition of any Unit, return,
overhaul, testing or registration of any Unit
(including, without limitation, injury, death or property damage of passengers, shippers or
others, and environmental control, noise and pollution regulations) whether or not in
compliance with the terms of the Lease;
(iii) the manufacture, design, purchase, acceptance, rejection, delivery, nondelivery
or condition of any Unit (including, without limitation, latent and other defects, whether
or not discoverable, and any claim for patent, trademark or copyright infringement);
(iv) any breach of or failure to perform or observe, or any other noncompliance with,
any covenant, condition or agreement to be performed by, or other obligation of, Lessee
under any of the Operative Agreements, or the falsity when made of any representation or
warranty of Lessee in any of the Operative Agreements or in any document or certificate
delivered in connection therewith other than representations and warranties in the Tax
Indemnity Agreement; and
(v) the offer, sale or delivery of any Equipment Notes or any interest in the Trust
Estate.
(d)
Lessees Claims Excluded
. The following are excluded from the agreement to indemnify
under this Section 7.2:
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(i) Claims with respect to any Unit to the extent attributable to acts or events
occurring after (A) in the case of the exercise by Lessee of a purchase option with respect
to such Unit under Section 23 of the Lease, the exercise by Lessee of an early termination
option with respect to such Unit under Section 10 of the Lease or the occurrence of an
Event of Loss with respect to such Unit under Section 11 of the Lease, the last to occur of
(w) if an Event of Default exists, the elimination of such Event of Default and the payment
of all amounts due under the Operative Agreements, (x) the payment of all amounts due from
Lessee in connection with any such event and (y) the release of the lien of the Indenture
on such Unit or (B) in all other cases, with respect to such Unit the last to occur of (w)
if an Event of Default exists, the elimination of such Event of Default and the payment of
all amounts due under the Operative Agreements, (x) the earlier to occur of the termination
of the Lease or the expiration of the Lease Term, (y) the return of such Unit to Lessor in
accordance with the terms of the Lease (it being understood that the date of the placement
of such Unit in storage as provided in Section 6 of the Lease constitutes the date of
return of such Unit under the Lease) and (z) the release of the lien of the Indenture on
such Unit;
(ii) with respect to any particular Indemnified Person, Claims which are Taxes or
Losses, whether or not Lessee is required to indemnify therefor under Section 7.1 hereof or
the Tax Indemnity Agreement, except, subject to subparagraph (xiii) below, Taxes arising by
reason of ERISA and not related to such Indemnified Persons making or holding its
investment as contemplated by the Operative Agreements or in accordance with the
instructions of Lessee (it
being hereby agreed that except as expressly provided in the Operative Agreements
(including the foregoing sentence), Lessees entire obligation with respect to Taxes and
Losses being fully set out in such Section 7.1 or the Tax Indemnity Agreement);
(iii) with respect to any particular Indemnified Person, Claims to the extent
attributable to the gross negligence or willful misconduct of (other than gross negligence
or willful misconduct imputed as a matter of law to such Indemnified Person solely by
reason of its interest in the Equipment), or to the breach of any contractual obligation
by, or the falsity or inaccuracy of any representation or warranty of such Indemnified
Person or any of such Indemnified Persons Related Indemnitee Group;
(iv) with respect to any particular Indemnified Person, Claims to the extent
attributable to any breach by such Indemnified Person of the warranty of quiet enjoyment
set forth in Article VIII or any transfer (other than pursuant to Section 10, 11, 15 or 23
of the Lease or pursuant to the Indenture) by such Indemnified Person of any interest in
the Trust Estate;
(v) with respect to any particular Indemnified Person, any Claim to the extent
attributable to the offer, sale or disposition (voluntary or involuntary) by or on behalf
of such Indemnified Person of any Equipment Note or any interest in the Trust Estate or the
Trust Agreement, or any similar security, other than a transfer by such Indemnified Person
of its interests in any Unit pursuant to Section 10, 11 or 23 of the Lease or otherwise
attributable to a Lease Event of Default that has occurred and is continuing;
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(vi) any Claim by Owner Trustee or Owner Participant and the Related Indemnitee Group
of such Indemnified Person to the extent attributable to a failure on the part of Owner
Trustee to distribute in accordance with the Trust Agreement any amounts received and
distributable by it thereunder;
(vii) any Claim (other than to the extent any such Claim is brought against Owner
Participant or Owner Trustee and the Related Indemnitee Group of such Indemnified Person)
to the extent attributable to a failure on the part of Indenture Trustee to distribute in
accordance with the Indenture any amounts received and distributable by it thereunder;
(viii) any Claim to the extent attributable to the authorization or giving or
unreasonable withholding by such Indemnified Person of any future amendments, supplements,
modifications, alterations, waivers or consents with respect to any of this Agreement and
the other Operative Agreements, other than such as have been requested by or consented to
by Lessee or necessary or required to comply with applicable laws or to effectuate the
purpose or intent of any Operative Agreement or as are expressly required by any Operative
Agreements;
(ix) any Claim to the extent attributable to an Indenture Default that does not also
constitute a Lease Default;
(x) any Claim which relates to a cost, fee or expense payable by a Person other than
Lessee pursuant to this Agreement, the Lease or any other Operative Agreement;
(xi) any Claim of Owner Participant or Owner Trustee to the extent that such Claim
would not have arisen but for the appointment of a successor or an additional Owner Trustee
without the consent of Lessee unless such successor or additional Owner Trustee had been
appointed in connection with the exercise of remedies pursuant to Section 15 of the Lease
following the occurrence and continuance of a Lease Event of Default;
(xii) any Claim which is an ordinary and usual operating or overhead expense of such
Indemnified Person other than such expenses attributable to the occurrence of an Event of
Default;
(xiii) with respect to a particular Indemnified Person and such Indemnified Persons
Related Indemnitee Group, Claims resulting from any prohibited transaction, within the
meaning of Section 4975(c)(I) of the Code, occurring with respect to the purchase or
holding of Equipment Notes under circumstances when such Indemnified Person caused such
purchase or holding and knew it would constitute such a prohibited transaction; or
(xiv) any Claim relating to any principal or interest payable under the Equipment
Notes or the Indenture.
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(e)
Insured Claims
. In the case of any Claim indemnified by Lessee hereunder which is covered
by a policy of insurance maintained by Lessee pursuant to Section 12 of the Lease or otherwise,
each Indemnified Person agrees to provide reasonable cooperation, at the expense and risk of
Lessee, to the insurers in the exercise of their rights to investigate, defend or compromise such
Claim as may be required to retain the benefits of such insurance with respect to such Claim.
(f)
Claims Procedure
. An Indemnified Person shall promptly notify Lessee of any Claim as to
which indemnification is sought;
provided
,
however
, that, notwithstanding the last sentence of
Section 7.2(b), the failure to give such notice shall not release Lessee from any of its
obligations under this Article VII, except to the extent that such failure to give notice shall
have a material adverse effect on Lessees ability to defend such claim. Subject to the rights of
insurers under policies of insurance maintained by Lessee, Lessee shall have the right in each case
at Lessees sole expense to investigate, and the right in its sole discretion to defend or
compromise, any Claim for which indemnification is sought under this Section 7.2 and the
Indemnified Person shall cooperate with all reasonable requests of Lessee in connection therewith;
provided
that no right to defend or compromise such Claim shall exist on the part of Lessee with
respect to any Indemnified Person if (1) a Lease Event of Default shall have occurred and be
continuing or (2) such Claim would entail a significant risk to such Indemnified Person of any
criminal liability or, unless indemnified against by Lessee, any civil liability or penalty;
provided
,
further
, that no right to compromise or settle such Claim shall exist unless Lessee
agrees in writing to pay the amount of such settlement or compromise. In any case in which any
action, suit or proceeding is brought against any Indemnified Person in connection with any Claim,
Lessee may and, upon such Indemnified Persons request, will at Lessees expense resist and defend
such action, suit or proceeding, or cause the same to be resisted or defended by counsel selected
by Lessee and reasonably acceptable to such Indemnified Person and, in the event of any failure by
Lessee to do so, Lessee shall pay all costs and expenses (including, without limitation, reasonable
attorneys fees and expenses) incurred by such Indemnified Person in connection with such action,
suit or proceeding. Where Lessee or the insurers under a policy of insurance maintained by Lessee
undertake the defense of an Indemnified Person with respect to a Claim, no additional legal fees or
expenses of such Indemnified Person in connection with the defense of such Claim shall be
indemnified hereunder unless such fees or expenses were incurred at the request of Lessee or such
insurers;
provided
,
however
, that if in the written opinion of counsel to such Indemnified Person
an actual or potential material conflict exists where it is advisable for such Indemnified Person
to be represented by separate counsel, the reasonable fees and expenses of any such separate
counsel shall be paid by Lessee. Subject to the requirements of any policy of insurance, an
Indemnified Person may participate at its own expense in any judicial proceeding controlled by
Lessee pursuant to the preceding provisions;
provided
that such partys participation does not, in
the opinion of the independent counsel appointed by Lessee or its insurers to conduct such
proceedings, interfere with such control; and such participation shall not constitute a waiver of
the indemnification provided in this Section 7.2(f). Nothing contained in this Section 7.2(f) shall
be deemed to require an Indemnified Person to contest any Claim or to assume responsibility for or
control of any judicial proceeding with respect thereto.
(g)
Subrogation
. If a Claim indemnified by Lessee under this Section 7.2 is paid by Lessee
and/or an insurer under a policy of insurance maintained by Lessee, Lessee and/or such
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insurer, as
the case may be, shall be subrogated to the extent of such payment to the rights and remedies of
the Indemnified Person (other than under insurance policies maintained by such Indemnified Person)
on whose behalf such Claim was paid with respect to the transaction or event giving rise to such
Claim. So long as no Lease Event of Default shall have occurred and be continuing, should an
Indemnified Person receive any refund, in whole or in part, with respect to any Claim paid by
Lessee hereunder, it shall promptly pay over the amount refunded (but not in excess of the amount
Lessee or any of its insurers has paid in respect of such Claim paid or payable by such Indemnified
Person on account of such refund) to Lessee.
(h)
Waiver of Certain Claims
. Lessee hereby waives and releases any Claim now or hereafter
existing against any Indemnified Person arising out of death or personal injury to personnel of
Lessee, loss or damage to property of Lessee, or the loss of use of any property of Lessee, which
may result from or arise out of the condition, use or
operation of the Equipment during the Lease Term, including without limitation any latent or patent
defect whether or not discoverable.
(i)
Conflicting Provisions
. The general indemnification provisions of this Section 7.2 are
not intended to waive or supersede any specific provisions of, or any rights or remedies of Lessee
under, the Lease, this Agreement or any other Operative Agreement to the extent such provisions
apply to any Claim. The general indemnification provisions of this Section 7.2 do not constitute a
guaranty by Lessee that the principal of, interest on or any amounts payable with respect to the
Equipment Notes will be paid.
Article VIII
Lessees Right of Quiet Enjoyment
Each party to this Agreement acknowledges notice of, and consents in all respects to, the
terms of the Lease, and expressly, severally and as to its own actions only, agrees that, so long
as no Lease Event of Default has occurred and is continuing, it shall not take or cause to be taken
any action contrary to Lessees rights under the Lease, including, without limitation, the right to
possession, use and quiet enjoyment by Lessee or any permitted sublessee.
Article IX
[
Reserved
]
Article X
Successor Indenture Trustee
(a) In the event that Indenture Trustee gives notice of its resignation pursuant to Section
8.02(a) of the Trust Indenture, the Lessee, on behalf of the Owner Trustee, shall promptly appoint
a successor Indenture Trustee reasonably acceptable to Loan Participant;
provided
that a Majority
In Interest may appoint, within one year after such resignation or
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removal, a successor Indenture
Trustee which may be other than the successor Indenture Trustee appointed by Lessee as provided
above, and such successor Indenture Trustee appointed as provided above shall be superseded by the
successor Indenture Trustee so appointed by a Majority In Interest. If a successor Indenture
Trustee shall not have been appointed and accepted its appointment hereunder within 60 days after
Indenture Trustee gives notice of resignation as, the retiring Indenture Trustee, Lessee, Owner
Trustee or a Majority In Interest may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
(b) In the event that any of Owner Trustee, Loan Participant or Lessee obtains actual
knowledge of the existence of any of the grounds for removal of Indenture Trustee set forth in
Section 8.02(a) of the Indenture, Owner Trustee, Loan Participant or Lessee, as the case may be,
shall promptly notify the others by telephone, confirmed in writing and Lessee, on behalf of Owner
Trustee, shall promptly thereafter remove Indenture Trustee and appoint a successor Indenture
Trustee reasonably acceptable to Loan Participant.
Article XI
Miscellaneous
Section 11.1. Consents
. Each Participant covenants and agrees that it shall not unreasonably
withhold its consent to any consent requested of Owner Trustee or Indenture Trustee, as the case
may be, under the terms of the Operative Agreements that by its terms is not to be unreasonably
withheld by Owner Trustee or Indenture Trustee.
Section 11.2. Refinancing
.
(a)
Generally
. Provided no Specified Default or Event of Default shall have occurred and be
continuing, Lessee shall have the right at any time during the Lease Term to request Owner
Participant and Owner Trustee to effect an optional prepayment of all of the Equipment Notes
pursuant to Section 2.10(d) of the Indenture as part of a refunding or refinancing operation.
Promptly on receipt of such request, Owner Participant will conclude an agreement with Lessee as to
the terms of such refunding or refinancing operation, and upon such agreement:
(i) Lessee, Owner Participant, Indenture Trustee, Owner Trustee, and any other
appropriate parties will enter into a financing or loan agreement (which may involve an
underwriting agreement in connection with a public offering) which shall be without
recourse or warranty as to Owner Participant providing for (x) the issuance and sale by
Owner Trustee or such other party as may be appropriate to such institution or institutions
on the date specified in such agreement (for the purposes of this Section 11.2, the
Refunding Date
) of debt Securities in an aggregate principal amount (in the lawful
currency of the United States) equal to the principal amount of the Equipment Notes
outstanding on the Refunding Date, and (y) the application of the proceeds of the sale of
such debt Securities to the prepayment of all such Equipment Notes on the Refunding Date,
and (z) payment by Lessee to the Person or Persons entitled thereto on behalf of Owner
Trustee as Supplemental Rent of all other amounts in respect of accrued interest,
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and any
Make-Whole Amount with respect to any Equipment Note payable on such Refunding Date;
(ii) Lessee and Owner Trustee will amend the Lease such that (w) if the Refunding Date
is not a Rent Payment Date, Lessee shall on the Refunding
Date prepay that portion of the next succeeding installment of Basic Rent as shall equal
the aggregate interest accrued on the Equipment Notes outstanding to the Refunding Date,
(x) Basic Rent payable in respect of the period from and after the Refunding Date shall be
recalculated to preserve the Net Economic Return which Owner Participant would have
realized had such refunding not occurred, provided that the net present value of Basic Rent
shall be minimized to the extent consistent therewith, and (y) the EBO Fixed Purchase Price
and amounts payable in respect of Stipulated Loss Value and Termination Value from and
after the Refunding Date shall be appropriately recalculated to preserve the Net Economic
Return which Owner Participant would have realized had such refunding not occurred (it
being agreed that any recalculations pursuant to subclauses (x) and (y) of this clause (ii)
shall be performed in accordance with the requirements of Section 2.6 hereof);
(iii) Owner Participant will cause Owner Trustee to enter into an agreement to provide
for the securing thereunder of the debt Securities issued by Owner Trustee pursuant to
clause (a) of this Section 11.2 in like manner as the Equipment Notes and/or will enter
into such amendments and supplements to the Indenture which shall be without recourse or
warranty as to Owner Participant as may be necessary to effect such refunding or
refinancing; provided that, notwithstanding the foregoing, Lessee reserves the right to set
the economic terms and other terms not customarily negotiated between an owner participant
and a lender of the refunding or refinancing transaction to be so offered; provided,
further, that no such amendment or supplement will increase the obligations or impair the
rights of Owner Participant or Owner Trustee under the Operative Agreements without the
consent of Owner Participant;
(iv) in the case of a refunding or refinancing involving a public offering of debt
Securities, the offering materials (including any registration statement) for the refunding
or refinancing transaction shall be reasonably acceptable to Owner Participant to the
extent of any description or statement contained therein describing Owner Participant or
Owner Trustee or the terms of the transaction among Owner Participant, Owner Trustee and
Lessee; and
(v) unless otherwise agreed by Owner Participant, Lessee shall pay to Owner Trustee as
Supplemental Rent an amount equal to the Make-Whole Amount, if any, payable in respect of
Equipment Notes outstanding on the Refunding Date, and all reasonable fees, costs, expenses
of such refunding or refinancing;
provided, however,
that (u) any such refinancing shall
not adversely affect the rights or increase the obligations of Owner Participant under the
Operative Agreements taken as a whole; (v) such refinancing shall not increase Owner
Participants risk of any adverse tax consequences (including any adverse tax consequences
under Section 467 or Section 861 of the Code or the Regulations) unless such risks are
indemnified by Lessee in a manner satisfactory to
-50-
Owner Participant; (w) Lessee may only
enter into a refunding or refinancing operation under this Section 11.2(a) on no more than
two occasions; (x) Lessee
shall pay to or reimburse the Participants, Owner Trustee and Indenture Trustee for all
costs and expenses (including reasonable attorneys and advisors fees) paid or incurred by
them in connection with such refinancing; (y) no refinancing shall cause Owner Participant
to account for the transaction contemplated hereby as other than a leveraged lease under
the Financial Accounting Standards Board (
FASB
) Statement No. 13, as amended (including
any amendment effected by means of the adoption by FASB of a new statement in lieu of FASB
Statement No. 13); and (z) such refinancing shall not (A) create replacement Equipment
Notes with a maturity longer than the Equipment Notes being replaced, (B) create
replacement Equipment Notes with an average life longer than the average life of the
Equipment Notes, (C) require any additional investment by Owner Participant or (D) increase
the amount of premium payable in connection with a prepayment of the Equipment Notes. In
addition to the foregoing, in the case of any refunding or refinancing of the Equipment
Notes pursuant to this Section 11, the party purchasing the Equipment Notes shall represent
either that (i) no part of its purchase consists of assets of any employee benefit plan
(as defined in Section 3(3) of ERISA) or any other entity subject to Section 4975 of the
Code other than a governmental plan or church plan (as defined in Section 3(32) of
ERISA) organized in a jurisdiction not having prohibition on transactions with such
governmental plan or church plan substantially similar to those contained in Section 406 of
ERISA or Section 4975 of the Code, (ii) the purchase of such Equipment Notes does not
constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975
of the Code, or (iii) the source of funds for its purchase is an insurance company general
account within the meaning of proposed Department of Labor Prohibited Transaction
Exemption (
PTE
) 95-60 (issued July 12, 1995) and it has identified that there is no
employee benefit plan, treating as a single employee benefit plan, all employee benefit
plans maintained by the same employer or affiliates thereof or employee organization, with
respect to which the amount of the reserves for all contracts held by or on behalf of such
employee benefit plan exceed 10% of the total liabilities of such general account.
Accordingly, Owner Participant agrees to cooperate in good faith with Lessee in effecting
any such refunding or refinancing and, in connection therewith, at the request of Lessee
made at least 30 days prior to any proposed Refunding Date, (A) to cooperate with the
reasonable requests of any advisor selected by Lessee after consultation with Owner
Participant to obtain commitments from financial institutions to lend to Owner Trustee
funds sufficient to permit Owner Trustee to prepay, in whole, the outstanding Equipment
Notes in accordance with their terms in connection with any such refunding or refinancing
and (B) to make the adjustments contemplated by this Section 11.2 in connection with any
such refunding or refinancing.
(b)
Other Prepayments, Redemptions, Etc.
No prepayment or redemption and cancellation by
Owner Trustee or Owner Participant of any Equipment Note (other than pursuant to the Indenture and
this Section 11.2) shall be made without the prior written consent of Lessee.
Section 11.3 Amendments and Waivers
. No term, covenant, agreement or condition of this
Agreement may be terminated, amended or compliance therewith waived (either generally or
-51-
in a
particular instance, retroactively or prospectively) except by an instrument or instruments in
writing executed by each party hereto.
