SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999
[ ] 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 INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
Delaware 44-0663509
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
114 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code (816) 983-1303
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
- -------------------------------------- ----------------
Preferred Stock, Par Value $25 Per
Share, 4%, Noncumulative New York Stock Exchange
Common Stock, $.01 Per Share Par Value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
----
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Company Stock. The Company's common stock is listed on the New York Stock
Exchange under the symbol "KSU." As of March 31, 2000, 111,399,354 shares of
common stock and 242,170 shares of voting preferred stock were outstanding. On
such date, the aggregate market value of the voting and non-voting common and
preferred stock held by non-affiliates of the Company was $9,577,014,534 (amount
computed based on closing prices of preferred and common stock on New York Stock
Exchange).
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated herein by reference into
Part of the Form 10-K as indicated:
Document Part of Form 10-K into
which incorporated
- -------------------------------------------------- ---------------------------
Company's Definitive Proxy Statement for the 2000 Parts I, III
Annual Meeting of Stockholders, which will be filed
no later than 120 days after December 31, 1999
<PAGE>
Page 12
KANSAS CITY SOUTHERN INDUSTRIES, INC.
1999 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
Item 1. Business............................................................ 1
Item 2. Properties.......................................................... 9
Item 3. Legal Proceedings................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................. 13
Executive Officers of the Company................................... 13
PART II
Item 5. Market for the Company's Common Stock and
Related Stockholder Matters....................................... 15
Item 6. Selected Financial Data............................................. 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 17
Item 7(A)Quantitative and Qualitative Disclosures About Market Risk.......... 72
Item 8. Financial Statements and Supplementary Data......................... 76
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............................126
PART III
Item 10. Directors and Executive Officers of the Company.....................127
Item 11. Executive Compensation..............................................127
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................127
Item 13. Certain Relationships and Related Transactions......................127
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................................128
Signatures..........................................................135
ii
<PAGE>1
Part I
Item 1. Business
(a) GENERAL DEVELOPMENT OF COMPANY BUSINESS
The information set forth in response to Item 101 of Regulation S-K under Part
II Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, of this Form 10-K is incorporated by reference in partial
response to this Item 1.
(b) INDUSTRY SEGMENT FINANCIAL INFORMATION
Kansas City Southern Industries, Inc. ("Company" or "KCSI") reports its
financial information in two business segments: Transportation and Financial
Services.
Transportation. Kansas City Southern Lines, Inc. ("KCSL"), a wholly-owned
subsidiary of the Company, is the holding company for Transportation segment
subsidiaries and affiliates. This segment includes, among others:
o The Kansas City Southern Railway Company ("KCSR"), a wholly-owned subsidiary;
o Gateway Western Railway Company ("Gateway Western"), a wholly-owned
subsidiary;
o Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), a 37%
owned affiliate, which owns 80% of the common stock of TFM, S.A. de C.V.
("TFM");
o Mexrail, Inc. ("Mexrail"), a 49% owned affiliate, which wholly owns the Texas
Mexican Railway Company ("Tex Mex");
o Southern Capital Corporation, LLC ("Southern Capital"), a 50% owned affiliate;
and
o Panama Canal Railway Company ("PCRC"), a 50% owned affiliate.
The businesses that comprise the Transportation segment operate a railroad
system that provides shippers with rail freight service in key commercial and
industrial markets of the United States and Mexico.
Financial Services. Stilwell Financial, Inc. ("Stilwell" - formerly FAM
Holdings, Inc.), a wholly-owned subsidiary of the Company, is the holding
company for subsidiaries and affiliates comprising the Financial Services
segment. The primary entities comprising the Financial Services segment are:
o Janus Capital Corporation ("Janus"), an approximate 82% owned subsidiary;
o Stilwell Management, Inc. ("SMI"), a wholly-owned subsidiary of Stilwell;
o Berger LLC ("Berger"), of which SMI owns 100% of the Berger preferred limited
liability company interests and approximately 86% of the Berger regular
limited liability company interests;
o Nelson Money Managers Plc ("Nelson"), an 80% owned subsidiary; and
o DST Systems Inc. ("DST"), an approximate 32% equity investment owned by SMI.
The businesses that comprise the Financial Services segment offer a variety of
asset management and related financial services to registered investment
companies, retail investors, institutions and individuals.
<PAGE>2
Separation of Business Segments
The Company intends to separate the Transportation and Financial Services
segments through a pro rata distribution of Stilwell common stock to KCSI
stockholders (the "Separation"). On July 9, 1999, the Company received a tax
ruling from the Internal Revenue Service ("IRS") to the effect that for United
States federal income tax purposes, the planned Separation qualifies as a
tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as
amended. Additionally, in February 2000, the Company received a favorable
supplementary tax ruling from the IRS to the effect that the assumption of $125
million of KCSI debt by Stilwell (in connection with the Company's
re-capitalization discussed below) would have no effect on the previously issued
tax ruling.
In contemplation of the Separation, the Company's stockholders approved a
one-for-two reverse stock split at a special stockholders' meeting held on July
15, 1998. The Company does not intend to effect this reverse stock split until
the Separation is completed. Additionally, effective July 1, 1999, KCSI
transferred to Stilwell KCSI's ownership interests in Janus, Berger, Nelson, DST
and certain other financial services-related assets and Stilwell assumed all of
KCSI's liabilities associated with the assets transferred. Also, as part of the
Separation, the Company re-capitalized its debt structure on January 11, 2000 as
further described under Part II Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of this Form 10-K.
The information set forth in response to Item 101 of Regulation S-K relative to
financial information by industry segment for the three years ended December 31,
1999 under Part II Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, of this Form 10-K, and Item 8, Financial
Statements and Supplementary Data, at Note 14 - Industry Segments of this Form
10-K, is incorporated by reference in partial response to this Item 1.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
The information set forth in response to Item 101 of Regulation S-K under Part
II Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, of this Form 10-K is incorporated by reference in partial
response to this Item 1.
Transportation
KCSL, along with its principal subsidiaries and joint ventures, owns and
operates a rail network comprised of approximately 6,000 miles of main and
branch lines that link key commercial and industrial markets in the United
States and Mexico. Together with its strategic alliance with the Canadian
National Railway Company ("CN") and Illinois Central Corporation ("IC")
(collectively "CN/IC") and other marketing agreements, KCSL's reach has been
expanded to comprise a contiguous rail network of approximately 25,000 miles of
main and branch lines connecting Canada, the United States and Mexico. The
Company believes that the economic growth within the United States, Mexico and
Canada is developing along a north/south axis and becoming more interconnected
and interdependent as a result of the implementation of the North American Free
Trade Agreement ("NAFTA"). In order to capitalize on the growing trade resulting
from NAFTA, KCSL has transformed itself from a regional rail carrier into an
extensive North American transportation network. During the mid-1990's, while
other railroad competitors concentrated on enlarging their share of the
east/west transcontinental traffic in the United States, KCSL aggressively
pursued acquisitions, joint ventures, strategic alliances and marketing
partnerships with other railroads to achieve its goal of creating the "NAFTA
Railway."
KCSL's rail network connects shippers in the midwestern and eastern United
States and Canada, including shippers utilizing Chicago and Kansas City -- the
two largest rail centers in the United
<PAGE>3
States -- with the largest industrial centers of Canada and Mexico, including
Toronto, Edmonton, Mexico City and Monterrey. KCSL's principal subsidiary, KCSR,
which traces its origins to 1887, operates a Class I Common Carrier railroad
system in the United States, from the Midwest to the Gulf of Mexico and on an
East-West axis from Meridian, Mississippi, to Dallas, Texas. KCSR offers the
shortest route between Kansas City and major port cities along the Gulf of
Mexico in Louisiana, Mississippi and Texas, with a customer base that includes
electric generating utilities and a wide range of companies in the chemical and
petroleum industries, agricultural and mineral industries, paper and forest
product industries, automotive product and intermodal industries, among others.
KCSR, in cooperation with Norfolk Southern Corporation ("Norfolk Southern"),
operates the most direct rail route, referred to as the "Meridian Speedway,"
linking the Atlanta, Georgia and Dallas, Texas gateways for traffic moving
between the rapidly-growing southeast and southwest regions of the United
States. The "Meridian Speedway" also provides eastern shippers and other U.S.
and Canadian railroads with an efficient connection to Mexican markets.
In addition to KCSR, KCSL's railroad system includes Gateway Western, a regional
common carrier system, which links Kansas City with East St. Louis and
Springfield, Illinois and provides key interchanges with the majority of other
Class I railroads. Like KCSR, Gateway Western serves customers in a wide range
of industries.
KCSR and Gateway Western revenues and net income are dependent on providing
reliable service to customers at competitive rates, the general economic
conditions in the geographic region served and the ability to effectively
compete against alternative modes of surface transportation, such as
over-the-road truck transportation. The ability of KCSR and Gateway Western to
construct and maintain the roadway in order to provide safe and efficient
transportation service is important to the ongoing viability as a rail carrier.
Additionally, cost containment is important in maintaining a competitive market
position, particularly with respect to employee costs as approximately 84% of
KCSR and Gateway Western combined employees are covered under various collective
bargaining agreements.
The Transportation segment also includes strategic joint venture interests in
Grupo TFM and Mexrail, which provide direct access to Mexico. Through these
joint ventures, which are operated in partnership with Transportacion Maritima
Mexicana, S.A. de C.V., KCSL has established a prominent position in the growing
Mexican market. TFM's route network provides the shortest connection to the
major industrial and population areas of Mexico from midwestern and eastern
points in the United States. TFM, which was privatized by the Mexican government
in June 1997, serves a majority of the Mexican states and Mexico City, which
represent a majority of the country's population and estimated gross domestic
product. Tex Mex connects with KCSR via trackage rights at Beaumont, Texas, with
TFM at Laredo, Texas, (the single largest rail freight transfer point between
the United States and Mexico), as well as with other U.S. Class I railroads at
various locations.
As a result of the CN/IC strategic alliance to promote NAFTA traffic, the
Company has gained access to customers in Detroit, Michigan and Canada as well
as more direct access to Chicago. This agreement also provides KCSR with access
to the port of Mobile, Alabama through haulage rights. Separate marketing
agreements with the Norfolk Southern and I&M Rail Link, LLC provide KCSL with
access to additional rail traffic to and from the eastern and upper midwestern
markets of the United States. KCSL's system, through its core network, strategic
alliances and marketing partnerships, interconnects with all Class I railroads
in North America.
<PAGE>4
Financial Services (Stilwell)
Stilwell includes Janus, Berger, Nelson and a 32% interest in DST. Janus and
Berger, each headquartered in Denver, Colorado, are investment advisors
registered with the Securities and Exchange Commission ("SEC"). Janus serves as
an investment advisor to the Janus Investment Funds ("Janus Funds"), Janus Aspen
Series ("Janus Aspen") and Janus World Funds Plc ("Janus World"), collectively
the "Janus Advised Funds". Additionally, Janus is the advisor or sub-advisor to
other investment companies and institutional and individual private accounts,
including pension, profit-sharing and other employee benefit plans, trusts,
estates, charitable organizations, endowments and foundations (referred to as
"Janus Sub-Advised Funds and Private Accounts"). Berger is also engaged in the
business of providing financial asset management services and products,
principally through a group of registered investment companies known as the
Berger Advised Funds. Berger also serves as investment advisor or sub-advisor to
other registered investment companies and separate accounts (referred to as
"Berger Sub-Advised Funds and Private Accounts"). Nelson, a United Kingdom
company, provides investment advice and investment management services primarily
to individuals who are retired or contemplating retirement. DST, together with
its subsidiaries and joint ventures, offers information processing and software
services and products through three operating segments: financial services,
output solutions and customer management. Additionally, DST holds certain
investments in equity securities, financial interests and real estate holdings.
JANUS
Janus derives its revenues and net income primarily from advisory services
provided to the Janus Advised Funds and other financial services firms and
private accounts. As of December 31, 1999, Janus had total assets under
management of $249.5 billion, of which $200.0 billion were in the Janus Advised
Funds. Janus primarily offers equity portfolios to investors, which comprised
approximately 95% of total assets under management for Janus at December 31,
1999. At that date, funds advised by Janus had approximately 4.1 million
shareowner accounts.
Pursuant to investment advisory agreements with each of the Janus Advised Funds
and the Janus Sub-Advised Funds and Private Accounts, Janus provides overall
investment management services. These agreements generally provide that Janus
will furnish continuous advice and recommendations concerning investments and
reinvestments in conformity with the investment objectives and restrictions of
the applicable fund or account.
Investment advisory fees are negotiated separately and subject to extreme market
pressures. These fees vary depending on the type of the fund or account and the
size of the assets managed, with fee rates above specified asset levels being
reduced. Fees from Private Accounts are generally computed on the basis of the
market value of the assets managed at the end of the preceding month and paid in
arrears on a monthly basis.
In order to perform its investment advisory functions, Janus conducts
fundamental investment research and valuation analysis. In general, Janus'
investment philosophy tends to focus on the earnings growth of individual
companies relative to their peers or the economy. For this reason, Janus'
proprietary analysis is geared to understanding the earnings potential of the
companies in which it invests. Further, Janus portfolios are constructed one
security at a time rather than in response to preset regional, country, economic
sector or industry diversification guidelines.
<PAGE>5
Emphasizing the proprietary work of Janus' own analysts, most research is
performed in-house. Research activities include, among others, review of
earnings reports, direct contacts with corporate management, analysis of
contracts with competitors and visits to individual companies.
The Janus Advised Funds and the Janus Sub-Advised Funds generally bear the
expenses associated with the operation of each fund and the issuance and
redemption of its securities, except that advertising, promotional and sales
expenses of the Janus Funds are assumed by Janus. Expenses include, among
others, investment advisory fees, shareowner servicing, transfer agent,
custodian fees and expenses, legal and auditing fees, and expenses of preparing,
printing and mailing prospectuses and shareowner reports.
Janus has four operating subsidiaries: Janus Service Corporation ("Janus
Service"), Janus Distributors, Inc. ("Janus Distributors") and Janus Capital
International Ltd. ("Janus International") and its subsidiary Janus
International (UK) Limited ("Janus UK").
o Pursuant to transfer agency agreements, which are subject to renewal
annually, Janus Service provides transfer agent recordkeeping,
administration and shareowner services to the Janus Advised Funds (except
Janus World) and their shareowners. Each fund pays Janus Service fees for
these services. To provide a consistent and reliable level of service,
Janus Service maintains a highly trained group of telephone representatives
and utilizes technology to provide immediate data to support call center
and shareowner processing operations. This approach includes the
utilization of sophisticated telecommunications systems, "intelligent"
workstation applications, document imaging, an automated work distributor
and an automated call management system. Additionally, Janus Service offers
investors access to their accounts, including the ability to perform
certain transactions, using touch tone telephones or via the Internet.
These customer service related enhancements provide Janus Service with
additional capacity to handle the high shareowner volume that can be
experienced during market volatility.
o Pursuant to a distribution agreement, Janus Distributors, a limited
registered broker-dealer with the SEC, serves as the distributor for the
Janus Advised Funds. Janus expends substantial resources in media
advertising and direct mail communications to its existing and potential
Janus Advised Funds' shareowners and in providing personnel and
telecommunications equipment to respond to inquiries via toll-free
telephone lines. Janus funds are also available through mutual fund
supermarkets and other third party distribution channels. Shareowner
accounting and servicing is handled by the mutual fund supermarket or
third party sponsor and Janus pays a fee to the respective sponsor equal to
a percentage of the assets under management acquired through such
distribution channels. Approximately 33%, 30% and 28% of total Janus
assets under management were generated through these third party
distribution channels as of December 31, 1999, 1998 and 1997, respectively.
o Janus International is an investment advisor registered with the SEC. Janus
International also provides marketing and client services for Janus World
outside of Europe.
o Janus UK, an England and Wales company, is an investment advisor for
certain non-U.S. customers, including Janus World, and is registered with
the United Kingdom's Investment Management Regulatory Organization Limited
("IMRO"). Janus UK also conducts securities trading from London and handles
marketing and client servicing for Janus World in Europe.
BERGER
Berger is an investment advisor to the Berger Advised Funds, which includes a
series of Berger mutual funds, as well as to the Berger Sub-Advised Funds and
Private Accounts. Additionally, Berger is a 50% owner in a joint venture with
the Bank of Ireland Asset Management (U.S.) Limited
<PAGE>6
("BIAM"). The joint venture, BBOI Worldwide LLC ("BBOI"), serves as the
investment advisor and sub-administrator to a series of funds, referred to as
the "Berger/BIAM Funds". Berger and BIAM have entered into an agreement to
dissolve BBOI, which is expected to take place prior to June 30, 2000.
Additionally, Berger owns 80% of Berger/Bay Isle LLC, which acts as the
investment advisor to privately managed separate accounts. As of December 31,
1999, Berger had approximately $6.6 billion of assets under management, of which
the Berger Advised Funds comprised $5.7 billion.
Berger derives its revenues and net income from advisory services provided to
the various funds and accounts. Berger's and BBOI's investment advisory fees are
negotiated separately with each fund. The investment advisory fees for these
funds vary depending on the type of fund, generally ranging from 0.70% to 0.90%
of average assets under management. Advisory fees for services provided to the
Berger Sub-Advised Funds and Private Accounts vary depending upon the type of
fund or account and, in some circumstances, size of assets managed, with fee
rates above specified asset levels being reduced.
Berger's principal method of securities evaluation is based on growth-style
investing, using a "bottoms-up" fundamental research and valuation analysis.
This growth-style approach toward equity investing requires the companies in
which Berger invests to have high relative earnings per share growth potential,
to participate in large and growing markets, to have strong management and to
have above average expected total returns. Certain Berger funds, however,
emphasize value-style investing, which focuses on companies that are out of
favor with markets or otherwise are believed to be undervalued (due to low
prices relative to assets, earnings and cash flows or to competitive advantages
not yet recognized by the market). Research is performed by Berger's internal
staff of research analysts, together with the various portfolio managers.
Primary research tools include, among others, financial publications, company
visits, corporate rating services and earnings releases.
Berger and BBOI generally pay most expenses incurred in connection with
providing investment management and advisory services to their respective funds.
All charges and expenses other than those specifically assumed by Berger and
BBOI are paid by the funds. Expenses paid by the funds include, among others,
investment advisory fees, shareowner servicing, transfer agent, custodian fees
and expenses, legal and auditing fees, and expenses of preparing, printing and
mailing prospectuses and shareowner reports.
Berger marketing efforts are balanced between institutional and retail
distribution opportunities. Certain of the Berger funds sold in retail markets
have approved distribution plans ("12b-1 Plans") pursuant to Rule 12b-1 under
the Investment Company Act of 1940. These 12b-1 Plans provide that Berger shall
engage in activities (e.g., advertising, marketing and promotion) that are
intended to result in sales of the shares of the funds.
The Berger Advised Funds and Berger/BIAM Funds have agreements with a trust
company to provide accounting, recordkeeping and pricing services, custody
services, transfer agency and other services. The trust company has engaged DST
as sub-agent to provide transfer agency and other services for the Berger
Advised Funds and Berger/BIAM Funds. Berger performs certain administrative and
recordkeeping services not otherwise performed by the trust company or its
sub-agent. Each Berger Fund pays Berger fees for these services, which are in
addition to the investment advisory fees paid.
Berger Distributors LLC serves as distributor of the Berger Advised Funds and
the Berger/BIAM Funds and is a limited registered broker-dealer. Berger
Distributors LLC continuously offers shares of the Berger funds and solicits
orders to purchase shares. Berger also utilizes mutual fund supermarket and
other third party distribution channels. Shareowner accounting and servicing is
handled by the mutual fund supermarket or third party sponsor and Berger pays a
fee to the respective sponsor equal to a percentage of the assets under
management acquired through
<PAGE>7
such distribution channels. Approximately 28%, 28% and 26% of total Berger
assets under management were generated through these third party distribution
channels as of December 31, 1999, 1998 and 1997, respectively.
NELSON
Nelson provides two distinct but interrelated services to individuals that
generally are retired or contemplating retirement: investment advice and
investment management. Clients are assigned a specific investment advisor, who
meets with each client individually and conducts an analysis of the client's
investment objectives and then recommends the development of a portfolio to meet
those objectives. Recommendations for the design and ongoing maintenance of the
portfolio structure are the responsibility of the investment advisor. The
selection and management of the instruments / securities which constitute the
portfolio are the responsibility of Nelson's investment management team.
Nelson's investment managers utilize a "top down" investment methodology in
structuring investment portfolios, beginning with an analysis of macroeconomic
and capital market conditions. Various analyses are performed by Nelson's
investment research staff to help construct an investment portfolio that adheres
to each client's objectives as well as Nelson's investment strategy. Through
continued investment in technology, Nelson has developed proprietary systems to
allow the investment managers to develop a balanced portfolio from a broad range
of investment instrument alternatives (e.g., fixed interest securities, tax free
corporate bonds, international and domestic securities, etc.).
For providing investment advice, Nelson receives an initial fee calculated as a
percentage of capital invested into each individual investment portfolio. Nelson
earns annual fees for the ongoing management and administration of each
investment portfolio. These fees are based on the type of investments and amount
of assets contained in each investor's portfolio. The fee schedules typically
provide lower incremental fees for assets under management above certain levels.
DST
DST operates throughout the United States, with operations in Kansas City,
Northern California and various locations on the East Coast, as well as
internationally in Canada, Europe, Africa and the Pacific Rim. DST has a single
class of common stock that is publicly traded on the New York Stock Exchange and
the Chicago Stock Exchange. Prior to November 1995, KCSI owned all of the stock
of DST. In November 1995, a public offering reduced KCSI's ownership interest in
DST to approximately 41%. In December 1998, a wholly-owned subsidiary of DST
merged with USCS International, Inc. The merger resulted in a reduction of
KCSI's ownership of DST to approximately 32%. KCSI reports DST as an equity
investment in the consolidated financial statements.
DST is organized into three operating segments: financial services, output
solutions and customer management.
DST's financial services segment serves primarily mutual funds, investment
managers, insurance companies, banks, brokers and financial planners. DST has
developed a number of proprietary software systems for use by the financial
services industry. Examples of such software systems include, among others,
mutual fund shareowner and unit trust accounting and recordkeeping systems, a
securities transfer system, a variety of portfolio accounting and investment
management systems and a workflow management system. DST provides full-service
shareowner accounting and recordkeeping to Berger, as well as remote services to
Janus.
DST's output solutions segment provides complete bill and statement processing
services and solutions, including electronic presentment, which include
generation of customized statements that are produced in automated facilities
designed to minimize turnaround time and mailing costs.
<PAGE>8
Output processing services and solutions are provided to customers of DST's
other segments as well as to other industries.
DST's customer management segment provides customer management and open billing
solutions to the video/broadband, direct broadcast satellite, wireless, and
wire-line and Internet-protocol telephony, internet and utility markets
worldwide.
DST also holds investments in equity securities with a market value of
approximately $1.3 billion at December 31, 1999, including investments in
Computer Sciences Corporation and State Street Corporation.
Employees. As of December 31, 1999, the approximate number of employees of KCSI
and its consolidated subsidiaries was as follows:
<TABLE>
<S> <C>
Transportation (KCSL):
KCSR 2,610
Gateway Western 241
Other 82
-----------
Total 2,933
-----------
Financial Services (Stilwell):
Janus 2,501
SMI 5
Berger LLC 71
Nelson 204
Other 17
-----------
Total 2,798
-----------
Total KCSI 5,731
===========
</TABLE>
<PAGE>9
Item 2. Properties
In the opinion of management, the various facilities, office space and other
properties owned and/or leased by the Company (and its subsidiaries and
affiliates) are adequate for existing operating needs.
TRANSPORTATION (KCSL)
KCSR
KCSR owns and operates 2,756 miles of main and branch lines, and 1,179 miles of
other tracks, in a nine-state region that includes Missouri, Kansas, Arkansas,
Oklahoma, Mississippi, Alabama, Tennessee, Louisiana and Texas. Approximately
215 miles of main and branch lines and 85 miles of other tracks are operated by
KCSR under trackage rights and leases.
Kansas City Terminal Railway Company (of which KCSR is a partial owner with
other railroads) owns and operates approximately 80 miles of track, and operates
an additional eight miles of track under trackage rights in greater Kansas City,
Missouri. KCSR also leases for operating purposes certain short sections of
trackage owned by various other railroad companies and jointly owns certain
other facilities with these railroads.
KCSR and the Union Pacific Railroad ("UP") have a haulage and trackage rights
agreement, which gives KCSR access to Nebraska and Iowa, and additional routes
in Kansas, Missouri and Texas for movements of certain limited types of traffic.
The haulage rights require UP to move KCSR traffic in UP trains; the trackage
rights allow KCSR to operate its trains over UP tracks.
KCSR, in support of its transportation operations, owns and operates repair
shops, depots and office buildings along its right-of-way. A major facility, the
Deramus Yard, is located in Shreveport, Louisiana and includes a general office
building, locomotive repair shop, car repair shops, customer service center,
material warehouses and fueling facilities totaling approximately 227,000 square
feet. KCSR owns a 107,800 square foot facility in Pittsburg, Kansas that
previously was used as a diesel locomotive repair facility. This facility was
closed during 1999. KCSR also owns freight and truck maintenance buildings in
Dallas, Texas totaling approximately 125,200 square feet. KCSR and KCSI
executive offices are located in an eight-story office building in Kansas City,
Missouri, which is leased from a subsidiary of the Company. Other facilities
owned by KCSR include a 21,000 square foot freight car repair shop in Kansas
City, Missouri and approximately 15,000 square feet of office space in Baton
Rouge, Louisiana.
KCSR owns and operates six intermodal facilities. These facilities are located
in Dallas and Port Arthur, Texas; Kansas City, Missouri; Shreveport and New
Orleans, Louisiana; and Jackson, Mississippi. The facility in Port Arthur was
closed in first quarter 2000 due to a lower than expected level of traffic. KCSR
is currently in the process of constructing an automotive and intermodal
facility at the former Richards-Gebaur Airbase in Kansas City, Missouri. Certain
automotive operations are expected to begin at this facility in 2000. Full
automotive and intermodal operations at the facility are expected to be complete
in 2001 and will provide KCSR with additional capacity in Kansas City. The
various intermodal facilities include strip tracks, cranes and other equipment
used in facilitating the transfer and movement of trailers and containers.
<PAGE>10
<TABLE>
KCSR's fleet of rolling stock consisted of the following at December 31:
1999 1998 1997
--------------------- ---------------------- ----------------------
Leased Owned Leased Owned Leased Owned
<S> <C> <C> <C> <C> <C> <C>
Locomotives:
Road Units 323 112 258 108 238 113
Switch Units 52 - 52 - 52 -
Other - 8 8 - 9 -
-------- ------- ------- -------- -------- -------
Total 375 120 318 108 299 113
======== ======= ======= ======== ======== =======
Rolling Stock:
Box Cars 6,289 2,011 6,634 2,023 7,168 2,027
Gondolas 713 66 748 56 819 61
Hopper Cars 2,384 1,357 2,660 1,185 2,680 1,198
Flat Cars (Intermodal
and Other) 1,553 675 1,617 676 1,249 554
Tank Cars 33 55 34 58 35 59
Auto Rack 201 - - - - -
Other Freight Cars - - - - 547 123
-------- ------- ------- -------- -------- -------
Total 11,173 4,164 11,693 3,998 12,498 4,022
======== ======= ======= ======== ======== =======
</TABLE>
As of December 31, 1999, KCSR's fleet consisted of 495 diesel locomotives, of
which 120 were owned, 335 leased from affiliates and 40 leased from
non-affiliates. KCSR's fleet of rolling stock consisted of 15,337 freight cars,
of which 4,164 were owned, 3,181 leased from affiliates and 7,992 leased from
non-affiliates. A significant portion of the locomotives and rolling stock
leased from affiliates includes equipment leased through Southern Capital, a
joint venture with GATX Capital Corporation formed in October 1996. KCSR leased
50 new General Electric ("GE") 4400 AC locomotives from Southern Capital during
fourth quarter 1999.
Some of the owned equipment is subject to liens created under conditional sales
agreements, equipment trust certificates and leases in connection with the
original purchase or lease of such equipment. KCSR indebtedness with respect to
equipment trust certificates, conditional sales agreements and capital leases
totaled approximately $68.6 million at December 31, 1999.
<TABLE>
Certain KCSR property statistics follow:
<S> <C> <C> <C>
1999 1998 1997
-------- -------- -------
Route miles - main and branch line 2,756 2,756 2,845
Total track miles 3,935 3,931 4,036
Miles of welded rail in service 2,032 2,031 2,030
Main line welded rail (% of total) 64% 64% 63%
Cross ties replaced 275,384 255,591 332,440
Average Age (in years):
Wood ties in service 16.0 15.8 15.1
Rail in main and branch line 26.5 25.5 26.0
Road locomotives 21.7 23.3 22.1
All locomotives 22.5 23.9 22.8
</TABLE>
<TABLE>
Maintenance expenses for Way and Structure and Equipment (pursuant to regulatory
accounting rules, which include depreciation) for the three years ended December
31, 1999 and as a percent of KCSR revenues are as follows (dollars in millions):
<PAGE>11
KCSR Maintenance
Way and Structure Equipment
Percent of Percent of
Amount Revenue Amount Revenue
<S> <C> <C> <C> <C>
1999 $ 85.2 15.6% $ 129.4 23.7%
1998 82.4 14.9 118.3 21.4
1997 122.2* 23.6 112.3 21.7
* Way and structure expenses include $33.5 million related to asset
impairments. See Part II Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of this Form 10-K for further
discussion.
</TABLE>
Gateway Western
Gateway Western operates a 402 mile rail line extending from Kansas City,
Missouri to East St. Louis and Springfield, Illinois. Additionally, Gateway
Western has restricted haulage rights extending to Chicago, Illinois. Gateway
Western provides interchanges with various eastern rail carriers and access to
the St. Louis rail gateway. The Surface Transportation Board approved the
Company's acquisition of Gateway Western in May 1997.
<TABLE>
Certain Gateway Western property statistics follow:
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Route miles - main and branch line 402 402 402
Total track miles 564 564 564
Miles of welded rail in service 121 121 109
Main line welded rail (% of total) 40% 40% 39%
</TABLE>
Mexrail
Mexrail, a 49% owned affiliate, owns 100% of the Tex Mex and certain other
assets, including the northern (U.S.) half of a rail traffic bridge at Laredo,
Texas spanning the Rio Grande River. TFM operates the southern half of the
bridge. This bridge is a significant entry point for rail traffic between Mexico
and the U.S. The Tex Mex operates a 157 mile rail line extending from Corpus
Christi to Laredo, Texas, and also has trackage rights (from UP) totaling
approximately 360 miles between Corpus Christi and Beaumont, Texas.
In early 1999, the Tex Mex completed Phase II of a new rail yard in Laredo,
Texas. Phase I of the project was completed in December 1998 and includes four
tracks comprising approximately 6.5 miles. Phase II of the project consists of
two new intermodal tracks totaling approximately 2.8 miles. Groundwork for an
additional ten tracks has been completed; however, construction on those ten
tracks has not yet begun. Current capacity of the yard is approximately 800
freight cars. Upon completion of all tracks, expected capacity will be
approximately 2,000 freight cars.
<TABLE>
Certain Tex Mex property statistics follow:
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Route miles - main and branch line 157 157 157
Total track miles 533 530 521
Miles of welded rail in service 5 5 5
Main line welded rail (% of total) 3% 3% 3%
Locomotives (average years) 25 25 25
</TABLE>
<PAGE>12
Grupo TFM
Grupo TFM, an approximate 37% owned affiliate, owns 80% of the common stock of
TFM. TFM holds the concession to operate Mexico's "Northeast Rail Lines" for 50
years, with the option of a 50-year extension (subject to certain conditions).
TFM operates 2,661 miles of main line and an additional 838 miles of sidings and
spur tracks, and main line under trackage rights. TFM has the right to operate
the rail, but does not own the land, roadway or associated structures.
Approximately 91% of TFM's main line consists of continuously welded rail. 416
locomotives are owned by TFM and approximately 6,522 freight cars are either
owned by TFM or leased from affiliates. 98 locomotives and 4,960 freight cars
are leased from non-affiliates. Grupo TFM (through TFM) has office space at
which various operational, administrative, managerial and other activities are
performed. The primary facilities are located in Mexico City and Monterrey,
Mexico. TFM leases 140,354 square feet of office space in Mexico City and owns
an 115,157 square foot facility in Monterrey.
Panama Canal Railway Company
PCRC, a 50% owned joint venture, holds the concession to reconstruct and operate
a 47-mile railroad that runs parallel to the Panama Canal. Reconstruction of the
railroad commenced in early 2000 and is expected to be completed in mid-2001.
PCRC owns one locomotive and various other infrastructure improvements and
equipment.
Other Transportation
The Company is an 80% owner of Wyandotte Garage Corporation, which owns a
parking facility in downtown Kansas City, Missouri. The facility is located
adjacent to the Company and KCSR executive offices, and consists of 1,147
parking spaces utilized by the employees of the Company and its affiliates, as
well as the general public.
Trans-Serve, Inc. operates a railroad wood tie treating plant in Vivian,
Louisiana under an industrial revenue bond lease arrangement with an option to
purchase. This facility includes buildings totaling approximately 12,000 square
feet.
Global Terminaling Services, Inc. (formerly Pabtex, Inc.) owns a 70 acre coal
and petroleum coke bulk handling facility in Port Arthur, Texas.
Mid-South Microwave, Inc. owns and operates a microwave system, which extends
essentially along the right-of-way of KCSR from Kansas City, Missouri to Dallas,
Beaumont and Port Arthur, Texas and New Orleans, Louisiana. This system is
leased to KCSR.
Other subsidiaries of the Company own approximately 8,000 acres of land at
various points adjacent to the KCSR right-of-way. Other properties also include
a 354,000 square foot warehouse at Shreveport, Louisiana, a bulk handling
facility at Port Arthur, Texas, and several former railway buildings now being
rented to non-affiliated companies, primarily as warehouse space.
The Company owns 1,025 acres of property located on the waterfront in the Port
Arthur, Texas area, which includes 22,000 linear feet of deep-water frontage and
three docks. Port Arthur is an uncongested port with direct access to the Gulf
of Mexico. Approximately 75% of this property is available for development.
<PAGE>13
FINANCIAL SERVICES (STILWELL)
Janus
Janus leases from non-affiliates 455,400 square feet of office space in three
facilities for investment, administrative, marketing, information technology and
shareowner processing operations, and approximately 52,700 square feet for mail
processing and storage requirements. These corporate offices and mail processing
facilities are located in Denver, Colorado. Janus also has 1,200 square feet of
general office space in Aspen, Colorado. In September 1998, Janus opened an
investor service and data center in Austin, Texas and currently leases
approximately 170,200 square feet at this facility. Janus also leases 4,200
square feet of office space in Westport, Connecticut for development of Janus
World Funds Plc and 2,500 square feet of office space in London, England for
securities research and trading.
Berger
Berger leases approximately 29,800 square feet of office space in Denver,
Colorado from a non-affiliate for its administrative and corporate functions.
Nelson
Nelson leases 10,300 square feet of office space in Chester, England, the
location of its corporate headquarters, investment operations and one of its
marketing offices. During 1998, Nelson acquired additional office space adjacent
to its Chester location to accommodate expansion efforts. Also, Nelson leases
six branch marketing offices totaling approximately 13,800 square feet in the
following locations in the United Kingdom: London, Lichfield, Bath, Durham,
Stirling and York.
Stilwell Holding Company
The Stilwell holding company leases approximately 12,500 square feet of office
space in Kansas City, Missouri from a non-affiliate for its corporate functions.
Item 3. Legal Proceedings
The information set forth in response to Item 103 of Regulation S-K under Part
II Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, "Other - Litigation and Environmental Matters" of this
Form 10-K is incorporated by reference in response to this Item 3. In addition,
see discussion in Part II Item 8, Financial Statements and Supplementary Data,
at Note 12 - Commitments and Contingencies of this Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the three month
period ended December 31, 1999.
Executive Officers of the Company
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to paragraph
(b) of Item 401 of Regulation S-K, the following list is included as an
unnumbered Item in Part I of this Form 10-K in lieu of being included in KCSI's
Definitive Proxy Statement which will be filed no later than 120 days after
December 31, 1999. All executive officers are elected annually and serve at the
discretion of the Board of Directors (or in the case of Mr. T. H. Bailey, the
Janus Board of Directors). Certain of the executive officers have employment
agreements with the Company.
<PAGE>14
Name Age Position(s)
- ----------------------------------------------------------------------
L.H. Rowland 62 Chairman, President and
Chief Executive Officer of the Company
M.R. Haverty 55 Executive Vice President, Director
T.H. Bailey 62 Chairman, President and
Chief Executive Officer of
Janus Capital Corporation
P.S. Brown 63 Vice President, Associate General
Counsel and Assistant Secretary
R.P. Bruening 61 Vice President, General Counsel and
Corporate Secretary
D.R. Carpenter 53 Vice President - Finance
W.K. Erdman 41 Vice President - Corporate Affairs
A.P. McCarthy 53 Vice President and Treasurer
J.D. Monello 55 Vice President and Chief Financial Officer
L.G. Van Horn 41 Vice President and Comptroller
The information set forth in the Company's Definitive Proxy Statement in the
description of the Board of Directors with respect to Mr. Rowland and Mr.
Haverty is incorporated herein by reference.
Mr. Bailey has continuously served as Chairman, President and Chief Executive
Officer of Janus Capital Corporation since 1978.
Mr. Brown served as Vice President, Associate General Counsel and Assistant
Secretary from May 1993 to December 31, 1999.
Mr. Bruening has continuously served as Vice President, General Counsel and
Corporate Secretary since July 1995. From May 1982 to July 1995, he served as
Vice President and General Counsel.
Mr. Carpenter has continuously served as Vice President - Finance since November
1996. He was Vice President - Finance and Tax from May 1995 to November 1996. He
was Vice President - Tax from June 1993 to May 1995.
Mr. Erdman has continuously served as Vice President - Corporate Affairs since
April 1997. From January 1997 to April 1997 he served as Director - Corporate
Affairs. From 1987 to January 1997 he served as Chief of Staff for United States
Senator from Missouri, Christopher ("Kit") Bond.
Mr. McCarthy has continuously served as Vice President and Treasurer since May
1996. He was Treasurer from December 1989 to May 1996.
Mr. Monello has continuously served as Vice President and Chief Financial
Officer since March 1994.
Mr. Van Horn has continuously served as Vice President and Comptroller since May
1996. He was Comptroller from September 1992 to May 1996.
There are no arrangements or understandings between the executive officers and
any other person pursuant to which the executive officer was or is to be
selected as an officer of KCSI, except with respect to the executive officers
who have entered into employment agreements, which agreements designate the
position(s) to be held by the executive officer.
None of the above officers are related to one another by family.
<PAGE>15
Part II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The information set forth in response to Item 201 of Regulation S-K on the cover
(page i) under the heading "Company Stock," and in Part II Item 8, Financial
Statements and Supplementary Data, at Note 15 - Quarterly Financial Data
(Unaudited) of this Form 10-K is incorporated by reference in partial response
to this Item 5.
Pursuant to a new credit agreement dated January 11, 2000 as described further
in Part II Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations of this Form 10-K, the Company is restricted from the
payment of cash dividends on the Company's common stock.
In contemplation of the separation of the Company's Transportation and Financial
Services segments ("Separation"), the Company's stockholders approved a
one-for-two reverse stock split at a special stockholders' meeting held on July
15, 1998. The Company does not intend to effect this reverse stock split until
the Separation is completed.
As of March 31, 2000, there were 6,012 holders of the Company's common stock
based upon an accumulation of the registered stockholder listing.
Item 6. Selected Financial Data
(in millions, except per share and ratio data)
The selected financial data below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included under Item 7 of this Form 10-K and the consolidated
financial statements and the related notes thereto, and the Report of
Independent Accountants thereon, included under Item 8 of this Form 10-K, and
such data is qualified by reference thereto.
<TABLE>
1999 (i) 1998 (ii) 1997 (iii) 1996 (iv) 1995 (v)
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,813.7 $ 1,284.3 $ 1,058.3 $ 847.3 $ 775.2
Income (loss) from continuing
operations $ 323.3 $ 190.2 $ (14.1) $ 150.9 $ 236.7
Income (loss) from continuing operations per common share:
Basic $ 2.93 $ 1.74 $ (0.13) $ 1.33 $ 1.86
Diluted 2.79 1.66 (0.13) 1.31 1.80
Total assets $ 3,088.9 $ 2,619.7 $ 2,434.2 $ 2,084.1 $ 2,039.6
Long-term obligations $ 750.0 $ 825.6 $ 805.9 $ 637.5 $ 633.8
Cash dividends per
common share $ .16 $ .16 $ .15 $ .13 $ .10
Ratio of earnings to
fixed charges 7.07 4.44 (vi) 1.60 (vii) 3.30 6.14 (viii)
</TABLE>
<PAGE>16
(i) Includes unusual costs and expenses of $12.7 million ($7.9 million after-
tax, or $0.07 per basic and diluted share) recorded by the Transportation
segment, reflecting, among others, amounts for facility and project
closures, employee separations, Separation related costs, labor and
personal injury related issues.
(ii) Includes a one-time non-cash charge of $36.0 million ($23.2 million
after-tax, or $0.21 per basic and diluted share) resulting from the merger
of a wholly-owned subsidiary of DST with USCS International, Inc. ("USCS").
DST accounted for the merger under the pooling of interests method. The
charge reflects the Company's reduced ownership of DST (from 41% to
approximately 32%), together with the Company's proportionate share of DST
and USCS fourth quarter merger-related charges. See Note 3 to the
consolidated financial statements in this Form 10-K
(iii)Includes $196.4 million ($158.1 million after-tax, or $1.47 per basic and
diluted share) of restructuring, asset impairment and other charges
recorded during fourth quarter 1997. The charges reflect: a $91.3 million
impairment of goodwill associated with KCSR's acquisition of MidSouth
Corporation in 1993; $38.5 million of long-lived assets held for disposal;
$9.2 million of impaired long-lived assets; approximately $27.1 million in
reserves related to termination of a union productivity fund and employee
separations; a $12.7 million impairment of goodwill associated with the
Company's investment in Berger; and $17.6 million of other reserves for
leases, contracts and other reorganization costs. See Notes 2 and 4 to the
consolidated financial statements in this Form 10-K.
(iv) Includes a one-time after-tax gain of $47.7 million (or $0.42 per basic
share, $0.41 per diluted share), representing the Company's proportionate
share of the one-time gain recognized by DST in connection with the merger
of The Continuum Company, Inc., formerly a DST unconsolidated equity
affiliate, with Computer Sciences Corporation in a tax-free share exchange.
(v) Reflects DST as an unconsolidated affiliate as of January 1, 1995 due to
the DST public offering and associated transactions completed in November
1995, which reduced the Company's ownership of DST to approximately 41%.
The public offering and associated transactions resulted in a $144.6
million after-tax gain (or $1.14 per basic share, $1.10 per diluted share)
to the Company.
(vi) Financial information from which the ratio of earnings to fixed charges was
computed for the year ended December 31, 1998 includes the one-time
non-cash charge resulting from the DST and USCS merger discussed in (ii)
above. If the ratio were computed to exclude this charge, the 1998 ratio of
earnings to fixed charges would have been 4.75.
(vii)Financial information from which the ratio of earnings to fixed charges
was computed for the year ended December 31, 1997 includes the
restructuring, asset impairment and other charges discussed in (iii) above.
If the ratio were computed to exclude these charges, the 1997 ratio of
earnings to fixed charges would have been 3.60.
(viii) Financial information from which the ratio of earnings to fixed charges
was computed for the year ended December 31, 1995 reflects DST as a
majority owned unconsolidated subsidiary through October 31, 1995, and an
unconsolidated 41% owned affiliate thereafter, in accordance with
applicable U.S. Securities and Exchange Commission rules and regulations.
If the ratio were computed to exclude the one-time pretax gain of $296.3
million associated with the November 1995 public offering and associated
transactions, the 1995 ratio of earnings to fixed charges would have been
3.04.
All years reflect the 3-for-1 common stock split to shareholders of record on
August 25, 1997, paid September 16, 1997.
The information set forth in response to Item 301 of Regulation S-K under Part
II Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, of this Form 10-K is incorporated by reference in partial
response to this Item 6.
<PAGE>17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The discussion set forth below, as well as other portions of this Form 10-K,
contains comments not based upon historical fact. Such forward-looking comments
are based upon information currently available to management and management's
perception thereof as of the date of this Form 10-K. Readers can identify these
forward-looking comments 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 Industries, Inc. ("KCSI" or the "Company")
could materially differ from those indicated in forward-looking comments. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's Current
Report on Form 8-K/A dated June 3, 1997, which is on file with the U.S.
Securities and Exchange Commission (File No. 1-4717) and is hereby incorporated
by reference herein. Readers are strongly encouraged to consider these factors
when evaluating any forward-looking comments. The Company will not update any
forward-looking comments set forth in this Form 10-K.
The discussion herein 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 8 of this Form 10-K. As discussed
below, the Company is in discussions with the Staff of the Securities and
Exchange Commission as to whether or not Janus Capital Corporation should
continue to be classified as a consolidated subsidiary for financial reporting
purposes. The outcome of these discussions could result in the Company restating
certain of its consolidated financial statements to reflect Janus as a
majority-owned unconsolidated subsidiary accounted for under the equity method
for financial reporting purposes. This discussion should be read in conjunction
with these consolidated financial statements, the related notes and the Report
of Independent Accountants thereon, and is qualified by reference thereto.
KCSI, a Delaware corporation organized in 1962, is a diversified holding company
with principal operations in rail transportation and financial services. The
Company supplies its various subsidiaries with managerial, legal, tax, financial
and accounting services, in addition to managing other "non-operating" and more
passive investments.
On March 26, 1999, Standard and Poors (S&P) Financial Information Services
announced that it would add KCSI to its S&P 500 index. KCSI was added to the S&P
500 Railroads Industry group after the close of trading on April 1, 1999.
Management believes that the Company's addition to this index of leading U.S.
companies will have a positive long-term impact on KCSI stock and help build the
Company's shareholder base.
The Company's business activities by industry segment and principal subsidiary
companies follow:
Transportation. Kansas City Southern Lines, Inc. ("KCSL"), a wholly-owned
subsidiary of the Company, is the holding company for Transportation segment
subsidiaries and affiliates. This segment includes, among others:
o The Kansas City Southern Railway Company ("KCSR"), a wholly-owned subsidiary;
o Gateway Western Railway Company ("Gateway Western"), a wholly-owned
subsidiary;
<PAGE>18
o Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), a 37%
owned affiliate, which owns 80% of the common stock of TFM, S.A. de C.V.
("TFM");
o Mexrail, Inc. ("Mexrail"), a 49% owned affiliate, which wholly owns the Texas
Mexican Railway Company ("Tex Mex");
o Southern Capital Corporation, LLC ("Southern Capital"), a 50% owned affiliate;
and
o Panama Canal Railway Company ("PCRC"), a 50% owned affiliate.
The businesses that comprise the Transportation segment operate a railroad
system that provides shippers with rail freight service in key commercial and
industrial markets of the United States and Mexico.
Financial Services. Stilwell Financial, Inc. ("Stilwell" - formerly FAM
Holdings, Inc.), a wholly-owned subsidiary of the Company, is the holding
company for subsidiaries and affiliates comprising the Financial Services
segment. The primary entities comprising the Financial Services segment are:
o Janus Capital Corporation ("Janus"), an approximate 82% owned subsidiary;
o Stilwell Management, Inc. ("SMI"), a wholly-owned subsidiary of Stilwell;
o Berger LLC ("Berger"), of which SMI owns 100% of the Berger preferred limited
liability company interests and approximately 86% of the Berger regular
limited liability company interests;
o Nelson Money Managers Plc ("Nelson"), an 80% owned subsidiary; and
o DST Systems Inc. ("DST"), an approximate 32% equity investment owned by SMI.
The businesses that comprise the Financial Services segment offer a variety of
asset management and related financial services to registered investment
companies, retail investors, institutions and individuals.
Upon the completion of a public offering of DST common stock and associated
transactions in November 1995, the Company's ownership of DST was reduced from
100% to approximately 41%. As discussed below, the 1998 merger between a
wholly-owned subsidiary of DST and USCS International, Inc. ("USCS"), accounted
for by DST as a pooling of interests, reduced KCSI's ownership of DST to
approximately 32% and resulted in a one-time pretax non-cash charge of
approximately $36.0 million.
All per share information included in this Item 7 is presented on a diluted
basis, unless specifically identified otherwise.
RECENT DEVELOPMENTS
Planned Separation of the Company Business Segments. The Company announced its
intention to separate the Transportation and Financial Services segments through
a proposed dividend of the stock of Stilwell, a holding company for its
Financial Services businesses (the "Separation"). On July 12, 1999, the Company
announced that the Internal Revenue Service ("IRS") issued a favorable tax
ruling permitting the Company to separate its Financial Services segment from
its Transportation segment. Additionally, in February 2000, the Company received
a favorable supplementary tax ruling from the IRS to the effect that the
assumption of $125 million of KCSI debt by Stilwell (in connection with the
Company's re-capitalization discussed below) would have no effect on the
previously issued tax ruling. In contemplation of the Separation, the Company's
stockholders approved a one-for-two reverse stock split at a special
stockholders' meeting held on July 15, 1998. The Company will not effect the
reverse stock split until the Separation is completed.
<PAGE>19
On March 26, 1999, a number of Janus minority stockholders and employees of
Janus, including members of Janus' management, its chief executive officer, its
chief investment officer, portfolio managers and assistant portfolio managers
who own a material number of Janus shares, five of the six Janus directors and
others (the "Janus Minority Group") proposed that KCSI consider, in addition to
the Separation, a separate spin-off of Janus. Members of the Janus Minority
Group met with KCSI's Board of Directors ("Board") on June 23, 1999 and urged
the Board to consider their separate spin-off proposal.
The Janus Fund Trustees ("Trustees") expressed support on March 26, 1999 for the
proposal of the Janus Minority Group, indicating that, based on their
discussions with members of that group, the Trustees believed the proposal would
provide superior equity ownership opportunities for key Janus employees and
could help assure continuity of management for the Janus Funds. Stilwell
management assured the Trustees of their support for equity incentive
arrangements for key Janus personnel, but believed these incentives could be
achieved without a separate spin-off of Janus. The Trustees have continued to
express their support for equity incentive arrangements for the key Janus
personnel, but have indicated that they intend to remain neutral with respect to
the disagreements between Stilwell and the Janus Minority Group. The Trustees
have strongly encouraged the parties to resolve their disagreements as soon as
possible so that they would not be a distraction to the management of the Janus
Funds.
After considering the information presented by the Janus Minority Group and
information provided by Stilwell management regarding the advantages and
disadvantages of the two methods of achieving the Separation, KCSI's Board
decided that the Separation should go forward on the basis originally
contemplated. In arriving at this decision, KCSI's Board took into consideration
a number of factors, including that: i) a favorable tax ruling on the Separation
had been received from the IRS; ii) the presentation by the Janus Minority Group
was not persuasive, in the Board's view, as to the advantages of the alternative
proposal as compared to the Separation; iii) there was a lack of certainty that
a favorable tax ruling could be obtained in a timely manner, or at all, with
respect to the alternative proposal; and iv) the Separation was more consistent
with the strategic direction of Stilwell.
Stilwell Files a Registration Statement on Form 10 with the Securities and
Exchange Commission ("SEC"). On August 19, 1999, the Company reported that
Stilwell filed a Form 10 with the SEC in connection with KCSI's proposed
Separation. The filing includes an Information Statement that will be provided
to KCSI shareholders after the Form 10 becomes effective. The Company has
received comments from the SEC and has been involved in detailed discussions
with the SEC on such items. As part of this process, the Company filed Amendment
#1 to the Stilwell Form 10 on October 18, 1999, Amendment #2 on December 22,
1999 and Amendment #3 on January 19, 2000. The Stilwell Form 10 has not been
declared effective.
Re-capitalization of the Company's Debt Structure. In preparation for the
Separation, the Company re-capitalized its debt structure in January 2000
through a series of transactions as follows:
Bond Tender and Other Debt Repayment. On December 6, 1999, KCSI commenced offers
to purchase and consent solicitations with respect to any and all of the
Company's outstanding 7.875% Notes due July 1, 2002, 6.625% Notes due March 1,
2005, 8.8% Debentures due July 1, 2022, and 7% Debentures due December 15, 2025
(collectively "Debt Securities" or "notes and debentures").
<PAGE>20
Approximately $398.4 million of the $400 million outstanding Debt Securities
were validly tendered and accepted by the Company. Total consideration paid for
the repurchase of these outstanding notes and debentures was $401.2 million.
Funding for the repurchase of these Debt Securities and for the repayment of
$264 million of borrowings under then existing revolving credit facilities was
obtained from two new credit facilities (the "KCS Credit Facility" and the
"Stilwell Credit Facility", or collectively "New Credit Facilities"), each of
which was entered into on January 11, 2000. These New Credit Facilities, as
described further below, provide for total commitments of $950 million.
In first quarter 2000, the Company will report an extraordinary loss on the
extinguishment of the Company's notes and debentures of approximately $5.9
million, net of income taxes.
KCS Credit Facility. The KCS Credit Facility provides for a total commitment of
$750 million, comprised of three separate term loans totaling $600 million with
$200 million due January 11, 2001, $150 million due December 30, 2005 and $250
million due December 30, 2006 and a revolving credit facility available until
January 11, 2006 ("KCS Revolver"). The availability under the KCS Revolver will
initially be $150 million and will be reduced to $100 million on the later of
January 2, 2001 and the expiration date with respect to the Grupo TFM Capital
Contribution Agreement (see Grupo TFM below in "Significant Developments").
Letters of credit are also available under the KCS Revolver up to a limit of $90
million. Borrowings under the KCS Credit Facility are secured by substantially
all of the Transportation segment's assets.
On January 11, 2000, KCSR borrowed the full amount ($600 million) of the term
loans and used the proceeds to repurchase the Debt Securities, retire other debt
obligations and pay related fees and expenses. No funds were initially borrowed
under the KCS Revolver. Proceeds of future borrowings under the KCS Revolver are
to be used for working capital and for other general corporate purposes. The
letters of credit under the KCS Revolver are to be used to support obligations
in connection with the Grupo TFM Capital Contribution Agreement ($15 million may
be used for general corporate purposes).
Interest on the outstanding loans under the KCS Credit Facility shall accrue at
a rate per annum based on the London interbank offered rate ("LIBOR") or the
prime rate, as the Company shall select. Each loan shall accrue interest at the
selected rate plus the applicable margin, which will be determined by the type
of loan. Until the term loan maturing in 2001 is repaid in full, the term loans
maturing in 2001 and 2005 and all loans under the KCS Revolver will have an
applicable margin of 2.75% per annum for LIBOR priced loans and 1.75% per annum
for prime rate priced loans and the term loan maturing in 2006 will have an
applicable margin of 3.00% per annum for LIBOR priced loans and 2.00% per annum
for prime rate based loans. The interest rate with respect to the term loan
maturing in 2001 is also subject to 0.25% per annum interest rate increases
every three months until such term loan is paid in full, at which time, the
applicable margins for all other loans will be reduced and may fluctuate based
on the leverage ratio of the Company at that time.
The KCS Credit Facility requires the payment to the banks of a commitment fee of
0.50% per annum on the average daily, unused amount of the KCS Revolver.
Additionally a fee equal to a per annum rate equal to 0.25% plus the applicable
margin for LIBOR priced revolving loans will be paid on any letter of credit
issued under the KCS Credit Facility. The KCS Credit Facility contains certain
covenants, among others, as follows: i) restricts the payment of cash dividends
to common stockholders; ii) limits annual capital expenditures; iii) requires
hedging instruments with respect to at least 50% of the outstanding balances of
each of the term loans maturing in 2005 and 2006 to mitigate interest rate risk
associated with the new variable rate debt; and iv) provides leverage ratio and
interest coverage ratio requirements typical of this type of debt instrument.
These covenants, along with other provisions could restrict maximum utilization
of the facility. Issue costs relating to the KCS Credit Facility of
approximately $17.6 million were deferred and will be amortized over the
respective term of the loans.
<PAGE>21
In accordance with the provision requiring the Company to manage its interest
rate risk through hedging activity, in first quarter 2000 the Company entered
into five separate interest rate cap agreements for an aggregate notional amount
of $200 million expiring on various dates in 2002. The interest rate caps are
linked to LIBOR. $100 million of the aggregate notional amount provides a cap on
the Company's interest rate of 7.25% plus the applicable spread, while $100
million limits the interest rate to 7% plus the applicable spread.
Counterparties to the interest rate cap agreements are major financial
institutions who also participate in the New Credit Facilities. Credit loss from
counterparty non-performance is not anticipated.
Stilwell Credit Facility. On January 11, 2000, KCSI also arranged a new $200
million 364-day senior unsecured competitive Advance/Revolving Credit Facility
("Stilwell Credit Facility"). KCSI borrowed $125 million under this facility and
used the proceeds to retire debt obligations as discussed above. Stilwell has
assumed this credit facility, including the $125 million borrowed thereunder,
and upon completion of the Separation, KCSI will be released from all
obligations thereunder. Stilwell repaid the $125 million in March 2000.
Two borrowing options are available under the Stilwell Credit Facility: a
competitive advance option, which is uncommitted, and a committed revolving
credit option. Interest on the competitive advance option is based on rates
obtained from bids as selected by Stilwell in accordance with the lender's
standard competitive auction procedures. Interest on the revolving credit option
accrues based on the type of loan (e.g., Eurodollar, Swingline, etc.) with rates
computed using LIBOR plus 0.35% per annum or, alternatively, the highest of the
prime rate, the Federal Funds Effective Rate plus 0.005%, and the Base
Certificate of Deposit Rate plus 1%.
The Stilwell Credit Facility includes a facility fee of 0.15% per annum and a
utilization fee of 0.125% on the amount of the outstanding loans under the
facility for each day on which the aggregate utilization of the Stilwell Credit
Facility exceeds 33% of the aggregate commitments of the various lenders.
Additionally, the Stilwell Credit Facility contains, among other provisions,
various financial covenants, which could restrict maximum utilization of the
Stilwell Credit Facility. Stilwell may assign or delegate all or a portion of
its rights and obligations under the Stilwell Credit Facility to one or more of
its domestic subsidiaries.
Sale of Janus Stock. In first quarter 2000, Stilwell sold to Janus, for
treasury, 192,408 shares of Janus common stock and such shares will be available
for awards under Janus' recently adopted Long Term Incentive Plan. Janus has
agreed that for as long as it has available shares of Janus common stock for
grant under that plan, it will not award phantom stock, stock appreciation
rights or similar rights. The sale of these shares resulted in an after-tax gain
of approximately $15.7 million, and together with the issuance by Janus of
approximately 35,000 shares of restricted stock in first quarter 2000, reduced
Stilwell's ownership to approximately 81.5%.
Litigation Settlement. In January 2000, Stilwell received approximately $44
million in connection with the settlement of a legal dispute related to a former
equity investment. The settlement agreement resolves all outstanding issues
related to this former equity investment. In first quarter 2000, Stilwell will
recognize an after-tax gain of approximately $26 million as a result of this
settlement.
Dividends Suspended for KCSI Common Stock. During first quarter 2000, the
Company's Board announced that, based upon a review of the Company's dividend
policy in conjunction with the New Credit Facilities discussed above and in
light of the anticipated Separation, it decided to suspend the Common stock
dividend of KCSI under the existing structure of the Company. This
<PAGE>22
action complies with the terms and covenants of the New Credit Facilities.
Subsequent to the Separation, the separate Boards of KCSI and Stilwell will
determine the appropriate dividend policy for their respective companies.
Burlington Northern Santa Fe Railway and Canadian National Railway Merger. In
December 1999, The Burlington Northern and Santa Fe Railway Company ("BNSF") and
Canadian National Railway Company ("CN") announced their intention to combine
the two railroad companies. In March 2000, however, the Surface Transportation
Board ("STB") issued a 15-month moratorium on railroad mergers until the STB can
adopt new rules governing merger activities. This decision temporarily delays
the proposed combination of BNSF and CN. BNSF and CN have filed a motion of
appeal in an attempt to force the STB to review the BNSF-CN merger application.
KCSR management believes the STB's decision to suspend merger activities during
this 15-month period will allow the rail industry to focus on improving customer
service and operating efficiency rather than merger concerns. In the long term,
however, management believes a merger of BNSF and CN could have an adverse
impact on revenues through traffic diversions from the KCSR-CN/IC marketing
alliance (see below).
KCSR Purchase of 50 New Locomotives. During 1999, KCSR reached an agreement with
General Electric ("GE") for the purchase of 50 new GE 4400 AC Locomotives with
remote power capability. The addition of these state-of-the-art locomotives is
expected to have a favorable impact on operations as a result of, among other
things: retirement of older locomotives with significant ongoing maintenance
needs; decreased maintenance costs and improved fuel efficiency; better fleet
utilization; increased hauling power eliminating the need for certain helper
service; and higher reliability and efficiency resulting in fewer train delays
and less congestion. Southern Capital, through its existing variable rate credit
lines, financed the purchase of these new locomotives, and leases them to KCSR
under operating leases. Rates on these operating leases vary based on the
Company's credit rating. As a result of this transaction, operating lease
expense is expected to be approximately $7 million higher in 2000 compared to
1999. KCSR expects, however, associated operating cost reductions with these new
and more efficient AC locomotives. Delivery of these locomotives was completed
in December 1999.
Panama Canal Railway Company. In January 1998, the Republic of Panama awarded
KCSR and its joint venture partner, Mi-Jack Products, Inc., the concession to
reconstruct and operate the PCRC. The 47-mile railroad runs parallel to the
Panama Canal and, upon reconstruction, will provide international shippers with
an important complement to the Panama Canal. In November 1999, PCRC completed
the financing arrangements for this project with the International Finance
Corporation ("IFC"), a member of the World Bank Group. The financing is
comprised of a $5 million investment from the IFC and senior loans in the
aggregate amounts of up to $45 million. The investment of $5 million from the
IFC is comprised of non-voting preferred shares, paying a 10% cumulative
dividend. These preferred shares reduce the Company's ownership interest in PCRC
from 50% to 41.67%. The preferred shares are expected to be redeemed at the
option of IFC any year after 2008 at the lower of i) a net cumulative internal
rate of return of 30%, or ii) eight-times earnings before interest, income
taxes, depreciation and amortization (average of two consecutive years)
calculated in proportion to the IFC's percentage ownership in PCRC. Under
certain limited conditions, the Company is a guarantor for up to $15 million of
cash deficiencies associated with project completion. Additionally, if the
Company or its partner terminates the concession contract without the consent of
the IFC, the Company is a guarantor for up to 50% of the outstanding senior
loans. The total cost of the reconstruction project is estimated to be $75
million with an equity commitment from KCSR not to exceed $13 million.
Reconstruction of PCRC's right-of-way is expected to be complete in mid-2001
with commercial operations to begin immediately thereafter.
<PAGE>23
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
In addition to the developments mentioned above, consolidated operating results
from 1997 to 1999 were affected by the following significant developments.
CONSOLIDATED KCSI
Repurchase of Stock. As disclosed in the Current Report on Form 8-K dated
February 25, 1999, the Company repurchased 460,000 shares of its common stock
from The DST Systems, Inc. Employee Stock Ownership Plan (the "DST ESOP") in a
private transaction. The DST ESOP has previously sold to the Company other
shares of KCSI stock, which were part of the DST ESOP's assets as a result of
DST's participation in the Company's employee stock ownership plan prior to
DST's initial public offering in 1995.
The shares were purchased at a price equal to the closing price per share of
KCSI's common stock on the New York Stock Exchange on February 24, 1999. The
shares are held in treasury for use in connection with the Company's various
employee benefit plans.
These repurchases are part of the 33 million share repurchase plan that the
Board authorized through two programs - the 1995 program for 24 million shares
and the 1996 program for 9 million shares. Including this transaction, the
Company has repurchased a total of approximately 28.1 million shares under these
programs.
During 1998, there were no repurchases under these programs. During 1997, the
Company purchased approximately 2.9 million shares at an aggregate cost of
approximately $50 million. A portion of the shares under the 1996 program were
repurchased through a forward stock purchase contract, which was completed
during 1997. See discussion in "Financial Instruments and Purchase Commitments"
below.
Stock Split and 20% Increase in Quarterly Common Stock Dividend. On July 29,
1997, the Board authorized a 3-for-1 split in the Company's common stock
effected in the form of a stock dividend. Amounts reported in this Form 10-K
reflect this stock split. The Board also voted to increase the quarterly
dividend 20% to $0.04 per share (post-split). Both dividends were paid on
September 16, 1997 to stockholders of record as of August 25, 1997. However, see
"Recent Developments" for a discussion of the suspension of dividends.
FINANCIAL SERVICES
Financial Services Companies Contributed to Stilwell Financial, Inc. In
preparation for the Separation, effective July 1, 1999, KCSI contributed to
Stilwell its ownership interests in Janus, Berger, Nelson and DST, as well as
certain other financial services-related assets, and Stilwell assumed all of
KCSI's liabilities associated with the assets transferred. It is contemplated
that Stilwell will be listed on the New York Stock Exchange and, at about the
time of the Separation, will begin trading under the symbol "SV".
DST Merger. On December 21, 1998, DST and USCS announced the completion of the
merger of USCS with a wholly-owned DST subsidiary. The merger, accounted for as
a pooling of interests by DST, expands DST's presence in the output solutions
and customer management software and
<PAGE>24
services industries. Under the terms of the merger, USCS became a wholly-owned
subsidiary of DST. DST issued approximately 13.8 million shares of its common
stock in the transaction.
The issuance of additional DST common shares reduced KCSI's ownership interest
from 41% to approximately 32%. Additionally, the Company recorded a one-time
pretax non-cash charge of approximately $36.0 million ($23.2 million after-tax,
or $0.21 per share), reflecting the Company's reduced ownership of DST and the
Company's proportionate share of DST and USCS fourth quarter merger-related
costs. KCSI accounts for its investment in DST under the equity method.
Berger LLC Formation and Ownership History. On September 30, 1999, Berger
Associates, Inc. ("BAI") assigned and transferred its operating assets and
business to its subsidiary, Berger LLC, a limited liability company. In
addition, BAI changed its name to Stilwell Management, Inc. ("SMI"). SMI owns
100% of the preferred limited liability company interests and approximately 86%
of the regular limited liability company interests in Berger. The remaining 14%
of regular limited liability company interests were issued to key SMI and Berger
employees, resulting in a non-cash compensation charge. Additionally, in late
1999 Stilwell contributed to SMI the approximate 32% investment in DST.
Prior to the change in corporate form discussed above, the Company owned 100% of
BAI. The Company increased its ownership in BAI to 100% during 1997 as a result
of BAI's purchase, for treasury, of common stock from minority shareholders and
the acquisition by KCSI of additional BAI shares from a minority shareholder
through the issuance of 330,000 shares of KCSI common stock. In connection with
these transactions, BAI granted options to acquire shares of its stock to
certain employees. All of the outstanding options were cancelled upon formation
of Berger. This transaction resulted in approximately $17.8 million of goodwill,
which is being amortized over 15 years. However, the Company recorded a $12.7
million impairment of goodwill associated with the investment in Berger. The
Company determined that a portion of the goodwill recorded in connection with
the Berger investment was not recoverable, primarily due to below-peer
performance and growth of the core Berger funds in 1996 and 1997. See discussion
in Note 4 to the consolidated financial statements.
The Company's 1994 acquisition of a controlling interest in BAI was completed
under a Stock Purchase Agreement ("Agreement") covering a five-year period
ending in October 1999. Pursuant to the Agreement, the Company was required to
make additional purchase price payments based upon BAI attaining certain
incremental levels of assets under management up to $10 billion by October 1999.
The Company paid $3.0 million under this Agreement in 1999. No payments were
made during 1998. In 1997, the Company made additional payments of $3.1 million.
These payments represent adjustments to the purchase price and the resulting
goodwill is being amortized over 15 years.
Acquisition of Nelson. On April 20, 1998, the Company completed its acquisition
of 80% of Nelson, an investment advisor and manager based in the United Kingdom
("UK"). Nelson offers planning based asset management services directly to
private clients. Nelson managed approximately $1.3 billion of assets as of
December 31, 1999. The acquisition, accounted for as a purchase, was completed
using a combination of cash, KCSI common stock and notes payable. The total
purchase price was approximately $33 million. The purchase price was in excess
of the fair market value of the net tangible and identifiable intangible assets
received and this excess was recorded as goodwill to be amortized over a period
of 20 years. Assuming the transaction had been completed January 1, 1998,
inclusion of Nelson's results on a pro forma basis, as of and for the year ended
December 31, 1998, would not have been material to the Company's consolidated
results of operations.
<PAGE>25
Berger Joint Venture. During 1996, Berger entered into a joint venture agreement
with Bank of Ireland Asset Management (U.S.) Limited ("BIAM"), a subsidiary of
Bank of Ireland, to develop and market a series of international and global
mutual funds, as well as manage various private accounts. The venture, named
BBOI Worldwide LLC ("BBOI"), is headquartered in Denver, Colorado. Berger
accounts for its 50% investment in BBOI under the equity method. Berger and BIAM
have entered into an agreement to dissolve BBOI. Contingent upon trustee and
shareowner approval, when BBOI is dissolved, Berger will become the advisor and
administrator to the series of funds referred to as the Berger/BIAM Funds. BIAM,
provided necessary approvals for assignment of advisory agreements are
completed, will become the advisor to BBOI's private accounts. The Company
expects the dissolution to be completed by June 30, 2000.
TRANSPORTATION
Negotiations to Purchase Mexican Government's Ownership Interest in TFM. On
January 28, 1999, the Company, along with other direct and indirect owners of
TFM, entered into a preliminary agreement with the Mexican Government
("Government"). As part of that agreement, an option was granted to the Company,
Transportacion Maritima Mexicana, S.A. de C.V. ("TMM") and Grupo Servia, S.A. de
C.V. ("Grupo Servia") to purchase all or a portion of the Government's 20%
ownership interest in TFM at a discount. The option, under the terms of the
preliminary agreement, has expired. However, management of TFM has advised the
Company that negotiations with the Government are continuing and TFM management
expects that the Government will extend the option.
Access to Geismar, Louisiana Industrial Corridor. At a voting conference held on
March 25, 1999, the STB unanimously approved the merger of CN and Illinois
Central ("IC") (collectively referred to as "CN/IC"). The STB issued its written
approval with an effective date of June 24, 1999, at which time the CN was
permitted to exercise control over IC's operations and assets. As part of this
approval, the STB imposed certain restrictions on the merger including a
condition requiring that the CN/IC grant KCSR access to three shippers in the
Geismar, Louisiana industrial area: Rubicon, Inc. ("Rubicon"), Uniroyal Chemical
Company, Inc. ("Uniroyal") and Vulcan Materials Company ("Vulcan"). These are in
addition to the three Geismar shippers (BASF Corporation -"BASF", Shell Chemical
Company -"Shell", and Borden Chemical and Plastics -"Borden") to which KCSR
obtained access as a result of the strategic alliance agreement with CN/IC
discussed below. Access to these six shippers begins October 1, 2000 and
management believes it will provide the Company with additional revenue
opportunities. See further discussion below with respect to the Marketing
Alliance with CN/IC.
Intermodal facility at the former Richards-Gebaur Airbase. During 1999, KCSR
entered into a fifty year lease with the City of Kansas City, Missouri to
establish an automotive and intermodal facility at the former Richards-Gebaur
Airbase, which is located adjacent to KCSR's main rail line. The Federal
Aviation Administration ("FAA") has officially approved the closure of the
existing airport, and improvements have commenced. KCSR expects to relocate its
Kansas City intermodal facility to Richards-Gebaur during 2001.
Management expects that the new facility will provide additional capacity as
well as a strategic opportunity to serve as an international trade facility.
Management plans for this facility to serve as a U.S. customs pre-clearance
processing facility for freight moving along the NAFTA corridor. This is
expected to alleviate some of the congestion at the borders, resulting in more
fluid service to KCSL's customers, as well as customers throughout the rail
industry.
<PAGE>26
KCSR expects to spend approximately $20 million for site improvements and
infrastructure at Richards-Gebaur. Management expects to fund these improvements
using operating cash flows and existing credit facilities. Lease payments are
expected to range between $400,000 and $700,000 per year and will be adjusted
for inflation based on agreed-upon formulas. Management believes that, with the
addition of this facility, KCSR is positioned to increase its automotive and
intermodal revenue base by attracting additional NAFTA traffic.
Transportation Restructuring, Asset Impairment and Other Charges. In connection
with the Company's review of its accounts for the year ended December 31, 1997
in accordance with established accounting policies, as well as a change in the
Company's methodology for evaluating the recoverability of goodwill during 1997
(as set forth in Note 2 to the consolidated financial statements), $196.4
million of restructuring, asset impairment and other charges were recorded
during fourth quarter 1997 (including approximately $18.4 million recorded by
the Financial Services segment relating to i) a goodwill impairment associated
with the Berger investment; ii) the impairment of a non-core investment; and
iii) a contract reserve). After consideration of related tax effects, the
Transportation segment's charges reduced its net income by $141.9 million, or
$1.32 per share. The charges included:
o A $91.3 million impairment of goodwill associated with KCSR's 1993
acquisition of MidSouth Corporation ("MidSouth"). In response to the
changing competitive and business environment in the rail industry, in 1997
the Company revised its accounting methodology for evaluating the
recoverability of intangibles from a business unit approach to analyzing
each of the Company's significant investment components. Based on this
analysis, the remaining purchase price in excess of fair value of the
MidSouth assets acquired was not recoverable.
o A $38.5 million charge representing long-lived assets held for disposal.
