KANSAS CITY SOUTHERN (Form: 10-Q, Received: 04/24/2008 16:33:12)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 31, 2008
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 1-4717

KANSAS CITY SOUTHERN

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization) 427 West 12th Street, Kansas City, Missouri (Address of principal executive offices)				44-0663509 (I.R.S. Employer Identification No.) 64105 (Zip Code)

816.983.1303

(Registrant’s 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):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(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 issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 17, 2008

Common Stock, $0.01 per share par value		77,811,846 Shares

Kansas City Southern
Form 10-Q
March 31, 2008

Index


			Page

PART I — FINANCIAL INFORMATION
	Item 1.	Financial Statements		3
		Introductory Comments		3
		Consolidated Statements of Income — Three months ended March 31, 2008 and 2007		4
		Consolidated Balance Sheets — March 31, 2008 and December 31, 2007		5
		Consolidated Statements of Cash Flows — Three months ended March 31, 2008 and 2007		6
		Notes to Consolidated Financial Statements		7
		Report of Independent Registered Public Accounting Firm		20
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
	Item 4.	Controls and Procedures		27
	Item 4T.	Controls and Procedures		28
PART II — OTHER INFORMATION
	Item 1.	Legal Proceedings		28
	Item 1A.	Risk Factors		28
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		28
	Item 3.	Defaults upon Senior Securities		28
	Item 4.	Submission of Matters to a Vote of Security Holders		28
	Item 5.	Other Information		28
	Item 6.	Exhibits		29
		SIGNATURES		30

Kansas City Southern

Form 10-Q
March 31, 2008

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements.*

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 Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and Management’s 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.

Kansas City Southern

Consolidated Statements of Income


	Three Months
	Ended March 31,
	2008			2007
	(In millions, except share and per share amounts)
	(Unaudited)

Revenues	$	450.6		$	411.3

Operating expenses:
Compensation and benefits		106.1			99.9
Purchased services		44.9			46.7
Fuel		77.9			62.5
Equipment costs		45.8			44.9
Depreciation and amortization		40.7			38.1
Casualties and insurance		19.0			19.4
Materials and other		32.8			27.4

Total operating expenses		367.2			338.9

Operating income		83.4			72.4
Equity in net earnings of unconsolidated affiliates		4.1			1.1
Interest expense		(39.5	)		(39.4	)
Foreign exchange gain (loss)		2.5			(3.1	)
Other income		3.0			0.6

Income before income taxes and minority interest		53.5			31.6
Income tax expense		15.7			9.3

Income before minority interest		37.8			22.3
Minority interest		0.1			0.1

Net income		37.7			22.2
Preferred stock dividends		4.8			5.2

Net income available to common shareholders	$	32.9		$	17.0

Earnings per share:
Basic earnings per share	$	0.43		$	0.22

Diluted earnings per share	$	0.39		$	0.21

Average shares outstanding (in thousands):
Basic		76,253			75,611
Potential dilutive common shares		21,231			14,724

Diluted		97,484			90,335

See accompanying notes to consolidated financial statements.

Kansas City Southern

Consolidated Balance Sheets


	March 31,		December 31,
	2008		2007
	(In millions,
	except share amounts)
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	72.5	$	55.5
Accounts receivable, net		227.7		243.4
Restricted funds		17.2		11.5
Inventories		96.3		90.3
Deferred income taxes		192.5		177.8
Other current assets		153.9		67.2

Total current assets		760.1		645.7
Investments		56.4		79.3
Property and equipment, net of accumulated depreciation of $871.5 and $871.9 at March 31, 2008 and December 31, 2007, respectively		3,002.8		2,917.8
Concession assets, net of accumulated amortization of $141.8 and $129.2 at March 31, 2008 and December 31, 2007, respectively		1,200.9		1,215.5
Other assets		63.0		69.9

Total assets	$	5,083.2	$	4,928.2


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Debt due within one year	$	651.8	$	650.9
Accounts and wages payable		143.0		121.1
Accrued liabilities		324.3		326.7

Total current liabilities		1,119.1		1,098.7

Other liabilities:
Long-term debt		1,167.4		1,105.0
Deferred income taxes		529.3		499.1
Other noncurrent liabilities and deferred credits		260.9		256.1

Total other liabilities		1,957.6		1,860.2

Minority interest		240.9		243.0
Commitments and contingencies		—		—
Stockholders’ equity:
$25 par, 4% noncumulative, preferred stock, 840,000 shares authorized, 649,736 shares issued, 242,170 shares outstanding		6.1		6.1
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		0.4		0.4
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		0.2		0.2
$.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		0.8		0.8
Paid in capital		556.0		549.5
Retained earnings		1,201.7		1,168.9
Accumulated other comprehensive income		0.4		0.4

Total stockholders’ equity		1,765.6		1,726.3

Total liabilities and stockholders’ equity	$	5,083.2	$	4,928.2

See accompanying notes to consolidated financial statements.