Section 11.4. Notices
. Unless otherwise expressly specified or permitted by the terms hereof,
all communications and notices provided for herein shall be in writing or by a telecommunications
device capable of creating a written record (including electronic mail), and any such notice shall
become effective (a) upon personal delivery thereof, including, without limitation, by overnight
mail and courier service, (b) in the case of notice by United States mail, certified or registered,
postage prepaid, return receipt requested, upon receipt thereof, or (c) in the case of notice by
such a telecommunications device, upon transmission thereof,
provided
such transmission is promptly
confirmed by either of the methods set forth in clauses (a) or (b) above, in each case addressed to
each party hereto at its address set forth below or, in the case of any such party hereto, at such
other address as such party may from time to time designate by written notice to the other parties
hereto:
-52-
|
If to Lessee:
|
|
Address of Lessee for Mail Delivery:
The Kansas City Southern Railway Company
P.O. Box 219335
Kansas City, Missouri 64121-9335
Attention: Senior Vice President Finance & Treasurer
Facsimile No.: (816) 983-1198
Telephone No.: (816) 983-1802
|
|
|
|
|
Address of Lessee for Courier and Similar Delivery
:
The Kansas City Southern Railway Company
427 West 12th Street
Kansas City, Missouri 64105
Attention: Senior Vice President Finance & Treasurer
Facsimile No.: (816) 983-1198
Telephone No.: (816) 983-1802
|
|
|
With a copy to:
|
|
The Kansas City Southern Railway Company
427 West 12th Street
Kansas City, Missouri 64105
Attention: Senior Vice President & General Counsel
Facsimile No.: (816) 983-1227
Telephone No.: (816) 983-1303
|
|
|
If to Owner Trustee:
|
|
U.S. Bank Trust National Association
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Attention: Corporate Trust Department (KCSR 2008-1)
Facsimile No.: (860) 241-6897
Telephone No.: (860) 241-6820
|
|
|
with a copy to:
|
|
Owner Participant at the address set forth below
|
|
|
If to Owner Participant:
|
|
MetLife Capital, Limited Partnership
10 Park Avenue, P.O. Box 1902
Morristown, New Jersey 07962
Attention: Director, Leveraged Leases
Facsimile No.: (973) 355-4230
Telephone No.: (973) 355-4806
|
|
|
With a copy to:
|
|
Metropolitan Life Insurance Company
10 Park Avenue, P.O. Box 1902
Morristown, New Jersey 07962-1902
Attention: Director, Leveraged Leases
Facsimile No.: (973) 355-4250
|
-53-
|
|
|
and
|
|
|
|
|
Attention: Chief Counsel-Securities Investments
Facsimile No.: (973) 355-4338
|
|
If to Loan Participant: at the addresses set forth in Exhibit C to the Indenture
|
|
If to Indenture Trustee:
|
|
|
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration (KCSR 2008-1)
Facsimile No.: (302) 636-4140
Telephone No.: (302) 636-6000
|
Section 11.5. Survival
. All warranties, representations, indemnities and covenants made by
any party hereto, herein or in any certificate or other instrument delivered by any such party or
on the behalf of any such party under this Agreement, shall be considered to have been relied upon
by each other party hereto and shall survive the consummation of the transactions contemplated
hereby on the date hereof and on the Closing Date and the Delivery Date regardless of any
investigation made by any such party or on behalf of any such party.
Section 11.6. No Guarantee of Debt
. Nothing contained herein or in the Lease, the Trust
Indenture, the Trust Agreement or the Tax Indemnity Agreement or in any certificate or other
statement delivered by Lessee in connection with the transactions contemplated hereby shall be
deemed to be (a) a guarantee by Lessee to Owner Trustee, Owner Participant, Indenture Trustee or
Loan Participant that the Equipment will have any residual value or useful life, or (b) a guarantee
by Indenture Trustee or Lessee of payment of the principal or Make-Whole Amount, if any, with
respect to any Equipment Note, or interest on the Equipment Notes.
Section 11.7. Successors and Assigns
. This Agreement shall be binding upon and shall inure to
the benefit of, and shall be enforceable by, the parties hereto and their respective successors and
assigns as permitted by and in accordance with the terms hereof, including each successive holder
of the Beneficial Interest permitted under Section 6.1 hereof and Section 23(c) of the Lease and
each successive holder of any Equipment Note issued and delivered pursuant to this Agreement or the
Indenture. Except as expressly provided
herein or in the other Operative Agreements, no party hereto may assign their interests herein
without the consent of the parties hereto.
Section 11.8. Business Day
. Notwithstanding anything herein or in any other Operative
Agreement to the contrary, if the date on which any payment is to be made pursuant to this
Agreement or any other Operative Agreement is not a Business Day, the payment otherwise payable on
such date shall be payable on the next succeeding Business Day with the same force and effect as if
made on such scheduled date and (provided such payment is made on such succeeding Business Day) no
interest shall accrue on the amount of such payment from and after such scheduled date to the time
of such payment on such next succeeding Business Day.
-54-
Section 11.9.
Governing Law
. This Agreement shall be in all respects governed by and
construed in accordance with the laws of the State of New York including all matters of
construction, validity and performance;
provided, however,
that the parties hereto shall be
entitled to all rights conferred by any applicable federal statute, rule or regulation
.
Section 11.10. Severability
. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 11.11. Counterparts
. This Agreement may be executed in any number of counterparts,
each executed counterpart constituting an original but all together only one Agreement.
Section 11.12. Headings and Table of Contents
. The headings of the sections of this Agreement
and the Table of Contents are inserted for purposes of convenience only and shall not be construed
to affect the meaning or construction of any of the provisions hereof.
Section 11.13. Limitations of Liability
.
(a)
Liabilities of the Participants
. Neither Indenture Trustee, Trust Company, Owner Trustee
nor any Participant shall have any obligation or duty to Lessee, to any other Participant or to
others with respect to the transactions contemplated hereby, except those obligations or duties of
such party expressly set forth in this Agreement and the other Operative Agreements, and neither
Indenture Trustee, Trust Company, Owner Trustee nor any Participant shall be liable for performance
by any other party hereto of such other partys obligations or duties hereunder. Without
limitation of the generality of the foregoing, under no circumstances whatsoever shall Indenture
Trustee or any
Participant be liable to Lessee for any action or inaction on the part of Owner Trustee in
connection with the transactions contemplated herein, whether or not such action or inaction is
caused by willful misconduct or gross negligence of Owner Trustee unless such action or inaction is
at the direction of Indenture Trustee or any Participant, as the case may be, and such direction is
expressly permitted hereby.
(b)
No Recourse to Owner Trustee
. It is expressly understood and agreed by and between Owner
Trustee, Lessee, Owner Participant, Indenture Trustee, and Loan Participant, and their respective
successors and permitted assigns that all representations, warranties and undertakings of Owner
Trustee hereunder shall be binding upon Owner Trustee only in its capacity as Owner Trustee under
the Trust Agreement and (except as expressly provided herein) such parties shall look solely to the
Trust Estate and not to Trust Company for any breach thereof, except that Trust Company shall be
personally liable for its gross negligence or willful misconduct (or, in the case of receiving,
handling or remitting of funds, failure to use ordinary care) or for its breach of its covenants,
representations and warranties contained herein to the extent covenanted or made in its individual
capacity and nothing in this Section 11.13(b) shall be construed to limit in scope or substance
those representations and warranties of Trust Company
-55-
made expressly in its individual capacity set
forth herein. The term Owner Trustee as used in this Agreement shall include any successor
trustee under the Trust Agreement, or Owner Participant if the trust created thereby is revoked.
Section 11.14. Reproduction of Documents
. This Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the parties hereto on the Closing Date (except the Equipment
Notes), and (c) financial statements, certificates and other information previously or hereafter
furnished pursuant hereto, may be reproduced by the parties hereto by any photographic,
photostatic, microfilm, microcard, miniature photographic, electronic or other similar process and
the parties hereto may destroy any original document so reproduced. The parties agree to accept
delivery of all of the foregoing documents in electronic format in lieu of original closing
transcripts. The parties further agree and stipulate that, to the extent permitted by applicable
law, any such reproduction, in electronic format or otherwise, shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in
evidence. This Section 11.14 shall not prohibit the parties hereto or any holder of Equipment
Notes from contesting any such reproduction to the same extent that it could contest the original,
or from introducing evidence to demonstrate the inaccuracy of any such reproduction.
Section 11.15. Tax Disclosure
. Notwithstanding anything herein to the contrary, each party
hereto (and each employee, representative or other agent of such person) may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax structure of the
transactions described in
this Agreement, and all materials of any kind (including opinions or other tax analyses) that are
provided to the person related to such tax treatment and tax structure. The preceding sentence is
intended to cause the transaction contemplated hereby to be treated as not having been offered
under conditions of confidentiality for purposes of U.S. Treasury Regulation §1.6011-4(b)(3) and
shall be construed in a manner consistent with such purpose.
Section 11.16. Bankruptcy of Trust or Trust Estate
. If (i) all or any part of the Trust
Estate becomes the property of a debtor, or the Trust becomes a debtor, subject to the
reorganization provisions of Title 11 of the United States Code, as amended from time to time, (ii)
pursuant to such reorganization provisions Owner Participant is required, by reason of Owner
Participant being held to have recourse liability to the debtor or the trustee of the debtor
directly or indirectly, to make payment on account of any amount payable as principal of or
interest on any Equipment Note, and (iii) Indenture Trustee or Loan Participant actually receives
any Excess Amount as defined below, which reflects any payment by Owner Participant on account of
clause (ii) above, Indenture Trustee or Loan Participant, as the case may be, shall promptly refund
to Owner Participant such Excess Amount. For purposes of this Section 11.16,
Excess Amount
means
the amount by which such payment exceeds the amount which would have been received by Indenture
Trustee or Loan Participant if Owner Participant has not become subject to the recourse liability
referred to in clause (ii) above. This Section 11.16 shall not be applicable to the extent Owner
Participant is Lessee or an Affiliate of Lessee.
-56-
Section 11.17. Transaction Intent.
It is the intent of Lessee that the Lease will be treated
as an operating lease for accounting and financial reporting purposes. In the event that the
transactions contemplated by the Operative Agreements are not treated for accounting and financial
reporting purposes in a manner consistent with such intent, then, so long as no Lease Event of
Default has occurred and is continuing, at Lessees reasonable request and at its sole cost and
expense, each of the parties hereto hereby agrees that it shall reasonably cooperate with Lessee to
restructure the transactions contemplated by the Operative Agreements to accomplish such intended
treatment;
provided
that any such restructuring (i) does not in any non-
de minimis
way adversely
affect any of such Persons rights or interests in the Equipment or any Operative Agreement, or
cause any such Person to incur any additional risks or to incur any additional costs or expenses
not otherwise satisfactorily indemnified by Lessee (which costs and expenses indemnity must be
satisfactory to each such Person) and (ii) shall be subject to such terms, conditions and documents
as are reasonably satisfactory to the Participants, and the Participants shall have obtained any
necessary internal approvals to enter into such restructuring.
Section 11.18. Jurisdiction, Court Proceedings
. Any suit, action or proceeding against any
party to this Agreement or any other Operative Agreement arising out of or relating to this
Agreement, any other Operative Agreement or any transaction contemplated hereby or thereby may be
brought in the Supreme Court of the State of New York sitting in New
York County or the United States District Court of the Southern District of New York or any
appellate court from any thereof, and each such party hereby submits to the nonexclusive
jurisdiction of such courts for the purpose of any such suit, action or proceeding. To the extent
that service of process by mail is permitted by applicable law, each such party irrevocably
consents to the service of process in any such suit, action or proceeding in such courts by the
mailing of such process by registered or certified mail, postage prepaid, at its address for
notices provided for in Section 11.4. Each such party irrevocably agrees not to assert any
objection which it may ever have to the laying of venue of any such suit, action or proceeding in
the Supreme Court of the State of New York sitting in New York County or the United States District
Court of the Southern District of New York or any appellate court from any thereof, and any claim
that any such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
Section 11.19. Disclosures by Lender.
For the avoidance of doubt, Lender may use, retain, and
disclose any such information related to the Operative Agreements as required by law, rule,
regulation, judicial or administrative process, or any governmental agency, or to the extent
required pursuant to Canadas or Lenders international commitments (including, without limitation
any requirement that such information be disclosed by virtue of Lenders status as an agent of Her
Majesty in Right of Canada or by virtue of any law, regulation, order-in-council, court or
administrative order, or Canadian government policy or by virtue of any international agreement to
which the Government of Canada or Lender is a party, and including, without limitation, in respect
of the WTO Subsidies and Countervailing Measures Agreement or Canadian government policy). Lender
shall also be entitled to disclose any matters in relation to the transactions contemplated herein
to the government of Canada (but Lender must request confidential treatment thereof) and shall be
entitled to make publicly available the following information: the name of the Lessee, the
financial service provided by the Lender, the dates of the Operative Agreements, a general
description of the commercial transaction (including
-57-
country) contemplated hereby, the amount of
support in the approximate Canadian dollar range, and the name of the Equipment manufacturer.
-58-
In Witness Whereof
, the parties hereto have caused this Participation Agreement to be
executed and delivered, all as of the date first above written.
|
|
|
|
|
Lessee:
|
The Kansas City Southern Railway Company
|
|
|
By:
|
/s/ Paul J. Weyandt
|
|
|
|
Name:
|
Paul J. Weyandt
|
|
|
|
Title:
|
Senior Vice President-Finance and Treasurer
|
|
|
Owner Trustee:
|
KCSR 2008-1 Statutory Trust
, acting through
U.S. Bank Trust
National Association
, not in its individual capacity, but
solely as Owner Trustee
|
|
|
By:
|
/s/ Michael M. Hopkins
|
|
|
|
Name:
|
Michael M. Hopkins
|
|
|
|
Title:
|
Vice President
|
|
|
Trust Company:
|
U.S. Bank Trust National Association
, in its individual capacity, only
as expressly provided herein
|
|
|
By:
|
/s/ Maryanne Y. Dufresne
|
|
|
|
Name:
|
Maryanne Y. Dufresne
|
|
|
|
Title:
|
Vice President
|
|
|
Owner Participant:
|
MetLife Capital, Limited Partnership
|
|
|
By:
|
23rd Street Investments, Inc., its general partner
|
|
|
|
|
|
|
By:
|
/s/ Jeetindra L. Balchandani
|
|
|
|
Name:
|
Jeetindra L. Balchandani
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
Indenture Trustee:
|
Wilmington Trust Company
|
|
|
By:
|
/s/ Patricia A. Evans
|
|
|
|
Name:
|
Patricia A. Evans
|
|
|
|
Title:
|
Vice President
|
|
|
Loan Participant:
|
Export Development Canada
|
|
|
By:
|
/s/ Karen Morandin
|
|
|
|
Name:
|
Karen Morandin
|
|
|
|
Title:
|
Financing Manager
|
|
|
|
|
|
|
By:
|
/s/ Marc Blondin
|
|
|
|
Name:
|
Marc Blondin
|
|
|
|
Title:
|
Financing Manager
|
|
Schedule 1
Description of Equipment and Equipment Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
Quantity
|
|
Equipment
|
|
Reporting Marks
|
|
|
|
|
|
|
Cost Per Unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SD70ACe Locomotives
|
|
|
30
|
|
|
$
|
2,117,000.00
|
|
|
See Lease Supplement No. 1.
|
Schedule 1
(to Participation Agreement (KCSR 2008-1))
Schedule 3
Pricing Assumptions
|
|
|
|
|
|
|
|
|
|
A
|
)
|
|
Debt Rate (nominal semi-annual)
|
|
|
5.5764
|
%
|
|
|
|
|
|
|
|
|
|
|
B
|
)
|
|
Lease Commencement Date
|
|
April 15, 2008
|
|
|
|
|
|
|
|
|
|
|
C
|
)
|
|
Interim Term Expiration Date
|
|
July 15, 2008
|
|
|
|
|
|
|
|
|
|
|
D
|
)
|
|
Basic Term Expiration Date
|
|
April 15, 2028
|
|
|
|
|
|
|
|
|
|
|
E
|
)
|
|
Equipment Note Maturity Date
|
|
January 15, 2024
|
|
|
|
|
|
|
|
|
|
|
F
|
)
|
|
Transaction Costs
|
|
$
|
619,679.00
|
Schedule 3
(to Participation Agreement (KCSR 2008-1))
Certificate of Acceptance (KCSR 2008-1)
To:
KCSR 2008-1 Statutory Trust
, acting through
U.S. Bank Trust National
Association
, not in its individual capacity, but solely as owner trustee (
Lessor
),
|
I, the duly authorized representative for Lessor under the Equipment Lease Agreement (KCSR
2008-1), dated as of April 1, 2008 (the defined terms therein being used herein with the same
meaning) between Lessor and
The Kansas City Southern Railway Company
(
Lessee
), do hereby
certify that I have accepted delivery on behalf of Lessor of each of the Units described on
Schedule A attached hereto from
The Kansas City Southern Railway Company
, a Missouri
corporation
,
(
Seller
) on the date set forth herein.
The execution of this Certificate will in no way relieve or decrease the responsibility of the
manufacturer of any Unit for any warranties it has made with respect to the Units of Equipment.
|
|
|
|
|
|
|
|
|
|
|
|
Authorized Representative of
|
|
|
Lessor and Lessee
|
|
|
Date:
Exhibit A
(to Participation Agreement (KCSR 2008-1))
Description of Equipment and Equipment Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Cost
|
|
|
Equipment
|
|
Quantity
|
|
Per Unit
|
|
Reporting Marks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SD70ACe Locomotives
|
|
|
|
|
|
$
|
2,117,000.00
|
|
|
KCS
through
|
|
|
|
|
|
|
|
|
|
|
KCS
, inclusive
|
Schedule A
(to Certificate of Acceptance (KCSR 2008-1))
Form of Bill of Sale
The Kansas City Southern Railway Company
, a Missouri corporation (the
Seller
), in
consideration of the sum of One Dollar ($1) and other good and valuable consideration paid by the
KCSR 2008-1 Statutory Trust
, a Delaware statutory trust (the
Trust
), acting through
U.S. Bank Trust National Association
, a national banking association, as trustee (in its
individual capacity
Trust Company
and as Owner Trustee, together with its permitted successors
and assigns, called the
Owner Trustee)
created under the Trust Agreement (KCSR 2008-1), dated as
of April 1, 2008, by and between Trust Company and
MetLife Capital, Limited Partnership
(the
Owner Participant
), at or before the execution and delivery of these presents, the receipt
of which is hereby acknowledged, does hereby grant, bargain, sell, transfer, assign and set over
unto the Trust and its successors and assigns all right, title and interest of Seller, in and to
the units of railroad equipment (the
Equipment
) set forth on Schedule A hereto pursuant to the
Participation Agreement (KCSR 2008-1) (the
Participation Agreement
), dated as of April 1, 2008,
among The Kansas City Southern Railway Company, as Lessee, Owner Participant, the Trust, Trust
Company, Wilmington Trust Company, as Indenture Trustee and Loan Participant named therein.
To have and to hold all and singular the rights to the Equipment to the Trust and its
successors and assigns for their own use and behalf forever.
And Seller hereby warrants to the Trust and its successors and assigns that (x) at the time of
delivery of the Equipment Seller had legal title thereto and good and lawful right to sell the
Equipment and (y) on the date hereof the Equipment is free and clear of all claims, liens, security
interests and other encumbrances of any nature other than Permitted Liens of the type described in
clauses (iii), (iv) and (v) of the definition thereof in Appendix A to the Lease referred to in the
Participation Agreement, and Seller covenants that it will defend such title to the Equipment
against the demands of all persons whomsoever based on claims originating prior to the delivery of
the Equipment by Seller. Seller sells the Equipment where is, as is and with all faults and
hereby disclaims any and all rights, claims, warranties or representations either express or
implied, as to the value, condition, fitness for any particular purpose, design, operation or
merchantability of the Equipment, the quality of the material or workmanship thereof or conformity
thereof to specifications, freedom from patent, copyright or trademark infringement, the absence of
any latent or other defect, whether or not discoverable, or as to the absence of any obligations
based on strict liability in tort.
Exhibit B
(to Participation Agreement (KCSR 2008-1))
In Witness Whereof
, Seller has caused this instrument to be executed in its name by a
duly authorized officer on the
day of
, 2008.