Certain branch lines on the MidSouth route and certain non-operating real
estate were designated for sale. During 1998, one of the branch lines was
sold for a pretax gain of approximately $2.9 million. In first quarter 2000
the other branch line was sold for a minimal pretax gain. A potential buyer
has been identified for the non-operating real estate and management is
currently negotiating this transaction.
o Approximately $27.1 million in reserves related to the termination of union
productivity fund and employee separations. The union productivity fund was
established in connection with prior collective bargaining agreements and
required KCSR to pay employees when reduced crew levels were used. The
termination of this fund resulted in a reduction of salaries and wages
expense for the year ended December 31, 1998 of approximately $4.8 million.
During 1998, approximately $23.1 million in cash payments reduced these
reserves and approximately $2.5 million of the reserves were reduced based
primarily on changes in the estimate of claims made relating to the union
productivity fund. During 1999, approximately $1.1 million of cash payments
were made relating to the union productivity fund and employee separations,
leaving a reserve of approximately $0.4 million at December 31, 1999.
o A $9.2 million impairment of assets at Global Terminaling Services, Inc.
(formerly Pabtex, Inc.) as a result of continued operating losses and a
decline in its customer base.
o Approximately $11.9 million of other charges and reserves related to
leases, contracts and other reorganization costs. Based on the Company's
review of its assets and liabilities, certain charges were recorded to
reflect recoverability and/or obligation as of December 31, 1997. During
1999 and 1998, approximately $2.2 and $6.6 million, respectively, in cash
payments were made leaving approximately $1.8 million accrued at December
31, 1999.
<PAGE>27
Marketing Alliance with Canadian National and Illinois Central. On April 16,
1998, KCSR, CN and IC announced a 15-year marketing alliance that offers
shippers new competitive options in a rail freight transportation network that
links key north-south continental freight markets. The marketing alliance did
not require STB approval and was effective immediately. This alliance connects
points in Canada with the major U.S. Midwest markets of Detroit, Chicago, Kansas
City and St. Louis, as well as key Southern markets of Memphis, Dallas and
Houston. It also provides shippers with access to Mexico's rail system through
TFM.
In addition to providing access to key north-south international and domestic
U.S. traffic corridors, the railways' seek to increase business in existing
markets, primarily automotive and intermodal, as well as in other key carload
markets, including those for chemical and forest products. Transportation
management expects this alliance to provide opportunities for revenue growth and
position the railway as a key provider of rail service to the NAFTA corridor.
Under a separate access agreement, CN and KCSR plan investments in automotive,
intermodal and transload facilities at Memphis, Dallas, Kansas City and Chicago
to capitalize on the growth potential represented by the marketing alliance.
Access to the proposed terminals would be assured for the 25-year life span of
the facilities, regardless of any change in corporate control. Under the terms
of this access agreement, KCSR would extend its rail system in the Gulf area
and, in October 2000, gain access to additional chemical customers in the
Geismar, Louisiana industrial area, one of the largest chemical production areas
in the world, through a haulage agreement. Management expects this access to
provide additional revenue opportunities for the Company. Prior to this access
agreement, the Company received preliminary STB approval for construction of a
nine-mile rail line from KCSR's main line into the Geismar industrial area,
which the chemical manufacturers requested to be built to provide them with
competitive rail service. The Company will continue to hold the option of the
Geismar build-in provided that it is able to obtain the requisite approvals.
During 1999, however, the Company wrote-off approximately $3.6 million of costs
related to the Geismar build-in that had previously been capitalized. See
discussion above in "Recent Developments" for the potential adverse impact that
the proposed merger of BNSF and CN could have on KCSR revenues as a result of
traffic diversions away from the KCSR-CN/IC alliance.
Voluntary Coordination Agreement with the Norfolk Southern Railway Company
("Norfolk Southern"). The Company entered into a Voluntary Coordination
marketing agreement with the Norfolk Southern that allows the Company to
capitalize on the east-west corridor between Meridian, Mississippi and Dallas,
Texas through incremental traffic volume gained through interchange with the
Norfolk Southern. This agreement provides the Norfolk Southern run-through
service with access to Dallas and Mexico while avoiding the congested rail
gateways of Memphis, Tennessee and New Orleans, Louisiana.
Grupo TFM. Grupo TFM, a joint venture of the Company and TMM, was awarded the
right to purchase 80% of the common stock of TFM for approximately 11.072
billion Mexican pesos (approximately $1.4 billion based on the U.S.
dollar/Mexican peso exchange rate on December 5, 1996). TFM holds the concession
to operate over Mexico's Northeast Rail Lines for 50 years, with the option of a
50-year extension (subject to certain conditions).
The remaining 20% of TFM was retained by the Government, which has the option of
selling its 20% interest through a public offering, or selling it to Grupo TFM
after October 31, 2003 at the initial share price paid by Grupo TFM plus
interest computed at the Mexican Base Rate (the Unidad de Inversiones (UDI)
published by Banco de Mexico). In the event that Grupo TFM does not purchase the
Government's 20% interest in TFM, the Government may require TMM and KCSI to
<PAGE>28
purchase the Government's holdings in proportion to each partner's respective
ownership interest in Grupo TFM (without regard to the Government's interest in
Grupo TFM - see below).
On January 31, 1997, Grupo TFM paid the first installment of the purchase price
(approximately $565 million based on the U.S. dollar/Mexican peso exchange rate)
to the Government, representing approximately 40% of the purchase price. Grupo
TFM funded this initial installment of the TFM purchase price through capital
contributions from TMM and the Company. The Company contributed approximately
$298 million to Grupo TFM, of which approximately $277 million was used by Grupo
TFM as part of the initial installment payment. The Company financed this
contribution using borrowings under existing lines of credit.
On June 23, 1997, Grupo TFM completed the purchase of 80% of TFM through the
payment of the remaining $835 million to the Government. This payment was funded
by Grupo TFM using a significant portion of the funds obtained from: (i) senior
secured term credit facilities ($325 million); (ii) senior notes and senior
discount debentures ($400 million); (iii) proceeds from the sale of 24.6% of
Grupo TFM to the Government (approximately $199 million based on the U.S.
dollar/Mexican peso exchange rate on June 23, 1997); and (iv) additional capital
contributions from TMM and the Company (approximately $1.4 million from each
partner). Additionally, Grupo TFM entered into a $150 million revolving credit
facility for general working capital purposes. The Government's interest in
Grupo TFM is in the form of limited voting right shares, and the purchase
agreement includes a call option for TMM and the Company, which is exercisable
at the original amount (in U.S. dollars) paid by the Government plus interest
based on one-year U.S. Treasury securities.
In first quarter 1997, the Company entered into two separate forward contracts -
$98 million in February 1997 and $100 million in March 1997 - to purchase
Mexican pesos in order to hedge against a portion of the Company's exposure to
fluctuations in the value of the Mexican peso versus the U.S. dollar. In April
1997, the Company realized a $3.8 million pretax gain in connection with these
contracts. This gain was deferred, and has been accounted for as a component of
the Company's investment in Grupo TFM. These contracts were intended to hedge
only a portion of the Company's exposure related to the final installment of the
purchase price and not any other transactions or balances.
Concurrent with the financing transactions, Grupo TFM, TMM and the Company
entered into a Capital Contribution Agreement ("Contribution Agreement") with
TFM, which includes a possible capital call of $150 million from TMM and the
Company if certain performance benchmarks, outlined in the agreement, are not
met. The Company would be responsible for approximately $74 million of the
capital call. The term of the Contribution Agreement is three years. In a
related agreement between Grupo TFM, TFM and the Government, among others, the
Government agreed to contribute up to $37.5 million of equity capital to Grupo
TFM if TMM and the Company were required to contribute under the capital call
provisions of the Contribution Agreement prior to July 16, 1998. The Government
also committed that if it had not made any contributions by July 16, 1998, it
would, up to July 31, 1999, make additional capital contributions to Grupo TFM
(of up to an aggregate amount of $37.5 million) on a proportionate basis with
TMM and the Company if capital contributions are required. During these periods,
no additional contributions from the Company were requested or made and,
therefore, the Government was not required to contribute any additional capital
to Grupo TFM under this related agreement. The commitment from the Government to
participate in a capital call has expired. The provisions of the Contribution
Agreement requiring a capital call from TMM and the Company expire in June 2000.
If a capital call occurs prior to June 2000, the provisions of the Contribution
Agreement automatically extend to June 2002. As of December 31, 1999 no
additional contributions from the Company have been requested or made.
<PAGE>29
At December 31, 1999, the Company's investment in Grupo TFM was approximately
$286.5 million. The Company's interest in Grupo TFM is approximately 37% (with
TMM and a TMM affiliate owning 38.4% and the Government owning the remaining
24.6%). The Company accounts for its investment in Grupo TFM under the equity
method.
See above for discussion of the Company's option to purchase a portion of the
Government's interest in TFM.
Gateway Western. The Company acquired beneficial ownership of the outstanding
stock of Gateway Western in December 1996. The stock acquired by the Company was
held in an independent voting trust until the Company received approval from the
STB on the acquisition effective May 5, 1997. The consideration paid for Gateway
Western (including various acquisition costs and liabilities) was approximately
$12.2 million, which exceeded the fair value of the underlying net assets by
approximately $12.1 million. The resulting intangible is being amortized over a
period of 40 years.
Because the Gateway Western stock was held in trust during first quarter 1997,
the Company accounted for Gateway Western under the equity method as a
wholly-owned unconsolidated subsidiary. Upon STB approval of the acquisition,
the Company consolidated Gateway Western in the Transportation segment.
Additionally, the Company restated first quarter 1997 to include Gateway Western
as a consolidated subsidiary as of January 1, 1997, and results of operations
for the year ended December 31, 1997 reflect this restatement.
Under a prior agreement with The Atchison, Topeka & Santa Fe Railway Company,
BNSF has the option to purchase the assets of Gateway Western (based on a fixed
formula in the agreement) through the year 2004.
Railroad Industry Trends and Competition. The Company's rail operations compete
against other railroads, many of which are much larger and have significantly
greater financial and other resources than KCSL. Since 1994, there has been
significant consolidation among major North American rail carriers, including
the merger of Burlington Northern, Inc. and Santa Fe Pacific Corporation
("BN/SF", collectively "BNSF"), the UP and the Chicago and North Western
Transportation Company ("UP/CNW") and the 1996 merger of UP with SP. Further, in
1997 CSX Corporation ("CSX") and Norfolk Southern completed negotiations to
purchase parts of Conrail, Inc. ("Conrail"), which was approved by the STB in
1998. In February 1998, CN announced its intention to acquire the IC, which
received STB approval effective in June 1999. Most recently, BNSF and CN
announced their intention to merge, subject to various regulatory approvals.
(Note: In March 2000, the STB issued a 15-month moratorium on railroad merger
activities, which has temporarily delayed the merger between BNSF and CN). As a
result of this consolidation, the industry is now dominated by a few
"mega-carriers". The Company believes that KCSR revenues were negatively
affected (primarily in 1996 and early 1997) by the UP/SP and BN/SF mergers as a
result of the increased competition, which led to diversions of rail traffic
away from KCSR lines. The Company also believes that KCSR revenues have been
negatively impacted by the congestion resulting from the Norfolk Southern and
CSX takeover of Conrail. KCSR management regards the larger western railroads,
in particular, as significant competitors to the Company's operations and
prospects because of their substantial resources. The ongoing impact to KCSR of
these mergers is uncertain. Management believes, however, that because of its
investments and strategic alliances, KCSL is positioned to attract additional
rail traffic through its "NAFTA Railway."
In addition to competition within the railroad industry, the Company's
Transportation segment is subject to competition from motor carriers, barge
lines and other maritime shipping, which compete with the Company across certain
routes in its operating area. Mississippi and Missouri
<PAGE>30
River barge traffic, among others, compete with KCSR in the transportation of
bulk commodities such as grains, steel and petroleum products. Additionally,
truck carriers have eroded the railroad industry's share of total transportation
revenues. Changing regulations, subsidized highway improvement programs and
favorable labor regulations have improved the competitive position of trucks in
the United States as an alternative mode of surface transportation for many
commodities. Low fuel prices disproportionately benefit trucking operations over
railroad companies, since locomotives are more fuel-efficient than trucks.
Conversely, trucking companies are more negatively affected in times of higher
fuel prices. Intermodal traffic and certain other traffic face highly price
sensitive competition, particularly from motor carriers. In the United States,
the truck industry frequently is more cost and transit-time competitive than
railroads, particularly for distances of less than 300 miles. However, rail
carriers, including KCSR, have placed an emphasis on competing in the intermodal
marketplace, working together to provide end-to-end transportation of products.
While deregulation of freight rates has enhanced the ability of railroads to
compete with each other and with alternative modes of transportation, this
increased competition has resulted in downward pressure on freight rates.
Competition with other railroads and other modes of transportation is generally
based on the rates charged, the quality and reliability of the service provided
and the quality of the carrier's equipment for certain commodities.
See "Union Labor Negotiations" below for a discussion of the impact of labor
issues and regulations on competition in the transportation industry.
Union Labor Negotiations. Approximately 83% of KCSR and 88% of Gateway Western
employees, respectively, are covered under various collective bargaining
agreements.
In 1996, national labor contracts governing the KCSR were negotiated with all
major railroad unions, including the United Transportation Union, the
Brotherhood of Locomotive Engineers, the Transportation Communications
International Union, the Brotherhood of Maintenance of Way Employees, and the
International Association of Machinists and Aerospace Workers. The provisions of
the various labor agreements, which extended to December 31, 1999, generally
include periodic general wage increases, lump-sum payments to workers, and
greater work rule flexibility, among other provisions. These agreements did not
have a material effect on the Company's consolidated results of operations,
financial position or cash flows. As a result of the operating efficiencies
gained by the existing agreements, management believes the Company is better
positioned to compete effectively with alternative forms of transportation.
Railroads continue, however, to be restricted by certain remaining restrictive
work rules and are thus prevented from achieving optimum productivity with
existing technology and systems. Formal negotiations have begun with all unions
on revising these agreements. Those agreements remain in effect until the new
agreements are reached. Management does not expect that this process or the
resulting labor agreements will have a material impact on its consolidated
results of operations, financial condition or cash flows.
Labor agreements related to former MidSouth employees covered by collective
bargaining agreements reopened for negotiations in 1996. These agreements entail
eighteen separate groups of employees and are not included in the national labor
contracts. KCSR management has reached new agreements with all but one of these
unions. While discussions with this one union are ongoing, the Company does not
anticipate that this process or the resulting labor agreement will have a
material impact on its consolidated results of operations, financial condition
or cash flows.
The majority of employees of the Gateway Western are covered by collective
bargaining agreements that extended through December 1999. Unions representing
machinists and electrical workers, however, are operating under 1994 contracts
and are currently in negotiations to extend these
<PAGE>31
contracts. Negotiations on the agreements that extend through December 1999
began in late 1999. The Company does not anticipate that this process or the
resulting labor agreements will have a material impact on its consolidated
results of operations, financial condition or cash flows.
KCSR, Gateway and other railroads continue to be affected by labor regulations,
which are more burdensome than those governing non-rail industries, such as
trucking competitors. The Railroad Retirement Act requires up to a 23.75%
contribution by railroad employers on eligible wages, while the Social Security
and Medicare Acts only require a 7.65% employer contribution on similar wage
bases. Other programs, such as The Federal Employees Liability Act (FELA), when
compared to worker's compensation laws, vividly illustrate the competitive
disadvantage placed upon the rail industry by federal labor regulations.
Safety and Quality Programs. KCSR is working hard to achieve its safety vision
of becoming the safest railway in North America. In 1999, KCSR made progress
toward this vision. The Federal Railroad Administration ("FRA") Reportable
Injury Performance improved by 10% and the number of Highway Rail Grade Crossing
Collisions decreased by 24%. While total derailments remained largely unchanged
from 1998, a series of strategic initiatives are underway to assist in enhancing
safety performance.
The driving force for these initiatives is strong leadership at the senior field
and corporate level within KCSR, and joint ownership of the safety processes by
craft employees and managers. This leadership and joint ownership in safety are
helping shape an improved safety culture at KCSR.
Some of the safety-related initiatives now underway at KCSR include:
o The development and communication of Division - Safety Action Plans that
direct human and financial resources to those areas crucial for success in
safety.
o Continued evolution of comprehensive training processes for craft and
management employees.
o The establishment of local safety committees inclusive of craft committee
representatives on the newly formed Senior Safety Leadership Council. This
council is chaired by KCSR's Chief Operations Officer and includes much of
the senior management team.
o Conducting system-wide safety assessments to review and enhance physical
plant, facilitate dialogue among KCSR personnel and involve management and
union leadership in enhancing the safety culture.
o Establishment of a series of recognition processes designed to reward
superior performance in safety and foster ownership of the safety
processes.
o Demonstrated commitment by KCSR as a Responsible Care(R) - Partner company
to meet and exceed the Chemical Manufacturer's Association's - Codes of
Management Practices.
o Development of a new Safety and Rules book through processes that involve
craft/management leaders writing and communicating the rules and
recommended work practices.
o Enhanced operational testing (behavior type auditing) of craft employees,
including coaching substandard performance and recognizing safe work
practices.
o Establishment of challenging goals and related funding to enhance highway
rail grade crossing safety.
<PAGE>32
INDUSTRY SEGMENT RESULTS
<TABLE>
The Company's revenues, operating income and net income by industry segment are
as follows (in millions):
1999(i) 1998(ii) 1997(iii)
----------- ----------- -----------
<S> <C> <C> <C>
Transportation $ 601.4 $ 613.5 $ 573.2
Financial Services 1,212.3 670.8 485.1
----------- ----------- -----------
Total $ 1,813.7 $ 1,284.3 $ 1,058.3
=========== =========== ===========
Operating Income (Loss)
Transportation $ 64.1 $ 113.9 $ (92.7)
Financial Services 518.3 280.6 199.2
----------- ----------- -----------
Total $ 582.4 $ 394.5 $ 106.5
=========== =========== ===========
Net Income (Loss)
Transportation $ 10.2 $ 38.0 $ (132.1)
Financial Services 313.1 152.2 118.0
----------- ----------- -----------
Total $ 323.3 $ 190.2 $ (14.1)
=========== =========== ===========
</TABLE>
(i) Includes unusual costs and expenses of $12.7 million ($7.9 million
after-tax) recorded by the Transportation segment, reflecting, among
others, amounts for facility and project closures, employee separations,
Separation related costs, labor and personal injury related issues.
(ii) Includes a one-time non-cash charge of $36.0 million ($23.2 million
after-tax) resulting from the merger of a wholly-owned subsidiary of DST
with USCS. DST accounted for the merger under the pooling of interests
method. The charge reflects the Company's reduced ownership of DST (from
41% to approximately 32%), together with the Company's proportionate share
of DST and USCS fourth quarter merger-related charges. See Note 3 to the
consolidated financial statements in this Form 10-K.
(iii)Includes $196.4 million ($158.1 million after-tax, comprised of $141.9
million -Transportation segment and $16.2 million - Financial Services
segment) of restructuring, asset impairment and other charges recorded
during fourth quarter 1997. The charges reflect impairment of goodwill
associated with KCSR's 1993 acquisition of the MidSouth and the Company's
investment in Berger, long-lived assets held for disposal, impaired
long-lived assets, reserves related to termination of a union productivity
fund and employee separations, and other reserves for leases, contracts and
reorganization costs. See Notes 2 and 4 to the consolidated financial
statements in this Form 10-K.
Consolidated 1999 net income increased $133.1 million, or 70%, to $323.3
million, reflecting higher net income from the Financial Services segment
resulting from an 86% increase in average assets under management year to year
and the impact of the 1998 DST and USCS merger charges. Partially offsetting
this increase was a decline in net income from the Transportation segment
arising from lower revenues and higher costs and expenses, including $7.9
million (after-tax) of certain unusual costs and expenses. Consolidated revenues
and operating income improved 41% and 48%, respectively, as a result of higher
assets under management and improved operating margins from the Financial
Services segment.
Consolidated net income for 1998 increased to $190.2 million from a consolidated
net loss of $14.1 million in 1997. Exclusive of the 1998 and 1997 one-time
charges discussed in ii) and iii) above, consolidated net income grew $69.4
million, or 48%, to $213.4 million from $144.0 million in 1997, reflecting net
income improvements in both the Transportation and Financial Services segments.
Consolidated revenues for the year ended December 31, 1998 were $226 million
(21%) higher than 1997 as a result of increases in both segments. Operating
income (exclusive of 1997 restructuring, asset impairment and other charges)
increased $91.6 million (30%) year to year, driven by higher revenues as well as
improved consolidated operating margins.
A discussion of each business segment's results of operations follows.
<PAGE>33
TRANSPORTATION (KCSL)
<TABLE>
The following summarizes the income statement components of the Transportation
segment and provides a reconciliation to ongoing domestic Transportation
earnings:
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 601.4 $ 613.5 $ 573.2
Costs and expenses 480.4 442.9 425.8
Depreciation and amortization 56.9 56.7 62.1
Restructuring, asset impairment
and other charges - - 178.0
---------- ---------- ----------
Operating income (loss) 64.1 113.9 (92.7)
Equity in net earnings (losses) of
unconsolidated affiliates 5.2 (2.9) (9.7)
Interest expense (57.4) (59.6) (53.3)
Other, net 5.3 13.7 5.0
---------- ---------- ----------
Pretax income (loss) 17.2 65.1 (150.7)
Income tax expense (benefit) 7.0 27.1 (18.6)
---------- ---------- ----------
Transportation net income (loss) 10.2 38.0 (132.1)
Restructuring, asset impairment and
other charges, net of income tax - - 141.9
Unusual costs and expenses,
net of income tax 7.9 - -
Grupo TFM earnings
and interest, net of income tax 10.9 14.3 17.6
---------- ---------- ----------
Ongoing domestic Transportation
earnings $ 29.0 $ 52.3 $ 27.4
========== ========== ==========
</TABLE>
For the year ended December 31, 1999, ongoing domestic Transportation earnings
decreased $23.3 million (44.6%) compared to the year ended December 31, 1998
primarily as a result of lower revenues, higher operating expenses and a decline
in other, net. Transportation revenues declined $12.1 million, or 2.0%, for the
year ended December 31, 1999 versus 1998. KCSR revenues decreased 1.1% primarily
due to declines in chemical and petroleum, paper and forest and agricultural and
mineral traffic, partially offset by increased intermodal and automotive
traffic. Other transportation businesses, including Gateway Western, also
reported lower revenues due to volume-related declines. Ongoing operating
expenses increased approximately 5% primarily due to higher congestion-related
costs at KCSR, while ongoing other, net decreased approximately $5.5 million
primarily due to 1998 gains at KCSR (see below).
Ongoing domestic Transportation segment earnings increased $24.9 million, or
90.9%, to $52.3 million for the year ended December 31, 1998. This increase
resulted from higher revenues, which grew $40.3 million, or 7.0% (primarily from
a 6.5% increase in revenues at KCSR) and lower operating costs as a percentage
of revenue. The Transportation segment's operating income, exclusive of 1997
restructuring, asset impairment and other charges, increased 33.5% to $113.9
million from $85.3 million in 1997. This increase was driven by improved
operating margins as a result of a slower rate of growth in operating expenses
compared to revenues. Exclusive of depreciation and amortization and 1997
restructuring, asset impairment and other charges, the Transportation segment's
operating costs as a percentage of revenues decreased by more than 2% as a
result of cost containment efforts. The termination of the union productivity
fund resulted in savings of approximately $4.8 million during 1998. Depreciation
and amortization expenses declined $5.1 million, or 8.3%, chiefly due to the
reduction of amortization and depreciation
<PAGE>34
expense of approximately $5.6 million arising from the impairment of goodwill
and certain branch lines held for sale recorded during December 1997, partially
offset by increased depreciation from property additions. See "Significant
Developments" above for further discussion.
Interest Expense and Other, net
1999 interest expense decreased $2.2 million, or 3.7%, to $57.4 million due to a
slight decrease in average debt balances resulting from net repayments. During
2000, interest expense for the Transportation segment is expected to increase
due to higher interest rates associated with the debt refinancing, partially
offset by a related decrease in average debt balances. See "Recent Developments
- - Re-capitalization of the Company's Debt Structure" above. Other, net declined
$8.4 million for the year ended December 31, 1999 relating primarily to a 1998
gain on the sale of property ($2.9 million) and a 1998 receipt of interest ($2.8
million) related to a tax refund.
Interest expense for the year ended December 31, 1998 increased $6.3 million, or
11.8%, to $59.6 million. This increase resulted from the inclusion of a full
year's interest associated with the debt related to the Company's investment in
Grupo TFM, partially offset by a decrease in average debt balances due to net
repayments and a slight decrease in interest rates relating to the lines of
credit. Additionally during 1997, interest of $7.4 million was capitalized as
part of the investment in Grupo TFM until operations commenced (June 23, 1997).
Other, net increased $8.7 million to $13.7 million for the year ended December
31, 1998. Included in this increase is a gain of $2.9 million (pretax) from the
sale of a branch line and $2.8 million of interest related to a tax refund in
1998. Other non-operating real estate sales comprised the majority of the
remaining increase.
Income Taxes
Income tax expense decreased $20.1 million for the year ended December 31, 1999
compared to the same 1998 period, primarily because of the decline in pretax
income of $47.9 million (73.6%). The effective tax rate for 1999 was 40.7%
compared to 41.6% in 1998.
Income taxes increased $45.7 million from a 1997 benefit of $18.6 million to a
$27.1 million expense for the year ended December 31, 1998. This fluctuation
resulted primarily because of the restructuring, asset impairment and other
charges in 1997. Exclusive of these charges, income tax expense from year to
year increased by $9.6 million, or 54.8%, primarily due to higher operating
income in 1998.
KCSL Subsidiaries
Following is a detailed discussion of the primary subsidiaries and
unconsolidated affiliates comprising the Transportation segment. Results of less
significant subsidiaries have been omitted.
The Kansas City Southern Railway Company
The following discussion reflects the Kansas City Southern Railway operating
company on a stand-alone basis. The discussion excludes consideration of any
KCSR subsidiaries.
For the year ended December 31, 1999, KCSR contributed $26.8 million to the
Company's consolidated net income compared with $53.0 million for the year ended
December 31, 1998. Exclusive of $12.1 million ($7.5 million after-tax) of
unusual costs and expenses recorded during fourth quarter 1999 (see further
discussion below), KCSR contributed $34.3 million to the Company's consolidated
net income. The decrease in KCSR's contribution to net income was due to lower
operating margins arising from a 1.1% decline in revenues coupled with an
increase in operating costs and expenses (exclusive of these unusual costs) of
$22.1 million.
<PAGE>35
For the year ended December 31, 1998, KCSR's contribution to the Company's
consolidated net income increased $25.6 million to $53.0 million, compared to
$27.4 million (exclusive of restructuring, asset impairment and other charges)
in 1997. This increase was primarily due to a $33.8 million increase in
revenues, partially offset by a $4.0 million increase in variable and fixed
operating costs.
Revenues
<TABLE>
The following summarizes revenues, carloads and net ton miles of KCSR by
commodity mix:
Carloads and
Revenues Intermodal Units Net Ton Miles
------------------------- ------------------------ -----------------------
(in millions) (in thousands) (in millions)
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General commodities:
Chemical and petroleum $ 128.0 $ 138.3 $ 133.1 157.2 165.4 162.9 4,199 4,528 4,187
Paper and forest 104.0 108.8 106.4 165.8 172.5 175.8 3,062 3,129 3,054
Agricultural and mineral 92.8 94.7 85.0 129.9 130.8 119.6 4,641 4,614 3,971
Other 25.6 20.2 20.5 30.8 25.4 24.4 767 677 623
-------- ------- ------- ------ ------ ------- ------- ------- ------
Total general commodities 350.4 362.0 345.0 483.7 494.1 482.7 12,669 12,948 11,835
Intermodal 51.4 46.3 43.2 221.8 182.6 161.6 1,536 1,340 1,278
Coal 117.4 117.6 102.6 200.8 204.4 177.1 7,891 7,477 6,210
-------- ------- ------- ------ ------ ----- ------- ------- ------
Subtotal 519.2 525.9 490.8 906.3 881.1 821.4 22,096 21,765 19,323
Other 26.5 25.7 27.0 - - - - - -
-------- ------- ------- ------ ------ ------- ------- ------- ------
Total $ 545.7 $ 551.6 $ 517.8 906.3 881.1 821.4 22,096 21,765 19,323
======== ======= ======= ====== ====== ======= ======= ======= ======
</TABLE>
1999 KCSR revenues decreased $5.9 million compared to 1998, resulting primarily
from a decline in chemical and petroleum, paper and forest and agricultural and
mineral traffic, partially offset by an increase in intermodal and automotive
traffic. General commodity carloads decreased 2.1%, resulting in an $11.6
million decline in general commodity revenues, while intermodal units shipped
increased 21.5% leading to a $5.1 million increase in related revenues.
KCSR revenues for 1998 were $551.6 million, a $33.8 million increase over 1997
as a result of higher revenues in all major commodity groups. 1998 coal revenues
increased $15.0 million, or 14.7%, compared to 1997 while intermodal revenues
were 7.3% higher. General commodities, led by an increase of 11.4% in
agricultural and mineral products revenues, improved $17.0 million, or nearly
5%. A portion of the increased revenues relate to traffic with Mexico, which
increased approximately 118% during 1998, resulting in an additional $10 million
of revenue. Also, increased carloads resulting from the CN/IC alliance
contributed to the higher revenues.
The following is a discussion of KCSR's major commodity groups.
Coal
KCSR transports significant amounts of high btu, low-sulfur coal which it
receives from the Powder River Basin in Wyoming via other rail carriers with
connecting rail lines in Kansas City. Coal is the largest single commodity
handled by KCSR and has historically been one of KCSR's most stable commodity
groups with recurring contractual revenues. The average length of contract for
KCSR coal customers is five years - the contract with Southwestern Electric
Power Company ("SWEPCO"), its largest customer, extends through 2006. KCSR
delivers coal to eight electric generating plants, including Kansas City Power
and Light ("KCP&L") plants in Kansas City and Amsterdam, Missouri, SWEPCO
facilities in Flint Creek, Arkansas and Welsh, Texas, an Empire District
Electric Company plant near Pittsburg, Kansas and an Entergy Gulf States plant
in Mossville, Louisiana. KCSR also transports coal as an intermediate carrier
for Western Farmers Electric Cooperative plant from Kansas City to Dequeen,
Arkansas, where it interchanges with a short-line carrier for delivery to
<PAGE>36
the plant. KCSR also delivers lignite to an electric generating plant at
Monticello, Texas ("TUMCO"). In fourth quarter 1999, KCSR began serving as a
bridge carrier for coal deliveries to a Texas Utilities electric generating
plant in Martin Lake, Texas. SWEPCO and Entergy Gulf States (formerly Gulf
States Utility Company) comprised approximately 80%, 81% and 82% of total coal
revenues generated by KCSR in 1999, 1998 and 1997, respectively.
During January 1999, the Kansas City Power and Light plant in Kansas City
(referred to as the Hawthorn plant) suffered a major casualty and is projected
to be out of service until July 2001. This extended outage is not expected to
have a material impact on overall coal revenues as this plant is a short haul
move and represented approximately 5% of total coal tons hauled by KCSR in 1998.
Further, some of the volume lost as a result of the temporary closure of
Hawthorn is being shipped to KCP&L's other plant in Amsterdam, Missouri - a
longer haul. Although, the volume of coal diverted to the Amsterdam plant is
less than that originally received at Hawthorn, the longer haul helps to offset
the lost revenue. This did not have a material impact on coal revenues during
1999.
During the first nine months of 1999, KCSR experienced a decline in coal
revenues primarily because of i) a decrease in demand compared with 1998 - a
year in which KCSR reported record coal revenues, and ii) slower delivery times
due to congestion arising from track maintenance work on the north-south
corridor. During the fourth quarter, however, coal revenues improved, mostly
offsetting these declines and resulting in year to date 1999 coal revenues only
slightly lower than the 1998 record levels. The improvement noted during the
fourth quarter resulted from increased demand, as well as from faster delivery
times arising from the completion of the track maintenance work in September
1999, which led to an easing of congestion and increased capacity. Coal
accounted for 22.6% of carload revenues during 1999 compared with 22.4% for
1998.
Coal movements generated $117.6 million of revenue during 1998, a 14.7% increase
over 1997. This 1998 increase resulted from higher unit coal traffic (increase
in carloads of nearly 16%) arising from several factors. 1) In 1998,
unseasonably warm weather resulted in a higher demand for electric power in
certain regions served by the KCSR and several utility customers requested more
coal to handle this increased demand. Additionally, in order to replenish
inventory levels depleted from this excess demand, several locations increased
their coal shipments. 2) During 1997, unit coal revenues were negatively
affected by unplanned outages (primarily during first and second quarters) at
several utilities served by KCSR, and first quarter weather problems which
affected carriers and the mines originating the coal. During 1998, the level of
unplanned outages declined and, thus, more unit coal trains were delivered to
customers. Additionally, although KCSR experienced certain weather-related
slow-downs due to flooding during fourth quarter 1998, it did not significantly
impact coal revenues. 3) 1998 results reflected a full year of revenues for a
utility customer not served by KCSR until after the first quarter of 1997. Coal
accounted for 22.4% of carload revenues during 1998 compared with 20.9% for
1997.
Chemicals and Petroleum
Chemical and petroleum products, which are serviced via tank and hopper cars
primarily to markets in the southeast and northeast United States through
interchange with other rail carriers, as a combined group represent the largest
commodity to KCSR in terms of revenue. Although 1999 was a disappointing year
for KCSR's chemical and petroleum business, management expects revenues in this
commodity group to grow in future years because of i) access to additional
chemical customers in Geismar, Louisiana, and ii) expanded access to chemical
shipments between the United States and Mexico through Tex Mex and TFM. The
Geismar industrial area is one of the largest concentrations of chemical
suppliers in the world. As a result of its marketing agreement with CN/IC, in
October 2000 KCSR is expected to gain access to the manufacturing facilities of
BASF, Shell and Borden in Geismar. Further, as a restriction imposed on the
merger of CN and IC, the STB granted KCSR access to three additional shippers
(Rubicon, Uniroyal and Vulcan) in Geismar effective October 2000. These six
chemical shippers in Geismar provide an opportunity
<PAGE>37
for KCSR to expand its rail service market share in this significant industrial
corridor. The Company also believes that by providing efficient, reliable rail
service for shipments between the United States and Mexico through Tex Mex and
TFM, there is an opportunity to convert to rail chemical and petroleum products
currently transported to and from Mexico by truck.
During 1999, chemical and petroleum revenues declined $10.3 million, or 7.4%,
compared with 1998, primarily as a result of significant declines in
miscellaneous chemical and soda ash revenues. Miscellaneous chemical revenues
declined $3.9 million due, in part, to the expiration in late 1998 of the
emergency service order in the Houston area related to the UP/SP merger
congestion, as well as a continuing decline in demand because of domestic and
international chemical market conditions and competitive pricing pressures. Soda
ash revenues fell 36.9% year to year because of a decrease in export shipments
due to a competitive disadvantage to another carrier. Management does not expect
soda ash revenues to return to past levels in the near future because of this
competitive disadvantage. Also contributing to the decline were lower plastic
and petroleum revenues, which were also impacted by competitive market pricing
and lower demand. Chemical and petroleum products accounted for 24.7% of total
1999 carload revenues compared with 26.3% for 1998.
Chemical and petroleum revenues increased $5.2 million to $138.3 million in 1998
compared to 1997. Increases in miscellaneous chemicals and soda ash carloads,
coupled with higher revenues per carload for plastic and petroleum products,
were offset by lower carloads for plastics, petroleum products and petroleum
coke. The higher revenues per carload for plastics and petroleum products
resulted from a combination of rate increases and length of hauls, while the
increased miscellaneous chemical and soda ash carloads arose from the strength
of these markets in 1998. Shipments of plastic products decreased as a result of
a reduced emphasis on low margin business, while petroleum and petroleum coke
carload declines were a result of economic turmoil overseas (primarily Asia)
affecting the export market. Chemical and petroleum products accounted for 26.3%
of total 1998 carload revenues compared with 27.1% for 1997.
Paper and Forest
KCSR's rail lines run through the heart of the southeastern U.S.
timber-producing region. Management believes that forest products from this
region tend to grow faster and are generally less expensive than forest products
from other regions. Southern yellow pine products from the southeast are
increasingly being used at the expense of western producers who have experienced
capacity reductions because of public policy considerations. KCSR serves eleven
paper mills directly (including International Paper Co. and Georgia Pacific,
Riverwood International, among others) and six others indirectly through
short-line connections. Primary traffic includes pulp and paper, lumber, panel
products (plywood and oriented strand board), engineered wood products,
pulpwood, woodchips and raw fiber used in the production of paper, pulp and
paperboard.
For the year ended December 31, 1999, paper and forest product revenues
decreased $4.8 million (4.4%) compared with 1998. An overall weakness in the
paper, lumber and related chemical markets led to volume declines in pulp/paper,
scrap paper, and pulpwood, logs and chips. Management believes, however, that
the weakness in these markets is subsiding and expects that demand will increase
in 2000. Further, management believes there is potential for an increase in
business to Mexico due to the high demand for woodpulp and scrap paper, and a
potential market for lumber and panel products as frame and panel construction
methods become more widely accepted in Mexico. Paper and forest traffic
comprised 20.0% of carload revenues during 1999 compared to 20.7% in 1998.
Paper and forest product revenues increased $2.4 million to $108.8 million for
1998, primarily as a result of increased carloads and revenues per carload for
pulp, paper and lumber products, offset by a reduction in pulpwood chip
shipments. Improved lumber shipments in 1998 resulted from the strong home
building and remodeling market, while pulp/paper increases were primarily a
<PAGE>38
result of paper mill expansions for several customers served by KCSR. Although
paper and forest revenues increased for 1998, fourth quarter carloads and
revenues decreased compared with fourth quarter of 1997. Paper and forest
traffic comprised 20.7% of carload revenues during 1998 compared to 21.7% in
1997.
Agricultural and Mineral
Agricultural products consist of domestic and export grain, food and related
products. Shipper demand for agricultural products is affected by competition
among sources of grain and grain products as well as price fluctuations in
international markets for key commodities. In its domestic grain business, KCSR
both receives and originates shipments of grain and grain products for delivery
to feed mills serving the poultry industry. Through the Company's marketing
agreement with I&M Rail Link, KCSR is able to access sources of grain and corn
in Iowa and other Midwestern states. KCSR currently serves 35 feed mills along
its rail lines throughout Arkansas, Oklahoma, Texas, Louisiana, Mississippi and
Alabama. Export grain shipments include primarily wheat, soybean and corn
transported over KCSR rail lines to the Gulf of Mexico for international
destinations, and to Mexico via Laredo, Texas. Over the long-term, KCSR expects
to continue to participate in the supply of carloads of grain to Mexico through
its strategic investments in Tex Mex and TFM because of Mexico's reliance on
grain imports to meet its minimum needs. Food and related products consist
mainly of soybean meal, grain meal, oils and canned goods, sugar and beer.
Mineral shipments consist primarily of ores, clay and cement.
Agricultural and mineral product revenues for 1999 decreased $1.9 million, or
2.0%, compared to 1998. Revenue declines in export grain, food and related
products, non-metallic ores and stone, clay and glass products were partially
offset by an increase in domestic grain revenues. Declines in export grain
resulted primarily from competitive pricing and changes in length of haul.
Declines in food products, non-metallic ores and stone, clay and glass products
were primarily attributable to demand-related volume declines, and changes in
traffic mix and length of haul. Improvements in domestic grain revenues were
driven by higher corn shipments to meet the demands of the feed mills located on
KCSR's rail lines; however, during fourth quarter 1999, domestic grain revenues
declined approximately $1 million because of a loss of market share due to a
rail line build-in by the UP to a feed mill serviced by KCSR. Management expects
a future decline in domestic grain revenues due to this competitive situation.
Agricultural and mineral products accounted for 17.9% of carload revenues in
1999 compared with 18.0% in 1998.
Agricultural and mineral product revenues for the year ended December 31, 1998
were $94.7 million, an increase of $9.7 million, or 11.4%, compared to 1997.
Increased carloads for most agricultural and mineral products, including
domestic and export grain, food, nonmetallic ores, cement, glass and stone
contributed to the increase. Higher revenues per carload, most notably in export
grain and food products, were partially offset by a reduction in revenues per
carload from domestic grain movements. Changes in revenues per carload were
primarily due to mix of traffic and changes in the length of haul. A portion of
the volume increase was attributable to increased traffic flow with Mexico.
Agricultural and mineral products comprised 18.0% of carload revenues in 1998
compared with 17.3% in 1997.
Intermodal
The intermodal freight business consists of hauling freight containers or truck
trailers by a combination of water, rail and motor carriers, with rail carriers
serving as the link between the other modes of transportation. KCSR increased
its share of the U.S. intermodal traffic through the 1993 acquisition of the
MidSouth, which extended the Company's east/west line running from Meridian
Mississippi to Shreveport, Louisiana and on to Dallas, Texas. Through its
dedicated intermodal train service between Meridian and Dallas, the Company
competes directly with truck carriers along the Interstate 20 corridor, offering
service times that are competitive with both truck and other rail carriers.
<PAGE>39
The intermodal business is highly price and service driven as the trucking
industry maintains certain competitive advantages over the rail industry. Trucks
are not obligated to provide or to maintain rights of way and do not have to pay
real estate taxes on their routes. In prior years, the trucking industry
diverted a substantial amount of freight from the railroads as truck operators'
efficiency over long distances increased. Because fuel costs constitute a larger
percentage of the trucking industry's costs, declining fuel prices
disproportionately benefit trucking operations as compared to railroad
operations, while rising fuel prices unfavorably affect trucking operations.
Changing regulations, subsidized highway improvement programs and favorable
labor regulations improved the competitive position of trucks as an alternative
mode of surface transportation for many commodities. In response to these
competitive pressures, railroad industry management sought avenues for improving
the competitiveness of rail traffic and forged numerous alliances with truck
companies in order to move more traffic by rail and provide faster, safer and
more efficient service to its customers. KCSR has entered into agreements with
several trucking companies for train service between Dallas and Meridian and has
streamlined its intermodal operations, making service competitive both in price
and service with trucking.
KCSR's intermodal business has grown significantly over the last several years
with intermodal units increasing from 61,748 in 1993 to 221,816 in 1999, and
intermodal revenues increasing from $17 million to $51 million during this same
period. As intermodal revenues increased so rapidly, margins on certain
intermodal business declined. In 1999, management addressed the declining
margins by increasing certain intermodal rates effective September 1, 1999 and
through the closure of two under-performing intermodal facilities on the
north-south route. Management expects these actions to improve the profitability
and operating efficiency of the intermodal business sector.
Through its strategic marketing alliance with the CN/IC and through various
marketing agreements with the Norfolk Southern, management expects to further
capitalize on the growth potential of intermodal freight revenues, particularly
for traffic moving between points in the upper Midwest and Canada to Kansas
City, Dallas and Mexico. Additionally, management anticipates that with the
carve-up of Conrail, Norfolk Southern and CSX Transportation will seek longer
hauls to their southern gateways. KCSR's interchange points at Birmingham and
Mobile, Alabama, as well as Meridian, Mississippi, will therefore provide the
opportunity for additional revenue growth as these eastern shippers seek
alternatives to traditional congested gateways. Furthermore, KCSR is in the
process of transforming the former Richards-Gebaur Airbase in Kansas City to a
U.S. customs pre-clearance processing facility, which is expected to handle and
process large volumes of domestic and international intermodal freight. Upon
completion, this facility is expected to provide additional opportunities for
intermodal revenue growth (See "Significant Developments").
Intermodal revenues for 1999 increased $5.1 million, or 11.0%, compared to 1998
revenues primarily due to an increase in intermodal units shipped of
approximately 21.5% year over year, partially offset by a decrease in revenue
per unit shipped. All of the 1999 revenue growth is attributable to container
shipments, which have a lower rate per unit shipped than trailers. As a result
revenues per intermodal unit shipped have declined. Container movements,
however, have more favorable profit margins due to their lower inherent cost
structure compared to trailers. Approximately $2.5 million of the intermodal
growth was related to CN/IC alliance traffic. Intermodal revenues accounted for
9.9% of carload revenues in 1999 compared with 8.8% in 1998.
During 1998, intermodal revenues increased $3.1 million, or 7.3%, over 1997
primarily as a result of higher unit shipments of approximately 13% year over
year, offset partially by a decrease in revenue per unit. Almost all of the 13%
volume growth related to containers. As discussed above, container shipments
have a lower rate per unit shipped than trailers and, as a result revenues per
unit shipped declined. Intermodal revenues accounted for 8.8% of carload
revenues in both 1998 and 1997.
<PAGE>40
Other
KCSR's remaining freight business consists of automotive products, metal, scrap
and slab steel, waste and military equipment. During 1999, automotive product
revenues of $5.9 million were nearly three times 1998 automotive product
revenues of $1.8 million. This increase was, in part, due to an agreement
reached with General Motors Corporation for automobile parts traffic originating
in the upper Midwest and terminating in Mexico. Management expects that i) as
the CN/IC strategic marketing alliance continues to mature and ii) following
completion of the facility at the former Richards-Gebaur Airbase, automotive
product revenues will continue to increase during the foreseeable future. Other
revenues accounted for 4.9% of carload revenues during 1999 compared to 3.8% and
4.2% for 1998 and 1997, respectively. During the year ended December 31, 1997,
KCSR accepted a minimal amount of diverted UP trains as a result of UP traffic
congestion, resulting in approximately $3.9 million in miscellaneous revenue.
Costs and Expenses
<TABLE>
The following table summarizes KCSR's operating expenses (dollars in millions):
1999 1998 1997
--------- -------- ------
<S> <C> <C> <C>
Salaries, wages and benefits $ 181.6 $ 168.9 $ 173.6
Fuel 32.6 31.9 34.7
Material and supplies 33.1 33.9 30.9
Car hire 19.8 9.8 3.6
Purchased services 47.0 38.1 35.5
Casualties and insurance 26.7 27.0 21.4
Operating leases 50.8 56.5 56.8
Depreciation and amortization 50.2 50.6 54.7
Restructuring, asset impairment and other charges - - 163.8
Other 34.1 25.0 26.5
--------- -------- --------
Total $ 475.9 $ 441.7 $ 601.5
========= ======== ========
</TABLE>
General
For the year ended December 31, 1999, KCSR's costs and expenses increased $34.2
million (7.7%) versus comparable 1998, primarily as a result of increases in
salaries, wages and related fringe benefits, fuel costs, car hire, and purchased
services, partially offset by a decrease in operating leases. $12.1million of
the increase was comprised of unusual costs and expenses recorded during fourth
quarter 1999 relating to employee separations, labor and personal injury related
costs, write-off of costs associated with the Geismar project and costs
associated with the closure of an intermodal facility. The remainder of the
increase resulted primarily from system congestion and capacity issues arising
from track maintenance on the north-south corridor, which began in second
quarter 1999 and was completed at the end of the third quarter 1999. Also
contributing to capacity and congestion problems was the implementation of a new
dispatching system, turnover in certain experienced operations management
positions, unreliable and insufficient locomotive power, congestion arising from
eastern rail carriers, and several significant derailments.
For the year ended December 31, 1998, KCSR's costs and expenses increased $4.0
million over comparable 1997 (exclusive of 1997 restructuring, asset impairment
and other charges). Increases reported in materials and supplies, car hire,
purchased services, and casualties and insurance, were largely offset by
decreased salaries, wages and benefits, fuel costs and depreciation and
amortization. Salaries, wages and benefits and depreciation and amortization
expenses declined as expected primarily as a result of the 1997 restructuring,
asset impairment and other charges as discussed in the "Significant
Developments" above. Fuel costs decreased due to lower fuel prices partially
offset by higher usage. 1998 KCSR variable operating expenses declined 1.5% as a
<PAGE>41
percentage of revenues, exclusive of the 1997 restructuring, asset impairment
and other charges. These improvements related to the increase in revenues and
management's cost control initiatives.
Salaries, Wages and Benefits
Salaries, wages and benefits expense for the year ended December 31, 1999
increased $12.7 million versus comparable 1998, an increase of 7.5%. $3.0
million of the increase results from certain unusual costs and expenses
including employee separations and union labor-related issues. The remaining
increase was primarily attributable to the congestion and capacity issues, which
resulted in the need for additional crews as well as overtime hours.
For the year ended December 31, 1998, salaries, wages and benefits expense
decreased $4.7 million compared to 1997, mostly because of the termination of a
union productivity fund in December 1997, resulting in the elimination of pay
relating to reduced crews.
Fuel
For the year ended December 31, 1999, fuel expense increased approximately 2.2%
compared to 1998, as a result of a 1% increase in fuel usage coupled with a 1%
increase in the average fuel price per gallon. In 1999, fuel costs represented
approximately 6.9% of total operating expenses compared to 7.2% in 1998. Fuel
expenses in early 2000 are expected to continue to increase based on higher
market prices for fuel and comparable usage levels. Management believes,
however, that fuel efficiency will improve in 2000 as a result of the purchase
of the 50 new locomotives by KCSR in late 1999 as discussed in "Recent
Developments".
KCSR locomotive fuel usage represented 7.2% of KCSR operating expenses in 1998
(7.9% in 1997, exclusive of restructuring, asset impairment and other charges).
1998 fuel costs declined $2.8 million, or 8.1%, arising from a 15% decrease in
average fuel cost per gallon (primarily due to market driven factors) partially
offset by an increase in fuel usage of 9%.
Fuel costs are affected by traffic levels, efficiency of operations and
equipment, and petroleum market conditions. Controlling fuel expenses is a
concern of management, and expense savings remains a top priority. To that end,
from time to time KCSR enters into forward diesel fuel purchase commitments and
hedge transactions (fuel swaps and caps) as a means of securing volumes and
prices. See "Financial Instruments and Purchase Commitments" for further
information.
Roadway Maintenance
Portions of roadway maintenance costs are capitalized and other portions
expensed (as components of material and supplies, purchased services and other),
as appropriate. Expenses aggregated $42, $40 and $47 million for 1999, 1998 and
1997, respectively. Maintenance and capital improvement programs are in
conformity with the FRA's track standards and are accounted for in accordance
with applicable regulatory accounting rules. Management expects to continue to
fund roadway maintenance expenditures with internally generated cash flows.
Purchased Services
For the year ended December 31, 1999, purchased services expense increased $8.9
million, or 23.4%, compared to the year ended December 31, 1998, primarily as a
result of short term locomotive needs (rents, maintenance) arising from the
congestion and capacity problems discussed above. As a result of KCSR's purchase
of 50 new locomotives discussed in "Recent Developments", these short-term
locomotive needs are expected to subside in 2000.
Purchased Services expenses were approximately $2.6 million higher in 1998
compared to 1997, primarily due to short-term locomotive requirements.
<PAGE>42
Car Hire
For the year ended December 31, 1999, expenses for car hire payable, net of
receivables, increased $10.0 million over 1998. A portion of the increase in car
hire expense was attributable to congestion-related issues, resulting in higher
payables to other railroads because more foreign cars were on KCSR's system for
a longer period. This congestion also affected car hire receivable as fewer KCSR
cars and trailers were being utilized by other railroads. The remaining increase
in car hire expense results from a change in equipment utilization. Similar to
1998, for certain equipment, KCSR has continued its transition to utilization
leases from fixed leases. Costs for utilization leases are recorded as car hire
expense, whereas fixed lease costs are recorded as operating lease expense.
Additionally, as certain fixed leases expire, KCSR is electing to use more
foreign cars rather than renew the lease. A portion of the increase in car hire
costs was offset by a decrease in related operating lease expenses as a result
of these changes in equipment utilization.
Expenses for car hire payable, net of receivables increased $6.2 million for the
year ended December 31, 1998 compared to 1997. This increase in net expense
resulted from a change in equipment utilization as discussed above (i.e. switch
from fixed leases to utilization leases; use of more foreign cars versus renewal
of lease), increased carloads, track congestion (primarily weather-related in
third and fourth quarter) and decreased amounts of car hire receivable,
primarily due to the easing of the UP congestion prevalent in 1997.
Casualties and Insurance
For the year ended December 31, 1999, casualties and insurance expense declined
slightly (approximately $0.3 million) compared with the year ended December 31,
1998. This decline reflects lower personal injury-related costs, substantially
offset by increased equipment damage costs resulting from derailments. A primary
objective of KCSR is to operate in the safest environment possible and efforts
are ongoing to improve its safety experience. See "Significant Developments -
Safety and Quality Programs".
1998 casualties and insurance expense increased $5.6 million, or 26.2%, over
1997, primarily as a result of a $3.7 million increase in derailment related
costs experienced during the latter half of 1998, as well as an increase in
personal injury related expenses.
Operating Leases
For the year ended December 31, 1999, operating lease expense decreased $5.7
million, or 10.1% compared to the year ended December 31, 1998, as a result of a
change in equipment utilization as discussed above regarding car hire expense.
In 2000, however, operating lease expense is expected to increase approximately
$7 million as a result of the 50 new GE 4400 AC locomotives leased during fourth
quarter 1999.
Operating lease costs did not materially change in 1998 compared to 1997.
Depreciation and amortization
1999 depreciation and amortization expense declined slightly compared to 1998.
This slight decline results from the retirement of certain operating equipment.
As these assets fully depreciate and are retired, they are being replaced, as
necessary, with equipment under operating leases. This decline was partially
offset by increased depreciation from property additions. Management expects
depreciation and amortization costs to increase in the second half of 2000 as a
result of the implementation of new operating information systems, which will
affect virtually all areas of the organization.
For the year ended December 31, 1998, KCSR depreciation and amortization expense
declined $4.1 million, or 7.5%, to $50.6 million. This decline resulted
primarily from the reduction of amortization and depreciation expense of
approximately $5.6 million associated with the impairment of goodwill, as well
as certain branch lines held for sale, recorded during December
<PAGE>43
1997, the effect of which was not realized until 1998. See discussion above in
"Significant Developments." This decline was partially offset by increased
depreciation from property additions.
Operating Income and Operating Ratio
KCSR's operating income for the year ended December 31, 1999 decreased $40.1
million (36.5%) to $69.8 million. This decline in operating income resulted from
a 1.1% decline in revenues coupled with a 7.7% increase in operating expenses.
Exclusive of $12.1 million of unusual operating costs and expenses, the
operating income declined $28.0 million, resulting in an operating ratio (a
common efficiency measurement among Class I railroads) of 84.8% for the year
ended December 31, 1999 compared to 79.9% for 1998. Although the operating ratio
for 1999 was disappointing, management expects, on a long-term basis, to
maintain the operating ratio below 80%, despite the substantial use of lease
financing for locomotives and rolling stock.
Exclusive of 1997 restructuring, asset impairment and other charges, KCSR's
operating income increased $28.6 million, or 33.5%, to $113.9 million in 1998
from $85.3 million in 1997. This improved operating income, which was driven by
increased revenues and the containment of operating expenses, resulted in a 1998
operating ratio of 79.9% compared with 83.4% in 1997 (exclusive of
restructuring, asset impairment and other charges).
KCSR Interest Expense and Other, net
For the year ended December 31, 1999, interest expense decreased $2.5 million,
or 7.0%, to $33.1 million from $35.6 million in 1998, reflecting a reduction of
the average debt balances as a result of debt repayments. Management expects
KCSR interest expense to increase substantially in 2000 based on the refinancing
of the Company's debt structure in January 2000. KCSR is the borrower under the
$750 million senior secured credit facility and will maintain all related debt
outstanding on its balance sheet. This increased debt balance coupled with
higher interest rates on the new facility will lead to higher interest expense
in 2000. See "Recent Developments", "Liquidity" and "Capital Structure" for
further discussion.
For the year ended December 31, 1998, interest expense decreased 6%, to $35.6
million from $37.9 million in 1997. This decrease primarily reflects the
reduction in average debt balances during the year as a result of debt
repayments.
Other, net declined $7.1 million for the year ended December 31, 1999 relating
primarily to a 1998 gain on the sale of property ($2.9 million) and a 1998
receipt of interest ($2.8 million) related to a tax refund. Other, net increased
$6.2 million for the year ended December 31, 1998 versus 1997, primarily because
of these 1998 items. Other non-operating real estate sales comprised the
majority of the remaining 1998 increase.
Gateway Western
Gateway Western contributed $0.3 million (including goodwill amortization
attributed to the investment) to the Company's 1999 net income, a $3.8 million
decrease compared to 1998. Freight revenues declined 10% to $40.7 million in
1999 from $45.2 million in 1998, attributable to lower revenue for all major
commodity groups. Decreases in revenue resulted from volume-related declines,
changes in traffic mix and competitive pricing pressures. Operating expenses
increased $1.4 million (3.8%) to $37.5 million, largely due to a derailment.
Lower revenues coupled with higher expenses led to an increase in Gateway's 1999
operating ratio to 92.1% from 79.9% in 1998.
For the year ended December 31, 1998, Gateway Western contributed $4.1 million
to the Company's net income, a $1.1 million increase (36.7%) over the $3.0
million contributed in 1997.
<PAGE>44
Freight revenues increased $2.5 million to $45.2 million from $42.7 million in
1997, while operating expenses increased about $0.9 million to $36.1 million.
These results helped lower Gateway Western's operating ratio to 79.9% for 1998
from 82.4% in 1997.
Unconsolidated Affiliates
During 1999, 1998 and 1997, the Transportation segment's unconsolidated
affiliates were comprised primarily of Grupo TFM, Mexrail and Southern Capital.
The PCRC is currently under reconstruction and projected to begin operations in
2001.
For the year ended December 31, 1999, the Transportation segment recorded equity
in net earnings of $5.2 million from unconsolidated affiliates versus equity in
net losses of $2.9 million in 1998, an increase of $8.1 million. This increase
relates primarily to improvements in equity earnings of Grupo TFM and Mexrail.
Also contributing was an increase in 1999 equity earnings from Southern Capital
related mostly to the gain on the sale of the loan portfolio in 1999.
In 1999, Grupo TFM contributed equity earnings of $1.5 million to the Company's
net income compared to equity losses of $3.2 million in 1998. Exclusive of
deferred income tax effects, Grupo TFM's contribution to the Company's net
income (including the impact of associated KCSI interest expense) increased
$19.4 million, indicative of substantially improved operations and continued
growth. This increase was partially offset by a $16 million increase in the
Company's proportionate share of Grupo TFM's deferred tax expense in 1999 versus
1998. Higher Grupo TFM earnings resulted from a 22% increase in revenues and 97%
increase in operating income partially offset by an increase in deferred tax
expense. Results of Grupo TFM are reported using U.S. generally accepted
accounting principles ("U.S. GAAP"). Because the Company is required to report
equity in Grupo TFM under U.S. GAAP and Grupo TFM reports under International
Accounting Standards, fluctuations in deferred income tax calculations occur
based on translation requirements and differences in accounting standards. The
deferred income tax calculations are significantly impacted by fluctuations in
the relative value of the Mexican peso versus the U.S. dollar and the rate of
Mexican inflation, and can result in significant variances in the amount of
equity earnings (losses) reported by the Company.
In 1999, Mexrail contributed equity earnings of $0.7 million compared to equity
losses of $2.0 million in 1998, an improvement of $2.7 million. Mexrail revenues
increased 3.2% while operating expenses declined approximately 6%. The decrease
in operating expenses resulted primarily from a reorganization of certain
business practices whereby the operations were assumed by TFM. This change in
the operations of Mexrail resulted in certain efficiencies and a reduction in
related costs.
For the year ended December 31, 1998, the Transportation segment recorded equity
in net losses of $2.9 million from unconsolidated affiliates compared to equity
in net losses of $9.7 million in 1997. The majority of this improvement related
to the operations of Grupo TFM. In 1998, equity in net losses for the Company's
investment in Grupo TFM were $3.2 million compared to equity in net losses of
$12.9 million in 1997 (for the period from June 23, 1997 to December 31, 1997).
This improvement was primarily attributable to higher revenues and operating
income at Grupo TFM, coupled with a higher tax benefit associated with the
devaluation of the peso (on a U.S. GAAP accounting basis) and one-time impact of
the write-off of a $10 million bridge loan fee in 1997. Equity in net losses
from Mexrail was $2.0 million in 1998 compared with equity in net earnings of
$0.9 million in 1997. Tex Mex revenues increased during the first three quarters
of 1998 as a result of an emergency service order imposed by the Surface
Transportation Board ("STB") in the Houston, Texas area relating to 1997and 1998
UP service issues; however, expenses associated with accommodating the increase
in traffic and congestion-related problems of the UP system offset this revenue
growth. In 1998, equity in net earnings from Southern Capital was $2.0 million
compared with $2.1 million in 1997.
<PAGE>45
Grupo TFM
Similar to KCSR, Grupo TFM's subsidiary, TFM, derives its freight revenues from
a wide variety of commodity movements, including chemical and petroleum,
automotive, food and grain, manufacturing industry, metals, minerals and ores
and intermodal. For the year ended December 31, 1999, Grupo TFM revenues
improved $93.2 million to $524.5 million from $431.3 million in 1998. Reflecting
this growth in revenues, operating expenses increased approximately $32.8
million during 1999; however, the operating ratio declined 8.9 percentage points
to 76.6% from 85.5%, displaying Grupo TFM management's continued emphasis on
operating efficiency and cost control. Volume-related increases in car hire
expense and operating leases were partially offset by an 8% decline in salaries
and wages. Grupo TFM management believes that operating efficiencies will
continue to improve and that expenses will continue to decline as a percentage
of revenues in 2000. Grupo TFM ultimately expects an operating ratio under 70%
through a combination of increasing revenues and cost containment.
For the year ended December 31, 1998, revenues improved to $431.3 million from
$206.4 million for the initial period of operations (June 23, 1997 - December
31, 1997) with average monthly revenues increasing approximately 8%. In
addition, during 1998 Grupo TFM management was able to successfully implement
cost reduction strategies while continuing to increase revenues, thus improving
operating income. Most notably, salaries and wages declined due to headcount
reductions while locomotive fuel expense decreased due to favorable fuel prices.
Evidence of these improvements was reflected in TFM's 1998 operating ratio,
which improved to 85.5% from approximately 94% for 1997.
Other Transportation-Related Affiliates and Holding Company Components
Other subsidiaries in the Transportation segment include:
o KCSL, a wholly-owned subsidiary of the Company, serving as a holding
company for Transportation-related entities;
o Trans-Serve, Inc., an owner of a railroad wood tie treating facility;
o Global Terminaling Services, Inc. ("GTS" - formerly "Pabtex, Inc."),
located in Port Arthur, Texas with deep water access to the Gulf of Mexico,
an owner and operator of a bulk materials handling facility which stores
and transfers coal and petroleum coke from trucks and rail cars to ships
primarily for export;
o Mid-South Microwave, Inc., which owns and leases a 1,600 mile industrial
frequency microwave transmission system that is the primary communications
facility used by KCSR;
o Rice-Carden Corporation., owning and operating various industrial real
estate and spur rail trackage contiguous to the KCSR right-of-way;
o Southern Development Company, the owner of the executive office building in
downtown Kansas City, Missouri used by KCSI and KCSR;
o Wyandotte Garage Corporation, an owner and operator of a parking facility
located in downtown Kansas City, Missouri used by KCSI and KCSR; and
o Transfin Insurance, Ltd., a single parent captive insurance company,
providing property and general liability coverage to KCSL and its
subsidiaries and affiliates.
1999 contributions to net income from other Transportation-related affiliates
and KCSL decreased approximately $3.7 million from 1998, reflecting $1.3 million
in higher expenses at KCSL and lower contributions from various Transportation
subsidiaries. Higher expenses at KCSL relate mostly to costs associated with the
Separation and other legal matters. Net income from GTS declined $2.0 million
during 1999 as a result of a 13% decline in revenues coupled with an 80%
increase in operating expenses. A significant portion of the increase in
operating expenses of GTS related to uncollectable accounts and legal fees.
<PAGE>46
1998 contributions to net income from other Transportation-related affiliates
and KCSL increased $10.0 million from 1997, primarily as a result of the asset
impairment charges recorded during fourth quarter 1997. Exclusive of these
charges, contributions to net income increased approximately $1.0 million.
TRANSPORTATION SEGMENT TRENDS and OUTLOOK
Management expects general commodities, intermodal and automotive traffic to be
largely dependent on economic trends within certain industries in the geographic
region served by the railroads comprising the NAFTA Railway. Transportation
management was disappointed with 1999 results, but believes the NAFTA Railway
continues to provide an attractive service for shippers. The Transportation
segment experienced several challenges during 1999, the most notable being a
congested rail system. Numerous actions were taken during fourth quarter to
alleviate congestion and address the cost structure of operations. Six new
sidings have recently been added on KCSR's north-south route between Kansas
City, Missouri and Beaumont, Texas, which has helped to improve capacity and
ease congestion. Also, as a result of the completion of the track maintenance
program in September 1999, the related congestion has subsided. Other actions
taken include management staff reductions, a new operations center and
dispatching system, centralized traffic control in the Shreveport yard area
(allows for more fluid traffic) and rate increases to boost contribution and
manage growth. Additionally, as mentioned previously, KCSR expects improved
locomotive efficiency with the addition of the 50 new GE 4400 AC locomotives
received during fourth quarter 1999. Further, management is placing an emphasis
on safety and training in 2000 to help improve the efficiency and effectiveness
of operations, as well as to reduce the number of derailments, accidents and
employee lost work days. These actions have already produced improvements in
operations and traffic flow in December 1999 and early 2000. Based on
anticipated traffic levels, the easing of congestion during fourth quarter 1999
and the expected results of these management initiatives, revenues for 2000 are
expected to increase compared with 1999 levels. Variable expenses are expected
to decline slightly as a percentage of revenues as a result of the easing of
congestion and management initiatives, except for fuel expenses, which are
expected to mirror market conditions.
The Company expects to continue to realize benefits from traffic with Mexico,
the CN/IC alliance and interchange traffic with Norfolk Southern. In the short
term, the CN/IC alliance is expected to provide additional revenue opportunities
for intermodal and automotive traffic, as well as access to additional chemical
customers in Geismar, Louisiana, one of the largest concentrations of chemical
suppliers in the world. However, management believes that, in the long term, a
proposed BN/CN merger could adversely impact revenues expected from CN/IC
alliance traffic.
The Company expects to record equity in net earnings from its investment in
Grupo TFM in 2000. Grupo TFM revenues have grown substantially since inception
(June 23, 1997) and are expected to continue to grow during 2000. Costs continue
to be reduced through operational efficiencies and are expected to be lower in
2000. These expected results for Grupo TFM are based on current projections for
the valuation of the peso for 2000. Management does not make any assurances as
to the impact that a change in the value of the peso or a change in Mexican
inflation will have on the results of Grupo TFM. See "Foreign Exchange Matters"
below and Item 7(A), Quantitative and Qualitative Disclosures About Market Risk,
of this Form 10-K for further information. Management also expects to record
equity in net earnings from its Southern Capital and Mexrail investments during
2000.
<PAGE>47
FINANCIAL SERVICES (STILWELL)
<TABLE>
Revenues, operating income and net income for Stilwell (with subsidiary
information exclusive of holding company amortization and interest costs
attributed to the respective subsidiary) were as follows (in millions):
Year Ended December 31,
1999 1998 (i) 1997 (ii)
------------ -------------- --------------
<S> <C> <C> <C>
Revenues:
Janus $1,155.3 $ 626.2 $ 450.1
SMI and Berger 40.0 33.5 34.9
Nelson 17.0 11.1 -
Other - - 0.1
------------- -------------- --------------
Total $1,212.3 $ 670.8 $ 485.1
============= ============== ==============
Operating Income (Loss):
Janus $ 539.5 $ 296.7 $ 226.6
SMI and Berger 2.9 4.9 3.8
Nelson (1.7) 1.1 -
Other (22.4) (22.1) (31.2)
------------- -------------- --------------
Total $ 518.3 $ 280.6 $ 199.2
============= ============== ==============
Net Income (Loss):
Janus $ 284.1 $ 164.0 $ 119.9
SMI and Berger 4.4 3.9 2.7
Nelson (1.4) 0.6 -
Other 26.0 (16.3) (4.6)
------------- -------------- --------------
Total $ 313.1 $ 152.2 $ 118.0
============= ============== ==============
</TABLE>
(i) Includes a one-time non-cash charge of $36.0 million ($23.2 million
after-tax, or $0.21 per basic and diluted share) resulting from the
DST and USCS merger, which DST accounted for under the pooling of
interests method. The charge reflects the Company's reduced
ownership of DST (from 41% to approximately 32%), together with the
Company's proportionate share of DST and USCS fourth quarter
merger-related charges. See Note 3 to the consolidated financial
statements in this Form 10-K.
(ii) Includes $16.2 million (after-tax) of asset impairment and contract
reserve costs. See Note 4 to the consolidated financial statements
in this Form 10-K.
<PAGE>48
<TABLE>
Assets under management as of December 31, 1999, 1998 and 1997 were as follows
(in billions):
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
JANUS
Janus Advised Funds:
Janus Investment Funds (i) $ 171.8 $ 75.9 $ 48.7
Janus Aspen Series (ii) 17.4 6.2 3.3
Janus World Funds (iii) 1.4 0.1 -
Janus Money Market Funds 9.4 4.8 2.6
------------- -------------- --------------
Total Janus Advised Funds 200.0 87.0 54.6
Janus Sub-Advised Funds and
Private Accounts 49.5 21.3 13.2
------------- -------------- --------------
Total Janus 249.5 108.3 67.8
------------- -------------- --------------
BERGER
Berger Advised Funds 5.7 3.3 3.2
Berger/BIAM Funds 0.3 0.2 0.1
Berger Sub-Advised Funds and
Private Accounts 0.6 0.2 0.5
------------- -------------- --------------
Total Berger 6.6 3.7 3.8
------------- -------------- --------------
NELSON (iv) 1.3 1.1 -
------------- -------------- --------------
Total Assets Under Management $ 257.4 $ 113.1 $ 71.6
============= ============== ==============
</TABLE>
(i) Excludes money market funds
(ii) The Janus Aspen Series consists of eleven portfolios offered through
variable annuity and variable life insurance contracts, and certain
qualified pension plans
(iii) Janus World Funds Plc ("Janus World Funds") is a group of
Ireland-domiciled funds introduced in December 1998
(iv) Acquired in April 1998
The Financial Services segment ("Stilwell") reported 1999 net income of $313.1
million, an increase of 106% compared to $152.2 million in 1998. Exclusive of
the one-time charges associated with the DST merger in 1998, net income was
$137.7 million (79%) higher than 1998. Revenues increased $541.5 million, or
81%, over 1998, leading to higher operating income. Efforts to maintain costs
consistent with the level of revenues resulted in an operating margin of 43%,
improved over the 42% in 1998. Total assets under management increased $144.3
billion (128%) during 1999, reaching $257.4 billion at December 31, 1999. Total
shareowner accounts exceeded 4.3 million as of December 31, 1999, a 43% increase
over 1998. Equity earnings from DST for the year ended December 31, 1999
increased 45% versus comparable 1998 (exclusive of fourth quarter merger-related
costs).
Stilwell contributed $152.2 million to the Company's consolidated net income in
1998 versus $118.0 million in 1997. Exclusive of the one-time items recorded in
both years as discussed in the "Significant Developments" section above, net
income was $41.2 million (31%) higher than 1997. Revenues increased $185.7
million, or 38%, over 1997, leading to higher operating income. While operating
income increased, efforts to ensure an adequate infrastructure to provide for
consistent, reliable and accurate service to investors caused a decrease in
operating margins in 1998, from
<PAGE>49
45% for the year ended December 31, 1997 to 42% for 1998. Total assets under
management increased $41.5 billion (58%) during 1998, reaching $113.1 billion at
December 31, 1998. Total shareowner accounts exceeded three million as of
December 31, 1998, a 12% increase over 1997.
Revenue and operating income increases during the period from 1997 to 1999 are
primarily attributable to Janus. These increases are a direct result of Janus'
growth in assets under management. Assets under management and shareowner
accounts have grown in recent years from a combination of new money investments
(i.e., fund sales) and market appreciation. Fund sales have risen in response to
marketing efforts, favorable fund performance, introduction and market reception
of new products, and the current popularity of no-load mutual funds. Market
appreciation has resulted from increases in investment values.
Following is a detailed discussion of the operating results of the primary
subsidiaries comprising the Financial Services segment.
JANUS CAPITAL CORPORATION
1999
In 1999, assets under management increased 130.5% to $249.5 billion from $108.3
billion, as a result of net sales of $56.3 billion and market appreciation of
$84.9 billion. Equity portfolios comprise 95% of all assets under management at
the end of 1999.
Excluding money market funds, 1999 net sales of Janus Investment Funds, Janus
Aspen Series and Janus World Funds were $42.2 billion and net sales of
subadvised and private accounts totaled $10.0 billion. Total Janus shareowner
accounts increased over 1.3 million, or 49%, to 4.1 million.
Investment management, shareholder servicing and fund administration revenue,
which is primarily based upon a percentage of assets under management, increased
$529.1 million, or 85% in 1999, to $1.2 billion as a result of the increase in
assets under management. Aggregate fee rates declined from 1997 to 1999.