Kansas City Southern

Consolidated Statements of Cash Flows


	Three Months Ended
	March 31,
	2008			2007
	(In millions) (Unaudited)

Operating activities:
Net income	$	37.7		$	22.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40.7			38.1
Deferred income taxes		15.6			9.2
Equity in undistributed earnings of unconsolidated affiliates		(4.1	)		(1.1	)
Share-based and other deferred compensation		7.8			5.0
Minority interest		0.1			0.1
Distributions from unconsolidated affiliates		4.0			—
Gain on sale of assets		(1.2	)		(0.2	)
Changes in working capital items:
Accounts receivable		10.0			34.6
Inventories		(6.0	)		(4.5	)
Other current assets		(9.2	)		(18.8	)
Accounts payable and accrued liabilities		6.3			(50.3	)
Other, net		17.0			16.7

Net cash provided by operating activities		118.7			51.0

Investing activities:
Capital expenditures		(92.5	)		(58.3	)
Proceeds from disposal of property		2.3			8.0
Contribution from NS for MSLLC (net of change in restricted contribution)		14.8			30.7
Property investments in MSLLC		(16.9	)		(18.8	)
Locomotive sales/leaseback timing		(59.3	)		—
Other, net		(3.3	)		—

Net cash used for investing activities		(154.9	)		(38.4	)

Financing activities:
Proceeds from issuance of long-term debt		72.8			—
Repayment of long-term debt		(15.3	)		(15.0	)
Debt costs		(0.5	)		—
Proceeds from stock plans		1.1			0.1
Dividends paid		(4.9	)		(8.7	)

Net cash provided by (used for) financing activities		53.2			(23.6	)

Cash and cash equivalents:
Net increase (decrease) during each period		17.0			(11.0	)
At beginning of year		55.5			79.0

At end of period	$	72.5		$	68.0

See accompanying notes to consolidated financial statements.

Kansas City Southern

Notes to Consolidated Financial Statements


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 Company’s 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:


				Weighted-
				Average		Aggregate
	Number of			Grant Date		Intrinsic
	Shares			Fair Value		Value
						In millions

Nonvested stock at December 31, 2007		1,014,628		$	28.80
Granted		129,128			33.78
Vested		(83,945	)		26.62
Forfeited		(94,308	)		26.77

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.

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

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 Company’s 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 Company’s assessment of the

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 Company’s 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 management’s 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

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.


6.	Comprehensive Income.

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


7.	Long-Term Debt.

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 KCSM’s 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

Kansas City Southern

Notes to Consolidated Financial Statements — (Continued)

aggregate, have a material adverse effect on the Company’s 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 Company’s 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 Company’s operations, and, as necessary, takes actions intended to limit the Company’s 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 Company’s obligation is probable and the costs can be reasonably estimated. Costs of ongoing compliance activities to current operations are expensed as incurred. The Company’s 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 Company’s 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

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 Company’s 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 management’s 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 month’s 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 Company’s 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 Company’s 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 General’s request for information while preserving all of its legal defenses. All of the plaintiffs in the Multidistrict Litigation filed a Consolidated

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 KCSM’s appeal of the SCT’s trackage and haulage rights ruling, vacating the ruling and ordering the SCT to issue a new ruling consistent with the Court’s 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 Ferromex’s trackage rights in Monterrey, Nuevo León. KCSM and Ferromex both appealed the SCT’s 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 KCSM’s 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

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.


9.	Segment Information.

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 Company’s chief operating decision-maker, in evaluating overall financial and operational performance, market strategies, as well as the decisions to allocate capital resources.

The Company’s strategic initiatives, which drive its operational direction, are developed and managed at the Company’s 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

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

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

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

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


11.	Subsequent Events.

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.

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 Company’s 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 Southern’s 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


Item 2.	*Management’s 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 management’s 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 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 Company’s 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 Company’s 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 Company’s 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.

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 Company’s 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

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.

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.

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.

	•	KCSM’s 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 KCSM’s 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

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 KCSR’s 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 & Poor’s 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 Company’s 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.