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The Kansas City Southern Railway Company
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By
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Name:
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Title:
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B-2
Schedule A
Description of Equipment and Equipment Cost
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Equipment Cost
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Reporting
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Delivery Date
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Equipment
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Quantity
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Per Unit
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Marks
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Date
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Schedule A
(to Bill of Sale)
Form of
Assignment of Warranties
(KCSR 2008-1)
This
Assignment of Warranties
(KCSR 2008-1), dated
, 2008, between
The Kansas City Southern Railway Company
, a Missouri corporation (the
Seller
), and the
KCSR 2008-1 Statutory Trust
, a Delaware statutory trust (the
Trust
), acting through
U.S. Bank Trust National Association
, a national banking association, as Owner Trustee
(the
Owner Trustee
), pursuant to that certain Trust Agreement (KCSR 2008-1) dated as of April 1,
2008 between the Owner Trustee in its individual capacity and the institution referred to therein
as the Owner Participant (the
Assignee
),
Witnesseth:
Whereas
, the Assignee and The Kansas City Southern Railway Company have entered into
an Equipment Lease Agreement (KCSR 2008-1), dated as of April 1, 2008 (the
Lease
), for the
purpose of providing for the lease of certain equipment. The Seller has purchased certain railroad
equipment set forth on Schedule A hereto (the
Equipment
) pursuant to certain purchase agreements
with each of the manufacturers thereof. Capitalized terms not otherwise defined herein shall have
the meanings assigned thereto in Appendix A to the Lease unless the context otherwise requires; and
Whereas
, the Seller pursuant to the Participation Agreement intends to sell the
Equipment to the Assignee and is willing to assign to the Assignee all warranties obtained by the
Seller relating to the Equipment from the manufacturer under each related purchase agreement and
the Assignee is willing to accept such assignment, as hereinafter set forth;
Now, therefore
, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1.
Assignment.
The Seller does hereby sell, assign, transfer and set over unto the
Assignee all the Sellers right, title and interest in and to all warranties or
representations made or given to the Seller, expressly or impliedly, by the manufacturers
under the purchase agreements to which it is a party relating to the Equipment described in
the Bill of Sale delivered on the date hereof to the Assignee and all claims for damages in
respect of such Equipment arising as a result of any default by any manufacturer under any
purchase agreement.
2.
Acceptance of the Assignment.
The Assignee hereby accepts the assignment contained
in paragraph 1 hereof.
3.
Enforcement by Seller
. The Assignee shall at all times, to the exclusion of the
Seller, be entitled, but shall not be obligated to, assert and enforce in its own name as a
substitute party, plaintiff or otherwise such rights as the Seller may have with respect to
the Equipment under any warranty, covenant or representation of the manufacturer under the
related purchase agreement with respect to such Equipment, and the Seller shall
Exhibit C
(to Participation Agreement (KCSR 2008-1))
cooperate with the Assignee and take such action as the Assignee reasonably deems necessary
to enable the Assignee to enforce such rights or claims. The Assignee, if it shall elect to
enforce such rights or claims, shall use its reasonable commercial efforts to assert and
enforce such rights and claims, but regardless of whether or not the Assignee exercises its
option to enforce such rights or claims, the Assignee shall be entitled to receive all
proceeds resulting from any such action after deducting from the proceeds of any such action
all costs and expenses, including attorneys fees, that may have been incurred by the
Assignee in connection with any such action of the Assignee or the Seller. The Seller
agrees to preserve and protect the Assignees rights under any warranty, covenant or
representation made or given, expressly or impliedly, by any manufacturer with respect to
the Equipment, and the Seller warrants that the Seller will not take any action which will
impair such rights of the Assignee, and covenants to act solely in compliance with any
restrictions and requirements prerequisite to the continued existence, enforcement, validity
and maintenance of any warranty, covenant or representation.
4.
Sellers Representations, Warranties and Covenants.
The Seller does hereby
represent and warrant that as of the Delivery Date it will have paid in full when due all of
the purchase price for the Equipment being purchased by the Assignee from the Seller on the
Delivery Date required under each purchase agreement and will have good and marketable title
to such Equipment free and clear of all liens, charges and other encumbrances of any nature
as provided in the Bill of Sale.
5.
Execution of Assignment.
This Assignment is being executed by the Seller and the
Assignee concurrently with the execution and delivery of a Lease Supplement with respect to
the Equipment.
6.
Collateral Assignment.
The parties acknowledge that all of the right, title and
interest of the Trust in and to the warranties or representations covered hereby have been
assigned as collateral security to, and are subject to a security interest in favor of,
Wilmington Trust Company, not in its individual capacity but solely as Indenture Trustee
under a Trust Indenture and Security Agreement (KCSR 2008-1), dated as of April 1, 2008
between said Indenture Trustee, as secured party, and the Trust, as debtor.
7.
Governing Law.
This Assignment shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to principles of conflict
of laws.
8.
Counterparts.
This Assignment may be executed in several counterparts, each of
which so executed shall be deemed to be an original and all such counterparts shall
constitute but one and the same instrument.
C-2
In Witness Whereof
, the parties hereto have caused this Assignment to be duly
executed as of the day and year first above written.
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The Kansas City Southern Railway Company
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By
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Name:
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Title:
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KCSR 2008-1 Statutory Trust
, acting through
U.S. Bank Trust National Association
,
not in its individual capacity, except where
otherwise expressly provided, but solely as
Owner Trustee
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By
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Name:
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Title:
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C-3
Schedule A
Description of Equipment and Equipment Cost
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Equipment Cost
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Equipment
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Quantity
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Per Unit
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Reporting Marks
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SD70ACe Locomotives
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$
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2,117,000.00
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KCS
through
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KCS
,
inclusive
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Schedule A
(to Assignment of Warranties (KCSR 2008-1))
EXHIBIT 10.3
Equipment Lease Agreement
(KCSR 2008-1)
dated as of April 1, 2008
between
KCSR 2008-1 Statutory Trust
, acting through
U.S. Bank Trust National Association,
not in its individual capacity, but solely as Owner Trustee,
Lessor
and
The Kansas City Southern Railway Company,
Lessee
30 SD70ACe Locomotives
Certain of the right, title and interest of Lessor in and to this Lease, the Equipment
covered hereby and the Rent due and to become due hereunder have been assigned as collateral
security to, and are subject to a security interest in favor of, Wilmington Trust Company, as
Indenture Trustee under a Trust Indenture and Security Agreement (KCSR 2008-1), dated as of April
1, 2008 between said Indenture Trustee, as secured party, and Lessor, as debtor. Information
concerning such security interest may be obtained from Indenture Trustee at its address set forth
in Section 20 of this Lease. This Lease Agreement has been executed in several counterparts, but
only that counterpart shall be deemed the original counterpart for chattel paper purposes that
contains the receipt therefor executed by Wilmington Trust Company, as Indenture Trustee, on the
signature page thereof. See Section 26.2 for information concerning the rights of the original
holder and the holders of the various counterparts hereof.
Memorandum of Equipment Lease Agreement (KCSR 2008-1) filed with the Surface Transportation
Board pursuant to 49 U.S.C. § 11301 on April 14, 2008 at 10:30 A.M., Recordation Number 27460, and
deposited in the Office of the Registrar General of Canada pursuant to Section 105 of the Canada
Transportation Act on April 14, 2008 at 12:28 P.M.
Table of Contents
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Section
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Heading
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Page
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Section 1.
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Definitions
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1
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Section 2.
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Acceptance and Leasing of Equipment
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1
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Section 3.
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Term and Rent
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1
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Section 3.1.
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Lease Term
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1
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Section 3.2.
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Interim Rent and Basic Rent
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2
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Section 3.3.
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Supplemental Rent
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2
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Section 3.4.
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Adjustment of Rent
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3
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Section 3.5.
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Manner of Payments
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3
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Section 4.
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Ownership and Marking of Equipment
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3
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Section 4.1.
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Retention of Title
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3
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Section 4.2.
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Duty to Number and Mark Equipment
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4
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Section 4.3.
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Prohibition against Certain Designations
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4
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Section 5.
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Disclaimer of Warranties; Right of Quiet Enjoyment
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4
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Section 5.1.
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Disclaimer of Warranties
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4
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Section 5.2.
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Quiet Enjoyment
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5
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Section 6.
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Return of Equipment; Storage
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5
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Section 6.1.
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General
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5
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Section 6.2.
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Condition of Equipment
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6
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Section 6.3.
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Storage
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6
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Section 6.4.
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Termination of Lease
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7
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Section 7.
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Liens
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7
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Section 8.
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Maintenance; Operation; Sublease
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8
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Section 8.1.
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Maintenance
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8
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Section 8.2.
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Operation
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8
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Section 8.3.
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Sublease
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9
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Section 9.
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Modifications
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9
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Section 9.1.
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Required Modifications
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9
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Section 9.2.
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Optional Modifications
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10
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Section 9.3.
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Removal of Proprietary and Communications Equipment
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10
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Section 9.4.
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Retention of Equipment by Lessor
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10
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-i-
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Section
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Heading
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Page
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Section 10.
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Voluntary Termination
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11
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Section 10.1.
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Right of Termination
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11
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Section 10.2.
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Sale of Equipment
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11
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Section 10.3.
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Retention of Equipment by Lessor
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12
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Section 10.4.
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Termination of Lease
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13
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Section 11.
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Loss, Destruction, Requisition, Etc.
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13
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Section 11.1.
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Event of Loss
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13
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Section 11.2.
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Replacement or Payment upon Event of Loss
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13
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Section 11.3.
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Rent Termination
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14
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Section 11.4.
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Disposition of Equipment; Replacement of Unit
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14
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Section 11.5.
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Eminent Domain
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15
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Section 12.
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Insurance
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16
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Section 12.1.
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Property Damage and Public Liability Insurance
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16
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Section 12.2.
|
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Proceeds of Insurance
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17
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Section 12.3.
|
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Additional Insurance
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17
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Section 13.
|
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Reports; Inspection
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17
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Section 13.1.
|
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Duty of Lessee to Furnish
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17
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Section 13.2.
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Lessors Inspection Rights
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18
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Section 14.
|
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Events of Default
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18
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Section 15.
|
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Remedies
|
|
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20
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Section 15.1.
|
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Remedies
|
|
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20
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Section 15.2.
|
|
Cumulative Remedies
|
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22
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|
Section 15.3.
|
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No Waiver
|
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23
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Section 15.4.
|
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Lessees Duty to Return Equipment Upon Default
|
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23
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Section 15.5.
|
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Specific Performance; Lessor Appointed Lessees Agent
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23
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Section 16.
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Filings; Further Assurances
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23
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Section 16.1.
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Filings
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23
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Section 16.2.
|
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Further Assurances
|
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24
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Section 16.3.
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Expenses
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24
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Section 17.
|
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Lessors Right to Perform
|
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24
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Section 18.
|
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Assignment
|
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24
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Section 18.1.
|
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Assignment by Lessor
|
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24
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Section 18.2.
|
|
Assignment by Lessee
|
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25
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Section 18.3.
|
|
Sublessees Performance and Rights
|
|
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25
|
|
-ii-
|
|
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Section
|
|
Heading
|
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Page
|
|
|
|
|
|
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Section 19.
|
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Net Lease, etc.
|
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25
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|
|
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|
|
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Section 20.
|
|
Notices
|
|
|
26
|
|
|
|
|
|
|
|
|
Section 21.
|
|
Concerning Indenture Trustee
|
|
|
28
|
|
|
|
|
|
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Section 21.1.
|
|
Limitation of Indenture Trustees Liabilities
|
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28
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Section 21.2.
|
|
Right, Title and Interest of Indenture Trustee under Lease
|
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28
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Section 22.
|
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Termination Upon Purchase by Lessee; Options to Renew
|
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28
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Section 22.1.
|
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Termination upon Purchase by Lessee
|
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28
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Section 22.2.
|
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Renewal Options
|
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28
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Section 22.3.
|
|
[Reserved]
|
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29
|
|
Section 22.4.
|
|
Determination of Fair Market Rental Value
|
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|
29
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|
Section 22.5.
|
|
Stipulated Loss Value and Termination Value During Renewal Term
|
|
|
29
|
|
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|
|
|
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|
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Section 23.
|
|
Lessees Options to Purchase Equipment; Purchase of Beneficial Interest
|
|
|
29
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|
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|
|
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Section 24.
|
|
Limitation of Lessors Liability
|
|
|
32
|
|
|
|
|
|
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|
Section 25.
|
|
Filing in Mexico
|
|
|
32
|
|
|
|
|
|
|
|
|
Section 26.
|
|
Miscellaneous
|
|
|
33
|
|
|
|
|
|
|
|
|
Section 26.1.
|
|
Governing Law; Severability
|
|
|
33
|
|
Section 26.2.
|
|
Execution in Counterparts
|
|
|
33
|
|
Section 26.3.
|
|
Headings and Table of Contents; Section References
|
|
|
33
|
|
Section 26.4.
|
|
Successors and Assigns
|
|
|
33
|
|
Section 26.5.
|
|
True Lease
|
|
|
33
|
|
Section 26.6.
|
|
Amendments and Waivers
|
|
|
33
|
|
Section 26.7.
|
|
Survival
|
|
|
34
|
|
Section 26.8.
|
|
Business Days
|
|
|
34
|
|
Section 26.9.
|
|
Directly or Indirectly
|
|
|
34
|
|
Section 26.10.
|
|
Incorporation by Reference
|
|
|
34
|
|
Section 26.11.
|
|
Entitlement to §1168 Benefits
|
|
|
34
|
|
Section 26.12.
|
|
Waiver of Jury Trial
|
|
|
34
|
|
|
|
|
|
|
|
|
Attachments to Equipment Lease Agreement:
|
|
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|
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|
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|
|
Exhibit A
|
|
Form of Lease Supplement
|
|
|
|
|
Appendix A
|
|
Definitions
|
|
|
|
|
-iii-
Equipment Lease Agreement
(KCSR 2008-1)
This
Equipment Lease Agreement
(KCSR 2008-1), dated as of April 1, 2008 (this
Lease
), between the KCSR 2008-1
Statutory Trust
, a Delaware statutory trust (
Lessor
),
acting through
U.S. Bank Trust National Association
, a national banking association, not
in its individual capacity except as expressly stated herein, but solely as trustee created under
the Trust Agreement (as hereinafter defined) (in its individual capacity
Trust Company
and as
Owner Trustee, together with its permitted successors and assigns, called the
Owner Trustee
), and
The Kansas City Southern Railway Company,
a Missouri corporation (
Lessee
),
Witnesseth:
Section 1.
Definitions.
Unless the context otherwise requires, all capitalized terms used herein without definition
shall have the respective meanings set forth in Appendix A hereto for all purposes of this Lease.
Section 2.
Acceptance and Leasing of Equipment.
Lessor hereby agrees (subject to satisfaction or waiver of the conditions applicable to the
Delivery Date set forth in Article IV of the Participation Agreement), simultaneously with the
delivery of each Unit of Equipment from Seller to Lessor to accept delivery of such Unit of
Equipment from Seller, as evidenced by the execution and delivery by an authorized representative
of Lessor of a Certificate of Acceptance with respect to such Unit and thereafter to lease such
Unit to Lessee hereunder. Lessee further agrees (subject to satisfaction or waiver of the
conditions applicable to the Delivery Date for such Unit set forth in Article IV of the
Participation Agreement) to execute and deliver a Lease Supplement covering such Unit. Lessor
hereby authorizes one or more employees or agents of Lessee, designated by Lessee, to act on behalf
of Lessor as its authorized representative or representatives to accept delivery of the Equipment
and to execute and deliver such Certificate of Acceptance, all in accordance with Sections 2.1(a)
and 2.3(b) of the Participation Agreement. Lessee hereby agrees that such acceptance of delivery
by such authorized representative or representatives on behalf of Lessor shall, without further
act, irrevocably constitute acceptance by Lessee of such Unit for all purposes of this Lease.
Section 3.
Term and Rent.
Section 3.1. Lease Term
. The interim term of this Lease (the
Interim Term
) shall commence
for each Unit on the Delivery Date for such Unit and shall terminate at 11:59 P.M. (New York City
time) on the date set forth as Item C to Schedule 3 of the Participation Agreement (the
Interim
Term Expiration Date
) for such Unit. The basic term of this Lease (the
Basic Term
) for each
Unit shall commence on the day (the
Basic Term Commencement Date
) immediately following the
Interim Term Expiration Date for such
Unit and, subject to
earlier termination pursuant to Sections 10, 11, 15, 22.1 and 23, shall expire
at 11:59 P.M. (New York City time) on the date set forth as Item D to Schedule 3 of the
Participation Agreement (the
Basic Term Expiration Date
) for such Unit. Subject and pursuant to
Section 22.2, Lessee may elect one or more Renewal Terms with respect to any Unit.
Section 3.2. Interim Rent and Basic Rent
. (a) Lessee and Lessor hereby agree that no Rent
(other than Supplemental Rent, if any) shall be payable to Lessor during the Interim Term. Lessee
hereby agrees to pay Lessor Basic Rent for each Unit throughout the Basic Term applicable thereto
on the first Rent Payment Date and in consecutive semi-annual installments thereafter payable on
each Rent Payment Date. Each such payment of Basic Rent shall be in an amount equal to the product
of the Equipment Cost for such Unit multiplied by the Basic Rent percentage for such Unit set forth
opposite such Rent Payment Date on Schedule 2 to the Lease Supplement for such Unit (as such
Schedule 2 shall be adjusted pursuant to Section 2.6 of the Participation Agreement). Basic Rent
for any Unit shall be payable on the Rent Payment Dates as set forth in Schedule 2 to the Lease
Supplement for such Unit. Basic Rent shall be allocated and accrued for use of the Units as
specified in Schedule 5 to the Lease Supplement for such Units
(Allocated Rent
). For the
avoidance of doubt, and notwithstanding anything to the contrary herein, the parties agree that
irrespective of Lessees payment obligation on each Rent Payment Date, Lessees liability on
account of the use of each Unit shall be allocated to each Lease Period in the amount of Allocated
Rent set forth in Schedule 5 to the Lease Supplement for such Unit. Basic Rent allocated to any
Lease Period shall be further allocated ratably to each day within such Lease Period. Basic Rent
shall be allocated to each calendar year in the Lease Term based upon the assumption that each
calendar year in the Lease Term is 360 days, consisting of four 90-day quarters and twelve 30-day
months. It is the intention of Lessor and Lessee that the allocations of Basic Rent to each Lease
Period in the amount set forth in Schedule 5 to the applicable Lease Supplement constitute specific
allocations of fixed rent within the meaning of Treasury Regulation Section 1.467-1(c)(2)(ii).
(b) Anything contained herein or in the Participation Agreement to the contrary
notwithstanding, each installment of Basic Rent (both before and after any adjustment pursuant to
Section 2.6 of the Participation Agreement) shall be, under any circumstances and in any event, in
an amount at least sufficient for Lessor to pay in full as of the due date of such installment, any
payment of principal of and interest on the Equipment Notes required to be paid by Lessor pursuant
to the Indenture on such due date.
Section 3.3. Supplemental Rent
. Lessee also agrees to pay to Lessor, or to whomsoever shall be
entitled thereto, any and all Supplemental Rent, promptly as the same shall become due and owing,
or where no due date is specified, promptly after demand by the Person entitled thereto, and in the
event of any failure on the part of Lessee to pay any Supplemental Rent, Lessor shall have all
rights, powers and remedies provided for herein or by law or equity or otherwise as in the case of
nonpayment of Basic Rent. Without limiting the generality of the foregoing, Lessee will pay, as
Supplemental Rent, (i) on demand, to the extent permitted by applicable law, an amount equal to
interest at the applicable Late Rate on any part of any installment of Basic Rent not paid when due
for any period for which the same shall be overdue and on any payment of Supplemental Rent not paid when
due or demanded, as the case may be, for the period from such due date or demand until the same
shall be paid, (ii) an amount equal to
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any Make-Whole Amount due under Section 2.10(a) or Section
2.10(c) of the Indenture, (iii) in the case of the termination of this Lease with respect to any
Unit pursuant to Section 10, on the applicable Termination Date, an amount equal to the Make-Whole
Amount, if any, with respect to the principal amount of each Equipment Note to be prepaid as a
result of such termination and any Make-Whole Amount due on the Equipment Notes upon their
acceleration pursuant to Section 4.02 of the Indenture by reason of a Lease Event of Default, (iv)
in the case of a termination of this Lease with respect to any Unit pursuant to Section 22.1, on
the date such Unit is purchased, an amount equal to the Make-Whole Amount, if any, with respect to
any Equipment Note to be prepaid on such date, (v) in the case of any refunding or refinancing
pursuant to Section 11.2 of the Participation Agreement or any prepayment pursuant to Section
2.10(d) of the Indenture, on the date specified in the agreement referred to in Section 11.2(a) of
the Participation Agreement or Section 2.10(d) of the Indenture, as applicable, an amount equal to
the Make-Whole Amount, if any, with respect to the principal amount of each Equipment Note
outstanding on the Refunding Date, (vi) on demand, any payments required under the Tax Indemnity
Agreement or Article VII of the Participation Agreement, (vii) in the case of any purchase of a
Unit in accordance with Section 23(d), on the first installment payment date, an amount equal to
the Make-Whole Amount, if any, with respect to any Equipment Note to be prepaid on such date, and
(viii) all amounts payable by Lessor under Section 7.02 of the Indenture. All Supplemental Rent to
be paid pursuant to this Section 3.3 shall be payable in the type of funds and in the manner set
forth in Section 3.5.