Operating expenses increased 87% from $329.5 million to $615.8 million in 1999
as a result of the significant increase in assets under management, additional
employees, facilities and other infrastructure-related costs. Approximately 56%
of Janus' 1999 operating expenses consist of variable costs that generally
increase or decrease with fluctuations in management fee revenue. An additional
15% of operating expenses (principally advertising, promotion, sponsorships,
pension plan and other contributions) are discretionary on a short-term basis.
The following highlights changes in key expenses in 1999 from 1998:
o Employee compensation and benefits increased $144 million, or 91%,
primarily attributable to increased incentive and base compensation.
Additionally, Janus experienced significant overtime compensation, which
was required to manage the rapid growth in investor activity. Incentive
compensation increased due to the growth in management fee revenue and
achievement of investment and financial performance goals. For the twelve
months and thirty-six months ended December 31, 1999, over 99% of assets
under management were ranked within the first quartile of investment
performance as compared to their respective peer groups and over 97%
outperformed their respective index (as defined pursuant to compensation
agreements). Base compensation increased due to a 68% increase in full-time
employees from approximately 1,300 at the end of 1998 to approximately
2,200 at December 31, 1999.
<PAGE>50
o Fees paid to alliance and mutual fund supermarkets increased $77 million,
or 124%, due principally to the growth in assets under management being
distributed through these channels. Such assets increased from $32.3
billion at December 31, 1998 to $82.4 billion at December 31, 1999.
o Marketing, promotional and advertising expenditures increased 41% to $56.9
million. Janus continued to promote brand awareness through print,
television and radio media channels.
o Depreciation and amortization increased $9.8 million, or 141%, due to
continued infrastructure spending discussed below.
o Sales commissions paid in 1999 related to sales of certain fund shares,
known as B shares, in Janus World Funds. These payments increased by $29.5
million to $31.7 million from $2.2 million in 1998. Amortization of these
payments amounted to $8.1 million and $154,000 in 1999 and 1998,
respectively.
1998
In 1998, assets under management increased 59.7% to $108.3 billion as a result
of net sales of $13.4 billion and $27.1 billion in market appreciation.
Approximately $87.0 billion was invested in the Janus Advised Funds, with the
remainder held by the Janus Sub-Advised Funds and Private Accounts. Equity
portfolios comprised 94% of total assets under management at December 31, 1998.
Excluding money market funds, 1998 net sales of the Janus Advised Funds were
$11.3 billion and net sales of the Janus Sub-Advised Funds and Private Accounts
totaled $1.6 billion. Total Janus shareowner accounts increased 353,000, or 15%,
to 2.7 million.
Janus' revenues increased $176.1 million (39%) to $626.2 million in 1998, driven
by the significant growth in assets under management year to year.
Exclusive of the $2.2 and $2.6 million in amortization costs attributed to Janus
in 1997 and 1998, respectively, operating expenses increased 47% from $223.5
million in 1997 to $329.5 million in 1998. This increase reflects the
significant growth in assets under management and revenues, as well as Janus'
efforts to develop its infrastructure to ensure consistent quality of service.
Approximately 47% of Janus' 1998 operating expenses were variable (e.g.,
incentive compensation, mutual fund supermarket fees, etc.), 19% were
discretionary (principally marketing, pension plan contributions, etc.) and the
remainder fixed.
A brief discussion of key expense increases follows:
o Employee compensation and benefits increased $45 million, or 40%, in 1998
compared to 1997 due to an increased number of employees (including senior
investment management, marketing and administration employees, as well as
additional shareowner servicing and technology support personnel) and
incentive compensation. Incentive compensation increased principally due to
growth in assets under management combined with strong investment
performance. In particular, portfolio management incentive compensation
-- formulated to reward top investment performance -- approached its
highest possible rate in 1998 as a result of more than 93% of assets under
management ending 1998 in the top quartile of investment performance
compared to their respective peer groups (as defined pursuant to
compensation agreements).
<PAGE>51
o Alliance and mutual fund supermarket fees increased 65% in 1998 to $62.3
million. This increase was principally due to an increase in assets under
management being distributed through these channels, from $19.0 billion at
December 31, 1997 to $32.3 billion at December 31, 1998.
o Marketing, promotional and advertising expenditures increased $17.5 million
during 1998 to capitalize on generally favorable market conditions, to
respond to market volatility and to continue establishing the Janus brand.
o Depreciation and amortization increased $2.3 million in 1998 compared
to 1997 due to increased infrastructure spending as discussed below.
General
The growth in Janus' assets under management over the past several years is a
function of several factors including, among others: (i) market-leading,
exceptional investment performance for the one and three year periods and for
the life of fund for most mutual funds under management; (ii) strong equity
securities markets worldwide; (iii) a strong brand awareness; and (iv) effective
use of third party distribution channels for both retail and sub-advised
products.
Since 1996, Janus has introduced eight new domestic funds -- four in the Janus
Investment Funds and four in the Janus Aspen Series. Additionally, to continue
to achieve optimal results for investors, Janus closed two of its most popular
funds recently. With assets growing substantially during the year, Janus Twenty
Fund was closed in April 1999 and Janus Global Technology Fund was closed in
January 2000. In December 1999, Janus announced plans to open Janus Strategic
Value Fund, which opened in early 2000.
International, or offshore, operations increased assets under management by $1.4
billion in 1999, due to $1.1 billion in net sales and $337 million in market
appreciation. Most of this growth was in Janus World Funds, which is a group of
offshore multiclass funds introduced in December 1998 modeled after certain of
the Janus Investment Funds and domiciled in Dublin, Ireland. These operations
incurred an operating loss of $7.8 million (before taxes). Due to significant
expansion currently underway, such operations are not expected to generate a
profit in 2000. The majority of sales of the Janus World Funds were made into
the funds' class B shares, which require Janus to advance sales commissions to
various financial intermediaries. Janus paid $29.5 million in commissions during
1999. Amounts paid for commissions were not material in 1998. Continued growth
in these funds may impact liquidity and cash resources (see "Liquidity" below).
In 1999 and 1998, Janus invested more than $56 million and $37 million,
respectively, on infrastructure development to ensure uninterrupted service to
shareowners; to provide up-to-the-minute investment and securities trading data;
to improve operating efficiency; to integrate information systems; and to obtain
additional physical space for expansion. Net occupied lease space increased by
251,000 square feet during 1999 to 686,000 square feet, with commitments to
occupy an additional 67,000 square feet by March 2000. Infrastructure efforts in
1999 focused on the following:
o Increases in shareholder servicing capacity. Over 170,000 square feet was
added in Denver and Austin to accommodate additional telephone
representatives and shareholder processing personnel. Additions to
telephone infrastructure were made during 1999 that allow for over 2,600
concurrent investor service calls to be received versus approximately 1,600
at the start of 1999. Additionally, XpressLine, Janus' automated call
system, was expanded to handle 218,000 calls per day and 35,000 calls per
hour.
<PAGE>52
o Continued development and enhancement of Janus' web site. In 1999, features
were added to allow investors to execute most transactions (purchases,
redemptions and exchanges) on-line, to access account information on-line,
to select the preferred method of statement delivery (paper or electronic),
to allow a Janus Investor Services Representative to access copies of
shareholder statements to assist with investor questions, and to provide
information for institutional relationships. Capacity was expanded to
handle over 300,000 visits per day. Janus intends to maintain a 100% web
capacity reserve.
Infrastructure efforts in 1998 included the following:
o an enterprise-wide reporting system, producing more efficient and timely
management reporting and allowing full integration of portfolio management,
human resources, budgeting and financial systems;
o a second investor service and data center opened in Austin, Texas in 1998,
including redundant data and telephone connections to allow the facility to
operate in the event that Denver facilities and personnel become
unavailable;
o an upgrade of Janus' web site, providing shareowners the opportunity to
customize their personal Janus home page and to process most transactions
on-line; and
o improvements of physical facilities, producing a more efficient workspace
and allowing Janus to accommodate additional growth and technology.
SMI AND BERGER
1999
Berger reported 1999 net earnings of $4.4 million compared to $3.9 million in
1998, exclusive of $4.5 million in holding company amortization charges
attributed to the investment in Berger in 1999 and 1998. Total assets under
management held by the Berger funds as of December 31, 1999 increased to $6.6
billion, up 78% from the $3.7 billion as of December 31, 1998. This increase
resulted from market appreciation of $2.3 billion and net sales of $0.6 billion.
Total Berger shareowner accounts decreased approximately 13% during 1999,
primarily within Berger funds introduced prior to 1997 (e.g., Berger Growth Fund
- - formerly the Berger 100 Fund, Berger Growth & Income Fund). In contrast, the
number of accounts in the funds introduced since 1997 increased 56% year to
year. These fluctuations in shareowner accounts generally are indicative of
recent performance compared to peer groups.
Due to the increased level of assets under management throughout 1999, revenues
increased approximately 19% compared to 1998. Berger's 1999 operating expenses
increased approximately $8.5 million (30%) over 1998, resulting in lower
operating margins in 1999 versus 1998. This increase in expenses was primarily
due to higher salaries and wages costs in second and third quarters associated
with management realignment and a change in corporate structure (See
"Significant Developments" above). Without these reorganization costs, margins
improved approximately four percentage points. Higher costs also occurred in
third party distribution costs and investment performance-based incentive
compensation.
Berger recorded $2.3 million in equity earnings from its joint venture
investment, BBOI, for the year ended December 31, 1999 compared to $1.5 million
in 1998. This increase reflects continued growth in BBOI assets under
management, which totaled $943 million at December 31, 1999 versus $522 million
at December 31, 1998 (including, in both years, private accounts not reported in
Berger's total assets under management). However, see discussion in "Significant
Developments" regarding the planned dissolution of BBOI in the first half of
2000.
<PAGE>53
1998
Berger reported 1998 net earnings of $3.9 million compared to $4.4 million in
1997, exclusive of holding company amortization charges attributed to the
investment in Berger in both years and a 1997 one-time restructuring, asset
impairment and other charge of $2.7 million ($1.7 million after-tax) related to
a contract reserve. Total assets under management held by the Berger funds
decreased slightly to $3.7 billion as of December 31, 1998 versus $3.8 billion
as of December 31, 1997. This decrease was attributable to net redemptions of
$0.7 billion, substantially offset by market appreciation of $0.6 billion. While
total Berger shareowner accounts decreased approximately 13% during 1998,
primarily within the Berger Growth Fund, the number of accounts in the funds
introduced during 1997 and 1998 increased 88% year to year. These fluctuations
in shareowner accounts generally are indicative of shareowner reaction to recent
performance compared to peer groups.
As a result of fluctuations in the level of assets under management throughout
1998, revenues decreased approximately 4% in 1998 from 1997. Berger's 1998
operating expenses were essentially even with 1997. While reductions in
marketing costs resulted from a more targeted advertising program, these savings
were offset by higher salaries and wages resulting from an increased average
number of employees during 1998 versus 1997. Amortization expense attributed to
Berger declined by $0.9 million in 1998 due to reduced goodwill from the 1997
impairment discussed previously.
Berger recorded $1.5 million in equity earnings from its joint venture
investment, BBOI, for the year ended December 31, 1998 compared to $0.6 million
in 1997. This increase reflects continued growth in BBOI assets under
management, which totaled (including, in both years, private accounts not
reported in Berger's total assets under management) $522 million at December 31,
1998 versus $161 million at December 31, 1997.
General
During the period from 1997 to 1999, Berger introduced six new equity funds: the
Berger Mid Cap Value Fund; the Berger Small Cap Value Fund; the Berger Balanced
Fund; the Berger Mid Cap Growth Fund; the Berger Select Fund; and, most
recently, the Berger Information Technology Fund. These funds held approximately
$1.5 billion of assets under management at December 31, 1999, more than three
times the $493 million at December 31, 1998. The core Berger funds (i.e., those
introduced by Berger prior to 1997) gained more than $1.4 billion in assets
under management during 1999, reversing these funds' experience during 1998 and
1997.
In second quarter 1999, Berger appointed a new president and chief executive
officer and realigned the management of several of its advised funds, including
the Berger Growth Fund, the Berger Balanced Fund and the Berger Select Fund.
Berger believes these changes improve its opportunity for growth in the future.
At December 31, 1999 and 1998, approximately 28.0% and 27.6%, respectively, of
Berger's total assets under management were generated through mutual fund
"supermarkets" and other third party distribution channels.
<PAGE>54
NELSON MONEY MANAGERS PLC
1999
For the year ended December 31, 1999, Nelson reported a net loss of $1.4 million
compared to net income of $0.6 million for the period from acquisition to
December 31, 1998 (exclusive of holding company amortization costs attributed to
the investment in Nelson in both years). This decline resulted from Nelson's
efforts to expand its revenue base through the use of its proprietary investment
services in broader markets, as well as through brand-awareness and marketing
programs initiated late in second quarter 1999. Revenues, which are earned based
on a percentage of funds under management together with a fee on the client's
initial investment, were higher in 1999 compared to 1998 due to higher assets
under management and inclusive of a full year of Nelson revenues. Costs were
higher in 1999, indicative of Nelson's growth efforts. Specifically, increases
occurred in salaries and wages (reflecting growth in the number of employees),
administration costs (infrastructure and training efforts) and advertising
costs.
1998
Nelson contributed $0.6 million to consolidated net income in 1998 (exclusive of
the $1.3 million of holding company amortization charges attributed to the
investment in Nelson), reflecting the nine months of results since being
acquired by KCSI. Nelson revenues were $11.1 million for the period from
acquisition to year end 1998. Operating expenses, exclusive of amortization of
intangibles, totaled $9.9 million. The intangible amounts associated with the
acquisition of Nelson are being amortized over a 20 year period.
EQUITY IN EARNINGS OF DST
Equity earnings from DST totaled $44.4 million for 1999 versus $30.6 million in
1998 (exclusive of one-time fourth quarter merger-related charges). Improvements
in revenues, operating margins and DST's equity earnings of unconsolidated
affiliates contributed to this increase year to year, as did the required
capitalization of internal use software development costs totaling approximately
$20.9 million (DST's pretax total). Consolidated DST revenues increased 9.8%
over the prior year, reflecting higher financial services and output solutions
revenues. U.S. mutual fund shareowner accounts processed increased to 56.4
million compared to 49.8 million as of December 31, 1998.
Exclusive of the one-time fourth quarter merger-related charges resulting from
the DST and USCS merger, equity earnings from DST increased $6.3 million to
$30.6 million for the year ended December 31, 1998. This improvement over 1997
was attributable to revenue growth resulting from a 10.7% increase in mutual
fund shareowner accounts serviced (reaching 49.8 million at December 31, 1998),
improved international operating results and higher operating margins year to
year (15.1% versus 14.2% in 1997).
As discussed in the "Significant Developments" section above, fourth quarter and
year ended 1998 include a one-time $23.2 million (after-tax, $0.21 per share)
non-cash charge resulting from the merger of a wholly-owned subsidiary of DST
and USCS. This charge reflects the Company's reduced ownership of DST (from 41%
to approximately 32%), together with the Company's proportionate share of DST
and USCS fourth quarter merger-related costs.
INTEREST EXPENSE AND OTHER, NET
Fluctuations in interest expense from 1997 through 1999 reflect declining
average debt balances over the period. The affect on interest resulting from
these lower balances was partially offset by a
<PAGE>55
modest increase in charges on other interest-bearing balances during the three
year period. Interest expense in 1999 reflects this trend as the decline in
debt-related interest from 1998 exceeded the increase resulting from higher
average balances for other interest-bearing balances. Average debt balances in
1998 were lower than 1997 due to repayments of outstanding balances early in
1998; accordingly, 1998 interest expense declined from 1997. Interest expense in
1997 reflected borrowings in connection with KCSI common stock repurchases.
Other, net for full year 1999 increased $17.1 million compared to 1998,
exclusive of the $8.8 million (pretax) gain on the sale of Janus' 50% interest
in IDEX Management, Inc. ("IDEX"). Janus continues as sub-advisor to the five
portfolios in the IDEX group of mutual funds it served prior to the sale. This
increase year to year resulted from the following: i) realized gains by Janus
and Berger on the sale of short-term investments; ii) higher interest income
resulting from an increase in cash; iii) an increase in investment income; and
iv) gains resulting from the issuance of Janus shares to certain of its
employees. Other, net increased in 1998 versus 1997 as a result of the gain on
the sale of IDEX, partially offset by reduced 1998 other income recorded at the
Financial Services holding company level relating to a sales agreement with a
former affiliate.
STILWELL TRENDS and OUTLOOK
Future growth of Stilwell's revenues and operating income is largely dependent
on prevailing financial market conditions, relative performance of Janus, Berger
and Nelson products, introduction and market reception of new products, as well
as other factors, including changes in the stock and bond markets, increases in
the rate of return of alternative investments, increasing competition as the
number of mutual funds continues to grow, and changes in marketing and
distribution channels.
As a result of the rapid revenue growth during the last two years, Stilwell's
operating margins have been strong. Management expects that Stilwell will
experience margin pressures in the future as the various subsidiaries strive to
ensure that the operational and administrative infrastructure continues to meet
the high standards of quality and service historically provided to investors.
Additionally, a higher rate of growth in costs compared to revenues is expected
in connection with Nelson's efforts to expand its operations. Stilwell expects
to continue to participate in the earnings or losses from its DST investment.
LIQUIDITY
<TABLE>
Summary cash flow data is as follows (in millions):
1999 1998 1997
----------- ----------- -------
<S> <C> <C> <C>
Cash flows provided by (used for):
Operating activities $ 458.8 $ 255.6 $ 246.7
Investing activities (158.6) (113.6) (379.4)
Financing activities (108.2) (107.3) 173.2
------------ ------------ -----------
Net increase in
cash and equivalents 192.0 34.7 40.5
Cash and equivalents at beginning of year 144.1 109.4 68.9
----------- ----------- -----------
Cash and equivalents at end of year $ 336.1 $ 144.1 $ 109.4
=========== =========== ===========
</TABLE>
During the year ended December 31, 1999, the Company's consolidated cash
position increased $192.0 million from December 31, 1998, resulting primarily
from net income and changes in working capital balances, partially offset by
property acquisitions and debt repayments.
<PAGE>56
Operating Cash Flows. The Company's cash flow from operations has historically
been positive and sufficient to fund operations, KCSR roadway capital
improvements, other capital improvements and debt service. External sources of
cash (principally negotiated bank debt, public debt and sales of investments)
have typically been used to fund acquisitions, new investments, equipment
additions and Company Common stock repurchases.
<TABLE>
The following table summarizes consolidated operating cash flow information.
Certain reclassifications have been made to prior year information to conform to
current year presentation.
1999 1998 1997
----------- ----------- -----------
(in millions)
<S> <C> <C> <C>
Net income (loss) $ 323.3 $ 190.2 $ (14.1)
Depreciation and amortization 92.3 73.5 75.2
Equity in undistributed earnings (51.6) (16.8) (15.0)
Reduction in ownership of DST - 29.7 -
Restructuring, asset impairment and
other charges - - 196.4
Deferred income taxes 21.6 23.2 (16.6)
Gains on sales of assets (0.7) (20.2) (6.9)
Minority interest in consolidated earnings 57.3 33.4 24.9
Deferred commissions (29.5) - -
Change in working capital items 43.5 (59.5) (7.4)
Other 2.6 2.1 10.2
----------- ----------- -----------
Net operating cash flow $ 458.8 $ 255.6 $ 246.7
=========== =========== ===========
</TABLE>
Net operating cash inflows for the year ended December 31, 1999 were $458.8
million compared to net operating cash inflows of $255.6 million in the same
1998 period. This $203.2 million improvement was chiefly attributable to higher
1999 net income, increases in current liabilities resulting from infrastructure
growth and a 1998 payment of approximately $23 million related to the KCSR union
productivity fund termination. Partially offsetting this increase were payments
of deferred commissions in connection with Janus World Funds B share
arrangements and an increase in accounts receivable indicative of the revenue
growth.
1998 operating cash inflows increased by approximately $8.9 million from 1997.
This increase was largely attributable to higher ongoing net income
(approximately $69 million) and deferred tax expense (due to benefits booked in
1997 in connection with restructuring, asset impairment and other charges). The
increase was partially offset by the first quarter 1998 KCSR payment with
respect to the productivity fund liability, lower interest payable as a result
of reduced indebtedness during 1998 and declines in contract allowances and
prepaid freight charges due other railroads.
Investing Cash Flows. Net investing cash outflows were $158.6 million for the
year ended December 31, 1999 compared to $113.6 million of net investing cash
outflows during 1998. This $45.0 million difference results primarily from
higher capital expenditures - both in the Transportation and Financial Services
segments. These increases were partially offset by a decrease in funds used for
investment in affiliates.
Net investing cash outflows were $113.6 million during 1998 versus $379.4
million in 1997. This $265.8 million difference in cash outflows results mostly
from a decrease in funds used for investments in affiliates ($298 million
invested in Grupo TFM in 1997), offset partially by an increase in property
acquisitions.
<PAGE>57
Cash was used for property acquisitions of $157, $105, and $83 million in 1999,
1998 and 1997, respectively, and investments in and loans with affiliates of
$17, $25 and $304 million in 1999, 1998 and 1997, respectively. Included in the
1997 investments in affiliates was the Company's approximate $298 million
capital contribution to Grupo TFM.
Generally, operating cash flows and borrowings under lines of credit have been
used to finance property acquisitions and investments in and loans with
affiliates.
Financing Cash Flows. Financing cash flows were as follows:
o Borrowings of $22, $152 and $340 million in 1999, 1998 and 1997,
respectively. Proceeds from the issuance of debt in 1999 were used for
stock repurchases. During 1998, proceeds from borrowings under existing
lines of credit were used to repay $100 million of 5.75% Notes which were
due on July 1, 1998. Other 1998 borrowings were used to fund the KCSR union
productivity fund termination ($23 million), to fund a portion of the
Nelson acquisition ($24 million) and to provide for working capital needs
($5 million). 1997 debt proceeds were used to fund the $298 million Grupo
TFM capital contribution, repurchase Company common stock ($39 million) and
for additional investment in Berger ($3 million).
o Repayment of indebtedness in the amounts of $97, $239 and $110 million in
1999, 1998 and 1997, respectively, generally funded through operating cash
flows.
o Repurchases of Company common stock during 1999 ($25 million) and 1997 ($50
million), which were funded with borrowings under existing lines of credit
(as noted above) and internally generated cash flows.
o Distributions to minority stockholders of consolidated subsidiaries.
Amounts increased in both 1999 and 1998 compared to the previous year due
to higher net income on which distributions were based.
o Proceeds from stock plans of $43, $30 and $27million in 1999, 1998 and
1997, respectively.
o Payment of cash dividends of $18, $18 and $15 million in 1999, 1998 and
1997, respectively.
See discussion under "Financial Instruments and Purchase Commitments" for
information relative to certain anticipated 2000 cash expenditures. Also see
information under "Minority Purchase Agreements" for information relative to
other existing contingencies.
CAPITAL STRUCTURE
Capital Requirements. Capital improvements for KCSR roadway track structure have
historically been funded with cash flows from operations. The Company has
traditionally used Equipment Trust Certificates for major purchases of
locomotives and rolling stock, while using internally generated cash flows or
leasing for other equipment. Through its Southern Capital joint venture, KCSR
has the ability to finance railroad equipment, and therefore, has increasingly
used lease-financing alternatives for its locomotives and rolling stock.
Southern Capital was used to finance the purchase of the 50 new GE 4400 AC
locomotives in November 1999. These locomotives are being financed by KCSR under
operating leases with Southern Capital. Capital requirements for Janus, Berger,
Nelson, the holding company and other subsidiaries have been funded with cash
flows from operations and negotiated term financing.
Capital programs are primarily financed through internally generated cash flows.
These internally generated cash flows were used to finance capital expenditures
for the Transportation segment in 1999 ($106 million), 1998 ($70 million) and
1997 ($77 million). Internally generated cash flows and borrowings under
existing lines of credit are expected to be used to fund capital programs in the
Transportation segment for 2000, currently estimated at approximately $110
million.
<PAGE>58
Internally generated cash flows are expected to be used to fund Financial
Services segment capital programs in 2000.
During 1998, Janus opened a new facility in Austin, Texas as an Investor Service
and Processing Center for transfer agent operations, allowing for continuous
service in the event the Denver facility is unavailable. Also, in 1998 and 1997,
Janus upgraded and expanded its information technology and facilities
infrastructure. These efforts were generally funded with existing cash flows.
<TABLE>
Capital. Components of capital are shown as follows (in millions):
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Debt due within one year $ 10.9 $ 10.7 $ 110.7
Long-term debt 750.0 825.6 805.9
---------- ----------- -----------
Total debt 760.9 836.3 916.6
Stockholders' equity 1,283.1 931.2 698.3
---------- ----------- -----------
Total debt plus equity $ 2,044.0 $ 1,767.5 $ 1,614.9
========== =========== ===========
Total debt as a percent of
total debt plus equity ("debt ratio") 37.2% 47.3% 56.8%
---------- ----------- -----------
</TABLE>
At December 31, 1999, the Company's consolidated debt ratio decreased 10.1
percentage points to 37.2% from 47.3% at December 31, 1998. Total debt decreased
$75.4 million as repayments exceeded borrowings. Stockholders' equity increased
$351.9 million primarily as a result of 1999 net income of $323.3 million and
$34.0 million in non-cash equity adjustments related to unrealized gains (net of
income tax) on "available for sale securities" largely held by DST. Other equity
activities during 1999 essentially offset one another. This increase in
stockholders' equity and the decrease in debt resulted in the decrease in the
debt ratio from December 31, 1998.
At December 31, 1998, the Company's consolidated debt ratio had decreased 9.5
percentage points to 47.3% compared to December 31, 1997. Total debt decreased
$80.3 million as repayments exceeded borrowings. Stockholders' equity increased
$232.9 million primarily as a result of $190.2 million in net income, $24.1
million in non-cash equity adjustments related to unrealized gains (net of tax)
on "available for sale" securities and stock options exercised of approximately
$30.1 million, partially offset by dividends of $17.9 million. This increase in
stockholders' equity coupled with the decrease in debt resulted in a decrease in
the debt ratio from December 31, 1997.
Under the current capital structure of KCSI, management anticipates that the
debt ratio will decrease during 2000 as a result of continued debt repayments
and profitable operations. Note, however, that unrealized gains on "available
for sale" securities, which are included net of deferred income taxes as
accumulated other comprehensive income in stockholders' equity, are contingent
on market conditions and thus, are subject to significant fluctuations in value.
Significant declines in the value of these securities would negatively impact
stockholders' equity and could increase the Company's debt ratio. Additionally,
upon completion of the proposed Separation, the capital structure of KCSI is
expected to change dramatically, resulting in an increase in the debt ratio.
Efforts to improve the capital structure of the Company following the Separation
were initiated with the re-capitalization of the Company's debt structure in
January 2000 as described in "Recent Developments". The pro forma debt ratio of
the Transportation segment on a stand-alone basis under this re-capitalized
structure approximates 54%, assuming the re-capitalization occurred at December
31, 1999.
Debt Securities Registration and Offerings. The SEC declared the Company's
Registration Statement on Form S-3 (File No. 33-69648) effective April 22, 1996,
registering $500 million in
<PAGE>59
securities. However, no securities have been issued. The securities may be
offered in the form of Common Stock, New Series Preferred Stock $1 par value,
Convertible Debt Securities or other Debt Securities (collectively, "the
Securities"). The Company has not engaged an underwriter for these Securities.
Management expects that any net proceeds from the sale of the Securities would
be added to the general funds of the Company and used principally for general
corporate purposes, including working capital, capital expenditures, and
acquisitions of or investments in businesses and assets. The Company believes
its operating cash flows and available financing resources are sufficient to
fund working capital and other requirements for 2000.
KCSI Credit Agreements. In January 2000, in conjunction with the
re-capitalization of the Company's debt structure, the Company entered into new
credit agreements as described above in "Recent Developments".
Minority Purchase Agreements. A stock purchase agreement with Thomas H. Bailey
("Mr. Bailey"), Janus' Chairman, President and Chief Executive Officer, and
another Janus stockholder (the "Janus Stock Purchase Agreement") and certain
restriction agreements with other Janus minority stockholders contain, among
other provisions, mandatory put rights whereby at the election of such minority
stockholders, KCSI would be required to purchase the minority interests of such
Janus minority stockholders at a purchase price equal to fifteen times the net
after-tax earnings over the period indicated in the relevant agreement, or in
some circumstances at a purchase price as determined by an independent
appraisal. Under the Janus Stock Purchase Agreement, termination of Mr. Bailey's
employment could require a purchase and sale of the Janus common stock held by
him. If other minority holders terminated their employment, some or all of their
shares also could be subject to mandatory purchase and sale obligations. Certain
other minority holders who continue their employment also could exercise puts.
If all of the mandatory purchase and sale provisions and all the puts under such
Janus minority stockholder agreements were implemented, KCSI would have been
required to pay approximately $789 million as of December 31, 1999, compared to
$447 and $337 million at December 31, 1998 and 1997, respectively. In the future
these amounts may be higher or lower depending on Janus' earnings, fair market
value and the timing of the exercise. Payment for the purchase of the respective
minority interests is to be made under the Janus Stock Purchase Agreement within
120 days after receiving notification of exercise of the put rights. Under the
restriction agreements with certain other Janus minority stockholders, payment
for the purchase of the respective minority interests is to be made 30 days
after the later to occur of (i) receiving notification of exercise of the put
rights or (ii) determination of the purchase price through the independent
appraisal process.
The Janus Stock Purchase Agreement and certain stock purchase agreements and
restriction agreements with other minority stockholders also contain provisions
whereby upon the occurrence of a Change in Ownership (as defined in such
agreements) of KCSI, KCSI may be required to purchase such holders' Janus stock
or, as to the stockholders that are parties to the Janus Stock Purchase
Agreement, at such holders' option, to sell its stock of Janus to such minority
stockholders. The price for such purchase or sale would be equal to fifteen
times the net after-tax earnings over the period indicated in the relevant
agreement, in some circumstances as determined by Janus' Stock Option Committee
or as determined by an independent appraisal. If KCSI had been required to
purchase the holders' Janus common stock after a Change in Ownership as of
December 31, 1999, the purchase price would have been approximately $899 million
(see additional information in Note 13 to the consolidated financial
statements).
KCSI would account for any such purchase as the acquisition of a minority
interest under Accounting Principles Board Opinion No. 16, Business
Combinations.
As of March 31, 2000, KCSI, through Stilwell, had $200 million in credit
facilities available, owned securities with a market value in excess of $1.3
billion and had cash balances at the Stilwell holding company level in excess of
$147.5 million. To the extent that these resources were
<PAGE>60
insufficient to fund its purchase obligations, KCSI had access to the capital
markets and, with respect to the Janus Stock Purchase Agreement, had 120 days to
raise additional sums.
Overall Liquidity. The Company believes it has adequate resources available -
including existing cash balances, sufficient lines of credit (within the
financial covenants referred to below), businesses which have historically been
positive cash flow generators and the $500 million Shelf Registration Statement
- - to meet anticipated operating, capital and debt service requirements and other
commitments in 2000.
The Company's cash and equivalents balance includes investments in money market
mutual funds that are managed by Janus. Janus' investments in its money market
mutual funds are generally used to fund operations and to pay dividends.
The Company's credit agreements contain, among other provisions, various
financial covenants. The Company was in compliance with these various
provisions, including the financial covenants, as of December 31, 1999. Because
of certain financial covenants contained in the credit agreements, however,
maximum utilization of the Company's available lines of credit may be
restricted.
As discussed above in "Significant Developments", Grupo TFM management is in
negotiations with the Mexican Government with respect to an option for the
Company and Grupo TFM to purchase the Mexican Government's 20% interest in TFM
at a discount. Management expects to use borrowings under the new KCS Credit
Facility to fund this transaction in the event it elects to exercise any option
that might be granted under these negotiations.
As discussed in "Significant Developments" above, TMM and the Company could be
required to purchase the Mexican Government's interest in TFM in proportion to
each partner's respective ownership interest in Grupo TFM (without regard to the
Mexican Government's interest in Grupo TFM); however, this provision is not
exercisable prior to October 31, 2003. Also, the Mexican Government's interest
in Grupo TFM may be called by TMM and the Company, exercisable at the original
amount (in U.S. dollars) paid by the Government plus interest based on one-year
U.S. Treasury securities. Additionally, the Company could be required to
contribute capital of up to approximately $74 million if Grupo TFM does not meet
certain performance benchmarks as outlined in the Contribution Agreement (See
"Significant Developments").
Pursuant to contractual agreement between KCSI and certain Janus minority
stockholders, Janus has distributed at least 90% of its net income to its
shareholders each year. The Company uses its portion (approximately 82%) of
these dividends in accordance with its strategic plans, which have included,
among others, repayment of indebtedness, repurchase of Company common stock and
investments in affiliates. Additionally, Janus' agreement with the Janus World
Funds includes an arrangement by which investor purchases of Janus World Funds
class B shares require a commission to be advanced by Janus. Advanced
commissions on the Janus World Funds class B shares were $29 million for the
year ended December 31, 1999.
As discussed previously, in preparation for the Separation, KCSI completed a
re-capitalization of the Company's debt structure in January 2000. As part of
the re-capitalization, KCSI refinanced its public debt and revolving credit
facilities. Management believes that the new capital structure provides the
necessary liquidity to meet anticipated operating, capital and debt service
requirements and other commitments for 2000.
<PAGE>61
OTHER
Janus Capital Corporation. In connection with its 1984 acquisition of an 80%
interest in Janus, KCSI entered into a stock purchase agreement with Thomas H.
Bailey ("Mr. Bailey"), Janus' Chairman, President and Chief Executive Officer
and owner of 12% of Janus common stock, and another Janus stockholder (the
"Janus Stock Purchase Agreement"). The Janus Stock Purchase Agreement, as
amended, provides that so long as Mr. Bailey is a holder of at least 5% of the
common stock of Janus and continues to be employed as President or Chairman of
the Board of Janus (or, if he does not serve as President, James P. Craig, III
serves as President and Chief Executive Officer or Co-Chief Executive Officer
with Mr. Bailey), Mr. Bailey shall continue to establish and implement policy
with respect to the investment advisory and portfolio management activity of
Janus. The agreement also provides that, in furtherance of such objective, so
long as both the ownership threshold and officer status conditions described
above are satisfied, KCSI will vote its shares of Janus common stock to elect
directors of Janus, at least the majority of whom are selected by Mr. Bailey,
subject to KCSI's approval, which approval may not be unreasonably withheld. The
agreement further provides that any change in management philosophy, style or
approach with respect to investment advisory and portfolio management policies
of Janus shall be mutually agreed upon by KCSI and Mr. Bailey.
KCSI does not believe Mr. Bailey's rights under the Janus Stock Purchase
Agreement are "substantive," within the meaning of Issue 96-16 of the Emerging
Issues Task Force ("EITF 96-16"), because KCSI can terminate those rights at any
time by removing Mr. Bailey as an officer of Janus. KCSI also believes that the
removal of Mr. Bailey would not result in significant harm to KCSI based on the
factors discussed below. Colorado law provides that removal of an officer of a
Colorado corporation may be done directly by its stockholders if the
corporation's bylaws so provide. While Janus' bylaws contain no such provision
currently, KCSI has the ability to cause Janus to amend its bylaws to include
such a provision. Under Colorado law, KCSI could take such action at an annual
meeting of stockholders or make a demand for a special meeting of stockholders.
Janus is required to hold a special stockholders' meeting upon demand from a
holder of more than 10% of its common stock and to give notice of the meeting to
all stockholders. If notice of the meeting is not given within 30 days of such a
demand, the District Court is empowered to summarily order the holding of the
meeting. As the holder of more than 80% of the common stock of Janus, KCSI has
the requisite votes to compel a meeting and to obtain approval of the required
actions at such a meeting.
KCSI has concluded, supported by an opinion of legal counsel, that it could
carry out the above steps to remove Mr. Bailey without breaching the Janus Stock
Purchase Agreement and that if Mr. Bailey were to challenge his removal by
instituting litigation, his sole remedy would be for damages and not injunctive
relief and that KCSI would likely prevail in that litigation.
Although KCSI has the ability to remove Mr. Bailey, it has no present plan or
intention to do so, as he is one of the persons regarded as most responsible for
the success of Janus. The consequences of any removal of Mr. Bailey would depend
upon the timing and circumstances of such removal. Mr. Bailey could be required
to sell, and KCSI could be required to purchase, his Janus common stock, unless
he were terminated for cause. Certain other Janus minority stockholders would
also be able, and, if they terminated employment, required, to sell to KCSI
their shares of Janus common stock. The amounts that KCSI would be required to
pay in the event of such purchase and sale transactions could be material. See
Note 12 to the consolidated financial statements. As of December 31, 1999, such
removal would have also resulted in acceleration of the vesting of a portion of
the shares of restricted Janus common stock held by other minority stockholders
having an approximate aggregate value of $16.3 million.
There may also be other consequences of removal that cannot be presently
identified or quantified. For example, Mr. Bailey's removal could result in the
loss of other valuable employees or clients of
<PAGE>62
Janus. The likelihood of occurrence and the effects of any such employee or
client departures cannot be predicted and may depend on the reasons for and
circumstances of Mr. Bailey's removal. However, KCSI believes that Janus would
be able in such a situation to retain or attract talented employees because: (i)
of Janus' prominence; (ii) Janus' compensation scale is at the upper end of its
peer group; (iii) some or all of Mr. Bailey's repurchased Janus stock could be
then available for sale or grants to other employees; and (iv) many key Janus
employees must continue to be employed at Janus to become vested in currently
unvested restricted stock valued in the aggregate (after considering additional
vesting that would occur upon the termination of Mr. Bailey) at approximately
$36 million as of December 31, 1999. In addition, notwithstanding any removal of
Mr. Bailey, KCSI would expect to continue its practice of encouraging autonomy
by its subsidiaries and their boards of directors so that management of Janus
would continue to have responsibility for Janus' day-to-day operations and
investment advisory and portfolio management policies and, because it would
continue that autonomy, KCSI would expect many current Janus employees to remain
with Janus.
With respect to clients, Janus' investment advisory contracts with its clients
are terminable upon 60 days' notice and in the event of a change in control of
Janus. Because of his rights under the Janus Stock Purchase Agreement, Mr.
Bailey's departure, whether by removal, resignation or death, might be regarded
as such a change in control. However, in view of Janus' investment record, KCSI
has concluded it is reasonable to expect that in such an event most of Janus'
clients would renew their investment advisory contracts. This conclusion is
reached because (i) Janus relies on a team approach to investment management and
development of investment expertise, (ii) Mr. Bailey has not served as a
portfolio manager for any Janus fund for several years, (iii) a succession plan
exists under which Mr. James P. Craig, III would succeed Mr. Bailey, and (iv)
Janus should be able to continue to attract talented portfolio managers. It is
reasonable to expect that Janus' clients' reaction will depend on the
circumstances, including, for example, how much of the Janus team remains in
place and what investment advisory alternatives are available.
The Janus Stock Purchase Agreement and other agreements provide for rights of
first refusal on the part of Janus minority stockholders, Janus and KCSI, with
respect to certain sales of Janus stock. These agreements also require KCSI to
purchase the shares of Janus minority stockholders in certain circumstances. In
addition, in the event of a Change in Ownership of KCSI, as defined in the Janus
Stock Purchase Agreement, KCSI may be required to sell its stock of Janus to the
stockholders who are parties to such agreement or to purchase such holders'
Janus stock. In the event Mr. Bailey was terminated for any reason within one
year following a Change in Ownership, he would be entitled to a severance
payment, amounting, at December 31, 1999, to approximately $2 million. Purchase
and sales transactions under these agreements are to be made based upon a
multiple of the net earnings of Janus and/or other fair market value
determinations, as defined therein. See Note 12 to the consolidated financial
statements.
Under the Investment Company Act of 1940, certain changes in ownership of Janus
may result in termination of investment advisory agreements with the mutual
funds and other accounts Janus manages, requiring approval of fund shareowners
and other account holders to obtain new agreements. Additionally, there are
Janus officers and directors that serve as officers and/or directors of certain
of the registered investment companies to which Janus acts as investment
advisor.
Year 2000. The Year 2000 discussion below contains forward-looking statements,
including those concerning the Company's plans and expected completion dates,
cost estimates, assessments of Year 2000 readiness for the Company as well as
for third parties, and the potential risks of any failure on the part of the
Company or third parties to be Year 2000 ready on a timely basis.
Forward-looking statements involve a number of risks and uncertainties that
could cause actual results to differ from those projected. See the "Overview"
section for additional information.
<PAGE>63
Current Status. KCSI and its subsidiaries experienced no material Year 2000
related issues when the date moved to January 1, 2000, nor have any issues
arisen as of the date of this Form 10-K. Although the initial transition to 2000
occurred without adverse effects, there still exists possible Year 2000 issues
for those applications, systems, processes and system hardware that have yet to
be used in live activities and transactions. The Company continues to evaluate
and pursue discussions with its various customers, partners and vendors with
respect to Year 2000 issues. No assurance can be made that such parties will be
Year 2000 ready. While the Company cannot fully determine the impact, the
inability of its computer systems to operate properly in 2000 could result in
significant difficulty in processing and completing fundamental transactions. In
such events, the Company's results of operations, financial position and cash
flows could be materially adversely affected.
General. Many existing computer programs and microprocessors that use only two
digits (rather than four) to identify a year could fail or create erroneous
results with respect to dates after December 31, 1999 if not corrected to read
all four digits. This computer program flaw is expected to affect all companies
and organizations, either directly or indirectly.
The Company depends upon its computer and other systems and the computers and
other systems of third parties to conduct and manage the Company's
Transportation and Financial Services businesses. These Year 2000 related issues
may also adversely affect the operations and financial performance of one or
more of the Company's customers and suppliers. As a result, the failure of the
Company, its customers or suppliers to operate properly in Year 2000 could have
a material adverse impact on the Company's results of operations, financial
position and cash flows. The Company is unable to assess the extent or duration
of that impact at this time, but they could be substantial.
To prepare for Year 2000, the Company and its key subsidiaries formed project
teams comprised of employees and third party consultants to identify and resolve
the numerous issues surrounding the Year 2000. The areas in which the project
teams focused most of their efforts are information technology ("IT") systems,
non-IT systems, and third party issues.
IT Systems. In both the Transportation and Financial Services segments, the
IT systems (including mission critical and significant non-critical
operating, accounting and supporting systems) and underlying hardware and
software have operated in 2000 and no material failures or problems have
arisen.
Non-IT Systems. All equipment that contains an internal clock or embedded
micro-processor (e.g., personal computers, software, telephone systems,
locomotives, signal and communications systems, etc.) has been analyzed for
Year 2000 readiness and replacement and upgrades of this type of equipment
are completed.
Third Party Systems. Because both segments of the Company depend heavily on
third party systems in the operation of their businesses, significant third
party relationships were evaluated to determine the status of their Year
2000 readiness and the potential impact on the Company's operations if
those significant third parties fail to become Year 2000 ready.
The Transportation companies worked with the Association of American
Railroads ("AAR") and other AAR-member railroads to coordinate the testing
and certification of the systems administered by the AAR. Similarly, the
Financial Services entities participated in various industry-wide efforts
(e.g., trading and account maintenance, trade execution, confirmation,
etc.) and were required to periodically report to the SEC their progress
with respect to Year 2000 preparedness. Transactions and other activities
have been successfully performed in 2000 for certain third party entities.
The Company will continue to monitor its third party relationships for Year
2000 issues.
<PAGE>64
Testing and Documentation Procedures. All material modifications to IT and
non-IT systems were documented and maintained by the project teams for purposes
of tracking the Year 2000 project and as a part of the Company's due diligence
process.
Year 2000 Risks. While there have been no material problems during Year 2000 as
of the date of this Form 10-K, the Company continues to evaluate the principal
risks associated with its IT and non-IT systems, as well as third party systems
if they were not to operate properly in the Year 2000.
Based on work performed and information received, the Company believes its key
suppliers, customers and other significant third party relationships were and
continue to be prepared for the Year 2000 in all material respects; however,
management of the Company makes no assurances that all such parties are Year
2000 ready. In the event that the Company or key third parties experience Year
2000 difficulties, the Company's results of operations, financial position and
cash flows could be materially adversely affected. The Company has no basis to
form an estimate of costs or lost revenues at this time.
Contingency Plans. The Company and its subsidiaries have identified alternative
plans in the event that the Year 2000 project does not meet anticipated needs.
The Company has made alternative arrangements in the event that critical
suppliers, customers, utility providers and other significant third parties
experience Year 2000 difficulties.
Year 2000 Costs. Through December 31, 1999, the Company has spent approximately
$21 million ($8 million by Transportation; $13 million by Financial Services) in
connection with ensuring that all Company and subsidiary computer programs are
compatible with Year 2000 requirements. In addition, the Company anticipates
future spending of less than $1 million in connection with this process.
Accounting principles require all costs associated with Year 2000 issues to be
expensed as incurred. A portion of these costs will not result in an increase in
expense because existing employees and equipment are being used to complete the
project.
Financial Instruments and Purchase Commitments. During 1995, the Company entered
into a forward stock purchase contract as a means of securing a potentially
favorable price for the repurchase of six million shares of its common stock.
During 1997, the Company purchased 2.4 million shares under this contract at an
aggregate cost of $39 million (including transaction premium).
In accordance with the provision of the New Credit Facilities requiring the
Company to manage its interest rate risk through hedging activity, in first
quarter 2000 the Company entered into five separate interest rate cap agreements
for an aggregate notional amount of $200 million expiring on various dates in
2002. The interest rate caps are linked to LIBOR. $100 million of the aggregate
notional amount provides a cap on the Company's interest rate of 7.25% plus the
applicable spread, while $100 million limits the interest rate to 7% plus the
applicable spread. Counterparties to the interest rate cap agreements are major
financial institutions who also participate in the New Credit Facilities. Credit
loss from counterparty non-performance is not anticipated.
Fuel costs are affected by traffic levels, efficiency of operations and
equipment, and petroleum market conditions. Controlling fuel expenses is a
concern of management, and expense savings remains a top priority. To that end,
from time to time KCSR enters into forward diesel fuel purchase commitments and
hedge transactions (fuel swaps or caps) as a means of securing volumes and
prices. Hedge transactions are correlated to market benchmarks and hedge
positions are monitored to ensure that they will not exceed actual fuel
requirements in any period. There were no fuel swap or cap transactions during
1997 and minimal purchase commitments were negotiated for 1997. However, at the
end of 1997, the Company had purchase commitments for
<PAGE>65
approximately 27% of expected 1998 diesel fuel usage, as well as fuel swaps for
approximately 37% of expected 1998 usage. As a result of actual fuel prices
remaining below both the purchase commitment price and the swap price during
1998, the Company's fuel expense was approximately $4.0 million higher. The
purchase commitments resulted in a higher cost of approximately $1.7 million,
while the Company made payments of approximately $2.3 million related to the
1998 fuel swap transactions. At December 31, 1998, the Company had purchase
commitments and fuel swap transactions for approximately 32% and 16%,
respectively, of expected 1999 diesel fuel usage. In 1999, KCSR saved
approximately $0.6 million as a result of these purchase commitments. The fuel
swap transactions resulted in higher fuel expense of approximately $1 million.
At December 31, 1999, the Company had no outstanding purchase commitments for
2000 and had entered into two diesel fuel cap transactions for a total of six
million gallons (approximately 10% of expected 2000 usage) at a cap price of
$0.60 per gallon. The caps are effective January 1, 2000 through June 30, 2000.
These transactions are intended to mitigate the impact of rising fuel prices and
are recorded using hedge accounting policies as set forth in Note 2 to the
consolidated financial statements of this Form 10-K. In general, the Company
enters into transactions such as those discussed above in limited situations
based on management's assessment of current market conditions and perceived
risks. Historically, the Company has engaged in a limited number of such
transactions and their impact has been insignificant. However, the Company
intends to respond to evolving business and market conditions in order to manage
risks and exposures associated with the Company's various operations, and in
doing so, may enter into transactions similar to those discussed above.
Foreign Exchange Matters. In connection with the Company's investment in Grupo
TFM (Mexico), Nelson (United Kingdom) and Janus Capital International (UK)
Limited ("Janus UK"), operating in the United Kingdom, matters arise with
respect to financial accounting and reporting for foreign currency transactions
and for translating foreign currency financial statements into U.S. dollars. The
Company follows the requirements outlined in Statement of Financial Accounting
Standards No. 52 "Foreign Currency Translation" ("SFAS 52"), and related
authoritative guidance.
The purchase price paid by Grupo TFM for 80% of the common stock of TFM was
fixed in Mexican pesos; accordingly, the Company was exposed to fluctuations in
the U.S. dollar/Mexican peso exchange rate. In the event that the proceeds from
the various financing arrangements did not provide funds sufficient for Grupo
TFM to complete the purchase of TFM, the Company may have been required to make
additional capital contributions to Grupo TFM. Accordingly, in order to hedge a
portion of the Company's exposure to fluctuations in the value of the Mexican
peso versus the U.S. dollar, the Company entered into two separate forward
contracts to purchase Mexican pesos - $98 million in February 1997 and $100
million in March 1997. In April 1997, the Company realized a $3.8 million pretax
gain in connection with these contracts. This gain was deferred and has been
accounted for as a component of the Company's investment in Grupo TFM. These
contracts were intended to hedge only a portion of the Company's exposure
related to the final installment of the purchase price and not any other
transactions or balances.
Prior to January 1, 1999, Mexico's economy was classified as "highly
inflationary" as defined in SFAS 52. Accordingly, under the highly inflationary
accounting guidance in SFAS 52, the U.S. dollar was used as Grupo TFM's
functional currency, and any gains or losses from translating Grupo TFM's
financial statements into U.S. dollars were included in the determination of its
net income (loss). Equity earnings (losses) from Grupo TFM included in the
Company's results of operations reflected the Company's share of such
translation gains and losses.
<PAGE>66
Effective January 1, 1999, the SEC staff declared that Mexico should no longer
be considered a highly inflationary economy. Accordingly, the Company performed
an analysis under the guidance of SFAS 52 to determine whether the U.S. dollar
or the Mexican peso should be used as the functional currency for financial
accounting and reporting purposes for periods subsequent to December 31, 1998.
Based on the results of the analysis, management believes the U.S. dollar to be
the appropriate functional currency for the Company's investment in Grupo TFM;
therefore, the financial accounting and reporting of the operating results of
Grupo TFM will remain consistent with prior periods.
Because the Company is required to report equity in Grupo TFM under GAAP and
Grupo TFM reports under International Accounting Standards, fluctuations in
deferred income tax calculations occur based on translation requirements and
differences in accounting standards. The deferred income tax calculations are
significantly impacted by fluctuations in the relative value of the Mexican peso
versus the U.S. dollar and the rate of Mexican inflation, and can result in
significant variances in the amount of equity earnings (losses) reported by the
Company.
Nelson and Janus UK operate principally in the United Kingdom and their
financial statements are presented using the British pound as the functional
currency. Any gains or losses arising from transactions not denominated in the
British pound are recorded as a foreign currency gain or loss and included in
the results of operations of Nelson and Janus UK. The translation of the
respective company's financial statements from the British pound into the U.S.
dollar results in an adjustment to stockholders' equity as a cumulative
translation adjustment. At December 31, 1999 and 1998, the cumulative
translation adjustments were not material.
The Company continues to evaluate existing alternatives with respect to
utilizing foreign currency instruments to hedge its U.S. dollar investment in
Grupo TFM, and Nelson as market conditions change or exchange rates fluctuate.
At December 31, 1999 and 1998, the Company had no outstanding foreign currency
hedging instruments.
Pensions and Other Postretirement Benefits. Statement of Financial Accounting
Standards No. 132 "Employers' Disclosure about Pensions and Other Postretirement
Benefits - an amendment of FASB Statements No. 87, 88, and 106" ("SFAS 132") was
adopted by the Company in 1998 and prior year information has been included
pursuant to SFAS 132. SFAS 132 establishes standardized disclosure requirements
for pension and other postretirement benefit plans, requires additional
information on changes in the benefit obligations and fair values of plan
assets, and eliminates certain disclosures that are no longer considered useful.
The standard does not change the measurement or recognition of pension or
postretirement benefit plans. The adoption of SFAS 132 did not have a material
impact on the Company's disclosures.
Segment Disclosures. In 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the manner in which public business enterprises report information about
operating segments in annual financial statements and requires disclosure of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS 131 did not have a material impact on the Company's
disclosures. Segment financial information is included in Note 1 and Note 14 to
the consolidated financial statements included under Item 8 of this Form 10-K
and prior year information has been restated according to the provisions of SFAS
131.
Comprehensive Income. Effective January 1, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130"), which establishes standards for reporting
and disclosure of comprehensive income and its components in the financial
statements. Prior year information has been included pursuant to
<PAGE>67
SFAS 130. The Company's other comprehensive income consists primarily of
unrealized gains and losses relating to investments held by DST and accounted
for as "available for sale" securities as defined by SFAS 115. The Company
records its proportionate share of any unrealized gains or losses related to
these investments, net of deferred income taxes, in stockholders' equity as
accumulated other comprehensive income. The unrealized gain related to these
investments increased $63.8 million, $39.5 million, and $42.6 million ($38.4
million, $24.3 million, and $26.1 million, net of deferred taxes) for the years
ended December 31, 1999, 1998 and 1997, respectively.
Minority Rights. In EITF 96-16, the Financial Accounting Standards Board
("FASB") reached a consensus that substantive minority rights which provide a
minority stockholder with the right to effectively control significant decisions
in the ordinary course of an investee's business could impact whether the
majority stockholder should consolidate the investee. After evaluation of the
rights of the minority stockholders of its consolidated subsidiaries and in
particular the contractual rights of Mr. Bailey described in "Other - Janus
Capital Corporation", KCSI management concluded that application of EITF 96-16
did not affect the Company's consolidated financial statements. This conclusion
with respect to Janus is currently under discussion with the Staff of the SEC
and, accordingly, is subject to change. Upon resolution of this matter, the
Company expects to file an amendment to this Form 10-K. If the consolidation of
Janus is discontinued, the Company will restate certain of its financial
statements. If Janus continues to be consolidated, the amendment is expected to
include an opinion of counsel supporting consolidation. See Notes 12 and 13 to
the consolidated financial statements.
Internally Developed Software. In 1998, the Company adopted the guidance
outlined in American Institute of Certified Public Accountant's Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that computer
software costs incurred in the preliminary project stage, as well as training
and maintenance costs be expensed as incurred. This guidance also requires that
direct and indirect costs associated with the application development stage of
internal use software be capitalized until such time that the software is
substantially complete and ready for its intended use. Capitalized costs are to
be amortized on a straight-line basis over the useful life of the software. The
adoption of this guidance did not have a material impact on the Company's
results of operations, financial position or cash flows.
Derivative Instruments. In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative financial instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities measured at fair
value. The FASB amended SFAS 133 to require adoption for all fiscal quarters of
fiscal years beginning after June 15, 2000 and to preclude retroactive
applications prior to adoption. The Company expects adoption of SFAS 133 by the
required date. The adoption of SFAS 133 is not expected to have a material
impact on the Company's results of operations, financial position or cash flows.
Litigation. The Company and its subsidiaries are involved as plaintiff or
defendant in various legal actions arising in the normal course of business.
While the ultimate outcome of the various legal proceedings involving the
Company and its subsidiaries cannot be predicted with certainty, it is the
opinion of management (after consultation with legal counsel) that the Company's
litigation reserves are adequate and that these legal actions currently are not
material to the Company's consolidated results of operations, financial position
or cash flows. The following outlines two significant ongoing cases:
Duncan Case
In 1998, a jury in Beauregard Parish, Louisiana returned a verdict against KCSR
in the amount of $16.3 million. The Louisiana state case arose from a railroad
crossing accident which occurred at
<PAGE>68
Oretta, Louisiana on September 11, 1994, in which three individuals were
injured. Of the three, one was injured fatally, one was rendered quadriplegic
and the third suffered less serious injuries.
Subsequent to the verdict, the trial court held that the plaintiffs were
entitled to interest on the judgment from the date the suit was filed, dismissed
the verdict against one defendant and reallocated the amount of that verdict to
the remaining defendants. The resulting total judgment against KCSR, together
with interest, was $27.0 million as of December 31, 1999.
On November 3, 1999, the Third Circuit Court of Appeals in Louisiana affirmed
the judgment. Review is now being sought in the Louisiana Supreme Court. On
March 24, 2000, the Louisiana Supreme Court granted KCSR's Application for a
Writ of Review regarding this case. Independent trial counsel has expressed
confidence to KCSR management that the Louisiana Supreme Court will set aside
the district court and court of appeals judgments in this case. KCSR management
believes it has meritorious defenses and that it will ultimately prevail in
appeal to the Louisiana Supreme Court. If the verdict were to stand, however,
the judgment and interest are in excess of existing insurance coverage and could
have an adverse effect on the Company's consolidated results of operations,
financial position and cash flows.
Bogalusa Cases
In July 1996, KCSR was named as one of twenty-seven defendants in various
lawsuits in Louisiana and Mississippi arising from the explosion of a rail car
loaded with chemicals in Bogalusa, Louisiana on October 23, 1995. As a result of
the explosion, nitrogen dioxide and oxides of nitrogen were released into the
atmosphere over parts of that town and the surrounding area causing evacuations
and injuries. Approximately 25,000 residents of Louisiana and Mississippi have
asserted claims to recover damages allegedly caused by exposure to the
chemicals.
KCSR neither owned nor leased the rail car or the rails on which it was located
at the time of the explosion in Bogalusa. KCSR did, however, move the rail car
from Jackson to Vicksburg, Mississippi, where it was loaded with chemicals, and
back to Jackson where the car was tendered to the IC. The explosion occurred
more than 15 days after the Company last transported the rail car. The car was
loaded in excess of its standard weight, but under the car's capacity, when it
was transported by the Company to interchange with the IC.
The trial of a group of twenty plaintiffs in the Mississippi lawsuits arising
from the chemical release resulted in a jury verdict and judgment in favor of
KCSR in June 1999. The jury found that KCSR was not negligent and that the
plaintiffs had failed to prove that they were damaged. The trial of the
Louisiana class action is scheduled to commence on June 11, 2001. No date has
been scheduled for the trial of the additional plaintiffs in Mississippi.
KCSR believes that its exposure to liability in these cases is remote. If KCSR
were to be found liable for punitive damages in these cases, such a judgment
could have a material adverse effect on the results of operations, financial
position and cash flows of the Company.
Environmental Matters. Certain of the Company's subsidiaries are subject to
extensive regulation under environmental protection laws concerning, among other
things, discharges to waters and the generation, handling, storage,
transportation and disposal of waste and other materials where environmental
risks are inherent. In particular, the Company is subject to various laws and
certain legislation including, 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. This
legislation generally imposes joint and several liability for clean up and
enforcement costs, without regard to fault or legality of the original conduct,
on current and predecessor owners and operators of a site. The Company does not
foresee that compliance with the requirements imposed by the environmental
legislation will impair its competitive capability or
<PAGE>69
result in any material additional capital expenditures, operating or maintenance
costs. As part of serving the petroleum and chemicals industry, KCSR transports
hazardous materials and has a Shreveport, Louisiana-based hazardous materials
emergency team available to handle environmental issues that might occur in the
transport of such materials. Additionally, the Company performs ongoing review
and evaluation of the various environmental issues that arise in the Company's
operations, and, as necessary, takes actions to limit the Company's exposure to
potential liability.
In November 1997, representatives of KCSR and the United States Environmental
Protection Agency ("EPA") met at the site of two, contiguous pieces of property
in North Baton Rouge, Louisiana, abandoned leaseholds of Western Petrochemicals
and Export Drum. These properties had been the subjects of voluntary clean up
prior to the EPA's involvement. The site visit prompted KCSR to obtain from the
EPA, through the Freedom of Information Act, a "Preliminary Assessment Report"
concerning the properties, dated January, 1995, and directing a "Site
Investigation." The EPA's November 1997 visit to the site was the start of that
"Site Investigation." During the November 1997 site visit, the EPA indicated it
intended to recover, through litigation, all of its investigation and
remediation costs. At KCSR's request, the EPA agreed informally to suspend its
investigation pending an exchange of information and negotiation of KCSR's
participation in the "Site Investigation." Based upon advice subsequently
received from the Inactive and Abandoned Sites Division of the Louisiana
Department of Environmental Quality ("LADEQ"), KCSR will be allowed to undertake
the investigation and remediation of the site, pursuant to the LADEQ's
guidelines and oversight. As a result of the EPA's and LADEQ's involvement, and
the investigation and remediation of the sites pursuant to LADEQ's oversight and
guidelines, the ultimate costs to KCSR are expected to be higher than originally
anticipated. The expected costs have been provided for in the Company's
consolidated financial statements and completion of the site remediation
(scheduled to begin in March 2000) is not expected to have a material impact on
the Company's consolidated results of operations, financial position or cash
flows.
In another proceeding, KCSR is responsible for the clean up and closure of a
facility in Port Arthur, Texas formerly leased by "Port Drum" for the
reconditioning of drums. A comprehensive environmental sampling of this site
indicated contamination of the soils and shallow groundwater with heavy metals
and petroleum. KCSR filed a lawsuit against "Port Drum" and other potentially
responsible parties, which was mediated and settled in favor of KCSR. The terms
of this settlement provided for "Port Drum" and its principals to contribute
significant funds toward the cost of cleanup but provided that KCSR complete the
investigations, remediation and demolition of the facility. KCSR submitted to
the Texas Natural Resource Conservation Commission ("TNRCC") the final
risk-based closure and post-closure plan for this site. TNRCC has responded to
the KCSR plan and is requiring that a treatability study be performed prior to
approval of the closure plan. KCSR expects to complete this study in the first
half of 2000. TNRCC final approval, as well as implementation is expected in
2000. Estimated costs to complete the study, remediation, closure and
post-closure monitoring of the facility, beyond those funds provided by "Port
Drum", have been provided for in the Company's consolidated financial statements
and completion is not expected to have a material impact on the Company's
consolidated results of operations, financial position or cash flows.
As previously reported, KCSR has been named as a "potentially responsible party"
by the Louisiana Department of Environmental Quality in a state environmental
proceeding, Louisiana Department of Environmental Quality, Docket No. IAS
88-0001-A, involving a location near Bossier City, Louisiana, which was the site
of a wood preservative treatment plant (Lincoln Creosoting). KCSR is a former
owner of part of the land in question. This matter was the subject of a trial in
the U.S. District Court in Shreveport, Louisiana that was concluded in July
1993. The court found that Joslyn Manufacturing Company ("Joslyn"), an operator
of the plant, was and is required to indemnify KCSR for damages arising out of
plant operations. (KCSR's potential liability is as a
<PAGE>70
property owner rather than as a generator or transporter of contaminants.) The
case was appealed to the U.S. Court of Appeals for the Fifth Circuit, which
Court affirmed the U.S. District Court ruling in favor of KCSR.
In early 1994, the EPA added the Lincoln Creosoting site to its CERCLA national
priority list. Since Joslyn has performed major remedial work at this site, and
KCSR has been held to be entitled to indemnity for such costs by the Federal
District and Appeals Courts, it would appear that KCSR should not incur
significant remedial liability. At this time, it is not possible to evaluate the
potential consequences of further remediation at the site.
The Louisiana Department of Transportation ("LDOT") has sued KCSR and a number
of other defendants in Louisiana state court to recover clean-up costs incurred
by LDOT while constructing Interstate Highway 49 at Shreveport, Louisiana
(Louisiana Department of Transportation v. The Kansas City Southern Railway
Company, et al., Case No. 417190-B in the First Judicial District Court, Caddo
Parish, Louisiana). The clean up was associated with an old oil refinery site,
operated by the other named defendants. KCSR's main line was adjacent to that
site, and KCSR was included in the suit because LDOT claims that a 1966
derailment on the adjacent track released hazardous substances onto the site.
However, there is evidence that the derailment occurred on the side of the track
opposite from the refinery site. Furthermore, there appears to be no
relationship between the lading on the derailed train and any contaminants
identified at the site. Therefore, management believes that the Company's
exposure is limited.
In another proceeding, Louisiana Department of Environmental Quality, Docket No.
IE-0-91-0001, KCSR was named as a party in the alleged contamination of Capitol
Lake in Baton Rouge, Louisiana. During 1994, the list of potentially responsible
parties was significantly expanded to include the State of Louisiana, and the
City and Parish of Baton Rouge, among others. Studies commissioned by KCSR
indicate that contaminants contained in the lake were not generated by KCSR.
Management and counsel do not believe this proceeding will have a material
effect on the Company.
In the Ilada Superfund Site located in East Cape Girardeau, Ill., KCSR was cited
for furnishing one carload of used oil to this petroleum recycling facility.
Counsel advises that KCSR's liability, if any, should fall within the "de
minimus" provisions of the Superfund law, representing minimal exposure.
The Mississippi Department of Environmental Quality ("MDEQ") initiated a demand
on all railroads operating in Mississippi to clean up their refueling facilities
and investigate any soil and groundwater impacts resulting from past refueling
activities. KCSR has six facilities located in Mississippi. KCSR has developed a
plan, together with the State of Mississippi, that will satisfy the MDEQ's
initiative. Estimated costs to complete the studies and expected remediation
have been provided for in the Company's consolidated financial statements and
the resolution is not expected to have a material impact on the Company's
consolidated results of operations or financial position.
The Illinois Environmental Protection Agency ("IEPA") has sued the Gateway
Western for alleged violations of state environmental laws relating to the 1997
spill of methyl isobutyl carbinol in the East St. Louis yard. During switching
operations a tank car carrying this chemical was punctured and approximately
18,000 gallons were released. Emergency clean up and removal of liquids and
contaminated soils occurred within two weeks and remaining residues of carbinol
in the soil and shallow groundwater were confined almost entirely to the Gateway
Western property. Remediation continues and progress is reported to the IEPA on
a quarterly basis and will continue until IEPA clean-up standards have been
achieved. Remediation is expected to be complete in 2000 and estimated costs
have been provided for in the Company's consolidated financial statements. The
parties reached a tentative negotiated settlement of the lawsuit in November
1998, which provides
<PAGE>71
that the Gateway Western pay a penalty and further, that it fund a Supplemental
Environmental Project in St. Claire County, Illinois. The clean up costs and the
settlement of the lawsuit are not expected to have a material impact on the
Company's consolidated results of operations, financial position or cash flows.
The Company has recorded liabilities with respect to various environmental
issues, which represent its best estimates of remediation and restoration costs
that may be required to comply with present laws and regulations. At December
31, 1999, these recorded liabilities were not material. 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 results of operations, financial condition or cash flows.
Regulatory Influence. In addition to the environmental agencies mentioned above,
KCSR operations are regulated by the STB, various state regulatory agencies, and
the Occupational Safety and Health Administration ("OSHA"). State agencies
regulate some aspects of rail operations with respect to health and safety and
in some instances, intrastate freight rates. OSHA has jurisdiction over certain
health and safety features of railroad operations.
KCSR expects its railroad operations to be subject to future requirements
regulating exhaust emissions from diesel locomotives that may increase its
operating costs. During 1995 the EPA issued proposed regulations applicable to
locomotive engines. These regulations, which were issued as final in early 1998,
will be effective in stages for new or remanufactured locomotive engines
installed after 2000. KCSR has reviewed these new regulations and management
does not expect that compliance with these regulations will have a material
impact on the Company's results of operations.
Virtually all aspects of Stilwell's business is subject to various laws and
regulations. Applicable laws include the Investment Company Act of 1940, the
Investment Advisers Act of 1940, the Securities Act of 1933, the Securities and
Exchange Act of 1934, Employee Retirement Income Security Act of 1974, as
amended and various other state securities and related laws (including laws in
the United Kingdom). Applicable regulations include, but are not limited to, in
the United States, the rules and regulations of the SEC, the Department of
Labor, securities exchanges and the National Association of Securities Dealers,
and in the United Kingdom, the Investment Management Regulatory Organization
Limited, the Personal Investment Authority and the Financial Services Authority.
The Company does not foresee that regulatory compliance under present statutes
will impair its competitive capability or result in any material effect on
results of operations.
Inflation. Inflation has not had a significant impact on the Company's
operations in the past three years. Generally accepted accounting principles
require the use of historical costs. Replacement cost and related depreciation
expense of the Company's property would be substantially higher than the
historical costs reported. Any increase in expenses from these fixed costs,
coupled with variable cost increases due to significant inflation, would be
difficult to recover through price increases given the competitive environments
of the Company's principal subsidiaries. See "Foreign Exchange Matters" above
with respect to inflation in Mexico.
<PAGE>72
Item 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company utilizes various financial instruments that entail certain inherent
market risks. Generally, these instruments have not been entered into for
trading purposes. The following information, together with information included
in Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 12 to the Company's consolidated financial
statements in this Form 10-K, describe the key aspects of certain financial
instruments which have market risk to the Company.
Interest Rate Sensitivity
The Company's interest sensitive liabilities include its long-term fixed and
floating-rate debt obligations. As discussed in "Recent Developments" in Item 7
above, on December 6, 1999, KCSI commenced offers to purchase and consent
solicitations with respect to any and all of the Company's outstanding 7.875%
Notes due July 1, 2002, 6.625% Notes due March 1, 2005, 8.8% Debentures due July
1, 2022, and 7% Debentures due December 15, 2025 (collectively "Debt Securities"
or "notes and debentures"). Approximately $398.4 million of the $400 million
outstanding Debt Securities were validly tendered and accepted by the Company.
Total consideration paid for the repurchase of these outstanding notes and
debentures was $401.2 million. Funding for the repurchase of these Debt
Securities and for the repayment of $264 million of borrowings under existing
revolving credit facilities was obtained from two new credit facilities ("KCS
Credit Facility" and "Stilwell Credit Facility" - collectively "New Credit
Facilities") each of which was entered into on January 11, 2000. Accordingly,
the Company's ongoing interest exposure under fixed rate debt obligations is not
material.
At December 31, 1999, the Company's floating-rate indebtedness totaled $278
million. However, as discussed above, the Company funded the payment of $665
million to retire the Debt Securities and repay amounts outstanding on other
floating-rate indebtedness with borrowings under the New Credit Facilities. The
New Credit Facilities, comprised of different tranches and types of
indebtedness, charge interest based on target interest indexes (e.g., LIBOR,
federal funds rate, etc.) plus a defined amount of basis points ("applicable
spread"), as set forth in the respective agreement. Due to the high percentage
of variable rate debt associated with the restructuring of the Company's debt,
the Company will be more sensitive to fluctuations in interest rates than in
recent years.
A hypothetical 100 basis points increase in each of the respective target
interest indexes would result in additional interest expense of approximately $7
million on an annualized basis for the floating-rate instruments assumed to be
outstanding as of December 31, 1999 given the January 11, 2000 transaction. In
1998, a 100 basis points increase in interest rates would have resulted in
additional interest expense of approximately $3.4 million.
Certain provisions of the KCS Credit Facility require the Company to manage its
interest rate risk exposure through the use of hedging instruments for a portion
of its outstanding borrowings. Accordingly, in first quarter 2000 the Company
entered into five separate interest rate cap agreements for an aggregate
notional amount of $200 million expiring on various dates in 2002. The interest
rate caps are linked to LIBOR. $100 million of the aggregate notional amount is
limited to an interest rate of 7.25% plus the applicable spread, while $100
million is limited to an interest rate of 7% plus the applicable spread.
Counterparties to the interest rate cap agreements are major financial
institutions who are also participants in the New Credit Facilities. Credit loss
from counterparty non-performance is not anticipated. There were no interest
rate cap or swap agreements in place at December 31, 1998.
<PAGE>73
Based upon the borrowing rates currently available to the Company and its
subsidiaries for indebtedness with similar terms and average maturities, the
fair value of long-term debt after consideration of the January 11, 2000
transaction was approximately $766 million at December 31, 1999. The fair value
of long-term debt was $867 million at December 31, 1998.
Commodity Price Sensitivity
KCSR has a program to hedge against fluctuations in the price of its diesel fuel
purchases. This program is primarily completed using various swap or cap
transactions. These transactions are typically based on the price of heating oil
#2, which the Company believes to produce a high correlation to the price of
diesel fuel. These transactions are generally settled monthly in cash with the
counterparty.
Additionally, from time to time, KCSR enters into forward purchase commitments
for diesel fuel as a means of securing volumes at competitive prices. These
contracts normally require the Company to purchase defined quantities of diesel
fuel at prices established at the origination of the contract.
At the end of 1999, the Company had no outstanding diesel fuel purchase
commitments for 2000. At December 31, 1999, the Company had entered into two
diesel fuel cap transactions for a total of six million gallons (approximately
10% of expected 2000 usage) at a cap price of $0.60 per gallon. The caps are
effective January 1, 2000 through June 30, 2000. At December 31, 1998, the
Company had forward diesel fuel purchase commitments for approximately 21
million gallons at a weighted average price of $0.45 per gallon, as well as 10
million gallons under fuel swap agreements with a weighted average price of
$0.44 per gallon. The contract prices do not include taxes, transportation costs
or other incremental fuel handling costs.
The unrecognized gain related to the diesel fuel caps based on the average price
of heating oil #2 approximated $0.6 million at December 31, 1999, compared to a
$1.2 million unrecognized loss related to diesel fuel swaps at December 31,
1998.
At December 31, 1999, the Company held fuel inventories for use in normal
operations. These inventories were not material to the Company's overall
financial position. However, fuel costs in early 2000 are expected to continue
to increase based on higher market prices for fuel.