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

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 Company’s Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of the Company’s 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 Company’s 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

Company’s 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 Company’s 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 Company’s 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 Company’s settlements and other legal proceedings, see Note 8, Commitments and Contingencies under Part I, Item 1, of this quarterly report on Form 10-Q.


Item 1A.	*Risk Factors.*

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


Item 6.	*Exhibits*


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 Officer’s 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 Officer’s 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 Officer’s 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 Officer’s Certification furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached to this Form 10-Q as Exhibit 32.2

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)

/s/ Michael K. Borrows

Michael K. Borrows

Senior Vice President and Chief Accounting Officer

(Principal Accounting Officer)

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.	Borrower’s Indemnities		14
Section 7.7.	The Lender’s 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
Section 9.16.	Effect of Headings		35
Section 9.17.	Participations		35

Appendix A — Definitions
Exhibit A — Form of Note
Exhibit B — Form of Loan Request
Exhibit C — Closing Conditions
Exhibit D — Form of Borrower’s Officer’s Certificate
Exhibit E — Loan and Security Agreement Supplement

-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

-2-

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 Lender’s 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 Officer’s 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 Borrower’s 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 Borrower’s 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) manufacturer’s recommendations to the extent required to maintain such manufacturer’s 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 Borrower’s receipt of the same;

(iii) furnish to the Lender an Officer’s 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 Lender’s 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 Lender’s reasonable costs and expenses (including reasonable attorney’s fees (including, without limitation, reasonable attorney’s 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 Borrower’s or any such Affiliate’s 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 Borrower’s 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 Borrower’s 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 Borrower’s 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 Borrower’s 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 Borrower’s 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 Borrower’s 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 Officer’s Certificate or, at the Borrower’s 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 insurer’s 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 Borrower’s ability to insure the Equipment as required by this Section 7.5 or adversely affect the Borrower’s insurance or the cost thereof, it being understood that all salvage rights to each Unit and all primary subrogation rights shall remain with the Borrower’s 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 Borrower’s obligations hereunder.

Section 7.6. Borrower’s 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 Borrower’s 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 Borrower’s 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 Person’s 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;

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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 Lender’s 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 Borrower’s 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 Borrower’s 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 Person’s request will, at the Borrower’s 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 party’s 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 Lender’s 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 Borrower’s 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 Borrower’s records with respect thereto, during the Borrower’s 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 Borrower’s 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 Borrower’s 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 Borrower’s 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 Person’s 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 Borrower’s 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 SEC’s homepage on the internet or at the Borrower’s 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 Officer’s 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 Officer’s 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 Lender’s 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 Lender’s 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 Borrower’s 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 Borrower’s 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 Lender’s 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 Borrower’s 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 Borrower’s 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 Borrower’s 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 Lender’s 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 Lender’s option and the Borrower’s 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 Lender’s 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 attorney’s 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 Borrower’s 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 Borrower’s 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 Borrower’s obligations under the Notes, this Agreement and the security interest granted hereby shall terminate and all rights to

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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 Lender’s 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 O’Connor 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

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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

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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 Lender’s property shall at all times be within the Lender’s control and (ii) any disposition of the Notes and the Lender’s 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.

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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

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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 Borrower’s Affiliates or Subsidiaries) (each, a “Participant” ) in all or a portion of the Lender’s rights and/or obligations under this Agreement (including all or a portion of the Loan owing to it); provided that (i) the Lender’s 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 Lender’s 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 Borrower’s 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.


Kansas City Southern de México, S.A. de C.V., a corporation incorporated under the laws of Mexico
By:	/s/ Paul J. Weyandt
	Name:	Paul J. Weyandt
	Title:	Attorney-in-fact and Treasurer

Export Development Canada, a corporation established by Act of Parliament of Canada, as Lender
By:	/s/ Karen Morandin
	Name:	Karen Morandin
	Title:	Financing Manager


By:	Christine Cavanagh
	Name:	Christine Cavanagh
	Title:	International Contracts Specialist

-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 Borrower’s 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.

“Lender’s 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) Borrower’s 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.

“Officer’s 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 Borrower’s (or if a lease is then in effect, any lessee’s) 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 Mexico’s 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__


To:		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).

From:		Kansas City Southern de México, S.A. de C.V.

Re:		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.


	Kansas City Southern de México, S.A. de C.V.
	By:
		Name:
		Title:

Exhibit B
(to Loan and Security Agreement)

Annex A
to Loan Request

Equipment Cost

Equipment

Quantity

Per Unit

Reporting Marks

EMD SD70ACe

2,140,123

KCSM 4060 through

Locomotives

KCSM 4099, inclusive

B-2

Annex B
to Loan Request

Wiring Instructions


Borrower:		Kansas City Southern de Mexico, S.A. de C.V.