Section 3.4. Adjustment of Rent
. Lessee and Lessor agree that the Basic Rent, Stipulated Loss
Value and Termination Value percentages shall be adjusted to the extent provided in Section 2.6 of
the Participation Agreement.
Section 3.5. Manner of Payments
. All Rent (other than Supplemental Rent payable to Persons
other than Lessor, which shall be payable to such other Persons in accordance with written
instructions furnished to Lessee by such Persons, as otherwise provided in any of the Operative
Agreements or as required by law) shall be paid by Lessee to Lessor at its office at Goodwin
Square, 225 Asylum Street, 23rd Floor, Hartford, Connecticut 06103, Attention: Corporate Trust-
Administration (KCSR 2008-1). All Rent shall be paid by Lessee in funds consisting of lawful
currency of the United States of America, which shall be immediately available to the recipient not
later than 12:00 noon (New York City time) on the date of such payment, provided that so long as
the Indenture shall not have been discharged pursuant to the terms thereof, Lessor hereby directs,
and Lessee agrees, that all Rent (excluding Excepted Property) payable to Lessor and assigned to
Indenture Trustee shall be paid directly to Indenture Trustee at the times and in funds of the type
specified in this Section 3.5 at the office of Indenture Trustee at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or
at such other location in the United States of America as Indenture Trustee may otherwise direct.
Section 4.
Ownership and Marking of Equipment.
Section 4.1. Retention of Title
. Lessor shall and hereby does retain full legal title to and
ownership of the Equipment notwithstanding the delivery of the Equipment to Lessee hereunder.
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Section 4.2. Duty to Number and Mark Equipment
. On or before the Delivery Date with respect
to each Unit, Lessee shall cause each Unit to be numbered with the reporting mark shown on the
Lease Supplement for such Unit dated the Delivery Date and, as soon as practicable after the
Delivery Date (and in any event within 30 days of the Delivery Date) and at all times thereafter,
shall cause each Unit to be plainly, distinctly, permanently and conspicuously marked by a plate or
stencil printed in contrasting colors upon each side of each Unit, in letters not less than one
inch in height, a legend substantially as follows:
Subject to a Security Agreement recorded
with the Surface Transportation Board
or
Ownership subject to a Security Agreement filed
with the Surface Transportation Board
with appropriate changes thereof and additions thereto as from time to time may be required by law
in order to protect Lessors right, title and interest in and to such Unit, its rights under this
Lease and the rights of Indenture Trustee. Except as provided hereinabove, Lessee will not place
any such Units in operation or exercise any control or dominion over the same until the required
legend shall have been so marked on both sides thereof, and will replace promptly any such word or
words in such legend which may be removed, defaced, obliterated or destroyed. Lessee will not
change the reporting mark of any Unit except in accordance with a statement of new reporting marks
to be substituted therefor, which statement shall be delivered to Lessor by Lessee and a supplement
to this Lease and the Indenture with respect to such new reporting marks shall be filed or recorded
by Lessee in all public offices where this Lease and the Indenture shall have been filed or
recorded, in each case promptly after a Responsible Officer of Lessee obtains actual knowledge of
such change.
Section 4.3. Prohibition against Certain Designations
. Except as above provided, Lessee will
not allow the name of any Person to be placed on any Unit as a designation that might reasonably be
interpreted as a claim of ownership;
provided, however
, that subject to the delivery of the
statement specified in the last sentence of Section 4.2, Lessee may cause the Equipment to be
lettered with the names or initials or other insignia customarily used by Lessee or any permitted
sublessees or any of their respective Affiliates on railroad equipment used by it of the same or a
similar type.
Section 5.
Disclaimer of Warranties; Right of Quiet Enjoyment.
Section 5.1. Disclaimer of Warranties
. Without waiving any claim Lessee may have against any
seller, supplier or manufacturer,
LESSEE ACKNOWLEDGES AND AGREES THAT, (I) EACH UNIT IS OF A SIZE,
DESIGN, CAPACITY AND MANUFACTURE SELECTED BY AND ACCEPTABLE TO
LESSEE, (II) LESSEE IS SATISFIED THAT EACH UNIT IS SUITABLE FOR ITS PURPOSES,
(III) NEITHER LESSOR, TRUST COMPANY NOR OWNER PARTICIPANT IS A MANUFACTURER
OR A DEALER IN PROPERTY OF SUCH KIND, (IV) EACH UNIT IS LEASED HEREUNDER SUBJECT
TO ALL APPLICABLE LAWS AND GOVERNMENTAL REGULATIONS NOW IN EFFECT OR
HEREINAFTER ADOPTED, AND (V) LESSOR LEASES AND LESSEE TAKES EACH UNIT AS-IS,
WHERE-IS AND WITH ALL FAULTS,
-4-
AND LESSEE ACKNOWLEDGES THAT NEITHER LESSOR,
TRUST COMPANY NOR OWNER PARTICIPANT MAKES NOR SHALL BE DEEMED TO HAVE MADE,
AND EACH EXPRESSLY DISCLAIMS, ANY AND ALL RIGHTS, CLAIMS, WARRANTIES OR
REPRESENTATIONS EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION, FITNESS
FOR ANY PARTICULAR PURPOSE, DESIGN, OPERATION, MERCHANTABILITY THEREOF OR AS
TO THE TITLE OF THE EQUIPMENT, THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT, COPYRIGHT
OR TRADEMARK INFRINGEMENT, THE ABSENCE OF ANY LATENT OR OTHER DEFECT, WHETHER OR NOT
DISCOVERABLE, OR AS TO THE ABSENCE OF ANY OBLIGATIONS BASED ON STRICT LIABILITY IN
TORT OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT THERETO
,
except that Trust Company represents and warrants that on the Delivery Date, Lessor
shall have received whatever title to the Equipment delivered on or prior to the Delivery Date as
was conveyed to Lessor by Seller and each Unit will be free of Lessors Liens attributable to Trust
Company. During the Lease Term so long as no Event of Default shall have occurred and be
continuing, Lessor hereby appoints and constitutes Lessee its agent and attorney-in-fact during the
Lease Term to assert and enforce, from time to time, in the name and for the account of Lessor and
Lessee, as their interests may appear, but in all cases at the sole cost and expense of Lessee,
whatever claims and rights Lessor may have as owner of the Equipment against the manufacturers or
any prior owner thereof.
Section 5.2. Quiet Enjoyment
. Each party to this Lease acknowledges notice of, and consents
in all respects to, the terms of this Lease, and expressly, severally and as to its own actions
only, agrees that, notwithstanding any other provision of any of the Operative Agreements, so long
as no Lease Event of Default has occurred and is continuing, it shall not take or cause to be taken
any action inconsistent with Lessees rights under this Lease or otherwise through its own actions
in any way interfere with or interrupt the quiet enjoyment of the use, operation and possession of
any Unit by Lessee or any sublessee (it being understood that no sublessee shall have any third
party beneficiary rights under this Lease or any other Operative Agreement), assignee or transferee
under any sublease, assignment or transfer then in effect and permitted by the terms of this Lease.
Section 6.
Return of Equipment; Storage.
Section 6.1. General
. (a) On the expiration of the Lease Term with respect to any Unit which
has not been purchased by Lessee, Lessee will, at its own cost and expense, deliver possession of
such Unit to Lessor at not more than three interchange points on the tracks of Lessee in the U.S.,
f.o.b. such interchange point, as Lessor may reasonably designate to Lessee in writing at least 30
days before the end of the Lease Term or, in the absence of such designation, as Lessee may select
or, if Lessor has requested storage pursuant to Section 6.3, to the location determined in
accordance with Section 6.3. To the extent that any maintenance logs are kept by Lessee with
respect to any Unit in accordance with Section 8.1 and such Unit is returned pursuant to this
Section 6.1, upon the written request of Lessor, such maintenance logs shall be made available to
Lessor or its designee upon the return of such Unit. Upon expiration of the Lease Term with
respect to such Unit, compliance with the terms hereof (including without limitation the return
conditions) and tender of such Unit at the location determined in accordance with this Section
6.1(a), this Lease and the obligation to pay Basic Rent and all other Rent for such Unit accruing
subsequent to such expiration (except for Supplemental Rent
-5-
obligations with respect to such Unit
surviving pursuant to the Participation Agreement or the Tax Indemnity Agreement or which have
otherwise accrued but not been paid as of the date of the expiration of the Lease Term) shall
terminate.
(b) In the event any Unit is not returned as hereinabove provided at the expiration of the
Lease Term with respect to such Unit, Lessee may retain custody and control of such Unit so long as
Lessee is attempting to remedy any condition delaying such return, and in any case the covenants of
Lessee (other than with respect to Basic Rent) under this Lease (including those pertaining to
indemnities, Liens, maintenance and insurance) shall continue with respect to such Unit until such
return of such Unit and, regardless of whether such delay shall be attributable to Lessee or any
permitted sublessee, Lessee shall pay holdover rent to Lessor for the first 30 days in an amount
equal to the daily equivalent of rent during the preceding term, and thereafter in an amount equal
to 120% of the daily equivalent of the greater of (i) the arithmetic average of the Basic Rent
during the Basic Term for such Unit (or, if the failure to return occurs after a Renewal Term, the
arithmetic average of the Basic Rent paid during the Renewal Term for such Unit) and (ii) the Fair
Market Rental Value for such Unit. The provision for payment pursuant to the immediately preceding
sentence shall not be in abrogation of Lessors right under Section 6.1 (a) to have such Unit
returned to it hereunder.
Section 6.2. Condition of Equipment
. Each Unit when returned to Lessor pursuant to Section
6.1(a) shall (i) be in a condition mechanically suitable for use as a locomotive by a Class I
railroad in the United States, (ii) be in the condition required by Sections 8.1 and 9.3 and (iii)
be free and clear of all Liens except Lessors Liens and Permitted Liens,
provided
that Lessee
agrees to promptly discharge any such Permitted Lien within thirty (30) days of the return of the
Unit with Lessors sole remedy for any breach of this clause (iii) being damages at law or specific
performance at equity. Except as expressly provided in this Section 6.2, there will be no further
requirements imposed upon Lessee with respect to the condition of any Unit upon its return in
accordance with the provisions of Section 6.1 hereof and this Section 6.2.
Section 6.3. Storage
. Upon the expiration of the Lease Term with respect to any Units of
Equipment, upon written request of Lessor received at least 60 days prior to the end of the Lease
Term for such Units, Lessee shall permit Lessor to store each such Unit, free of charge, except as
provided below, at such location on the tracks of Lessee used by Lessee for the storage of surplus
rolling stock or locomotives or rolling stock or locomotives available for sale as shall be
reasonably designated by Lessor (taking into account, among other things, Lessees storage
capacity, security and access) in its request for storage pursuant to this Section 6.3 for a period
(the
Storage Period
) beginning on the expiration of the Lease Term and ending not more than 60
days after the later of the expiration of the Lease Term or the date on which 50% of all of the
Units of Equipment to be returned at the expiration of the Lease Term have been returned;
provided
that, with respect to any Unit returned after the expiration of the Lease Term for such Unit, the
Storage Period for such Unit shall begin on the date of return of such Unit and end 60 days
thereafter. Any storage facilities provided by Lessee pursuant to this Section 6.3 shall, in all
cases, be at the cost to Lessor, including insurance and Lessees out-of-pocket costs in connection
with providing any services not contemplated hereby to be provided during the Storage Period, and
at the risk of Lessor, including but not limited to any deterioration of any Unit caused by
moisture or any weather-related cost to the extent such cost arises during such
-6-
period of storage
except a result of Lessees violation of its obligations under this Lease. With respect to the
Units stored pursuant hereto, Lessee will carry and maintain with respect to stored Units, during
the Storage Period, under Lessees insurance policies, property damage insurance and public
liability insurance with respect to third party personal and property damage as Lessee then
maintains in respect of equipment owned or leased by it similar in type to the Equipment;
provided
that (i) Lessor pays all incremental costs associated with such insurance coverage, (ii) such
insurance coverage does not negatively impact upon Lessees loss insurance rating and (iii) any
coverage provided is above Lessees deductibles or self-insurance retention amounts. On not more
than one occasion with respect to each stored Unit and upon not less than 15 days prior written
notice from Lessor to Lessee (which notice shall specify the transportation of no less than all of
the Units of Equipment), Lessee will, during the Storage Period, transport such Units, at Lessees
cost and expense, to a destination or interchange point, f.o.b., such destination or interchange
point, on Lessees lines in the U.S. specified by Lessor, whereupon Lessee shall have no further
liability or obligation with respect to such Units. During the Storage Period, Lessee will permit
Lessor or any person designated by it, including the authorized representative or representatives
of any prospective purchaser or user of such Unit, to inspect the same;
provided
,
however
, that
such inspection shall not interfere with the normal conduct of Lessees business and such person
shall be insured to the reasonable satisfaction of Lessee with respect to any risks incurred in
connection with any such inspections and Lessee (except in the case of Lessees gross negligence or
willful misconduct) shall not be liable for any injury to, or the death of, any person exercising,
either on behalf of Lessor or any prospective purchaser or user, the rights of inspection granted
pursuant hereto. Lessee shall not be required to store the Equipment after the Storage Period. If
Lessee stores any Unit after the Storage Period, such storage shall be at the sole expense and risk
of Lessor.
Section 6.4. Termination of Lease
. Upon the later of (i) expiration of the Lease Term with
respect to such Unit and payment of all sums due from Lessee hereunder, (ii) tender of such Unit at
the location determined in accordance with Section 6.1(a) or, as applicable, the tender of such
Unit for storage in
accordance with Section 6.3, and (iii) compliance by such Unit with Section 6.2, except for (a)
Supplemental Rent obligations with respect to such Unit surviving pursuant to the Participation
Agreement or the Tax Indemnity Agreement or which have otherwise accrued but not been paid as of
the date of the expiration of the Lease Term and (b) the provisions hereof that expressly survive
the termination of this Lease, this Lease and the obligation to pay Rent for such Unit accruing
subsequent to the expiration of the Lease Term with respect to such Unit shall terminate.
Section 7.
Liens.
Lessee will not directly or indirectly create, incur, assume or suffer to exist any Lien on or
with respect to any Units or Lessees leasehold interest therein under this Lease or on the Trust
Estate, except Permitted Liens, and Lessee shall promptly, at its own expense, take such action as
may be necessary to duly discharge (by bonding or otherwise) any such Lien not excepted above if
the same shall arise at any time.
-7-
Section 8.
Maintenance; Operation; Sublease.
Section 8.1. Maintenance
. Lessee, at its own cost and expense, shall service, maintain,
repair and keep each Unit (i) in good repair and operating condition, ordinary wear and tear
excepted, (ii) in accordance with (a) prudent Class I railroad industry maintenance practices in
existence from time to time and (b) in all material respects, manufacturers recommendations to the
extent required to maintain such manufacturers warranties in effect with respect to such Unit,
(iii) in a manner consistent with service, maintenance, overhaul and repair practices used by
Lessee in respect of equipment owned or leased by Lessee similar in type to such Unit and without
discrimination between owned and leased equipment, and (iv) in compliance, in all material
respects, with all applicable laws and regulations, including any applicable United States EPA
regulations, any applicable AAR Mechanical Standards and Federal Railroad Administration
regulations as applicable to continued use by Lessee;
provided, however
, that Lessee may, in good
faith and by appropriate proceedings diligently conducted, contest the validity or application of
any such law, regulation, requirement or rule in any reasonable manner which does not materially
adversely affect the rights or interests of Lessor and Indenture Trustee in the Equipment or
hereunder, create any material risk of the sale, forfeiture or loss of any Unit or otherwise expose
Lessor, Indenture Trustee or any Participant to criminal sanctions or release Lessee from the
obligation to return the Equipment in compliance with the provisions of Section 6.2. Lessee shall
maintain or cause to be maintained all records, logs and other documents required by applicable law
to be maintained with respect to each Unit, and will maintain or cause to be maintained such
records and logs without discrimination between owned and leased equipment and in accordance with
Lessees normal record keeping procedures in its ordinary course of business. Lessee will not
discriminate against any Unit (as compared against similar equipment owned or leased by Lessee)
with respect to its use, operation or maintenance in contemplation of the expiration or termination
of the Lease Term for such Unit.
Section 8.2. Operation
. Lessee shall be entitled to the possession of the Equipment and to
the use of the Equipment by it or any Affiliate in the general operation of Lessees or any such
Affiliates freight rail business upon lines of railroad owned or operated by it or any such
Affiliate, upon lines of railroad over which Lessee or any such Affiliate has trackage or other
operating rights or over which railroad equipment of Lessee or any such Affiliate is regularly
operated pursuant to contract and on railroad lines of other railroads (including in connection
with barge-related rail transportation) in the United States, Canada and Mexico, in the usual
interchange of traffic or in through or run-through service and shall be entitled to permit the use
of the Equipment upon lines of railroad of connecting and other carriers in the usual interchange
of traffic or pursuant to through or run-through agreements;
provided
Lessee shall use the
Equipment only for the purpose and in the manner for which it was designed and intended and in
compliance, in all material respects, with all laws, regulations and guidelines of any governmental
body, the Association of American Railroads, the Federal Railroad Administration and the Surface
Transportation Board and their successors and assigns. Nothing in this Section 8.2 shall be deemed
to constitute permission by Lessor to any Person that acquires possession of any Unit to take any
action inconsistent with the terms and provisions of this Lease and any of the other Operative
Agreements. The rights of any person that acquires possession of any Unit pursuant to this Section
8.2 shall be subject and subordinate to the rights of Lessor hereunder.
-8-
Section 8.3. Sublease
. So long as no Specified Default or Event of Default shall have
occurred and be continuing, Lessee shall have the right, without the prior written consent of
Lessor, to sublease any Unit to or permit its use by a user incorporated under the federal laws or
the laws of any state of the United States, organized under the federal laws or the laws of any
province of Canada or organized under the federal laws or the laws of any state of Mexico, for use
by such sublessee or user upon lines of railroad owned or operated by Lessee, any Affiliate of
Lessee, such sublessee or user or by a railroad company or companies incorporated under the federal
laws or laws of any state of the United States, organized under the federal laws or the laws of any
province in Canada or organized under the federal laws or the laws of any state of Mexico, over
which Lessee, such Affiliate of Lessee, such sublessee or user or such railroad company or
companies has trackage or other operating rights, and upon lines of railroad of connecting and
other carriers in the usual interchange of traffic or pursuant to through or run-through service
agreements;
provided
such sublessee shall not, at the time of such sublease, be insolvent or
subject to insolvency or bankruptcy proceedings. Each sublease shall be subject and subordinate to
this Lease (including the duration of the sublease term, which term may not expire after the
expiration of the Basic Term or any Renewal Term then in effect) and no such sublease shall contain
a purchase option. Lessee shall give Lessor and Indenture Trustee reasonably contemporaneous
notice upon entering into a sublease for a period in excess of one year. No sublease shall in any
way discharge or diminish any of Lessees obligations hereunder, and Lessee shall remain primarily
liable hereunder for the performance of all the terms, conditions and provisions of this Lease and
the other Lessee Agreements to the same extent as if such sublease had not been entered into.
Nothing in this Section 8.3 shall be deemed to constitute permission to any Person in possession of
any Unit pursuant to any such sublease to take any action inconsistent with the terms and
provisions of this Lease or any of the other Operative Agreements.
Section 9.
Modifications.
Section 9.1. Required Modifications
. In the event the Association of American Railroads, the
United States Department of Transportation, or any other United States, Canadian or Mexican
federal, state or local governmental authority having jurisdiction over the operation, safety or
use of any Unit requires that such Unit be altered, replaced or modified (a
Required
Modification
), Lessee agrees to make such Required Modification at its own expense;
provided
,
however
, that Lessee may, in good faith and by appropriate proceedings diligently conducted,
contest the validity or application of any such law, regulation, requirement or rule in any
reasonable manner which does not materially adversely affect the rights or interests of Lessor and
Indenture Trustee in the Equipment or hereunder or otherwise expose Lessor, Indenture Trustee or
any Participant to criminal sanctions or relieve Lessee of the obligation to return the Equipment
in compliance with the provisions of Section 6.2. Subject to Section 9.3, title to any Required
Modification shall immediately vest in Lessor. Notwithstanding anything herein to the contrary, if
Lessee determines in good faith that any Required Modification to a Unit would be economically
impractical, it shall provide written notice of such determination to Lessor and the parties hereto
shall treat such Unit as if an Event of Loss had occurred as of the date of such written notice
with respect to such Unit and the provisions of Sections 11.2(ii), 11.3 and 11.4 shall apply with
respect to such Unit unless Lessor, within 15 Business Days of such notice, elects to retain such
Unit pursuant to Section 9.4.