Foreign Exchange Sensitivity
The Company owns an approximate 37% interest in Grupo Transportacion Ferroviaria
Mexicana, S.A. de C.V. ("Grupo TFM"), incorporated in Mexico and an 80% interest
in Nelson Money Managers Plc ("Nelson"), a United Kingdom based financial
services corporation. Also, Janus owns 100% of Janus Capital International (UK)
Limited ("Janus UK"), a United Kingdom based company. In connection with these
investments, matters arise with respect to financial accounting and reporting
for foreign currency transactions and for translating foreign currency financial
statements into U.S. dollars. Therefore, the Company has exposure to
fluctuations in the value of the Mexican peso and the British pound.
Prior to January 1, 1999, Mexico's economy was classified as "highly
inflationary" as defined in Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation" ("SFAS 52"). Accordingly, under the highly
inflationary accounting guidance in SFAS 52, the U.S. dollar was used as Grupo
TFM's functional currency, and any gains or losses from translating Grupo TFM's
financial statements into U.S. dollars were included in the determination of its
net income (loss). Equity earnings (losses) from Grupo TFM included in the
Company's results of operations reflected the Company's share of such
translation gains and losses.
Effective January 1, 1999, the Securities and Exchange Commission ("SEC") staff
declared that Mexico should no longer be considered a highly inflationary
economy. Accordingly, the Company performed an analysis under the guidance of
SFAS 52 to determine whether the U.S. dollar or the
<PAGE>74
Mexican peso should be used as the functional currency for financial accounting
and reporting purposes for periods subsequent to December 31, 1998. Based on the
results of the analysis, management believes the U.S. dollar to be the
appropriate functional currency for the Company's investment in Grupo TFM;
therefore, the financial accounting and reporting of the operating results of
Grupo TFM will remain consistent with prior periods.
With respect to Nelson and Janus UK, as the relative price of the British pound
fluctuates versus the U.S. dollar, the Company's proportionate share of the
earnings or losses of these companies are affected. The following table provides
an example of the potential impact of a 10% change in the price of the British
pound assuming that each of these United Kingdom companies has earnings of
(Pound) 1,000 and using its ownership interest at December 31, 1999. The British
pound is the functional currency.
<TABLE>
Janus UK Nelson
<S> <C> <C>
Assumed Earnings (Pound) 1,000 (Pound) 1,000
Exchange Rate (to U.S. $) (Pound) 0.5 to $1 (Pound)0.5 to $1
-------------------- ---------------------
Converted U.S. Dollars $ 2,000 $ 2,000
Ownership Percentage 100% 80%
-------------------- ---------------------
Assumed Earnings $ 2,000 $ 1,600
-------------------- ---------------------
Assumed 10% increase in Exchange Rate (Pound) 0.55 to $1 (Pound) 0.55 to $1
-------------------- ---------------------
Converted to U.S. Dollars $ 1,818 $ 1,818
Ownership Percentage 100% 80%
-------------------- ---------------------
Assumed Earnings $ 1,818 $ 1,454
-------------------- ---------------------
Effect of 10% increase in Exchange Rate $ (182) $ (146)
==================== =====================
</TABLE>
The impact of changes in exchange rates on the balance sheet are reflected in a
cumulative translation adjustment account as a part of accumulated other
comprehensive income and do not affect earnings.
While not currently utilizing foreign currency instruments to hedge its U.S.
dollar investments in Grupo TFM, Nelson and Janus UK, the Company continues to
evaluate existing alternatives as market conditions and exchange rates
fluctuate.
Available for Sale Investment Sensitivity
Both Janus and Berger have invested a portion of their net income in certain of
their respective (non-money market) advised funds. These investments are
generally classified as available for sale securities pursuant to Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Accordingly, these investments are carried in the
Company's consolidated financial statements at fair market value and are subject
to the investment performance of the underlying sponsored fund. Any unrealized
gain or loss is recognized upon the sale of the investment.
Additionally, DST, a 32% owned equity investment, holds available for sale
investments that may affect the Company's consolidated financial statements.
Similarly to the Janus and Berger securities, any changes to the market value of
the DST available for sale investments are reflected, net of tax, in DST's
"accumulated other comprehensive income" component of its equity. Accordingly,
the Company records its proportionate share of this amount as part of the
investment in DST. While these changes in market value do not result in any
impact to the Company's
<PAGE>75
consolidated results of operations currently, upon disposition by DST of these
investments, the Company will record its proportionate share of the gain or loss
as a component of equity earnings.
Equity Price Sensitivity
As noted above, the Company owns 32% of DST, a publicly traded company. While
changes in the market price of DST are not reflected in the Company's
consolidated results of operation or financial position, they may affect the
perceived value of the Company's common stock. Specifically, the DST market
value at any given point in time multiplied by the Company's ownership
percentage provides an amount, which when divided by the outstanding number of
KCSI common shares, derives a per share "value" presumably attributable to the
Company's investment in DST. Fluctuations in this "value" as a result of changes
in the DST market price may affect the Company's stock price.
The revenues earned by Janus, Berger and Nelson are dependent on the underlying
assets under management in the funds to which investment advisory services are
provided. The portfolio of investments included in these various funds includes
combinations of equity, bond and other types of securities. Fluctuations in the
value of these various securities are common and are generated by numerous
factors, including, among others, market volatility, the overall economy,
inflation, changes in investor strategies, availability of alternative
investment vehicles, and others. Accordingly, declines in any one or a
combination of these factors, or other factors not separately identified, may
reduce the value of investment securities and, in turn, the underlying assets
under management on which Financial Services revenues are earned.
<PAGE>76
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Management Report on Responsibility for Financial Reporting................ 77
Financial Statements:
Report of Independent Accountants..................................... 77
Consolidated Statements of Operations and Comprehensive
Income for the three years ended December 31, 1999.................. 78
Consolidated Balance Sheets at December 31, 1999
1998 and 1997....................................................... 79
Consolidated Statements of Cash Flows for the three
years ended December 31, 1999....................................... 80
Consolidated Statements of Changes in Stockholders'
Equity for the three years ended December 31, 1999.................. 81
Notes to Consolidated Financial Statements............................ 82
Financial Statement Schedules:
All schedules are omitted because they are not applicable, insignificant or
the required information is shown in the consolidated financial statements
or notes thereto.
The consolidated financial statements and related notes, together with the
Report of Independent Accountants, of DST Systems, Inc. (an approximate 32%
owned affiliate of the Company accounted for under the equity method) for
the year ended December 31, 1999, which are included in the DST Systems,
Inc. Annual Report on Form 10-K for the year ended December 31, 1999
(Commission File No. 1-14036) have been incorporated by reference in this
Form 10-K as Exhibit 99.1.
<PAGE>77
Management Report on Responsibility for Financial Reporting
The accompanying consolidated financial statements and related notes of Kansas
City Southern Industries, Inc. and its subsidiaries were prepared by management
in conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the financial statements, management has made
judgments and estimates based on currently available information. Management is
responsible for not only the financial information, but also all other
information in this Annual Report on Form 10-K. Representations contained
elsewhere in this Annual Report on Form 10-K are consistent with the
consolidated financial statements and related notes thereto.
The Company has a formalized system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and that its financial
records are reliable. Management monitors the system for compliance, and the
Company's internal auditors measure its effectiveness and recommend possible
improvements thereto. In addition, as part of their audit of the consolidated
financial statements, the Company's independent accountants, who are selected by
the stockholders, review and test the internal accounting controls on a
selective basis to establish the extent of their reliance thereon in determining
the nature, extent and timing of audit tests to be applied.
The Board of Directors pursues its oversight role in the area of financial
reporting and internal accounting control through its Audit Committee. This
committee, composed solely of non-management directors, meets regularly with the
independent accountants, management and internal auditors to monitor the proper
discharge of responsibilities relative to internal accounting controls and to
evaluate the quality of external financial reporting.
Report of Independent Accountants
To the Board of Directors and Stockholders of
Kansas City Southern Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, of changes in
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of Kansas City Southern Industries, Inc. and its
subsidiaries at December 31, 1999, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, effective
December 31, 1997 the Company changed its method of evaluating the
recoverability of goodwill. We concur with the change in accounting.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
March 16, 2000
<PAGE>78
<TABLE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Years Ended December 31
Dollars in Millions, Except per Share Amounts
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 1,813.7 $ 1,284.3 $ 1,058.3
Costs and expenses 1,139.0 816.3 680.2
Depreciation and amortization 92.3 73.5 75.2
Restructuring, asset impairment
and other charges 196.4
------------ ------------ ------------
Operating income 582.4 394.5 106.5
Equity in net earnings (losses) of unconsolidated
affiliates (Notes 3, 6, 13):
DST Systems, Inc. 44.4 24.3 24.3
Grupo Transportacion Ferroviaria
Mexicana, S.A. de C.V. 1.5 (3.2) (12.9)
Other 6.0 1.8 3.8
Interest expense (63.3) (66.1) (63.7)
Reduction in ownership of DST Systems, Inc. (29.7)
Other, net 32.7 32.8 21.2
------------ ------------ ------------
Pretax income 603.7 354.4 79.2
Income tax provision (Note 9) 223.1 130.8 68.4
Minority interest in consolidated
earnings (Notes 12, 13) 57.3 33.4 24.9
------------ ------------ ------------
Net income (loss) 323.3 190.2 (14.1)
Other comprehensive income, net of income tax:
Unrealized gain on securities 38.4 24.3 26.1
Less: reclassification adjustment for
gains included in net income (4.4) (0.2) (0.2)
------------ ------------ ------------
Comprehensive income $ 357.3 $ 214.3 $ 11.8
============ ============ =============
Per Share Data (Note 2):
Basic earnings (loss) per share $ 2.93 $ 1.74 $ (0.13)
============ ============ =============
Diluted earnings (loss) per share $ 2.79 $ 1.66 $ (0.13)
============ ============ =============
Weighted average common shares outstanding (in thousands):
Basic 110,283 109,219 107,602
Dilutive potential common shares 3,767 3,840
------------ ------------ ------------
Diluted 114,050 113,059 107,602
============ ============ ============
Dividends per share
Preferred $ 1.00 $ 1.00 $ 1.00
Common $ .16 $ .16 $ .15
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>79
<TABLE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
at December 31
Dollars in Millions, Except per Share Amounts
1999 1998 1997
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and equivalents $ 336.1 $ 144.1 $ 109.4
Investments in advised funds (Note 7) 23.9 32.2 24.4
Accounts receivable, net (Note 7) 287.9 208.4 177.0
Inventories 40.5 47.0 38.4
Other current assets (Note 7) 45.1 37.8 23.9
------------ ------------ ------------
Total current assets 733.5 469.5 373.1
Investments held for operating purposes (Notes 3, 6) 811.2 707.1 683.5
Properties, net (Notes 4, 7) 1,347.8 1,266.7 1,227.2
Intangibles and Other Assets, net (Notes 3, 4, 7) 196.4 176.4 150.4
------------ ------------ ------------
Total assets $ 3,088.9 $ 2,619.7 $ 2,434.2
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year (Note 8) $ 10.9 $ 10.7 $ 110.7
Accounts and wages payable 199.1 125.8 109.0
Accrued liabilities (Notes 4, 7) 206.7 159.7 217.8
------------ ------------ ------------
Total current liabilities 416.7 296.2 437.5
------------ ------------ ------------
Other Liabilities:
Long-term debt (Note 8) 750.0 825.6 805.9
Deferred income taxes (Note 9) 449.2 403.6 332.2
Other deferred credits 132.6 128.8 132.1
Commitments and contingencies
(Notes 3, 8, 9, 12, 13)
Total other liabilities 1,331.8 1,358.0 1,270.2
------------ ------------ ------------
Minority Interest in consolidated
subsidiaries (Notes 12, 13) 57.3 34.3 28.2
------------ ------------ ------------
Stockholders' Equity (Notes 2, 5, 8, 10):
$25 par, 4% noncumulative, Preferred stock 6.1 6.1 6.1
$1 par, Series B convertible,
Preferred stock 1.0
$.01 par, Common stock 1.1 1.1 1.1
Retained earnings 1,167.0 849.1 839.3
Accumulated other comprehensive income 108.9 74.9 50.8
Shares held in trust (200.0)
------------ ------------ ------------
Total stockholders' equity 1,283.1 931.2 698.3
------------ ------------ ------------
Total liabilities and stockholders' equity $ 3,088.9 $ 2,619.7 $ 2,434.2
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>80
<TABLE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
Dollars in Millions
1999 1998 1997
------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
Operating Activities:
Net income (loss) $ 323.3 $ 190.2 $ (14.1)
Adjustments to net income (loss):
Depreciation and amortization 92.3 73.5 75.2
Deferred income taxes 21.6 23.2 (16.6)
Equity in undistributed earnings of
unconsolidated affiliates (51.6) (16.8) (15.0)
Minority interest in consolidated earnings 57.3 33.4 24.9
Reduction in ownership of DST 29.7
Restructuring, asset impairment and other charges 196.4
Gain on sale of assets (0.7) (20.2) (6.9)
Employee benefit and deferred compensation
expenses not requiring operating cash 5.2 3.8 8.7
Deferred commissions (29.5)
Changes in working capital items:
Accounts receivable (79.5) (29.9) (29.0)
Inventories 6.5 (8.6) 2.5
Accounts and wages payable 66.1 19.6 (3.1)
Accrued liabilities 53.5 (32.4) 24.4
Other current assets (3.1) (8.2) (2.2)
Other, net (2.6) (1.7) 1.5
-------- -------- --------
Net 458.8 255.6 246.7
-------- -------- --------
Investing Activities:
Property acquisitions (156.7) (104.9) (82.6)
Proceeds from disposal of property 3.0 8.2 7.4
Investments in and loans with affiliates (17.3) (25.3) (303.5)
Net sales (purchases) of investments in
advised funds 16.6 (2.2) (5.0)
Proceeds from disposal of other investments 10.4 0.3
Other, net (4.2) 0.2 4.0
-------- -------- --------
Net (158.6) (113.6) (379.4)
-------- -------- --------
Financing Activities:
Proceeds from issuance of long-term debt 21.8 151.7 339.5
Repayment of long-term debt (97.5) (238.6) (110.1)
Proceeds from stock plans 43.4 30.1 26.6
Stock repurchased (24.6) (50.2)
Distributions to minority stockholders of
consolidated subsidiaries (37.8) (32.8) (12.9)
Cash dividends paid (17.6) (17.8) (15.2)
Other, net 4.1 0.1 (4.5)
-------- -------- --------
Net (108.2) (107.3) 173.2
-------- -------- --------
Cash and Equivalents:
Net increase 192.0 34.7 40.5
At beginning of year 144.1 109.4 68.9
-------- -------- --------
At end of year (Note 5) $ 336.1 $ 144.1 $ 109.4
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>81
<TABLE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars in Millions, Except per Share Amounts
$1 Par Accumulated
$25 Par Series B $.01 Par other Shares
Preferred Preferred Common Retained comprehensive held
stock stock stock earnings income in trust Total
----- ----- ----- -------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ 6.1 $ 1.0 $ 0.4 $ 883.3 $ 24.9 $ (200.0) $ 715.7
Net loss (14.1) (14.1)
Dividends (16.0) (16.0)
Stock repurchased (50.2) (50.2)
3-for-1 stock split 0.7 (0.7) -
Stock plan shares
issued from treasury 3.1 3.1
Stock issued in
acquisition (Note 3) 10.1 10.1
Options exercised
and stock subscribed 23.8 23.8
Other comprehensive income
25.9 25.9
------- ------- ------- ------- -------- -------- ---------
Balance at
December 31, 1997 6.1 1.0 1.1 839.3 50.8 (200.0) 698.3
Net income 190.2 190.2
Dividends (17.7) (17.7)
Stock plan shares
issued from treasury 3.0 3.0
Stock issued in
acquisition (Note 3) 3.2 3.2
Options exercised
and stock subscribed 30.1 30.1
Termination of shares held
in trust (Note 10) (1.0) (199.0) 200.0 -
Other comprehensive income
24.1 24.1
------- ------- ------- ------- -------- -------- ---------
Balance at
December 31, 1998 6.1 - 1.1 849.1 74.9 - 931.2
Net income 323.3 323.3
Dividends (17.9) (17.9)
Stock repurchased (24.6) (24.6)
Options exercised and
stock subscribed 37.1 37.1
Other comprehensive income
34.0 34.0
------- ------- ------- ------- -------- -------- ---------
Balance at
December 31, 1999 $ 6.1 $ - $ 1.1 $ 1,167.0 $ 108.9 $ - $ 1,283.1
======= ======= ======= ======== ======== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>82
KANSAS CITY SOUTHERN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of the Business
Kansas City Southern Industries, Inc. ("Company" or "KCSI") is a diversified
company which reports its financial information in two business segments:
Transportation and Financial Services. The Transportation segment, through its
principal subsidiaries and joint ventures, owns and operates a rail network of
approximately 6,000 miles of main and branch lines that link the key commercial
and industrial markets of the United States and Mexico. The businesses
comprising the Financial Services segment offer a variety of asset management
and related financial services to registered investment companies, retail
investors, institutions and individuals. Note 14 provides condensed segment
financial information.
Tax Ruling for Separation. On July 9, 1999, KCSI received a tax ruling from the
Internal Revenue Service ("IRS") to the effect that for United States federal
income tax purposes, the planned separation of the Financial Services segment
from KCSI through a pro-rata distribution of Stilwell Financial, Inc.
("Stilwell") common stock to KCSI stockholders (the "Separation") qualifies as a
tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as
amended. Additionally, in February 2000, the Company received a favorable
supplementary tax ruling from the IRS to the effect that the assumption of $125
million of KCSI debt by Stilwell (in connection with the Company's
re-capitalization of its debt structure as discussed in Note 16) would have no
effect on the previously issued tax ruling.
TRANSPORTATION
Kansas City Southern Lines, Inc. ("KCSL"), a wholly-owned subsidiary of the
Company, is the holding company for Transportation segment subsidiaries and
affiliates. This segment includes, among others:
o The Kansas City Southern Railway Company ("KCSR"), a wholly-owned subsidiary;
o Gateway Western Railway Company ("Gateway Western"), a wholly-owned
subsidiary;
o Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), a 37%
owned affiliate, which owns 80% of the common stock of TFM, S.A. de C.V.
("TFM");
o Mexrail, Inc. ("Mexrail"), a 49% owned affiliate, which wholly owns the Texas
Mexican Railway Company ("Tex Mex");
o Southern Capital Corporation, LLC ("Southern Capital"), a 50% owned affiliate
and
o Panama Canal Railway Company ("PCRC"), a 50% owned affiliate.
KCSL, along with its principal subsidiaries and joint ventures, owns and
operates a rail network of approximately 6,000 miles of main and branch lines
that link key commercial and industrial markets in the United States and Mexico.
Its strategic alliance with the Canadian National Railway Company and Illinois
Central Corporation and other marketing agreements has expanded its reach to
comprise a contiguous rail network of approximately 25,000 miles of main and
branch lines connecting Canada, the United States and Mexico.
KCSL's rail network connects shippers in the midwestern and eastern United
States and Canada, including shippers utilizing Chicago and Kansas City -- the
two largest rail centers in the United States -- with the largest industrial
centers of Canada and Mexico, including Toronto, Edmonton, Mexico City and
Monterrey. KCSL's system, through its core network, strategic alliances and
marketing partnerships, interconnects with all Class I railroads in North
America.
<PAGE>83
KCSL's principal subsidiaries and investments are as follows:
o KCSR, which traces its origins to 1887, operates a Class I Common Carrier
railroad system in the United States, from the Midwest to the Gulf of
Mexico and on an East-West axis from Meridian, Mississippi to Dallas,
Texas. KCSR offers the shortest route between Kansas City and major port
cities along the Gulf of Mexico in Louisiana, Mississippi and Texas, and
its customer base includes electric generating utilities and a wide range
of companies in the chemical and petroleum industries, agricultural and
mineral industries, paper and forest product industries, automotive
product and intermodal industries, among others. KCSR, in conjunction with
the Norfolk Southern Corporation, operates the most direct rail route,
referred to as the "Meridian Speedway", linking the Atlanta and Dallas
gateways for traffic moving between the rapidly-growing southeast and
southwest regions of the United States. The "Meridian Speedway" also
provides eastern shippers and other U.S. and Canadian railroads with an
efficient connection to Mexican markets.
o Gateway Western, a regional common carrier system which links Kansas City
with East St. Louis and Springfield, Illinois, provides key interchanges
with the majority of other Class I railroads. Like KCSR, Gateway Western
serves customers in a wide range of industries.
o Strategic joint venture interests include Grupo TFM and Mexrail, which
provide KCSL with direct access to Mexico. Through Grupo TFM and Mexrail,
operated in partnership with Transportacion Maritima Mexicana, S.A. de C.V.
("TMM"), KCSL has established a prominent position in the Mexican market.
TFM's route network provides the shortest connection to the major
industrial and population areas of Mexico from midwestern and eastern
points in the United States. TFM was privatized by the Mexican government
in June 1997. Tex Mex connects with KCSR via trackage rights at Beaumont,
Texas, with TFM at Laredo, Texas, (the single largest rail freight transfer
point between the United States and Mexico), as well as with other U.S.
Class I railroads at various locations.
KCSR and Gateway Western revenues and net income are dependent on providing
reliable service to customers at competitive rates, the general economic
conditions in the geographic region served and the ability to effectively
compete against alternative modes of surface transportation, such as
over-the-road truck transportation. The ability of KCSR and Gateway Western to
construct and maintain the roadway in order to provide safe and efficient
transportation service is important to the ongoing viability as a rail carrier.
Additionally, the containment of costs and expenses is important in maintaining
a competitive market position, particularly with respect to employee costs as
approximately 84% of KCSR and Gateway Western combined employees are covered
under various collective bargaining agreements.
FINANCIAL SERVICES
On January 23, 1998, KCSI formed Stilwell (formerly FAM Holdings, Inc.) as a
wholly-owned holding company for the group of businesses and investments
comprising the Financial Services segment of KCSI. The primary entities
comprising this segment are as follows: Janus, approximately 82% owned; Stilwell
Management, Inc. ("SMI"), wholly-owned; Berger LLC ("Berger"), of which SMI owns
100% of Berger preferred limited liability company interests and approximately
86% of the Berger regular limited liability company interests; Nelson Money
Managers Plc ("Nelson"), 80% owned; and DST Systems, Inc. ("DST"), an equity
investment in which SMI owns an approximate 32% interest. KCSI transferred to
Stilwell KCSI's ownership interests in Janus, Berger, Nelson, DST and certain
other financial services-related assets and Stilwell assumed all of KCSI's
liabilities associated with the assets transferred effective July 1, 1999.
Additionally, in December 1999, Stilwell contributed to SMI the investment in
DST.
<PAGE>84
A summary of Stilwell's principal operations/investments follows:
o Janus and Berger provide investment management, advisory, distribution and
transfer agent services primarily to U.S. based mutual funds, pension plans
and other institutional and private account investors. Janus also offers
mutual fund products to international markets through the Janus World Funds
plc ("Janus World Funds"). Janus assets under management at December 31,
1999, 1998 and 1997 were $249.5, $108.3 and $67.8 billion, respectively.
Berger assets under management totaled $6.6, $3.7 and $3.8 billion as of
December 31, 1999, 1998 and 1997, respectively.
Janus and Berger revenues and operating income are generally derived as a
percentage of average assets under management, and a decline in the U.S.
and/or international financial markets, or an increase in the rate of
return of alternative investments could negatively affect results. In
addition, the mutual fund industry, in general, faces significant
competition as the number of mutual funds continues to increase, marketing
and distribution channels become more creative and complex, and investors
place greater emphasis on published fund recommendations and investment
category rankings.
o Nelson, operating in the United Kingdom, provides investment advice and
investment management services primarily to individuals who are retired or
are contemplating retirement. Nelson revenues are earned based on an
initial fee calculated as a percentage of capital invested into each
individual investment portfolio, as well as from an annual fee based on the
level of assets under management for the ongoing management and
administration of each investment portfolio. Declines in international
financial markets or a decline of the price of the British pound relative
to the U.S. dollar could negatively affect the amount of earnings reported
for Nelson in the consolidated financial statements.
o DST, together with its subsidiaries and joint ventures, offers information
processing and software services and products through three operating
segments: financial services, output solutions and customer management.
Additionally, DST holds certain investments in equity securities, financial
interests and real estate holdings. DST operates throughout the United
States, with operations in Kansas City, Missouri, Northern California and
various locations on the east coast, among others, and internationally
in Canada, Europe, Africa and the Pacific Rim. DST has a single class of
common stock, which is publicly traded on the New York Stock Exchange and
the Chicago Stock Exchange. See Note 3 for additional information.
The earnings of DST are dependent in part upon the further growth of mutual
fund and other industries, DST's ability to continue to adapt its
technology to meet client needs and demands for the latest technology and
various other factors including, but not limited to, reliance on processing
facilities; future international sales; continued equity in earnings from
joint ventures; and competition from other third party providers of similar
services and products as well as from in-house providers.
Note 2. Significant Accounting Policies
Basis of Presentation. Use of the term "Company" as described in these Notes to
Consolidated Financial Statements means Kansas City Southern Industries, Inc.
and all of its consolidated subsidiary companies. Significant accounting and
reporting policies are described below. Certain prior year amounts have been
reclassified to conform to the current year presentation.
Use of Estimates. The accounting and financial reporting policies of the Company
conform with accounting principles generally accepted in the United States
("U.S. GAAP"). The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and
<PAGE>85
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements generally
include all majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
In Issue No. 96-16, the Emerging Issues Task Force ("EITF 96-16") of the FASB,
reached a consensus that substantive minority rights which provide a minority
shareholder with the right to effectively control significant decisions in the
ordinary course of an investee's business could impact whether the majority
shareholder should consolidate the investee. Management evaluated the rights of
the minority shareholders of its consolidated subsidiaries. Application of EITF
96-16 did not affect the Company's consolidated financial statements. This
conclusion with respect to Janus is currently under discussion with the Staff of
the SEC and, accordingly, is subject to change. See Notes 12 and 13 to the
consolidated financial statements.
Revenue Recognition. Revenue is recognized by the Company's consolidated
railroad operations based upon the percentage of completion of a commodity
movement. Investment management fees are recognized by Janus, Berger and Nelson
primarily as a percentage of assets under management. Other revenues, in
general, are recognized when the product is shipped, as services are performed
or contractual obligations fulfilled.
Cash Equivalents. Short-term liquid investments with an initial maturity of
generally three months or less are considered cash equivalents, including
investments in money market mutual funds that are managed by Janus. Janus'
investments in its money market mutual funds are generally used to fund
operations and to pay dividends. Pursuant to contractual agreements between KCSI
and certain Janus minority stockholders, Janus has distributed at least 90% of
its net income to its stockholders each year.
Inventories. Materials and supplies inventories for transportation operations
are valued at average cost.
Properties and Depreciation. Properties are stated at cost. Additions and
renewals constituting a unit of property are capitalized and all properties are
depreciated over the estimated remaining life of such assets. Ordinary
maintenance and repairs are charged to expense as incurred.
The cost of transportation equipment and road property normally retired, less
salvage value, is charged to accumulated depreciation. Conversely, the cost of
industrial and other property retired, and the cost of transportation property
abnormally retired, together with accumulated depreciation thereon, are
eliminated from the property accounts and the related gains or losses are
reflected in net income.
Depreciation for transportation operations is computed using composite
straight-line rates for financial statement purposes. The Surface Transportation
Board ("STB") approves the depreciation rates used by KCSR. KCSR evaluates
depreciation rates for properties and equipment and implements approved rates.
Periodic revisions of rates have not had a material effect on operating results.
Unit depreciation methods, employing both accelerated and straight-line rates,
are employed in other business segments. Accelerated depreciation is used for
income tax purposes. The ranges of annual depreciation rates for financial
statement purposes are:
<PAGE>86
<TABLE>
<S> <C>
Transportation
Road and structures 1% - 20%
Rolling stock and equipment 1% - 24%
Other equipment 1% - 33%
Capitalized leases 3% - 20%
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121") effective January 1, 1996. SFAS 121 provides
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill, as well as for long-lived assets and
certain identifiable intangibles which are to be disposed. If events or changes
in circumstances of a long-lived asset indicate that the carrying amount of an
asset may not be recoverable, the Company must estimate the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest) is
lower than the carrying amount of the asset, an impairment loss must be
recognized to the extent that the carrying amount of the asset exceeds its fair
value. The adoption of SFAS 121 did not have a material effect on the Company's
financial position or results of operations. However, see Note 4 below with
respect to certain KCSR assets held for disposal and certain other impaired
assets.
Investments. The equity method of accounting is used for all entities in which
the Company or its subsidiaries have significant influence, but not more than
50% voting control interest; the cost method of accounting is generally used for
investments of less than 20% voting control interest.
Pursuant to Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), investments
classified as "available for sale" are reported at fair value, with unrealized
gains and losses excluded from earnings and reported, net of deferred income
taxes, in accumulated other comprehensive income. Investments classified as
"trading" securities are reported at fair value, with unrealized gains and
losses included in net income.
Investments in advised funds are comprised of shares of certain mutual funds
advised by Janus and Berger. Realized gains and losses are determined using the
first-in, first-out method.
Advertising, Marketing and Promotion. The Company expenses all advertising as
incurred. Direct response advertising for which future economic benefits are
probable and specifically attributable to the advertising is not material.
Berger has marketing agreements with various related mutual funds pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("12b-1 Plan") pursuant to
which certain 12b-1 fees are collected. Under these agreements, which are
approved or renewed on an annual basis by the boards of directors of the
respective mutual funds, Berger must engage in activities that are intended to
result in sales in the funds. Any fees not spent must be returned to the funds.
Berger collected 12b-1 Plan fees of $8.6, $6.9 and $7.6 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
Intangibles. Intangibles principally represent the excess of cost over the fair
value of net underlying assets of acquired companies using purchase accounting
and are amortized using the straight-line method over periods ranging from 5 to
40 years.
On an annual basis, the Company reviews the recoverability of goodwill by
comparing the carrying value of the recoverability of the associated goodwill to
its fair value. In response to changes in the competitive and business
environment in the rail industry, the Company revised its methodology for
evaluating goodwill recoverability effective December 31, 1997. The change in
this method of measurement relates to the level at which assets are grouped from
the business unit level to the investment component level. At the same time,
there were changes in the estimates of future cash
<PAGE>87
flows used to measure goodwill recoverability. The effect of the change in
method of applying the accounting principle is inseparable from the changes in
estimate. Accordingly, the combined effects have been reported in the
accompanying consolidated financial statements as a change in estimate. The
Company believes that the revised methodology represents a preferable method of
accounting because it more closely links the fair value estimates to the asset
whose recoverability is being evaluated. The policy change did not impact the
Company's Financial Services businesses as their goodwill has always been
evaluated on an investment component basis.
As a result of the changes discussed above, the Company determined that the
aggregate carrying value of the goodwill and other intangible assets associated
with the 1993 MidSouth Corporation ("MidSouth") purchase exceeded their fair
value. Accordingly, the Company recorded an impairment loss of $91.3 million in
the fourth quarter of 1997. Due to the fact that the change in accounting is
inseparable from the change in estimates, the pro forma effects of retroactive
application cannot be determined.
Deferred Commissions. Commissions paid to financial intermediaries on sales of
certain Janus World Funds shares ("B shares") are recorded as deferred
commissions in the accompanying consolidated financial statements. These
deferred commissions are amortized using the sum-of-the-years digits methodology
over four years, or when the B shares are redeemed, if earlier. Early withdrawal
charges received by Janus from redemption of the B shares within four years of
purchase reduce the unamortized deferred commission balance. Payments of
deferred commissions during 1999 were $29.5 million and associated amortization
expense for the year then ended totaled $8.1 million. Payments of deferred
commissions and associated amortization expense were not material in 1998.
Changes of Interest in Subsidiaries and Equity Investees. A change of the
Company's interest in a subsidiary or equity investee resulting from the sale of
the subsidiary's or equity investee's stock is generally recorded as a gain or
loss in the Company's net income in the period that the change of interest
occurs. If an issuance of stock by the subsidiary or affiliate is from treasury
shares on which gains have been previously recognized, however, KCSI will record
the gain directly to its equity and not include the gain in net income. The net
gain recorded by the Company (included in the Other, net component in the
Statements of Operations) for the year ended December 31, 1999 totaled $6.2
million. Gains for the years ended December 31, 1998 and 1997 were not material.
A change of interest in a subsidiary or equity investee resulting from a
subsidiary's or equity investee's purchase of its stock increases the Company's
ownership percentage of the subsidiary or equity investee. The Company records
this type of transaction under the purchase method of accounting, whereby any
excess of fair market value over the net tangible and identifiable intangible
assets is recorded as goodwill.
Computer Software Costs. Costs incurred in conjunction with the purchase or
development of computer software for internal use are accounted for in
accordance with American Institute of Certified Public Accountant's Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"), which was adopted by the Company in
1998. Costs incurred in the preliminary project stage, as well as training and
maintenance costs, are expensed as incurred. Direct and indirect costs
associated with the application development stage of internal use software are
capitalized until such time that the software is substantially complete and
ready for its intended use. Capitalized costs are amortized on a straight line
basis over the useful life of the software.
Derivative Financial Instruments. In 1997, the Company entered into foreign
currency contracts in order to reduce the impact of fluctuations in the value of
the Mexican peso on its investment in Grupo TFM. These contracts were intended
to hedge only a portion of the Company's exposure related to the final
installment of the purchase price and not any other transactions or balances.
The Company follows the requirements outlined in Statement of Financial
Accounting Standards
<PAGE>88
No. 52 "Foreign Currency Translation" ("SFAS 52"), and related authoritative
guidance. Accordingly, gains and losses related to hedges of the Company's
investment in Grupo TFM were deferred and recognized as adjustments to the
carrying amount of the investment when the hedged transaction occurred.
Any gains and losses qualifying as hedges of existing assets or liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Any gains or
losses on derivative contracts that do not qualify as hedges are recognized
currently as other income. Gains and losses on hedges are reflected in operating
activities in the statement of cash flows.
See Note 12 for additional information with respect to derivative financial
instruments and purchase commitments.
Fair Value of Financial Instruments. Statement of Financial Accounting Standards
No. 107 "Disclosures About Fair Value of Financial Instruments" ("FAS 107")
requires an entity to disclose the fair value of its financial instruments. The
Company's financial instruments include cash and cash equivalents, investments
in advised funds, accounts receivable and payable and long-term debt.
The carrying value of the Company's cash equivalents and accounts receivable and
payable approximate their fair values due to their short-term nature. The
carrying value of the Company's investments designated as "available for sale"
and "trading" equals their fair value, which is based upon quoted prices in
active markets. The Company approximates the fair value of long-term debt based
upon borrowing rates available at the reporting date for indebtedness with
similar terms and average maturities.
Income Taxes. Deferred income tax effects of transactions reported in different
periods for financial reporting and income tax return purposes are recorded
under the liability method of accounting for income taxes. This method gives
consideration to the future tax consequences of the deferred income tax items
and immediately recognizes changes in income tax laws upon enactment. The income
statement effect is generally derived from changes in deferred income taxes on
the balance sheet.
Treasury Stock. The excess of par over cost of the Preferred shares held in
Treasury is credited to capital surplus. Common shares held in Treasury are
accounted for as if they were retired and the excess of cost over par value of
such shares is charged to capital surplus, if available, then to retained
earnings.
Stock Plans. Proceeds received from the exercise of stock options or
subscriptions are credited to the appropriate capital accounts in the year they
are exercised.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123") in October 1995. This statement allows companies to continue under the
approach set forth in Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25"), for recognizing stock-based compensation
expense in the financial statements, but encourages companies to adopt the fair
value method of accounting for employee stock options. The Company has elected
to retain its accounting approach under APB 25, and has presented the applicable
pro forma disclosures in Note 10 to the consolidated financial statements
pursuant to the requirements of SFAS 123.
All shares held in the Employee Stock Ownership Plan ("ESOP") are treated as
outstanding for purposes of computing the Company's earnings per share. See
additional information on the ESOP in Note 11.
<PAGE>89
Earnings Per Share. The Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128") in 1997. The statement
specifies the computation, presentation and disclosure requirements for earnings
per share. The statement requires the computation of earnings per share under
two methods: "basic" and "diluted." Basic earnings per share is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed giving effect to all dilutive potential common shares that were
outstanding during the period (i.e., the denominator used in the basic
calculation is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential shares had been issued).
SFAS 128 requires the Company to present basic and diluted per share amounts for
income (loss) from continuing operations and for net income (loss) on the face
of the statements of operations.
The effect of stock options to employees represent the only difference between
the weighted average shares used for the basic computation compared to the
diluted computation. The total incremental shares from assumed conversion of
stock options included in the computation of diluted earnings per share were
3,766,571 and 3,840,333 for the years ended December 31, 1999 and 1998,
respectively. Because of the net loss in 1997, all options were anti-dilutive
for the year ended December 31, 1997. The weighted average of options to
purchase 88,875 and 274,340 shares in 1999 and 1998, respectively, were excluded
from the diluted earnings per share computation because the exercise prices were
greater than the respective average market price of the common shares.
The only adjustments that currently affect the numerator of the Company's
diluted earnings per share computation include preferred dividends and
potentially dilutive securities at subsidiaries and affiliates. These
adjustments totaled $4.8 and $2.3 million for the years ended December 31, 1999
and 1998, respectively. Adjustments for the year ended December 31, 1997 were
not material.
<TABLE>
Stockholders' Equity. Information regarding the Company's capital stock at
December 31, 1999 and 1998 follows:
Shares Shares
Authorized Issued
<S> <C> <C>
$25 Par, 4% noncumulative, Preferred stock 840,000 649,736
$1 Par, Preferred stock 2,000,000 None
$1 Par, Series A, Preferred stock 150,000 None
$1 Par, Series B convertible, Preferred stock 1,000,000 None
$.01 Par, Common stock 400,000,000 146,738,232
</TABLE>
In 1997, there were 1,000,000 shares issued of $1 Par, Series B convertible,
Preferred stock and 145,206,576 shares issued of $.01 Par, Common stock. Other
1997 shares authorized and issued were the same as those in 1999 and 1998.
On July 29, 1997, the Company's Board of Directors authorized a 3-for-1 split in
the Company's common stock effected in the form of a stock dividend. All share
and per share data reflect this split.
The Company's stockholders approved a one-for-two reverse stock split at a
special stockholders' meeting held on July 15, 1998. The Company will not effect
this reverse stock split until a Separation is completed. See Note 1.
<PAGE>90
<TABLE>
Shares outstanding are as follows at December 31, (in thousands):
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
$25 Par, 4% noncumulative, Preferred stock 242 242 242
$.01 Par, Common stock 110,574 109,815 108,084
</TABLE>
Retained earnings include equity in unremitted earnings of unconsolidated
affiliates of $143.4, $97.5 and $90.4 million at December 31, 1999, 1998 and
1997, respectively.
Employee Plan Funding Trust. The Company's $1 Par Series B convertible Preferred
stock ("Series B Preferred stock"), issued in 1993, had a $200 per share
liquidation preference and was convertible to common stock at a ratio of twelve
to one. Effective September 30, 1998, the Company terminated the Employee Plan
Funding Trust ("EPFT" or "Trust"), which was established as a grantor trust for
the purpose of holding these shares of Series B Preferred stock for the benefit
of various KCSI employee benefit plans.
In accordance with the Agreement to terminate the EPFT, the Company received
872,362 shares of Series B Preferred stock in full repayment of the indebtedness
from the Trust ($178.7 million plus accrued interest). In addition, the
remaining 127,638 shares of Series B Preferred stock were converted into KCSI
Common stock, resulting in the issuance to the EPFT of 1,531,656 shares of such
Common stock. This Common stock was then transferred to KCSI and the Company has
set these shares aside for use in connection with the KCSI Stock Option and
Performance Award Plan, as amended and restated effective July 15, 1998. As a
result of the termination of the Trust, the Series B Preferred stock is no
longer issued or outstanding and the converted Common stock has been included in
the shares issued above.
Statement of Financial Accounting Standards No. 130. Effective January 1, 1998,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and disclosure of comprehensive income and
its components in the financial statements. Prior year information has been
included pursuant to SFAS 130. The Company's other comprehensive income consists
primarily of its proportionate share of unrealized gains and losses relating to
investments held by DST as "available for sale" securities as defined by SFAS
115. The unrealized gain related to these investments increased $63.8 million,
$39.5 million and $42.6 million ($38.4 million, $24.3 million and $26.1 million,
net of deferred taxes) for the years ended December 31, 1999, 1998 and 1997,
respectively.
New Accounting Pronouncements. The following accounting pronouncement is not yet
effective, but may have an impact on the Company's consolidated financial
statements upon adoption.
Statement of Financial Accounting Standards No. 133. In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative financial instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires recognition
of all derivatives as either assets or liabilities measured at fair value.
Initially, the effective date of SFAS 133 was for all fiscal quarters for fiscal
years beginning after June 15, 1999; however, in June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133", which deferred the
effective date of SFAS 133 for one year so that it will be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
is reviewing the provisions of SFAS 133 and
<PAGE>91
expects adoption by the required date. The adoption of SFAS 133 with respect to
existing hedge transactions is not expected to have a material impact on the
Company's results of operations, financial position or cash flows.
Note 3. Acquisitions and Dispositions
DST Transactions. On December 21, 1998, DST and USCS International, Inc.
("USCS") announced the completion of the merger of USCS with a wholly-owned DST
subsidiary. The merger, accounted for as a pooling of interests by DST, expands
DST's presence in the output solutions and customer management software and
services industries. Under the terms of the merger, USCS became a wholly-owned
subsidiary of DST. DST issued approximately 13.8 million shares of its common
stock in the transaction.
The issuance of additional DST common shares reduced KCSI's ownership interest
from 41% to approximately 32%. Additionally, the Company recorded a one-time
non-cash charge of approximately $36.0 million pretax ($23.2 million after-tax),
reflecting the Company's reduced ownership of DST and the Company's
proportionate share of DST and USCS fourth quarter merger-related costs. KCSI
accounts for its DST investment under the equity method.
Acquisition of Nelson. On April 20, 1998, the Company completed its acquisition
of 80% of Nelson, an investment advisor and manager based in the United Kingdom
("UK"). Nelson has six offices throughout the UK and offers planning based asset
management services directly to private clients. Nelson managed approximately
$1.3 billion of assets as of December 31, 1999. The acquisition, accounted for
as a purchase, was completed using a combination of cash, KCSI common stock
(67,000 shares valued at $3.2 million) and notes payable ($4.9 million, payable
by March 31, 2005 and bearing interest at 7 percent). The total purchase price
was approximately $33 million. The purchase price was in excess of the fair
market value of the net tangible and identifiable intangible assets received and
this excess was recorded as goodwill to be amortized over a period of 20 years.
Assuming the transaction had been completed January 1, 1998, inclusion of
Nelson's results on a pro forma basis, as of and for the year ended December 31,
1998, would not have been material to the Company's consolidated results of
operations.
Grupo TFM. In June 1996, the Company and TMM formed Grupo TFM to participate in
the privatization of the Mexican rail industry.
On December 6, 1996, Grupo TFM, TMM and the Company announced that the Mexican
Government ("Government") had awarded to Grupo TFM the right to purchase 80% of
the common stock of TFM for approximately 11.072 billion Mexican pesos
(approximately $1.4 billion based on the U.S. dollar/Mexican peso exchange rate
on the award date). TFM holds the concession to operate Mexico's "Northeast Rail
Lines" for 50 years, with the option of a 50 year extension (subject to certain
conditions).
The Northeast Rail Lines are a strategically important rail link to Mexico and
the North American Free Trade Agreement ("NAFTA") corridor. The lines are
estimated to transport approximately 40% of Mexico's rail cargo and are located
next to primary north/south truck routes. The Northeast Rail Lines directly link
Mexico City and Monterrey, as well as Guadalajara (through trackage rights),
with the ports of Lazaro Cardenas, Veracruz, Tampico, and the cities of
Matamoros and Nuevo Laredo. Nuevo Laredo is a primary transportation gateway
between Mexico and the United States. The Northeast Rail Lines connect in
Laredo, Texas to the Union Pacific Railroad and the Tex Mex. The Tex Mex links
with KCSR at Beaumont, Texas through trackage rights. With the KCSR and Tex Mex
interchange at Beaumont, and through KCSR's connections with major rail carriers
at various other points, KCSR has developed a NAFTA rail system to participate
in the economic integration of the North American marketplace.
<PAGE>92
On January 31, 1997, Grupo TFM paid the first installment of the purchase price
(approximately $565 million based on the U.S. dollar/Mexican peso exchange rate)
to the Government, representing approximately 40% of the purchase price. Grupo
TFM funded the initial installment of the TFM purchase price through capital
contributions from TMM and the Company. The Company contributed approximately
$298 million to Grupo TFM, of which approximately $277 million was used by Grupo
TFM as part of the initial installment payment. The Company financed this
contribution using borrowings under existing lines of credit.
On June 23, 1997, Grupo TFM completed the purchase of 80% of TFM through the
payment of the remaining $835 million to the Government. This payment was funded
by Grupo TFM using a significant portion of the funds obtained from: (i) senior
secured term credit facilities ($325 million); (ii) senior notes and senior
discount debentures ($400 million); (iii) proceeds from the sale of 24.6% of
Grupo TFM to the Government (approximately $199 million based on the U.S.
dollar/Mexican peso exchange rate on June 23, 1997); and (iv) additional capital
contributions from TMM and the Company (approximately $1.4 million from each
partner). Additionally, Grupo TFM entered into a $150 million revolving credit
facility for general working capital purposes. The Government's interest in
Grupo TFM is in the form of limited voting right shares, and the purchase
agreement includes a call option for TMM and the Company, which is exercisable
at the original amount (in U.S. dollars) paid by the Government plus interest
based on one-year U.S. Treasury securities.
In first quarter 1997, the Company entered into two separate forward contracts -
$98 million in February 1997 and $100 million in March 1997 - to purchase
Mexican pesos in order to hedge against a portion of the Company's exposure to
fluctuations in the value of the Mexican peso versus the U.S. dollar. In April
1997, the Company realized a $3.8 million pretax gain in connection with these
contracts. This gain was deferred, and has been accounted for as a component of
the Company's investment in Grupo TFM. These contracts were intended to hedge
only a portion of the Company's exposure related to the final installment of the
purchase price and not any other transactions or balances.
Concurrent with the financing transactions, Grupo TFM, TMM and the Company
entered into a Capital Contribution Agreement ("Contribution Agreement") with
TFM, which includes a possible capital call of $150 million from TMM and the
Company if certain performance benchmarks, outlined in the agreement, are not
met. The Company would be responsible for approximately $74 million of the
capital call. The term of the Contribution Agreement is three years. In a
related agreement between Grupo TFM, TFM and the Government, among others, the
Government agreed to contribute up to $37.5 million of equity capital to Grupo
TFM if TMM and the Company were required to contribute under the capital call
provisions of the Contribution Agreement prior to July 16, 1998. The Government
also committed that if it had not made any contributions by July 16, 1998, it
would, up to July 31, 1999, make additional capital contributions to Grupo TFM
(of up to an aggregate amount of $37.5 million) on a proportionate basis with
TMM and the Company if capital contributions are required. During these periods,
no additional contributions from the Company were requested or made and,
therefore, the Government was not required to contribute any additional capital
to Grupo TFM under this related agreement. The commitment from the Government to
participate in a capital call has expired. The provisions of the Contribution
Agreement requiring a capital call from TMM and the Company expire in June 2000.
If a capital call occurs prior to June 2000, the provisions of the Contribution
Agreement automatically extend to June 2002. As of December 31, 1999 no
additional contributions from the Company have been requested or made.
At December 31, 1999, the Company's investment in Grupo TFM was approximately
$286.5 million. The Company's interest in Grupo TFM is approximately 37% (with
TMM and a TMM affiliate owning 38.4% and the Government owning the remaining
24.6%). The Company accounts for its investment in Grupo TFM under the equity
method.
<PAGE>93
On January 28, 1999, the Company, along with other direct and indirect owners of
TFM, entered into a preliminary agreement with the Government. As part of that
agreement, an option was granted to the Company, TMM and Grupo Servia, S.A. de
C.V. ("Grupo Servia") to purchase all or a portion of the Government's 20%
ownership interest in TFM at a discount. The option, under the terms of the
preliminary agreement, has expired. However, management of TFM has advised the
Company that negotiations with the Government are continuing and TFM management
expects that the Government will extend the option.
Gateway Western Acquisition. In May 1997, the STB approved the Company's
acquisition of Gateway Western, a regional rail carrier with operations from
Kansas City, Missouri to East St. Louis and Springfield, Illinois and haulage
rights between Springfield and Chicago, from the Southern Pacific Rail
Corporation. Prior to the STB approval -- from acquisition in December 1996
through May 1997 -- the Company's investment in Gateway Western was treated as a
majority-owned unconsolidated subsidiary accounted for under the equity method.
Upon approval from the STB, the assets, liabilities, revenues and expenses were
included in the Company's consolidated financial statements. The consideration
paid for Gateway Western (including various acquisition costs and liabilities)
was approximately $12.2 million, which exceeded the fair value of the underlying
net assets by approximately $12.1 million. The resulting intangible is being
amortized over a period of 40 years.
Under a prior agreement with The Atchison, Topeka & Santa Fe Railway Company,
Burlington Northern Santa Fe Corporation has the option of purchasing the assets
of Gateway Western (based on a fixed formula in the agreement) through the year
2004.
Berger Ownership Interest. On September 30, 1999, Berger Associates, Inc.
("BAI") assigned and transferred its operating assets and business to its
subsidiary, Berger LLC, a limited liability company. In addition, BAI changed
its name to Stilwell Management, Inc. ("SMI"). SMI owns 100% of the preferred
limited liability company interests and approximately 86% of the regular limited
liability company interest in Berger. The remaining 14% of regular limited
liability company interests were issued to key SMI and Berger LLC employees,
resulting in a non-cash compensation charge.
Prior to the change in corporate form discussed above, the Company owned 100% of
BAI. The Company increased its ownership in BAI to 100% during 1997 as a result
of BAI's purchase, for treasury, of common stock from minority shareholders and
the acquisition by KCSI of additional BAI shares from a minority shareholder
through the issuance of 330,000 shares of KCSI common stock valued at
approximately $10.1 million. In connection with these transactions, BAI granted
options to acquire shares of its stock to certain employees. At December 31,
1998, the Company's ownership would have been diluted to approximately 91% if
all of the outstanding options had been exercised. These transactions resulted
in approximately $17.8 million of goodwill, which is being amortized over 15
years. However, see discussion of impairment of a portion of this goodwill in
Note 4. All of the outstanding options were cancelled upon formation of Berger.
The Company's 1994 acquisition of a controlling interest in BAI was completed
under a Stock Purchase Agreement ("Agreement") covering a five-year period
ending in October 1999. Pursuant to the Agreement, the Company was required to
make additional purchase price payments based upon BAI attaining certain
incremental levels of assets under management up to $10 billion by October 1999.
The Company paid $3.0 million under this Agreement in 1999. No payments were
made during 1998. In 1997, the Company made additional payments of $3.1 million,
resulting in adjustments to the purchase price. The goodwill amounts are
amortized over 15 years.
<PAGE>94
Note 4. Restructuring, Asset Impairment and Other Charges
As discussed in Note 2, in response to changes in the competitive and business
environment in the rail industry, the Company revised its methodology for
evaluating goodwill recoverability effective December 31, 1997. As a result of
this revised methodology (as well as certain changes in estimate), the Company
determined that the aggregate carrying value of the goodwill and other
intangible assets associated with the 1993 MidSouth purchase exceeded their fair
value (measured by reference to the net present value of future cash flows).
Accordingly, the Company recorded an impairment loss of $91.3 million in 1997.
In connection with the review of its intangible assets, the Company determined
that the carrying value of the goodwill associated with Berger exceeded its fair
value (measured by reference to various valuation techniques commonly used in
the investment management industry) as a result of below-peer performance and
growth of the core Berger funds. Accordingly, the Company recorded an impairment
loss of $12.7 million.
During the fourth quarter of 1997, Transportation management committed to
dispose, as soon as practicable, certain under-performing branch lines acquired
in connection with the 1993 MidSouth purchase, as well as certain of the
Company's non-operating real estate. Accordingly, in accordance with SFAS 121,
the Company recognized losses aggregating $38.5 million which represented the
excess of carrying value over fair value less cost to sell. Results of
operations related to these assets included in the accompanying consolidated
financial statements cannot be separately identified. During 1998, one of the
branch lines was sold for a pretax gain of approximately $2.9 million. In first
quarter 2000, the other branch line was sold for a minimal pretax gain. A
potential buyer has been identified for the non-operating real estate and
management is currently negotiating this transaction.
In accordance with SFAS 121, the Company periodically evaluates the
recoverability of its operating properties. As a result of continuing operating
losses and a further decline in the customer base of the Transportation
segment's bulk coke handling facility (Global Terminaling Services, Inc. -
formerly Pabtex, Inc.) the Company determined that the long-lived assets related
thereto may not be fully recoverable. Accordingly, the Company recognized an
impairment loss of $9.2 million in 1997 representing the excess of carrying
value over fair value.
Additionally, in 1997 the Company recorded expenses aggregating $44.7 million
related to restructuring and other costs. This amount included approximately
$27.1 related to the termination of a union productivity fund (which required
KCSR to pay certain employees when reduced crew levels were used) and employee
separations, as well as $17.6 million of other costs related to reserves for
leases, contracts, impaired investments and other reorganization costs. During
1998, approximately $31.1 million of cash payments were made and approximately
$2.5 million of the reserves were reduced based primarily on changes in the
estimate of claims made relating to the union productivity fund. During 1999,
approximately $4.3 million of cash payments were made reducing the accrual for
these reserves to approximately $2.2 million at December 31, 1999.
Note 5. Supplemental Cash Flow Disclosures
<TABLE>
Supplemental Disclosures of Cash Flow Information.
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash payments (in millions):
Interest $ 47.0 $ 74.2 $ 64.5
Income taxes 143.3 83.2 65.3
</TABLE>
<PAGE>95
Supplemental Schedule of Non-cash Investing and Financing Activities. The
Company did not initiate an offering of KCSI Common stock under the Employee
Stock Purchase Plan ("ESPP") during 1999. During 1998 and 1997, the Company
issued 227,178 and 245,550 shares of KCSI Common stock, respectively, under
various offerings of the ESPP. These shares, totaling a purchase price of $3.0
and $3.1 million in 1998 and 1997, respectively, were subscribed and paid for
through employee payroll deductions in years preceding the issuance of stock.
In connection with the Eleventh Offering of the ESPP (initiated in 1998), the
Company received in 1999 approximately $6.3 million from employee payroll
deductions for the purchase of KCSI Common stock. This stock was issued to
employees in January 2000.
During 1999, 1998 and 1997, the Company's Board of Directors declared a
quarterly dividend totaling approximately $4.6, $4.4, and $4.5 million,
respectively, payable in January of the following year. The dividend declaration
reduced retained earnings and established a liability at the end of each
respective year. No cash outlay occurred until the subsequent year.
Note 6. Investments
<TABLE>
Investments held for operating purposes, which include investments in
unconsolidated affiliates, are as follows (in millions):
Percentage
Ownership
Company Name December 31, 1999 Carrying Value
- --------------------------------- ----------------- ---------------------------------------
<S> <C> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
DST (a) 32% $ 470.2 $ 376.0 $ 345.3
Grupo TFM 37% 286.5 285.1 288.2
Southern Capital 50% 28.1 24.6 27.6
Mexrail 49% 13.7 13.0 14.9
Other 12.7 11.2 10.5
Market valuation allowances - (2.8) (3.0)
----------- ----------- -----------
Total (b) $ 811.2 $ 707.1 $ 683.5
=========== =========== ===========
</TABLE>
(a) On December 21, 1998, DST and USCS announced the completion of the merger
of USCS with a wholly-owned DST subsidiary. Under the terms of the merger,
accounted for as a pooling of interests by DST, USCS became a wholly-owned
subsidiary of DST. DST issued approximately 13.8 million shares of its
common stock in the transaction, resulting in a reduction of KCSI's
ownership interest from 41% to approximately 32%. (See Note 3). Fair market
value at December 31, 1999 (using DST's New York Stock Exchange closing
market price) was approximately $1,547.7 million.
(b) Fair market value is not readily determinable for investments other than
noted above, and in the opinion of management, market value approximates
carrying value
Additionally, DST holds investments in the common stock of State Street
Corporation and Computer Sciences Corporation, among others, which are accounted
for as "available for sale" securities as defined by SFAS 115. The Company
records its proportionate share of any unrealized DST gains or losses related to
these investments, net of deferred taxes, in accumulated other comprehensive
income.
Transactions With and Between Unconsolidated Affiliates. The Company and its
subsidiary, KCSR, paid certain expenses on behalf of Grupo TFM during 1997. In
addition, the Company has a management services agreement with Grupo TFM to
provide certain consulting and management services. At December 31, 1999, $3.0
million is reflected as an account receivable in the Company's consolidated
balance sheet.
<PAGE>96
In connection with the October 1996 formation of the Southern Capital joint
venture, KCSR entered into operating leases with Southern Capital for
locomotives and rolling stock at rental rates management believes reflect
market. KCSR paid Southern Capital $27.0, $25.1 and $23.5 million under these
operating leases in 1999, 1998 and 1997, respectively. Additionally, prior to
the sale of the loan portfolio by Southern Capital, Southern Group, Inc. (a
former subsidiary of KCSR - merged into KCSR in 1999) entered into a contract
with Southern Capital to manage the loan portfolio assets held by Southern
Capital, as well as to perform general administrative and accounting functions
for the joint venture. Payments under this contract were not material in 1999.
Payments under this contract were approximately $1.7 million in both 1998 and
1997.
Together, Janus and Berger incurred approximately $7.3, $5.5 and $5.3 million
during 1999, 1998 and 1997, respectively, in expenses associated with various
services provided by DST and its subsidiaries and affiliates.
Janus recorded $8.9 and $7.1 million in revenues for the years ended December
31, 1998 and 1997, respectively, representing management fees earned from IDEX
Management, Inc. ("IDEX"). IDEX was a 50% owned investment of Janus prior to
disposition during second quarter 1998. Janus recognized an $8.8 million pretax
gain in connection with this disposition.
In first quarter 1999, the Company repurchased KCSI common stock owned by DST's
Employee Stock Ownership Plan. In total, 460,000 shares were repurchased for
approximately $21.8 million.
Financial Information. Combined financial information of all unconsolidated
affiliates that the Company and its subsidiaries account for under the equity
method follows. Note that information relating to DST (i.e., the equity in net
assets of unconsolidated affiliates, financial condition and operating results)
has been restated to combine the historical results of DST and USCS as a result
of their merger on December 21, 1998. All amounts are in millions.
<TABLE>
DECEMBER 31, 1999
Grupo
DST TFM (i) Other Total
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Investment in unconsolidated affiliates $ 470.2 $ 286.5 $ 45.0 $ 801.7
Equity in net assets of
unconsolidated affiliates 470.2 283.9 41.4 795.5
Dividends and distributions received
from unconsolidated affiliates - - 0.3 0.3
Financial Condition:
Current assets $ 464.5 $ 134.4 $ 35.8 $ 634.7
Non-current assets 1,861.8 1,905.7 319.1 4,086.6
----------- ----------- ---------- -----------
Assets $ 2,326.3 $ 2,040.1 $ 354.9 $ 4,721.3
=========== =========== ========== ===========
Current liabilities $ 285.8 $ 255.9 $ 42.1 $ 583.8
Non-current liabilities 576.9 672.9 230.0 1,479.8
Minority interest - 343.9 - 343.9
Equity of stockholders and partners 1,463.6 767.4 82.8 2,313.8
----------- ----------- ---------- -----------
Liabilities and equity $ 2,326.3 $ 2,040.1 $ 354.9 $ 4,721.3
=========== =========== ========== ===========
Operating results:
Revenues $ 1,203.3 $ 524.5 $ 87.8 $ 1,815.6
----------- ----------- ---------- -----------
Costs and expenses $ 1,003.6 $ 401.7 $ 77.7 $ 1,483.0
----------- ----------- ---------- -----------
Net income $ 138.1 $ 4.1 $ 13.3 $ 155.5
----------- ----------- ---------- -----------
</TABLE>
<PAGE>97
<TABLE>
DECEMBER 31, 1998
Grupo
DST TFM (i) Other Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment in unconsolidated affiliates $ 376.0 $ 285.1 $ 38.6 $ 699.7
Equity in net assets of
unconsolidated affiliates 376.0 282.4 34.6 693.0
Dividends and distributions received
from unconsolidated affiliates - - 6.1 6.1
Financial Condition:
Current assets $ 375.8 $ 109.9 $ 33.1 $ 518.8
Non-current assets 1,521.2 1,974.7 277.0 3,772.9
----------- ----------- ---------- -----------
Assets $ 1,897.0 $ 2,084.6 $ 310.1 $ 4,291.7
=========== =========== ========== ===========
Current liabilities $ 268.6 $ 233.9 $ 48.6 $ 551.1
Non-current liabilities 461.4 745.0 191.7 1,398.1
Minority interest 0.8 342.4 - 343.2
Equity of stockholders and partners 1,166.2 763.3 69.8 1,999.3
----------- ----------- ---------- -----------
Liabilities and equity $ 1,897.0 $ 2,084.6 $ 310.1 $ 4,291.7
=========== =========== ========== ===========
Operating results:
Revenues $ 1,096.1 $ 431.3 $ 87.7 $ 1,615.1
----------- ----------- ---------- -----------
Costs and expenses $ 976.6 $ 368.8 $ 85.4 $ 1,430.8
----------- ----------- ---------- -----------
Net income (loss) $ 71.6 $ (7.3) $ 2.4 $ 66.7
----------- ----------- ---------- -----------
</TABLE>
<TABLE>
DECEMBER 31, 1997
Grupo
DST TFM (i) Other Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment in unconsolidated affiliates $ 345.3 $ 288.2 $ 44.6 $ 678.1
Equity in net assets of
unconsolidated affiliates 300.1 285.1 39.6 624.8
Dividends and distributions received
from unconsolidated affiliates - - 0.2 0.2
Financial Condition:
Current assets $ 345.3 $ 114.7 $ 29.9 $ 489.9
Non-current assets 1,203.2 1,990.4 255.1 3,448.7
----------- ----------- ---------- -----------
Assets $ 1,548.5 $ 2,105.1 $ 285.0 $ 3,938.6
=========== =========== ========== ===========
Current liabilities $ 212.0 $ 158.5 $ 13.2 $ 383.7
Non-current liabilities 404.2 830.6 191.7 1,426.5
Minority interest 1.4 345.4 - 346.8
Equity of stockholders and partners 930.9 770.6 80.1 1,781.6
----------- ----------- ---------- -----------
Liabilities and equity $ 1,548.5 $ 2,105.1 $ 285.0 $ 3,938.6
=========== =========== ========== ===========
Operating results:
Revenues $ 950.0 $ 206.4 $ 83.2 $ 1,239.6
----------- ----------- ---------- -----------
Costs and expenses $ 823.1 $ 190.5 $ 61.4 $ 1,075.0
----------- ----------- ---------- -----------
Net income (loss) $ 79.4 $ (36.5) $ 5.9 $ 48.8
----------- ----------- ---------- -----------
</TABLE>
(i) Grupo TFM is presented on a U.S. GAAP basis.
<PAGE>98
Generally, the difference between the carrying amount of the Company's
investment in unconsolidated affiliates and the underlying equity in net assets
is attributable to certain equity investments whose carrying amounts have been
reduced to zero, and report a net deficit. For 1997, the difference between the
Company's investment in DST and the underlying equity in net assets is
attributable to the effects of restating DST's financial statements for the
merger of a DST wholly-owned subsidiary with USCS. In addition, with respect to
the Company's investment in Grupo TFM, the effects of foreign currency
transactions and capitalized interest prior to June 23, 1997, which are not
recorded on the investee's books, also result in these differences.
The deferred income tax calculations for Grupo TFM are significantly impacted by
fluctuations in the relative value of the Mexican peso versus the U.S. dollar
and the rate of Mexican inflation, and can result in significant variances in
the amount of equity earnings (losses) reported by the Company.
Other. Interest income on cash and equivalents and investments in advised funds
was $15.6, $8.1 and $7.9 million in 1999, 1998 and 1997, respectively.
Note 7. Other Balance Sheet Captions
<TABLE>
Investments in Advised Funds. Information with respect to investments in advised
funds is summarized as follows (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Available for sale:
Cost basis $ 22.2 $ 23.9 $ 19.6
Gross unrealized gains 2.0 5.4 2.0
Gross unrealized losses (0.3) - -
----------- ----------- -----------
Sub-total 23.9 29.3 21.6
----------- ----------- ----------
Trading:
Cost basis - 3.2 2.1
Gross unrealized gains - - 0.7
Gross unrealized losses - (0.3) -
----------- ----------- -----------
Sub-total - 2.9 2.8
----------- ----------- ----------
Total $ 23.9 $ 32.2 $ 24.4
=========== =========== ==========
</TABLE>
Gross realized gains totaled $5.3 million for the year ended December 31, 1999.
Gross realized gains were not material to the Company's consolidated results of
operations for 1998 and 1997.
<TABLE>
Accounts Receivable. Accounts receivable include the following allowances (in
millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Accounts receivable $ 294.4 $ 214.2 $ 181.9
Allowance for doubtful accounts (6.5) (5.8) (4.9)
------------ ----------- ----------
Accounts receivable, net $ 287.9 $ 208.4 $ 177.0
=========== =========== ==========
Doubtful accounts expense $ 1.7 $ 0.9 $ 1.6
----------- ----------- ----------
</TABLE>
<PAGE>99
<TABLE>
Janus and Berger earn fees from the various registered investment companies for
which each company act as investment advisor. Accounts receivable include
amounts due from these investment companies. The table below summarizes this
related party activity as of and for the years ended December 31 (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Investment management and
shareowner servicing fees $ 1,024.7 $ 558.4 $ 403.0
Accounts receivable from
registered investment companies 129.3 59.1 41.6
</TABLE>
<TABLE>
Other Current Assets. Other current assets include the following items (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Deferred income taxes $ 8.4 $ 14.8 $ 10.1
Other 36.7 23.0 13.8
----------- ----------- ----------
Total $ 45.1 $ 37.8 $ 23.9
=========== =========== ==========
</TABLE>
<TABLE>
Properties. Properties and related accumulated depreciation and amortization are summarized below (in
millions):
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Properties, at cost
Transportation
Road properties $ 1,454.7 $ 1,381.4 $ 1,306.4
Equipment, including $6.7, $6.7 and
$15.4 financed under capital leases 346.2 327.7 294.6
Other 54.5 55.1 106.2
Financial Services, including $0, $0
and $1.4 equipment financed under
capital leases 115.7 69.6 38.6
----------- ----------- ----------
Total 1,971.1 1,833.8 1,745.8
----------- ------------ ----------
Accumulated depreciation and amortization
Transportation
Road properties 422.8 384.9 346.2
Equipment, including $3.7, $3.5
and $10.8 for capital leases 134.1 127.6 116.8
Other 21.1 22.4 26.4
Financial Services
including $0, $0 and $1.4
for equipment capital leases 45.3 32.2 29.2
----------- ----------- ----------
Total 623.3 567.1 518.6
----------- ----------- ----------
Net Properties $ 1,347.8 $ 1,266.7 $ 1,227.2
=========== =========== ==========
</TABLE>
As discussed in Note 4, effective December 31, 1997, the Company recorded a
charge representing long-lived assets held for disposal and impairment of assets
in accordance with SFAS 121.
<PAGE>100
<TABLE>
Intangibles and Other Assets. Intangibles and other assets include the following items (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Identifiable intangibles $ 59.0 $ 59.0 $ 59.0
Goodwill 134.1 116.2 82.2
Accumulated amortization (34.5) (24.2) (18.1)
----------- ----------- ----------
Net 158.6 151.0 123.1
Other assets 37.8 25.4 27.3
----------- ----------- ----------
Total $ 196.4 $ 176.4 $ 150.4
=========== =========== ==========
</TABLE>
Identifiable intangible assets include, among others, investment advisory
relationships and shareowner lists, as well as existing distribution
arrangements. Included in goodwill is approximately $13.4 million relating to
the DST investment. This goodwill resulted from DST stock repurchases. See Notes
2 and 5.
As discussed in Note 2, effective December 31, 1997, the Company changed its
method of evaluating the recoverability of goodwill. Also, see Note 4 for
discussion of goodwill impairment recorded during fourth quarter 1997.
<TABLE>
Accrued Liabilities. Accrued liabilities include the following items (in
millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Prepaid freight charges due
other railroads $ 25.1 $ 30.4 $ 38.6
Current interest payable
on indebtedness 12.5 13.2 17.2
Contract allowances 12.6 12.7 20.2
Productivity Fund liability - - 24.2
Other 156.5 103.4 117.6
----------- ----------- ----------
Total $ 206.7 $ 159.7 $ 217.8
=========== =========== ==========
</TABLE>
See Note 4 for discussion of reserves established in 1997 for restructuring and
other charges.
Note 8. Long-Term Debt
<TABLE>
Indebtedness Outstanding. Long-term debt and pertinent provisions follow (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
KCSI
Competitive Advance & Revolving Credit
Facilities, through May 2002 $ 250.0 $ 315.0 $ 282.0
Rates: Below Prime
Notes and Debentures, due July
2002 to December 2025 400.0 400.0 500.0
Unamortized discount (2.1) (2.4) (2.7)
Rates: 6.625% to 8.80%
<PAGE>101
KCSR
Equipment trust indebtedness, due
serially to June 2009 68.6 78.8 88.9
Rates: 7.15% to 9.68%
Other
Working capital lines 28.0 28.0 31.0
Rates: Below Prime
Subordinated and senior notes, secured term
loans and industrial revenue bonds, due
May 2004 to February 2018 16.4 16.9 17.4
Rates: 3.0% to 7.89%
Total 760.9 836.3 916.6
Less: debt due within one year 10.9 10.7 110.7
----------- ----------- ----------
Long-term debt $ 750.0 $ 825.6 $ 805.9
=========== =========== ==========
</TABLE>
Re-capitalization of the Company's Debt Structure. In preparation for the
Separation, the Company re-capitalized its debt structure in January 2000
through the tender of its outstanding Notes and Debentures (as defined below)
and the repayment of other credit facilities. Funding for the repurchase of the
Notes and Debentures and for the repayment of borrowings under existing
revolving credit facilities was obtained through two new credit facilities. See
Note 16.
<TABLE>
KCSI Credit Agreements. The Company's lines of credit at December 31, 1999 follow (in millions):
Facility
Lines of Credit Fee Total Unused
- -------------------------------------------------------------- --------- -----------
<S> <C> <C> <C>
KCSI .07 to .25% $ 540.0 $ 290.0
KCSR .1875% 20.0 20.0
Gateway Western .1875% 40.0 12.0
Total $ 600.0 $ 322.0
========= ==========
</TABLE>
At December 31, 1999, the Company had financing available through its various
lines of credit with a maximum borrowing amount of $600 million (which includes
$55 million of uncommitted facilities). The Company had borrowings of $278
million under its various lines of credit at December 31, 1999, leaving $322
million available for use, subject to any limitations within existing financial
covenants. Among other provisions, the agreements limit subsidiary indebtedness
and sale of assets, and require certain coverage ratios to be maintained. As of
December 31, 1999, the Company was in compliance with all covenants of these
agreements. The Company's credit agreements are described further below.
On May 5, 1995, the Company established a credit agreement in the amount of $400
million, comprised of a $300 million five-year facility and a $100 million
364-day facility. The $300 million facility was renewed in May 1997, extending
through May 2002, while the $100 million facility has generally been renewed
annually. In second quarter 1999, the $100 million facility was renewed with a
total available amount of $75 million. Proceeds of these facilities have
generally been used for general corporate purposes. The agreements contain a
facility fee ranging from .07-.25% per annum and interest rates below prime.
In May 1998, the Company established an additional $100 million 364-day credit
agreement assumable by the Financial Services segment upon separation of the
Company's two segments. This facility was renewed in second quarter 1999.
Proceeds have been used to repay Company debt and for general corporate
purposes. This agreement contains a facility fee of .15% and interest rates
below prime.
<PAGE>102
At December 31, 1999, the Company also had various other lines of credit
totaling $125 million. These additional lines, which are available for general
corporate purposes, have interest rates below prime and terms of less than one
year.
As discussed in Note 3, in January 1997, the Company made an approximate $298
million capital contribution to Grupo TFM, of which approximately $277 million
was used by Grupo TFM for the purchase of TFM. This payment was funded using
borrowings under the Company's lines of credit.
Public Debt Transactions. As discussed above, in January 2000, the Company
re-capitalized its debt structure through the tender of its outstanding Notes
and Debentures. Following completion of this transaction, approximately $1.6
million of the Company's public debt remains outstanding.
During 1998, $100 million of 5.75% Notes, which matured on July 1, 1998, were
repaid using borrowings under existing lines of credit.
Public indebtedness of the Company at December 31, 1999 includes: $100 million
of 7.875% Notes due 2002; $100 million of 6.625% Notes due in 2005; $100 million
of 8.8% Debentures due 2022; and $100 million of 7% Debentures due 2025. The
various Notes are not redeemable prior to their respective maturities. The 8.8%
Debentures are redeemable on or after July 1, 2002 at a premium of 104.04%,
which declines to par on or after July 1, 2012. The 7% Debentures are redeemable
at the option of the Company, at any time, in whole or in part, at a redemption
price equal to the greater of (a) 100% of the principal amount of such
Debentures or (b) the sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to the date of redemption
on a semiannual basis at the Treasury Rate (as defined in the Debentures
agreement) plus 20 basis points, and in each case accrued interest thereon to
the date of redemption.