Lender		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:


Bank:		Bank of America
ABA #:		026009593
Account#:		6290826870
Account Name:		Kansas City Southern de Mexico, S.A. de C.V.
Attention:		Paul J. Weyandt (816) 983-1802
Reference:		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 party’s 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 party’s 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) Officer’s Certificate of the Borrower. On the Closing Date, the Lender shall have received an Officer’s 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 Borrower’s 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 Officer’s 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.




		Name:
		Title:

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 Borrower’s 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 Borrower’s 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.


	Export Development Canada
	By:
		Name:
		Title:

	Executed on this ___ day of February, 2008.


	By:
		Name:
		Title:

	Executed on this ___ day of February, 2008.

	Kansas City Southern de México, S.A. de C.V.
	By:
		Name:
		Title:

	Executed on this ___ day of February, 2008.

E-3


State of	)
	)	SS.:
County of	)

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.



		Name:
		Notary Public
		My Commission Expires:
		Residing in _______________________________________


(Seal)

State of	)
	)	SS.:
County of	)

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.



		Name:
		Notary Public
		My Commission Expires:
		Residing in _________________________________________

(Seal)

E-4


(Seal)

State of	)
	)	SS.:
County of	)

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.



		Name:
		Notary Public —
		My Commission Expires:
		Residing in

(S eal)

E-5

Schedule I

Loan and Security Agreement Supplement No. ___

Equipment Cost

Equipment

Quantity

Per Unit

Reporting Marks

EMD SD70ACe

___

KCSM through

Locomotives

KCSM , inclusive

E-6

Schedule II

Loan and Security Agreement Supplement No. ___

Terms of Notes


Note
Series	Principal Amount		Interest Rate			Final Maturity

Series 1 Note	$	2,425,000.00		5.7365	%	August 28, 2008

Series 2 Note	$	2,425,000.00		5.7365	%	February 28, 2009

Series 3 Note	$	2,425,000.00		5.7365	%	August 28, 2009

Series 4 Note	$	2,425,000.00		5.7365	%	February 28, 2010

Series 5 Note	$	2,425,000.00		5.7365	%	August 28, 2010

Series 6 Note	$	2,425,000.00		5.7365	%	February 28, 2011

Series 7 Note	$	2,425,000.00		5.7365	%	August 28, 2011

Series 8 Note	$	2,425,000.00		5.7365	%	February 28, 2012

Series 9 Note	$	2,425,000.00		5.7365	%	August 28, 2012

Series 10 Note	$	2,425,000.00		5.7365	%	February 28, 2013

Series 11 Note	$	2,425,000.00		5.7365	%	August 28, 2013

Series 12 Note	$	2,425,000.00		5.7365	%	February 28, 2014

Series 13 Note	$	2,425,000.00		5.7365	%	August 28, 2014

Series 14 Note	$	2,425,000.00		5.7365	%	February 28, 2015

Series 15 Note	$	2,425,000.00		5.7365	%	August 28, 2015

Series 16 Note	$	2,425,000.00		5.7365	%	February 28, 2016

E-7


Note
Series	Principal Amount		Interest Rate			Final Maturity

Series 17 Note	$	2,425,000.00		5.7365	%	August 28, 2016

Series 18 Note	$	2,425,000.00		5.7365	%	February 28, 2017

Series 19 Note	$	2,425,000.00		5.7365	%	August 28, 2017

Series 20 Note	$	2,425,000.00		5.7365	%	February 28, 2018

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


Section	Heading	Page

Article I	Definitions; Interpretation of This Agreement		2

Section 1.1.	Definitions		2
Section 1.2.	Directly or Indirectly		2

Article II	Sale and Purchase; Participation in the Equipment Cost; Delivery Date; Transaction Costs; Adjustments		3

Section 2.1.	Sale and Purchase		3
Section 2.2.	Participation in Equipment Cost		3
Section 2.3.	Delivery Date; Procedure for Participation		4
Section 2.4.	Owner Participant’s Instructions to Owner Trustee; Satisfaction of Conditions		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		11

Article III	Representations and Warranties		12

Section 3.1.	Representations and Warranties of Trust Company and Owner Trustee		12
Section 3.2.	Representations and Warranties of Lessee		14
Section 3.3.	Representations and Warranties of Indenture Trustee		16
Section 3.4.	Representations, Warranties and Covenants Regarding Beneficial Interest		17
Section 3.5.	Representations and Warranties of Loan Participant		18
Section 3.6.	Representations and Warranties of Owner Participant		19
Section 3.7.	Opinion Acknowledgment		20