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Section 9.2. Optional Modifications
. Lessee at any time may modify, alter or improve any Unit
(a
Modification
);
provided
that no Modification shall diminish in more than a
de minimis
respect
the current fair market value, estimated residual value, utility, or remaining useful life of such
Unit below the current fair market value, estimated residual value, utility, or remaining useful
life thereof immediately prior to such Modification, assuming such Unit was then in the condition
required to be maintained by the terms of this Lease. Title to any Non-Severable Modifications
shall be immediately vested in Lessor. Title to any Severable Modifications shall remain with
Lessee. If Lessee shall at its cost cause such Severable Modifications to be made to any Unit and
such Severable Modifications are reasonably necessary for the economic operation of any such Unit,
Lessor shall have the right, prior to the return of such Unit to Lessor hereunder, to purchase such
Severable Modifications (other than Severable Modifications consisting of proprietary or
communications equipment) at their then Fair Market Sales Value (taking into account their actual
condition). If Lessor does not elect to purchase such Severable Modifications, Lessee may remove,
and shall remove if requested by Lessor, such Severable Modifications at Lessees cost and expense.
Section 9.3. Removal of Proprietary and Communications Equipment
. Notwithstanding anything to
the contrary contained herein, Lessee shall at all times own and be entitled to remove at Lessees
cost and expense, any Severable Modification consisting of proprietary or communications equipment
from any Unit prior to the return of such Unit;
provided
that if Lessee removes such Severable
Modification that is (i) a Required Modification and (ii) such
equipment is not customarily provided by the user, Lessee shall replace such proprietary or
communications equipment with non-proprietary equipment of comparable utility.
Section 9.4. Retention of Equipment by Lessor
. Notwithstanding the provisions of the last
sentence of Section 9.1, Lessor may irrevocably elect by written notice to Lessee, no later than 15
Business Days after receipt of Lessees notice of determination of economic impracticality pursuant
to Section 9.1, not to declare an Event of Loss as provided in Section 9.1, whereupon Lessee shall
not be liable for the Stipulated Loss Value for the affected Units but shall (i) deliver the
affected Units to Lessor in the same manner and in the same condition as if delivery were made
pursuant to Section 6 (except that Lessee shall not be required to correct the conditions which
gave rise to the notice of economic impracticality), treating the applicable date for payment
specified in Section 11.2(ii) as the termination date of the Lease Term with respect to the
affected Units, and (ii) pay to Lessor, or to the Persons entitled thereto, (1) all Basic Rent and
Supplemental Rent due and owing on such termination date and unpaid, but without any Make-Whole
Amount in respect of the principal amount of the Equipment Notes to be prepaid in accordance with
Section 2.10(b) of the Indenture and (2) any Underpayment of Basic Rent for the affected Units as
of such termination date. If Lessor elects to retain the affected Units as provided in this
Section 9.4, then Lessor shall pay, or cause to be paid, to Indenture Trustee in funds of the type
and in an amount equal to the outstanding principal amount of the Equipment Notes issued in respect
of such affected Units and all accrued interest to the date of prepayment of such Equipment Note on
such termination date, but without any Make-Whole Amount in respect of the principal amount of the
Equipment Notes to be prepaid in accordance with Section 2.10(b) of the Indenture. On such
termination date, if Lessee shall have paid all amounts due hereunder, Lessor shall pay to Lessee
any Overpayment of Basic Rent for such Units as of such termination date. If Lessor shall fail to
perform any of its obligations pursuant to this
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Section 9.4 on the scheduled termination date for
any affected Unit, the parties hereto shall treat such Unit as if an Event of Loss had occurred as
of the date of Lessees written notice with respect to such Unit pursuant to Section 9.1 and the
provisions of Sections 11.2, 11.3 and 11.4 with respect to rent, termination and disposition shall
apply with respect to such Unit and Lessor shall thereafter no longer be entitled to exercise its
election to retain such affected Units.
Section 10.
Voluntary Termination.
Section 10.1. Right of Termination
. So long as no Specified Default or Event of Default shall
have occurred and be continuing, Lessee shall have the right, at its option at any time or from
time to time on or after the fifth anniversary of the Closing Date, to terminate this Lease with
respect to, at the sole discretion of Lessee, either all of the Units of Equipment or a Minimum
Number of the Units of Equipment (the
Terminated Units
), if Lessee determines in good faith (as
evidenced by a certificate executed by the Chief Financial Officer of Lessee), that such Units have
become obsolete or surplus to Lessees requirements, by delivering at least 90 days prior notice
to Lessor and Indenture Trustee specifying a proposed date of termination for such Units (the
Termination Date
), which date shall be a Determination Date, any such termination to be effective
on the Termination Date. Except as expressly provided herein, there will be no conditions to
Lessees
right to terminate this Lease with respect to the Terminated Units pursuant to this Section 10.1.
So long as Lessor shall not have given Lessee a notice of election to retain the Terminated Units
in accordance with Section 10.3, Lessee may withdraw the termination notice referred to above at
any time prior to ten (10) days before the scheduled Termination Date, whereupon this Lease shall
continue in full force and effect;
provided
that Lessee shall pay all reasonable costs of Lessor,
Indenture Trustee, Loan Participant and Owner Participant incurred in connection with any proposed
or withdrawn termination;
provided
,
further
, that Lessee may not withdraw a termination notice
hereunder more than twice.
Section 10.2. Sale of Equipment
. During the period from the date of such notice given
pursuant to Section 10.1 to the Termination Date, Lessee, as exclusive agent for Lessor and at
Lessees sole cost and expense, shall use reasonable efforts to obtain bids from Persons (including
Owner Participant, who shall be permitted to bid on the same basis as any other Person, but
excluding Lessee, any Affiliate of Lessee, any successor or assign of Lessee or any third party
with whom Lessee or any Affiliate of Lessee has an arrangement to use or operate the Terminated
Units for the benefit of Lessee or such Affiliate following the termination of this Lease with
respect thereto) for the cash purchase of the Terminated Units, and Lessee shall promptly, and in
any event at least five Business Days prior to the proposed date of sale, certify to Lessor in
writing the amount and terms of each such bid, the proposed date of such sale and the name and
address of the party submitting such bid. Unless Lessor shall have elected to retain the
Terminated Units in accordance with Section 10.3, on the Termination Date: (i) Lessee shall,
subject to receipt (x) by Lessor of all amounts owing to Lessor pursuant to the next sentence, and
(y) by the persons entitled thereto of all unpaid Supplemental Rent due on or before the
Termination Date, deliver the Terminated Units to the bidder, if any, which shall have submitted
the highest all cash bid prior to such date (or to such other bidder as Lessee and Lessor shall
agree), in the same manner and condition as if delivery were made to Lessor pursuant to Section 6
and (ii) Lessor shall, without recourse or warranty (except as to the absence of any Lessors Lien)
simultaneously therewith sell the Terminated Units to such bidder. The total
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selling price
realized at such sale shall be paid to Lessor for distribution pursuant to Section 3.02 of the
Indenture for so long as the Indenture remains in effect or otherwise to the Owner Trustee for
distribution according to the Trust Agreement and, in addition and anything to the contrary
notwithstanding, on the Termination Date, Lessee shall pay to Lessor, or to the Persons entitled
thereto, (A) all unpaid Basic Rent with respect to such Terminated Units due and payable prior to
the Termination Date, (B) the excess, if any, of (1) the Termination Value for the Terminated Units
computed as of the Termination Date, over (2) the net cash sales proceeds (after deduction of
applicable transaction expenses and sales or transfer taxes, if any, due or to become due as a
consequence of such sale) of the Terminated Units, (C) an amount equal to the Make-Whole Amount, if
any, in respect of the principal amount of the Equipment Notes to be prepaid in accordance with
Section 2.10(a) of the Indenture, (D) any other Supplemental Rent due and payable as of such
Termination Date and (E) any Underpayment of Basic Rent for the Terminated Units as of such
Termination Date. On such Termination Date, if Lessee shall have paid all amounts due hereunder,
Lessor shall pay to Lessee any Overpayment of Basic Rent for such Units as of such Termination
Date. If no sale shall have occurred, this Lease shall continue in full force and effect with
respect to such Units;
provided
that if such sale shall not have occurred solely because of
Lessees failure to pay the amounts required to be paid pursuant to the immediately preceding
sentence, Lessee shall have no further right to terminate
this Lease with respect to such Units, and such failure to pay such amounts shall be deemed a
withdrawal of the termination notice referred to in Section 10.1. If Lessor elects not to exercise
its right to retain the Terminated Units as provided in Section 10.3, Lessee, in acting as agent
for Lessor, shall have no liability to Lessor for failure to obtain the best price, shall act in
its sole discretion and shall be under no duty to solicit bids publicly or in any particular
market. Lessees sole interest in acting as agent shall be to sell the Units at a price that
reduces or eliminates Lessees obligation to pay the amount provided in this Section 10.2. On the
Termination Date, upon receipt by Lessor of the amounts owing to Lessor pursuant to the third
sentence of this Section 10.2, Lessor shall pay, or cause to be paid, to Indenture Trustee in
immediately available funds an amount equal to the outstanding principal amount of the Equipment
Notes issued in respect of such Terminated Units, all accrued interest to the date of prepayment of
such Equipment Notes and the Make-Whole Amount, if any, in respect of such Equipment Notes on such
Termination Date.
Section 10.3. Retention of Equipment by Lessor
. Notwithstanding the provisions of Sections
10.1 and 10.2, Lessor may irrevocably elect by written notice to Lessee, no later than 30 days
after receipt of Lessees notice of termination, not to sell the Terminated Units on the
Termination Date, whereupon Lessee shall (i) deliver the Terminated Units to Lessor in the same
manner and condition as if delivery were made to Lessor pursuant to Section 6, treating the
Termination Date as the termination date of the Lease Term with respect to the Terminated Units,
and (ii) pay to Lessor, or to the Persons entitled thereto, all Basic Rent and Supplemental Rent
due and owing on the Termination Date and unpaid, including an amount equal to any Make-Whole
Amount in respect of the principal amount of the Equipment Notes to be prepaid in accordance with
Section 2.10(a) of the Indenture, and any Underpayment of Basic Rent for such Terminated Units as
of such Termination Date. If Lessor elects not to sell the Terminated Units as provided in this
Section 10.3, then Lessor shall pay, or cause to be paid, to Indenture Trustee in immediately
available funds an amount equal to the outstanding principal amount of the Equipment Notes issued
in respect of such Terminated Units and all accrued interest to the date
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of prepayment of such
Equipment Note on such Termination Date. On such Termination Date, if Lessee shall have paid all
amounts due hereunder, Lessor shall pay to Lessee any Overpayment of Basic Rent for such Units as
of such Termination Date. If Lessor shall fail to perform any of its obligations pursuant to this
Section 10.3 and as a result thereof this Lease shall not be terminated with respect to the
Terminated Units on a proposed Termination Date, Lessor shall thereafter no longer be entitled to
exercise its election to retain such Terminated Units and Lessee may at its option at any time
thereafter submit a new termination notice pursuant to Section 10.1 with respect to such Terminated
Units specifying a proposed Termination Date occurring not earlier than five days from the date of
such notice.
Section 10.4. Termination of Lease
. In the event of any such sale and receipt by Lessor and
Indenture Trustee of all of the amounts provided herein, and upon compliance by Lessee with the
other provisions of this Section 10, the Lease Term for the Terminated Units shall end and the
obligation to pay Basic Rent and all other Rent for such Terminated Units (except for (i)
Supplemental Rent obligations with respect to such Terminated Units surviving pursuant to the
Participation Agreement or the Tax Indemnity Agreement or which have otherwise accrued but not been
paid as of the date of
the expiration of the Lease Term and (ii) the provisions hereof that expressly survive any
termination of this Lease) shall terminate.
Section 11.
Loss, Destruction, Requisition, Etc.
Section 11.1. Event of Loss
. In the event that any Unit (i) shall suffer destruction, damage,
contamination or wear which, in Lessees good faith opinion, makes repair uneconomic or renders
such Unit unfit for commercial use, (ii) shall suffer theft or disappearance, (iii) shall be
permanently returned to the manufacturer pursuant to any warranty or patent indemnity provisions,
(iv) shall have title thereto taken or appropriated by any governmental authority under the power
of eminent domain or otherwise, (v) shall be taken or requisitioned for use by any governmental
authority (other than the United States government or any agency or instrumentality thereof) under
the power of eminent domain or otherwise and such taking or requisition is continuing in excess of
180 days or, if earlier, on the last day of the Basic Term or any Renewal Term then in effect, or
(vi) shall be taken or requisitioned for use by the United States government or any agency or
instrumentality thereof and such taking or requisition is continuing on the last day of the Basic
Term or any Renewal Term then in effect (any such occurrence being hereinafter called an
Event of
Loss
), Lessee, in accordance with the terms of Section 11.2, shall promptly and fully inform
Lessor and Indenture Trustee of such Event of Loss.
Section 11.2. Replacement or Payment upon Event of Loss
. Upon the occurrence of an Event of
Loss or the deemed occurrence of an Event of Loss pursuant to Section 9.1 with respect to any Unit,
Lessee shall within 60 days after a Responsible Officer of Lessee shall have actual knowledge of
such occurrence or deemed occurrence give Lessor and Indenture Trustee notice of such occurrence or
deemed occurrence of such Event of Loss and of its election to perform one of the following options
(it being agreed that if Lessee shall not have given notice of such election within such 60 days
after such actual knowledge of such occurrence or deemed occurrence, Lessee shall be deemed to have
elected to perform the option set forth in the following paragraph (ii)):
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(i) So long as no Specified Default or Event of Default shall have occurred and be
continuing, as promptly as practicable, and in any event on or before the Business Day next
preceding the 175th day next following the date on which a Responsible Officer of Lessee
shall have actual knowledge of the occurrence or deemed occurrence of such Event of Loss,
Lessee shall comply with Section 11.4(b) and shall convey or cause to be conveyed to Lessor
a Replacement Unit to be leased to Lessee hereunder, such Replacement Unit to be free and
clear of all Liens (other than Permitted Liens) and to have a current fair market value,
estimated residual value, utility, condition and remaining useful life at least equal to the
Unit so replaced (assuming such Unit was in the condition required to be maintained by the
terms of this Lease);
provided
that, if Lessee shall not perform its obligation to effect
such replacement under this paragraph (i) during the period of time provided herein, then
Lessee shall pay on a Determination Date selected by Lessee that is within 180 days after a
Responsible Officer of Lessee shall have actual
knowledge of the occurrence or deemed occurrence of such Event of Loss to Lessor, or in the
case of Supplemental Rent, to the Person entitled thereto, the amounts specified in
paragraph (ii) below; or
(ii) on or before a Determination Date selected by Lessee that is within 90 days after
a Responsible Officer of Lessee shall have actual knowledge of the occurrence or deemed
occurrence of such Event of Loss, Lessee shall pay or cause to be paid on the applicable
Determination Date to Lessor or, in the case of Supplemental Rent, to the Persons entitled
thereto, in funds of the type specified in Section 3.5, (A) an amount equal to the
Stipulated Loss Value of each such Unit determined as of such Determination Date, (B) all
unpaid Basic Rent with respect to each such Unit due prior to such Determination Date, and
(C) without duplication, all Supplemental Rent due and payable as of such Determination
Date, it being understood that until such Stipulated Loss Value is paid, there shall be no
abatement or reduction of Basic Rent.
Section 11.3. Rent Termination
. Upon the payment of all sums required to be paid pursuant to
Section 11.2(ii) hereof in respect of any Unit or Units for which Lessee has elected to pay or
deemed to have elected to pay pursuant to the proviso to Section 11.2(i) the amounts specified in
paragraph 11.2(ii), the Lease Term with respect to such Unit or Units and the obligation to pay
Rent for such Unit or Units (except for (i) Supplemental Rent obligations with respect to such Unit
or Units surviving pursuant to the Participation Agreement or the Tax Indemnity Agreement or which
have otherwise accrued but not been paid as of the date of the expiration of the Lease Term and
(ii) the provisions hereof that expressly survive any termination of this Lease) shall terminate;
provided
that Lessee shall be obligated to pay all Rent in respect of such Unit or Units which has
accrued up to and including the date of payment of Stipulated Loss Value pursuant to Section 11.2.
Section 11.4. Disposition of Equipment; Replacement of Unit
. (a) Upon the payment of all sums
required to be paid pursuant to Section 11.2 in respect of any Unit or Units, Lessor will convey to
Lessee or its designee all right, title and interest of Lessor in and to such Unit or Units, as
is, where is, without recourse or warranty, except for a warranty against Lessors Liens, and
shall execute and deliver to Lessee or its designee such bills of sale and other documents and
instruments as Lessee or its designee may reasonably request to evidence such conveyance. As
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to
each separate Unit so disposed of, Lessee or its designee shall be entitled to any amounts arising
from such disposition, plus any awards, insurance (other than insurance maintained by Lessor or
Owner Participant for its own account in accordance with Section 12.3) or other proceeds and
damages (including any Association of American Railroads interline settlement paid upon an Event of
Loss) received by Lessee, Lessor or Indenture Trustee by reason of such Event of Loss after having
paid the Stipulated Loss Value attributable thereto.
(b) At the time of or prior to any replacement of any Unit, Lessee, at its own expense, will
(A) furnish Lessor with a full warranty bill of sale and an assignment of warranties with respect
to the Replacement Unit, (B) cause a Lease Supplement substantially in the form of Exhibit A
hereto, subjecting such Replacement Unit to this Lease, duly executed by Lessee, to be delivered to
Lessor for execution and, upon such execution, to be filed for recordation in the
same manner as provided for in the original Lease Supplement in Section 16.1, (C) so long as the
Indenture shall not have been satisfied and discharged, cause an Indenture Supplement substantially
in the form of Exhibit A to the Indenture for such Replacement Unit, to be delivered to Lessor and
to Indenture Trustee for execution and, upon such execution, to be filed for recordation in the
same manner as provided for the original Indenture Supplement in Section 16.1, (D) furnish Lessor
with an opinion of Lessees counsel (which may be Lessees internal counsel), to the effect that
(w) Lessor (and Indenture Trustee, as assignee of Lessor) shall be entitled to the benefits of
Section 1168 of the Bankruptcy Code in respect of such Replacement Unit to the same extent that
Lessor (and Indenture Trustee, as assignee of Lessor) was entitled to such benefits in respect of
the Unit being replaced, (x) the bill of sale referred to in clause (A) above constitutes an
effective instrument for the conveyance of title to the Replacement Unit to Lessor, (y) good and
marketable title to the Replacement Unit has been delivered to Lessor, free and clear of all Liens
(other than Permitted Liens), and (z) all filings, recordings and other action necessary or
appropriate to perfect and protect Lessors and Indenture Trustees respective interests in the
Replacement Unit have been accomplished, and (E) furnish Lessor with a certificate of a qualified
engineer (who may be the system chief mechanical officer of Lessee) certifying that the Replacement
Unit has a fair market value, utility and remaining useful life at least equal to the Unit so
replaced (assuming such Unit was in the condition required to be maintained by the terms of this
Lease). For all purposes hereof, upon passage of title thereto to Lessor, the Replacement Unit
shall be deemed part of the property leased hereunder and the Replacement Unit shall be deemed a
Unit
of Equipment as defined herein. Upon such passage of title, Lessor will transfer to Lessee,
without recourse or warranty (except as to Lessors Liens), all Lessors right, title and interest
in and to the replaced Unit, and upon such transfer, Lessor will request in writing that Indenture
Trustee execute and deliver to Lessee an appropriate instrument releasing such replaced Unit from
the lien of the Indenture.
Section 11.5. Eminent Domain
. In the event that during the Lease Term the use of any Unit is
requisitioned or taken by any governmental authority under the power of eminent domain or otherwise
for a period which does not constitute an Event of Loss, Lessees obligation to pay all
installments of Basic Rent shall continue for the duration of such requisitioning or taking.