These various debt transactions were issued at a total discount of $4.1 million.
This discount is being amortized over the respective debt maturities on a
straight-line basis, which is not materially different from the interest method.
Deferred debt issue costs incurred in connection with these various transactions
(totaling approximately $4.8 million) are also being amortized on a
straight-line basis over the respective debt maturities.
KCSR Indebtedness. KCSR has purchased rolling stock under conditional sales
agreements, equipment trust certificates and capitalized lease obligations. The
equipment has been pledged as collateral for the related indebtedness.
Credit Facility for Janus. The Company has provided a credit facility to Janus
for use by Janus for general corporate purposes, effectively reducing the amount
of credit facilities available for the Company's other purposes.
Other Agreements, Guarantees, Provisions and Restrictions. The Company has debt
agreements containing restrictions on subsidiary indebtedness, advances and
transfers of assets, and sale and leaseback transactions, as well as requiring
compliance with various financial covenants. At December 31, 1999, the Company
was in compliance with the provisions and restrictions of these agreements.
Because of certain financial covenants contained in the credit agreements,
however, maximum utilization of the Company's available lines of credit may be
restricted. See Note 16 for a discussion of certain covenants and restrictions
relating to the two new credit facilities, including a restriction on the
payment of cash dividends to common stockholders.
<PAGE>103
Leases and Debt Maturities. The Company and its subsidiaries lease
transportation equipment, as well as office and other operating facilities under
various capital and operating leases. Rental expenses under operating leases
were $70, $70 and $64 million for the years 1999, 1998 and 1997, respectively.
Concurrent with the formation of the Southern Capital joint venture in 1996,
KCSR entered into operating leases with Southern Capital for the majority of the
rail equipment acquired by or contributed to Southern Capital. In connection
with this transaction, the Company received cash that exceeded the net book
value of assets contributed to the joint venture by approximately $44.1 million.
Accordingly, this excess fair value over book value is being recognized over the
terms of the leases (approximately $5.6, $4.4 and $4.9 million in 1999, 1998 and
1997, respectively).
<TABLE>
Minimum annual payments and present value thereof under existing capital leases,
other debt maturities, and minimum annual rental commitments under
noncancellable operating leases are as follows (in millions):
Capital Leases Operating Leases
Minimum Net
Lease Less Present Other Total
Payments Interest Value Debt Debt Affiliates Third Party Total
-------- -------- ----- ---- ---- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $ 0.7 $ 0.3 $ 0.4 $ 10.5 $ 10.9 $ 34.3 $ 39.4 $ 73.7
2001 0.8 0.3 0.5 12.3 12.8 34.3 30.3 64.6
2002 0.7 0.2 0.5 112.3 112.8 34.3 25.9 60.2
2003 0.8 0.2 0.6 15.8 16.4 34.3 20.2 54.5
2004 0.6 0.1 0.5 12.3 12.8 31.3 10.0 41.3
Later years 1.7 0.3 1.4 593.8 595.2 215.0 37.5 252.5
-------- --------- --------- --------- -------- -------- -------- -------
Total $ 5.3 $ 1.4 $ 3.9 $ 757.0 $ 760.9 $ 383.5 $ 163.3 $ 546.8
======== ========= ========= ========= ======== ======== ======== =======
</TABLE>
Fair Value of Long-Term Debt. Based upon the borrowing rates currently available
to the Company and its subsidiaries for indebtedness with similar terms and
average maturities, the fair value of long-term debt was approximately $766,
$867 and $947 million at December 31, 1999, 1998 and 1997, respectively.
Note 9. Income Taxes
Under the liability method of accounting for income taxes specified by Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes," the
provision for income tax expense is the sum of income taxes currently payable
and deferred income taxes. Currently payable income taxes represents the amounts
expected to be reported on the Company's income tax return, and deferred tax
expense or benefit represents the change in deferred taxes. Deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates that will be in effect when these differences reverse.
<TABLE>
The following summarizes pretax income (loss) for the years ended December 31,
(in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Domestic $ 605.8 $ 357.5 $ 91.8
International (2.1) (3.1) (12.6)
----------- ----------- ----------
Total $ 603.7 $ 354.4 $ 79.2
=========== =========== ==========
</TABLE>
<PAGE>104
<TABLE>
Tax Expense. Income tax expense (benefit) attributable to continuing operations consists of the following
components (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Current
Federal $ 179.2 $ 91.6 $ 73.4
State and local 22.3 16.0 11.6
----------- ----------- ----------
Total current 201.5 107.6 85.0
----------- ----------- ----------
Deferred
Federal 18.7 20.8 (14.1)
State and local 2.9 2.4 (2.5)
----------- ----------- -----------
Total deferred 21.6 23.2 (16.6)
----------- ----------- ----------
Total income tax provision $ 223.1 $ 130.8 $ 68.4
=========== =========== ==========
</TABLE>
<TABLE>
The federal and state deferred tax liabilities (assets) recorded on the Consolidated Balance Sheets at
December 31 follow (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Liabilities:
Depreciation $ 350.3 $ 345.2 $ 306.6
Equity, unconsolidated affiliates 151.6 119.5 106.8
Other, net 5.7 0.4 0.4
----------- ----------- ----------
Gross deferred tax liabilities 507.6 465.1 413.8
----------- ----------- ----------
Assets:
NOL and AMT credit carryovers (2.4) (11.2) (11.2)
Book reserves not currently deductible
for tax (42.1) (38.0) (57.8)
Deferred compensation and other
employee benefits (16.6) (14.5) (13.3)
Deferred revenue (0.6) (2.2) (2.9)
Vacation accrual (4.9) (4.3) (3.3)
Other, net (0.2) (6.1) (3.2)
----------- ----------- ----------
Gross deferred tax assets (66.8) (76.3) (91.7)
----------- ----------- ----------
Net deferred tax liability $ 440.8 $ 388.8 $ 322.1
=========== =========== ==========
</TABLE>
Based upon the Company's history of operating income and its expectations for
the future, management has determined that operating income of the Company will,
more likely than not, be sufficient to recognize fully the gross deferred tax
assets set forth above.
<TABLE>
Tax Rates. Differences between the Company's effective income tax rates
applicable to continuing operations and the U.S. federal income tax statutory
rates of 35% are as follows (in millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Income tax expense using the
statutory rate in effect $ 211.3 $ 124.0 $ 27.7
Tax effect of:
Earnings of equity investees (12.6) (6.3) (7.0)
Goodwill Impairment (see Note 4) 35.0
Other, net (0.8) (5.3) 3.6
----------- ----------- ----------
Federal income tax expense 197.9 112.4 59.3
State and local income tax expense 25.2 18.4 9.1
----------- ----------- ----------
Total $ 223.1 $ 130.8 $ 68.4
=========== =========== ==========
Effective tax rate 37.0% 36.9% 86.4%
=========== =========== ==========
</TABLE>
<PAGE>105
Tax Carryovers. At December 31, 1998, the Company had $4.0 million of
alternative minimum tax credit carryover generated by MidSouth and Gateway
Western prior to acquisition by the Company. This credit was utilized completely
for the year ended December 31, 1999 resulting in no carryover to future years.
The amount of federal NOL carryover generated by MidSouth and Gateway Western
prior to acquisition was $67.8 million. The Company utilized approximately $4.5,
$25.0, and $0.7 million of these NOL's in 1999, 1998 and 1997, respectively.
$31.9 million of the NOL carryover was utilized in pre-1997 years leaving
approximately $5.7 million of carryover available at December 31, 1999, with
expiration dates beginning in the year 2008. The remaining NOL is attributed to
the Gateway Western. The use of preacquisition net operating losses and tax
credit carryovers is subject to limitations imposed by the Internal Revenue
Code. The Company does not anticipate that these limitations will affect
utilization of the carryovers prior to their expiration.
Unremitted Earnings of U.S. Unconsolidated Affiliates. In connection with the
initial public offering of DST in fourth quarter 1995, the Company began
providing deferred income taxes for unremitted earnings of qualifying U.S.
unconsolidated affiliates net of the 80% dividends received deduction provided
under current tax law. As of December 31, 1999, the cumulative amount of
unremitted earnings qualifying for this deduction aggregated $165.8 million.
These amounts would become taxable to the Company if distributed by the
affiliates as dividends, in which case the Company would be entitled to the
dividends received deduction for 80% of the dividends; alternatively, these
earnings could be realized by the sale of the affiliates' stock, which would
give rise to income tax at the federal capital gains rate and state ordinary
income tax rates, to the extent the stock sales proceeds exceeded the Company's
income tax basis. Deferred income taxes provided on unremitted earnings of U.S.
unconsolidated affiliates aggregated $13.3, $9.7 and $8.6 million as of December
31, 1999, 1998 and 1997, respectively.
Tax Examinations. The IRS is currently in the process of examining the
consolidated federal income tax returns for the years 1993 through 1996. For
years prior to 1990, the statute of limitations has closed. In addition, other
taxing authorities are currently examining the years 1990 through 1998 and have
proposed additional tax assessments for which the Company believes it has
recorded adequate reserves.
Since most of these asserted tax deficiencies represent temporary differences,
subsequent payments of taxes will not require additional charges to income tax
expense. In addition, accruals have been made for interest (net of tax benefit)
for estimated settlement of the proposed tax assessments. Thus, management
believes that final settlement of these matters will not have a material adverse
effect on the Company's consolidated results of operations or financial
condition.
Note 10. Stockholders' Equity
Pro Forma Fair Value Information for Stock-Based Compensation Plans. At December
31, 1999, the Company had several stock-based compensation plans, which are
described separately below. The Company applies APB 25 and related
interpretations in accounting for its plans, and accordingly, no compensation
cost has been recognized for the Company's fixed stock option plans or the ESPP
programs. Had compensation cost for the Company's stock-based compensation plans
been determined in accordance with the fair value accounting method prescribed
by SFAS 123 for options issued after December 31, 1994, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
<PAGE>106
<TABLE>
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Net income (loss) (in millions):
As reported $ 323.3 $ 190.2 $ (14.1)
Pro Forma 318.0 179.0 (21.1)
Earnings (loss) per Basic share:
As reported $ 2.93 $ 1.74 $ (0.13)
Pro Forma 2.88 1.64 (0.20)
Earnings (loss) per Diluted share:
As reported $ 2.79 $ 1.66 $ (0.13)
Pro Forma 2.74 1.58 (0.20)
</TABLE>
Stock Option Plans. During 1998, various existing Employee Stock Option Plans
were combined and amended as the Kansas City Southern Industries, Inc. 1991
Amended and Restated Stock Option and Performance Award Plan (as amended and
restated effective July 15, 1998). The Plan provides for the granting of options
to purchase up to 26.0 million shares of the Company's common stock by officers
and other designated employees. Such options have been granted at 100% of the
average market price of the Company's stock on the date of grant and generally
may not be exercised sooner than one year or longer than ten years following the
date of the grant, except that options outstanding with limited rights ("LRs")
or limited stock appreciation rights ("LSARs"), become immediately exercisable
upon certain defined circumstances constituting a change in control of the
Company. The Plans include provisions for stock appreciation rights, LRs and
LSARs. All outstanding options include LRs, except for options granted to
non-employee Directors.
<TABLE>
For purposes of computing the pro forma effects of option grants under the fair
value accounting method prescribed by SFAS 123, the fair value of each option
grant is estimated on the date of grant using a version of the Black-Scholes
option pricing model. The following assumptions were used for the various grants
depending on the date of grant, nature of vesting and term of option:
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Dividend Yield .25% to .36% .34% to .56% .47% to .82%
Expected Volatility 42% to 43% 30% to 42% 24% to 31%
Risk-free Interest Rate 4.67% to 5.75% 4.74% to 5.64% 5.73% to 6.57%
Expected Life 3 years 3 years 3 years
</TABLE>
<TABLE>
A summary of the status of the Company's stock option plans as of December 31,
1999, 1998 and 1997, and changes during the years then ended, is presented
below:
1999 1998 1997
--------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 9,427,942 $15.35 9,892,581 $12.12 10,384,149 $10.83
Exercised (1,272,964 15.91 (1,600,829) 13.07 (1,874,639) 10.33
Canceled/Expired (84,532) 42.89 (40,933) 21.75 (401,634) 15.40
Granted 490,71 49.73 1,177,123 39.62 1,784,705 18.51
---------- ----------- ----------
Outstanding at December 31 8,561,162 16.97 9,427,942 15.35 9,892,581 12.12
========== =========== ==========
Exercisable at December 31 7,668,785 8,222,782 8,028,475
Weighted-Average Fair Value of options
granted during the year $16.64 $ 12.31 $ 4.72
</TABLE>
<PAGE>107
<TABLE>
The following table summarizes the information about stock options outstanding
at December 31, 1999:
OUTSTANDING EXERCISABLE
------------------------------------------------- ----------------------------
Weighted- Weighted- Weighted-
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/99 Contractual Life Price at 12/31/99 Price
- --------- ----------- ---------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2 - 10 2,717,708 2.0 years $ 4.85 2,717,708 $ 4.85
10 - 15 853,669 5.9 13.03 853,669 13.03
15 - 20 3,061,272 6.3 15.69 3,055,872 15.69
20 - 30 688,668 9.3 23.96 688,668 23.96
30 - 40 875 8.4 31.32 875 31.32
40 - 50 1,083,470 9.9 43.48 351,993 42.56
50 - 60 155,500 10.0 59.85 - -
--------- ----------
2 - 60 8,561,162 5.6 16.97 7,668,785 13.53
========= ==========
</TABLE>
Shares available for future grants at December 31, 1999 aggregated 8,859,773.
Stock Purchase Plan. The ESPP, established in 1977, provides to substantially
all full-time employees of the Company, certain subsidiaries and certain other
affiliated entities, the right to subscribe to an aggregate of 22.8 million
shares of common stock. The purchase price for shares under any stock offering
is to be 85% of the average market price on either the exercise date or the
offering date, whichever is lower, but in no event less than the par value of
the shares. At December 31, 1999, there were approximately 11.6 million shares
available for future offerings.
<TABLE>
The following table summarizes activity related to the various ESPP offerings:
Date Shares Shares Date
Initiated Subscribed Price Issued Issued
<S> <C> <C> <C> <C> <C>
Eleventh Offering 1998 213,825 $35.97 188,297 1999/2000
Tenth Offering 1996 251,079 13.35 233,133 1997/1998
Ninth Offering 1995 291,411 12.73 247,729 1996/1997
</TABLE>
For purposes of computing the pro forma effects of employees' purchase rights
under the fair value accounting method prescribed by SFAS 123, the fair value of
the Eleventh Offering under the ESPP is estimated on the date of grant using a
version of the Black-Scholes option pricing model. The following
weighted-average assumptions were used: i) dividend yield of .95%; ii) expected
volatility of 42%; iii) risk-free interest rate of 4.63%; and iv) expected life
of one year. The weighted-average fair value of purchase rights granted under
the Eleventh Offering of the ESPP was $10.76. There were no offerings in 1999 or
1997.
Forward Stock Purchase Contract. During 1995, the Company entered into a forward
stock purchase contract ("the contract") as a means of securing a potentially
favorable price for the repurchase of six million shares of its common stock in
connection with the stock repurchase program authorized by the Company's Board
of Directors on April 24, 1995. During 1999 and 1998, no shares were purchased
under this arrangement. During 1997, the Company purchased 2.4 million shares
under this arrangement at an aggregate price of $39 million (including
transaction premium). The contract contained provisions which allowed the
Company to elect a net cash or net share settlement in lieu of physical
settlement of the shares; however, all shares were physically settled. The
transaction was recorded in the consolidated financial statements upon
settlement of the contract in accordance with the accounting policies described
in Note 2.
<PAGE>108
Employee Plan Funding Trust ("EPFT" or "Trust"). Effective September 30, 1998,
the Company terminated the EPFT, which was established by KCSI as a grantor
trust for the purpose of holding shares of Series B Preferred stock for the
benefit of various KCSI employee benefit plans, including the ESOP, Stock Option
Plans and ESPP (collectively, "Benefit Plans"). The EPFT was administered by an
independent bank trustee ("Trustee") and included in the Company's consolidated
financial statements.
In accordance with the Agreement to terminate the EPFT, the Company received
872,362 shares of Series B Preferred stock in full repayment of the indebtedness
from the Trust. In addition, the remaining 127,638 shares of Series B Preferred
stock were converted by the Trustee into KCSI Common stock, at the rate of 12 to
1, resulting in the issuance to the EPFT of 1,531,656 shares of such Common
stock. The Trustee then transferred this Common stock to KCSI and the Company
has set these shares aside for use in connection with the KCSI Stock Option and
Performance Award Plan, as amended and restated effective July 15, 1998.
Following the foregoing transactions, the EPFT was terminated. The impact of the
termination of the EPFT on the Company's consolidated condensed financial
statements was a reclassification among the components of the stockholder's
equity accounts, with no change in the consolidated assets and liabilities of
the Company.
Treasury Stock. Shares of common stock in Treasury at December 31, 1999 totaled
36,164,402, compared with 36,923,325 at December 31, 1998 and 37,122,195 at
December 31, 1997. The Company issued shares of common stock from Treasury -
1,218,923 in 1999, 1,663,349 in 1998 and 2,031,162 in 1997 - to fund the
exercise of options and subscriptions under various employee stock option and
purchase plans. In 1998, approximately 67,000 shares were issued in conjunction
with the acquisition of Nelson. Treasury stock previously acquired had been
accounted for as if retired. The 1,531,656 shares received in connection with
the termination of the EPFT were added to Treasury stock during 1998. The
Company purchased shares as follows: 460,000 in 1999 and 2,863,983 in 1997.
Shares purchased during 1998 were not material.
Janus Restricted Stock. During 1998, Janus granted 125,900 restricted shares of
Janus' common stock to certain Janus employees pursuant to a restricted stock
agreement ("Restricted Stock Agreement"). The restricted stock was recorded at
fair market value (approximately $28.9 million) at the time of grant as a
separate component of Janus' stockholders' equity. The restricted stock fully
vests at the end of 10 years. The Restricted Stock Agreement also includes an
accelerated vesting provision whereby the vesting rate will be accelerated to
20% of the shares in any one year if certain specific investment performance
goals are met (to be effective on January 1st of the following year). The
employee must be employed at the time of any vesting to receive the applicable
shares. Janus records compensation expense based on the applicable vesting rate,
which was 20% in 1999 and 1998 based on attainment of investment performance
goals. In accordance with generally accepted accounting principles, the impact
of the Janus amortization charges in 1999 and beyond will be reduced by gain
recognition at the holding company level, reflecting the Company's reduced
ownership of Janus upon vesting by the restricted stockholders.
During 1999, Janus granted 33,000 shares of Janus common stock to certain Janus
employees pursuant to the Restricted Stock Agreement. The restricted stock was
recorded at fair market value (approximately $10.8 million) at the time of grant
as a separate component of Janus' stockholders' equity. Similar to the 1998
grant, the Restricted Stock Agreement includes an accelerated vesting provision
whereby the vesting rate accelerates to 20% of the shares in any one year if
certain specific investment performance goals are met (to be effective on
January 1st of the following year). Janus records compensation expense based on
the applicable vesting rate, currently at 20% based on attainment of investment
performance goals.
The shares made available for the restricted stock grant were obtained through
the purchase of 35,000 shares of Janus stock from an existing minority owner. In
connection with this
<PAGE>109
transaction, the Company recorded approximately $9.5 million of goodwill, which
is being amortized over a period of 15 years.
Because this 1999 issuance was from Janus' treasury shares on which previous
gains have been recognized, the Company will record any gains upon vesting
directly to stockholders' equity. See Note 2.
Note 11. Profit Sharing and Other Postretirement Benefits
The Company maintains various plans for the benefit of its employees as
described below. The Company's employee benefit expense for these plans
aggregated $7.5, $7.7 and $6.3 million in 1999, 1998 and 1997, respectively.
Profit Sharing. Qualified profit sharing plans are maintained for most employees
not included in collective bargaining agreements. Contributions for the Company
and its subsidiaries are made at the discretion of the Boards of Directors in
amounts not to exceed the maximum allowable for federal income tax purposes.
401(k) Plan. The Company's 401(k) plan permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The Company matches contributions up to a maximum of 3% of
compensation.
Employee Stock Ownership Plan. KCSI established the ESOP for employees not
covered by collective bargaining agreements. KCSI contributions to the ESOP are
based on a percentage (determined by the Compensation Committee of the Board of
Directors) of wages earned by eligible employees.
Other Postretirement Benefits. The Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"), effective January 1, 1993. The Company and
several of its subsidiaries provide certain medical, life and other
postretirement benefits other than pensions to its retirees. With the exception
of the Gateway Western plans, which are discussed below, the medical and life
plans are available to employees not covered under collective bargaining
arrangements, who have attained age 60 and rendered ten years of service.
Individuals employed as of December 31, 1992 were excluded from a specific
service requirement. The medical plan is contributory and provides benefits for
retirees, their covered dependents and beneficiaries. Benefit expense begins to
accrue at age 40. The medical plan was amended effective January 1, 1993 to
provide for annual adjustment of retiree contributions, and also contains,
depending on the plan coverage selected, certain deductibles, co-payments,
coinsurance and coordination with Medicare. The life insurance plan is
non-contributory and covers retirees only. The Company's policy, in most cases,
is to fund benefits payable under these plans as the obligations become due.
However, certain plan assets (e.g., money market funds) do exist with respect to
life insurance benefits.
During 1998, the Company adopted Statement of Financial Accounting Standards No.
132 "Employers' Disclosure about Pensions and Other Postretirement Benefits - an
amendment of FASB Statements No. 87, 88, and 106" ("SFAS 132") and prior year
information has been included pursuant to SFAS 132. SFAS 132 establishes
standardized disclosure requirements for pension and other postretirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets, and eliminates certain disclosures
that are no longer considered useful. The standard does not change the
measurement or recognition of pension or postretirement benefit plans.
<PAGE>110
<TABLE>
Reconciliation of the accumulated postretirement benefit obligation, change in
plan assets and funded status, respectively, at December 31 follows (in
millions):
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation at beginning of year $ 14.7 $ 14.5 $ 14.5
Service cost 0.4 0.4 0.6
Interest cost 1.0 1.0 1.2
Amortization of transition obligation 0.1
Actuarial and other (gain) loss 1.8 (0.1) (0.6)
Benefits paid (i) (1.1) (1.1) (1.3)
----------- ----------- ----------
Accumulated postretirement
benefit obligation at end of year 16.8 14.7 14.5
----------- ----------- ----------
Fair value of plan assets
at beginning of year 1.4 1.3 1.3
Actual return on plan assets 0.1 0.2 0.1
Benefits paid (i) (0.2) (0.1) (0.1)
----------- ----------- ----------
Fair value of plan assets
at end of year 1.3 1.4 1.3
----------- ----------- ----------
Funded status and accrued
benefit cost $ 15.5 $ 13.3 $ 13.2
=========== =========== ==========
</TABLE>
(i) Benefits paid for the reconciliation of accumulated postretirement
benefit obligation include both medical and life insurance benefits,
whereas benefits paid for the fair value of plan assets reconciliation
include only life insurance benefits. Plan assets relate only to the
life insurance benefits. Medical benefits are funded as obligations
become due.
<TABLE>
Net periodic postretirement benefit cost included the following components (in
millions):
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Service cost $ 0.4 $ 0.4 $ 0.6
Interest cost 1.0 1.0 1.2
Amortization of unrecognized
transition obligation 0.1
Expected return on plan assets (0.1) (0.1) (0.1)
----------- ----------- ----------
Net periodic postretirement
benefit cost $ 1.3 $ 1.3 $ 1.8
=========== =========== ==========
</TABLE>
The Company's health care costs, excluding Gateway Western and certain former
employees of the MidSouth, are limited to the increase in the Consumer Price
Index ("CPI") with a maximum annual increase of 5%. Accordingly, health care
costs in excess of the CPI limit will be borne by the plan participants, and
therefore assumptions regarding health care cost trend rates are not applicable.
<PAGE>111
<TABLE>
The following assumptions were used to determine the postretirement obligations
and costs for the years ended December 31:
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Annual increase in the CPI 3.00% 2.50% 3.00%
Expected rate of return on life
insurance plan assets 6.50 6.50 6.50
Discount rate 8.00 6.75 7.25
Salary increase 4.00 4.00 4.00
</TABLE>
Gateway Western's benefit plans are slightly different from those of the Company
and other subsidiaries. Gateway Western provides contributory health, dental and
life insurance benefits to substantially all of its active and retired
employees, including those covered by collective bargaining agreements.
Effective January 1, 1998, existing Gateway Western management employees
converted to the Company's benefit plans. In 1999, the assumed annual rate of
increase in health care costs for the non-management Gateway Western employees
choosing a preferred provider organization was 7.5% and 6.5% for those choosing
the health maintenance organization option, decreasing over two years to 6.5%
and 5.5%, respectively, to remain level thereafter. For certain former employees
of the MidSouth, the assumed annual rate of an increase in health care costs is
12% currently, decreasing over six years to 6% to remain level thereafter.
The health care cost trend rate assumption has an effect on the Gateway Western
amounts represented, as well as certain former employees of the MidSouth. An
increase or decrease in the assumed health care cost trend rates by one percent
in 1999, 1998 and 1997 would not have a significant impact on the accumulated
postretirement benefit obligation. The effect of this change on the aggregate of
the service and interest cost components of the net periodic postretirement
benefit is not significant.
Note 12. Commitments and Contingencies
Minority Purchase Agreements. A stock purchase agreement with Thomas H. Bailey
("Mr. Bailey"), Janus' Chairman, President and Chief Executive Officer and owner
of 12% of Janus common stock, and another Janus stockholder (the "Janus Stock
Purchase Agreement") and certain restriction agreements with other Janus
minority stockholders contain, among other provisions, mandatory put rights
whereby at the election of such minority stockholders, KCSI would be required to
purchase the minority interests of such Janus minority stockholders at a
purchase price equal to fifteen times the net after-tax earnings over the period
indicated in the relevant agreement, or in some circumstances at a purchase
price as determined by an independent appraisal. Under the Janus Stock Purchase
Agreement, termination of Mr. Bailey's employment could require a purchase and
sale of the Janus common stock held by him. If other minority holders terminated
their employment, some or all of their shares also could be subject to mandatory
purchase and sale obligations. Certain other minority holders who continue their
employment also could exercise puts. If all of the mandatory purchase and sale
provisions and all the puts under such Janus minority stockholder agreements
were implemented, KCSI would have been required to pay approximately $789
million as of December 31, 1999, compared to $447 and $337 million at December
31, 1998 and 1997, respectively. In the future these amounts may be higher or
lower depending on Janus' earnings, fair market value and the timing of the
exercise. Payment for the purchase of the respective minority interests is to be
made under the Janus Stock Purchase Agreement within 120 days after receiving
notification of exercise of the put rights. Under the restriction agreements
with certain other Janus minority stockholders, payment for the purchase of the
respective minority interests is to be made 30 days after the later to occur of
(i) receiving notification of exercise of the put rights or (ii) determination
of the purchase price through the independent appraisal process.
<PAGE>112
The Janus Stock Purchase Agreement and certain stock purchase agreements and
restriction agreements with other minority stockholders also contain provisions
whereby upon the occurrence of a Change in Ownership (as defined in such
agreements) of KCSI, KCSI may be required to purchase such holders' Janus stock
or, as to the stockholders that are parties to the Janus Stock Purchase
Agreement, at such holders' option, to sell its stock of Janus to such minority
stockholders. The price for such purchase or sale would be equal to fifteen
times the net after-tax earnings over the period indicated in the relevant
agreement, or in some circumstances as determined by Janus' Stock Option
Committee or as determined by an independent appraisal. If KCSI had been
required to purchase the holders' Janus common stock after a Change in Ownership
as of December 31, 1999, the purchase price would have been approximately $899
million (see additional information in Note 13).
KCSI would account for any such purchase as the acquisition of a minority
interest under Accounting Principles Board Opinion No. 16, Business
Combinations.
As of March 31, 2000, KCSI, through Stilwell, had $200 million in credit
facilities available, owned securities with a market value in excess of $1.3
billion and had cash balances at the Stilwell holding company level in excess of
$147.5 million. To the extent that these resources were insufficient to fund its
purchase obligations, KCSI had access to the capital markets and, with respect
to the Janus Stock Purchase Agreement, had 120 days to raise additional sums.
Litigation. In the opinion of management, claims or lawsuits incidental to the
business of the Company and its subsidiaries have been adequately provided for
in the consolidated financial statements.
Duncan Case. In 1998, a jury in Beauregard Parish, Louisiana returned a verdict
against KCSR in the amount of $16.3 million. The Louisiana state case arose from
a railroad crossing accident which occurred at Oretta, Louisiana on September
11, 1994, in which three individuals were injured. Of the three, one was injured
fatally, one was rendered quadriplegic and the third suffered less serious
injuries.
Subsequent to the verdict, the trial court held that the plaintiffs were
entitled to interest on the judgment from the date the suit was filed, dismissed
the verdict against one defendant and reallocated the amount of that verdict to
the remaining defendants. The resulting total judgment against KCSR, together
with interest, was $27.0 million as of December 31, 1999.
On November 3, 1999, the Third Circuit Court of Appeals in Louisiana affirmed
the judgment. Review is now being sought in the Louisiana Supreme Court. On
March 24, 2000, the Louisiana Supreme Court granted KCSR's Application for a
Writ of Review regarding this case. Independent trial counsel has expressed
confidence to KCSR management that the Louisiana Supreme Court will set aside
the district court and court of appeals judgments in this case. KCSR management
believes it has meritorious defenses and that it will ultimately prevail in
appeal to the Louisiana Supreme Court. If the verdict were to stand, however,
the judgment and interest are in excess of existing insurance coverage and could
have an adverse effect on the Company's consolidated results of operations,
financial position and cash flows.
Bogalusa Cases. In July 1996, KCSR was named as one of twenty-seven defendants
in various lawsuits in Louisiana and Mississippi arising from the explosion of a
rail car loaded with chemicals in Bogalusa, Louisiana on October 23, 1995. As a
result of the explosion, nitrogen dioxide and oxides of nitrogen were released
into the atmosphere over parts of that town and the surrounding area causing
evacuations and injuries. Approximately 25,000 residents of Louisiana and
Mississippi have asserted claims to recover damages allegedly caused by exposure
to the chemicals.
<PAGE>113
KCSR neither owned nor leased the rail car or the rails on which it was located
at the time of the explosion in Bogalusa. KCSR did, however, move the rail car
from Jackson to Vicksburg, Mississippi, where it was loaded with chemicals, and
back to Jackson where the car was tendered to the IC. The explosion occurred
more than 15 days after the Company last transported the rail car. The car was
loaded in excess of its standard weight, but under the car's capacity, when it
was transported by the Company to interchange with the IC.
The trial of a group of twenty plaintiffs in the Mississippi lawsuits arising
from the chemical release resulted in a jury verdict and judgment in favor of
KCSR in June 1999. The jury found that KCSR was not negligent and that the
plaintiffs had failed to prove that they were damaged. The trial of the
Louisiana class action is scheduled to commence on June 11, 2001. No date has
been scheduled for the trial of the additional plaintiffs in Mississippi.
KCSR believes that its exposure to liability in these cases is remote. If KCSR
were to be found liable for punitive damages in these cases, such a judgment
could have a material adverse effect on the Company's results of operations,
financial position and cash flows.
Diesel Fuel Commitments and Hedging Activities. From time to time, KCSR enters
into forward purchase commitments and hedge transactions (fuel swaps or caps)
for diesel fuel as a means of securing volumes and reducing overall cost.
Forward purchase commitment contracts normally require KCSR to purchase certain
quantities of diesel fuel at defined prices established at the origination of
the contract. Hedge transactions are correlated to market benchmarks and hedge
positions are monitored to ensure that they will not exceed actual fuel
requirements in any period.
There were no fuel swap or cap transactions during 1997 and minimal purchase
commitments were negotiated for 1997. However, at the end of 1997, the Company
had purchase commitments for approximately 27% of expected 1998 diesel fuel
usage, as well as fuel swaps for approximately 37% of expected 1998 usage. As a
result of actual fuel prices remaining below both the purchase commitment price
and the swap price during 1998, the Company's fuel expense was approximately
$4.0 million higher. The purchase commitments resulted in a higher cost of
approximately $1.7 million, while the Company made payments of approximately
$2.3 million related to the 1998 fuel swap transactions. At December 31, 1998,
the Company had purchase commitments and fuel swap transactions for
approximately 32% and 16%, respectively, of expected 1999 diesel fuel usage. In
1999, KCSR saved approximately $0.6 million as a result of these purchase
commitments. The fuel swap transactions resulted in higher fuel expense of
approximately $1 million.
At the end of 1999, the Company had no outstanding purchase commitments for
2000. At December 31, 1999, the Company had entered into two diesel fuel cap
transactions for a total of six million gallons (approximately 10% of expected
2000 usage) at a cap price of $0.60 per gallon. The caps are effective January
1, 2000 through June 30, 2000.
Foreign Exchange Matters. As discussed in Note 2, in connection with the
Company's investment in Grupo TFM, a Mexican company, Nelson, an 80% owned
United Kingdom company, and Janus Capital International (UK) Limited ("Janus
UK"), an indirect wholly-owned subsidiary of Janus based in the United Kingdom,
the Company follows the requirements outlined in SFAS 52 (and related
authoritative guidance) with respect to financial accounting and reporting for
foreign currency transactions and for translating foreign currency financial
statements from the entity's functional currency into U.S. dollars.
The purchase price paid by Grupo TFM for 80% of the common stock of TFM was
fixed in Mexican pesos; accordingly, the U.S. dollar equivalent fluctuated as
the U.S. dollar/Mexican peso exchange rate changed. The Company's capital
contribution (approximately $298 million U.S.) to Grupo TFM
<PAGE>114
in connection with the initial installment of the TFM purchase price was made
based on the U.S. dollar/Mexican peso exchange rate on January 31, 1997.
Grupo TFM paid the remaining 60% of the purchase price in Mexican pesos on June
23, 1997. As discussed above, the final installment was funded using proceeds
from Grupo TFM debt financing and the sale of 24.6% of Grupo TFM to the Mexican
Government. In the event that the proceeds from these arrangements would not
have provided funds sufficient for Grupo TFM to make the final installment of
the purchase price, the Company may have been required to make additional
capital contributions. Accordingly, in order to hedge a portion of the Company's
exposure to fluctuations in the value of the Mexican peso versus the U.S.
dollar, the Company entered into two separate forward contracts to purchase
Mexican pesos - $98 million in February 1997 and $100 million in March 1997. In
April 1997, the Company realized a $3.8 million pretax gain in connection with
these contracts. This gain was deferred until the final installment of the TFM
purchase price was made in June 1997, at which time, it was accounted for as a
component of the Company's investment in Grupo TFM. These contracts were
intended to hedge only a portion of the Company's exposure related to the final
installment of the purchase price and not any other transactions or balances.
During 1997 and 1998, Mexico's economy was classified as "highly inflationary"
as defined in SFAS 52. Accordingly, under the highly inflationary accounting
guidance in SFAS 52, the U.S. dollar was used as Grupo TFM's functional
currency, and any gains or losses from translating Grupo TFM's financial
statements into U.S. dollars were included in the determination of its net
income (loss). Equity earnings (losses) from Grupo TFM included in the Company's
results of operations reflected the Company's share of such translation gains
and losses.
Effective January 1, 1999, the SEC staff declared that Mexico should no longer
be considered a highly inflationary economy. Accordingly, the Company performed
an analysis under the guidance of SFAS 52 to determine whether the U.S. dollar
or the Mexican peso should be used as the functional currency for financial
accounting and reporting purposes for periods subsequent to December 31, 1998.
Based on the results of the analysis, management believes the U.S. dollar to be
the appropriate functional currency for the Company's investment in Grupo TFM;
therefore, the financial accounting and reporting of the operating results of
Grupo TFM will remain consistent with prior periods.
Nelson's and Janus UK's principal operations are in the United Kingdom and,
therefore, the financial statements for each company are accounted for using the
British pound as the functional currency. Any gains or losses arising from
transactions not denominated in the British pound are recorded as a foreign
currency gain or loss and included in the results of operations of Nelson and
Janus UK. The translation of these financial statements from the British pound
into the U.S. dollar results in an adjustment to stockholders' equity as a
cumulative translation adjustment. At December 31, 1999 and 1998, the cumulative
translation adjustment was not material.
The Company continues to evaluate existing alternatives with respect to
utilizing foreign currency instruments to hedge its U.S. dollar investment in
Grupo TFM and Nelson as market conditions change or exchange rates fluctuate. At
December 31, 1999, the Company had no outstanding foreign currency hedging
instruments.
Environmental Liabilities. The Company's transportation operations are subject
to extensive regulation under environmental protection laws and its land
holdings have been used for transportation purposes or leased to third parties
for commercial and industrial purposes. 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.
<PAGE>115
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. At December 31, 1999, 1998
and 1997 these recorded liabilities were not material. 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 results of operations or financial condition.
Panama Canal Railway Company. In January 1998, the Republic of Panama awarded
KCSR and its joint venture partner, Mi-Jack Products, Inc., the concession to
reconstruct and operate the PCRC. The 47-mile railroad runs parallel to the
Panama Canal and, upon reconstruction, will provide international shippers with
an important complement to the Panama Canal. In November 1999, PCRC completed
the financing arrangements for this project with the International Finance
Corporation ("IFC"), a member of the World Bank Group. The financing is
comprised of a $5 million investment from the IFC and senior loans in the
aggregate amounts of up to $45 million. The investment of $5 million from the
IFC is comprised of non-voting preferred shares, paying a 10% cumulative
dividend. These preferred shares reduce the Company's ownership interest in PCRC
from 50% to 41.67%. The preferred shares are expected to be redeemed at the
option of IFC any year after 2008 at the lower of i) a net cumulative internal
rate of return of 30%, or ii) eight-times EBITDA (average of two consecutive
years) calculated in proportion to the IFC's percentage ownership in PCRC. Under
certain limited conditions, the Company is a guarantor for up to $15 million of
cash deficiencies associated with project completion. Additionally, if the
Company or its partner terminate the concession contract without the consent of
the IFC, the Company is a guarantor for up to 50% of the outstanding senior
loans. The total cost of the reconstruction project is estimated to be $75
million with an equity commitment from KCSR not to exceed $13 million.
Reconstruction of PCRC's right-of-way is expected to be complete in mid-2001
with commercial operations to begin immediately thereafter.
Intermodal and Automotive Facility at the Former Richards-Gebaur Airbase. In
conjunction with the construction of an intermodal and automotive facility at
the former Richards-Gebaur airbase in Kansas City, Missouri, KCSR expects to
spend approximately $20 million for site improvements and infrastructure.
Additionally, KCSR has negotiated a lease arrangement with the City of Kansas
City, Missouri for a period of fifty years. Lease payments are expected to range
between $400,000 and $700,000 per year and will be adjusted for inflation based
on agreed-upon formulas.
Note 13. Control
Subsidiaries and Affiliates. The Janus Stock Purchase Agreement, as amended,
provides that so long as Mr. Bailey is a holder of at least 5% of the common
stock of Janus and continues to be employed as President or Chairman of the
Board of Janus (or, if he does not serve as President, James P. Craig, III
serves as President and Chief Executive Officer or Co-Chief Executive Officer
with Mr. Bailey), Mr. Bailey shall continue to establish and implement policy
with respect to the investment advisory and portfolio management activity of
Janus. The agreement also provides that, in furtherance of such objective, so
long as both the ownership threshold and officer status conditions described
above are satisfied, KCSI will vote its shares of Janus common stock to elect
directors of Janus, at least the majority of whom are selected by Mr. Bailey,
subject to KCSI's approval, which approval may not be unreasonably withheld. The
agreement further provides that any change in management philosophy, style or
approach with respect to investment advisory and portfolio management policies
of Janus shall be mutually agreed upon by KCSI and Mr. Bailey.
KCSI does not believe Mr. Bailey's rights under the Janus Stock Purchase
Agreement are "substantive," within the meaning of EITF 96-16, because KCSI can
terminate those rights at any time by removing Mr. Bailey as an officer of
Janus. KCSI also believes that the removal of Mr.
<PAGE>116
Bailey would not result in significant harm to KCSI based on the factors
discussed below. Colorado law provides that removal of an officer of a Colorado
corporation may be done directly by its stockholders if the corporation's bylaws
so provide. While Janus' bylaws contain no such provision currently, KCSI has
the ability to cause Janus to amend its bylaws to include such a provision.
Under Colorado law, KCSI could take such action at an annual meeting of
stockholders or make a demand for a special meeting of stockholders. Janus is
required to hold a special stockholders' meeting upon demand from a holder of
more than 10% of its common stock and to give notice of the meeting to all
stockholders. If notice of the meeting is not given within 30 days of such a
demand, the District Court is empowered to summarily order the holding of the
meeting. As the holder of more than 80% of the common stock of Janus, KCSI has
the requisite votes to compel a meeting and to obtain approval of the required
actions at such a meeting.
KCSI has concluded, supported by an opinion of legal counsel, that it could
carry out the above steps to remove Mr. Bailey without breaching the Janus Stock
Purchase Agreement and that if Mr. Bailey were to challenge his removal by
instituting litigation, his sole remedy would be for damages and not injunctive
relief and that KCSI would likely prevail in that litigation.
Although KCSI has the ability to remove Mr. Bailey, it has no present plan or
intention to do so, as he is one of the persons regarded as most responsible for
the success of Janus. The consequences of any removal of Mr. Bailey would depend
upon the timing and circumstances of such removal. Mr. Bailey could be required
to sell, and KCSI could be required to purchase, his Janus common stock, unless
he were terminated for cause. Certain other Janus minority stockholders would
also be able, and, if they terminated employment, required, to sell to KCSI
their shares of Janus common stock. The amounts that KCSI would be required to
pay in the event of such purchase and sale transactions could be material. See
Note 12. As of December 31, 1999, such removal would have also resulted in
acceleration of the vesting of a portion of the shares of restricted Janus
common stock held by other minority stockholders having an approximate aggregate
value of $16.3 million.
There may also be other consequences of removal that cannot be presently
identified or quantified. For example, Mr. Bailey's removal could result in the
loss of other valuable employees or clients of Janus. The likelihood of
occurrence and the effects of any such employee or client departures cannot be
predicted and may depend on the reasons for and circumstances of Mr. Bailey's
removal. However, KCSI believes that Janus would be able in such a situation to
retain or attract talented employees because: (i) of Janus' prominence; (ii)
Janus' compensation scale is at the upper end of its peer group; (iii) some or
all of Mr. Bailey's repurchased Janus stock could be then available for sale or
grants to other employees; and (iv) many key Janus employees must continue to be
employed at Janus to become vested in currently unvested restricted stock valued
in the aggregate (after considering additional vesting that would occur upon the
termination of Mr. Bailey) at approximately $36 million as of December 31, 1999.
In addition, notwithstanding any removal of Mr. Bailey, KCSI would expect to
continue its practice of encouraging autonomy by its subsidiaries and their
boards of directors so that management of Janus would continue to have
responsibility for Janus' day-to-day operations and investment advisory and
portfolio management policies and, because it would continue that autonomy, KCSI
would expect many current Janus employees to remain with Janus.
With respect to clients, Janus' investment advisory contracts with its clients
are terminable upon 60 days' notice and in the event of a change in control of
Janus. Because of his rights under the Janus Stock Purchase Agreement, Mr.
Bailey's departure, whether by removal, resignation or death, might be regarded
as such a change in control. However, in view of Janus' investment record, KCSI
has concluded it is reasonable to expect that in such an event most of Janus'
clients would renew their investment advisory contracts. This conclusion is
reached because (i) Janus relies on a team approach to investment management and
development of investment expertise, (ii) Mr. Bailey has not served as a
portfolio manager for any Janus fund for several years, (iii) a
<PAGE>117
succession plan exists under which Mr. James P. Craig, III would succeed Mr.
Bailey, and (iv) Janus should be able to continue to attract talented portfolio
managers. It is reasonable to expect that Janus' clients' reaction will depend
on the circumstances, including, for example, how much of the Janus team remains
in place and what investment advisory alternatives are available.
The Janus Stock Purchase Agreement and other agreements provide for rights of
first refusal on the part of Janus minority stockholders, Janus and KCSI, with
respect to certain sales of Janus stock. These agreements also require KCSI to
purchase the shares of Janus minority stockholders in certain circumstances. In
addition, in the event of a Change in Ownership of KCSI, as defined in the Janus
Stock Purchase Agreement, KCSI may be required to sell its stock of Janus to the
stockholders who are parties to such agreement or to purchase such holders'
Janus stock. In the event Mr. Bailey was terminated for any reason within one
year following a Change in Ownership, he would be entitled to a severance
payment, amounting, at December 31, 1999, to approximately $2 million. Purchase
and sales transactions under these agreements are to be made based upon a
multiple of the net earnings of Janus and/or other fair market value
determinations, as defined therein. See Note 12.
Under the Investment Company Act of 1940, certain changes in ownership of Janus
or Berger may result in termination of their respective investment advisory
agreements with the mutual funds and other accounts they manage, requiring
approval of fund shareowners and other account holders to obtain new agreements.
Additionally, there are Janus and Berger officers and directors that serve as
officers and/or directors of certain of the registered investment companies to
which Janus and Berger act as investment advisors.
The Company is party to certain agreements with TMM covering the Grupo TFM and
Mexrail ventures, which contain "change of control" provisions, provisions
intended to preserve Company's and TMM's proportionate ownership of the
ventures, and super majority provisions with respect to voting on certain
significant transactions. Such agreements also provide a right of first refusal
in the event that either party initiates a divestiture of its equity interest in
Grupo TFM or Mexrail. Under certain circumstances, such agreements could affect
the Company's ownership percentage and rights in these equity affiliates.
Employees. The Company and certain of its subsidiaries have entered into
agreements with employees whereby, upon defined circumstances constituting a
change in control of the Company or subsidiary, certain stock options become
exercisable, certain benefit entitlements are automatically funded and such
employees are entitled to specified cash payments upon termination of
employment.
Assets. The Company and certain of its subsidiaries have established trusts to
provide for the funding of corporate commitments and entitlements of officers,
directors, employees and others in the event of a specified change in control of
the Company or subsidiary. Assets held in such trusts at December 31, 1999 were
not material. Depending upon the circumstances at the time of any such change in
control, the most significant factor of which would be the highest price paid
for KCSI common stock by a party seeking to control the Company, funding of the
Company's trusts could be very substantial.
Debt. Certain loan agreements and debt instruments entered into or guaranteed by
the Company and its subsidiaries provide for default in the event of a specified
change in control of the Company or particular subsidiaries of the Company.
<PAGE>118
Stockholder Rights Plan. On September 19, 1995, the Board of Directors of the
Company declared a dividend distribution of one Right for each outstanding share
of the Company's common stock, $.01 par value per share (the "Common Stock"), to
the stockholders of record on October 12, 1995. Each Right entitles the
registered holder to purchase from the Company 1/1,000th of a share of Series A
Preferred Stock (the "Preferred Stock") or in some circumstances, Common Stock,
other securities, cash or other assets as the case may be, at a price of $210
per share, subject to adjustment.
The Rights, which are automatically attached to the Common Stock, are not
exercisable or transferable apart from the Common Stock until the tenth calendar
day following the earlier to occur of (unless extended by the Board of Directors
and subject to the earlier redemption or expiration of the Rights): (i) the date
of a public announcement that an acquiring person acquired, or obtained the
right to acquire, beneficial ownership of 20 percent or more of the outstanding
shares of the Common Stock of the Company (or 15 percent in the case that such
person is considered an "adverse person"), or (ii) the commencement or
announcement of an intention to make a tender offer or exchange offer that would
result in an acquiring person beneficially owning 20 percent or more of such
outstanding shares of Common Stock of the Company (or 15 percent in the case
that such person is considered an "adverse person"). Until exercised, the Right
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends. In connection with
certain business combinations resulting in the acquisition of the Company or
dispositions of more than 50% of Company assets or earnings power, each Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of the highest
priority voting securities of the acquiring company (or certain of its
affiliates) that at the time of such transaction would have a market value of
two times the exercise price of the Right. The Rights expire on October 12,
2005, unless earlier redeemed by the Company as described below.
At any time prior to the tenth calendar day after the first date after the
public announcement that an acquiring person has acquired beneficial ownership
of 20 percent (or 15 percent in some instances) or more of the outstanding
shares of the Common Stock of the Company, the Company may redeem the Rights in
whole, but not in part, at a price of $0.005 per Right. In addition, the
Company's right of redemption may be reinstated following an inadvertent trigger
of the Rights (as determined by the Board) if an acquiring person reduces its
beneficial ownership to 10 percent or less of the outstanding shares of Common
Stock of the Company in a transaction or series of transactions not involving
the Company.
The Series A Preferred shares purchasable upon exercise of the Rights will have
a cumulative quarterly dividend rate set by the Board of Directors or equal to
1,000 times the dividend declared on the Common Stock for such quarter. Each
share will have the voting rights of one vote on all matters voted at a meeting
of the stockholders for each 1/1,000th share of preferred stock held by such
stockholder. In the event of any merger, consolidation or other transaction in
which the common shares are exchanged, each Series A Preferred share will be
entitled to receive an amount equal to 1,000 times the amount to be received per
common share. In the event of a liquidation, the holders of Series A Preferred
shares will be entitled to receive $1,000 per share or an amount per share equal
to 1,000 times the aggregate amount to be distributed per share to holders of
Common Stock. The shares will not be redeemable. The vote of holders of a
majority of the Series A Preferred shares, voting together as a class, will be
required for any amendment to the Company's Certificate of Incorporation that
would materially and adversely alter or change the powers, preferences or
special rights of such shares.
<PAGE>119
Note 14. Industry Segments
In 1998, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the manner in
which public business enterprises report information about operating segments in
annual financial statements and requires disclosure of selected information
about operating segments in interim financial reports issued to shareholders.
SFAS 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. The adoption of SFAS 131 did not
have a material impact on the disclosures of the Company. Prior year information
is reflected pursuant to SFAS 131. Sales between the Transportation and
Financial Services segments were not material in 1999, 1998 or 1997. Certain
amounts in prior years' segment information have been reclassified to conform to
the current year presentation. Also, the information reflects the Kansas City
Southern Railway operating company on a stand-alone basis. The discussion
excludes consideration of any KCSR subsidiaries. See Note 1 for a description of
each segment.
<PAGE>120
<TABLE>
Segment Financial Information, dollars in millions, years ended December 31,
FINANCIAL
TRANSPORTATION SERVICES KCSI
KCSR Other Consolidated Consolidated Consolidated
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 545.7 $ 55.7 $ 601.4 $1,212.3 $1,813.7
Costs and expenses 425.7 54.7 480.4 658.6 1,139.0
Depreciation and amortization 50.2 6.7 56.9 35.4 92.3
-------- --------- --------- -------- ---------
Operating income (loss) 69.8 (5.7) 64.1 518.3 582.4
Equity in net earnings of
unconsolidated affiliates 2.9 2.3 5.2 46.7 51.9
Interest expense (33.1) (24.3) (57.4) (5.9) (63.3)
Other, net 3.6 1.7 5.3 27.4 32.7
-------- --------- --------- -------- ---------
Pretax income (loss) 43.2 (26.0) 17.2 586.5 603.7
Income taxes (benefit) 16.4 (9.4) 7.0 216.1 223.1
Minority interest - - - 57.3 57.3
------- -------- -------- -------- ---------
Net income (loss) $ 26.8 $ (16.6) $ 10.2 $ 313.1 $ 323.3
======== ========= ========= ======== =========
Capital expenditures $ 97.8 $ 8.4 $ 106.2 $ 50.5 $ 156.7
======== ========= ========= ======== =========
1998
Revenues $ 551.6 $ 61.9 $ 613.5 $ 670.8 $1,284.3
Costs and expenses 391.1 51.8 442.9 373.4 816.3
Depreciation and amortization 50.6 6.1 56.7 16.8 73.5
-------- --------- --------- -------- ---------
Operating income 109.9 4.0 113.9 280.6 394.5
Equity in net earnings (losses) of
unconsolidated affiliates 2.0 (4.9) (2.9) 25.8 22.9
Interest expense (35.6) (24.0) (59.6) (6.5) (66.1)
Reduction in ownership of DST - - - (29.7) (29.7)
Other, net 10.7 3.0 13.7 19.1 32.8
-------- --------- --------- -------- ---------
Pretax income (loss) 87.0 (21.9) 65.1 289.3 354.4
Income taxes (benefit) 34.0 (6.9) 27.1 103.7 130.8
Minority interest - - - 33.4 33.4
------- -------- -------- -------- ---------
Net income (loss) $ 53.0 $ (15.0) $ 38.0 $ 152.2 $ 190.2
======== ========= ========= ======== =========
Capital expenditures $ 64.5 $ 5.4 $ 69.9 $ 35.0 $ 104.9
======== ========= ========= ======== =========
1997
Revenues $ 517.8 $ 55.4 $ 573.2 $ 485.1 $ 1,058.3
Costs and expenses 383.0 42.8 425.8 254.4 680.2
Depreciation and amortization 54.7 7.4 62.1 13.1 75.2
Restructuring, asset impairment
and other charges 163.8 14.2 178.0 18.4 196.4
-------- --------- --------- -------- ---------
Operating income (loss) (83.7) (9.0) (92.7) 199.2 106.5
Equity in net earnings (losses)
of unconsolidated affiliates 2.1 (11.8) (9.7) 24.9 15.2
Interest expense (37.9) (15.4) (53.3) (10.4) (63.7)
Other, net 4.5 0.5 5.0 16.2 21.2
-------- --------- --------- -------- ---------
Pretax income (loss) (115.0) (35.7) (150.7) 229.9 79.2
Income taxes (benefit) (9.5) (9.1) (18.6) 87.0 68.4
Minority interest - - - 24.9 24.9
------- -------- -------- -------- ---------
Net income (loss) $ (105.5) $ (26.6) $ (132.1) $ 118.0 $ (14.1)
======== ========= ========= ======== =========
Capital expenditures $ 67.6 $ 9.2 $ 76.8 $ 5.8 $ 82.6
======== ========= ========= ======== =========
</TABLE>
<PAGE>121
<TABLE>
Segment Financial Information, dollars in millions, at December 31,
FINANCIAL
TRANSPORTATION SERVICES KCSI
KCSR Other Consolidated Consolidated Consolidated
<S> <C> <C> <C> <C> <C>
1999
ASSETS
Current assets $ 165.6 $ 42.9 $ 208.5 $ 525.0 $ 733.5
Investments 33.0 304.1 337.1 474.1 811.2
Properties, net 1,180.6 96.8 1,277.4 70.4 1,347.8
Intangible assets, net 5.2 29.2 34.4 162.0 196.4
-------- --------- --------- -------- ---------
Total $1,384.4 $ 473.0 $ 1,857.4 $1,231.5 $ 3,088.9
======== ========= ========= ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 203.3 $ 50.9 $ 254.2 $ 162.5 $ 416.7
Long-term debt 424.4 325.6 750.0 - 750.0
Deferred income taxes 280.9 16.5 297.4 151.8 449.2
Other 71.7 15.6 87.3 102.6 189.9
Net worth 404.1 64.4 468.5 814.6 1,283.1
-------- --------- --------- -------- ---------
Total $1,384.4 $ 473.0 $ 1,857.4 $1,231.5 $ 3,088.9
======== ========= ========= ======== =========
1998
ASSETS
Current assets $ 173.3 $ 36.9 $ 210.2 $ 259.3 $ 469.5
Investments 28.2 299.7 327.9 379.2 707.1
Properties, net 1,135.2 94.1 1,229.3 37.4 1,266.7
Intangible assets, net 5.2 24.2 29.4 147.0 176.4
-------- --------- --------- -------- ---------
Total $1,341.9 $ 454.9 $ 1,796.8 $ 822.9 $ 2,619.7
======== ========= ========= ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 174.5 $ 50.6 $ 225.1 $ 71.1 $ 296.2
Long-term debt 445.5 363.5 809.0 16.6 825.6
Deferred income taxes 272.7 12.5 285.2 118.4 403.6
Other 73.1 13.4 86.5 76.6 163.1
Net worth 376.1 14.9 391.0 540.2 931.2
-------- --------- --------- -------- ---------
Total $1,341.9 $ 454.9 $ 1,796.8 $ 822.9 $ 2,619.7
======== ========= ========= ======== =========
1997
ASSETS
Current assets $ 159.7 $ 19.2 $ 178.9 $ 194.2 $ 373.1
Investments 31.1 304.3 335.4 348.1 683.5
Properties, net 1,123.9 93.9 1,217.8 9.4 1,227.2
Intangible assets, net 6.5 23.0 29.5 120.9 150.4
-------- --------- --------- -------- ---------
Total $1,321.2 $ 440.4 $ 1,761.6 $ 672.6 $ 2,434.2
======== ========= ========= ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 254.0 $ 120.1 $ 374.1 $ 63.4 $ 437.5
Long-term debt 442.4 279.4 721.8 84.1 805.9
Deferred income taxes 232.8 (7.6) 225.2 107.0 332.2
Other 76.6 13.9 90.5 69.8 160.3
Net worth 315.4 34.6 350.0 348.3 698.3
-------- --------- --------- -------- ---------
Total $1,321.2 $ 440.4 $ 1,761.6 $ 672.6 $ 2,434.2
======== ========= ========= ======== =========
</TABLE>
<PAGE>122
Note 15. Quarterly Financial Data (Unaudited)
<TABLE>
(in millions, except per share amounts):
1999
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 537.3 $ 460.3 $ 430.9 $ 385.2
Costs and expenses 334.3 288.8 273.4 242.5
Depreciation and amortization 24.8 24.1 22.3 21.1
---------- ----------- ----------- -----------
Operating income 178.2 147.4 135.2 121.6
Equity in net earnings (losses) of unconsolidated affiliates:
DST 12.0 10.9 10.8 10.7
Grupo TFM (3.3) 3.8 0.5 0.5
Other 0.8 2.0 2.1 1.1
Interest expense (17.6) (15.4) (15.3) (15.0)
Other, net 11.0 10.6 5.3 5.8
---------- ----------- ----------- -----------
Pretax income 181.1 159.3 138.6 124.7
Income taxes 71.1 57.3 49.8 44.9
Minority interest 18.7 14.7 12.7 11.2
---------- ----------- ----------- -----------
Net income 91.3 87.3 76.1 68.6
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities 34.1 (12.3) 17.4 (0.8)
Less: reclassification adjustment for
gains included in net income (0.4) (3.3) (0.4) (0.3)
---------- ----------- ----------- -----------
Comprehensive income $ 125.0 $ 71.7 $ 93.1 $ 67.5
========== =========== =========== ===========
Earnings per share:
Basic $ 0.83 $ 0.79 $ 0.69 $ 0.62
========== =========== ========== ===========
Diluted $ 0.78 $ 0.75 $ 0.66 $ 0.60
========== =========== ========== ===========
Dividends per share:
Preferred $ .25 $ .25 $ .25 $ .25
Common $ .04 $ .04 $ .04 $ .04
Stock Price Ranges:
Preferred - High $ 16.000 $ 16.250 $ 16.500 $ 16.250
- Low 14.000 13.500 13.750 14.875
Common - High 75.000 65.938 66.438 57.375
- Low 37.500 43.313 50.250 43.313
</TABLE>
<PAGE>123
Fourth quarter 1998 includes a one-time pretax non-cash charge of approximately
36.0 million ($23.2 million after-tax, or $0.21 per share) arising from the
merger of a wholly-owned DST subsidiary with USCS. This charge reflects the
Company's reduced ownership of DST (from 41% to approximately 32%), together
with the Company's proportionate share of DST and USCS fourth quarter related
merger costs. See detail discussion in Notes 3 and 6.
<TABLE>
(in millions, except per share amounts):
1998
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 331.8 $ 334.2 $ 322.6 $ 295.7
Costs and expenses 217.4 210.1 200.3 188.5
Depreciation and amortization 20.1 18.7 17.9 16.8
---------- ----------- ----------- -----------
Operating income 94.3 105.4 104.4 90.4
Equity in net earnings (losses) of unconsolidated affiliates:
DST 1.6 7.7 7.5 7.5
Grupo TFM 0.2 1.8 (2.1) (3.1)
Other 0.1 0.8 0.5 0.4
Interest expense (15.4) (17.1) (16.2) (17.4)
Reduction in ownership of DST (29.7) - - -
Other, net 6.8 4.2 15.2 6.6
---------- ----------- ----------- -----------
Pretax income 57.9 102.8 109.3 84.4
Income taxes 20.2 38.2 40.9 31.5
Minority interest 7.6 9.4 9.7 6.7
---------- ----------- ----------- -----------
Net income 30.1 55.2 58.7 46.2
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities 8.2 (27.0) 13.0 30.1
Less: reclassification adjustment for
(gains) losses included in net income - - - (0.2)
----------- ----------- ----------- -----------
Comprehensive income $ 38.3 $ 28.2 $ 71.7 $ 76.1
========== =========== =========== ===========
Earnings per share:
Basic $ 0.27 $ 0.50 $ 0.54 $ 0.43
========== =========== =========== ===========
Diluted $ 0.25 $ 0.49 $ 0.51 $ 0.41
========== =========== =========== ===========
Dividends per share:
Preferred $ .25 $ .25 $ .25 $ .25
Common $ .04 $ .04 $ .04 $ .04
Stock Price Ranges:
Preferred - High $ 17.000 $ 17.750 $ 18.000 $ 18.000
- Low 14.000 15.250 16.000 16.625
Common - High 49.563 57.438 49.813 46.000
- Low 23.000 29.000 39.625 26.250
</TABLE>
<PAGE>124
Note 16. Subsequent Events
Re-capitalization of the Company's Debt Structure. In preparation for the
Separation, the Company re-capitalized its debt structure in January 2000
through a series of transactions as follows:
Bond Tender and Other Debt Repayment. On December 6, 1999, KCSI commenced offers
to purchase and consent solicitations with respect to any and all of the
Company's outstanding 7.875% Notes due July 1, 2002, 6.625% Notes due March 1,
2005, 8.8% Debentures due July 1, 2022, and 7% Debentures due December 15, 2025
(collectively "Debt Securities" or "notes and debentures").
Approximately $398.4 million of the $400 million outstanding Debt Securities
were validly tendered and accepted by the Company. Total consideration paid for
the repurchase of these outstanding notes and debentures was $401.2 million.
Funding for the repurchase of these Debt Securities and for the repayment of
$264 million of borrowings under then existing revolving credit facilities was
obtained from two new credit facilities (the "KCS Credit Facility" and the
"Stilwell Credit Facility", or collectively "New Credit Facilities"), each of
which was entered into on January 11, 2000. These New Credit Facilities, as
described further below, provide for total commitments of $950 million.
In first quarter 2000, the Company will report an extraordinary loss on the
extinguishment of the Company's notes and debentures of approximately $5.9
million, net of income taxes.
KCS Credit Facility. The KCS Credit Facility provides for a total commitment of
$750 million, comprised of three separate term loans totaling $600 million with
$200 million due January 11, 2001, $150 million due December 30, 2005 and $250
million due December 30, 2006 and a revolving credit facility available until
January 11, 2006 ("KCS Revolver"). The availability under the KCS Revolver will
initially be $150 million and will be reduced to $100 million on the later of
January 2, 2001 and the expiration date with respect to the Grupo TFM Capital
Contribution Agreement. Letters of credit are also available under the KCS
Revolver up to a limit of $90 million. Borrowings under the KCS Credit Facility
are secured by substantially all of the Transportation segment's assets.
On January 11, 2000, KCSR borrowed the full amount ($600 million) of the term
loans and used the proceeds to repurchase the Debt Securities, retire other debt
obligations and pay related fees and expenses. No funds were initially borrowed
under the KCS Revolver. Proceeds of future borrowings under the KCS Revolver are
to be used for working capital and for other general corporate purposes. The
letters of credit under the KCS Revolver are to be used to support obligations
in connection with the Grupo TFM Capital Contribution Agreement ($15 million may
be used for general corporate purposes).
Interest on the outstanding loans under the KCS Credit Facility shall accrue at
a rate per annum based on the London interbank offered rate ("LIBOR") or the
prime rate, as the Company shall select. Each loan shall accrue interest at the
selected rate plus the applicable margin, which will be determined by the type
of loan. Until the term loan maturing in 2001 is repaid in full, the term loans
maturing in 2001 and 2005 and all loans under the KCS Revolver will have an
applicable margin of 2.75% per annum for LIBOR priced loans and 1.75% per annum
for prime rate priced loans and the term loan maturing in 2006 will have an
applicable margin of 3.00% per annum for LIBOR priced loans and 2.00% per annum
for prime rate based loans. The interest rate with respect to the term loan
maturing in 2001 is also subject to 0.25% per annum interest rate increases
every three months until such term loan is paid in full, at which time, the
applicable margins for all other loans will be reduced and may fluctuate based
on the leverage ratio of the Company at that time.
<PAGE>125
The KCS Credit Facility requires the payment to the banks of a commitment fee of
0.50% per annum on the average daily, unused amount of the KCS Revolver.
Additionally a fee equal to a per annum rate equal to 0.25% plus the applicable
margin for LIBOR priced revolving loans will be paid on any letter of credit
issued under the KCS Credit Facility. The KCS Credit Facility contains certain
covenants, among others, as follows: i) restricts the payment of cash dividends
to common stockholders; ii) limits annual capital expenditures; iii) requires
hedging instruments with respect to at least 50% of the outstanding balances of
each of the term loans maturing in 2005 and 2006 to mitigate interest rate risk
associated with the new variable rate debt; and iv) provides leverage ratio and
interest coverage ratio requirements typical of this type of debt instrument.
These covenants, along with other provisions could restrict maximum utilization
of the facility. Issue costs relating to the KCS Credit Facility of
approximately $17.6 million were deferred and will be amortized over the
respective term of the loans.
In accordance with the provision requiring the Company to manage its interest
rate risk through hedging activity, in first quarter 2000 the Company entered
into five separate interest rate cap agreements for an aggregate notional amount
of $200 million expiring on various dates in 2002. The interest rate caps are
linked to LIBOR. $100 million of the aggregate notional amount provides a cap on
the Company's interest rate of 7.25% plus the applicable spread, while $100
million limits the interest rate to 7% plus the applicable spread.
Counterparties to the interest rate cap agreements are major financial
institutions who also participate in the New Credit Facilities. Credit loss from
counterparty non-performance is not anticipated.
Stilwell Credit Facility. On January 11, 2000, KCSI also arranged a new $200
million 364-day senior unsecured competitive Advance/Revolving Credit Facility
("Stilwell Credit Facility"). KCSI borrowed $125 million under this facility and
used the proceeds to retire debt obligations as discussed above. Stilwell has
assumed this credit facility, including the $125 million borrowed thereunder,
and upon completion of the Separation, KCSI will be released from all
obligations thereunder. Stilwell repaid the $125 million in March 2000.
Two borrowing options are available under the Stilwell Credit Facility: a
competitive advance option, which is uncommitted, and a committed revolving
credit option. Interest on the competitive advance option is based on rates
obtained from bids as selected by Stilwell in accordance with the lender's
standard competitive auction procedures. Interest on the revolving credit option
accrues based on the type of loan (e.g., Eurodollar, Swingline, etc.) with rates
computed using LIBOR plus 0.35% per annum or, alternatively, the highest of the
prime rate, the Federal Funds Effective Rate plus 0.005%, and the Base
Certificate of Deposit Rate plus 1%.
The Stilwell Credit Facility includes a facility fee of 0.15% per annum and a
utilization fee of 0.125% on the amount of the outstanding loans under the
facility for each day on which the aggregate utilization of the Stilwell Credit
Facility exceeds 33% of the aggregate commitments of the various lenders.
Additionally, the Stilwell Credit Facility contains, among other provisions,
various financial covenants, which could restrict maximum utilization of the
Stilwell Credit Facility. Stilwell may assign or delegate all or a portion of
its rights and obligations under the Stilwell Credit Facility to one or more of
its domestic subsidiaries.
Sale of Janus Stock. In first quarter 2000, Stilwell sold to Janus, for
treasury, 192,408 shares of Janus common stock and such shares will be available
for awards under Janus' recently adopted Long Term Incentive Plan. Janus has
agreed that for as long as it has available shares of Janus common stock for
grant under that plan, it will not award phantom stock, stock appreciation
rights or similar rights. The sale of these shares resulted in an after-tax gain
of approximately $15.7 million, and together with the issuance by Janus of
approximately 35,000 shares of restricted stock in first quarter 2000, reduced
Stilwell's ownership to approximately 81.5%.
<PAGE>126
Litigation Settlement. In January 2000, Stilwell received approximately $44
million in connection with the settlement of a legal dispute related to a former
equity investment. The settlement agreement resolves all outstanding issues
related to this former equity investment. In first quarter 2000, Stilwell will
recognize an after-tax gain of approximately $26 million as a result of this
settlement.
Dividends Suspended for KCSI Common Stock. During first quarter 2000, the
Company's Board of Directors announced that, based upon a review of the
Company's dividend policy in conjunction with the New Credit Facilities
discussed above and in light of the anticipated Separation, it decided to
suspend the Common stock dividend of KCSI under the existing structure of the
Company. This complies with the terms and covenants of the New Credit
Facilities. Subsequent to the Separation, the separate Boards of KCSI and
Stilwell will determine the appropriate dividend policy for their respective
companies.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>127
Part III
The Company has incorporated by reference certain responses to the Items of this
Part III pursuant to Rule 12b-23 under the Exchange Act and General Instruction
G(3) to Form 10-K. The Company's definitive proxy statement for the annual
meeting of stockholders scheduled for June 15, 2000 ("Proxy Statement") will be
filed no later than 120 days after December 31, 1999.
Item 10. Directors and Executive Officers of the Company
(a) Directors of the Company
The information set forth in response to Item 401 of Regulation S-K under the
heading "Proposal 1 - Election of Two Directors" and "The Board of Directors" in
the Company's Proxy Statement is incorporated herein by reference in partial
response to this Item 10.
(b) Executive Officers of the Company
The information set forth in response to Item 401 of Regulation S-K under
"Executive Officers of the Company," an unnumbered Item in Part I (immediately
following Item 4, Submission of Matters to a Vote of Security Holders), of this
Form 10-K is incorporated herein by reference in partial response to this Item
10.
The information set forth in response to Item 405 of Regulation S-K under the
heading "Section 16(a) of Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement is incorporated herein by reference in partial
response to this Item 10.
Item 11. Executive Compensation
The information set forth in response to Item 402 of Regulation S-K under
"Management Compensation" and "Compensation of Directors" in the Company's Proxy
Statement, (other than The Compensation and Organization Committee Report on
Executive Compensation and the Stock Performance Graph), is incorporated by
reference in response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth in response to Item 403 of Regulation S-K under the
heading "Principal Stockholders and Stock Owned Beneficially by Directors and
Certain Executive Officers" in the Company's Proxy Statement is hereby
incorporated by reference in response to this Item 12.
The Company has no knowledge of any arrangement the operation of which may at a
subsequent date result in a change of control of the Company.
Item 13. Certain Relationships and Related Transactions
None
<PAGE>128
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report
(1) Financial Statements
The financial statements and related notes, together with the report of
PricewaterhouseCoopers LLP dated March 16, 2000, appear in Part II Item 8,
Financial Statements and Supplementary Data, of this Form 10-K.
(2) Financial Statement Schedules
The schedules and exhibits for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission appear in Part
II Item 8, Financial Statements and Supplementary Data, under the Index to
Financial Statements of this Form 10-K.
(3) List of Exhibits
(a) Exhibits
The Company has incorporated by reference herein certain exhibits as specified
below pursuant to Rule 12b-32 under the Exchange Act.
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
(Inapplicable)
(3) Articles of Incorporation and Bylaws
Articles of Incorporation
3.1 Exhibit 4 to Company's Registration Statement on Form S-8
originally filed September 19, 1986 (Commission File No.