Article IV	Conditions Precedent		20

Section 4.1.	Conditions Precedent to Closing Date; Conditions Precedent of Each Participant and Indenture Trustee to the Delivery Date		20
Section 4.2.	Additional Conditions Precedent to the Obligations of Loan Participant		25
Section 4.3.	Additional Conditions Precedent to the Obligations of Owner Participant		26
Section 4.4.	Conditions Precedent to the Obligation of Lessee		26

-i-


Section	Heading	Page

Article V	Financial and Other Reports of Lessee		27

Article VI	Certain Covenants of the Participants, Trustees and Lessee		28

Section 6.1.	Restrictions on Transfer of Beneficial Interest		28
Section 6.2.	Lessor’s Liens Attributable to Owner Participant		31
Section 6.3.	Lessor’s 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

Article VII	Lessee’s Indemnities		35

Section 7.1.	General Tax Indemnity		35
Section 7.2.	General Indemnification and Waiver of Certain Claims		43

Article VIII	Lessee’s Right of Quiet Enjoyment		48

Article IX	[ Reserved ]		48

Article X	Successor Indenture Trustee		48

Article XI	Miscellaneous		49

Section 11.1.	Consents		49
Section 11.2.	Refinancing		49
Section 11.3	Amendments and Waivers		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-


Section	Heading	Page

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

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 Seller’s 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.

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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 Participant’s name on Schedule 8 to the Lease Supplement dated the Delivery Date (the “ Owner Participant’s Commitment ”). Owner Participant shall make the Owner Participant’s 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 Participant’s Commitment are not so paid to Owner Trustee, Owner Participant shall make available the balance of the Owner Participant’s Commitment required hereby. The aggregate amount of Owner Participant’s 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 Participant’s Commitment to be paid by Owner Participant on the Delivery Date

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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 Participant’s name on Schedule 8 to the Lease Supplement dated the Delivery Date (the “Loan Participant’s Commitment“ ). The aggregate amount of Loan Participant’s 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 Participant’s 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 Participant’s 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 Participant’s Commitment and Loan Participant’s Commitment required to be paid with respect to such Units. Prior to 11:00 A.M., New York City time, on the

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Delivery Date, Owner Participant shall make the amount of Owner Participant’s Commitment and Loan Participant shall make the amount of its Loan Participant’s 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 Participant’s Commitment and Loan Participant’s 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 Participant’s 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 Participant’s Commitment with respect to the Units delivered on or prior to the Delivery Date shall constitute, without further act, notice

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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;

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(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 Lessee’s 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

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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 Participant’s interest in the Equipment including any transfer prior to the Delivery Date of Owner Participant’s 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, Lessee’s exercise of any purchase option pursuant to Section 23 of the Lease, Lessee’s 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, Lessee’s exercise of any purchase option pursuant to Section 23 of the Lease, Lessee’s 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

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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 Participant’s 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 Trustee’s 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) day’s 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 Trustee’s 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 Lessee’s 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 Trustee’s right, title and interest in and to the Equipment delivered on the Delivery Date shall be free of any Lessor’s 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 Lessor’s 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 Trust’s 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 Participant’s 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 Lessor’s 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 Participant’s 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 party’s 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 party’s 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 Participant’s obligations hereunder and paragraph (17) shall not be a condition precedent to Loan Participant’s 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 party’s 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 Trust’s 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) Officer’s Certificate of Lessee. On the Delivery Date, Owner Trustee, Indenture Trustee, Loan Participant and Owner Participant shall have received an Officer’s 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) Officer’s Certificates of Trust Company and Owner Trustee. On the Delivery Date, Lessee, Indenture Trustee, Loan Participant and Owner Participant shall have received an Officer’s 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) Officer’s Certificate of Indenture Trustee. On the Delivery Date, Lessee, Owner Trustee, Loan Participant and Owner Participant shall have received an Officer’s 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) Officer’s Certificate of Owner Participant. On the Delivery Date, Lessee, Owner Trustee, Indenture Trustee, and Loan Participant shall have received an Officer’s 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 party’s 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 Participant’s 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 Participant’s 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 appraiser’s 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 counsel’s 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 Participant’s 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 Participant’s 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 Officer’s 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 KCS’s 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 SEC’s homepage on the internet or at KCS’s 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 Lessee’s 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 Transferee’s 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 Officer’s 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. Lessor’s 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 Lessor’s 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 Lessor’s Lien (by bonding or otherwise, so long as Lessee’s operation and use of the Equipment is not impaired); provided that Owner Participant may contest any such Lessor’s 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 Lessor’s Lien.