Lessee shall be entitled to receive and retain for its own account all sums payable for any such
period by such governmental authority as compensation for requisition or taking of possession. Any
amount referred to in this Section 11.5 which is payable to Lessee shall not be paid to Lessee, or
if it has been previously paid directly to Lessee, shall not be retained by Lessee, if at
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the time
of such payment a Specified Default or an Event of Default shall have occurred and be continuing,
but shall be paid to and held by Lessor as security for the obligations of Lessee under this Lease,
and upon the earlier of (i) 200 days after Lessor shall have received such amount;
provided
Lessor
has not proceeded to exercise remedies under Section 15 and (ii) such time as there shall not be
continuing any Specified Default or Event of Default, such amount shall be paid to Lessee.
Section 12.
Insurance.
Section 12.1. Property Damage and Public Liability Insurance
.
(a)
Coverages
. Lessee will, at all times prior to the return of the Units to Lessor, at its
own expense, cause to be carried and maintained (i) all risk property insurance in respect of the
Units and (ii) public liability insurance against loss or damage for personal injury, death or
property damage suffered upon, in or about any premises occupied by Lessee or occurring as a result
of the use, maintenance or operation of the Units, in each case, in such amounts and against such
risks, with such insurance companies and with such terms (including co-insurance, deductibles,
limits of liability and loss payment provisions) as are customary under Lessees risk management
program and in keeping with risks assumed by Class I railroads generally;
provided
,
however
, that
Lessee may self insure with respect to any or all of the above risks if customary under such risk
management program and in keeping with risks assumed by Class I railroads generally. Such coverage
may provide for deductible amounts as are customary under Lessees risk management program and in
keeping with risks assumed by Class I railroads generally. Notwithstanding the foregoing, all
insurance coverages (including, without limitation, self-insurance) with respect to the Units
required under this Lease shall be comparable to, and no less favorable than, insurance coverages
applicable to equipment owned or leased by Lessee which is comparable to the Units. Lessee shall,
at its own expense, be entitled to make all proofs of loss and take all other steps necessary to
collect the proceeds of such insurance. Lessee agrees that it will provide written notice to each
Insured Party (as defined below) at least 30 days prior to Lessee taking any action to cancel or
permit the lapse of any insurance required to be maintained by Lessee in accordance with this
Section 12.1(a).
(b)
Certificate of Insurance
. Lessee shall, on or prior to the Delivery Date for any Unit,
furnish Lessor and Indenture Trustee with a certificate signed by the insurer or an independent
insurance broker showing the insurance then maintained, if any, with respect to the Units delivered
on the Delivery Date. Lessor or Indenture Trustee may, but not more than once in any twelve-month
period, request from Lessee and Lessee shall promptly thereafter furnish to Lessor and Indenture
Trustee, an Officers Certificate or, at Lessees option, such a certificate signed by an
independent insurance broker, setting forth all insurance maintained by Lessee pursuant to Section
12.1(a) above and describing such policies, if any, including the amounts of coverage, any
deductible amounts and the names of the insurance providers. Such public liability insurance and
all risk property insurance shall name Owner Participant, Loan Participant, Lessor, Trust Company
and Indenture Trustee (each, an
Insured Party
) as an additional insured with respect to such
public liability insurance then maintained as their respective interests may appear. Lessee agrees
that such insurer or such broker will endeavor to provide written notice to each Insured Party at
least 30 days prior to the cancellation or lapse of any insurance required to
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be maintained by
Lessee in accordance with Section 12.1(a) above. Any insurance maintained pursuant to this Section
12 shall (i) provide insurers waiver of its right of subrogation with respect to public liability
insurance and all risk property insurance, set-off or counterclaim or any other deduction, whether
by attachment or otherwise, in respect of any liability against any additional insured except for
claims as shall arise from the willful misconduct or gross negligence of such additional insured,
(ii) to the extent commercially available, provide that such all risk property
insurance as to the interest of Lessor, Owner Participant, Loan Participant, Trust Company and
Indenture Trustee shall not be invalidated by any action or inaction of Lessee or any other Person
(other than such claimant), regardless of any breach or violation of any warranty, declaration or
condition contained in such policies by Lessee or any other Person (other than such claimant), and
(iii) provide that all such insurance is primary without right of contribution from any other
insurance which might otherwise be maintained by Lessor, Indenture Trustee, Trust Company or Owner
Participant and shall expressly provide a severability of interest clause. Any insurance
maintained by Lessor or Owner Participant shall not be considered co-insurance with any insurance
maintained by Lessee.
Section 12.2. Proceeds of Insurance
. The entire proceeds of any property insurance or
third-party payments for damages or an Event of Loss with respect to any Unit (including any
Association of American Railroads interline settlements) received by Lessor or Indenture Trustee
shall be promptly paid over to, and retained by, Lessee;
provided
,
however
, any such amount which
is payable to Lessee shall not be paid to Lessee, or if it has been previously paid directly to
Lessee, shall not be retained by Lessee, if at the time of such payment a Specified Default or an
Event of Default shall have occurred and be continuing, but shall be paid to and held by Lessor as
security for the obligations of Lessee under this Lease.
Section 12.3. Additional Insurance
. At any time Lessor (either directly or in the name of
Owner Participant), Indenture Trustee or Owner Participant may at its own expense carry insurance
with respect to its interest in the Units,
provided
that such insurance does not interfere with
Lessees ability to insure the Units as required by this Section 12 or adversely affect Lessees
insurance or the cost thereof, it being understood that all salvage rights to each Unit and all
primary subrogation rights shall remain with Lessees insurers at all times. Any insurance
payments received from policies maintained by Lessor, Indenture Trustee or Owner Participant
pursuant to the previous sentence shall be retained by Lessor, Indenture Trustee or Owner
Participant, as the case may be, without reducing or otherwise affecting Lessees obligations
hereunder.
Section 13.
Reports; Inspection.
Section 13.1. Duty of Lessee to Furnish
. On or before June 30, 2009, and on or before each
June 30 thereafter, Lessee will furnish to Lessor, Owner Participant, Loan Participant and
Indenture Trustee (i) an accurate statement, as of the preceding December 31, showing the reporting
marks of the Units then leased hereunder, identifying each Unit that may have suffered an Event of
Loss during the 12 months ending on such December 31 (or since the Delivery Date, in the case of
the first such statement) and (ii) such other information regarding the condition or repair of the
Equipment as Lessor or Owner Participant may reasonably request.
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Section 13.2. Lessors Inspection Rights
. Lessor, Owner Participant, Loan Participant and
Indenture Trustee each shall have the right, but not the obligation, at their respective sole cost
and expense (unless, in the case of any such expense, a Specified Default or an Event of Default
shall have occurred and be continuing)
and risk (including, without limitation, the risk of personal injury or death), by their respective
authorized representatives, to the extent within Lessees control: on not more than one occasion in
any 12-month period (unless a Specified Default or an Event of Default shall have occurred and be
continuing) or during the last 12 months of the Lease Term, to inspect the Equipment and Lessees
records with respect thereto, during Lessees normal business hours and upon reasonable prior
notice to Lessee;
provided
,
however
, that Lessee shall not be liable for any injury to, or the
death of, any Person exercising, either on behalf of Lessor, Owner Participant, Indenture Trustee,
Loan Participant or any prospective user, the rights of inspection granted under this Section 13.2
except as may result or arise from Lessees gross negligence or willful misconduct. No inspection
pursuant to this Section 13.2 shall interfere with the use, operation or maintenance of the
Equipment or the normal conduct of Lessees business, and Lessee shall not be required to undertake
or incur any additional liabilities in connection therewith.
Section 14.
Events of Default.
The following events shall constitute Events of Default hereunder (whether any such event
shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) and each such Event of Default shall be deemed to exist
and continue so long as, but only as long as, it shall not have been remedied:
(a) Lessee shall fail to make any payment of (i) Basic Rent or EBO Fixed Purchase Price
within 10 Business Days after the same shall have become due or (ii) Stipulated Loss Value
or Termination Value after the same shall have become due and such failure shall continue
unremedied for a period of 10 Business Days after receipt by Lessee of written notice of
such failure from Lessor, Owner Participant, Loan Participant or Indenture Trustee; or
(b) Lessee shall fail to make any payment of any other Supplemental Rent, including
indemnity or tax indemnity payments, after the same shall have become due and such failure
shall continue unremedied for a period of 30 days after receipt by Lessee of written notice
of such failure from Lessor, Owner Participant, Loan Participant or Indenture Trustee
(provided that notice of non-payment of any Excepted Payment may only be given by Owner
Participant); or
(c) any representation or warranty made by Lessee in any Lessee Agreement (other than
the Tax Indemnity Agreement) is untrue or incorrect in any material respect as of the date
of issuance or making thereof and such untruth or incorrectness shall continue to be
material and unremedied for a period of 30 days after receipt by Lessee of written notice
thereof from Lessor, Owner Participant, Loan Participant or Indenture Trustee;
provided
that, if such untruth or incorrectness is capable of being remedied, no such untruth or
incorrectness shall constitute an Event of Default hereunder for a period
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of 180 days after receipt of such notice so long as Lessee is diligently proceeding to
remedy such untruth or incorrectness; or
(d) Lessee shall (i) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect, or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any substantial
part of its property, or (ii) consent to any such relief or to the appointment of or taking
possession by any such official in any voluntary case or other proceeding commenced against
it, or (iii) admit in writing its inability to pay its debts generally as they come due, or
(iv) make a general assignment for the benefit of creditors, or (v) take any corporate
action to authorize any of the foregoing; or
(e) an involuntary case or other proceeding shall be commenced against Lessee seeking
liquidation, reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 90 days; or
(f) other than as set forth in clauses (a), (b), (c) or (g), Lessee shall fail to
observe or perform any other of the covenants or agreements to be observed or performed by
Lessee under any Lessee Agreement (other than the Tax Indemnity Agreement) and such failure
shall continue unremedied for 30 days after notice from Lessor, Owner Participant or
Indenture Trustee to Lessee, specifying the failure and demanding the same to be remedied;
provided
that, if such failure is capable of being remedied, no such failure shall
constitute an Event of Default hereunder for a period of 180 days after receipt of such
notice so long as Lessee is diligently proceeding to remedy such failure; or
(g) Lessee shall make or permit any unauthorized assignment or transfer of this Lease
in violation of Section 18.2 and such unauthorized assignment or transfer shall continue
unremedied for 30 days;
provided
that, notwithstanding anything to the contrary contained in this Lease, any failure of
Lessee to perform or observe any covenant or agreement herein shall not constitute an Event of
Default if such failure is caused solely by reason of an event referred to in the definition of
Event of Loss
so long as Lessee is continuing to comply with the applicable terms of Section 11.
Lessor (or, for so long as rent payments are being made directly to it, Indenture Trustee) shall
notify Lessee promptly upon Lessees failure to make any payment of Basic Rent, after the same
shall have become due;
provided
that the giving of such notice by Lessor or Indenture Trustee, as
applicable, shall not be a condition to the start of the 10 Business Days period referred to in
paragraph (a) of this Section 14 and the failure or delay in giving such notice shall not affect
the occurrence of an Event of Default under such Section 14(a) and Lessee agrees Lessor and
Indenture Trustee shall incur no liability nor be in breach hereunder for failure or delay in
giving such notice.
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Section 15.
Remedies.
Section 15.1. Remedies
. Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, Lessor may, at its option, declare this Lease
to be in default by a written notice to Lessee (provided that upon the occurrence of an Event of
Default under Section 14(d) or 14(e), this Lease shall automatically be in default without the need
for any declaration by Lessor and any giving of notice); and Lessor may do one or more of the
following as Lessor in its sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, applicable law then in effect:
(a) proceed by appropriate court action or actions, either at law or in equity, to
enforce performance by Lessee of the applicable covenants of this Lease or to recover
damages for the breach thereof;
(b) by notice in writing to Lessee, cancel this Lease, whereupon all right of Lessee to
the possession and use of the Equipment shall absolutely cease and terminate, but Lessee
shall remain liable as hereinafter provided; and thereupon, Lessor may demand that Lessee,
and Lessee shall, upon written demand of Lessor and at Lessees expense forthwith return all
of the Equipment to Lessor or its order in the manner and condition required by, and
otherwise in accordance with all of the provisions of Section 6, except Section 6.1(b) and
those provisions relating to periods of notice; or Lessor may by its agents enter upon the
premises of Lessee or other premises where any of the Equipment may be located and take
possession of and remove all or any of the Units and thenceforth hold, possess and enjoy the
same free from any right of Lessee, or its successor or assigns, to use such Units for any
purpose whatever;
(c) sell any Unit at public or private sale, as Lessor may determine, free and clear of
any rights of Lessee and without any duty to account to Lessee with respect to such sale or
for the proceeds thereof (except to the extent required by paragraph (e) or (g) below if
Lessor elects to exercise its rights under said paragraph in which case such sale shall be
conducted at arms length and on a commercially reasonable basis), in which event Lessees
obligation to pay Basic Rent and Supplemental Rent (other than any Supplemental Rent owed
with respect to Lessees indemnification obligations under Section 7.1 or Section 7.2 of the
Participation Agreement, except for claims in respect of such Unit attributable to acts or
events occurring after the delivery of such Unit to the purchaser thereof and which are not
otherwise attributable to any period prior to such delivery or relate to a failure by Lessee
to perform its obligations under this Lease) with respect to such Unit hereunder due for any
periods subsequent to the date of such sale shall terminate (except to the extent that Basic
Rent and Supplemental Rent are to be included in computations under paragraph (e) or (g)
below if Lessor elects to exercise its rights under either of said paragraphs);
(d) hold, keep idle or lease to others any Unit as Lessor in its sole discretion may
determine, free and clear of any rights of Lessee and without any duty to account to Lessee
with respect to such action or inaction or for any proceeds with respect thereto, except
that Lessees obligation to pay Basic Rent and Supplemental Rent (other than any
-20-
Supplemental Rent owed with respect to Lessees indemnification obligations under Section
7.1 or Section 7.2 of the Participation Agreement, except for claims in respect of such Unit
attributable to acts or events occurring after the return of such Unit to Lessor in
accordance with the terms hereof and which are not otherwise attributable to any period
prior to such delivery or relate to a failure by Lessee to perform its obligations under
this Lease) with respect to such Unit due for any periods subsequent to the date upon which
Lessee shall have been deprived of possession and use of such Unit pursuant to this Section
15 and prior to the Determination Date specified in paragraph (e) below shall be reduced by
the net proceeds, if any, received by Lessor from leasing such Unit to any Person other than
Lessee;
(e) whether or not Lessor shall have exercised, or shall thereafter at any time
exercise, any of its rights under paragraph (a), (b) or (c) above with respect to any Unit,
Lessor, by written notice to Lessee specifying a payment date (which date shall be a
Determination Date for the purposes of computing Stipulated Loss Value) which shall be not
earlier than 30 days after the date of such notice, may demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent for such Unit
due on or after the Determination Date), (x) any unpaid Basic Rent due prior to the
Determination Date so specified,
plus
(y) whichever of the amounts referred to in
subparagraphs (i) and (ii) below as Lessor, in its sole discretion, shall specify in such
notice,
plus
(iii) all other Supplemental Rent due as of the date of payment, including
interest, to the extent permitted by applicable law, at the Late Rate on such amounts from
the date due (and in the case of the amount referred to in subparagraphs (i) and (ii) below,
such Determination Date) to the date of actual payment:
(i) an amount with respect to each Unit which represents the excess of the
present value, at the time of such payment date, of all rentals for such Unit which
would otherwise have accrued hereunder from such payment date for the remainder of
the Basic Term or any Renewal Term then in effect over the then present value of the
then Fair Market Rental Value of such Unit (taking into account its actual
condition) for such period computed by discounting from the end of such Term to such
payment date rentals which Lessor reasonably estimates to be obtainable for the use
of such Unit during such period, such present value to be computed in each case on a
basis of a rate per annum equal to the Debt Rate, compounded semiannually from the
respective dates upon which rentals should have been payable hereunder had this
Lease not been terminated; or
(ii) an amount equal to the excess, if any, of the Stipulated Loss Value for
such Unit computed as of the payment date specified in such notice over the Fair
Market Sales Value of such Unit (taking into account its actual condition) as of the
payment date specified in such notice;
(f) so long as any Unit has not been sold pursuant to paragraph (c) above, by notice to
Lessee, require Lessee to pay to Lessor on demand on any Determination Date, and Lessee
hereby agrees that it will so pay Lessor, as liquidated damages for loss of a
-21-
bargain and not as a penalty (in lieu of Basic Rent due on or after such Determination Date)
(i) any unpaid Basic Rent due prior to the Determination Date so specified,
plus
(ii) an
amount equal to the Stipulated Loss Value for such Unit computed as of such Determination
Date,
plus
(iii) all other Supplemental Rent due as of the date of payment, including
interest, to the extent permitted by applicable law, at the Late Rate on such amounts from
the date due (and in the case of the amount referred to in clause (ii), such Determination
Date) to the date of actual payment; and upon such payment of liquidated damages, Lessor
shall transfer, or cause to be transferred, to Lessee, at Lessees cost and expense, on an
as-is, where-is basis and without recourse or warranty (except as to the absence of
Lessors Liens), the rights and interests of Lessor in and to the Equipment and the Lease,
and Lessor and Owner Participant, at Lessees cost and expense, shall execute and deliver
such documents evidencing such transfer and take such further action as may be required to
effect such transfer; and
(g) if Lessor shall have sold any Unit pursuant to paragraph (c) above, Lessor, in lieu
of exercising its rights under paragraph (e) above with respect to such Unit may, if it
shall so elect, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due on
or after the date of such sale) (i) any unpaid Basic Rent due prior to the date of such
sale,
plus
(ii) the amount, if any, by which the Stipulated Loss Value of such Unit computed
as of the Determination Date immediately preceding the date of such sale or, if such sale
occurs on a Determination Date, then computed as of such Determination Date, exceeds the net
proceeds of such sale,
plus
(iii) all other Supplemental Rent due as of the date of payment,
including interest, to the extent permitted by applicable law, at the Late Rate on such
amounts from the date due (and in the case of the amount referred to in clause (ii), such
Determination Date) to the date of actual payment.
In addition, Lessee shall be liable, except as otherwise provided above, for any and all
unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for
legal fees and other costs and expenses incurred by reason of the occurrence of any Event of
Default or the exercise of Lessors remedies with respect thereto, including without limitation the
repayment in full of any costs and expenses necessary to be expended in repairing any Unit in order
to cause it to be in compliance with all maintenance and regulatory standards imposed by this
Lease.
Notwithstanding the obligations of Lessee under this Section, in the event this Lease is
terminated as a result of an Event of Default and Lessor has not exercised its remedies under
Section 15.1(e)(ii), (f) or (g), Lessee shall be obligated to pay as of the Payment Date specified
in the notice from Lessor, the amount, if any, of Underpayment of Basic Rent as of such Payment
Date and following satisfaction of all amounts payable by Lessee in respect of such Payment Date,
Lessor shall pay to Lessee the amount, if any, of Overpayment of Basic Rent as of such Payment
Date.
Section 15.2. Cumulative Remedies
. The remedies in this Lease provided in favor of Lessor
shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other
remedies in its favor existing at law or in equity.
-22-
Section 15.3. No Waiver
. No delay or omission to exercise any right, power or remedy accruing
to Lessor upon any breach or default by Lessee under this Lease shall impair any such right, power
or remedy of Lessor, nor shall any such delay or omission be construed as a waiver of any breach or
default, or of any similar breach or default hereafter occurring; nor shall any waiver of a single
breach or default be deemed a waiver of any subsequent breach or default.
Section 15.4. Lessees Duty to Return Equipment Upon Default
. If Lessor or any assignee of
Lessor shall terminate this Lease pursuant to this Section 15 and shall have provided to Lessee the
written demand specified in Section 15.1(b), Lessee shall forthwith deliver possession of such
Units to Lessor. For the purpose of delivering possession of any Unit to Lessor as above required,
Lessee shall at its own cost, expense and risk:
(i) forthwith place such Equipment upon such storage tracks of Lessee or, at the
expense of Lessee, on any other storage tracks, as Lessee may select;
(ii) permit Lessor to store such Equipment on such tracks without charge for insurance,
rent or storage until the earlier of (x) six months after such demand for storage and (y)
the date such Equipment is sold, leased or otherwise disposed of by Lessor and during such
period of storage Lessee shall continue to maintain all insurance required by Section 12
hereof; and
(iii) transport the Equipment to any point of interchange on Lessees lines in the 48
contiguous United States with a railroad, when directed by Lessor.