33-8880), Certificate of Incorporation as amended through May
14, 1985, is hereby incorporated by reference as Exhibit 3.1
3.2 Exhibit 4.1 to Company's Current Report on Form 8-K dated
October 1, 1993 (Commission File No. 1-4717), Certificate of
Designation dated September 29, 1993 Establishing Series B
Convertible Preferred Stock, par value $1.00, is hereby
incorporated by reference as Exhibit 3.2
3.3 Exhibit 3.1 to Company's Form 10-K for the fiscal year ended
December 31, 1994 (Commission File No. 1-4717), Amendment to
Company's Certificate of Incorporation to set par value for
common stock and increase the number of authorized common
shares dated May 6, 1994, is hereby incorporated by reference
as Exhibit 3.3
3.4 Exhibit 3.4 to Company's Form 10-K for the fiscal year ended
December 31, 1996 (Commission File No. 1-4717), Amended
Certificate of Designation Establishing the New Series A
Preferred Stock, par value $1.00, dated November 7, 1995, is
hereby incorporated by reference as Exhibit 3.4
<PAGE>129
3.5 Exhibit 3.5 to Company's Form 10-K for the fiscal year ended
December 31, 1996 (Commission File No. 1-4717), The
Certificate of Amendment dated May 12, 1987 of the Company's
Certificate of Incorporation adding the Sixteenth paragraph,
is hereby incorporated by reference as Exhibit 3.5
Bylaws
3.6 Exhibit 3.6 to Company's Form 10-K for the fiscal year ended
December 31, 1998 (Commission File No. 1-4717), The Company's
By-Laws, as amended and restated September 17, 1998, is hereby
incorporated by reference as Exhibit 3.6
(4) Instruments Defining the Right of Security Holders, Including Indentures
4.1 The Fourth, Seventh, Eighth, Twelfth, Thirteenth, Fifteenth
and Sixteenth paragraphs of Exhibit 3.1 hereto are
incorporated by reference as Exhibit 4.1
4.2 Article I, Sections 1,3 and 11 of Article II, Article V and
Article VIII of Exhibit 3.6 hereto are incorporated by
reference as Exhibit 4.2
4.3 The Certificate of Designation dated September 29, 1993
establishing Series B Convertible Preferred Stock, par value
$1.00, which is attached hereto as Exhibit 3.2, is
incorporated by reference as Exhibit 4.3
4.4 The Amended Certificate of Designation dated November 7, 1995
establishing the New Series A Preferred Stock, par value
$1.00, which is attached hereto as Exhibit 3.4, is
incorporated by reference as Exhibit 4.4
4.5 The Indenture, dated July 1, 1992 between the Company and The
Chase Manhattan Bank (the "Indenture") which is attached as
Exhibit 4 to Company's Shelf Registration of $300 million of
Debt Securities on Form S-3 filed June 19, 1992 (Commission
File No. 33-47198) and as Exhibit 4(a) to the Company's Form
S-3 filed March 29, 1993 (Commission File No. 33-60192)
registering $200 million of Debt Securities, is hereby
incorporated by reference as Exhibit 4.5
4.5.1 Supplemental Indenture dated December 17, 1999 to the
Indenture between the Company and The Chase Manhattan Bank
dated July 1, 1992 (the "Indenture") with respect to the
7.875% Notes Due July 1, 2002 issued pursuant to the
Indenture, is attached to this Form 10-K as Exhibit 4.5.1
4.5.2 Supplemental Indenture dated December 17, 1999 to the
Indenture dated July 1, 1992 with respect to the 6.625% Notes
Due March 1, 2005 issued pursuant to the Indenture, is
attached to this Form 10-K as Exhibit 4.5.2
4.5.3 Supplemental Indenture dated December 17, 1999 to the
Indenture dated July 1, 1992 with respect to the 8.8%
Debentures Due July 1, 2022 issued pursuant to the Indenture,
is attached to this Form 10-K as Exhibit 4.5.3
4.5.4 Supplemental Indenture dated December 17, 1999 to the
Indenture dated July 1, 1992 with respect to the 7% Debentures
Due December 15, 2025 issued pursuant to the Indenture, is
attached to this Form 10-K as Exhibit 4.5.4
<PAGE>130
4.6 Exhibit 99 to Company's Form 8-A dated October 24, 1995
(Commission File No. 1-4717), which is the Stockholder Rights
Agreement by and between the Company and Harris Trust and
Savings Bank dated as of September 19, 1995, is hereby
incorporated by reference as Exhibit 4.6
(9) Voting Trust Agreement
(Inapplicable)
(10) Material Contracts
10.1 Exhibit I to Company's Form 10-K for the fiscal year ended
December 31, 1987 (Commission File No. 1-4717), The Director
Indemnification Agreement, is hereby incorporated by reference
as Exhibit 10.1
10.2 Exhibit B to Company's Definitive Proxy Statement for 1987
Annual Stockholder Meeting dated April 6, 1987, The Director
Indemnification Agreement, is hereby incorporated by reference
as Exhibit 10.2
10.3 The Indenture, dated July 1, 1992, to a $300 million Shelf
Registration of Debt Securities and to a $200 million Medium
Term Notes Registration of Debt Securities, which is
incorporated by reference as Exhibit 4.5 hereto, is hereby
incorporated by reference as Exhibit 10.3
10.3.1 Supplemental Indenture dated December 17, 1999 to the
Indenture between the Company and The Chase Manhattan Bank
dated July 1, 1992 (the "Indenture") with respect to the
7.875% Notes Due July 1, 2002 issued pursuant to the
Indenture, which is attached to this Form 10-K as Exhibit
4.5.1 is hereby incorporated by reference as Exhibit 10.3.1
10.3.2 Supplemental Indenture dated December 17, 1999 to the
Indenture dated July 1, 1992 with respect to the 6.625% Notes
Due March 1, 2005 issued pursuant to the Indenture, which is
attached to this Form 10-K as Exhibit 4.5.2 is hereby
incorporated by reference as Exhibit 10.3.2
10.3.3 Supplemental Indenture dated December 17, 1999 to the
Indenture dated July 1, 1992 with respect to the 8.8%
Debentures Due July 1, 2022 issued pursuant to the Indenture,
which is attached to this Form 10-K as Exhibit 4.5.3 is hereby
incorporated by reference as Exhibit 10.3.3
10.3.4 Supplemental Indenture dated December 17, 1999 to the
Indenture dated July 1, 1992 with respect to the 7% Debentures
Due December 15, 2025 issued pursuant to the Indenture, which
is attached to this Form 10-K as Exhibit 4.5.4 is hereby
incorporated by reference as Exhibit 10.23
10.4 Exhibit H to Company's Form 10-K for the fiscal year ended
December 31, 1987 (Commission File No. 1-4717), The Officer
Indemnification Agreement, is hereby incorporated by reference
as Exhibit 10.4
10.5 Exhibit 10.1 to Company's Form 10-Q for the period ended March
31, 1997 (Commission File No. 1-4717), The Kansas City
Southern Railway Company Directors' Deferred Fee Plan as
adopted August 20, 1982 and the amendment thereto effective
March 19, 1997 to such plan, is hereby incorporated by
reference as Exhibit 10.5
<PAGE>131
10.6 Exhibit 10.4 to Company's Form 10-K for the fiscal year ended
December 31, 1990 (Commission File No. 1-4717), Description of
the Company's 1991 incentive compensation plan, is hereby
incorporated by reference as Exhibit 10.6
10.7 Exhibit 10.1 to the Company's Form 10-Q for the quarterly
period ended June 30, 1997 (Commission File No. 1-4717),
Five-Year Competitive Advance and Revolving Credit Facility
Agreement dated May 2, 1997, by and between the Company and
the lenders named therein, is hereby incorporated by reference
as Exhibit 10.7
10.8 Exhibit 10.4 in the DST Systems, Inc. Registration Statement
on Form S-1 dated October 30, 1995, as amended (Registration
No. 33-96526), Tax Disaffiliation Agreement, dated October 23,
1995, by and between the Company and DST Systems, Inc., is
hereby incorporated by reference as Exhibit 10.8
10.9 Exhibit 10.6 to the DST Systems, Inc. Annual Report on Form
10-K for the year ended December 31, 1995 (Commission File No.
1-14036), the 1995 Restatement of The Employee Stock Ownership
Plan and Trust Agreement, is hereby incorporated by reference
as Exhibit 10.9
10.10 Exhibit 4.1 to the DST Systems, Inc. Registration Statement on
Form S-1 dated October 30, 1995, as amended (Registration No.
33-96526), The Registration Rights Agreement dated October 24,
1995 by and between DST Systems, Inc. and the Company, is
hereby incorporated by reference as Exhibit 10.10
10.10.1 Exhibit 4.15.1 to the DST Systems, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (Commission File
No. 1-14036), First Amendment to Registration Rights
Agreement, dated June 30, 1999, by and between DST Systems,
Inc. and the Company, is hereby incorporated by reference as
Exhibit 10.10.1
10.10.2 Exhibit 4.15.2 to the DST Systems, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (Commission File
No. 1-14036), Assignment, Consent and Acceptance Agreement,
dated August 10, 1999, by and between DST Systems, Inc., the
Company and Stilwell Financial, Inc., is hereby incorporated
by reference as Exhibit 10.10.2
10.11 Exhibit 10.18 to Company's Form 10-K for the year ended
December 31, 1996 (Commission File No. 1-4717), Directors
Deferred Fee Plan, adopted August 20, 1982, amended and
restated February 1, 1997, is hereby incorporated by reference
as Exhibit 10.11
10.12 Exhibit 10.1 to the Company's Form 10-Q for the quarterly
period ended June 30, 1999 (Commission File No. 1-4717),
Kansas City Southern Industries, Inc. 1991 Amended and
Restated Stock Option and Performance Award Plan, as amended
and restated effective as of May 6, 1999, is hereby
incorporated by reference as Exhibit 10.12
10.13 Exhibit 10.20 to Company's Form 10-K for the year ended
December 31, 1997 (Commission File No. 1-4717), Employment
Agreement, as amended and restated September 18, 1997, by and
between the Company and Landon H. Rowland is hereby
incorporated by reference as Exhibit 10.13
<PAGE>132
10.14 Exhibit 10.15 to Company's Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-4717), Employment
Agreement, as amended and restated January 1, 1999, by and
between the Company, The Kansas City Southern Railway Company
and Michael R. Haverty, is hereby incorporated by reference as
Exhibit 10.14
10.15 Exhibit 10.16 to Company's Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-4717), Employment
Agreement, as amended and restated January 1, 1999, by and
between the Company and Joseph D. Monello is hereby
incorporated by reference as Exhibit 10.15
10.16 Exhibit 10.17 to Company's Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-4717), Employment
Agreement, as amended and restated January 1, 1999, by and
between the Company and Danny R. Carpenter is hereby
incorporated by reference as Exhibit 10.16
10.17 Exhibit 10.18 to Company's Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-4717), Kansas City
Southern Industries, Inc. Executive Plan, as amended and
restated effective November 17, 1998, is hereby incorporated
by reference as Exhibit 10.17
10.18 Exhibit 10.19 to Company's Form 10-K/A for the year ended
December 31, 1998 (Commission File No. 1-4717), Stock Purchase
Agreement, dated April 13, 1984, by and among Kansas City
Southern Industries, Inc., Thomas H. Bailey, William C.
Mangus, Bernard E. Niedermeyer III, Michael Stolper, and Jack
R.Thompson is hereby incorporated by reference as
Exhibit 10.18
10.18.1 Exhibit 10.19.1 to Company's Form 10-K/A for the year ended
December 31, 1998 (Commission File No. 1-4717), Amendment to
Stock Purchase Agreement, dated January 4, 1985, by and among
Kansas City Southern Industries, Inc., Thomas H. Bailey,
Bernard E. Niedermeyer III, Michael Stolper, and Jack R.
Thompson is hereby incorporated by reference as
Exhibit 10.18.1
10.18.2 Exhibit 10.19.2 to Company's Form 10-K/A for the year ended
December 31, 1998 (Commission File No. 1-4717), Second
Amendment to Stock Purchase Agreement, dated March 18, 1988,
by and among Kansas City Southern Industries, Inc., Thomas H.
Bailey, Michael Stolper, and Jack R. Thompson is hereby
incorporated by reference as Exhibit 10.18.2
10.18.3 Exhibit 10.19.3 to Company's Form 10-K/A for the year ended
December 31, 1998 (Commission File No. 1-4717), Third
Amendment to Stock Purchase Agreement, dated February 5, 1990,
by and among Kansas City Southern Industries, Inc., Thomas H.
Bailey, Michael Stolper, and Jack R. Thompson is hereby
incorporated by reference as Exhibit 10.18.3
10.18.4 Exhibit 10.19.4 to Company's Form 10-K/A for the year ended
December 31, 1998 (Commission File No. 1-4717), Fourth
Amendment to Stock Purchase Agreement, dated January 1, 1991,
by and among Kansas City Southern Industries, Inc., Thomas H.
Bailey, Michael Stolper, and Jack R. Thompson is hereby
incorporated by reference as Exhibit 10.18.4
<PAGE>133
10.18.5 Exhibit 10.19.5 to Company's Form 10-K/A for the year ended
December 31, 1998 (Commission File No. 1-4717), Assignment and
Assumption Agreement and Fifth Amendment to Stock Purchase
Agreement, dated November 19, 1999, by and among Kansas City
Southern Industries, Inc., Stilwell Financial, Inc., Thomas
H. Bailey and Michael Stolper is hereby incorporated by
reference as Exhibit 10.19.5
10.19 Credit Agreement dated as of January 11, 2000 among Kansas
City Southern Industries, Inc., The Kansas City Southern
Railway Company and the lenders named therein, is attached to
this Form 10-K as Exhibit 10.19
10.20 364-day Competitive Advance and Revolving Credit Facility
Agreement dated as of January 11, 2000 among Kansas City
Southern Industries, Inc. and the lenders named therein, is
attached to this Form 10-K as Exhibit 10.20
10.21 Assignment, Assumption and Amendment Agreement dated as of
January 11, 2000, among Kansas City Southern Industries, Inc.,
Stilwell Financial, Inc. and The Chase Manhattan Bank, as
agent for the lenders named in the 364-day Competitive
Advance and Revolving Credit Facility Agreement, which is
attached to this Form 10-K as Exhibit 10.20, is attached to
this Form 10-K as Exhibit 10.21
(11) Statement Re Computation of Per Share Earnings
(Inapplicable)
(12) Statements Re Computation of Ratios
12.1 The Computation of Ratio of Earnings to Fixed Charges prepared
pursuant to Item 601(b)(12) of Regulation S-K is attached to
this Form 10-K as Exhibit 12.1
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders
(Inapplicable)
(16) Letter Re Change in Certifying Accountant
(Inapplicable)
(18) Letter Re Change in Accounting Principles
(Inapplicable)
(21) Subsidiaries of the Company
21.1 The list of the Subsidiaries of the Company prepared pursuant
to Item 601(b)(21) of Regulation S-K is attached to this Form
10-K as Exhibit 21.1
(22) Published Report Regarding Matters Submitted to Vote of Security Holders
(Inapplicable)
(23) Consents of Experts and Counsel
23.1 The Consent of Independent Accountants prepared pursuant to
Item 601(b)(23) of Regulation S-K is attached to this Form
10-K as Exhibit 23.1
(24) Power of Attorney
(Inapplicable)
<PAGE>134
(27) Financial Data Schedule
27.1 The Financial Data Schedule prepared pursuant to Item
601(b)(27) of Regulation S-K is attached to this Form 10-K as
Exhibit 27.1
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities
(Inapplicable)
(99) Additional Exhibits
99.1 The consolidated financial statements of DST Systems, Inc.
(including the notes thereto and the Report of Independent
Accountants thereon) set forth under Item 8 of the DST
Systems, Inc. Annual Report on Form 10-K for the year ended
December 31, 1999 (Commission File No. 1-14036), as listed
under Item 14(a)(2) herein, are hereby incorporated by
reference as Exhibit 99.1
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated December 6, 1999,
reporting the commencement of cash tender offers and consent
solicitations for the Company's outstanding $400 million in Notes and
Debentures. The Form 8-K also reported that the Company received tenders
and requisite consents from the holders of more than a majority of the
outstanding aggregate principal amount of each series of its Notes and
Debentures.
The Company filed a Current Report on Form 8-K dated January 10, 2000,
reporting the setting of the purchase price and total consideration for
the bond consents, as well as the successful completion of the bond
tenders and solicitations.
The Company filed a Current Report on Form 8-K dated January 10, 2000,
reporting the status of the separation of Stilwell from the Company.
<PAGE>135
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Kansas City Southern Industries, Inc.
April 13, 2000 By: /s/ L.H. Rowland
---------------------------
L.H. Rowland
Chairman, President,
Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on April 13, 2000.
Signature Capacity
/s/ L.H. Rowland Chairman, President, Chief Executive Officer
- ------------------------------
L.H. Rowland and Director
/s/ M.R. Haverty Executive Vice President and Director
- ------------------------------
M.R. Haverty
/s/ J.D. Monello Vice President and Chief Financial Officer
- ------------------------------
J.D. Monello (Principal Financial Officer)
/s/ L.G. Van Horn Vice President and Comptroller
- ------------------------------
L.G. Van Horn (Principal Accounting Officer)
/s/ A.E. Allinson Director
- ------------------------------
A.E. Allinson
/s/ P.F. Balser Director
- ------------------------------
P.F. Balser
/s/ J.E. Barnes Director
- ------------------------------
J.E. Barnes
/s/ M.G. Fitt Director
- ------------------------------
M.G. Fitt
/s/ J.R. Jones Director
- ------------------------------
J.R. Jones
/s/ J.F. Serrano Director
- ------------------------------
J.F. Serrano
/s/ M.I. Sosland Director
- ------------------------------
M.I. Sosland
<PAGE>136
KANSAS CITY SOUTHERN INDUSTRIES, INC.
1999 FORM 10-K ANNUAL REPORT
INDEX TO EXHIBITS
Regulation S-K
Exhibit Item 601(b)
No. Document Exhibit No.
- ------- ------------------------------------------------------ -----------
4.5.1 Supplemental Indenture dated December 17, 1999
with respect to the 7.875% Notes Due July 1, 2002 4
4.5.2 Supplemental Indenture dated December 17, 1999
with respect to the 6.625% Notes Due March 1, 2005 4
4.5.3 Supplemental Indenture dated December 17, 1999
with respect to the 8.8% Debentures Due July 1, 2022 4
4.5.4 Supplemental Indenture dated December 17, 1999 with
respect to the 7% Debentures Due December 15, 2025 4
10.19 Credit Agreement dated as of January 11, 2000 among
Kansas City Southern Industries, Inc., The Kansas
City Southern Railway Company and the lenders
named therein 10
10.20 364-day Competitive Advance and Revolving Credit Facility
Agreement dated as of January 11, 2000 among Kansas City
Southern Industries, Inc. and the lenders named therein 10
10.21 Assignment, Assumption and Amendment Agreement dated
as of January 11, 2000, among Kansas City Southern
Industries, Inc., Stilwell Financial, Inc. and The Chase
Manhattan Bank 10
12.1 Computation of Ratio of Earnings to Fixed Charges 12
21.1 Subsidiaries of the Company 21
23.1 Consent of Independent Accountants 23
27.1 Financial Data Schedule 27
-----------------------------
(..continued)
- - 4 -
7.875% NOTES SUPPLEMENTAL INDENTURE
CONTAINING THE PROPOSED AMENDMENTS
SUPPLEMENTAL INDENTURE
THIS SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") is made as of
the 17th day of December, 1999, between Kansas City Southern Industries, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), and The Chase Manhattan Bank, a New York bank organized and
existing under the laws of the United States of America, trustee (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee heretofore executed and delivered an
Indenture, dated as of July 1, 1992, (the "Indenture"); and
WHEREAS, the Company's 7.875% Notes Due July 1, 2002 (the "7.875% Notes")
are Outstanding Securities issued pursuant to the Indenture; and
WHEREAS, Section 902 of the Indenture provides that with the consent of the
Holders of not less than a majority in principal amount of all Outstanding
Securities of any series affected by such Supplemental Indenture (the "Requisite
Consents"), by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by or pursuant to a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental to the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Indenture or of modifying in any manner the rights of
the Holders of such series of Securities, subject to certain exceptions
specified in Section 902 of the Indenture; and
WHEREAS, the Company has obtained the Requisite Consents from Holders of
the 7.875% Notes series of Outstanding Securities to amend the Indenture as set
forth below, as well as the Requisite Consents from Holders of each of the other
outstanding series of Outstanding Securities to similarly amend the Indenture
with respect to those series;
WHEREAS, the Board of Directors has, as evidenced by a Board Resolution,
authorized the amendment of the Indenture pursuant to this Supplemental
Indenture; and
WHEREAS, all things necessary to make this Supplemental Indenture a valid
supplement to the Indenture according to its terms have been done;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE ONE
WAIVERS OF CERTAIN PROVISIONS OF THE INDENTURE
SECTION 101. Waiver of Applicability of Certain Provisions of the Indenture
to the Separation of the Company's Financial Services Businesses from its
Transportation Businesses. Applicability of Sections 801 and 802 of the
Indenture to a separation (the "Separation") of the Company's financial services
businesses from its transportation businesses, effected through a spin-off (the
"Spin-Off") of the Company's financial services businesses by the distribution
by the Company as a dividend to its stockholders all of the outstanding common
stock of Stilwell Financial, Inc. ("Stilwell"), a wholly-owned subsidiary to
which the Company transferred the capital stock of its financial services
subsidiaries and other related assets, or effected through any other method of
Separation, is hereby waived. For purposes of this Supplemental Indenture, the
term "Separation" refers to the separation and sale or transfer of KCSI's
financial services businesses, whether in the form of a Spin-Off or otherwise.
As a result of such waiver, any such Separation shall not be deemed a transfer
by the Company of its properties and assets substantially as an entirety under
Section 801 and, no successor Person shall succeed to or be substituted for, or
be allowed to exercise the rights and powers of, the Company under Section 802
of the Indenture as a result of the Separation.
ARTICLE TWO
ELIMINATION OF COVENANT
SECTION 201. Elimination of Section 1006. Section 1006 (Limitation on Liens
on Stock or Indebtedness of Significant Subsidiaries) of the Indenture is hereby
eliminated in its entirety from the Indenture, and shall be of no further force
or effect.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
SECTION 301. Effectiveness of Supplemental Indenture. Upon the execution
and delivery of this Supplemental Indenture by the Company and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture and of any coupon appertaining thereto shall be bound thereby;
provided, however, that this Supplemental Indenture shall become operative only
upon acceptance by the Company of the 7.875% Notes validly tendered for
purchase, as set forth in the Offer to Purchase and Consent Solicitation
Statement, dated December 6, 1999, as amended or supplemented through the date
hereof.
SECTION 302. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture and the Securities issued
thereunder shall remain in full force and effect.
SECTION 303. Indenture and Supplemental Indenture Construed Together. This
Supplemental Indenture is an indenture supplemental to the Indenture, and the
Indenture and this Supplemental Indenture shall henceforth be read and construed
together.
SECTION 304. Confirmation and Ratification of Indenture. The
Indenture as supplemented by this Supplemental Indenture and all Securities
issued thereunder are in all respect confirmed and ratified.
SECTION 305. No Issuance of New Securities Required. The Company shall not
be required to prepare and execute, and the Trustee shall not be required to
authenticate and deliver in exchange for outstanding Securities, any new
Securities to conform to this Supplemental Indenture.
SECTION 306. Separability Clause. In case any provision of this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 307. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 308. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
SECTION 309. No Effect on Other Series. This Supplemental Indenture relates
solely to the 7.875% Notes and shall have no force or effect with respect to any
other series of Outstanding Securities under the Indenture.
SECTION 310. Successors and Assigns. All covenants and agreements in this
Supplemental Indenture by the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 311. Certain Duties and Responsibilities of the Trustee. In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 312. Governing Law. This Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New York. This
Supplemental Indenture is subject to the provisions of the Trust Indenture Act
that are required to be part of this Supplemental Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 313. Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall together constitute but one and the
same Supplemental Indenture.
SECTION 214. Trustee Not Responsible for Recitals. The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date and year first above
written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Anthony P. McCarthy
Title: Vice President & Treasurer
Attest:
/s/ Sherry K. Cooper
Title: Asst. Secretary
<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By: /s/ R. Lorenzen
Title: Assistant Vice President
Attest:
/s/ N. Rodriquez
Title: Trust Officer
(..continued)
- - 4 -
6.625% NOTES SUPPLEMENTAL INDENTURE
CONTAINING THE PROPOSED AMENDMENTS
SUPPLEMENTAL INDENTURE
THIS SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") is made as of
the 17th day of December, 1999, between Kansas City Southern Industries, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), and The Chase Manhattan Bank, a New York bank organized and
existing under the laws of the United States of America, trustee (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee heretofore executed and delivered an
Indenture, dated as of July 1, 1992, (the "Indenture"); and
WHEREAS, the Company's 6.625% Notes Due March 1, 2005 (the "6.625% Notes")
are Outstanding Securities issued pursuant to the Indenture; and
WHEREAS, Section 902 of the Indenture provides that with the consent of the
Holders of not less than a majority in principal amount of all Outstanding
Securities of any series affected by such Supplemental Indenture (the "Requisite
Consents"), by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by or pursuant to a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental to the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Indenture or of modifying in any manner the rights of
the Holders of such series of Securities, subject to certain exceptions
specified in Section 902 of the Indenture; and
WHEREAS, the Company has obtained the Requisite Consents from Holders of
the 6.625% Notes series of Outstanding Securities to amend the Indenture as set
forth below, as well as the Requisite Consents from Holders of each of the other
outstanding series of Outstanding Securities to similarly amend the Indenture
with respect to those series;
WHEREAS, the Board of Directors has, as evidenced by a Board Resolution,
authorized the amendment of the Indenture pursuant to this Supplemental
Indenture; and
WHEREAS, all things necessary to make this Supplemental Indenture a valid
supplement to the Indenture according to its terms have been done;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE ONE
WAIVERS OF CERTAIN PROVISIONS OF THE INDENTURE
SECTION 101. Waiver of Applicability of Certain Provisions of the Indenture
to the Separation of the Company's Financial Services Businesses from its
Transportation Businesses. Applicability of Sections 801 and 802 of the
Indenture to a separation (the "Separation") of the Company's financial services
businesses from its transportation businesses, effected through a spin-off (the
"Spin-Off") of the Company's financial services businesses by the distribution
by the Company as a dividend to its stockholders all of the outstanding common
stock of Stilwell Financial, Inc. ("Stilwell"), a wholly-owned subsidiary to
which the Company transferred the capital stock of its financial services
subsidiaries and other related assets, or effected through any other method of
Separation, is hereby waived. For purposes of this Supplemental Indenture, the
term "Separation" refers to the separation and sale or transfer of KCSI's
financial services businesses, whether in the form of a Spin-Off or otherwise.
As a result of such waiver, any such Separation shall not be deemed a transfer
by the Company of its properties and assets substantially as an entirety under
Section 801 and, no successor Person shall succeed to or be substituted for, or
be allowed to exercise the rights and powers of, the Company under Section 802
of the Indenture as a result of the Separation.
ARTICLE TWO
ELIMINATION OF COVENANT
SECTION 201. Elimination of Section 1006. Section 1006 (Limitation on Liens
on Stock or Indebtedness of Significant Subsidiaries) of the Indenture is hereby
eliminated in its entirety from the Indenture, and shall be of no further force
or effect.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
SECTION 301. Effectiveness of Supplemental Indenture. Upon the execution
and delivery of this Supplemental Indenture by the Company and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture and of any coupon appertaining thereto shall be bound thereby;
provided, however, that this Supplemental Indenture shall become operative only
upon acceptance by the Company of the 6.625% Notes validly tendered for
purchase, as set forth in the Offer to Purchase and Consent Solicitation
Statement, dated December 6, 1999, as amended or supplemented through the date
hereof.
SECTION 302. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture and the Securities issued
thereunder shall remain in full force and effect.
SECTION 303. Indenture and Supplemental Indenture Construed Together. This
Supplemental Indenture is an indenture supplemental to the Indenture, and the
Indenture and this Supplemental Indenture shall henceforth be read and construed
together.
SECTION 304. Confirmation and Ratification of Indenture. The Indenture as
supplemented by this Supplemental Indenture and all Securities issued thereunder
are in all respect confirmed and ratified.
SECTION 305. No Issuance of New Securities Required. The Company shall not
be required to prepare and execute, and the Trustee shall not be required to
authenticate and deliver in exchange for outstanding Securities, any new
Securities to conform to this Supplemental Indenture.
SECTION 306. Separability Clause. In case any provision of this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 307. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 308. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
SECTION 309. No Effect on Other Series. This Supplemental Indenture relates
solely to the 6.625% Notes and shall have no force or effect with respect to any
other series of Outstanding Securities under the Indenture.
SECTION 310. Successors and Assigns. All covenants and agreements in
this Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 311. Certain Duties and Responsibilities of the Trustee. In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 312. Governing Law. This Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New York. This
Supplemental Indenture is subject to the provisions of the Trust Indenture Act
that are required to be part of this Supplemental Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 313. Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall together constitute but one and the
same Supplemental Indenture.
SECTION 214. Trustee Not Responsible for Recitals. The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date and year first above
written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Anthony P. McCarthy
Title: Vice President & Treasurer
Attest:
/s/ Sherry K. Cooper
Title: Asst. Secretary
<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By: /s/ R. Lorenzen
Title: Assistant Vice President
Attest:
/s/ N. Rodriquez
Title: Trust Officer
(..continued)
- - 4 -
8.8% DEBENTURES SUPPLEMENTAL INDENTURE
CONTAINING THE PROPOSED AMENDMENTS
SUPPLEMENTAL INDENTURE
THIS SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") is made as of
the 17th day of December, 1999, between Kansas City Southern Industries, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), and The Chase Manhattan Bank, a New York bank organized and
existing under the laws of the United States of America, trustee (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee heretofore executed and delivered an
Indenture, dated as of July 1, 1992, (the "Indenture"); and
WHEREAS, the Company's 8.8% Debentures Due July 1, 2022 (the "8.8%
Debentures") are Outstanding Securities issued pursuant to the Indenture; and
WHEREAS, Section 902 of the Indenture provides that with the consent of the
Holders of not less than a majority in principal amount of all Outstanding
Securities of any series affected by such Supplemental Indenture (the "Requisite
Consents"), by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by or pursuant to a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental to the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Indenture or of modifying in any manner the rights of
the Holders of such series of Securities, subject to certain exceptions
specified in Section 902 of the Indenture; and
WHEREAS, the Company has obtained the Requisite Consents from Holders of
the 8.8% Debentures series of Outstanding Securities to amend the Indenture as
set forth below, as well as the Requisite Consents from Holders of each of the
other outstanding series of Outstanding Securities to similarly amend the
Indenture with respect to those series;
WHEREAS, the Board of Directors has, as evidenced by a Board Resolution,
authorized the amendment of the Indenture pursuant to this Supplemental
Indenture; and
WHEREAS, all things necessary to make this Supplemental Indenture a valid
supplement to the Indenture according to its terms have been done;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE ONE
WAIVERS OF CERTAIN PROVISIONS OF THE INDENTURE
SECTION 101. Waiver of Applicability of Certain Provisions of the Indenture
to the Separation of the Company's Financial Services Businesses from its
Transportation Businesses. Applicability of Sections 801 and 802 of the
Indenture to a separation (the "Separation") of the Company's financial services
businesses from its transportation businesses, effected through a spin-off (the
"Spin-Off") of the Company's financial services businesses by the distribution
by the Company as a dividend to its stockholders all of the outstanding common
stock of Stilwell Financial, Inc. ("Stilwell"), a wholly-owned subsidiary to
which the Company transferred the capital stock of its financial services
subsidiaries and other related assets, or effected through any other method of
Separation, is hereby waived. For purposes of this Supplemental Indenture, the
term "Separation" refers to the separation and sale or transfer of KCSI's
financial services businesses, whether in the form of a Spin-Off or otherwise.
As a result of such waiver, any such Separation shall not be deemed a transfer
by the Company of its properties and assets substantially as an entirety under
Section 801 and, no successor Person shall succeed to or be substituted for, or
be allowed to exercise the rights and powers of, the Company under Section 802
of the Indenture as a result of the Separation.
ARTICLE TWO
ELIMINATION OF COVENANT
SECTION 201. Elimination of Section 1006. Section 1006 (Limitation on Liens
on Stock or Indebtedness of Significant Subsidiaries) of the Indenture is hereby
eliminated in its entirety from the Indenture, and shall be of no further force
or effect.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
SECTION 301. Effectiveness of Supplemental Indenture. Upon the execution
and delivery of this Supplemental Indenture by the Company and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture and of any coupon appertaining thereto shall be bound thereby;
provided, however, that this Supplemental Indenture shall become operative only
upon acceptance by the Company of the 8.8% Debentures validly tendered for
purchase, as set forth in the Offer to Purchase and Consent Solicitation
Statement, dated December 6, 1999, as amended or supplemented through the date
hereof.
SECTION 302. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture and the Securities issued
thereunder shall remain in full force and effect.
SECTION 303. Indenture and Supplemental Indenture Construed Together. This
Supplemental Indenture is an indenture supplemental to the Indenture, and the
Indenture and this Supplemental Indenture shall henceforth be read and construed
together.
SECTION 304. Confirmation and Ratification of Indenture. The Indenture as
supplemented by this Supplemental Indenture and all Securities issued thereunder
are in all respect confirmed and ratified.
SECTION 305. No Issuance of New Securities Required. The Company shall not
be required to prepare and execute, and the Trustee shall not be required to
authenticate and deliver in exchange for outstanding Securities, any new
Securities to conform to this Supplemental Indenture.
SECTION 306. Separability Clause. In case any provision of this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 307. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 308. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
SECTION 309. No Effect on Other Series. This Supplemental Indenture relates
solely to the 8.8% Debentures and shall have no force or effect with respect to
any other series of Outstanding Securities under the Indenture.
SECTION 310. Successors and Assigns. All covenants and agreements in
this Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 311. Certain Duties and Responsibilities of the Trustee. In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 312. Governing Law. This Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New York. This
Supplemental Indenture is subject to the provisions of the Trust Indenture Act
that are required to be part of this Supplemental Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 313. Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall together constitute but one and the
same Supplemental Indenture.
SECTION 214. Trustee Not Responsible for Recitals. The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date and year first above
written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Anthony P. McCarthy
Title: Vice President & Treasurer
Attest:
/s/ Sherry K. Cooper
Title: Asst. Secretary
<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By: /s/ R. Lorenzen
Title: Assistant Vice President
Attest:
/s/ N. Rodriquez
Title: Trust Officer
(..continued)
- - 4 -
7% DEBENTURES SUPPLEMENTAL INDENTURE
CONTAINING THE PROPOSED AMENDMENTS
SUPPLEMENTAL INDENTURE
THIS SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") is made as of
the 17th day of December, 1999, between Kansas City Southern Industries, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), and The Chase Manhattan Bank, a New York bank organized and
existing under the laws of the United States of America, trustee (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee heretofore executed and delivered an
Indenture, dated as of July 1, 1992, (the "Indenture"); and
WHEREAS, the Company's 7% Debentures Due December 15, 2025 (the "7%
Debentures") are Outstanding Securities issued pursuant to the Indenture; and
WHEREAS, Section 902 of the Indenture provides that with the consent of the
Holders of not less than a majority in principal amount of all Outstanding
Securities of any series affected by such Supplemental Indenture (the "Requisite
Consents"), by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by or pursuant to a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental to the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Indenture or of modifying in any manner the rights of
the Holders of such series of Securities, subject to certain exceptions
specified in Section 902 of the Indenture; and
WHEREAS, the Company has obtained the Requisite Consents from Holders of
the 7% Debentures series of Outstanding Securities to amend the Indenture as set
forth below, as well as the Requisite Consents from Holders of each of the other
outstanding series of Outstanding Securities to similarly amend the Indenture
with respect to those series;
WHEREAS, the Board of Directors has, as evidenced by a Board Resolution,
authorized the amendment of the Indenture pursuant to this Supplemental
Indenture; and
WHEREAS, all things necessary to make this Supplemental Indenture a valid
supplement to the Indenture according to its terms have been done;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE ONE
WAIVERS OF CERTAIN PROVISIONS OF THE INDENTURE
SECTION 101. Waiver of Applicability of Certain Provisions of the Indenture
to the Separation of the Company's Financial Services Businesses from its
Transportation Businesses. Applicability of Sections 801 and 802 of the
Indenture to a separation (the "Separation") of the Company's financial services
businesses from its transportation businesses, effected through a spin-off (the
"Spin-Off") of the Company's financial services businesses by the distribution
by the Company as a dividend to its stockholders all of the outstanding common
stock of Stilwell Financial, Inc. ("Stilwell"), a wholly-owned subsidiary to
which the Company transferred the capital stock of its financial services
subsidiaries and other related assets, or effected through any other method of
Separation, is hereby waived. For purposes of this Supplemental Indenture, the
term "Separation" refers to the separation and sale or transfer of KCSI's
financial services businesses, whether in the form of a Spin-Off or otherwise.
As a result of such waiver, any such Separation shall not be deemed a transfer
by the Company of its properties and assets substantially as an entirety under
Section 801 and, no successor Person shall succeed to or be substituted for, or
be allowed to exercise the rights and powers of, the Company under Section 802
of the Indenture as a result of the Separation.
ARTICLE TWO
ELIMINATION OF COVENANT
SECTION 201. Elimination of Section 1006. Section 1006 (Limitation on Liens
on Stock or Indebtedness of Significant Subsidiaries) of the Indenture is hereby
eliminated in its entirety from the Indenture, and shall be of no further force
or effect.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
SECTION 301. Effectiveness of Supplemental Indenture. Upon the execution
and delivery of this Supplemental Indenture by the Company and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture and of any coupon appertaining thereto shall be bound thereby;
provided, however, that this Supplemental Indenture shall become operative only
upon acceptance by the Company of the 7% Debentures validly tendered for
purchase, as set forth in the Offer to Purchase and Consent Solicitation
Statement, dated December 6, 1999, as amended or supplemented through the date
hereof.
SECTION 302. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture and the Securities issued
thereunder shall remain in full force and effect.
SECTION 303. Indenture and Supplemental Indenture Construed Together. This
Supplemental Indenture is an indenture supplemental to the Indenture, and the
Indenture and this Supplemental Indenture shall henceforth be read and construed
together.
SECTION 304. Confirmation and Ratification of Indenture. The Indenture as
supplemented by this Supplemental Indenture and all Securities issued thereunder
are in all respect confirmed and ratified.
SECTION 305. No Issuance of New Securities Required. The Company shall not
be required to prepare and execute, and the Trustee shall not be required to
authenticate and deliver in exchange for outstanding Securities, any new
Securities to conform to this Supplemental Indenture.
SECTION 306. Separability Clause. In case any provision of this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 307. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 308. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
SECTION 309. No Effect on Other Series. This Supplemental Indenture relates
solely to the 7% Debentures and shall have no force or effect with respect to
any other series of Outstanding Securities under the Indenture.
SECTION 310. Successors and Assigns. All covenants and agreements in this
Supplemental Indenture by the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 311. Certain Duties and Responsibilities of the Trustee. In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 312. Governing Law. This Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New York. This
Supplemental Indenture is subject to the provisions of the Trust Indenture Act
that are required to be part of this Supplemental Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 313. Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall together constitute but one and the
same Supplemental Indenture.
SECTION 214. Trustee Not Responsible for Recitals. The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date and year first above
written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Anthony P. McCarthy
Title: Vice President & Treasurer
Attest:
/s/ Sherry K. Cooper
Title: Asst. Secretary
<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By: /s/ R. Lorenzen
Title: Assistant Vice President
Attest:
/s/ N. Rodriquez
Title: Trust Officer
(..continued)
73
21042580\V-1
21042580\V-1
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
dated as of
January 11, 2000
among
KANSAS CITY SOUTHERN INDUSTRIES, INC.
THE KANSAS CITY SOUTHERN RAILWAY COMPANY
The Lenders Party Hereto
THE CHASE MANHATTAN BANK,
as Administrative Agent, Collateral Agent, Issuing Bank and
Swingline Lender
---------------------------
CHASE SECURITIES INC.,
as Advisor, Lead Arranger and Book Manager
==============================================================================
[CS&M 6701-034]
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions; Construction
SECTION 1.01. Defined Terms..........................................1
SECTION 1.02. Classification of Loans and Borrowings................20
SECTION 1.03. Terms Generally.......................................20
SECTION 1.04. Accounting Terms; GAAP................................20
ARTICLE II
The Credits
SECTION 2.01. Commitments...........................................21
SECTION 2.02. Loans and Borrowings..................................21
SECTION 2.03. Requests for Borrowings...............................21
SECTION 2.04. Swingline Loans.......................................22
SECTION 2.05. Letters of Credit.....................................23
SECTION 2.06. Funding of Borrowings.................................26
SECTION 2.07. Interest Elections....................................27
SECTION 2.08. Termination and Reduction of
Commitments......................................28
SECTION 2.09. Repayment of Loans; Evidence of Debt..................28
SECTION 2.10. Amortization of Term Loans............................30
SECTION 2.11. Prepayment of Loans...................................31
SECTION 2.12. Fees..................................................32
SECTION 2.13. Interest..............................................33
SECTION 2.14. Alternate Rate of Interest............................34
SECTION 2.15. Increased Costs.......................................34
SECTION 2.16. Break Funding Payments................................35
SECTION 2.17. Taxes.................................................36
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs..............................36
SECTION 2.19. Mitigation Obligations; Replacement
of Lenders.......................................38
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers..................................38
SECTION 3.02. Authorization; Enforceability.........................39
SECTION 3.03. Governmental Approvals; No Conflicts..................39
SECTION 3.04. Financial Condition; No Material Adverse
Change...........................................39
SECTION 3.05. Properties............................................40
SECTION 3.06. Litigation and Environmental Matters..................40
SECTION 3.07. Compliance with Laws and Agreements...................41
SECTION 3.08. Investment and Holding Company Status.................41
SECTION 3.09. Taxes.................................................41
SECTION 3.10. Employee Benefit Plans................................41
SECTION 3.11. Disclosure............................................41
SECTION 3.12. Subsidiaries..........................................41
SECTION 3.13. Insurance.............................................41
SECTION 3.14. Solvency..............................................41
SECTION 3.15. No Undisclosed Dividend Restrictions..................42
SECTION 3.16. Year 2000.............................................42
ARTICLE IV
Conditions
SECTION 4.01. Effective Date........................................42
SECTION 4.02. Each Credit Event.....................................45
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other
Information......................................45
SECTION 5.02. Notices of Material Events............................46
SECTION 5.03. Information Regarding Collateral......................47
SECTION 5.04. Existence; Conduct of Business........................47
SECTION 5.05 Payment of Taxes.................................48
SECTION 5.06. Maintenance of Properties.............................48
SECTION 5.07. Insurance.............................................48
SECTION 5.08. Casualty and Condemnation.............................48
SECTION 5.09. Books and Records; Inspection and
Audit Rights.....................................48
SECTION 5.10. Compliance with Laws..................................48
SECTION 5.11. Use of Proceeds and Letters of Credit.................48
SECTION 5.12. Additional Subsidiaries...............................49
SECTION 5.13. Further Assurances....................................49
SECTION 5.14. Interest Rate Protection..............................49
SECTION 5.15. Completion of Spin-Off................................49
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities...............49
SECTION 6.02. Liens.................................................50
SECTION 6.03. Sale and Leaseback Transactions.......................52
SECTION 6.04. Mergers and Consolidations............................52
SECTION 6.05. Asset Sales...........................................52
SECTION 6.06. Transactions with Affiliates..........................53
SECTION 6.07. Certain Other Agreements.............................53
SECTION 6.08. Investments, Loans, Advances,
Guarantees and Acquisitions......................53
SECTION 6.09. Hedging Agreements....................................54
SECTION 6.10. Restricted Payments; Certain
Payments of Indebtedness.........................54
SECTION 6.11. Amendment of Material Documents.......................55
SECTION 6.12. Ownership of Caymex, NAFTA Rail and Grupo TFM.........55
SECTION 6.13. Interest Expense Coverage Ratio.......................55
SECTION 6.14. Leverage Ratio........................................55
SECTION 6.15. Capital Expenditures..................................56
ARTICLE VII
Events of Default..................................56
ARTICLE VIII
The Administrative Agent...........................58
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices...............................................60
SECTION 9.02. Waivers; Amendments...................................60
SECTION 9.03. Expenses; Indemnity; Damage Waiver....................62
SECTION 9.04. Successors and Assigns................................63
SECTION 9.05. Survival..............................................65
SECTION 9.06. Counterparts; Integration;
Effectiveness....................................65
SECTION 9.07. Severability..........................................66
SECTION 9.08. Right of Setoff.......................................66
SECTION 9.09. Governing Law; Jurisdiction; Consent
to Service of Process............................66
SECTION 9.10. WAIVER OF JURY TRIAL..................................66
SECTION 9.11. Headings..............................................67
SECTION 9.12. Confidentiality.......................................67
SECTION 9.13. Interest Rate Limitation..............................67
SECTION 9.14. Release of Liens and Guarantees.......................68
<PAGE>
SCHEDULES:
Schedule 1 -- Mortgaged Property
Schedule 2.01 -- Commitments
Schedule 3.05(b) -- Real Property
Schedule 3.05(c) -- Condemnation Proceedings
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.07 -- Restrictive Agreements
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Sonnenschein Nath & Rosenthal
Exhibit C -- Form of Guarantee Agreement
Exhibit D -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit E -- Form of Pledge Agreement
Exhibit F -- Form of Security Agreement
<PAGE>
CREDIT AGREEMENT dated as of January 11,
2000, among KANSAS CITY SOUTHERN INDUSTRIES, INC.,
THE KANSAS CITY SOUTHERN RAILWAY COMPANY, the LENDERS
party hereto, and THE CHASE MANHATTAN BANK, as
Administrative Agent, Collateral Agent, Issuing Bank
and Swingline Lender.
Holdings (such term and each other capitalized term used but
not defined herein having the meaning given to it in Article I), intends to
complete the Spin-Off within 90 days of the date hereof. In connection with the
completion of the Spin-Off (a) the Borrower will borrow the Term Loans and not
more than $20,000,000 of Revolving Loans on the Effective Date, (b) the Borrower
will transfer the proceeds of the Term Loans and Revolving Loans made on the
Effective Date to Holdings by means of a dividend and/or the repayment of
intercompany debt, (c) Holdings will borrow $125,000,000 under the New Assumable
Facility, the obligations under such facility and the Existing Assumable
Facility will be assigned and delegated to and assumed by Stilwell and Holdings
will be released from all such obligations, (d) Holdings will pay all amounts
outstanding under and permanently terminate the Existing Credit Agreements and
(e) Holdings will complete the Debt Tender Offer and purchase the Existing Notes
tendered pursuant thereto.
The Borrower has requested the Lenders to extend credit in the
form of (a) Tranche A Term Loans on the Effective Date in an aggregate principal
amount not in excess of $150,000,000, (b) Tranche B Term Loans on the Effective
Date in an aggregate principal amount not in excess of $250,000,000, (c) Tranche
X Term Loans on the Effective Date in an aggregate principal amount not in
excess of $200,000,000 and (d) Revolving Loans, Swingline Loans and Letters of
Credit at any time and from time to time on or after the Effective Date and
prior to the Revolving Maturity Date in an aggregate principal amount at any
time outstanding not in excess of $150,000,000. The Borrower has requested the
Issuing Bank to issue Letters of Credit in an aggregate stated amount at any
time outstanding that will not result in the LC Exposure exceeding $90,000,000,
and has requested the Swingline Lender to make available Swingline Loans in an
aggregate principal amount at any time outstanding not in excess of $10,000,000.
The proceeds of the Term Loans and of Revolving Loans made on the Effective Date
are to be used solely (i) to pay amounts outstanding under the Existing Credit
Agreements and Existing Notes and to pay other Indebtedness, (ii) to pay Debt
Tender Premiums and (iii) to pay fees and expenses related to the Transactions.
The proceeds of the remaining Revolving Loans are to be used to provide working
capital and for other general corporate purposes of Holdings and the
Subsidiaries. The Letters of Credit are to be used to support obligations in
connection with the Capital Contribution Agreement, and Letters of Credit in an
aggregate stated amount at any time not to exceed $15,000,000 may be used for
general corporate purposes of Holdings and the Subsidiaries. Swingline Loans are
to be used for general corporate purposes of Holdings and the Subsidiaries.
The parties hereto agree as follows:
ARTICLE I
Definitions; Construction ARTICLE I Definitions; Construction
SECTION 1.01. Defined TermsSECTION 1.01. Defined Terms. As
used in this Agreement, the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Secured Parties.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving
Lender, the percentage of the total Revolving Commitments represented by such
Lender's Revolving Commitment. If the Revolving Commitments have terminated or
expired, the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day, with respect to any ABR
Loan or Eurodollar Loan, (a) prior to the Leverage Date, (i) with respect to any
Revolving Loan, Tranche A Term Loan or Tranche X Term Loan, (A) 2.75% per annum,
in the case of a Eurodollar Loan, or (B) 1.75% per annum, in the case of an ABR
Loan, and (ii) with respect to any Tranche B Term Loan, (A) 3.00% per annum, in
the case of a Eurodollar Loan, or (B) 2.00% per annum, in the case of an ABR
Loan and (b) on and after the Leverage Date, the applicable rate per annum set
forth in the table below based on the Leverage Ratio:
<PAGE>
<TABLE>
============================ =================== ===================== ================= ==================
<S> <C> <C> <C> <C>
Tranche A and Tranche A Tranche B
Revolving and Eurodollar Tranche B
Facility Revolving Facility Spread ABR Spread
Leverage Ratio Eurodollar ABR
Spread Spread
- ---------------------------- ------------------- --------------------- ----------------- ------------------
- ---------------------------- ------------------- --------------------- ----------------- ------------------
Category 1 2.50% 1.50% 2.75% 1.75%
>4.5:1.0
- ---------------------------- ------------------- --------------------- ----------------- ------------------
- ---------------------------- ------------------- --------------------- ----------------- ------------------
Category 2 2.25% 1.25% 2.75% 1.75%
>4.0:1.0 and < 4.5:1.0
- ---------------------------- ------------------- --------------------- ----------------- ------------------
- ---------------------------- ------------------- --------------------- ----------------- ------------------
Category 3 2.00% 1.00% 2.75% 1.75%
>3.5 and < 4.0:1.0
- ---------------------------- ------------------- --------------------- ----------------- ------------------
- ---------------------------- ------------------- --------------------- ----------------- ------------------
Category 4 1.75% .75% 2.75% 1.75%
< 3.5:1.0
============================ =================== ===================== ================= ==================
</TABLE>
The Leverage Ratio shall be determined as of the end of each
fiscal quarter of Holdings based upon Holdings' consolidated financial
statements delivered pursuant to Section 5.01(a) or (b). Each change in the
Applicable Rate resulting from a change in the Leverage Ratio shall be effective
during the period commencing on and including the second Business Day following
the date of delivery to the Administrative Agent of the consolidated financial
statements indicating such change and ending on the date immediately preceding
the effective date of the next such change; provided that if Holdings fails to
deliver the consolidated financial statements required to be delivered by it
pursuant to Section 5.01(a) or (b), during the period from the expiration of the
time for delivery thereof until such consolidated financial statements are
delivered the Leverage Ratio shall be deemed to be greater than 4.5 to 1.0.
Notwithstanding the foregoing, until the Tranche X Term Loans shall have been
repaid in full, the Applicable Rate, insofar as it is applicable to Tranche X
Term Loans, shall be increased (i) by .25% per annum on the date corresponding
to the Effective Date in the third month following the month in which the
Effective Date occurs, and (ii) by an additional .25% per annum on the date
corresponding to the Effective Date in each of the third and sixth months
thereafter. For purposes of determining the Applicable Rate following the
Leverage Date but prior to the delivery of financial statements next required to
be delivered under Section 5.01(a) or (b), any computation of the Leverage Ratio
shall be based on the most recently delivered financial statements under
Sections 5.01(a) or (b) giving pro forma effect to such repayment of the Tranche
X term Loans and any related incurrence of Indebtedness as if they had occurred
on the date of the balance sheet included in such financial statements.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Assumable Facilities" means (a) the Existing Assumable
Facility and (b) the New Assumable Facility.
"Attributable Debt" means, in connection with any Sale and
Leaseback Transaction, the present value (discounted in accordance with GAAP at
the discount rate implied in the lease) of the obligations of the lessee for
rental payments during the term of the lease.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means The Kansas City Southern Railway Company, a
Missouri corporation.
"Borrowing" means (a) Loans of the same Class and Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Contribution Agreement" means the Capital
Contribution Agreement dated as of June 23, 1997, among Transportacion Maratima
Mexicana, S.A. de C.V., Holdings, Grupo TFM and TFM, S.A. de C.V..
"Capital Contribution Letter of Credit" means any Letter of
Credit issued in favor of the Chase Manhattan Bank as administrative agent under
the Grupo TFM Credit Agreement as required by the terms of the Capital
Contribution Agreement.
"Capital Expenditures" means, for any period, (a) the
additions to property, plant and equipment and other capital expenditures of
Holdings and its consolidated subsidiaries that are (or would be) set forth in a
consolidated statement of cash flows of Holdings for such period prepared in
accordance with GAAP and (b) Capital Lease Obligations incurred by Holdings and
its consolidated subsidiaries during such period.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Canama" means Canama Transportation, Inc., a Delaware
corporation.
"Caymex" means Caymex Transportation, Inc., a Delaware
corporation.
A "Change in Control" shall be deemed to have occurred if (i)
at any time, less than 75% of the members of the board of directors of Holdings
shall be (A) individuals who are members of such board on the date of the
Spin-Off or (B) individuals whose election, or nomination for election by
Holdings's stockholders, was approved by a vote of at least 75% of the members
of the board then still in office who are members of the board on the date of
the Spin-Off (or whose election or nomination has been approved as provided in
this clause (b)), (ii) at any time, any person, or any two or more persons
acting as a partnership, limited partnership, syndicate, or other group for the
purpose of acquiring, holding or disposing of Equity Interests of Holdings,
shall become, according to public announcement or filing, the "beneficial owner"
(as defined in Rule 13d-3 issued under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of Holdings representing 30% or
more (calculated in accordance with such Rule 13d-3) of the combined voting
power of Holdings' then outstanding voting securities, (iii) any Person other
than Holdings shall acquire ownership, directly or indirectly, beneficially or
of record of any Equity Interests of the Borrower or (iv) a "Change of Control"
(or similar event), as such term may be defined in any indenture or other
agreement or instrument governing Material Indebtedness, shall have occurred.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of
such Lender or by such Lender's or the Issuing Bank's holding company, if any)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans, Tranche A Term Loans, Tranche B Term Loans, Tranche X Term
Loans or Swingline Loans and, when used in reference to any Commitment, refers
to whether such Commitment is a Revolving Commitment, Tranche A Commitment,
Tranche B Commitment or Tranche X Commitment.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" means any and all "Collateral", as defined in any
applicable Security Document.
"Collateral Agent" means The Chase Manhattan Bank, in its
capacity as collateral agent for the Secured Parties.
"Collateral and Guarantee Requirement" means the requirement
that:
(a) the Administrative Agent shall have received from each
Loan Party either (i) a counterpart of each of the Security Agreement,
a Pledge Agreement, the Guarantee Agreement and the Indemnity,
Subrogation and Contribution Agreement duly executed and delivered on
behalf of such Loan Party or (ii) in the case of any Person that
becomes a Loan Party after the Effective Date, a supplement to each
such agreement, in the form specified therein, duly executed and
delivered on behalf of such Loan Party;
(b) all outstanding Equity Interests of the Borrower, any
Subsidiary or any other Person owned by or on behalf of any Loan Party
shall have been pledged pursuant to the Pledge Agreements (except that
the Loan Parties shall not be required to pledge more than 65% of the
outstanding voting Equity Interests of any Foreign Subsidiary) and the
Administrative Agent shall have received certificates or other
instruments representing all such Equity Interests, together with stock
powers or other instruments of transfer with respect thereto endorsed
in blank;
(c) all Indebtedness of Holdings, the Borrower and each
Subsidiary that is owing to any Loan Party shall have been pledged
pursuant to the Pledge Agreement and any promissory notes evidencing
any such Indebtedness shall have been delivered to the Collateral
Agent, together with instruments of transfer with respect thereto
endorsed in blank;
(d) all documents and instruments, including Uniform
Commercial Code financing statements and filings with the STB, required
by law or reasonably requested by the Administrative Agent to be filed,
registered or recorded to create the Liens intended to be created by
the Security Agreement and perfect such Liens to the extent required
by, and with the priority required by, the Security Agreement, shall
have been filed, registered or recorded or delivered to the
Administrative Agent for filing, registration or recording;
(e) the Collateral Agent shall have received (i) counterparts
of Mortgages with respect to all Mortgaged Properties, duly executed
and delivered by the record owners of such Mortgaged Property and (ii)
such legal opinions, title insurance (except in the case of Mortgaged
Properties consisting of railroad facilities (other than the Borrower's
railroad yard in Shreveport, Louisiana), intermodal facilities and
rights of way), insurance and other documents as may be required under
the Mortgages or applicable law, or as the Administrative Agent may
reasonably request, with respect to any such Mortgages or Mortgaged
Properties; and
(f) each Loan Party shall have obtained all consents and
approvals required to be obtained by it in connection with the
execution and delivery of all Security Documents to which it is a
party, the performance of its obligations thereunder and the granting
by it of the Liens thereunder.
The foregoing definition shall not require the creation or perfection of pledges
of or security interests in, or the obtaining of title insurance with respect
to, particular assets of the Loan Parties if and for so long as, in the judgment
of the Administrative Agent, the cost of creating or perfecting such pledges or
security interests in such assets or obtaining title insurance in respect of
such assets shall be excessive in view of the benefits to be obtained by the
Lenders therefrom. The Administrative Agent may grant extensions of time for the
perfection of security interests in or the obtaining of title insurance with
respect to particular assets (including extensions beyond the Effective Date for
the perfection of security interests in the assets of the Loan Parties on such
date) where it determines that perfection cannot be accomplished without undue
effort or expense by the time or times at which it would otherwise be required
by this Agreement or the Security Documents.
"Commitment" means a Revolving Commitment, Tranche A
Commitment, Tranche B Commitment or Tranche X Commitment, or any combination
thereof (as the context requires).
"Consolidated EBITDA" means, for any period, Consolidated Net
Income for such period plus (a) without duplication and to the extent deducted
in determining such Consolidated Net Income, the sum of (i) Consolidated
Interest Expense for such period, (ii) consolidated income tax expense for such
period, (iii) all amounts attributable to depreciation and amortization for such
period and (iv) all extraordinary losses for such period and minus (b) without
duplication and to the extent included in determining such Consolidated Net
Income, any extraordinary gains for such period, all determined on a
consolidated basis in accordance with GAAP; provided that (a) for any period
including any fiscal quarter or portion thereof prior to the Spin-Off,
Consolidated EBITDA shall for all purposes be determined on a pro forma basis as
if the Spin-Off had occurred at the beginning of such period and (b) for
purposes of calculating the financial covenants set forth in Sections 6.13 and
6.14 and Excess Cash Flow, there shall be excluded in determining Consolidated
EBITDA for any period the net effect of the aggregate amount of restructuring
charges attributable to the Spin-Off.
"Consolidated Interest Expense" means, for any period, the
interest expense (including imputed interest expense in respect of Capital Lease
Obligations) of Holdings and the Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net
income or loss of Holdings, the Borrower and the Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded (a) the income of any Person (other than Holdings) in which
any other Person (other than Holdings, the Borrower or any Subsidiary or any
director holding qualifying shares in compliance with applicable law) owns an
Equity Interest, except to the extent of the amount of dividends or other
distributions actually paid to Holdings, the Borrower or any of the Subsidiaries
during such period, and (b) the income or loss of any Person accrued prior to
the date it becomes a Subsidiary or is merged into or consolidated with
Holdings, the Borrower or any Subsidiary or the date that such Person's assets
are acquired by Holdings, the Borrower or any Subsidiary.
"Consolidated Net Worth" shall mean, on any date the
stockholders' equity of Holdings and the Subsidiaries on such date, determined
on a consolidated basis in accordance with GAAP.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Holdings or any Subsidiary, are treated as a
single employer under Section 414(b) or 414(c) of the Code or, solely for
purposes of Section 302 of ERISA and Section 412 of the Code, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code.
"Debt Tender Offer" means the tender offer made by Holdings
for the Existing Notes pursuant to Holdings's Offer to Purchase and Consent
Solicitation Statement dated December 6, 1999.
"Debt Tender Premiums" means the tender premiums and consent
fees paid by Holdings in connection with the Debt Tender Offer.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States
of America.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"Effective Date Transactions" means the Transactions that have
occurred, or that are contemplated or required by this Agreement to have
occurred, on or before the Effective Date and prior to or simultaneously with
the initial Borrowing or issuance of a Letter of Credit hereunder.
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of Holdings, the Borrower or any
Subsidiary directly or indirectly resulting from or based upon (a) violation of
any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excess Cash Flow" means, for any fiscal year, an amount equal
to:
(a) Consolidated EBITDA for such fiscal year; minus
(b) cash tax payments made by Holdings and its Subsidiaries
during such fiscal year; minus
(c) Consolidated Interest Expense for such fiscal year; minus
(d) Capital Expenditures for such fiscal year (except to the
extent attributable to the incurrence of Capital Lease Obligations or
otherwise financed by incurring long-term Indebtedness); minus
(e) the aggregate principal amount of long-term Indebtedness
repaid or prepaid by Holdings and its consolidated Subsidiaries during
such fiscal year, excluding (i) Indebtedness in respect of Revolving
Loans and Letters of Credit, (ii) Term Loans prepaid pursuant to
Section 2.11(c) or (d), and (iii) repayments or prepayments of
long-term Indebtedness financed by incurring other long-term
Indebtedness; minus
(f) reserves reasonably required by the Borrower, not to
exceed $5,000,000, for such fiscal year; minus
(g) up to $17,000,000 of payments made during such fiscal year
constituting the Grupo TFM Phase I Investment; minus
(h) the aggregate amount of investments or other payments
required to be made by Holdings or any of the Subsidiaries during such
fiscal year pursuant to mandatory capital calls or similar agreements
under joint venture, limited liability company or shareholder
agreements; plus
(i) an amount equal to any reserves established during prior
fiscal years which have been reversed by the Borrower during such
fiscal year.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction described in clause (a) above and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower
under Section 2.19(b)), any withholding tax that (i) is in effect and would
apply to amounts payable to such Foreign Lender at the time such Foreign Lender
becomes a party to this Agreement (or designates a new lending office), except
to the extent that such Foreign Lender (or its assignor, if any) was entitled,
at the time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to any withholding tax
pursuant to Section 2.17(a), or (ii) is attributable to such Foreign Lender's
failure to comply with Section 2.17(e).
"Existing Assumable Facility" means the credit facility
provided to Holdings pursuant to the Amended and Restated 364-Day Competitive
Advance and Revolving Credit Facility Agreement dated as of May 14, 1999, among
Holdings, the lenders party thereto, and The Chase Manhattan Bank, as
administrative agent
"Existing Credit Agreements" means (a) the Amended and
Restated 364-Day Competitive Advance and Revolving Credit Facility Agreement
dated as of April 30, 1999, and the Amended and Restated Five-Year Competitive
Advance and Revolving Credit Facility Agreement dated as of May 2, 1997, each
among Holdings, the lenders named therein and The Chase Manhattan Bank, as
administrative agent, as amended and (b) the Revolving Credit Facility Agreement
dated as of February 28, 1996, among Gateway, the lenders party thereto and The
Chase Manhattan Bank, as administrative agent and issuing bank.
"Existing Notes" means Holding's (a) 7.875% Notes due 2002,
(b) 6.625% Notes due 2005, (c) 8.80% Debentures due 2022 and (d) 7.00%
Debentures due 2025.
"Existing Preferred Stock" means (i) the 649,736 shares of
preferred stock of Holdings, par value $25 per share, paying 4% noncumulative
dividends and (ii) 57 shares of preferred stock issued by the Borrower to KCSL.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Financial Officer" means, with respect to any Person, the
chief financial officer, principal accounting officer, treasurer or controller
of such Person.
"Financing Transactions" means the execution, delivery and
performance by each Loan Party of the Loan Documents to which it is to be a
party, the borrowing of Loans, the use of the proceeds thereof (including the
repayment and termination of the Existing Credit Agreements, the redemption of
the Existing Notes or the defeasance of any Existing Notes which are not
tendered pursuant to the Debt Tender Offer and the assumption of the obligations
of Holdings under the Assumable Facilities by Stilwell), the issuance of Letters
of Credit and the creation of the Liens provided for in the Security Documents.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Foreign Subsidiary" means any Subsidiary (other than Stilwell
and its subsidiaries) that is organized under the laws of a jurisdiction other
than the United States of America or any State thereof or the District of
Columbia.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Gateway" means Gateway Western Railway Company, a Delaware
corporation.
"GE Capital Sale Leaseback" means a proposed sale by the
Borrower to GE Capital of up to 1,000 rail cars for cash in an amount of not
less than $8,000,000 (or if less than 1000 cars are sold, not less than an
average of $8,000 per car) and the lease of such rail cars by the Borrower from
GE Capital.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government including the National Association of Insurance
Commissioners.
"Grupo TFM" means Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V., a Mexican corporation.
"Grupo TFM Phase I Investment" means the exercise by Holdings
or a Subsidiary of an option to purchase from the government of Mexico an
interest of approximately 1.5% in TFM, S.A. de C.V for approximately
$17,000,000.
"Grupo TFM Phase II Investment" means the purchase by Holdings
or a Subsidiary from the government of Mexico, pursuant to an option granted by
such government, of an additional interest of approximately 7.8% in TFM, S.A. de
C.V. for consideration consisting of an unsecured promissory note in an amount
not to exceed $76,100,000 issued by Holdings, the Borrower or a Subsidiary Loan
Party that is subordinated to the Obligations on terms satisfactory to, and all
the provisions of which (including amount, maturity, amortization, prepayment or
similar requirements, interest rate, covenants and defaults) have been approved
as to form and substance by, the Administrative Agent, it being understood that
(i) in no event shall the terms of such subordinated note require any
amortization or prepayment prior to the Tranche B Maturity Date, and (ii) a
Subsidiary shall not Guarantee such note unless (A) such Subsidiary also has
Guaranteed the Obligations pursuant to the Guarantee Agreement, (B) such
Guarantee is unsecured and subordinated to the Guarantee of the Obligations on
terms no less favorable to the Lenders than the subordination provisions of such
note and (iii) such Guarantee provides for the release and termination thereof,
without action by any party, upon any release and termination of such Guarantee
of the Obligations; provided that Holdings or such Subsidiary has entered into a
definitive agreement to sell such interest within 180 days of the acquisition
thereof to an unaffiliated third party for cash in an amount not less than the
fair market value of such interest.
"Grupo TFM Credit Agreement" means the Credit Agreement dated
as of June 23, 1997, among Grupo TFM, TFM S.A. de C.V. the banks party thereto,
Morgan Stanley Senior Funding, Inc., as syndication agent and as arranger, The
Chase Manhattan Bank as administrative agent and Merrill Lynch Capital
Corporation, as documentation agent.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement
substantially in the form of Exhibit C among Holdings, the Subsidiaries from
time to time party thereto and the Collateral Agent for the benefit of the
Secured Parties, as the same may be amended, modified or supplemented from time
to time in accordance with the provisions hereof.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price hedging
arrangement.
"Holdings" means Kansas City Southern Industries, Inc., a
Delaware corporation.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (d) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding current accounts payable incurred in the ordinary course of
business), (e) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person
of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity Subrogation and Contribution Agreement" means an
Indemnity, Subrogation and Contribution Agreement substantially in the form of
Exhibit D among Holdings, the Borrower, the Subsidiaries from time to time party
thereto and the Collateral Agent for the benefit of the Secured Parties, as the
same may be amended, modified or supplemented from time to time in accordance
with the provisions hereof.
"Information Memorandum" means the Confidential Information
Memorandum dated December 1999, relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Borrowing or Term Borrowing in accordance with
Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan
(other than a Swingline Loan), the last day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period,
and (c) with respect to any Swingline Loan, the day that such Loan is required
to be repaid.
"Interest Period" means, with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect; provided, that (a) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (b) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Interstate Commerce Act" means the Interstate Commerce
Commission Termination Act of 1995, and the regulations promulgated thereunder.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity
as the issuer of Letters of Credit hereunder, and its successors in such
capacity as provided in Section 2.05(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Issuing Bank, in which case the term "Issuing Bank" shall include any
such Affiliate with respect to Letters of Credit issued by such Affiliate.
"KCSL" means Kansas City Southern Lines, a Delaware corporation.
"LC Disbursement" means a payment made by the Issuing Bank
pursuant to a draw under a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender
at any time shall be its Applicable Percentage of the total LC Exposure at such
time.
"Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that shall have ceased to be a party
hereto pursuant to an Assignment and Acceptance. Unless the context otherwise
requires, the term "Lenders" includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant
to this Agreement.
"Leverage Date" means the second Business Day following the
repayment in full of the Tranche X Term Loans.
"Leverage Ratio" means, on any date, the ratio of (a) Total
Indebtedness as of such date to (b) Consolidated EBITDA for the period of four
consecutive fiscal quarters of Holdings ended on such date (or, if such date is
not the last day of a fiscal quarter, ended on the last day of the fiscal
quarter of Holdings most recently ended prior to such date).
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Guarantee
Agreement, the Indemnity, Subrogation and Contribution Agreement, each Pledge
Agreement, the Security Agreement, the Mortgages and the other Security
Documents.
"Loan Parties" means Holdings, the Borrower and the other
Subsidiary Loan Parties.
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, liabilities, operations, condition (financial or
otherwise) or prospects of Holdings, the Borrower and the other Subsidiaries
taken as a whole, (b) the ability of any Loan Party to perform any of its
obligations under any Loan Document or to complete the Transactions in any
material respect or (c) the rights of or benefits available to the Lenders under
any Loan Document.
"Material Indebtedness" means Indebtedness (other than the
Loans and Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of Holdings, the Borrower and the other
Subsidiaries in an aggregate principal amount exceeding $10,000,000. For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of Holdings, the Borrower or any other Subsidiary in respect of any
Hedging Agreement at any time shall be the maximum aggregate amount (giving
effect to any netting agreements) that Holdings, the Borrower or such Subsidiary
would be required to pay if such Hedging Agreement were terminated at such time.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment of
leases and rents, leasehold mortgage or other security document granting a Lien
on any Mortgaged Property to secure the Obligations. Each Mortgage shall be
satisfactory in form and substance to the Collateral Agent.
"Mortgaged Property" means, initially, the real property and
the improvements thereto owned by the Loan Parties and described on Schedule 1
and all Rights of Way (as defined in any Mortgage), and includes all other real
property and improvements thereto with respect to which Mortgages are granted
pursuant to Section 5.12 or 5.13.
"Multiemployer Plan" shall mean a Plan that is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA as to which
Holdings or any member of the Controlled Group may have any liability.
"Multiple Employer Plan" shall mean a Plan that is a
single-employer plan which has two or more contributing sponsors at least two of
whom are not under common control or who made contributions under such Plan
during the preceding five years.
"NAFTA Rail" means NAFTA Rail, S.A. de C.V., a Mexican
corporation.
"Net Proceeds" means, with respect to any event, (a) the cash
proceeds received in respect of such event including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, net of (b) the sum
of (i) all reasonable fees and out-of-pocket expenses paid by Holdings, the
Borrower and the other Subsidiaries to third parties (other than Affiliates) in
connection with such event, (ii) in the case of a sale, transfer or other
disposition of an asset (including pursuant to a Sale and Leaseback Transaction
or a casualty or a condemnation or similar proceeding), the amount of all
payments required to be made by Holdings, the Borrower and the other
Subsidiaries as a result of such event to repay Indebtedness (other than Loans)
secured by such asset or otherwise subject to mandatory prepayment as a result
of such event, and (iii) the amount of all taxes paid (or reasonably estimated
to be payable) by Holdings, the Borrower and the other Subsidiaries, and the
amount of any reserves established by Holdings, the Borrower and the other
Subsidiaries to fund contingent liabilities reasonably estimated to be payable,
in each case during the year that such event occurred or the next succeeding
year and that are directly attributable to such event (as determined reasonably
and in good faith by the chief financial officer of Holdings). Notwithstanding
the foregoing, the first $5,000,000 of cash proceeds received during any fiscal
year in respect of Prepayment Events described in clauses (a) and (b) of the
definition of such term shall not be deemed to constitute Net Proceeds.
"New Assumable Facility" means the credit facility provided to
Holdings pursuant to the 364-Day Competitive Advance and Revolving Credit
Facility Agreement dated as of January 11, 2000, among Holdings, the lenders
party thereto, and The Chase Manhattan Bank, as administrative agent.
"Obligations" means (a) the due and punctual payment of (i)
the principal of and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made under
this Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of LC Disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
Holdings, the Borrower or any other Subsidiary to the Secured Parties under this
Agreement or any other Loan Document, (b) the due and punctual payment and
performance of all covenants, agreements, obligations, and liabilities of the
Loan Parties, monetary or otherwise, under or pursuant to this Agreement and the
other Loan Documents and (c) the due and punctual payment of all obligations of
the Borrower under each Hedging Agreement entered into (i) prior to the date
hereof with any counterparty that is a Lender (or an Affiliate thereof) on the
date hereof or (ii) on or after the date hereof with any counterparty that is a
Lender (or an Affiliate thereof) at the time such Hedging Agreement is entered
into, in either case to provide protection against interest rate fluctuations.
"Other Letter of Credit" means any Letter of Credit that is
not a Capital Contribution Letter of Credit.
"Other Taxes" means any and all present or future recording,
stamp, documentary, excise, transfer, sales, property or similar taxes, charges
or levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in a form
approved by the Collateral Agent.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from
Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus
and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above; and
(e) such other liquid investments as shall be approved by the
Administrative Agent.
"Permitted Subordinated Debt" means any unsecured Indebtedness
of Holdings or the Borrower that is subordinated to the Obligations on terms
satisfactory to, and all the provisions of which (including amount, maturity,
amortization, prepayment or similar requirements, interest rate, covenants,
defaults, and subordination) have been approved as to form and substance by, the
Administrative Agent, it being understood that (a) in no event shall the terms
of such subordinated Indebtedness require any amortization prior to the Tranche
B Maturity Date, and (b) a Subsidiary shall not Guarantee such subordinated
Indebtedness unless (i) such Subsidiary also has Guaranteed the Obligations
pursuant to the Guarantee Agreement, (ii) such Guarantee of such subordinated
Indebtedness is unsecured and subordinated to the Guarantee of the Obligations
on terms no less favorable to the Lenders than the subordination provisions of
such subordinated Indebtedness and (iii) such Guarantee of such subordinated
Indebtedness provides for the release and termination thereof, without action by
any party, upon any release and termination of such Guarantee of the
Obligations.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" shall mean any employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code as to which Holdings or any member of the Controlled
Group may have any liability.