Section 6.3. Lessor’s 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 Lessor’s 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 Lessor’s Lien attributable to Trust Company (by bonding or otherwise, so long as Lessee’s 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 Lessor’s 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 Lessor’s 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 Trustee’s 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 Lessee’s 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 Lessee’s 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 Person’s 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 Lessee’s 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

Lessee’s 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).

(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 Participant’s or the Lessor’s 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 Lessee’s 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 Trustee’s 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 Person’s 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 Lessee’s 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 Lessee’s 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 Indemnitee’s 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 Lessee’s 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 Lessee’s 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 Indemnitee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s option permit Lessee to contest in either the name of Lessee or with the Tax Indemnitee’s 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 Lessee’s 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, Lessee’s 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 Lessee’s 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 Lessee’s 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 Indemnitee’s 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 Lessee’s 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 Lessee’s receipt of a Withholding Notice, Lessee may elect by providing written notice to the Loan Participant within sixty (60) days of Lessee’s 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 Participant’s Equipment Note for a purchase price (the “Purchase Price” ) equal to the sum of the principal amount of the Loan Participant’s 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 Lessee’s 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 Lessee’s 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;

(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) Lessee’s 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 Person’s 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), Lessee’s entire obligation with respect to Taxes and Losses being fully set out in such Section 7.1 or the Tax Indemnity Agreement);

(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 Person’s 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 Lessee’s 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 Lessee’s 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 Person’s request, will at Lessee’s 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 party’s 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

Lessee’s 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 Lessee’s 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 Participant’s 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

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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

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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:

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	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

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			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.

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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 party’s 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

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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.

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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 Lessee’s 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 Person’s 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 Canada’s or Lender’s international commitments (including, without limitation any requirement that such information be disclosed by virtue of Lender’s 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

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country) contemplated hereby, the amount of support in the approximate Canadian dollar range, and the name of the Equipment manufacturer.

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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

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.


	The Kansas City Southern Railway Company
	By
		Name:
		Title:

B-2

Schedule A

Description of Equipment and Equipment Cost

Equipment Cost

Reporting

Delivery Date

Equipment

Quantity

Per Unit

Marks

Date

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 Seller’s 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 Assignee’s 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. Seller’s 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.


	The Kansas City Southern Railway Company
	By
		Name:
		Title:

	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
	By
		Name:
		Title:

C-3

Schedule A

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 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


Section	Heading	Page

Section 1.	Definitions		1

Section 2.	Acceptance and Leasing of Equipment		1

Section 3.	Term and Rent		1

Section 3.1.	Lease Term		1
Section 3.2.	Interim Rent and Basic Rent		2
Section 3.3.	Supplemental Rent		2
Section 3.4.	Adjustment of Rent		3
Section 3.5.	Manner of Payments		3

Section 4.	Ownership and Marking of Equipment		3

Section 4.1.	Retention of Title		3
Section 4.2.	Duty to Number and Mark Equipment		4
Section 4.3.	Prohibition against Certain Designations		4

Section 5.	Disclaimer of Warranties; Right of Quiet Enjoyment		4

Section 5.1.	Disclaimer of Warranties		4
Section 5.2.	Quiet Enjoyment		5

Section 6.	Return of Equipment; Storage		5

Section 6.1.	General		5
Section 6.2.	Condition of Equipment		6
Section 6.3.	Storage		6
Section 6.4.	Termination of Lease		7

Section 7.	Liens		7

Section 8.	Maintenance; Operation; Sublease		8

Section 8.1.	Maintenance		8
Section 8.2.	Operation		8
Section 8.3.	Sublease		9

Section 9.	Modifications		9

Section 9.1.	Required Modifications		9
Section 9.2.	Optional Modifications		10
Section 9.3.	Removal of Proprietary and Communications Equipment		10
Section 9.4.	Retention of Equipment by Lessor		10

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Section	Heading	Page

Section 10.	Voluntary Termination		11

Section 10.1.	Right of Termination		11
Section 10.2.	Sale of Equipment		11
Section 10.3.	Retention of Equipment by Lessor		12
Section 10.4.	Termination of Lease		13

Section 11.	Loss, Destruction, Requisition, Etc.		13

Section 11.1.	Event of Loss		13
Section 11.2.	Replacement or Payment upon Event of Loss		13
Section 11.3.	Rent Termination		14
Section 11.4.	Disposition of Equipment; Replacement of Unit		14
Section 11.5.	Eminent Domain		15