All Equipment returned shall be in the condition required by Section 6.2 hereof.
Section 15.5. Specific Performance; Lessor Appointed Lessees Agent
. The assembling,
delivery, storage and transporting of the Equipment as provided in Section 15.4 are of the essence
of this Lease, and upon application to any court of equity having jurisdiction in the premises,
Lessor shall be entitled to a decree against Lessee requiring specific performance of the covenants
of Lessee so to assemble, deliver, store and transport the Equipment. Without in any way limiting
the obligation of Lessee under the provisions of Section 15.4, Lessee hereby irrevocably appoints
Lessor as the agent and attorney of Lessee, with full power and authority, at any time while Lessee
is obligated to deliver possession of any Units to Lessor pursuant to this Section 15, to demand
and take possession of such Unit in the name and on behalf of Lessee from whosoever shall be at the
time in possession of such Unit.
Section 16.
Filings; Further Assurances.
Section 16.1. Filings
. On or prior to the Delivery Date for each Unit, Lessee will (i) cause
this Lease, the Lease Supplement dated the Delivery Date, the Indenture and the Indenture
Supplement dated the Delivery Date, or appropriate evidence thereof, to be duly filed and recorded
with the STB in accordance with 49 U.S.C. § 11301, (ii) cause this Lease, the Lease Supplement
dated the Delivery Date, the Indenture and the Indenture Supplement dated the Delivery Date, or
appropriate evidence thereof, to be deposited with the Registrar General of Canada pursuant to
Section 105 of the Canada Transportation Act, and (iii) cause or permit such
-23-
other filings and notices to be filed or made as necessary or appropriate to perfect the right,
title and interest of Indenture Trustee in the Indenture Estate and to protect the interests of
Owner Participant, and will furnish Lessor and Indenture Trustee proof thereof.
Section 16.2. Further Assurances
. Lessee, at Lessees expense, will promptly and duly execute
and deliver to Lessor such further documents and assurances and take such further action as Lessor
may from time to time reasonably request in order to effectively carry out the intent and purpose
of this Lease and to establish and protect the rights and remedies created in favor of Lessor
hereunder, including, without limitation, if requested by Lessor, the execution and delivery of
supplements or amendments hereto, in recordable form, subjecting to this Lease any Replacement Unit
and the recording or filing of counterparts hereof or thereof in accordance with the laws of such
jurisdiction as Lessor may from time to time deem advisable;
provided
that this sentence is not
intended to impose upon Lessee any additional liabilities not otherwise contemplated by this Lease;
provided, further
, that nothing contained herein shall require Lessee to file or record, or cause
to be filed or recorded, or bear the cost or expense of any filing or recordation of, any Uniform
Commercial Code financing statements absent a change in law which requires that such filings be
made to perfect the right, title and interest of Indenture Trustee in the Indenture Estate and/or
to protect the interests of Owner Participant.
Section 16.3. Expenses
. Except as provided in Section 2.5 of the Participation Agreement,
Lessee will pay all costs, charges and expenses (including reasonable attorneys fees) incident to
any such filing, refiling, recording and rerecording or depositing and redepositing of any such
instruments or incident to the taking of such action.
Section 17.
Lessors Right to Perform.
If Lessee fails to make any payment required to be made by it hereunder or fails to perform or
comply with any of its other agreements contained herein and such failure can be cured with the
payment of money, Lessor or Indenture Trustee may itself make such payment or perform or comply
with such agreement, in a reasonable manner, but shall not be obligated hereunder to do so, and the
amount of such payment and of the reasonable expenses of Lessor or Indenture Trustee, as the case
may be, incurred in connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Late Rate, to the extent
permitted by applicable law, shall be deemed to be Supplemental Rent, payable by Lessee to Lessor
or Indenture Trustee, as the case may be, on demand;
provided
that if Lessor or Indenture Trustee
shall make any such payment or perform or comply with any such agreement, Lessor or Indenture
Trustee, as applicable, shall provide Lessee with written notice given concurrently with such
payment, performance or compliance.
Section 18.
Assignment.
Section 18.1. Assignment by Lessor
. Lessee and Lessor hereby confirm that concurrently with
the execution and delivery of this Lease, Lessor has executed and delivered to Indenture Trustee
the Indenture, which assigns as collateral security and grants a security interest to Indenture
Trustee in, to and under this Lease and certain of the Rent payable hereunder, all as
more explicitly set forth in the Granting Clause of the Indenture. Lessor agrees that it shall not
-24-
otherwise assign or convey its right, title and interest in and to this Lease, the Equipment or any
Unit, except as expressly permitted by and subject to the provisions of this Lease, the
Participation Agreement, the Trust Agreement and the Indenture.
Section 18.2. Assignment by Lessee
. Except as otherwise provided in Section 8.3 or in the
case of any requisition for use by an agency or instrumentality of the United States government
referred to in Section 11.1, Lessee will not, without the prior written consent of Lessor, assign
any of its rights hereunder, except as provided in Section 6.8 of the Participation Agreement.
Section 18.3. Sublessees Performance and Rights
. Any obligation imposed on Lessee in this
Lease shall require only that Lessee perform or cause to be performed such obligation, even if
stated herein as a direct obligation, and the performance of any such obligation by any permitted
assignee, sublessee or transferee under an assignment, sublease or transfer agreement then in
effect and permitted by the terms of this Lease shall constitute performance by Lessee and
discharge such obligation by Lessee. Except as otherwise expressly provided herein, any right
granted to Lessee in this Lease shall grant Lessee the right to exercise such right or permit such
right to be exercised by any such assignee, sublessee or transferee,
provided
that Lessees renewal
option set forth in Section 22.2 may be exercised only by Lessee itself or by any assignee or
transferee of, or successor to, Lessee in a transaction permitted by Section 6.8 of the
Participation Agreement. The inclusion of specific references to obligations or rights of any such
assignee, sublessee or transferee in certain provisions of this Lease shall not in any way prevent
or diminish the application of the provisions of the two sentences immediately preceding with
respect to obligations or rights in respect of which specific reference to any such assignee,
sublessee or transferee has not been made in this Lease.
Section 19.
Net Lease, etc.
This Lease is a net lease and Lessees obligation to pay all Rent payable hereunder shall be
absolute and unconditional under any and all circumstances of any character including, without
limitation, any abatement of Rent or setoff against Rent; nor, except as otherwise expressly
provided herein, shall this Lease terminate, or the respective obligations of Lessor or Lessee be
otherwise affected, by reason of any defect in, damage to or loss or destruction of, or
requisitioning of, any Unit, by condemnation or otherwise, the prohibition of Lessees use of any
Unit, the interference with such use by any Person or the lack of right, power or authority of
Lessor or any other Person to enter into this Lease or any other Operative Agreement, or for any
other cause, whether similar or dissimilar to the foregoing, any present or future law to the
contrary notwithstanding, it being the intention of the parties hereto that the Rent payable by
Lessee hereunder shall continue to be payable in all events unless the obligation to pay the same
shall be terminated in accordance with the terms of this Lease. To the extent permitted by
applicable law, Lessee hereby waives any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease with respect to any Unit, except in accordance with the express terms hereof.
If for any reason whatsoever this Lease shall be terminated in whole or in part by operation of law
or otherwise, except as specifically provided herein, Lessee nonetheless agrees to the
maximum extent permitted by law, to pay to Lessor or to Indenture Trustee, as the case
-25-
may be,
an amount equal to each installment of Basic Rent and all Supplemental Rent due and owing, at the
time such payment would have become due and payable in accordance with the terms hereof had this
Lease not been terminated in whole or in part. Nothing contained herein shall be construed to
waive any claim which Lessee might have under any of the Operative Agreements or otherwise or to
limit the right of Lessee to make any claim it might have against Lessor or any other Person or to
pursue such claim in such manner as Lessee shall deem appropriate.
Section 20.
Notices.
Unless otherwise expressly specified or permitted by the terms hereof, all communications and
notices provided for herein shall be in writing or by a telecommunications device capable of
creating a written record (including electronic mail), and any such notice shall become effective
(a) upon personal delivery thereof, including, without limitation, by overnight mail and courier
service, (b) in the case of notice by United States mail, certified or registered, postage prepaid,
return receipt requested, upon receipt thereof, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof, provided such transmission is promptly
confirmed in writing by either of the methods set forth in clauses (a) and (b) above, in each case
addressed to the following Person at its respective address set forth below or at such other
address as such Person may from time to time designate by written notice to the other Persons
listed below:
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If to Lessor:
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KCSR 2008-1 Statutory Trust
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c/o U.S. Bank Trust National Association
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Goodwin Square
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225 Asylum Street, 23rd Floor
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Hartford, Connecticut 06103
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Attention: Corporate Trust Department (KCSR 2008-1)
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Facsimile No.: (860) 241-6897
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Telephone No.: (860) 241-6820
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With copies to:
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MetLife Capital, Limited Partnership
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10 Park Avenue, P.O. Box 1902
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Morristown, New Jersey 07962
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Attention: Director, Leveraged Leases
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Facsimile No.: (973) 355-4230
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Telephone No.: (973) 355-4806
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With a copy to:
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Metropolitan Life Insurance Company
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10 Park Avenue, P.O. Box 1902
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Morristown, New Jersey 07962-1902
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Attention: Director, Leveraged Leases
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Facsimile No.: (973) 355-4250
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and
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Attention: Chief Counsel-Securities Investments
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If to Indenture Trustee:
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Wilmington Trust Company
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Rodney Square North
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1100 North Market Street
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Wilmington, Delaware 19890-0001
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Attention: Corporate Trust Administration
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Facsimile No.: (302) 636-4140
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Telephone No.: (302) 636-6000
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If to Lessee:
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Address of Lessee for Mail Delivery
:
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The Kansas City Southern Railway Company
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P.O. Box 219335
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Kansas City, Missouri 64121-9335
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Attention: Senior Vice President Finance & Treasurer
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Facsimile No.: (816) 983-1198
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Telephone No.: (816) 983-1802
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Address of Lessee for Courier and Similar Delivery
:
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The Kansas City Southern Railway Company
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427 West 12th Street
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Kansas City, Missouri 64105
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Attention: Senior Vice President Finance & Treasurer
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Facsimile No.: (816) 983-1198
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Telephone No.: (816) 983-1802
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with a copy to:
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The Kansas City Southern Railway Company
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427 West 12th Street
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Kansas City, Missouri 64105
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Attention: Senior Vice President & General Counsel
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Facsimile No.: (816) 983-1227
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Telephone No.: (816) 983-1303
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Section 21.
Concerning Indenture Trustee.
Section 21.1. Limitation of Indenture Trustees Liabilities
. Notwithstanding any provision
herein or in any of the other Operative Agreements to the contrary, Indenture Trustees obligation
to take or refrain from taking any actions, or to use its discretion (including, but not limited
to, the giving or withholding of consent or approval and the exercise of any rights or remedies
under such Operative Agreements), and any liability therefor, shall, in addition to any other
limitations provided herein or in the other Operative Agreements, be limited by the provisions of
the Indenture, including, but not limited to, Article VI thereof.
Section 21.2. Right, Title and Interest of Indenture Trustee under Lease
. It is understood
and agreed that the right, title and interest of Indenture Trustee in, to and under this Lease and
the Rent due and to become due hereunder shall by the express terms granting and conveying the same
be subject to the interest of Lessee in and to the Equipment.
Section 22.
Termination Upon Purchase by Lessee; Options to Renew.
Section 22.1. Termination upon Purchase by Lessee
. If Lessee shall have exercised its option
to purchase any Unit pursuant to Section 23 and shall not have elected to purchase Owner
Participants Beneficial Interest pursuant to Section 23(c), upon payment by Lessee of the purchase
price with respect to such Unit as provided in Section 23, and upon payment by Lessee of all Rent
then due and payable under this Lease with respect to such Unit, the Lease Term shall end with
respect to such Unit and the obligations of Lessee to pay Rent hereunder with respect to such Unit
(except for (i) Supplemental Rent obligations surviving pursuant to the Participation Agreement or
the Tax Indemnity Agreement or which have otherwise accrued but not been paid as of the date of
such payment and (ii) the provisions hereof that expressly survive any termination of this Lease)
shall cease.
Section 22.2. Renewal Options
. (a) So long as no Specified Default or Event of Default shall
have occurred and be continuing and subject to Section 22.1, Lessee shall have the right, upon not
less than 120 days prior notice (which shall become irrevocable if not revoked at least 90 days
prior to the end of the Basic Term) to Lessor prior to the end of the Basic Term, to renew this
Lease with respect to, at the sole discretion of Lessee, either all of the Units of Equipment or a
Minimum Number of the Units of Equipment, for one Renewal Term of, at Lessees discretion, (i) one
(1) year, (ii) two (2) years or (iii) not less than three (3) years and not more than four years
(4) (the
Fixed Rate Renewal Term
), commencing on the first day following the Basic Term
Expiration Date for such Units. All of the provisions of this Lease, other than Section 10, shall
be applicable during any such Fixed Rate Renewal Term for such Units, except that the Stipulated
Loss Values for such Units shall be determined in accordance with Section 22.5 hereof, and Basic
Rent for such Units during such Fixed Rate Renewal Term shall be payable in semi-annual
installments in arrears and shall be equal to the product of the percentage set forth opposite such
Fixed Rate Renewal Term on Schedule 7 to the Lease Supplement and the Equipment Cost for such Units
of Equipment.
(b) So long as no Specified Default or Event of Default shall have occurred and be continuing,
Lessee shall have the right, upon not less than 120 days prior notice (which shall
-28-
become irrevocable if not revoked at least 90 days prior to the end of the Fixed Rate Renewal Term
or the current Fair Market Renewal Term, as the case may be) to Lessor at the end of the Fixed Rate
Renewal Term or any Fair Market Renewal Term, as the case may be, pursuant to this Section, to
renew this Lease with respect to, at the sole discretion of Lessee, either all of the Units of
Equipment or a Minimum Number of the Units of Equipment, for one or more successive Renewal Terms
of not less than one year each (each a
Fair Market Renewal Term
), commencing at the end of the
Fixed Rate Renewal Term or the end of any Fair Market Renewal Term, as the case may be;
provided
that the aggregate duration of the Fair Market Renewal Terms for such Units, when added to the
duration of the Interim Term for such Units, the Basic Term for such Units, the prior Fixed Rate
Renewal Term for such Units and all prior Fair Market Renewal Terms for such Units, shall not in
any event exceed either (i) 80% of the estimated useful life of such Units, or (ii) the point at
which such Units are estimated to have a Fair Market Sales Value of 20% of the original Equipment
Cost of such Units (without giving effect to inflation or deflation since the Delivery Date for
such Units), in each case as determined by appraisal (in accordance with the procedures set forth
in the definition of
Fair Market Sales Value
), completed at a point prior to the end of the Fixed
Rate Renewal Term or the current Fair Market Renewal Term, as the case may be, selected by Lessee.
Basic Rent for any such Renewal Term shall be equal to the then Fair Market Rental Value for such
Units and shall be payable in semiannual installments in arrears. All other provisions of this
Lease, other than Section 10, shall be applicable during any such Renewal Term for such Units,
except that the Stipulated Loss Values for such Units shall be determined in accordance with
Section 22.5.
Section 22.3. [Reserved]
.
Section 22.4. Determination of Fair Market Rental Value
. Lessee may notify Lessor that Lessee
desires a determination of the Fair Market Rental Value of such Units for a Renewal Term commencing
upon the Renewal Term Commencement Date. Lessees request for a determination of Fair Market
Rental Value shall not obligate Lessee to exercise any of the options provided in Section 22.2.
Section 22.5. Stipulated Loss Value and Termination Value During Renewal Term
. During any
Renewal Term, the Stipulated Loss Value and Termination Value of any Unit shall be determined by
amortizing the Fair Market Sales Value of such Unit as of the first day of such Renewal Term down
to the Fair Market Sales Value of such Unit as of the last day of such Renewal Term at the implicit
interest rate imputed when discounting on a monthly basis the renewal rents and the Fair Market
Sales Value as of the last day of such Renewal Term back to the Fair Market Sales Value as of the
first day of such Renewal Term.
Section 23.
Lessees Options to Purchase Equipment; Purchase of Beneficial
Interest.
(a) So long as no Specified Default or Event of Default shall have occurred and be continuing,
Lessee shall have the option:
(i) upon not less than 120 days nor more than 360 days prior notice (which shall
become irrevocable if not revoked at least 90 days prior to the end of the Basic
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Term) to Lessor to purchase on the Business Day next following the expiration of any Renewal
Term then in effect, at the sole discretion of Lessee, either all of the Units of Equipment
or a Minimum Number of the Units of Equipment, at a price equal to the Fair Market Sales
Value for such Units;
(ii) upon not less than 30 days nor more than 360 days prior notice to Lessor to
purchase on the EBO Fixed Purchase Price Date, at the sole discretion of Lessee, either all
of the Units of Equipment or a Minimum Number of the Units of Equipment, at a price equal to
the EBO Fixed Purchase Price (as such EBO Fixed Purchase Price may be adjusted from time to
time pursuant to and in accordance with Section 2.6 of the Participation Agreement); and
(iii) upon not less than 120 days nor more than 360 days prior notice (which shall
become irrevocable if not revoked at least 90 days prior to the end of the Basic Term) to
Lessor to purchase on the Basic Term Expiration Date, at the sole discretion of the Lessee,
either all of the Units of Equipment or a Minimum Number of the Units, at a price equal to
the lesser of Fair Market Sales Value for such Units and the FPO Fixed Purchase Price for
such Units.
If Lessee shall have exercised its option to purchase any Unit pursuant to Section
23(a)(ii), in addition to the payment of the EBO Fixed Purchase Price for such Unit on the
EBO Fixed Purchase Price Date (and in the event Lessee shall have selected the option set
forth in Section 23(d), on the date the initial installment is paid), Lessee shall pay any
Underpayment of Basic Rent for such Unit as of such EBO Fixed Purchase Price Date and on
such EBO Fixed Purchase Price Date Lessor shall pay to Lessee following satisfaction of all
amounts due by Lessee in respect of such EBO Fixed Purchase Price Date (including all
amounts due and payable to the Indenture Trustee in respect of such EBO Fixed Purchase Price
Date), any Overpayment of Basic Rent for such Unit as of such EBO Fixed Purchase Price Date;
provided however
, that at the election of either the Lessor or Lessee, Lessor shall offset
its obligation to pay any Overpayment of Basic Rent for such Unit against the Lessees
obligation to pay the EBO Fixed Purchase Price for such Unit by instructing Lessee to pay an
amount equal to the EBO Fixed Purchase Price for such Unit less any Overpayment of Basic
Rent for such Unit;
provided further
, that the payment by Lessee of an amount equal to the
EBO Fixed Purchase Price for such Unit less any Overpayment of Basic Rent for such Unit
shall be deemed to be such an election by Lessee.
(b) If Lessee shall have exercised its option to purchase any Unit pursuant to Sections
23(a)(i) or Section 23(a)(iii) and shall have requested a determination of Fair Market Sales Value
at least 180 days prior to the date of such purchase, Owner Trustee and Lessee shall comply in a
timely manner with their respective obligations set forth in the definition of Fair Market Sales
Value. If Lessee shall have exercised its option to purchase any Unit hereunder, and so long as
Lessee has not exercised its option to purchase the Beneficial Interest pursuant to Section 23(c)
below, on the date of such purchase (x) Owner Trustee shall, subject to the payment in full of all
amounts referred to in clauses (y) and (z) below, assign, transfer and convey to Lessee all right,
title and interest of Owner Trustee in and to each Unit being
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purchased on such date on an as is,
where is basis, without recourse or warranty except as to Lessors Liens attributable to Owner
Trustee or Owner Participant other than Permitted Liens, (y) Lessee shall pay, by 12:00 noon (New
York City time) on such date by wire transfer in immediately available funds, to Owner Trustee the
Fair Market Sales Value, the EBO Fixed Purchase Price or the FPO Fixed Purchase Price, as the case
may be, with respect to the Units purchased on such date plus any sales, use or other similar taxes
imposed on such purchase or transfer, and (z) Lessee shall pay pursuant to Section 22.1(i) all
Basic Rent due and payable prior to such date of purchase
plus
all other Supplemental Rent due and
payable as of such date of purchase, including any Make-Whole Amount with respect to any Equipment
Note due and payable on such date of purchase.