"Pledge Agreements" means (a) a Pledge Agreement substantially
in the form of Exhibit E among Holdings, the Borrower, the other Subsidiaries
from time to time party thereto and the Collateral Agent and (b) in connection
with pledges of shares of or other equity interests in Foreign Subsidiaries,
other pledge agreements or similar agreements in form and substance satisfactory
to the Collateral Agent, as the same may be amended, modified or supplemented
from time to time in accordance with the provisions hereof.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including
pursuant to a Sale and Leaseback Transaction) of any property or asset
of Holdings, the Borrower or any other Subsidiary, other than sales,
transfers or dispositions described in clauses (a), (b) and (c) and of
Section 6.05; or
(b) any casualty or other insured damage to, or any taking
under power of eminent domain or by condemnation or similar proceeding
of, any property or asset of Holdings, the Borrower or any other
Subsidiary, but only to the extent that the Net Proceeds therefrom have
not been applied to repair, restore or replace such property or asset
within 180 days after such event; or
(c) the issuance by Holdings, the Borrower or any other
Subsidiary of any Equity Interests, or the receipt by Holdings, the
Borrower or any other Subsidiary of any capital contribution, other
than any such issuance of Equity Interests to, or receipt of any such
capital contribution from, Holdings, the Borrower or any other
Subsidiary; or
(d) the incurrence by Holdings, the Borrower or any other
Subsidiary of any Permitted Subordinated Debt.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly announced
as being effective.
"Railway Labor Act" means Railway Labor Act, as amended from
time to time.
"Register" has the meaning set forth in Section 9.04.
"Related Fund" means with respect to any Lender that is a fund
that invests in bank loans, any other fund that invests in bank loans and is
advised or managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Reportable Event" shall mean any reportable event as defined
in Section 4043 of ERISA and the regulations issued under such Section with
respect to a Plan (other than a Multiemployer Plan), excluding, however, such
events as to which the PBGC by regulation or by technical update waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event; provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a reportable event regardless of the issuance of any waiver in accordance with
Section 412(d) of the Code.
"Required Lenders" means, at any time, Lenders having
Revolving Exposures, Term Loans and unused Commitments representing more than
50% of the sum of the total Revolving Exposures, outstanding Term Loans and
unused Commitments at such time.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any Equity
Interests in Holdings, the Borrower or any other Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any Equity Interests in Holdings,
the Borrower or any other Subsidiary or any option, warrant or other right to
acquire any such Equity Interests in Holdings, the Borrower or any other
Subsidiary.
"Revolving Availability Period" means the period from and
including the Effective Date to but excluding the earlier of the Revolving
Maturity Date and the date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Revolving
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Revolving Commitment, as
applicable. The initial aggregate amount of the Lenders' Revolving Commitments
is $150,000,000.
"Revolving Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans and its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment
or, if the Revolving Commitments have terminated or expired, a Lender with
Revolving Exposure.
"Revolving Loan" means a Loan made pursuant to clause (d) of
Section 2.01.
"Revolving Maturity Date" means January 11, 2006.
"Sale and Leaseback Transaction" means any arrangement,
directly or indirectly, whereby any Person shall sell or transfer any property,
real or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which it
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
"Secured Parties" means (a) the Lenders, (b) the
Administrative Agent, (c) the Issuing Bank, (d) the Collateral Agent, (e) each
other holder of or obligee in respect of any Obligations and (f) the successors
and assigns of each of the foregoing.
"Security Agreement" means a Security Agreement substantially
in the form of Exhibit F among Holdings, the Borrower, the other Subsidiaries
from time to time party thereto and the Collateral Agent for the benefit of the
Secured Parties, as the same may be amended, modified or supplemented from time
to time in accordance with the provisions hereof.
"Security Documents" means the Security Agreement, each Pledge
Agreement, the Mortgages and each other security agreement or other instrument
or document executed and delivered pursuant to Section 5.12 or 5.13 to secure
any of the Obligations.
"Significant Subsidiary" means (a) the Borrower, KCSL, Caymex
and Gateway, (b) any Subsidiary owning an Equity Interest in a Significant
Subsidiary and (c) any other Subsidiary (i) the consolidated revenues of which
for the most recent fiscal year of Holdings for which audited financial
statements have been delivered pursuant to Section 5.01 were greater than 5% of
Holdings' consolidated revenues for such fiscal year or (ii) the consolidated
tangible assets of which as of the end of such fiscal year were greater than 5%
of Holdings' consolidated tangible assets as of such date; provided that, if at
any time the aggregate amount of the consolidated revenues or consolidated
tangible assets of all Subsidiaries that are not Significant Subsidiaries for or
at the end of any fiscal year exceeds 10% of Holdings' consolidated revenues for
such fiscal year or 10% of Holdings' consolidated tangible assets as of the end
of such fiscal year, Holdings (or, in the event Holdings has failed to do so
within 10 days, the Administrative Agent) shall designate sufficient
Subsidiaries as "Significant Subsidiaries" to eliminate such excess, and such
designated Subsidiaries shall for all purposes of this Agreement constitute
Significant Subsidiaries. For purposes of making the determinations required by
this definition, revenues and assets of Foreign Subsidiaries shall be converted
into dollars at the rates used in preparing the consolidated balance sheet of
Holdings included in the applicable financial statements. The Significant
Subsidiaries on the date hereof are identified in Schedule 3.12 hereto.
"S&P" means Standard & Poor's.
"Spin-Off" means the distribution by Holdings of all the
issued and outstanding common stock of Stilwell to the shareholders of Holdings
as described in Stilwell's Form 10.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans shall be
deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D or
any comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"STB" shall mean the Surface Transportation Board, a board
established within the Department of Transportation, or any successor Federal
agency charged with similar regulation of common carriers.
"Stilwell" means Stilwell Financial, Inc., a Delaware
corporation.
"Stilwell's Form 10" means the Form 10 filed by Stilwell with
the Securities and Exchange Commission on August 18, 1999, as amended.
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means the Borrower and each other subsidiary of
Holdings; provided that upon completion of the Spin-Off, "Subsidiary" shall not
include Stilwell or any of its Subsidiaries.
"Subsidiary Loan Party" means each of Veals, Inc.,
Trans-Serve, Inc., Gateway Eastern Railway Company, Global Terminaling Services,
Inc., The Kansas City Northern Railway Company, Mid-South Microwave, Inc. and
any Significant Subsidiary (other than Stilwell and its subsidiaries) that is
not a Foreign Subsidiary.
"Swingline Exposure" means, at any time, the aggregate
principal amount of all Swingline Loans outstanding at such time. The Swingline
Exposure of any Lender at any time shall be its Applicable Percentage of the
total Swingline Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its
capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Loans" means Tranche A Term Loans, Tranche B Term Loans
and Tranche X Term Loans.
"Total Indebtedness" means, as of any date, the aggregate
principal amount of Indebtedness of Holdings and the Subsidiaries outstanding as
of such date that would be reflected on a balance sheet prepared as of such date
on a consolidated basis in accordance with GAAP.
"Tranche A Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche A Term Loan hereunder on
the Effective Date, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial amount
of each Lender's Tranche A Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Tranche A Commitment, as applicable. The initial aggregate amount of the
Lenders' Tranche A Commitments is $150,000,000.
"Tranche A Lender" means a Lender with a Tranche A Commitment
or an outstanding Tranche A Term Loan.
"Tranche A Maturity Date" means December 30, 2005.
"Tranche A Term Loan" means a Loan made pursuant to clause (a)
of Section 2.01.
"Tranche B Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche B Term Loan hereunder on
the Effective Date, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial amount
of each Lender's Tranche B Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Tranche A Commitment, as applicable. The initial aggregate amount of the
Lenders' Tranche B Commitments is $250,000,000.
"Tranche B Lender" means a Lender with a Tranche B Commitment
or an outstanding Tranche B Term Loan.
"Tranche B Maturity Date" means December 29, 2006.
"Tranche B Term Loan" means a Loan made pursuant to clause (b)
of Section 2.01.
"Tranche X Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche X Term Loan hereunder on
the Effective Date, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial amount
of each Lender's Tranche X Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Tranche X Commitment, as applicable. The initial aggregate amount of the
Lenders' Tranche X Commitments is $200,000,000.
"Tranche X Lender" means a Lender with a Tranche X Commitment
or an outstanding Tranche X Term Loan.
"Tranche X Maturity Date" means January 11, 2001.
"Tranche X Term Loan" means a Loan made pursuant to clause (c)
of Section 2.01.
"Transactions" means the Spin-Off, the Financing Transactions
and the other transactions contemplated hereby.
"Transaction Costs" means the fees and expenses incurred in
connection with the Transactions that are to occur on or prior to the Effective
Date.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"Unfunded Liabilities" shall mean, on any date of
determination, (a) in the case of Multiemployer Plans and Multiple Employer
Plans, the liability of Holdings and the Subsidiaries if they were to incur a
complete withdrawal from each such plan and (b) in the case of all other Plans,
all "unfunded benefit liabilities" as defined in Section 4001(a)(18) of ERISA .
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and BorrowingsSECTION
1.02. Classification of Loans and Borrowings. For purposes of this Agreement,
Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or
by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar
Revolving Loan"). Borrowings also may be classified and referred to by Class
(e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing")
or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").
SECTION 1.03. Terms GenerallySECTION 1.03. Terms Generally.
The definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAPSECTION 1.04. Accounting
Terms; GAAP. Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided that, if the Borrower notifies the
Administrative Agent that the Borrower requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof in
GAAP or in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis of GAAP as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.
ARTICLE II
The Credits ARTICLE II The Credits
SECTION 2.01. CommitmentsSECTION 2.01. Commitments. Subject to
the terms and conditions set forth herein, each Lender agrees (a) to make a
Tranche A Term Loan to the Borrower on the Effective Date in a principal amount
not exceeding its Tranche A Commitment, (b) to make a Tranche B Term Loan to the
Borrower on the Effective Date in a principal amount not exceeding its Tranche B
Commitment, (c) to make a Tranche X Term Loan to the Borrower on the Effective
Date in a principal amount not exceeding its Tranche X Commitment (as such
Commitment shall have been reduced pursuant to Section 2.08(a)) and (d) to make
Revolving Loans to the Borrower from time to time during the Revolving
Availability Period in an aggregate principal amount that will not result in
such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts
repaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans and BorrowingsSECTION 2.02. Loans and
Borrowings. (a) Each Loan (other than a Swingline Loan) shall be made as part of
a Borrowing consisting of Loans of the same Class and Type made by the Lenders
ratably in accordance with their respective Commitments of the applicable Class.
The failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the
Commitments of the Lenders are several and no Lender shall be responsible for
any other Lender's failure to make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR
Loan. Each Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $1,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Revolving Commitments or that is
required to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.05(e). Each Swingline Loan shall be in an amount that is an integral
multiple of $100,000 and not less than $500,000. Borrowings of more than one
Type and Class may be outstanding at the same time; provided that there shall
not at any time be more than a total of 12 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Revolving Maturity Date, Tranche A Maturity Date, Tranche B Maturity
Date or Tranche X Maturity Date, as applicable.
SECTION 2.03. Requests for BorrowingsSECTION 2.03. Requests
for Borrowings. To request a Revolving Borrowing or Term Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time,
three Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date
of the proposed Borrowing; provided that any such notice of an ABR Revolving
Borrowing to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.05(e) may be given not later than 10:00 a.m., New York City time, on
the date of the proposed Borrowing. Each such telephonic Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery or telecopy to
the Administrative Agent of a written Borrowing Request in a form approved by
the Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving
Borrowing, Tranche A Term Borrowing, Tranche B Term Borrowing or
Tranche X Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business
Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall
be deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Swingline LoansSECTION 2.04. Swingline Loans.
(a) Subject to the terms and conditions set forth herein, the Swingline Lender
agrees to make Swingline Loans to the Borrower from time to time during the
Revolving Availability Period, in an aggregate principal amount at any time
outstanding that will not result in (i) the aggregate principal amount of
outstanding Swingline Loans exceeding $10,000,000 or (ii) the sum of the total
Revolving Exposures exceeding the total Revolving Commitments; provided that the
Swingline Lender shall not be required to make a Swingline Loan to refinance an
outstanding Swingline Loan. Within the foregoing limits and subject to the terms
and conditions set forth herein, the Borrower may borrow, prepay and reborrow
Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 1:00 p.m., New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.06(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 12:00 noon, New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such notice
shall specify the aggregate amount of Swingline Loans in which Revolving Lenders
will participate. Promptly upon receipt of such notice, the Administrative Agent
will give notice thereof to each Revolving Lender, specifying in such notice
such Lender's Applicable Percentage of such Swingline Loan or Loans. Each
Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of
notice as provided above, to pay to the Administrative Agent, for the account of
the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan
or Loans. Each Revolving Lender acknowledges and agrees that its obligation to
acquire participations in Swingline Loans pursuant to this paragraph is absolute
and unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. Each Revolving
Lender shall comply with its obligation under this paragraph by wire transfer of
immediately available funds, in the same manner as provided in Section 2.06 with
respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
mutandis, to the payment obligations of the Revolving Lenders), and the
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Revolving Lenders. The Administrative Agent shall notify
the Borrower of any participations in any Swingline Loan acquired pursuant to
this paragraph, and thereafter payments in respect of such Swingline Loan shall
be made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Revolving Lenders that shall have made their payments pursuant to this
paragraph and to the Swingline Lender, as their interests may appear. The
purchase of participations in a Swingline Loan pursuant to this paragraph shall
not relieve the Borrower of any default in the payment thereof.
SECTION 2.05. Letters of CreditSECTION 2.05. Letters of
Credit. (a) General. Subject to the terms and conditions set forth herein, the
Borrower may request the issuance of Capital Contribution Letters of Credit and
Other Letters of Credit, in each case for its own account, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Revolving Availability Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the Issuing
Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the portion of the LC Exposure attributable
to Capital Contribution Letters of Credit shall not exceed $75,000,000, (ii) the
portion of the LC Exposure attributable to Other Letters of Credit shall not
exceed $15,000,000 and (iii) the total Revolving Exposures shall not exceed the
total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year after the
date of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension), (ii) the date that
is five Business Days prior to the Revolving Maturity Date and (iii) if such
Letter of Credit is a Capital Contribution Letter of Credit, the date on which
such Letter of Credit is no longer required to be in effect under the terms of
the Capital Contribution Agreement.
(d) Participations. By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to
pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its obligation
to acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that,
if such LC Disbursement is not less than $1,000,000, the Borrower may, subject
to the conditions to borrowing set forth herein, request in accordance with
Section 2.03 or 2.04 that such payment be financed with an ABR Revolving
Borrowing or Swingline Loan in an equivalent amount and, to the extent so
financed, the Borrower's obligation to make such payment shall be discharged and
replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the
Borrower fails to make such payment when due, the Administrative Agent shall
notify each Revolving Lender of the applicable LC Disbursement, the payment then
due from the Borrower in respect thereof and such Lender's Applicable Percentage
thereof. Promptly following receipt of such notice, each Revolving Lender shall
pay to the Administrative Agent its Applicable Percentage of the payment then
due from the Borrower, in the same manner as provided in Section 2.06 with
respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
mutandis, to the payment obligations of the Revolving Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Revolving Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Revolving Lenders have made payments pursuant to
this paragraph to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Revolving
Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan
as contemplated above) shall not constitute a Loan and shall not relieve the
Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.12(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent or the Required Lenders (or, if the maturity of
the Loans has been accelerated, Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure) demanding the deposit of cash
collateral pursuant to this paragraph, the Borrower shall deposit in an account
with the Administrative Agent, in the name of the Administrative Agent and for
the benefit of the Lenders, an amount in cash equal to the LC Exposure as of
such date plus any accrued and unpaid interest thereon; provided that the
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
other notice of any kind, upon the occurrence of any Event of Default with
respect to the Borrower or Holdings described in clause (h) or (i) of Article
VII. Each such deposit shall be held by the Administrative Agent as collateral
for the payment and performance of the obligations of the Borrower under this
Agreement. The Administrative Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over such account. Other than any
interest earned on the investment of such deposits, which investments shall be
made at the option and sole discretion of the Administrative Agent and at the
Borrower's risk and expense, such deposits shall not bear interest. Interest or
profits, if any, on such investments shall accumulate in such account. Moneys in
such account shall be applied by the Administrative Agent to reimburse the
Issuing Bank for LC Disbursements for which it has not been reimbursed and, to
the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower for the LC Exposure at such time or,
if the maturity of the Loans has been accelerated (but subject to the consent of
Revolving Lenders with LC Exposure representing greater than 50% of the total LC
Exposure), be applied to satisfy other obligations of the Borrower under this
Agreement. If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived. If
the Borrower is required to provide an amount of cash collateral hereunder
pursuant to Section 2.11(b), such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower as and to the extent that, after
giving effect to such return, the Borrower would remain in compliance with
Section 2.11(b) and no Default shall have occurred and be continuing.
SECTION 2.06. Funding of BorrowingsSECTION 2.06. Funding of
Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on
the proposed date thereof by wire transfer of immediately available funds by
12:00 noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders; provided
that Swingline Loans shall be made as provided in Section 2.04. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
maintained with the Administrative Agent in New York City and designated by the
Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans
made to finance the reimbursement of an LC Disbursement as provided in Section
2.05(e) shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to such Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest ElectionsSECTION 2.07. Interest
Elections. (a) Each Revolving Borrowing and Term Borrowing initially shall be of
the Type specified in the applicable Borrowing Request and, in the case of a
Eurodollar Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing
to a different Type or to continue such Borrowing and, in the case of a
Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section. The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing. This Section shall not apply to Swingline Borrowings, which may not
be converted or continued.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Revolving Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02 and
paragraph (e) of this Section:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if
an Event of Default has occurred and is continuing and the Administrative Agent,
at the request of the Required Lenders, so notifies the Borrower, then, so long
as an Event of Default is continuing (i) no outstanding Borrowing may be
converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.
SECTION 2.08. Termination and Reduction of CommitmentsSECTION
2.08. Termination and Reduction of Commitments. (a) The Tranche X Commitments
shall be reduced by an amount equal to the aggregate principal amount of the
undefeased Existing Notes in excess of $3,000,000 to be outstanding on the
Effective Date after the initial borrowings hereunder and the application of the
proceeds thereof.
(b) Unless previously terminated, (i) the Tranche A
Commitments, Tranche B Commitments and Tranche X Commitments shall terminate at
5:00 p.m., New York City time, on the Effective Date and (ii) the Revolving
Commitments shall terminate on the Revolving Maturity Date.
(c) The Revolving Commitments shall be reduced to $100,000,000
on the later of (i) January 2, 2001, and (ii) the date on which a Capital
Contribution Letter of Credit is no longer required to be in effect under the
terms of the Capital Contribution Agreement.
(d) The Borrower may at any time terminate, or from time to
time reduce, the Commitments of any Class; provided that (i) each reduction of
the Commitments of any Class shall be in an amount that is an integral multiple
of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.11,
the sum of the Revolving Exposures would exceed the total Revolving Commitments.
(e) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (d) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
SECTION 2.09. Repayment of Loans; Evidence of DebtSECTION
2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay (i) to the Administrative Agent for the account
of each Lender the then unpaid principal amount of each Revolving Loan of such
Lender on the Revolving Maturity Date, (ii) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Term Loan of
such Lender as provided in Section 2.10 and (iii) to the Swingline Lender the
then unpaid principal amount of each Swingline Loan on the earlier of the
Revolving Maturity Date and the 10th Business Day after such Swingline Loan is
made; provided that on each date that a Revolving Borrowing is made, the
Borrower shall repay all Swingline Loans that were outstanding on the date such
Borrowing was requested.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it
be evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).
SECTION 2.10. Amortization of Term LoansSECTION 2.10.
Amortization of Term Loans. (a) Subject to adjustment pursuant to paragraph (d)
below, the Borrower shall repay Tranche A Term Borrowings on each date set forth
below in the aggregate principal amount set forth opposite such date:
Date Amount
March 30, 2001 $ 5,000,000
June 29, 2001 $ 5,000,000
September 28, 2001 $ 5,000,000
December 31, 2001 $ 5,000,000
March 29, 2002 $ 7,500,000
June 28, 2002 $ 7,500,000
September 30, 2002 $ 7,500,000
December 31, 2002 $ 7,500,000
March 31, 2003 $ 7,500,000
June 30, 2003 $ 7,500,000
September 30, 2003 $ 7,500,000
December 31, 2003 $ 7,500,000
March 31, 2004 $ 7,500,000
June 30, 2004 $ 7,500,000
September 30, 2004 $ 7,500,000
December 31, 2004 $ 7,500,000
March 31, 2005 $ 10,000,000
June 30, 2005 $ 10,000,000
September 30, 2005 $ 10,000,000
December 30, 2005 $ 10,000,000
(b) Subject to adjustment pursuant to paragraph (d) below, the
Borrower shall repay Tranche B Term Borrowings on each date set forth below in
the aggregate principal amount set forth opposite such date:
Date Amount
March 30, 2001 $ 625,000
June 29, 2001 $ 625,000
September 28, 2001 $ 625,000
December 31, 2001 $ 625,000
March 29, 2002 $ 625,000
June 28, 2002 $ 625,000
September 30, 2002 $ 625,000
December 31, 2002 $ 625,000
March 31, 2003 $ 625,000
June 30, 2003 $ 625,000
September 30, 2003 $ 625,000
December 31, 2003 $ 625,000
March 31, 2004 $ 625,000
June 30, 2004 $ 625,000
September 30, 2004 $ 625,000
December 31, 2004 $ 625,000
March 31, 2005 $ 625,000
June 30, 2005 $ 625,000
September 30, 2005 $ 625,000
December 30, 2005 $ 625,000
March 31, 2006 $ 59,375,000
June 30, 2006 $ 59,375,000
September 29, 2006 $ 59,375,000
December 29, 2006 $ 59,375,000
(c) To the extent not previously paid, (i) all Tranche A Term
Loans shall be due and payable on the Tranche A Maturity Date, (ii) all Tranche
B Term Loans shall be due and payable on the Tranche B Maturity Date and (iii)
all Tranche X Term Loans shall be due and payable on the Tranche X Maturity
Date.
(d) Any prepayment of a Term Borrowing of any Class shall be
applied to reduce ratably the subsequent scheduled repayments of the Term
Borrowings of such Class. If the initial aggregate amount of the Lenders' Term
Commitments of any Class exceeds the aggregate principal amount of Term Loans of
such Class that are made on the Effective Date, then the scheduled repayments of
Term Borrowings of such Class to be made pursuant to this Section shall be
reduced ratably by an aggregate amount equal to such excess.
(e) Prior to any repayment of any Term Borrowings of either
Class hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later than 11:00 a.m.,
New York City time, three Business Days before the scheduled date of such
repayment. Each repayment of a Borrowing shall be applied ratably to the Loans
included in the repaid Borrowing. Repayments of Term Borrowings shall be
accompanied by accrued interest on the amount repaid.
SECTION 2.11. Prepayment of LoansSECTION 2.11. Prepayment of
Loans. (a) The Borrower shall have the right at any time and from time to time
to prepay any Borrowing in whole or in part, subject to the requirements of this
Section.
(b) In the event and each occasion that the sum of the
Revolving Exposures exceeds the total Revolving Commitments, the Borrower shall
prepay Revolving Borrowings or Swingline Borrowings (or, if no such Borrowings
are outstanding, deposit cash collateral in an account with the Administrative
Agent pursuant to Section 2.05(j)) in an aggregate amount equal to such excess.
(c) In the event and on each occasion that any Net Proceeds
are received by or on behalf of Holdings, the Borrower or any Subsidiary (other
than Stilwell and its subsidiaries) in respect of any Prepayment Event, the
Borrower shall, within three Business Days after such Net Proceeds are received,
prepay Term Borrowings in an aggregate amount equal to such Net Proceeds (or, in
the case of a Prepayment Event relating to a Subsidiary that is not a wholly
owned Subsidiary, the portion of such Net Proceeds corresponding to the direct
or indirect equity interest of Holdings in such Subsidiary); provided that, in
the case of any event described in clause (a) of the definition of the term
Prepayment Event, if the Borrower shall deliver to the Administrative Agent a
certificate of a Financial Officer of the Borrower to the effect that the
Borrower and the Subsidiaries intend to apply the Net Proceeds from such event
(or a portion thereof specified in such certificate), within 180 days after
receipt of such Net Proceeds, to acquire real property, equipment or other
tangible assets to be used in the business of the Borrower and the Subsidiaries,
and certifying that no Event of Default has occurred and is continuing, then no
prepayment shall be required pursuant to this paragraph in respect of the Net
Proceeds in respect of such event (or the portion of such Net Proceeds specified
in such certificate, as applicable) except to the extent of any such Net
Proceeds that have not been so applied by the end of such 180-day period, at
which time a prepayment shall be required in an amount equal to such Net
Proceeds that have not been so applied.
(d) Following the end of each fiscal year of Holdings,
commencing with the fiscal year ending December 31, 2000, the Borrower shall
prepay Term Borrowings in an aggregate amount equal to (a) 75% of Excess Cash
Flow for such fiscal year if the Tranche X Term Loans shall not have been paid
in full prior to the end of such fiscal year and (b) 50% of Excess Cash Flow for
such fiscal year of Holdings if the Tranche X Term Loans shall have been paid in
full prior to the end of such fiscal year. Each prepayment pursuant to this
paragraph shall be made on or before the date on which financial statements are
delivered pursuant to Section 5.01 with respect to the fiscal year for which
Excess Cash Flow is being calculated (and in any event within 105 days after the
end of such fiscal year).
(e) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings to
be prepaid and shall specify such selection in the notice of such prepayment
pursuant to paragraph (f) of this Section. In the event of any optional or
mandatory prepayment of Term Borrowings made at a time when Term Borrowings of
more than one Class remain outstanding, the Borrower shall select Term
Borrowings to be prepaid so that the aggregate amount of such prepayment is
allocated (i) first, if there are any Tranche X Term Borrowings outstanding, to
the Tranche X Term Borrowings and (ii) second, to the Tranche A Term Borrowings
and Tranche B Term Borrowings pro rata based on the aggregate principal amount
of the outstanding Borrowings of each such Class. Any Tranche B Lender may
elect, by notice to the Administrative Agent by telephone (confirmed by
telecopy) at least one Business Day prior to the prepayment date, to decline all
or any portion of any prepayment of its Tranche B Term Loans pursuant to this
Section (other than an optional prepayment pursuant to paragraph (a) of this
Section, which may not be declined), in which case the aggregate amount of the
prepayment that was so declined shall be applied to prepay on a ratable basis
Tranche A Term Borrowings and Tranche B Term Loans of Lenders that shall not
have declined such prepayment; provided that Tranche B Lenders shall be
permitted to decline any prepayment only to the extent the aggregate amount of
the prepayment declined shall not exceed the sum of the outstanding Tranche A
Term Borrowings and the outstanding Tranche B Term Loans as to which elections
to decline such prepayment shall not have been made (and any reduction of the
amounts declined shall be distributed ratably among the declining Lenders).
(f) The Borrower shall notify the Administrative
Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender)
by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case
of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York
City time, three Business Days before the date of prepayment, (ii) in the case
of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment; provided that, if a
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.08,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to
the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.13.
SECTION 2.12. FeesSECTION 2.12. Fees. (a) The Borrower agrees
to pay to the Administrative Agent for the account of each Lender a commitment
fee, which shall accrue at the rate of .50% per annum on the average daily
unused amount of each Commitment of such Lender during the period from and
including the date of this Agreement to but excluding the date on which such
Commitment terminates. Accrued commitment fees shall be payable in arrears (i)
in the case of commitment fees in respect of the Revolving Commitments, on the
last day of March, June, September and December of each year and on the date on
which the Revolving Commitments terminate, commencing on the first such date to
occur after the date hereof, and (ii) in the case of commitment fees in respect
of the Tranche A Term Commitments, Tranche B Term Commitments and Tranche X Term
Commitments, on the Effective Date or any earlier date on which such Commitments
terminate. All commitment fees shall be computed on the basis of a year of 360
days and shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). For purposes of computing commitment fees
with respect to Revolving Commitments, a Revolving Commitment of a Lender shall
be deemed to be used to the extent of the outstanding Revolving Loans and LC
Exposure of such Lender (and the Swingline Exposure of such Lender shall be
disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the Applicable Rate
used to determine the interest rates applicable to Eurodollar Revolving Loans on
the average daily amount of such Lender's LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements) during the period from
and including the Effective Date to but excluding the later of the date on which
such Lender's Revolving Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee,
which shall accrue at the rate of .25% per annum on the average daily amount of
the LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Revolving Commitments and
the date on which there ceases to be any LC Exposure, as well as the Issuing
Bank's standard fees with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings thereunder.
Participation fees and fronting fees accrued through and including the last day
of March, June, September and December of each year shall be payable on the
third Business Day following such last day, commencing on the first such date to
occur after the Effective Date; provided that all such fees shall be payable on
the date on which the Revolving Commitments terminate and any such fees accruing
after the date on which the Revolving Commitments terminate shall be payable on
demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.13. InterestSECTION 2.13. Interest. (a) The Loans
comprising each ABR Borrowing (including each Swingline Loan) shall bear
interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of
this Section.
(d) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Revolving Commitments; provided that (i) interest
accrued pursuant to paragraph (c) of this Section shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan (other than a
prepayment of an ABR Revolving Loan prior to the end of the Revolving
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment and (iii) in the
event of any conversion of any Eurodollar Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.14. Alternate Rate of InterestSECTION 2.14.
Alternate Rate of Interest. If on the day two Business Days prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period or that dollar deposits in the principal amounts of the
Eurodollar Loans are not generally available in the London interbank
markets; or
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest
Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing. In the event of any such
determination, the Lenders shall negotiate with the Borrower, at its request, as
to the interest rate which the Loans comprising such an ABR Borrowing shall
bear; provided that such Loans shall bear interest as provided in Section
2.13(a) pending the execution by the Borrower and the Lenders of a written
agreement providing for a different interest rate. Each determination by the
Agent hereunder shall be conclusive absent manifest error.
SECTION 2.15. Increased CostsSECTION 2.15. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender's
or the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such compensation;
provided that the Borrower shall not be required to compensate a Lender or the
Issuing Bank pursuant to this Section for any increased costs or reductions
incurred more than 180 days prior to the date that such Lender or the Issuing
Bank, as the case may be, notifies the Borrower of the Change in Law giving rise
to such increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.16. Break Funding PaymentsSECTION 2.16. Break
Funding Payments. In the event of (a) the payment of any principal of any
Eurodollar Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the conversion of
any Eurodollar Loan other than on the last day of the Interest Period applicable
thereto, (c) the failure to borrow, convert, continue or prepay any Revolving
Loan or Term Loan on the date specified in any notice delivered pursuant hereto
(regardless of whether such notice may be revoked under Section 2.11(f) and is
revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto as a result
of a request by the Borrower pursuant to Section 2.19, then, in any such event,
the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event; provided that no such compensation shall be required
in respect of the prepayment of a Eurodollar Loan for which an Interest Period
of one month was selected by the Borrower if the Borrowing Request in respect of
such Eurodollar Loan indicated that such Eurodollar Loan (or any portion
thereof) would be prepaid in one or more payments within one month of the date
on which such Interest Period commenced. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
SECTION 2.17. TaxesSECTION 2.17. Taxes. (a) Any and all
payments by or on account of any obligation of the Borrower hereunder or under
any other Loan Document shall be made free and clear of and without deduction
for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
each Lender and the Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent
on its own behalf or on behalf of a Lender or the Issuing Bank, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate, provided that such Foreign Lender
has received written notice from the Borrower advising it of the availability of
such exemption or reduction and supplying all applicable documentation.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing
of Set-offsSECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.15,
2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or
under such other Loan Document for such payment (or, if no such time is
expressly required, prior to 2:00 p.m., New York City time), on the date when
due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made in
dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Revolving Loans, Term Loans
and participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or
9.03(c), then the Administrative Agent may, in its discretion (notwithstanding
any contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.19. Mitigation Obligations; Replacement of
LendersSECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any
Lender requests compensation under Section 2.15, or if the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.17, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Commitment is being assigned, the Issuing Bank and Swingline
Lender), which consent shall not unreasonably be withheld, (ii) such Lender
shall have received payment of an amount equal to the outstanding principal of
its Loans and participations in LC Disbursements and Swingline Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii)
in the case of any such assignment resulting from a claim for compensation under
Section 2.15 or payments required to be made pursuant to Section 2.17, such
assignment will result in a material reduction in such compensation or payments.
A Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
ARTICLE III
Representations and Warranties ARTICLE III Representations and
Warranties
Each of Holdings and the Borrower represents and warrants to
the Lenders that:
SECTION 3.01. Organization; PowersSECTION 3.01. Organization;
Powers. Each of Holdings and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.
SECTION 3.02. Authorization; EnforceabilitySECTION 3.02.
Authorization; Enforceability. The Transactions to be completed by each Loan
Party are within such Loan Party's corporate powers and have been duly
authorized by all necessary corporate and, if required, stockholder action. This
Agreement has been duly executed and delivered by each of Holdings and the
Borrower and constitutes, and each other Loan Document to which any Loan Party
is to be a party, when executed and delivered by such Loan Party, will
constitute, a legal, valid and binding obligation of Holdings, the Borrower or
such Loan Party, as the case may be, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No ConflictsSECTION
3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require
any consent or approval of, registration or filing with or any other action by
any Governmental Authority, except such as have been obtained or made and are in
full force and effect and except filings necessary to perfect Liens created
under the Security Documents, (b) will not violate any applicable law or
regulation (including the Interstate Commerce Act) or the charter, by-laws or
other organizational documents of Holdings or any of the Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon Holdings or any
of the Subsidiaries or their assets (other than violations of agreements with
respect to assets of Holdings or any Subsidiary which violations will not
materially affect the value of any such asset or any right of any Secured Party
with respect thereto), or give rise to a right thereunder to require any
material payment to be made by Holdings or any of the Subsidiaries, except for
payments required in connection with the Debt Tender Offer, the defeasance of
any of the Existing Notes or the payment of amounts outstanding under the
Existing Credit Facilities, and (d) will not result in the creation or
imposition of any Lien on any asset of Holdings or any of the Subsidiaries,
except Liens created under the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse
ChangeSECTION 3.04. Financial Condition; No Material Adverse Change. (a)
Holdings has heretofore furnished to the Lenders Holdings' consolidated balance
sheet and statements of income, stockholders' equity and cash flows (i) as of
and for the fiscal year ended December 31, 1998, reported on by
PricewaterhouseCoopers LLP, independent public accountants and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended September 30,
1999, certified by its chief financial officer. Such financial statements
present fairly in all material respects the financial position and results of
operations and cash flows of Holdings and the consolidated Subsidiaries as of
such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.
(b) Holdings has heretofore furnished to the Lenders Holdings'
pro forma consolidated balance sheet as of September 30, 1999, prepared giving
effect to the Effective Date Transactions as if such Transactions had occurred
on such date. Such pro forma consolidated balance sheet (i) has been prepared in
good faith based on the same assumptions used to prepare the pro forma financial
statements included in the Information Memorandum (which assumptions are
believed by Holdings and the Borrower to be reasonable), (ii) is based on the
best information available to Holdings and the Borrower after due inquiry, (iii)
accurately reflects all adjustments necessary to give effect to the Effective
Date Transactions and (iv) presents fairly in all material respects the pro
forma financial position of Holdings and the consolidated Subsidiaries as of
September 30, 1999, as if such Transactions had occurred on such date.
(c) Since December 31, 1998, there has been no material
adverse change in the business, properties, financial condition, prospects or
results of operations of Holdings and the Subsidiaries (excluding the assets and
businesses to be owned by Stilwell and its subsidiaries following the Spin-Off),
taken as a whole.
(d) In addition to the representations and warranties set
forth above in this Section 3.04, Holdings and Stilwell have advised the Lenders
that for financial reporting purposes the Securities and Exchange Commission
(the "SEC") has taken the position that Janus Capital Corporation ("Janus")
should be deconsolidated and treated as an equity investment in the financial
statements of Stilwell and, prior to the Spin-Off, Holdings. To the extent the
SEC prevails in its position or Holdings and Stilwell concede such position with
the consequence that the financial statements previously delivered to the
Lenders must be restated to conform with GAAP by presenting Janus as an equity
investment the representations set forth in clauses (a) or (b) of this Section
3.04 shall not be deemed to be untrue in any material respect. Holdings hereby
represents and warrants to the Lenders that any such restatement of the
financial statements of Holdings or Stilwell will not materially impact
Holdings' or Stilwell's net income or earnings per share or the calculation of
any ratios relevant to the financial covenants set forth in Sections 6.13 or
6.14.
SECTION 3.05. PropertiesSECTION 3.05. Properties. (a) On the
date hereof, Holdings and the Subsidiaries have good title to, or valid easement
or leasehold interests in, all the real and personal property material to their
businesses (including the Mortgaged Properties), free of all Liens other than
those permitted by Section 6.02 with the exception however of those Rights of
Way (as defined in the Mortgage) located on or passing over land owned not by
any of the Mortgagors but by third parties and in such cases the foregoing
representation is limited to the actual Rights of Way exclusive of the
underlying land, and subject also to Liens affecting such land to which the
Rights of Way may be subject.
(b) Schedule 3.05(b) describes each real property other than
the Rights of Way (as defined in the Mortgage) that will be owned or leased by
Holdings or any other Subsidiary (other than Stilwell and its subsidiaries) as
of the Effective Date after giving effect to the Transactions (other than real
properties and leasehold interests which (i) which have a fair market value not
greater than $500,000 and (ii) are not otherwise essential railroad operating
facilities).
(c) As of the date hereof, except as set forth on Schedule
3.05(c), neither Holdings, nor any of the Subsidiaries (other than Stilwell and
its subsidiaries) has received written notice of, and none of the President, any
Vice President or any Financial Officer of Holdings or any Subsidiary has
knowledge of, any pending or contemplated condemnation proceeding affecting any
Mortgaged Property or any sale or disposition thereof in lieu of condemnation
which would materially and adversely interfere with the operations of Holdings
or any Subsidiary or which would materially affect the value of such Mortgaged
Property.
SECTION 3.06. Litigation and Environmental MattersSECTION
3.06. Litigation and Environmental Matters. (a) Except as set forth in Schedule
3.06 or disclosed in Holdings' Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, filed with the Securities and Exchange Commission,
there are no actions, suits or proceedings by or before any arbitrator or
Governmental Authority pending against or, to the knowledge of Holdings or the
Borrower, threatened against or affecting Holdings or any of the Subsidiaries
(i) as to which there is a reasonable possibility of an adverse determination
and that, if adversely determined, could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect, (ii) that involve any
of the Loan Documents or the borrowings hereunder or (iii) that are pending as
of the Effective Date and involve any of the other Transactions.
(b) Except for the Disclosed Matters or as disclosed in
Holdings' Annual Report on Form 10-K for the fiscal year ended December 31,
1998, filed with the Securities and Exchange Commission and except with respect
to any other matters that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, neither Holdings,
the Borrower nor any other Subsidiary (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become subject to
any Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental Liability or (iv) to the best knowledge and belief of
Holdings and the Borrower, knows of any basis for any Environmental Liability.
SECTION 3.07. Compliance with Laws and AgreementsSECTION 3.07.
Compliance with Laws and Agreements. Holdings and each Subsidiary is, to the
best knowledge of Holdings and the Borrower, in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property (including the Interstate Commerce Act and the Railway Labor Act) and
all indentures, agreements and other instruments binding upon it or its
property, except failures to be in compliance that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.08. Investment and Holding Company StatusSECTION
3.08. Investment and Holding Company Status. Neither Holdings nor any of the
Subsidiaries is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (b) a "holding company"
as defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
SECTION 3.09. TaxesSECTION 3.09. Taxes. Each of Holdings and
the Subsidiaries has timely filed or caused to be filed all Tax returns and
reports required to have been filed and has paid or caused to be paid all Taxes
required to have been paid by it, except (a) any Taxes that are being contested
in good faith by appropriate proceedings and for which Holdings or such
Subsidiary, as applicable, has set aside on its books adequate reserves or (b)
to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. SECTION 3.10. Employee Benefit Plans. The
Unfunded Liabilities of all Plans do not in the aggregate exceed $10,000,000.
Each Plan complies in all material respects with all applicable requirements of
law and regulations, no Reportable Event has occurred or is reasonably expected
to occur with respect to any Plan and neither Holdings nor any other member of
the Controlled Group has (i) taken any steps to terminate any Plan, (ii)
initiated any steps to withdraw from any Plan or (iii) incurred any Withdrawal
Liability.
SECTION 3.11. DisclosureSECTION 3.11. Disclosure. Neither the
Information Memorandum nor any of the other reports, financial statements,
certificates or other information furnished by or on behalf of any Loan Party to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or any other Loan Document or delivered hereunder or thereunder
(as modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
information, Holdings and the Borrower represent only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the
time.
SECTION 3.12. SubsidiariesSECTION 3.12. Subsidiaries. Schedule
3.12 sets forth the name and the Persons owning the Equity Interests of each
Subsidiary and identifies each Subsidiary that is a Subsidiary Loan Party, in
each case after giving effect to the Transactions to occur on and as of the
Effective Date.
SECTION 3.13. InsuranceSECTION 3.13. Insurance. Schedule 3.13
sets forth a description of all insurance maintained by or on behalf of Holdings
and its Subsidiaries on the Effective Date after giving effect to the
Transactions to occur on the Effective Date. As of the Effective Date, all
premiums in respect of such insurance have been paid. Holdings and the Borrower
believe that the insurance maintained by or on behalf of Holdings and the
Subsidiaries is adequate.
SECTION 3.14. SECTION 3.14. SolvencySolvency. (i) Immediately
after the consummation of the Effective Date Transactions (ii) immediately
following the making of each Loan made on the Effective Date and after giving
effect to the application of the proceeds of such Loans and (iii) immediately
following the completion of the Spin-Off, (a) the fair value of the assets of
each Loan Party, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) each Loan Party will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each Loan Party will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Effective Date and completion of the Spin-Off.
SECTION 3.15. No Undisclosed Dividend RestrictionsSECTION
3.15. No Undisclosed Dividend Restrictions. Except as set forth in Schedule 6.07
and except for limitations on the payment of dividends under applicable law,
none of the Subsidiaries is subject to any agreement, amendment, covenant or
understanding that directly or indirectly (through the application of financial
covenants or otherwise) prohibits the ability of such entity to declare or pay
dividends.
SECTION 3.16. Year 2000SECTION 3.16. Year 2000. There have not
occurred, and Holdings and the Borrower do not expect that there will occur, any
material disruption in the operations or business systems of Holdings or the
Subsidiaries resulting from the inability of computer systems or equipment
containing embedded microchips to recognize or properly process dates in or
following the year 2000.
ARTICLE IV
Conditions ARTICLE IV Conditions
SECTION 4.01. Effective DateSECTION 4.01. Effective Date. The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective until the date on which
each of the following conditions is satisfied (or waived in accordance with
Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent, the Collateral
Agent, the Issuing Bank and the Lenders and dated the Effective Date)
of each of (i) Sonnenschein Nath & Rosenthal counsel for Holdings, the
Borrower and the other Loan Parties, substantially in the form of
Exhibit B and (ii) local counsel in Texas, Arkansas, Missouri, Kansas,
Louisiana, Oklahoma, Mississippi and Illinois, in form and substance
satisfactory to the Administrative Agent and its counsel and, in the
case of each such opinion required by this paragraph, covering such
other matters relating to the Loan Parties, the Loan Documents or the
Transactions as the Administrative Agent shall reasonably request. Each
of Holdings and the Borrower hereby requests such counsel to deliver
such opinions.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of each Loan Party, the authorization of the Transactions and
any other legal matters relating to the Loan Parties, the Loan
Documents or the Transactions, all in form and substance satisfactory
to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses (including fees, charges and disbursements of
counsel) required to be reimbursed or paid by any Loan Party hereunder
or under any other Loan Document.
(f) The Collateral and Guarantee Requirement shall have been
satisfied and the Administrative Agent shall have received a completed
Perfection Certificate dated the Effective Date and signed by an
executive officer or Financial Officer of the Borrower, together with
all attachments contemplated thereby, including the results of a search
of the Uniform Commercial Code (or equivalent) filings made with
respect to the Loan Parties in the jurisdictions contemplated by the
Perfection Certificate and copies of the financing statements (or
similar documents) disclosed by such search and evidence reasonably
satisfactory to the Administrative Agent that the Liens indicated by
such financing statements (or similar documents) are permitted by
Section 6.02 or have been released.
(g) The Administrative Agent shall have received evidence that
the insurance required by this Agreement and the Security Documents is
in effect.
(h) Holdings shall be in compliance with the covenants set
forth in Sections 6.13, 6.14 and 6.15, giving pro forma effect to the
Effective Date Transactions as if such Transactions had occurred at the
beginning of each relevant period, and the Administrative Agent shall
have received a certificate of a Financial Officer of Holdings
demonstrating such compliance.
(i) The Administrative Agent shall be satisfied that the
Transaction Costs (including the Debt Tender Premiums) will not exceed
$25,000,000.
(j) Holdings shall have terminated or caused to be terminated,
or shall simultaneously terminate or cause to be terminated the
Existing Credit Agreements and the commitments thereunder shall have
been permanently canceled and all amounts outstanding thereunder shall
have been paid in full. Prior to the foregoing terminations, no Default
or Event of Default (as defined in the Existing Credit Agreements)
shall have occurred and be continuing.
(k) Either (i) Holdings shall have made the Debt Tender Offer
and shall have acquired pursuant thereto Existing Notes representing
not less than 51% of the aggregate principal amount of each class of
the Existing Notes, and the covenants benefitting any Existing Notes
remaining outstanding after the Effective Date shall have been
eliminated or modified in a manner satisfactory to the Administrative
Agent pursuant to consents obtained from tendering note holders or (ii)
the Existing Notes shall have been defeased and the covenants
benefitting the Existing Notes shall have been made ineffective in a
manner satisfactory to the Administrative Agent (or arrangements
satisfactory to the Administrative Agent shall have been made for the
prompt defeasance of the Existing Notes and the rendering ineffective
of such covenants).
(l) Holdings shall have borrowed $125,000,000 under the New
Assumable Facility, all obligations of Holdings under the Assumable
Facilities shall have been assumed by Stilwell in accordance with the
terms thereof, Holdings shall have been released from all such
obligations and the borrowings under the New Assumable Facility shall
have been outstanding at the time of the assumption of the New
Assumable Facility and the Existing Assumable Facility by Stilwell.
(m) After giving effect to the Transactions occurring on the
Effective Date, Holdings and its Subsidiaries (other than Stilwell)
shall have outstanding no Indebtedness or preferred stock other than
(a) Indebtedness under the Loan Documents, (b) Indebtedness in respect
of any Existing Notes not tendered pursuant to the Debt Tender Offer,
(c) the Existing Preferred Stock and (d) the Indebtedness set forth on
Schedule 6.01.
(n) The Lenders shall have received (a) audited consolidated
balance sheets and related statements of income, stockholders' equity
and cash flows of Holdings for the 1998 fiscal year and (b) unaudited
consolidated balance sheets and related statements of income,
stockholders' equity and cash flows of Holdings for each subsequent
fiscal quarter ended not less than 30 days before the Closing Date,
which financial statements shall not be materially inconsistent with
the financial statements or forecasts previously provided to the
Lenders.
(o) The Lenders shall have received a pro forma consolidated
balance sheet of Holdings as of the last day of the fiscal quarter
ended September 30, 1999, giving effect to the Spin-Off and the other
transactions contemplated hereby as if they had occurred on such date,
which shall not be materially inconsistent with the pro forma financial
information and projections previously delivered to the Administrative
Agent and the Lenders.
(p) The Lenders shall be reasonably satisfied as to the amount
and nature of any environmental and employee health and safety
exposures to which Holdings and the Subsidiaries may be subject after
giving effect to the Transactions, and with the plans of Holdings or
such Subsidiaries with respect thereto.
(q) There shall be no litigation or administrative proceeding
that would reasonably be expected to result in a Material Adverse
Effect.
(r) The Lenders shall have received a solvency letter
addressed to the Lenders or a confirmation from the firm providing such
solvency letter that it will be delivered to the Lenders promptly after
the Effective Date and prior to the completion of the Spin-Off, in form
and substance and from an independent evaluation firm satisfactory to
the Administrative Agent, together with such other evidence reasonably
requested by the Lenders, confirming the solvency of Holdings and the
Subsidiaries on a consolidated basis after giving effect to the
Transactions that are to occur on the Effective Date.
(s) The consummation of the Transactions shall not (a) violate
any applicable law, statute, rule or regulation or (b) conflict with,
or result in a default or event of default under, any material
agreement of Holdings or any of its Subsidiaries, after giving effect
to the Transactions that are to occur on the Effective Date.
(t) All governmental and third party approvals required in
connection with the Spin-Off and the other Transactions shall have been
obtained on terms satisfactory to the Administrative Agent, all
applicable appeal periods in connection with any such governmental
approvals shall have expired and there shall be no governmental or
judicial action, actual or threatened, that could reasonably be
expected to restrain, prevent or impose burdensome conditions on the
Transactions.
(u) The Lenders shall have received management's consolidated
financial projections for Holdings and the Subsidiaries for the fiscal
years 1999 through and including 2006, detailed on a quarter-by-quarter
basis for (a) the last fiscal quarter of the fiscal year 1999 and (b)
the fiscal year 2000, which projections shall reflect the Transactions
and include the written assumptions upon which such projections are
based, and such projections shall be reasonably satisfactory in all
respects to the Administrative Agent.
(v) Holdings shall have obtained at least one rating of the
credit facilities provided to the Borrower under this Agreement (after
giving effect to the Spin-Off) not lower than B+ (if such rating is
from S&P) or B1 (if such rating is from Moody's).
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 5:00 p.m., New York City time, on January 31, 2000 (and, in the
event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time).
SECTION 4.02. Each Credit EventSECTION 4.02. Each Credit
Event. The obligation of each Lender to make a Loan on the occasion of any
Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter
of Credit, is subject to receipt of the request therefor in accordance herewith
and to the satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set
forth in the Loan Documents shall be true and correct on and as of the
date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
(c) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03, or in the case of a
Borrowing of a Swingline Loan, the Swingline Lender and the Agent shall
have received a notice requesting such Swingline Loan as required by
Section 2.04(b).
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by Holdings
and the Borrower on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE V
Affirmative Covenants ARTICLE V Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, each of Holdings and the
Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information
SECTION 5.01. Financial Statements and Other Information. Holdings will
furnish to the Administrative Agent and each Lender:
(a) within 105 days after the end of each fiscal year of
Holdings, its audited consolidated balance sheet and related statements
of income, changes in stockholders' equity and cash flows as of the end
of and for such year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on by
PricewaterhouseCoopers LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception
as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the
financial condition and results of operations of Holdings and the
consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied, accompanied by a certificate of said
accountants stating whether they obtained knowledge during the course
of their examination of such financial statements of any Default (which
certificate may be limited to the extent required by accounting rules
or guidelines);
(b) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year of Holdings, its consolidated
balance sheet and related statements of income, changes in
stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects
the financial condition and results of operations of the Holdings and
the consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of a Financial Officer of
the Borrower (i) certifying as to whether a Default has occurred and,
if a Default has occurred, specifying the details thereof and any
action taken or proposed to be taken with respect thereto and (ii)
setting forth reasonably detailed calculations demonstrating compliance
with Sections 6.13, 6.14 and 6.15;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by Holdings, the Borrower or any other Subsidiary with the
Securities and Exchange Commission, or any Governmental Authority
succeeding to any or all of the functions of said Commission, or with
any national securities exchange, or distributed by Holdings to its
shareholders generally, as the case may be;
(e) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of Holdings, the Borrower or any other Subsidiary, or
compliance with the terms of any Loan Document, as the Administrative
Agent or any Lender may reasonably request; and
(f) prior to the commencement of each fiscal year of Holdings,
a detailed consolidated budget for such fiscal year (including a
projected consolidated balance sheet and related statements of
projected operations and cash flow as of the end of and for such fiscal
year and setting forth the assumptions used for purposes of preparing
such budget) and, promptly when available, any significant revisions of
such budget.
SECTION 5.02. Notices of Material EventsSECTION 5.02.
Notices of Material Events. Holdings and the Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting Holdings, the Borrower or any other Subsidiary
that, if adversely determined, could reasonably be expected to result
in a Material Adverse Effect;
(c) (i) the occurrence of any Reportable Event with respect to
any Plan, (ii) the incurrence of Withdrawal Liability with respect to
any Multiemployer Plan or (iii) the receipt by Holdings or any member
of the Controlled Group of any notice concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is,
or is expected to be, insolvent or in reorganization within the meaning
of Title IV of ERISA; and
(d) any other development that results in, or could reasonably
be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding CollateralSECTION 5.03.
Information Regarding Collateral. (a) Holdings and the Borrower will furnish to
the Collateral Agent prompt written notice of any change (i) in any Loan Party's
corporate name or in any trade name used to identify it in the conduct of its
business or in the ownership of its properties, (ii) in the location of any Loan
Party's chief executive office, its principal place of business, any office in
which it maintains books or records relating to Collateral owned by it or any
office or facility at which Collateral owned by it is located (including the
establishment of any such new office or facility), (iii) in any Loan Party's
identity or corporate structure or (iv) in any Loan Party's Federal Taxpayer
Identification Number. Holdings and the Borrower agree not to effect or permit
any change referred to in the preceding sentence unless all filings have been
made under the Uniform Commercial Code or otherwise that are required in order
for the Collateral Agent to continue at all times following such change to have
a valid, legal and perfected security interest in all the Collateral. Holdings
and the Borrower also agree promptly to notify the Administrative Agent if any
material portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clause (a) of
Section 5.01, Holdings and the Borrower will deliver to the Administrative Agent
a certificate of a Financial Officer of the Borrower (i) setting forth the
information required pursuant to Section 1 of the Perfection Certificate or
confirming that there has been no change in such information since the date of
the Perfection Certificate delivered on the Effective Date or the date of the
most recent certificate delivered pursuant to this Section and (ii) certifying
that all Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above to the extent necessary to protect and
perfect the security interests under the Security Documents for a period of not
less than 18 months after the date of such certificate (except as noted therein
with respect to any continuation statements to be filed within such period).
SECTION 5.04. Existence; Conduct of BusinessSECTION 5.04.
Existence; Conduct of Business. Each of Holdings and the Borrower will, and will
cause each of the Significant Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business;
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 6.04. Holdings and the
Borrower will, and will cause each Significant Subsidiary to, carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted.
SECTION 5.05. Payment of Taxes. Each of Holdings and the
Borrower will, and will cause each of the Subsidiaries to, pay its Tax
liabilities before the same shall become delinquent or in default, except where
(a) the validity or amount thereof is being contested in good faith by
appropriate proceedings and (b) Holdings, the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP.
SECTION 5.06. Maintenance of PropertiesSECTION 5.06.
Maintenance of Properties. Each of Holdings and the Borrower will, and will
cause each of the Subsidiaries to, maintain, preserve, protect and keep their
properties material to the conduct of their business in good repair, working
order and condition, and make all necessary and proper repairs, renewals and
replacements so that their businesses carried on in connection therewith may be
properly conducted at all times.
SECTION 5.07. InsuranceSECTION 5.07. Insurance. Holdings and
the Borrower will, and will cause each of the Subsidiaries to, maintain, with
financially sound and reputable insurance companies (a) insurance on all their
property in such amounts and covering such risks as is consistent with sound
business practice and customary with companies engaged in similar lines of
business and (b) all insurance required to be maintained pursuant to the
Security Documents. The Borrower will furnish to the Lenders, upon request of
the Administrative Agent, information in reasonable detail as to the insurance
so maintained.
SECTION 5.08. Casualty and CondemnationSECTION 5.08. Casualty
and Condemnation. Holdings and the Borrower (a) will furnish to the
Administrative Agent and the Lenders prompt written notice of any casualty or
other insured damage to any material portion of any Collateral or the
commencement of any action or proceeding for the taking of any material
Collateral or any part thereof or interest therein under power of eminent domain
or by condemnation or similar proceeding and (b) will ensure that the Net
Proceeds of any such event (whether in the form of insurance proceeds,
condemnation awards or otherwise) are collected and applied in accordance with
the applicable provisions of this Agreement and the Security Documents.
SECTION 5.09. Books and Records; Inspection and Audit
RightsSECTION 5.09. Books and Records; Inspection and Audit Rights. Holdings and
the Borrower will, and will cause each of the Subsidiaries to, keep proper books
of record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. Holdings
and the Borrower will, and will cause each of the Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender to make
reasonable examinations and copies of the books of accounts and other financial
records of Holdings, the Borrower and each other Subsidiary, and to discuss the
affairs, finances and accounts of Holdings, the Borrower and each other
Subsidiary with, and to be advised as to the same by, their respective officers
upon reasonable notice and at such reasonable times and intervals as the Lenders
or the Administrative Agent may designate; provided that (a) any inspection by
any Lender shall be at such Lender's own expense and (b) the Lenders shall
coordinate the timing of their inspections through the Administrative Agent.
SECTION 5.10. Compliance with LawsSECTION 5.10. Compliance
with Laws. Holdings and the Borrower will, and will cause each of the
Subsidiaries to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property (including ERISA,
Environmental Laws and the Interstate Commerce Act), except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of CreditSECTION
5.11. Use of Proceeds and Letters of Credit. Holdings and the Borrower will, and
will cause each of the Subsidiaries to, use the proceeds of the Loans and cause
Letters of Credit to be issued only for the purposes set forth in the recitals
to this Agreement. Holdings and the Borrower will not, nor will they permit any
Subsidiary to, use any of the proceeds of the Loans (a) for any purpose that
entails a violation of, or that is inconsistent with, the provisions of the
Regulations of the Board, including Regulation U or X or (b) to make any
acquisition for which the board of directors of the target company has not given
its consent or approval.
SECTION 5.12. Additional SubsidiariesSECTION 5.12. Additional
Subsidiaries. If any additional Significant Subsidiary is formed or acquired
after the Effective Date, the Borrower will, within three Business Days after
such Significant Subsidiary is formed or acquired, notify the Administrative
Agent and the Lenders thereof and, within 30 days thereof, cause the Collateral
and Guarantee Requirement to be satisfied with respect to such Significant
Subsidiary (if it is a Subsidiary Loan Party) and with respect to any Equity
Interest in or Indebtedness of such Significant Subsidiary owned by or on behalf
of any Loan Party.
SECTION 5.13. Further AssurancesSECTION 5.13. Further
Assurances. (a) Holdings and the Borrower will, and will cause each Subsidiary
Loan Party to, execute any and all further documents, financing statements,
agreements and instruments, and take all such further actions (including the
filing and recording of financing statements, fixture filings, mortgages, deeds
of trust and other documents), which may be required under any applicable law,
or which the Administrative Agent or the Required Lenders may reasonably
request, to cause the Collateral and Guarantee Requirement to be and remain
satisfied, all at the expense of the Loan Parties. Holdings and the Borrower
also agree to provide to the Collateral Agent, from time to time upon request,
evidence reasonably satisfactory to the Collateral Agent as to the perfection
and priority of the Liens created or intended to be created by the Security
Documents.
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by Holdings, the
Borrower or any other Subsidiary Loan Party after the Effective Date (other than
assets constituting Collateral under the Security Agreement that become subject
to the Lien of the Security Agreement upon acquisition thereof), Holdings and
the Borrower will notify the Administrative Agent and the Lenders thereof, and,
if requested by the Administrative Agent or the Required Lenders, will cause
such assets to be subjected to a Lien securing the Obligations and will take,
and cause the Subsidiary Loan Parties to take, such actions as shall be
necessary or reasonably requested by the Collateral Agent to grant and perfect
such Liens, including actions described in paragraph (a) of this Section, all at
the expense of the Loan Parties.
SECTION 5.14. Interest Rate ProtectionSECTION 5.14. Interest
Rate Protection. As promptly as practicable, and in any event within 90 days
after the Effective Date, the Borrower will enter into, and will maintain in
effect, one or more interest rate protection agreements for a period of not less
than two years after the Effective Date on such terms and with such parties as
shall be reasonably satisfactory to the Administrative Agent, the effect of
which shall be to fix or limit the interest cost to the Borrower with respect to
at least 50% of the outstanding Tranche A Term Loans and Tranche B Term Loans.
SECTION 5.15. Completion of Spin-Off. The Spin-Off, when and
if completed, will be completed in accordance with all applicable laws and on
the terms and with the results consistent in all material respects with (a) the
information set forth in Stilwell's Form 10 as heretofore made available to the
Lenders and (b) the pro forma financial information and projections delivered to
the Administrative Agent and the Lenders prior to the date hereof.
ARTICLE VI
Negative Covenants ARTICLE VI Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, each of Holdings and the Borrower
covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity SecuritiesSECTION
6.01. Indebtedness; Certain Equity Securities. (a) Holdings and the Borrower
will not permit any Subsidiary to create, incur, assume or permit to exist any
Indebtedness, except:
(i) the Obligations;
(ii) prior to the assumption of the obligations under the
Assumable Facilities by Stilwell, Indebtedness under the Assumable
Facilities;
(iii) other Indebtedness existing on the date hereof and
described in Schedule 6.01 and extensions, renewals and replacements of
any such Indebtedness that do not increase the outstanding principal
amount thereof or result in an earlier maturity date or decreased
weighted average life thereof;
(iv) the Permitted Subordinated Debt, and the note issued
pursuant to the Grupo TFM Phase II Investment;
(v) Indebtedness owed to Holdings, the Borrower or any other
Subsidiary;
(vi) Indebtedness incurred by Subsidiaries to finance the
acquisition, construction or improvement of any fixed or capital assets
used in the ordinary course of their railroad transportation business,
which Indebtedness is secured solely by a Lien on the assets being
acquired, and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount
thereof or result in an earlier maturity date or decreased weighted
average life thereof; provided that the aggregate principal amount of
the Indebtedness permitted by this clause (vi) and incurred during any
fiscal year of Holdings does not exceed $30,000,000;
(vii) Indebtedness of any Person that becomes a Subsidiary
after the date hereof; provided that such Indebtedness exists at the
time such Person becomes a Subsidiary and is not created in
contemplation of or in connection with such Person becoming a
Subsidiary; and
(viii) other unsecured Indebtedness not expressly permitted by
clauses (i) through (vii) above; provided that the sum of (A) the
Indebtedness permitted by this clause (viii) and by clause (vii) above,
(B) the aggregate principal amount of the outstanding Indebtedness of
Holdings secured by Liens permitted by clauses (viii) and (x) of
Section 6.02(a) and (C) the Attributable Debt in connection with all
Sale and Leaseback Transactions of Holdings and the Subsidiaries
permitted by clause (c) of Section 6.03 does not at any time exceed 5%
of Consolidated Net Worth.
(b) Holdings will not permit Caymex, NAFTA Rail, Canama or SCC
Holdings, Inc. to create, incur, assume or permit to exist any Indebtedness,
other than Indebtedness owed by Caymex to Holdings and Indebtedness incurred in
connection with the Grupo TFM Phase II Investment.
(c) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, issue any preferred stock or other preferred Equity
Interests other than preferred stock of Holdings that is not by its terms or by
the terms of any agreement or instrument subject to any redemption, repurchase
or similar requirement, whether absolute, at the option of any holder thereof or
upon the occurrence of any event or contingency which could occur prior to the
final maturity of all the Loans.
SECTION 6.02. LiensSECTION 6.02. Liens. (a) Holdings will not,
and will not permit any Subsidiary to, create, incur, assume or permit to exist
any Lien on any property or asset now owned or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except:
(i) Liens created under the Loan Documents or permitted under
any other Loan Document;
(ii) Liens for taxes, assessments or governmental charges or
levies on its property if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings;
(iii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary
course of business that secure payment of obligations (a) which are
being contested in good faith by appropriate proceedings or (b) for
which Holdings or any of its Subsidiaries, as applicable, have posted a
bond supported only by cash;
(iv) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, laws providing for old age
pensions or other social security or retirement benefits, or similar
legislation;
(v) Utility easements, building restrictions and such other
encumbrances or charges against real property and defects and
irregularities in the title thereto or facts an accurate survey of the
property would show and landlords' and lessors' liens under leases to
which any of Holdings or its Subsidiaries is a party, none of which in
any material way affect the marketability of the same or interfere with
the use thereof in the ordinary course of the business of Holdings, the
Borrower or the Subsidiaries;
(vi) Liens existing on the date hereof and described in
Schedule 6.02 hereto; provided that such Liens shall secure only those
obligations that they secure on the date hereof;
(vii) any Lien existing on any property or asset prior to the
acquisition thereof by Holdings or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the
date hereof prior to the time such Person becomes a Subsidiary;
provided that (A) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary,
as the case may be, (B) such Lien shall not apply to any other property
or assets of Holdings or any Subsidiary and (C) such Lien shall secure
only those obligations which it secures on the date of such acquisition
or the date such Person becomes a Subsidiary, as the case may be, and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(viii) Liens on fixed or capital assets acquired, constructed
or improved by Holdings or any Subsidiary; provided that (A) such Liens
secure Indebtedness permitted by clause (vi) of Section 6.01(a) (or
Indebtedness of Holdings that would be permitted if such clause (vi)
were applicable to Holdings as well as to the Subsidiaries), (B) such
Liens and the Indebtedness secured thereby are incurred prior to or
within 90 days after such acquisition or the completion of such
construction or improvement, (C) the Indebtedness secured thereby does
not exceed the cost of acquiring, constructing or improving such fixed
or capital assets and (D) such Liens shall not apply to any other
property or assets of Holdings or any Subsidiary;
(ix) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII; and
(x) Liens not expressly permitted by clauses (i) through
(ix); provided that the sum of (A) the Indebtedness permitted by
clauses (vii) and (viii) of Section 6.01(a), (B) the aggregate
principal amount of the outstanding Indebtedness of Holdings secured by
Liens permitted by this clause or by clause (viii) above and (C) the
Attributable Debt in connection with all Sale and Leaseback
Transactions of Holdings and the Subsidiaries permitted by clause (c)
of Section 6.03 does not at any time exceed 5% of Consolidated Net
Worth.
SECTION 6.03. Sale and Leaseback TransactionsSECTION 6.03.
Sale and Leaseback Transactions. Holdings will not, and will not permit any of
its Subsidiaries to, enter into any Sale and Leaseback Transaction other than:
(a) Sale and Leaseback Transactions involving locomotives,
rolling stock or other equipment with Southern Capital Corporation,
LLC;
(b) the GE Capital Sale Leaseback; and
(c) any other Sale and Leaseback Transaction if (i) at the
time of such Sale and Leaseback Transaction no Default shall have
occurred and be continuing, (ii) the proceeds from the sale of the
subject property shall be at least equal to its fair market value on
the date of such sale and (iii) the sum of (A) the Indebtedness
permitted by clauses (vii) and (viii) of Section 6.01(a), (B) the
aggregate principal amount of the outstanding Indebtedness of Holdings
secured by Liens permitted by clauses (viii) and (x) of Section 6.02(a)
and (C) the Attributable Debt in connection with all Sale and Leaseback
Transactions of Holdings and the Subsidiaries permitted by this clause
(c) does not at any time exceed 5% of Consolidated Net Worth.
SECTION 6.04. Mergers and ConsolidationsSECTION 6.04. Mergers
and Consolidations. (a) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or liquidate or
dissolve, except that if at the time thereof and immediately after giving effect
thereto no Default shall have occurred and be continuing (i) any wholly owned
Subsidiary may merge into Holdings or the Borrower in a transaction in which
Holdings or the Borrower is the surviving corporation, (ii) any Subsidiary may
merge into or consolidate with any other Subsidiary if (A) the surviving or
resulting entity is a Subsidiary and the percentage of the Equity Interests of
such surviving or resulting entity owned directly or indirectly by Holdings is
not less than the percentage of the Equity Interests so owned in either of the
constituent corporations and (B) if either of such constituent Subsidiaries is a
Subsidiary Loan Party, the surviving or resulting entity shall be a Subsidiary
Loan Party, and (iii) any Subsidiary may liquidate into its parent corporation
or corporations or dissolve if Holdings or the Borrower determines in good faith
that such liquidation or dissolution is in the best interests of Holdings or the
Borrower.
(b) Holdings and the Borrower will not permit Caymex to engage
in any business or activity other than the ownership of all of the outstanding
Equity Interests of NAFTA Rail and Canama and activities incidental thereto.
Holdings and the Borrower will not permit NAFTA Rail to engage in any business
or activity other than the ownership of Equity Interests of Grupo TFM and
activities incidental thereto. Holdings and the Borrower will not permit Canama
to engage in any business or activity other than the ownership of Equity
Interests of Panama Canal Railway Company and activities incidental thereto.
SECTION 6.05. Asset SalesSECTION 6.05. Asset Sales. Holdings
and the Borrower will not, and will not permit any of the Subsidiaries to, sell,
transfer, lease or otherwise dispose of any asset, including any Equity Interest
owned by it, nor will Holdings or the Borrower permit any of the Subsidiaries to
issue any additional Equity Interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and
Permitted Investments in the ordinary course of business;
(b) sales, transfers and dispositions to Holdings or a
Subsidiary; provided that any such sales, transfers or dispositions
involving a Subsidiary that is not a Loan Party shall be made in
compliance with Section 6.06;
(c) sales, transfers and dispositions of assets necessary to
complete the Spin-Off;
(d) the GE Capital Sale Leaseback;
(e) the sale referred to in the definition of "Grupo TFM Phase
II Investment"; and
(f) sales, transfers and other dispositions of assets that are
not permitted by any of the preceding clauses; provided that (i) the
Net Proceeds from any such sale, transfer or other disposition are paid
to the Lenders to the extent required by Section 2.11(c) and (ii) such
assets are sold, transferred or otherwise disposed of for fair market
value.
provided that all sales, transfers, leases and other dispositions permitted
hereby (other than those permitted by clauses (b), (c) and (d) above) shall be
made for fair value.
SECTION 6.06. Transactions with AffiliatesSECTION 6.06.
Transactions with Affiliates. Neither Holdings nor the Borrower will, nor will
they permit any Subsidiary to, sell, lease or otherwise transfer any property or
assets to, or purchase, lease or otherwise acquire any property or assets from,
or otherwise engage in any other transactions with, any of their respective
Affiliates, except (a) transactions in the ordinary course of business at prices
and on terms and conditions which, taken as a whole, are not less favorable to
Holdings, the Borrower or such Subsidiary than would prevail in arm's-length
transactions with unrelated third parties, (b) transactions between or among
Holdings, the Borrower and the Subsidiary Loan Parties not involving any other
Affiliate and (c) any Restricted Payment permitted by Section 6.10.
SECTION 6.07. Certain Other AgreementsSECTION 6.07. Certain
Other Agreements. (a) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, enter into or permit to exist any agreement or other
arrangement that directly or indirectly (through the application of financial
covenants or otherwise) prohibits or restricts (i) the ability of Holdings, the
Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any
of its property or assets or (ii) the ability of any Subsidiary to pay dividends
or other distributions with respect to its Equity Interests or to make or repay
loans or advances to Holdings or any other Subsidiary or to Guarantee
Indebtedness of Holdings or any other Subsidiary; provided that (A) the
foregoing shall not apply to restrictions and conditions imposed by law or by
any Loan Document, (B) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.07 (but shall
apply to any amendment or modification expanding the scope of any such
restriction or condition), (C) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale if such restrictions and conditions apply only to
the Subsidiary that is to be sold and such sale is permitted hereunder, (D)
clause (i) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (E) clause (i) of the foregoing shall not
apply to customary provisions in leases and other contracts restricting the
assignment thereof.
(b) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, directly or indirectly, enter into or be bound by any
agreement or instrument containing any provision restricting the incurrence of
Indebtedness or governing Holdings's and the Subsidiaries' financial condition
if such provision is not contained in this Agreement or is more restrictive than
the analogous provision contained in this Agreement unless (i) the Borrower has
delivered a copy of such document to the Administrative Agent not less than 10
Business Days prior to executing the same and (ii) Holdings and the Borrower
enter into an amendment to this Agreement to add the more restrictive provision
or to conform the analogous provision of this Agreement to such more restrictive
provision.
SECTION 6.08. Investments, Loans, Advances, Guarantees and
AcquisitionsSECTION 6.08. Investments, Loans, Advances, Guarantees and
Acquisitions. Holdings and the Borrower will not, and will not permit any of the
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
Equity Interests in or evidences of Indebtedness or other securities (including
any option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit (all the foregoing
being collectively called "Investments"), except:
(a) Permitted Investments;
(b) Investments existing on the date hereof;
(c) Investments in Loan Parties;
(d) loans or advances to Holdings;
(e) Guarantees of Indebtedness of Persons other than
Subsidiaries constituting Indebtedness permitted by Section 6.01;
(f) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and suppliers, in each case in the ordinary course of
business;
(g) Investments consisting of loans and advances to employees
for moving, entertainment, travel and similar expenses; provided that
the aggregate outstanding amount of such loans and advances shall not
exceed $1,000,000;
(h) Guarantees for the benefit of, or capital contributions or
loans to, Texas Mexican Railway Company; provided that the aggregate
amount of such capital contributions, loans and guaranteed Indebtedness
shall not exceed $25,000,000;
(i) the Grupo TFM Phase I Investment and the Grupo TFM Phase
II Investment; and
(j) Investments not expressly permitted by clauses (a) through
(i); provided that the aggregate amount all such Investments shall not
at any time exceed $5,000,000.