Section 12.	Insurance		16

Section 12.1.	Property Damage and Public Liability Insurance		16
Section 12.2.	Proceeds of Insurance		17
Section 12.3.	Additional Insurance		17

Section 13.	Reports; Inspection		17

Section 13.1.	Duty of Lessee to Furnish		17
Section 13.2.	Lessor’s Inspection Rights		18

Section 14.	Events of Default		18

Section 15.	Remedies		20

Section 15.1.	Remedies		20
Section 15.2.	Cumulative Remedies		22
Section 15.3.	No Waiver		23
Section 15.4.	Lessee’s Duty to Return Equipment Upon Default		23
Section 15.5.	Specific Performance; Lessor Appointed Lessee’s Agent		23

Section 16.	Filings; Further Assurances		23

Section 16.1.	Filings		23
Section 16.2.	Further Assurances		24
Section 16.3.	Expenses		24

Section 17.	Lessor’s Right to Perform		24

Section 18.	Assignment		24

Section 18.1.	Assignment by Lessor		24
Section 18.2.	Assignment by Lessee		25
Section 18.3.	Sublessee’s Performance and Rights		25

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Section	Heading	Page

Section 19.	Net Lease, etc.		25

Section 20.	Notices		26

Section 21.	Concerning Indenture Trustee		28

Section 21.1.	Limitation of Indenture Trustee’s Liabilities		28
Section 21.2.	Right, Title and Interest of Indenture Trustee under Lease		28

Section 22.	Termination Upon Purchase by Lessee; Options to Renew		28

Section 22.1.	Termination upon Purchase by Lessee		28
Section 22.2.	Renewal Options		28
Section 22.3.	[Reserved]		29
Section 22.4.	Determination of Fair Market Rental Value		29
Section 22.5.	Stipulated Loss Value and Termination Value During Renewal Term		29

Section 23.	Lessee’s Options to Purchase Equipment; Purchase of Beneficial Interest		29

Section 24.	Limitation of Lessor’s Liability		32

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:

Exhibit A —	Form of Lease Supplement
Appendix A —	Definitions

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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 Lessee’s payment obligation on each Rent Payment Date, Lessee’s 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 Lessor’s 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”,

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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 Lessor’s 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 Lessee’s 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

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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 Lessor’s 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 Lessor’s 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 Lessor’s 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, Lessee’s 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 Lessee’s 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

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period of storage except a result of Lessee’s 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 Lessee’s 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 Lessee’s loss insurance rating and (iii) any coverage provided is above Lessee’s 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 Lessee’s cost and expense, to a destination or interchange point, f.o.b., such destination or interchange point, on Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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.

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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, manufacturer’s recommendations to the extent required to maintain such manufacturer’s 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 Lessee’s 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 Lessee’s or any such Affiliate’s 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.

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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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessor’s 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 Lessee’s 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. Lessee’s sole interest in acting as agent shall be to sell the Units at a price that reduces or eliminates Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessor’s 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 Lessee’s counsel (which may be Lessee’s 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 Lessor’s and Indenture Trustee’s 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 Lessor’s Liens), all Lessor’s 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, Lessee’s 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 Lessee’s 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 Lessee’s 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 Officer’s Certificate or, at Lessee’s 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 insurer’s 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 Lessee’s ability to insure the Units as required by this Section 12 or adversely affect Lessee’s insurance or the cost thereof, it being understood that all salvage rights to each Unit and all primary subrogation rights shall remain with Lessee’s 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 Lessee’s 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. Lessor’s 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 Lessee’s 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 Lessee’s records with respect thereto, during Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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 arm’s length and on a commercially reasonable basis), in which event Lessee’s obligation to pay Basic Rent and Supplemental Rent (other than any Supplemental Rent owed with respect to Lessee’s 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 Lessee’s obligation to pay Basic Rent and Supplemental Rent (other than any

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Supplemental Rent owed with respect to Lessee’s 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

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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 Lessee’s cost and expense, on an “as-is, where-is” basis and without recourse or warranty (except as to the absence of Lessor’s Liens), the rights and interests of Lessor in and to the Equipment and the Lease, and Lessor and Owner Participant, at Lessee’s 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 Lessor’s 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.