(c) If Lessee shall have exercised its option pursuant to Section 23(a)(ii) above and shall
have elected to purchase all but not less than all of the Units, Lessee shall have the option to
purchase the Beneficial Interest from Owner Participant instead of the individual Units and shall
assume all of the rights and obligations of Owner Participant under each of the Operative
Agreements to which Owner Participant is a party (other than any obligations or liabilities of
Owner Participant incurred on or prior to the applicable purchase date, which obligations and
liabilities shall remain the sole responsibility of Owner Participant);
provided
,
however
, Lessee
shall not be entitled to exercise such option unless Indenture Trustee and Loan Participant shall
have received an opinion of counsel stating that Indenture Trustee and Loan Participant shall be
entitled to the benefits of Section 1168 of the Bankruptcy Code (or any successor provision) to the
same extent as immediately prior to Lessees exercise of this option, such opinion to be reasonably
satisfactory to Indenture Trustee and Loan Participant. On the applicable purchase date (x) Lessee
shall pay any unpaid Basic Rent due and payable prior to such date of purchase and any other Rent
then due and payable and such amounts shall be distributed as provided in the Indenture and the
Trust Agreement and (y) Lessee shall pay to Owner Participant, in immediately available funds, an
amount equal to the excess of the aggregate purchase price of such Units under Section 23(a)(ii)
over an amount equal to the sum of the principal of, and any accrued and unpaid interest on, the
outstanding Equipment Notes on such date after taking into account any payments of principal or
interest made in respect of the outstanding Equipment Notes on such date plus any sales, use or
other similar taxes imposed on such purchase or transfer, and upon payment and (in the case of
clause (x) above) distribution of the amounts set forth in clauses (x) and (y) above, Owner
Participant will assign, transfer and convey to Lessee, without recourse or warranty except as to
Lessors Liens attributable to Owner Trustee or Owner Participant other than Permitted Liens, all
of Owner Participants right, title and interest in and to the Beneficial Interest. If Lessee shall
have exercised the option to purchase the Beneficial Interest from Owner Participant as described
above, Owner Participant shall receive on the applicable purchase date a release in form and
substance satisfactory to it, from all liabilities under the Operative Agreements (other than those
liabilities set forth in the parenthetical phrase of the first sentence of this Section 23(c)).
(d) In the event that Lessee shall exercise its option set forth in Section 23(a)(ii), Lessee
may, at its option, either (i) pay the entire purchase price for such Units on the purchase date
therefor or (ii) pay the purchase price for such Units in installments, each such installment to be
payable on each date set forth on Schedule 10 to the Lease Supplement for such Units and in an
amount equal to the product of the percentage set forth in Schedule 10 to such Lease Supplement
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with respect to such Units and the Equipment Cost for such Units;
provided
,
however
, that such
amount payable on the first such date shall be not less than the amount of principal on the
Equipment Notes subject to prepayment on such date pursuant to Section 2.10(c) of the Indenture
plus accrued interest thereon. Lessee shall elect its payment option in the applicable notice
given pursuant to Section 23(a)(ii);
provided
,
however
, that Lessee shall not be entitled to elect
the option specified in clause (ii) above unless (x) as a condition to such purchase, Lessee shall
secure its obligation to pay the purchase price installments by granting to Lessor a perfected
security interest in the applicable Units, pursuant to documentation reasonably satisfactory to
Lessor and Owner Participant and (y) upon satisfaction of such condition, Lessor shall transfer all
its right, title and interest in and to such Units to Lessee on the EBO Fixed Price Purchase Date,
in accordance with and subject to the other conditions specified in this Section 23 (except that
payment of the installment of the purchase price payable on the EBO Fixed Price Purchase Date shall
be required in lieu of payment of the full purchase price). All reasonable costs and expenses of
Lessor and Owner Participant incurred in connection with Lessees election of the option specified
in clause (ii) above shall be paid by Lessee. Notwithstanding anything to the contrary contained
herein, if Lessee shall have exercised its rights to pay the purchase price for any such Units of
Equipment pursuant to this Section 23(d), Lessee shall not be entitled to also exercise its rights
under Section 23(c) to purchase the Beneficial Interest from Owner Participant with respect to such
Units of Equipment.
Section 24.
Limitation of Lessors Liability.
It is expressly agreed and understood that all representations, warranties and undertakings of
Lessor hereunder (except as expressly provided herein) shall be binding upon Lessor only and in no
case shall Trust Company be personally liable for or on account of any statements, representations,
warranties, covenants or obligations stated to be those of Lessor hereunder, except that Trust
Company shall be personally liable for its gross negligence or willful misconduct or for its breach
of its covenants, representations and warranties contained herein to the extent covenanted or made
in its individual capacity.
Section 25.
Filing in Mexico.
In the event that during the Lease Term (A) a central filing system becomes available in
Mexico for the filing or recording of security interests or ownership rights in railroad rolling
stock, (B) Lessee elects as a business practice to conduct such filings or recordings with respect
to equipment owned or leased by Lessee that is used in a manner similar to the Units and (C) Lessee
has not previously taken such action in accordance with the requirements of Section 16.1 hereof,
then Lessee will take, or cause to be taken, at Lessees cost and expense, such action with respect
to the filing or recording of this Lease, the Indenture or any supplements hereto or thereto (or
appropriate evidence thereof) and any financing statements or other instruments as may be necessary
or reasonably required to maintain, so long as the Indenture or this Lease is in effect and such
central filing system remains available, the benefit of such filing or recording in Mexico for the
protection of the security interest created by the Indenture and any security interest that may be
claimed to have been created by this Lease and the ownership interest of Lessor in each Unit to the
extent such protection is available pursuant to such filing or recording in Mexico.
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Section 26.
Miscellaneous.
Section 26.1. Governing Law; Severability
. This Lease and any extensions, amendments,
modifications, renewals or supplements hereto shall be governed by and construed in accordance with
the internal laws and decisions (as opposed to conflicts of law provisions) of the State of New
York;
provided
,
however
, that the parties shall be entitled to all rights conferred by any
applicable Federal statute, rule or regulation. Whenever possible, each provision of this Lease
shall be interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Lease shall be prohibited by or invalid under the laws of any jurisdiction, such
provision, as to such jurisdiction, shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions of
this Lease in any other jurisdiction.
Section 26.2. Execution in Counterparts
. This Lease may be executed in any number of
counterparts, each executed counterpart constituting an original and in each case such counterparts
shall constitute but one and the same instrument;
provided
,
however
, that to the extent that this
Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code) no
security interest in this Lease may be created through the transfer or possession of any
counterpart hereof other than the counterpart bearing the receipt therefor executed by Indenture
Trustee on the signature page hereof, which counterpart shall constitute the only original hereof
for purposes of the Uniform Commercial Code.
Section 26.3. Headings and Table of Contents; Section References
. The headings of the
sections of this Lease and the Table of Contents are inserted for purposes of convenience only and
shall not be construed to affect the meaning or construction of any of the provisions hereof. All
references herein to numbered sections, unless otherwise indicated, are to sections of this Lease.
Section 26.4. Successors and Assigns
. This Lease shall be binding upon and shall inure to the
benefit of, and shall be enforceable by, the parties hereto and their respective permitted
successors and assigns.
Section 26.5. True Lease
. It is the intent of the parties to this Lease that it be, and this
Lease shall be, a single and indivisible true lease of the Equipment for all purposes, including,
without limitation, for Federal income tax purposes. Lessor shall at all times be the owner of
each Unit which is the subject of this Lease for all purposes, this Lease conveying to Lessee no
right, title or interest in any Unit except as lessee. Nothing contained in this Section 26.5
shall be construed to limit Lessees use or operation of any Unit or constitute a representation,
warranty or covenant by Lessee as to tax consequences.
Section 26.6. Amendments and Waivers
. No term, covenant, agreement or condition of this Lease
may be terminated, amended or compliance therewith waived (either generally or in a particular
instance, retroactively or prospectively) except by an instrument or instruments in writing
executed by each party hereto;
provided
,
however
, that any breach or default, once waived in
writing, unless otherwise specified in such waiver, shall not be deemed continuing for any purpose
of the Operative Agreements.
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Section 26.7. Survival
. All warranties, representations, indemnities and covenants made by
any party hereto, herein or in any certificate or other instrument delivered by any such party or
on the behalf of any such party under this Lease, shall be considered to have been relied upon by
each other party hereto and shall survive the consummation of the transactions contemplated hereby
on the Closing Date and on the Delivery Date regardless of any investigation made by any such party
or on behalf of any such party.
Section 26.8. Business Days
. If any payment is to be made hereunder or any action is to be
taken hereunder on any date that is not a Business Day, such payment or action otherwise required
to be made or taken on such date shall be made or taken on the immediately succeeding Business Day
with the same force and effect as if made or taken on such scheduled date and as to any payment
(provided that any such payment is made on such succeeding Business Day) no interest shall accrue
on the amount of such payment from and after such scheduled date to the time of such payment on
such next succeeding Business Day.
Section 26.9. Directly or Indirectly
. Where any provision in this Lease refers to action to
be taken by any Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
Section 26.10. Incorporation by Reference
. The payment obligations set forth in the Tax
Indemnity Agreement and Sections 7.1 and 7.2 of the Participation Agreement are hereby incorporated
by reference.
Section 26.11. Entitlement to §1168 Benefits
. It is the intent of the parties that Lessor (and
Indenture Trustee as assignee of Lessor under the Indenture) shall be entitled to the benefits of
Section 1168 of the Bankruptcy Code with respect to the right to repossess any Unit and to enforce
any of its other rights or remedies as provided herein, and in any circumstances where more than
one construction of the terms and conditions of this Lease is possible, a construction which would
preserve such benefits shall control over any construction which would not preserve such benefits
or would render them doubtful. To the extent consistent with the provisions of Section 1168 of the
Bankruptcy Code or any analogous section of the Bankruptcy Code or other applicable law, it is
hereby expressly agreed and provided that, notwithstanding any other provision of the Bankruptcy
Code, any right of Lessor to take possession of any Unit and to enforce any of its other rights or
remedies in compliance with the provisions of this Lease shall not be affected by the provisions of
Section 362 or Section 363 of the Bankruptcy Code or any analogous provision of any superseding
statute or any power of a bankruptcy court to enjoin such undertaking or possession.
Section 26.12. Waiver of Jury Trial
.
THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHTS THEY MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER,
OR IN CONNECTION WITH THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY OF THE PARTIES HERETO AND THERETO. THE PARTIES HERETO HEREBY AGREE THAT THEY
WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH
A JURY TRIAL HAS NOT OR CANNOT BE WAIVED.
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In Witness Whereof
, Lessor and Lessee have caused this Lease to be duly executed and
delivered on the day and year first above written.
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Lessor:
KCSR 2008-1 Statutory Trust
, acting
through
U.S. Bank Trust National
Association
, not in its individual
capacity, but solely as Owner Trustee
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By:
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/s/ Maryanne Y. Dufresne
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Name:
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Maryanne Y. Dufresne
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Title:
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Vice President
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Lessee:
The Kansas City Southern Railway Company
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By:
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/s/ Paul J. Weyandt
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Name:
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Paul J. Weyandt
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Title:
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Senior Vice President-Finance &
Treasurer
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Receipt of the original counterpart
of the foregoing Lease is hereby
acknowledged this 15th day of April,
2008.
Wilmington Trust Company,
as Indenture Trustee
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By:
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/s/ Patricia A. Evans
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Name:
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Patricia A. Evans
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Title:
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Vice President
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State of Connecticut
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)
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)
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ss:
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County of Hartford
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)
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On this 11th day of April, 2008, before me personally appeared Maryanne Y. Dufresne to me
personally known, who being by me duly sworn, says that (s)he is a Vice President of
U.S. Bank
Trust National Association
, that said instrument was signed on April 11, 2008, on behalf of
said association by authority of its Board of Directors, and (s)he acknowledged that the execution
of the foregoing instrument was the free act and deed of said association.
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By
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/s/ Susan P. McNally
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Notary Public
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(SEAL)
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My Commission Expires:
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State of Missouri
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)
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)
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SS.:
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County of Jackson
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)
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On this 10th day of April, 2008, before me personally appeared Paul J. Weyandt to me
personally known, who being by me duly sworn, says that (s)he is the Senior Vice President-Finance
& Treasurer of
The Kansas City Southern Railway Company
, that said instrument was signed
on April 10, 2008, on behalf of said corporation by authority of its Board of Directors, and (s)he
acknowledged that the execution of the foregoing instrument was the free act and deed of said
corporation.
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By
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/s/ Karen Dennis
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Notary Public
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(SEAL)
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My Commission Expires:
Form of
Lease Supplement No. _____ (KCSR 2008-1)
dated as of
, 2008
between
KCSR 2008-1 Statutory Trust
, acting through
U.S. Bank Trust National Association,
not in its individual capacity,
but solely as owner trustee,
Lessor
and
The Kansas City Southern Railway Company
,
Lessee
___
SD70ACe Locomotives
Certain of the right, title and interest of Lessor in and to this Lease
Supplement, the equipment covered hereby and the rent due and to become
due under the Lease have been assigned as collateral security to, and are
subject to a security interest in favor of, Wilmington Trust Company, as
Indenture Trustee under a Trust Indenture and Security Agreement (KCSR
2008-1), dated as of April 1, 2008 between said Indenture Trustee, as
secured party, and Lessor, as debtor. Information concerning such
security interest may be obtained from Indenture Trustee at its address
set forth in Section 20 of the Lease. This Lease Supplement has been
executed in several counterparts, but only that counterpart shall be
deemed the original counterpart for chattel paper purposes that contains
the receipt therefor executed by Wilmington Trust Company, as Indenture
Trustee, on the signature page thereof. See Section 26.2 of the Lease
for information concerning the rights of the original holder and the
holders of the various counterparts hereof.
Memorandum of Lease Supplement No. ___, (KCSR 2008-1) filed with the Surface Transportation
Board pursuant to 49 U.S.C. §11301 on
, 2008 at ___ __.M. Recordation Number ___, and
deposited in the Office of the Registrar General of Canada pursuant to Section 105 of the Canada
Transportation Act on
, 2008, at ___ __.M.
Lease
Supplement No. _____
(KCSR 2008-1)
Lease
Supplement
No
. ___ (KCSR 2008-1) dated
, 2008 (this
Lease Supplement
) between the KCSR 2008-1
Statutory Trust
, a Delaware statutory trust,
acting through
U.S. Bank Trust National Association
, not in its individual capacity but
solely as Owner Trustee of the KCSR 2008-1 Statutory Trust (
Lessor
) under the Trust Agreement,
and
The Kansas City Southern Railway Company
, a Missouri corporation (
Lessee
);
Witnesseth:
Whereas
, Lessor and Lessee have heretofore entered into that certain Equipment Lease
Agreement (KCSR 2008-1) dated as of April 1, 2008 (the
Lease
). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings specified in Appendix A to the Lease; and
Whereas
, the Participation Agreement and the Lease provide that on the Delivery Date,
the Seller shall deliver to Lessor, for each Unit being purchased on the Delivery Date, a Bill of
Sale, dated the Delivery Date, by which Seller bargains, conveys, assigns, sets over, sells and
delivers to the Trust, the Units conveyed on the Delivery Date; and
Whereas
, the Lease provides for the execution and delivery of a Lease Supplement
substantially in the form hereof for the purpose of confirming the acceptance by Lessee and lease
of the Units under the Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof;
N
ow, Therefore
, in consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows:
1. Lessee hereby acknowledges and confirms that it has inspected and approved the Units
set forth on Schedule 1 hereto. Lessee further confirms that Lessee has accepted delivery
of such Units and has accepted such Units for all purposes of the Lease as meeting and being
in compliance in all material respects with the specifications for such Units.
2. Lessor hereby confirms delivery and lease to Lessee, and Lessee hereby confirms
acceptance and lease from Lessor, under the Lease as hereby supplemented, the Units listed
on Schedule 1 hereto.
3. Lessee hereby represents and warrants that as of the date hereof (i) no Event of
Loss has occurred with respect to the Units set forth on Schedule 1 hereto and (ii) such
Units are in good working order.
4. The Delivery Date of the Units described above is the date of this Lease Supplement
set forth in the opening paragraph hereof.
5. The aggregate Equipment Cost of the Units leased hereunder is $
and
the amounts comprising such Equipment Cost are set forth on Schedule 1 hereto. Basic Rent
applicable during the Basic Term is set forth on Schedule 2 hereto. Stipulated Loss Values
and Termination Values applicable in respect of the Units are set forth, respectively, on
Schedules 3 and 4 hereto. The allocation of Rent during the Basic Term is set forth on
Schedule 5 hereto. The EBO Fixed Purchase Price Date and the EBO Fixed Purchase Price are
set forth on Schedule 6 hereto. The Basic Rent applicable during the Fixed Rate Renewal
Term in respect of the Units of Equipment is set forth on Schedule 7 hereto. The
Participants Commitments with respect to the Units leased hereunder are set forth on
Schedule 8 hereto. The FPO Fixed Purchase Price with respect to the Units of Equipment is
set forth on Schedule 9 hereto. The purchase price payable by Lessee for the Units being
purchased in accordance with Section 23(d) of the Lease shall be payable on the dates and in
the installments set forth on Schedule 10 hereto (it being understood that each installment
payable on any installment date with respect to any Units shall be equal to the product of
the percentage set forth under the heading EBO for such Units and the Equipment Cost for
such Units of Equipment). The Overpayment of Basic Rent and the Underpayment of Basic Rent
with respect to the Units of Equipment are set forth, respectively, on Schedule 11 hereto.
6. Lessee hereby confirms its agreement, in accordance with the Lease as supplemented
by this Lease Supplement to pay Rent to Lessor for each Unit leased hereunder as provided
for in the Lease.
7. The execution and delivery of this Lease Supplement will in no way relieve or
decrease the responsibility of any manufacturer for the warranties it has made with respect
to any Unit.
8. Any and all notices, requests, certificates and other instruments executed and
delivered after the execution and delivery of this Lease Supplement may refer to the
Equipment Lease Agreement, dated as of April 1, 2008, the Lease Agreement, dated as of
April 1, 2008 or the Lease, dated as of April 1, 2008, or may identify the Lease in any
other respect without making specific reference to this Lease Supplement, but nevertheless
all such references shall be deemed to include this Lease Supplement, unless the context
shall otherwise require.
9. This Lease Supplement shall be construed in connection with and as part of the
Lease, and all terms, conditions and covenants contained in the Lease shall be and remain in
full force and effect.
10. This Lease Supplement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together one and the same instrument;
provided
,
however
, that to the extent that this Lease Supplement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code) no security
-2-
interest in this Lease Supplement may be created through the transfer or possession of any
counterpart hereof other than the counterpart bearing the receipt therefor executed by
Indenture Trustee on the signature page hereof, which counterpart shall constitute the only
original hereof for purposes of the Uniform Commercial Code.
11. This Lease Supplement shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York, including all matters of construction,
validity and performance.
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In Witness Whereof
, Lessor and Lessee have caused this Lease Supplement to be duly
executed and delivered on the day and year first above written.
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Lessor:
KCSR 2008-1 Statutory
Trust
, acting through
U.S. Bank Trust National
Association
, not in its individual capacity, but solely as
Owner Trustee
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By:
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Name:
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Title:
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Lessee
The Kansas City Southern Railway Company
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By:
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Name:
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Title:
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Receipt of the original counterpart
of the foregoing Lease Supplement is hereby acknowledged this
___ day of
, 2008.
Wilmington Trust Company,
as Indenture Trustee
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By:
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Name:
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Title:
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-4-
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State of Connecticut
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)
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)
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ss:
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County of Hartford
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)
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On this ___ day of
, 2008, before me personally appeared
to me
personally known, who being by me duly sworn, says that (s)he is a
of
U.S.
Bank Trust National Association
, that said instrument was signed on
, 2008, on
behalf of said association by authority of its Board of Directors, and (s)he acknowledged that the
execution of the foregoing instrument was the free act and deed of said association.
(SEAL)
My Commission Expires: _______________________________
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State of Missouri
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)
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)
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ss:
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County of Jackson
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)
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On this ___ day of
, 2008, before me personally appeared
to me
personally known, who being by me duly sworn, says that (s)he is the
of
The
Kansas City Southern Railway Company
, that said instrument was signed on
,
2008, on behalf of said corporation by authority of its Board of Directors, and (s)he acknowledged
that the execution of the foregoing instrument was the free act and deed of said corporation.
(SEAL)
My Commission Expires: _________________________________
-5-
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Equipment Cost Per
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Equipment
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Quantity
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Unit
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Reporting Marks
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SD70ACe Locomotives
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$
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2,117,000.00
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KCS
through
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KCS
, inclusive
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Schedule 1
(to Lease Supplement No. ___ (KCSR 2008-1))