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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. Lessee’s 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 Lessee’s 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 Lessee’s 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

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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 Lessee’s 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. Lessor’s 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

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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. Sublessee’s 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 Lessee’s 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 Lessee’s 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 Lessee’s 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

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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:


		If to Lessor:		KCSR 2008-1 Statutory Trust
				c/o 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 copies to:		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

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		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

				and

				Attention: Chief Counsel-Securities Investments

		If to Indenture Trustee:		Wilmington Trust Company
				Rodney Square North
				1100 North Market Street
				Wilmington, Delaware 19890-0001
				Attention: Corporate Trust Administration
				Facsimile No.: (302) 636-4140
				Telephone No.: (302) 636-6000

		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

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Section 21. Concerning Indenture Trustee.

Section 21.1. Limitation of Indenture Trustee’s Liabilities . Notwithstanding any provision herein or in any of the other Operative Agreements to the contrary, Indenture Trustee’s 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 Participant’s 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 Lessee’s 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

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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. Lessee’s 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. Lessee’s 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 Lessee’s 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 Lessor’s 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 Lessee’s 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 Lessor’s Liens attributable to Owner Trustee or Owner Participant other than Permitted Liens, all of Owner Participant’s 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 Lessee’s 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 Lessor’s 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 Lessee’s 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 Lessee’s 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.


Lessor: 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/ Maryanne Y. Dufresne
	Name:	Maryanne Y. Dufresne
	Title:	Vice President

Lessee: The Kansas City Southern Railway Company
By:	/s/ Paul J. Weyandt
	Name:	Paul J. Weyandt
	Title:	Senior Vice President-Finance & Treasurer


Receipt of the original counterpart of the foregoing Lease is hereby acknowledged this 15th day of April, 2008. Wilmington Trust Company, as Indenture Trustee
By:	/s/ Patricia A. Evans
	Name:	Patricia A. Evans
	Title:	Vice President


State of Connecticut	)
	)	ss:
County of Hartford	)

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.



	By	/s/ Susan P. McNally
		Notary Public
(SEAL)

My Commission Expires:


State of Missouri	)
	)	SS.:
County of Jackson	)

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.



	By	/s/ Karen Dennis
		Notary Public
(SEAL)

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 Participant’s 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

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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.


	Lessor: KCSR 2008-1 Statutory Trust , acting through U.S. Bank Trust National Association , not in its individual capacity, but solely as Owner Trustee
	By:
		Name:
		Title:

	Lessee The Kansas City Southern Railway Company
	By:
		Name:
		Title:


Receipt of the original counterpart of the foregoing Lease Supplement is hereby acknowledged this ___ day of , 2008. Wilmington Trust Company, as Indenture Trustee
By:
	Name:
	Title:

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State of Connecticut	)
	)	ss:
County of Hartford	)

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.



	By
		Notary Public

(SEAL)

My Commission Expires: _______________________________


State of Missouri	)
	)	ss:
County of Jackson	)

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.



	By
		Notary Public

(SEAL)

My Commission Expires: _________________________________

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Equipment Cost Per

Equipment

Quantity

Unit

Reporting Marks

SD70ACe Locomotives

2,117,000.00

KCS through

KCS , inclusive

Schedule 1
(to Lease Supplement No. ___ (KCSR 2008-1))

Exhibit 15.1

The Board of Directors and Stockholders
Kansas City Southern:

Re: Registration Statement Nos. 002-85200, 002-81228, 002-66477, 002-70370, 002-62526, 033-50517, 033-50519, 033-64511, 033-59388, 033-54168, 033-08880, 333-91993, 333-73122, 333-58250, 333-51854, 333-91478 and 333-126207 on Form S-8, and 333-130112 on Form S-3

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated April 24, 2008 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

KPMG LLP

Kansas City, Missouri

April 24, 2008

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael R. Haverty, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kansas City Southern (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael R. Haverty

Michael R. Haverty

Chairman and Chief Executive Officer

Date: April 24, 2008

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER’S CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick J. Ottensmeyer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kansas City Southern (the “registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Patrick J. Ottensmeyer

Patrick J. Ottensmeyer

Executive Vice President and Chief Financial Officer

Date: April 24, 2008

Exhibit 32.1

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kansas City Southern (the “Company”) on Form 10-Q for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael R. Haverty, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael R. Haverty

Michael R. Haverty

Chairman and Chief Executive Officer

April 24, 2008

A signed original of this written statement required by Section 906 has been provided to Kansas City Southern and will be retained by Kansas City Southern and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

PRINCIPAL FINANCIAL OFFICER’S CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kansas City Southern (the “Company”) on Form 10-Q for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick J. Ottensmeyer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick J. Ottensmeyer

Patrick J. Ottensmeyer

Executive Vice President and Chief Financial Officer

April 24, 2008