SECTION 6.09. Hedging AgreementsSECTION 6.09. Hedging
Agreements. Holdings and the Borrower will not, and will not permit any of the
Subsidiaries to, enter into any Hedging Agreement other than (a) Hedging
Agreements required by Section 5.14 and (b) Hedging Agreements entered into in
the ordinary course of business to hedge or mitigate risks to which Holdings,
the Borrower or the Subsidiaries shall be exposed in the conduct of their
businesses, and not for speculative purposes.
SECTION 6.10. Restricted Payments; Certain Payments of
IndebtednessSECTION 6.10. Restricted Payments; Certain Payments of Indebtedness.
(a) Neither Holdings nor the Borrower will, nor will they permit any Subsidiary
to, declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, or incur any obligation (contingent or otherwise) to do so,
except (i) Holdings may declare and pay dividends with respect to its capital
stock payable solely in additional shares of its common stock, (ii) Subsidiaries
may declare and pay dividends ratably with respect to their capital stock, (iii)
Holdings may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of Holdings and
its Subsidiaries, and (iv) Holdings may pay cash dividends in respect of shares
of its Existing Preferred Stock in amounts which are not significantly greater
than the amounts paid in respect of such shares during the fiscal year ended
December 31, 1999; provided that no such payments shall be made under this
clause (iv) upon the occurrence and during the continuance of an Event of
Default pursuant to clauses (a), (h) or (i) of Article VII.
(b) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, make or agree to pay or make, directly or indirectly,
any payment or other distribution (whether in cash, securities or other
property) of or in respect of principal of or interest on any Indebtedness
(other than the Obligations), or any payment or other distribution (whether in
cash, securities or other property) on account of the purchase, redemption,
retirement, acquisition, cancellation, defeasance or termination of any
Indebtedness, except:
(i) scheduled or mandatory payments of the principal of or
premium or interest on Indebtedness, other than payments in respect of
the Permitted Subordinated Debt or other Indebtedness subordinated to
the Obligations that shall be prohibited by the subordination
provisions thereof;
(ii) refinancings of Indebtedness to the extent permitted by
Section 6.01;
(iii) payment of secured Indebtedness that becomes due as a
result of the voluntary sale or transfer of the property or assets
securing such Indebtedness;
(iv) payments in respect of the Existing Notes and
Indebtedness under the Existing Credit Agreements; and
(v) payments in respect of Indebtedness owed to Holdings or
any Subsidiary.
SECTION 6.11. Amendment of Material DocumentsSECTION 6.11.
Amendment of Material Documents. Neither Holdings nor the Borrower will, nor
will they permit any Subsidiary or, to the extent within their control, Grupo
TFM, to, amend, modify or waive any of its rights under (a) any indenture or
other agreement or instrument governing Material Indebtedness or (b) any other
material agreement or instrument, in each case in a manner that would be
materially adverse to the rights or interests of the Lenders.
SECTION 6.12. Ownership of Caymex, NAFTA Rail and Grupo
TFMSECTION 6.12. Ownership of Caymex, NAFTA Rail and Grupo TFM. Neither Holdings
nor the Borrower will, nor will they permit any Subsidiary to, permit (a) any
Equity Interest in Caymex to be owned by any Person other than (i) Holdings or
(ii) any other Loan Party that shall have pledged all Equity Interests in Caymex
owned by it pursuant to the Pledge Agreement, (b) any Equity Interest in NAFTA
Rail to be owned by any Person other than Caymex or (c) any Equity Interest in
Grupo TFM, so long as it is owned directly or indirectly by Holdings, to be
owned by any Person other than NAFTA Rail.
SECTION 6.13. Interest Expense Coverage RatioSECTION 6.13.
Interest Expense Coverage Ratio. Holdings will not permit the ratio of (a)
Consolidated EBITDA to (b) Consolidated Interest Expense, in each case for any
period of four consecutive fiscal quarters ending on any date during any period
set forth below, to be less than the ratio set forth below opposite such period:
Period Ratio
Effective Date to March 31, 2000 1.70 : 1.00
April 1, 2000 to September 30, 2000 1.75 : 1.00
October 1, 2000 to December 31, 2000 1.85 : 1.00
January 1, 2001 to December 31, 2002 2.00 : 1.00
January 1, 2003 to December 31, 2003 2.25 : 1.00
January 1, 2004 and thereafter 2.50 : 1.00
SECTION 6.14. Leverage Ratio
SECTION 6.14. Leverage Ratio. Holdings will not permit the Leverage Ratio as
of any date during any period set forth below to exceed the ratio set forth
opposite such period:
Period Ratio
Effective Date to March 31, 2000 5.80 : 1.00
April 1, 2000 to June 30, 2000 5.75 : 1.00
July 1, 2000 to December 31, 2000 5.50 : 1.00
January 1, 2001 to December 31, 2001 5.00 : 1.00
January 1, 2002 to December 31, 2002 4.75 : 1.00
January 1, 2003 to December 31, 2003 4.25 : 1.00
January 1, 2004 to December 31, 2004 3.75 : 1.00
January 1, 2005 and thereafter 3.50 : 1.00
SECTION 6.15. Capital ExpendituresSECTION 6.15. Capital
Expenditures. Holdings will not permit the aggregate amount of Capital
Expenditures during any fiscal year of Holdings during any period set forth
below to exceed the amount set forth opposite such period:
Period Amount
Effective Date to December 31, 2001 $110,000,000
January 1, 2002 to December 31, 2002 $ 95,000,000
January 1, 2003 to December 31, 2003 $100,000,000
January 1, 2004 to December 31, 2004 $105,000,000
January 1, 2005 to December 31, 2005 $110,000,000
January 1, 2006 and thereafter $115,000,000
ARTICLE VII
Events of Default ARTICLE VII Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement or any other Loan
Document, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of five Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of Holdings, the Borrower or any other Subsidiary in or in
connection with any Loan Document or any amendment or modification
thereof or waiver thereunder, or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with
any Loan Document or any amendment or modification thereof or waiver
thereunder, shall prove to have been materially false when made or
deemed made;
(d) Holdings or the Borrower shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.02, 5.04
(with respect to the existence of Holdings or the Borrower) or 5.11 or
in Article VI;
(e) any Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 15 days after
notice thereof from the Administrative Agent to the Borrower (which
notice will be given at the request of any Lender);
(f) Holdings, the Borrower or any other Subsidiary shall fail
to make any payment (whether of principal or interest and regardless of
amount) in respect of any Material Indebtedness, when and as the same
shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice) the holder or
holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof,
prior to its scheduled maturity; provided that this clause (g) shall
not apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of Holdings, the Borrower or
any other Subsidiary or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings, the Borrower or any other
Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) Holdings, the Borrower or any other Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings, the Borrower or any other
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) Holdings, the Borrower or any other Subsidiary shall
become unable, admit in writing its inability or fail generally to pay
its debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against
Holdings, the Borrower, any other Subsidiary or any combination thereof
and the same shall remain undischarged for a period of 30 consecutive
days during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to attach or levy
upon any assets of Holdings, the Borrower or any other Subsidiary to
enforce any such judgment;
(l) the Unfunded Liabilities of all Plans shall exceed in the
aggregate $10,000,000, or any Reportable Event shall occur in
connection with any Plan or any Withdrawal Liability in excess of
$10,000,000 shall be incurred with respect to any Multiemployer Plan or
the Borrower or any member of the Controlled Group has received any
notice concerning the imposition of Withdrawal Liability in excess of
$10,000,000 or a determination that a Multiemployer Plan with respect
to which the potential Withdrawal Liability of the Borrower or any
member of the Controlled Group would exceed $10,000,000 is, or is
expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA;
(m) any Lien purported to be created under any Security
Document with respect to any material portion of the Collateral shall
cease to be, or shall be asserted by any Loan Party not to be, a valid
and perfected Lien on any Collateral, with the priority required by the
applicable Security Document, except (i) as a result of the sale or
other disposition of the applicable Collateral in a transaction
permitted under the Loan Documents or (ii) as a result of the
Collateral Agent's failure to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it
under the Collateral Agreement; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to Holdings or
the Borrower described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrower,
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to Holdings or the Borrower
described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrower accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent ARTICLE VIII The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms of the Loan Documents,
together with such actions and powers as are reasonably incidental thereto. For
purposes of this Article VIII and for the purposes of Article IX, all references
to the Administrative Agent are deemed to include references to the Collateral
Agent.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with Holdings, the Borrower or any
other Subsidiary or other Affiliate thereof as if it were not the Administrative
Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth in the Loan Documents. Without
limiting the generality of the foregoing, (a) the Administrative Agent shall not
be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Administrative Agent shall not
have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated by the
Loan Documents that the Administrative Agent is required to exercise in writing
by the Required Lenders (or such other number or percentage of the Lenders as
shall be necessary under the circumstances as provided in Section 9.02), and (c)
except as expressly set forth in the Loan Documents, the Administrative Agent
shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to Holdings, the Borrower or any other
Subsidiary that is communicated to or obtained by the bank serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02) or in the absence of its own gross negligence or
wilful misconduct. The Administrative Agent shall not be deemed not to have
knowledge of any Default unless and until written notice thereof is given to the
Administrative Agent by Holdings, the Borrower or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with any Loan Document, (ii) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for Holdings or the Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
ARTICLE IX
Miscellaneous ARTICLE IX Miscellaneous
SECTION 9.01. NoticesSECTION 9.01. Notices. Except in the case
of notices and other communications expressly permitted to be given by
telephone, all notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telecopy, as follows:
(a) if to Holdings or the Borrower, to it at 114 West 11th
Street, Kansas City, Missouri 64105-1808, Attention of the Vice
President and Chief Financial Officer (Telecopy No. (816) 983-1192),
with a copy to the Senior Vice President and General Counsel (Telecopy
No. (816) 983-1227);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th
Floor, New York, New York 10081, Attention of Margaret Swales (Telecopy
No. (212) 552-5662), with a copy to Chase Securities Inc., 10 South
LaSalle Street Chicago, IL 60603, Attention of Jon Hinard (Telecopy No.
(312) 807-4550);
(c) if to the Issuing Bank, to it at The Chase Manhattan Bank,
Attention of Margaret Swales (Telecopy No. (212) 552-5662);
(d) if to the Swingline Lender, to it at, Loan and Agency
Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New
York 10081, Attention of Margaret Swales (Telecopy No. (212) 552-5662);
and
(e) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; AmendmentsSECTION 9.02. Waivers;
Amendments. (a) No failure or delay by the Administrative Agent, the Issuing
Bank or any Lender in exercising any right or power hereunder or under any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent, the Issuing Bank and the Lenders hereunder and under
the other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any Loan
Document or consent to any departure by any Loan Party therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan or issuance of a Letter of Credit shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by Holdings, the Borrower and the Required Lenders or, in the case
of any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Administrative Agent and the Loan Party or Loan Parties that
are parties thereto, in each case with the consent of the Required Lenders;
provided that no such agreement shall (i) increase the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce
any fees payable hereunder, without the written consent of each Lender affected
thereby, (iii) postpone the maturity of any Loan, or any scheduled date of
payment of the principal amount of any Term Loan under Section 2.10, or the
required date of reimbursement of any LC Disbursement, or any date for the
payment of any interest or fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender affected thereby,
(iv) change Section 2.18(b) or (c) in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender, (v) change any of the provisions of this Section or the percentage set
forth in the definition of "Required Lenders" or any other provision of any Loan
Document specifying the number or percentage of Lenders (or Lenders of any
Class) required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender (or each Lender of such Class, as the case may be), (vi) release
Holdings or any Subsidiary Loan Parties that are substantial in relation to
Holdings and the Subsidiaries taken as a whole from their Guarantees under the
Guarantee Agreement (except as expressly provided by Section 9.14), or limit
their liability in respect of such Guarantee, without the written consent of
each Lender, (vii) release all or any substantial part of the Collateral from
the Liens of the Security Documents without the written consent of each Lender
(except as expressly provided by Section 9.14), (viii) change any provisions of
any Loan Document in a manner that by its terms adversely affects the rights in
respect of payments due to Lenders holding Loans of any Class differently than
those of Lenders holding Loans of any other Class, without the written consent
of Lenders holding a majority in interest of the outstanding Loans and unused
Commitments of the Class adversely affected or receiving a lesser benefit or
(ix) change the rights of the Tranche B Lenders to decline mandatory prepayments
as provided in Section 2.11 without the written consent of Lenders holding a
majority of the outstanding Tranche B Loans; provided further that (A) no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline
Lender without the prior written consent of the Administrative Agent, the
Collateral Agent, the Issuing Bank or the Swingline Lender, as the case may be,
and (B) any waiver, amendment or modification of this Agreement that by its
terms affects the rights or duties under this Agreement of the Lenders of one
Class, but not the other Lenders, may be effected by an agreement or agreements
in writing entered into by Holdings, the Borrower and requisite percentage in
interest of the affected Class of Lenders that would be required to consent
thereto under this Section if such Class of Lenders were the only Class of
Lenders hereunder at the time. Notwithstanding the foregoing, any provision of
this Agreement may be amended by an agreement in writing entered into by
Holdings, the Borrower, the Required Lenders and the Administrative Agent (and,
if their rights or obligations are affected thereby, the Issuing Bank and the
Swingline Lender) if (i) by the terms of such agreement the Commitment of each
Lender not consenting to the amendment provided for therein shall terminate upon
the effectiveness of such amendment and (ii) at the time such amendment becomes
effective, each Lender not consenting thereto receives payment in full of the
principal of and interest accrued on each Loan made by it and all other amounts
owing to it or accrued for its account under this Agreement.
SECTION 9.03. Expenses; Indemnity; Damage WaiverSECTION 9.03.
Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative Agent and the
Collateral Agent and their Affiliates, including the reasonable fees, charges
and disbursements of counsel, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of the Loan
Documents or any amendments, modifications or waivers of the provisions thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing
Bank in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder and (iii) all
out-of-pocket expenses incurred by the Administrative Agent, the Collateral
Agent, the Issuing Bank or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent, the Collateral Agent,
the Issuing Bank or any Lender, in connection with the enforcement or protection
of its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Borrower agrees to indemnify the Administrative Agent,
the Collateral Agent, the Issuing Bank, each Lender and each of their respective
directors, officers, employees and agents (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions, (ii) the use of the proceeds of the Loans or (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses (i) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted
from the negligence or wilful misconduct of such Indemnitee and (ii) have not,
in whole or in part, arisen out of or resulted from any act, or omission to act,
of Holdings, the Borrower or any of their Affiliates.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, the Collateral Agent, the
Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section,
each Lender severally agrees to pay to the Administrative Agent, the Collateral
Agent, the Issuing Bank or the Swingline Lender, as the case may be, such
Lender's pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, the Collateral Agent, the Issuing Bank or the
Swingline Lender in its capacity as such. For purposes hereof, a Lender's "pro
rata share" shall be determined based upon its share of the sum of the total
Revolving Exposure, outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, neither
Holdings nor the Borrower shall assert, and each hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement or any
agreement or instrument contemplated hereby, the Transactions, any Loan or
Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
SECTION 9.04. Successors and AssignsSECTION 9.04. Successors
and Assigns. (a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby (including any Affiliate of the Issuing Bank that
issues any Letter of Credit), except that the Borrower may not assign or
otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the
Borrower without such consent shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Issuing Bank and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitments and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender, an Affiliate of a Lender or
a Related Fund of any Lender, each of the Borrower and the Administrative Agent
(and, in the case of an assignment of all or a portion of a Revolving Commitment
or any Lender's obligations in respect of its LC Exposure or Swingline Exposure,
the Issuing Bank and the Swingline Lender) must give their prior written consent
to such assignment (which consent shall not be unreasonably withheld or
delayed), (ii) except in the case of an assignment to a Lender, an Affiliate of
a Lender or a Related Fund of any Lender or an assignment of the entire
remaining amount of the assigning Lender's Commitment or Loans, the amount of
the Commitment or Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$1,000,000 unless each of the Borrower and the Administrative Agent otherwise
consent, (iii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement, except that this clause (iii) shall not be construed to prohibit
the assignment of a proportionate part of all the assigning Lender's rights and
obligations in respect of one or more, but not all, Classes of its Commitments
or Loans, (iv) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance together with a processing and
recordation fee of $2,500 (except in the case of an assignment to a Lender or an
Affiliate of a Lender or a Related Fund of a Lender), and (v) the assignee, if
it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire; and provided further that any consent of the
Borrower otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and Holdings, the Borrower, the Administrative
Agent, the Issuing Bank and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank and
any Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) Holdings, the Borrower,
the Administrative Agent, the Issuing Bank and the other Lenders shall continue
to deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce the Loan Documents and to approve
any amendment, modification or waiver of any provision of the Loan Documents;
provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 2.15,
2.16 and 2.17 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 9.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 2.18(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.15 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.17 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.17(e), and to be subject to Section 2.19, as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(h) Notwithstanding anything to the contrary contained herein,
any Lender (a "Granting Lender") may grant to a special purpose funding vehicle
(an "SPC") of such Granting Lender, identified as such in writing from time to
time by the Granting Lender to the Administrative Agent and the Borrower, the
option to provide to the Borrower all or any part of any Loan that such Granting
Lender would otherwise be obligated to make to the Borrower pursuant to Section
2.01, provided that (i) nothing herein shall constitute a commitment to make any
Loan by any SPC, (ii) if an SPC elects not to exercise such option or otherwise
fails to provide all or any part of such Loan, the Granting Lender shall be
obligated to make such Loan pursuant to the terms hereof (iii) such Granting
Lender's other obligations under this Agreement shall remain unchanged, (iv)
such Granting Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations and (v) the Borrower, the Administrative
Agent and the other Lenders shall continue to deal solely and directly with such
Granting Lender in connection with such Granting Lender's rights and obligations
under this Agreement. The making of a Loan by an SPC hereunder shall utilize the
Commitment of the Granting Lender to the same extent, and as if, such Loan were
made by the Granting Lender. Each party hereto hereby agrees that no SPC shall
be liable for any indemnity or similar payment obligation under this Agreement
(all liability for which shall remain with the related Granting Lender). In
furtherance of the foregoing, each party hereto hereby agrees (which agreement
shall survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding senior
indebtedness of any SPC, it will not institute against, or join any other person
in instituting against, such SPC any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or similar proceedings under the laws of
the United States or any State thereof. In addition, notwithstanding anything to
the contrary contained in this Section 9.04 or in Section 9.12, any SPC may (i)
with notice to, but without the prior written consent of, the Borrower or the
Administrative Agent and without paying any processing fee therefor, assign all
or a portion of its interests in any Loans to its Granting Lender or to any
financial institutions providing liquidity and/or credit facilities to or for
the account of such SPC to fund the Loans made by such SPC or to support the
securities (if any) issued by such SPC to fund such Loans and (ii) disclose on a
confidential basis, to the extent such disclosure would be permitted under
Section 9.12 as if such SPC were a Lender, any non-public information relating
to its Loans to any rating agency, commercial paper dealer or provider of a
surety, guarantee or credit or liquidity enhancement to such SPC.
SECTION 9.05. SurvivalSECTION 9.05. Survival. All covenants,
agreements, representations and warranties made by the Loan Parties in the Loan
Documents and in the certificates or other instruments delivered in connection
with or pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of the Loan Documents and the making of any
Loans and issuance of any Letters of Credit, regardless of any investigation
made by any such other party or on its behalf and notwithstanding that the
Administrative Agent, the Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article
VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; EffectivenessSECTION
9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed
in counterparts (and by different parties hereto on different counterparts),
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement, the other Loan Documents and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. SeverabilitySECTION 9.07. Severability. Any
provision of this Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of SetoffSECTION 9.08. Right of Setoff. If
an Event of Default shall have occurred and be continuing, each Lender and each
of its Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by such Lender or Affiliate to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service
of ProcessSECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process. (a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(b) Each of Holdings and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees 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. Nothing in this Agreement or any other Loan Document shall
affect any right that the Administrative Agent, the Issuing Bank or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or any other Loan Document against Holdings, the Borrower or its properties in
the courts of any jurisdiction.
(c) Each of Holdings and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement or any other Loan Document will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIALSECTION 9.10. WAIVER OF JURY
TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. HeadingsSECTION 9.11. Headings. Article and
Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not affect the
construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12. ConfidentialitySECTION 9.12. Confidentiality.
Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates' directors, officers,
employees and agents, including accountants, legal counsel and other advisors as
need to know such information in connection with the servicing and protection of
its interests in respect of its Loans and Commitments, the Loan Documents and
the Transactions (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority including the National Association of Insurance
Commissioners, (c) to the extent required by applicable laws or regulations or
by any subpoena or similar legal process, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder or any
suit, action or proceeding relating to this Agreement or any other Loan Document
or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section,
to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Borrower (h) to any direct or indirect contractual
counterparty in swap agreements or such contractual counterparty's professional
advisor (so long as such contractual counterparty of professional advisor to
such contractual counterparty agrees to be bound by the provisions of this
Section 9.12); provided no disclosure may be made under this clause (h) of any
information with respect to the Assumable Facilities and any documents supplied
to any such party shall be redacted in a manner reasonably acceptable to
Holdings or (i) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section or (ii) becomes available to
the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential
basis from a source other than Holdings or the Borrower. For the purposes of
this Section, "Information" means all information received from Holdings or the
Borrower relating to Holdings or the Borrower or its business, other than any
such information that is available to the Administrative Agent, the Issuing Bank
or any Lender on a nonconfidential basis prior to disclosure by Holdings or the
Borrower; provided that, in the case of information received from Holdings or
the Borrower after the date hereof, such information is clearly identified at
the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
SECTION 9.13. Interest Rate LimitationSECTION 9.13. Interest
Rate Limitation. Notwithstanding anything herein to the contrary, if at any time
the interest rate applicable to any Loan, together with all fees, charges and
other amounts which are treated as interest on such Loan under applicable law
(collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum
Rate") which may be contracted for, charged, taken, received or reserved by the
Lender holding such Loan in accordance with applicable law, the rate of interest
payable in respect of such Loan hereunder, together with all Charges payable in
respect thereof, shall be limited to the Maximum Rate and, to the extent lawful,
the interest and Charges that would have been payable in respect of such Loan
but were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to such Lender in respect of
other Loans or periods shall be increased (but not above the Maximum Rate
therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received
by such Lender.
SECTION 9.14. Release of Liens and GuaranteesSECTION 9.14.
Release of Liens and Guarantees. In the event that Holdings or any Subsidiary
sells, transfers or otherwise disposes of all or any portion of any of the
Equity Interests, assets or property owned by Holdings or such Subsidiary in a
transaction not prohibited by this Agreement, the Administrative Agent and the
Collateral Agent shall promptly (and the Lenders hereby authorize and instruct
the Administrative Agent and the Collateral Agent to) take such action and
execute any such documents as may be reasonably requested by the Borrower to
release any Liens created by any Loan Document in respect of such Equity
Interests, assets or property, including the release and satisfaction of record
of any mortgage or deed of trust granted in connection herewith, and, in the
case of a disposition of all or substantially all the Equity Interests or assets
of any Subsidiary that is a Loan Party, to terminate such Subsidiary's
obligations under the Guarantee Agreement and each other Loan Document. In
addition, the Administrative Agent and the Collateral Agent will take such
actions as are reasonably requested by the Borrower to terminate the Liens and
security interests created by the Loan Documents when all the Obligations have
been paid in full and all Letters of Credit and Commitments have been
terminated. The Borrower agrees to pay all out-of-pocket expenses of the
Administrative Agent and the Collateral Agent in connection with releases of
Liens and obligations under the Guarantee Agreement provided for in this
Section.
<PAGE>
21042580\V-1
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
/s/ Anthony P. McCarthy
Name: Anthony P. McCarthy
Title: Vice President and Treasurer
THE KANSAS CITY SOUTHERN RAILWAY COMPANY,
by
/s/ Robert H. Berry
Name: Robert H. Berry
Title: Designated Person
THE CHASE MANHATTAN BANK, individually and as Administrative
Agent, Issuing Bank and Swingline Lender,
by
/s/ Laurie B. Perper
Name: Laurie B. Perper
Title: Vice President
THE BANK OF NOVA SCOTIA,
by
/s/ F. C. H. Ashby
Name: F. C. H. Ashby
Title: Senior Manager Loan
Operations
FLEET NATIONAL BANK,
by
/s/ Dexter Freeman
Name: Dexter Freeman
Title: Director
<PAGE>
BANK OF TOKYO-MITSUBISHI TRSUT COMPANY,
by
/s/ Joseph P. Devoe
Name: Joseph P. Devoe
Title: Vice President
BANK ONE, N.A. (MAIN OFFICE CHICAGO),
by
/s/ Christina Jamieson
Name: Christina Jamieson
Title: Senior Vice President
CREDIT SUISSE FIRST BOSTON,
by
/s/ Joel Glodowski
Name: Joel Glodowski
Title: Managing Director
by
/s/ Douglas E. Maher
Name: Douglas E. Maher
Title: Vice President
MERRILL LYNCH CAPITAL CORPORATION, as a Lender
by
/s/ Brian E. O'Callahan
Name: Brian E. O'Callahan
Title: Vice President
HARRIS TRUST AND SAVINGS BANK,
by
/s/ Len E. Meyer
Name: Len E. Meyer
Title: Vice President
<PAGE>
ABN AMRO BANK N.V.,
by
/s/ David J. Thomas
Name: David J. Thomas
Title: Group Vice President
by
/s/ Gerald F. Mackin
Name: Gerald F. Mackin
Title: Vice President
THE BANK OF NEW YORK,
by
/s/ John-Paul Marotta
Name: John-Paul Marotta
Title: Vice President
FIRST UNION NATIONAL BANK,
by
/s/ Deepak Chandrashekar
Name: Deepak Chandrashekar
Title: Associate
THE FUJI BANK, LIMITED,
by
/s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Senior Vice President & Group Head
MERCANTILE BANK,
by
/s/ Barry P. Sullivan
Name: Barry P. Sullivan
Title: Vice President
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
by
/s/ T. Rodney Sirmons
Name: T. Rodney Sirmons
Title: Manager-Operations
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
by
/s/ Mike Hampton
Name: Mike Hampton
Title: Assistant Vice President
UMB BANK, N.A.,
by
/s/ Terry Dierks
Name: Terry Dierks
Title: Senior Vice President
SIAM COMMERCIAL BANK PCL, NEW YORK AGENCY,
by
/s/ Thawee Kotchavong
Name: Thawee Kotchavong
Title: Assistant General Manager
Systems & Operations
by
/s/ David I. Ramos
Name: David I. Ramos
Title: Assistant General Manager
Corporate Finance & Treasury
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.,
by
/s/ Paul Travers
Name: Paul Travers
Title: Director
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.,
by
/s/ Paul Travers
Name: Paul Travers
Title: Director
KZH ING-1 LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
KZH ING-2 LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
KZH ING-3 LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
CANADIAN IMPERIAL BANK OF COMMERCE,
by
/s/ William M. Swenson
Name: William M. Swenson
Title: Authorized Signatory
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST,
by
/s/ Sheila A. Finnerty
Name: Sheila A. Finnerty
Title: Senior Vice President
<PAGE>
KZH CRESCENT LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
KZH CRESCENT-3 LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (E)
By: TCW Asset Management Company as Attorney-in-Fact,
by
/s/ Mark L. Gold
Name: Mark L. Gold
Title: Managing Director
by
/s/ Justin L. Driscoll
Name: Justin L. Driscoll
Title: Senior Vice President
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: TCW Asset Management Company, its Investment Advisor,
by
/s/ Mark L. Gold
Name: Mark L. Gold
Title: Managing Director
by
/s/ Justin L. Driscoll
Name: Justin L. Driscoll
Title: Senior Vice President
<PAGE>
KZH LANGDALE LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
METROPOLITAN LIFE INSURANCE COMPANY,
by
/s/ James R. Dingler
Name: James R. Dingler
Title: Director
THOROUGHBRED LIMITED
PARTNERSHIP I
by Appaloosa Management L.P.
its General Partner
by Appaloosa Partners Inc.
its General Partner,
by
/s/ James E. Bolin
Name: James E. Bolin
Title: Vice President
CYPRESSTREE SENIOR FLOATING RATE FUND
By: CypressTree Investment Management Company, Inc. as
Portfolio Manager,
by
/s/ Timothy M. Barns
Name: Timothy M. Barns
Title: Managing Director
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CypressTree Investment Management Company, Inc. as
Portfolio Manager,
by
/s/ Timothy M. Barns
Name: Timothy M. Barns
Title: Managing Director
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management Company, Inc. its
Managing Member,
by
/s/ Timothy M. Barns
Name: Timothy M. Barns
Title: Managing Director
KZH CYPRESSTREE-1 LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
FRANKLIN FLOATING RATE TRUST,
by
/s/ Chauncy Lufkin
Name: Chauncy Lufkin
Title: Vice President
NEW YORK LIFE INSURANCE COMPANY,
by
/s/ Anthony Malloy
Name: Anthony Malloy
Title: Director
OLYMPIC FUNDING TRUST, SERIES
1999-1,
by
/s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Authorized Agent
KZH RIVERSIDE LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
<PAGE>
KEMPER FLOATING RATE FUND,
by
/s/ Mark E. Wittnebel
Name: Mark E. Wittnebel
Title: Senior Vice President
GALAXY CLO 1999-1 LTD.,
By: SAI Investment Adviser, Inc. Its Collateral Manager
by
/s/ Lynn A. Hopton
Name: Lynn A. Hopton
Title: Vice President
BAVARIA TRR CORPORATION,
by
/s/ Frank B. Bilotta
Name: Frank B. Bilotta
Title: Vice President
THE TRAVELERS INSURANCE COMPANY,
by
/s/ Robert M. Mills
Name: Robert M. Mills
Title: Investment Officer
TRAVELERS CORPORATE LOAN FUND INC.
By: Travelers Asset Management International Corporation,
by
/s/ Robert M. Mills
Name: Robert M. Mills
Title: Investment Officer
WINGED FOOT FUNDING TRUST,
by
/s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Authorized Agent
KZH SHOSHONE LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
KZH STERLING LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
PINEHURST TRADING, INC.,
by
/s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Vice President
KZH WATERSIDE LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
PRINCIPAL LIFE INSURANCE COMPANY
By: Principal Capital Management, LLC, a Delaware limited
liability company, its authorized signatory,
by
/s/ Jon C. Heiny
Name: Jon C. Heiny
Title: Counsel
by
/s/ James C. Fifield
Name: James C. Fifield
Title: Counsel
<PAGE>
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY,
by
/s/ Brian W. Good
Name: Brian W. Good
Title: Vice President,
Stein Roe & Farnham Incorporated,
as Advisor to the Stein Roe Floating
Rate Limited Liability Company
<PAGE>
Schedule 1
MORTGAGED PROPERTY - NON-TRACK REAL ESTATE FOR
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FINANCING ARRANGED BY
THE CHASE MANHATTAN BANK - JANUARY 2000*
* Note that certain values listed below are replacement insurance values,
and, as such, do not purport to reflect the fair market value or appraised
value of the property.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
No. City County StateDescription Legal Any Owning Value Fed ID Former To be Title
Leases?Entity # PropertyMortgaged? Insurance
No.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
1. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
2. 114 W. 11th Kansas Jackson MO Office YES KCSR Southern $2,200,0044-6005823 At Closing YES
St. City Building and Development
/8 story KCSI Corp.
leases
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
3. Intentionally Omitted (formerly the 1020 3 N/A N/A
Wyandotte Parking Garage)
- ----------------------------------------------------------------------------------------------------------------------------
4.
- --------------------------------------------------------------------------------------------------------------------------
Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
5. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
6. Pittsburg PittsburgCrawfordKS Repair NO KCSR $28,360,144-6000732 Post No
Yard Facility and (replacement Closing.
Maintenance value
Buildings/ per
107,800 sq. insurance
ft. report)
Machine shop
$1,191,120
Store room
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
7. Heavener Yard Heavener LeFlore OK Yard Office, NO KCSR $986,245 44-6000733 Post No
small office Closing
building
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
8. Leesville LeesvilleVernoa LA Yard Office NO KCSR $826,672 44-6000751 Post No
Yard Closing
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
9. Mossville MossvilleCalcasieLA Yard Office NO KCSR $698,497 44-6000748 Post No
Yard Closing.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
10. Spindletop Beaumont JeffersoTX Yard Office NO KCSR $1,654,9744-6000750 Post No
Yard Closing
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
11. Port Arthur Port JeffersoTX Yard Office NO KCSR $1,677,6444-6000749 Post No
Yard Arthur Closing
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
12. Baton Rouge Baton East LA Office YES KCSR 44-600074, At Closing Yes
Yard Rouge Baton Building/ 52,53
Rouge 15,000 sq.
Parish ft. 1401 Foss
St $5,947,911
Depot Office. $1,083,516
Mechanical
Building
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
13. New Orleans ShrewsburJeffersoLA Freight House NO KCSR $8,393,6244-6000754, Post No
Yard 55, 63 Closing
Engine House $1,813,310
Intermodal $700,000
Facility
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
14. Old Shell ShrewsburJeffersoLA Land - YES Rice-Card$500,000 44-60110491 At Closing No
Building Intermodal
Property storage
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
15. Zacha Jet Dallas Dallas TX Intermodal NO KCSR $20,000,044-6000757, 68 Post No
Facility and Closing
other
assorted
property
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
16. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
17. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
18. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
19. Pearl Yard Jackson Rankin MS Intermodal NO KCSR $10,000,044-6000765 Post No
Facility Closing
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
20. Sallisaw Yard Sallisaw Sequoya OK Intermodal NO KCSR $1,000,0044-6000767 Post No
Facility Closing
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
21. Deramus Yard N. Caddo LA General Yes KCSR $7,721,599 5 At Closing Yes
Shreveport Office Bldg
4601
Shreveport -
Blanchard
Highway
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Customer KCSR $2,000,0044-6000758 At Closing Yes
Service Center FMV
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Car Shop KCSR $8,306,3744-6000758 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Diesel KCSR $4,834,3944-6000758 At Closing Yes
Service
Building
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Division KCSR $2,158,5444-6000758 At Closing Yes
Store Room
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Diesel Fuel KCSR $1,875,2544-6000758 At Closing Yes
Tanks
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Wheel Shop KCSR $1,789,4044-6000758 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Cafeteria KCSR $1,671,4844-6000758 At Closing Yes
Building
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
KCST Building KCSR $1,191,8444-6000758 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Yard Office KCSR $958,145 44-6000758 At Closing Yes
500 N.
Lakeshore Dr.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Truck Garage KCSR $917,292 44-6000758 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Running KCSR $912,108 44-6000758 At Closing Yes
Repair
Building
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Sand Blast KCSR $709,030 44-6000758 At Closing Yes
Building
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Diesel Shop KCSR $14,723,744-6000758 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Intermodal KCSR $5,000,0044-6000758 At Closing Yes
Facility 4365 Trans
Blanchard Road Service
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
22. Piggly N. Caddo LA Warehouse/ YES Rice $130,680 44-6011081 At Closing Yes
Wiggly Shreveport 354,000 sq. Carden -
Warehouse ft. (successo201,360
(Walmart) N. (individual by (Land)
Lakeshore parcel within merger
Drive Deramus Yard to
Tolmak) $3,181,820-3,181,820
(Warehouse)
Total
may be
$5,047,000
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
23. N. & N. Caddo LA Land YES Rice-Card$386,000-44-6011023 At Closing Yes
adjacent to Shreveport (individual (together
Piggly parcel within with
Wiggle Whse Deramus Yard) No.24)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
24. JD Woolworth N. Caddo LA Land YES Rice $386,000-44-6011016 At Closing Yes
Tr Shreveport Carden (together
with
No. 23)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
25. Steeltown Port JeffersoTX Coal and Coke YES Pabtex, 9 At Closing Yes
Arthur Handling Inc.
Facility (improvements)
(PABTEX)
Port JeffersoTX Land Rice-Card$700,000 44-6011091 At Closing Yes
Arthur (Land) (Land)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Steeltown Port JeffersoTX Land YES Rice-Card$500,000-44-6011024 At Closing Yes
Industrial Arthur
Park
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
26. Hollyfield Port JeffersoTX Waterfront YES Rice-Card$4,900,0044-60110100 At Closing Yes
Property Arthur docks, land
Parcel C for
development
1,025 acres
Docks at Slip
No. 3
Docks at
Turning Basin
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Hollyfield C Port JeffersoTX Bulk Handling YES KCSI $2,000,000 10 At Closing Yes
Arthur Facility book
(PABFAC) value
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Hollyfield C Port JeffersoTX Intermodal YES Joint $2,000,000 69 At Closing Yes
Arthur Facility KCSR
and
Southern
Norfolk
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Hollyfield Port JeffersoTX Land YES Rice-Card$100,000-44-6011082 At Closing Yes
Property Arthur
Parcel A
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Hollyfield Port JeffersoTX Land YES Rice-Card$100,000-44-6011083 At Closing Yes
Property Arthur
Parcel B
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
27. Hoeschst Port JeffersoTX Land YES YES Rice-Card$5,400,0044-6011011 At Closing Yes
Celanese Arthur
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
28. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
29. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
30. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
31. Spindletop-WilBeaumont JeffersoTX Land and YES Rice-Card$215,000-44-6011017 At Closing Yes
Warehouse Warehouses (Land)
Property
$2,035,000-2,260,000
(Warehouse)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
32. Spindletop-E Beaumont JeffersoTX Land YES Rice-Card$110,000-44-6011080,91 At Closing No
of KCS, S.,
and N. of
Wilson
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
33. Jandon Jandon Cass MO Land YES Rice-Card$1,432,8044-60110120 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Jandon Jandon Johnson KS Land YES Rice-Card$687,200-44-60111121 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
34. Adams Farm Jandon Cass MO Land YES Rice-Card$432,300-44-6011013 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Adams Farm Jandon Cass MO Land YES Rice-Card$363,700-44-6011013 At Closing Yes
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
35. Fort Smith Fort SebastioAR Land YES Rice-Card$209,820-44-6011014 At Closing Yes
Smith
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
36. Lake Charles Lake CalcasieLA Land YES Rice-Card$1,100,0044-60110150 At Closing Yes
Charles
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
37. Intentionally Omitted.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
38. Springfield Alsen East LA Land YES Rice-Card$595,000-44-6011019 At Closing Yes
Plantation-EBR Baton
Parish Rouge
Parish
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
39. Munson Maryland Eat LA Land Yes Rice-Card$1,812,0044-60110200 At Closing Yes
Tract-EBR Baton
Parish Rouge
Parish
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
40. Oscar Scotland-Easte LA Land YES Rice-Card$492,000-44-6011025 At Closing Yes
Reynaud Baton
Estate-EBR Rouge
Parish
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
41. New Wylie Wylie Collin TX Land-Wylie YES YES Rice $2,500,0044-6011021 At Closing Yes
Yard Enterprises Carden FMV
(successor
by
merger
to
Tolmak)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
New Wylie Wylie Collin TX Land-Alamet YES Rice $2,100,0044-6011021 At Closing Yes
Yard Carden FMV
(successor
by
merger
to
Tolmak)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
New Wylie Wylie Collin TX Land-Harris YES KCSR $250,000 44-6000721 At Closing Yes
Yard Book
Value
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
42. NEID-Front Kansas Jackson MO Land YES Rice-Card$918,000-44-6011022 At Closing Yes
Street & City
Topping
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
43. Coburg Yard Kansas Jackson MO Land YES Rice-Card$350,000 44-6011072 At Closing No
City -
$500,000
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
44. New R/G GrandviewJackson MO Land - Zimmer YES YES KCSR $370,000 44-6000773 At Closing No
Intermodal and FMV
Facility Kansas
City
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
45. Richards Richards Vernon MO Land YES Rice-Card$155,660-44-6011074 At Closing No
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
46. Moniteau CaliforniMoniteauMO Land YES Rice-Card$65,000 44-6011075 Post No
(per Closing
9/1/90)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
47. Lion County LaCygne Linn KS Land YES Rice-Card$108,000-44-6011076 At Closing No
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
48. Hope Hope HempsteaAR Land YES Rice-Card$65,000-944-6011077 At Closing No
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
49. Stamps Stamps LafayettAR Land YES Rice-Card$73,000-144-6011078 At Closing No
Parcel A
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
50. Stamps Stamps LafayettAR Land YES YES Rice-Card$39,000-444-6011079 At Closing No
Parcel B
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
51. Industrial GreenvillHunt TX Land YES Rice-Card$29,000-344-6011084 At Closing No
Park (Tract
1)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
52. Merdoch GreenvillHunt TX Land YES Rice-Card$233,000-44-6011085 At Closing No
Trace (Tract
2)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
53. Philon-Delta Forbing Caddo LA Land YES Rice-Card$178,206-44-6011086 At Closing No
Hunt-Forbing
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
54. Minden Minden Webster LA Land YES Rice-Card$650,000 44-6011087 At Closing No
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
55. Winfield Winn LA Land - 22.24 YES Rice-Card$400,000 44-6011088 At Closing No
acres, 26.66
acres, 18
acres
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
56. Dequincy CalcasieLA Land - 80 YES Rice-Card$200,000 44-6011089 At Closing No
acres
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
57. Packton Winn LA Land - 23.8 YES Rice-Card$25,000 44-6011090 At Closing No
acres
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
58. Robindale CovingtonSt LA Land YES Rice-Card$88,000-144-6011092 At Closing No
Subd (Land) Tammeay
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
59. 12110 Dallas Dallas TX Warehouse and YES YES KCSR $3,000,0044-60007New At Closing No
Garland Road 9 acres Property
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
60. 5801 Gardner Kansas Jackson MO Truck YES YES Rice $2,200,0044-60110New At Closing No
City terminal and Carden Property
8 acres
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Schedule 2.01
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Lender Revolving Tranche A Tranche X Tranche B
Commitment Commitment Commitment Commitment
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Chase Manhattan Bank $19,150,000.0$19,150,000.00 $33,200,000.00 $137,750,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Bank of Nova Scotia 15,000,000.0015,000,000.00 20,000,000.00 5,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Fleet National Bank 15,000,000.0015,000,000.00 20,000,000.00 5,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Bank of Tokyo-Mitusbishi 12,000,000.0012,000,000.00 16,000,000.00 -
Trust Company
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Bank One, N.A. 12,000,000.0012,000,000.00 16,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Credit Suisse First Boston 12,000,000.0012,000,000.00 16,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Merrill Lynch Capital 12,000,000.0012,000,000.00 16,000,000.00 -
Corporation
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Harris Trust and Savings 7,500,000.00 7,500,000.00 10,000,000.00 -
Bank
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
ABN AMRO Bank N.V. 6,000,000.00 6,000,000.00 8,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Bank of New York 6,000,000.00 6,000,000.00 8,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
First Union National Bank 6,000,000.00 6,000,000.00 8,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Fuji Bank, Limited 6,000,000.00 6,000,000.00 8,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Mercantile Bank 6,000,000.00 6,000,000.00 8,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
General Electric Capital 5,850,000.00 5,850,000.00 6,800,000.00 6,500,000.00
Corporation
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The CIT Group/Equipment 5,000,000.00 5,000,000.00 - -
Financing, Inc.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
UMB Bank, N.A. 3,000,000.00 3,000,000.00 4,000,000.00 -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Siam Commercial Bank PCL, 1,500,000.00 1,500,000.00 2,000,000.00 -
New York Agency
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Merrill Lynch Senior - - - 5,000,000.00
Floating Rate Fund, Inc.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Merrill Lynch Senior - - - 5,000,000.00
Floating Rate Fund II, Inc.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH ING-1 LLC - - - 1,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH ING-2 LLC - - - 2,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH ING-3 LLC - - - 1,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Canadian Imperial Bank of - - - 7,000,000.00
Commerce
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter - - - 8,000,000.00
Prime Income Trust
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH CRESCENT LLC - - - 2,500,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH CRESCENT-3 LLC - - - 2,500,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Continental Assurance - - - 1,000,000.00
Company
Separate Account (E)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
United Of Omaha Life - - - 1,000,000.00
Insurance Company
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH Langdale LLC - - - 2,500,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Metropolitan Life Insurance - - - 6,000,000.00
Company
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Thoroughbred Limited - - - 5,000,000.00
Partnership I
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
CypressTree Senior Floating - - - 500,000.00
Rate Fund
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
North American Senior - - - 500,000.00
Floating Rate Fund
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
CypressTree Investment - - - 500,000.00
Fund, LLC
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH CypressTree 1-LLC - - - 1,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Franklin Floating Rate Trust - - - 4,750,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
New York Life Insurance - - - 5,000,000.00
Company
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Olympic Funding Trust, - - - 2,000,000.00
Series 1999-1
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH Riverside LLC - - - 2,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Kemper Floating Rate Fund - - - 1,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Galaxy CLO 1999-1, Ltd. - - - 5,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Bavaria TRR Corporation - - - 4,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Travelers Insurance - - - 2,000,000.00
Company
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Travelers Corporate Loan - - - 2,000,000.00
Fund Inc.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Winged Foot Funding Trust - - - 3,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH Shoshone LLC - - - 3,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH Sterling LLC - - - 3,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Pinehurst Trading, Inc. - - - 2,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
KZH Waterside LLC - - - 2,000,000.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Principal Life Insurance - - - 2,000,000.00
Company
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Stein Roe Floating Rate - - - 1,000,000.00
Limited Liability Company
- -------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE 3.05(b)
MATERIAL PROPERTY - NON-TRACK REAL ESTATE FOR
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FINANCING ARRANGED BY
THE CHASE MANHATTAN BANK - JANUARY 2000*
<TABLE>
* Note that certain values listed below are replacement insurance values,
and, as such, do not purport to reflect the fair market value or appraised
value of the property.
<S> <C> <C> <C> <C> <C> <C> >C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
No. City County State DescriptionLegal Any Owning Entity Value Fed ID # Former To be Title
Leases? PropertMortgaged? Insurance
No.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
1. Superior Vivian Caddo LA Tie YES Tran-Serve, $5,625,00043-08650861 No No
Tie and Treating Inc. (lease
Timber Plant/12,000 with purchase
sq. ft. opinion)
Superior Tie &
Timber
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
2. 114 W. Kansas Jackson MO Office YES KCSR Southern $2,200,00044-60058432 At Closing YES
11th St. City Building and Development
/8 story KCSI Corp.
leases
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
3. Intentionally Omitted (formerly the 1020 3 N/A N/A
Wyandotte Parking Garage)
- --------------------------------------------------------------------------------------------------------------------------------
4.
- --------------------------------------------------------------------------------------------------------------------------------
Knocke Kansas Jackson MO Repair NO KCSR/jointly 44-600075831 No No
Yard City Facility/21,000 owned (jointly
sq. ft. owned)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
5. EKC Yard Kansas Jackson MO Intermodal NO KCSR/ jointly $12,000,0044-600075866 No No
City Facility owned (jointly
owned)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
6. Pittsburg PittsburCrawfordKS Repair NO KCSR $28,360,1244-600075832 Post No
Yard Facility (replacement Closing.
and value
Maintenance per
Buildings/ insurance
107,800 report)
sq. ft.
Machine $1,191,120
shop
Store room
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
7. Heavener HeavenerLeFlore OK Yard NO KCSR $986,245 44-600075833 Post No
Yard Office, Closing
small
office
building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
8. Leesville LeesvillVernoa LA Yard NO KCSR $826,672 44-600075851 Post No
Yard Office Closing
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
9. Mossville MossvillCalcasieLA Yard NO KCSR $698,497 44-600075848 Post No
Yard Office Closing.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
10. Spindletop BeaumontJeffersoTX Yard NO KCSR $1,654,97244-600075850 Post No
Yard Office Closing
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
11. Port Port JeffersoTX Yard NO KCSR $1,677,64644-600075849 Post No
Arthur Arthur Office Closing
Yard
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
12. Baton Baton East LA Office YES KCSR 44-60007584, At Closing Yes
Rouge Yard Rouge Baton Building/ 52,53
Rouge 15,000
Parish sq. ft.
1401 Foss $5,947,911
St
$1,083,516
Depot
Office.
Mechanical
Building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
13. New ShrewsbuJeffersoLA Freight NO KCSR $8,393,62944-600075854, Post No
Orleans House 55, 63 Closing
Yard $1,813,310
Engine
House $700,000
Intermodal
Facility
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
14. Old Shell ShrewsbuJeffersoLA Land - YES Rice-Carden $500,000 44-6011041 91 At No
Building Intermodal Closing
Property storage
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
15. Zacha Jet Dallas Dallas TX Intermodal NO KCSR $20,000,0044-600075857, 68 Post No
Facility Closing
and other
assorted
property
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
16. Venice East St. IL Yard/GeneraNO Gateway Western Unknown 36-368179958 No No
Yard St. Clair Office Mortgage
Louis (no
records)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
17. Mexico Mexico Audrain MO Depot NO Gateway Western $640,503 36-368179959 No No
Yard Mortgage
(no
records)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
18. Slater Saline Slater MO Depot NO Gateway Western $389,872 36-368179960 No No
Yard ($500,000 Mortgage
replacement (no
cost per records)
insurance
report)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
19. Pearl Yard Jackson Rankin MS Intermodal NO KCSR $10,000,0044-600075865 Post No
Facility Closing
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
20. Sallisaw SallisawSequoya OK Intermodal NO KCSR $1,000,00044-600075867 Post No
Yard Facility Closing
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
21. Deramus N. Caddo LA General Yes KCSR $7,721,599 5 At Closing Yes
Yard Shreveport Office
Bldg 4601
Shreveport
-
Blanchard
Highway
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Customer KCSR $2,000,00044-60007585 At Yes
Service FMV Closing
Center
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Car Shop KCSR $8,306,37844-60007585 At Closing Yes
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Diesel KCSR $4,834,39744-60007585 At Closing Yes
Service
Building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Division KCSR $2,158,54144-60007585 At Closing Yes
Store Room
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Diesel KCSR $1,875,25444-60007585 At Closing Yes
Fuel Tanks
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Wheel Shop KCSR $1,789,40244-60007585 At Closing Yes
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cafeteria KCSR $1,671,48244-60007585 At Closing Yes
Building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
KCST KCSR $1,191,84544-60007585 At Closing Yes
Building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Yard KCSR $958,145 44-60007585 At Closing Yes
Office
500 N.
Lakeshore
Dr.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Truck KCSR $917,292 44-60007585 At Closing Yes
Garage
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Running KCSR $912,108 44-60007585 At Closing Yes
Repair
Building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Sand KCSR $709,030 44-60007585 At Closing Yes
Blast
Building
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Diesel KCSR $14,723,7144-60007585 At Closing Yes
Shop
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Intermodal KCSR Trans $5,000,00044-60007585 At Closing Yes
Facility Service
4365
Blanchard
Road
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
22. Piggly N. Caddo LA Warehouse/ YES Rice Carden $130,680 44-60110418 At Closing Yes
Wiggly Shreveport 354,000 (successor by -
Warehouse sq. ft. merger to 201,360
(Walmart) (individual Tolmak) (Land)
N. parcel
Lakeshore within
Drive Deramus $3,181,820-3,181,820
Yard (Warehouse)
Total
may be
$5,047,000
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
No. City County State DescriptionLegal Any Owning Entity Value Fed ID # Former To be Title
Leases? PropertMortgaged? Insurance
No.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
23. N. & N. Caddo LA Land YES Rice-Carden $386,000-744-601104123 At Yes
adjacent Shreveport (individual (together Closing
to Piggly parcel with
Wiggle within No.24)
Whse Deramus
Yard)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
24. JD N. Caddo LA Land YES Rice Carden $386,000-744-601104116 At Closing Yes
Woolworth Shreveport (together
Tr with No.
23)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
25. Steeltown Port JeffersoTX Coal and YES Pabtex, Inc. 9 At Closing Yes
Arthur Coke (improvements)
Handling
Facility
(PABTEX)
Port JeffersoTX Land Rice-Carden $700,000 44-60110419 At Closing Yes
Arthur (Land) (Land)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Steeltown Port JeffersoTX Land YES Rice-Carden $500,000-644-601104124 At Closing Yes
Industrial Arthur
Park
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
26. Hollyfield Port JeffersoTX Waterfront YES Rice-Carden $4,900,00044-601104110 At Closing Yes
Property Arthur docks,
Parcel C land for
development
1,025
acres
Docks at
Slip No. 3
Docks at
Turning
Basin
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Hollyfield Port JeffersoTX Bulk YES KCSI $2,000,000 10 At Closing Yes
C Arthur Handling book
Facility value
(PABFAC)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Hollyfield Port JeffersoTX Intermodal YES Joint KCSR and $2,000,000 69 At Closing Yes
C Arthur Facility Southern Norfolk
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Hollyfield Port JeffersoTX Land YES Rice-Carden $100,000-144-601104182 At Closing Yes
Property Arthur
Parcel A
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Hollyfield Port JeffersoTX Land YES Rice-Carden $100,000-144-601104183 At Closing Yes
Property Arthur
Parcel B
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
27. Hoeschst Port JeffersoTX Land YES YES Rice-Carden $5,400,00044-601104111 At Closing Yes
Celanese Arthur
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
28. Port JeffersoTX Building Rice-Carden $1,125,00044-601104127 No. No
Arthur at Slip (Demolished)
No. 3
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
29. Port JeffersoTX 7 steel Rice-Carden $3,960,00044-601104129 No. No
Arthur storage (Demolished)
tanks
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
30. Port JeffersoTX Watertower/pump Rice-Carden $1,040,00044-601104130 No No
Arthur station (Demolished)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
31. Spindletop-BeaumontJeffersoTX Land and YES Rice-Carden $215,000-244-601104117 At Closing Yes
Warehouse Warehouses (Land)
Property
$2,035,000-2,260,000
(Warehouse)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
32. Intentionally Omitted
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
33. Jandon Jandon Cass MO Land YES Rice-Carden $1,432,80044-601104112 At Closing Yes
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Jandon Jandon Johnson KS Land YES Rice-Carden $687,200-844-601110612 At Closing Yes
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
34. Adams Farm Jandon Cass MO Land YES Rice-Carden $432,300-544-601104113 At Closing Yes
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Adams Farm Jandon Cass MO Land YES Rice-Carden $363,700-344-601104113 At Closing Yes
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
35. Intentionally Omitted
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
36. Lake Lake CalcasieLA Land YES Rice-Carden $1,100,00044-601104115 At Closing Yes
Charles Charles
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
37. NBRD Baton East LA Land YES Rice-Carden $4,099,50044-601104118 No (Toxic No
Industrial Rouge Baton property).
Park Rouge
Parish
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
38. SpringfieldAlsen East LA Land YES Rice-Carden $595,000-744-601104119 At Closing Yes
Plantation-EBR Baton
Parish Rouge
Parish
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
39. Munson MarylandEat LA Land Yes Rice-Carden $1,812,00044-601104120 At Closing Yes
Tract-EBR Baton
Parish Rouge
Parish
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
40. Oscar ScotlandEastle LA Land YES Rice-Carden $492,000-544-601104125 At Closing Yes
Reynaud Baton
Estate-EBR Rouge
Parish
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
41. New Wylie Wylie Collin TX Land-Wylie YES YES Rice Carden $2,500,00044-601104121 At Closing Yes
Yard Enterprises (successor by FMV
merger to
Tolmak)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
New Wylie Wylie Collin TX Land-AlametYES Rice Carden $2,100,00044-601104121 At Closing Yes
Yard (successor by FMV
merger to
Tolmak)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
New Wylie Wylie Collin TX Land-HarrisYES KCSR $250,000 44-600075821 At Closing Yes
Yard Book
Value
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
42. NEID-Front Kansas Jackson MO Land YES Rice-Carden $918,000-144-601104122 At Closing Yes
Street & City
Topping
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
43. Coburg Kansas Jackson MO Land YES Rice-Carden $350,000 44-601104172 At Closing No
Yard City -
$500,000
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
44. Numbers 44-53 are
Intentionally Omitted
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
54. Minden Minden Webster LA Land YES Rice-Carden $650,000 44-601104187 At Closing No
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
55 Numbers 55-58 are
Intentionally Omitted.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
59. 12110 Dallas Dallas TX Warehouse YES YES KCSR $3,000,00044-6000758New At Closing No
Garland and 9 Property
Road acres
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
60. 5801 Kansas Jackson MO Truck YES YES Rice Carden $2,200,00044-6011041New At Closing No
Gardner City terminal Property
and 8
acres
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 3.05(c) to the
Credit Agreement
PENDING CONDEMNATION PROCEEDINGS
None.
<PAGE>
Schedule 3.06 to the
Credit Agreement
DISCLOSED MATTERS
LEGAL
Duncan Case
In 1998, a jury in Beauregard Parish, Louisiana returned a verdict
against the Borrower in the amount of $16.3 million. The Louisiana state case
arose from a railroad crossing accident which occurred at Oretta, Louisiana on
September 11, 1994, in which three individuals were injured. Of the three, one
was injured fatally, one was rendered quadriplegic and the third suffered less
serious injures.
Subsequent to the verdict, the trial court held that the plaintiffs
were entitled to interest on the judgment from the date the suit was filed,
dismissed the verdict against one defendant and reallocated the judgment of that
verdict to the remaining defendants. The resulting total judgment against the
Borrower, together with interest, was approximately $26.7 million at September
30, 1999.
On November 3, 1999 the Third Circuit Court of Appeals in Louisiana
affirmed the judgment. Review will now be sought in the Louisiana Supreme Court.
Bogalusa Cases
In July 1996, the Borrower was named as one of 27 defendants in various
lawsuits in Louisiana and Mississippi arising from the explosion of a rail car
loaded with chemicals in Bogalusa, Louisiana on October 23, 1995. As a result of
the explosion, nitrogen dioxide and oxides of nitrogen were released into the
atmosphere over parts of that town and the surrounding area allegedly causing
evacuations and injuries. Approximately 25,000 residents of Louisiana and
Mississippi have asserted claims to recover damages allegedly caused by exposure
to the chemicals.
The Borrower neither owned nor leased the rail car or the rails on
which the rail car was located at the time of the explosion in Bogalusa. The
Borrower did, however, move the rail car from Jackson to Vicksburg, Mississippi,
where it was loaded with chemicals, and back to Jackson where the car was
tendered to the Illinois Central Railway Company ("IC"). The explosion occurred
more than 15 days after the Borrower last transported the rail car. The car was
loaded by the shipper in excess of its standard weight, but under the car's
capacity, when it was transported by the Borrower to interchange with the IC.
The trial of a group of 20 plaintiffs in the Mississippi lawsuits
arising from the chemical release resulted in a jury verdict and judgment in
favor of the Borrower in June 1999. The jury found that the Borrower was not
negligent and that the plaintiffs had failed to prove that they were damaged.
The trial of the Louisiana class action and the trial of another group of
Mississippi plaintiffs could both begin during the year 2000.
ENVIRONMENTAL
Roston Foundry Site
Borrower received a request for information from the United States
Environmental Protection Agency in 1999 concerning a site in Alexandria,
Louisiana called the Ruston Foundry Site. The request for information was for
the purpose of hazard ranking. The site partially consisted of real estate
formerly owned by the Louisiana and Arkansas Railway Company (which has since
been merged into the Borrower) and is adjacent to a right of way currently owned
by the Borrower. The Borrower provided all requested information. At this time
Borrower is monitoring the process. To Borrower's knowledge the hazard ranking
has not been completed.
12th Street Yard, Kansas City, MO
The Gateway Western Railway Company (the "GWWR") is successor in title
of this property to Chicago, Missouri & Western Railroad (the "CMW"), which
purchased this property and others from the Illinois Central (the "IC") in 1987.
The facility has been used as a roundhouse and fueling facility for many years
prior to IC's sale to CMW. GWWR has not used this facility since May 1990.
In 1993, GWWR initiated underground storage tanks removal activities at
a location immediately adjacent to this site. Evidence of significant leakage
was observed and a site investigation was conducted to determine the extent of
leakage. The investigation revealed extensive surface and subsurface soil
contamination and free phase contamination of shallow groundwater. The known
contaminant of concern is diesel fuel and sources were identified to be the
underground storage tanks and the nearby fueling facility. A groundwater
recovery trench and well, with an above ground oil-water separator, was
installed and has been operating since that time in an effort to remove free
phase diesel fuel from the top of the shallow groundwater and to limit further
migration, thereby confining the impacted area to GWWR property.
The Missouri Department of Natural Resources (MDNR) has been advised of
GWWR's findings and approved GWWR's plans to date to remediate excavated soils
from the underground tank holdings and to remove the free phase diesel fuel from
the shallow groundwater. Recovery of free phase diesel fuel from the top of
shallow groundwater and quarterly sampling and reporting to MDNR is ongoing.
Although not required at this time, a plan for remediation of area soils, other
than the UST hold soils, will be required to be prepared and implemented.
GWWR is also entitled under provisions of the CMW-IC environmental
liability agreement, to recover certain environmental investigative and cleanup
costs of historically contaminated sites, in the opinion of GWWR counsel. GWWR
has asserted a timely claim to the IC for recovery of all such GWWR
expenditures, including those associated with this site.
Underground Storage Tanks
GWWR undertook the removal of all known underground storage tanks in
1993. Three USTs at E. St. Louis Yard and two USTs at Venice Yard were removed.
However, during the removals, evidence of historical UST leakage was observed.
Based on this information, plans for remediation and monitoring were developed,
and submitted and approved by the Illinois Environmental protection Agency.
These plans are being implemented for purposes of securing approved closure of
both sites' USTs.
There may also exist other orphan USTs, that is, abandoned and now
lawfully closed, which are yet unknown. Based on historical experience with
railroad real estate, such tanks are left upon the premises by former tenants
and operators.
Securing approved closure of the E. St. Louis and Venice sites is
expected in 2000.
GWWR is also entitled, under provisions of the CMW-IC environmental
liability agreement, to recover certain environmental investigative and cleanup
costs of historically contaminated sites, in the opinion of GWWR counsel. GWWR
has asserted a timely claim to the IC for recovery of all such GWWR
expenditures, including those associated with these sites.
East St. Louis, IL Yard - Mechanical Facilities (existing and former Hump Yard)
GWWR is successor in title of this property to CMW railroad, which
purchased this property and others from IC in 1987. The facility had been used
as a roundhouse and fueling facility for many years prior to IC's sale to CMW.
GWWR has continued to use this existing facility. GWWR has not used the former
Hump Yard fueling facilities.
GWWR has known of contaminated ballast and subsoils in the area of the
existing fueling facility near the existing roundhouse area. GWWR has performed
partial remediation of these materials, known to be contaminated with diesel
fuel. Such materials have been removed and converted to asphaltic pavement
applied elsewhere in this yard facility. Additional track pans have been
installed. Surface runoff is collected and treated at the facility permitted
wastewater treatment unit.
Additional remedial investigations are underway to determine the
character and extent of remaining contamination at this facility. The results of
these studies will enable an estimation of environmental liability at both of
these facilities. Reports are expected in the first quarter of 2000.
GWWR is also entitled, under provisions of the CMW-IC environmental
liability agreement, to recover certain environmental investigative and cleanup
costs of historically contaminated sites, in the opinion of GWWR counsel. GWWR
has asserted a timely claim to the IC for recovery of all such GWWR
expenditures, including those associated with these sites.
Venice, Illinois Yard, Roodhouse, Illinois Yard - Former Roundhouses and
Fueling Facilities
GWWR is successor in title of these properties to CMW railroad, which
purchased these properties and others from IC in 1987. The facilities had been
used as roundhouse and fueling facilities for many years prior to IC's sale to
CMW. GWWR has not used these facilities.
Preliminary investigations of these facilities conducted in 1995 and
1997 indicated likely surface and subsurface soil contamination and a potential
for groundwater contamination from past activities. Additional, more detailed
remedial investigations are underway to determine the character and extent of
contamination at these facilities. The results of these studies will enable an
estimation of environmental liability at these facilities. Reports are expected
in the first quarter of 2000.
GWWR is also entitled, under provisions of the CMW-IC environmental
liability agreement, to recover certain environmental investigative and cleanup
costs of historically contaminated sites, in the opinion of GWWR counsel. GWWR
has asserted a timely claim to the IC for recovery of all such GWWR
expenditures, including those associated with these sites.
Mexico, Missouri Existing Locomotive Service Area and Former Fueling Facility
GWWR is successor in title of this property to CMW, which purchased
this property and others from IC in 1987. These facilities include the existing
locomotive service facility, which has been used by the GWWR, and a former
fueling facility near the southeast leg of the wye, which has not been used by
the GWWR, but had been used as a fueling facility for many years prior to IC'
sale to CMW.
Preliminary investigations of this facility conducted in 1995 and 1997
indicated likely surface and subsurface soil contamination and a potential for
groundwater contamination from past activities. Additional, more detailed
remedial investigations, are underway to determine the character and extent of
contamination at this facility. The results of these studies will enable an
estimation of environmental liability at these facilities. Reports are expected
in the first quarter of 2000.
GWWR is also entitled, under provisions of the CMW-IC environmental
liability agreement, to recover certain environmental investigative and cleanup
costs of historically contaminated sites, in the opinion of GWWR counsel. GWWR
has asserted a timely claim to the IC for recovery of all such GWWR
expenditures, including those associated with these sites.
<PAGE>
<TABLE>
Schedule 3.12 to the
Credit Agreement
SUBSIDIARIES
<S> <C> <C>
Transportation Subsidiaries Percentage of State or other Jurisdiction of
Ownership Incorporation or Organization
Canama Transportation, Inc. (1) 100 Cayman Islands
Caymex Transportation, Inc. (2)* 100 Cayman Islands,
domesticated in Delaware
Gateway Eastern Railway Company (3)* 100 Illinois
Gateway Western Railway Company (4)* 100 Illinois
Global Terminaling Services, Inc. (5)* 100 Delaware
Kansas City Southern Lines, Inc. (6)* 100 Delaware
KCS Transportation Company (2)* 100 Delaware
Mid-South Microwave, Inc. (2)* 100 Delaware
NAFTA Rail, S.A. de C.V. (1) 100 Mexico
SCC Holdings, Inc. (2)* 100 Delaware
North American Freight Transportation Alliance Rail 100 Delaware
Corporation (7)
Port Arthur Bulk Marine Terminal Co. (8) 80 Partnership
Rice-Carden Corporation (2)* 100 Missouri
Southern Development Company (2)* 100 Missouri
Southern Industrial Services, Inc. (7)* 100 Delaware
The Kansas City Southern Railway Company (7)* 100 Missouri
Trans-Serve, Inc. (5)* 100 Delaware
TransFin Insurance, Ltd. (7) 100 Vermont
Veals, Inc. (7)* 100 Delaware
Wyandotte Garage Corporation (7) 80 Missouri
Financial Asset Percentage of State or Other Jurisdiction of
Management Subsidiaries Ownership Incorporation or Organization
Berger LLC (9) 80 Delaware
Berger Distributors, Inc. (10) 100 Delaware
DST Systems, Inc. (9) 32 Delaware
Stilwell Financial, Inc. (6) 100 Delaware
FAM UK Limited (11) 100 United Kingdom
Stilwell Management, Inc. (11) 100 Delaware
Fillmore Agency, Inc. (11) 100 Colorado
Fountain Investments, Inc. (11) 100 Missouri
Fountain Investments UK (11) 100 United Kingdom
Janus Capital Corporation (11) 82 Colorado
Janus Capital International Ltd. (12) 100 Colorado
Janus Distributors, Inc. (12) 100 Colorado
Janus Service Corp. (12) 100 Colorado
Joseph Nelson Limited (13) 100 United Kingdom
Nelson Investment Planning Limited (13) 100 United Kingdom
Nelson Investment Management Limited (13) 100 United Kingdom
Nelson Money Managers plc (15) 80 United Kingdom
PVI, Inc. (11) 100 Delaware
Taproot Limited (13) 100 United Kingdom
(1) Subsidiary of Caymex Transportation, Inc.
(2) Subsidiary of The Kansas City Southern Railway Company
(3) Subsidiary of Gateway Western Railway Company
(4) Subsidiary of KCS Transportation Company
(5) Subsidiary of Southern Industrial Services, Inc.
(6) Subsidiary of Kansas City Southern Industries, Inc.
(7) Subsidiary of Kansas City Southern Lines, Inc.
(8) Subsidiary of Rice-Carden Corporation
(9) Subsidiary of Stilwell Management, Inc.
(10) Subsidiary of Berger LLC
(11) Subsidiary of Stilwell Financial, Inc.
(12) Subsidiary of Janus Capital Corporation
(13) Subsidiary of Nelson Money Managers plc
(14) Subsidiary of Joseph Nelson Limited
(15) Subsidiary of FAM UK Limited
* Indicates those parties which are Loan Parties.
</TABLE>
<PAGE>
<TABLE>
Schedule 3.13 to the
Credit Agreement
INSURANCE
<S> <C> <C> <C> <C> <C>
============================================================================================================================
Coverage Covered Operations Carrier Limits Deductibles Expiration Dates
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Property All rail and Aon Property Facility $175,000,000 $5,000 each/every April 1,2000
("All-risk" coverage) non-rail operations (Swiss Re insurance and loss
various other insurers) $100,000 annual
aggregate (non-rail)
$2,000,000 annual
aggregate (rail)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Rail Liability All railroad Lloyds $250,000,000 $3,000,000 June 1, 2000
(Including FELA) operations Am-Re Managers self-insured
CAN retention
Lexington
(and various other
insurers)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Non-Rail Liability All operations Travelers $25,000,000 None August 1, 2000
(Including automobile except railroad
general liability and
employers liability)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Workers Compensation All operations Travelers Statutory None August 1, 2000
except railroad
============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
13
21042580\V-1
21042580\V-1
Schedule 6.01 to the
Credit Agreement
EXISTING INDEBTEDNESS
<S> <C> <C> <C> <C>
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Obligor Payee Description Maturity Balance
@9/30/99
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City
Southern Railway Chemical Bank Locomotive Purchase 8/04 $4,620,550
Company
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City Chemical Bank Locomotive Purchase 1/03 7,807,834
Southern Railway Company
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City The Chase Manhattan Bank Locomotive Purchase 12/06 43,265,552
Southern Railway Company
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City Bank of New York Locomotive Purchase 5/03 14,405,798
Southern Railway Company
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City Connecticut Bank and Capital Lease/ 6/04 1,156,314
Southern Railway Company Trust Rolling Stock
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City Trinity Industries Capital Lease/ 2/06 614,048
Southern Railway Company Rolling Stock
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
The Kansas City Pitney Bowes Capital Lease/ 9/09 2,339,322
Southern Railway Company Rolling Stock
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Gateway Western Railway State of Illinois Jacksonville 1/06 556,063
Company Rehabilitation Project
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Gateway Western Railway State of Illinois East St. Louis 4/07 242,220
Company Rehabilitation Project
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Gateway Western Railway State of Illinois Roadhouse to 1/07 2,378,894
Company East Louisiana
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Venice Intermodel
Gateway Western Railway State of Illinois Facility 12/09 1,844,644
Company Rehabilitation
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Gateway Eastern Railway State of Illinois Rehabilitation 2/18 914,645
Company Project Wann-Lenox
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Wyandotte Garage Lincoln National Mortgage on Property 12/12 5,653,829
Corporation
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Southern Industrial
Services, Inc./ IRB IRB 5/04 5,000,000
TranServe, Inc.
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Contingent Capital
Kansas City Southern TFM contribution N/A 74,600,000
Industries, Inc. obligation
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
Contingent Capital 7,500,000
Kansas City Southern Panama Canal Railway contribution N/A (+5% of Project
Industries, Inc. Company obligation Completion Costs)
- ------------------------- ------------------------- ----------------------- ------------------- ----------------------
</TABLE>
<PAGE>
<TABLE>
21042580\V-1
Schedule 6.02 to the
Credit Agreement
EXISTING LIENS
<S> <C> <C> <C>
- ------------------------------------- --------------------------------- ------------------------- --------------------
Debtor Secured Party Collateral Debt Secured
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Chemical Bank $4,620,550
Company Specific Locomotives
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Chemical Bank 7,807,834
Company Specific Locomotives
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Bank of New York 14,405,798
Company Specific Locomotives
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway The Chase 43,265,552
Company Manhattan Bank Specific Locomotives
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Connecticut Capital Lease/ 1,156,314
Company Bank and Trust Rolling Stock
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Trinity Capital Lease/ 614,048
Company Rolling Stock
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Pitney Bowes Capital Lease/ 2,339,322
Company Rolling Stock
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
State of Illinois Rehabilitation Project 556,063
Gateway Western Railway Company Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
State of Illinois Rehabilitation Project 242,220
Gateway Western Railway Company Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
State of Illinois Rehabilitation Project 2,378,894
Gateway Western Railway Company Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
State of Illinois Rehabilitation Project 1,844,644
Gateway Western Railway Company Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
State of Illinois Rehabilitation Project 914,645
Gateway Eastern Railway Company Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Lincoln National Real 5,653,829
Wyandotte Garage Corporation Property
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Southern Industrial Services, IRB Plant 5,000,000
Inc./TranServe
- ------------------------------------- --------------------------------- ------------------------- --------------------
</TABLE>
<PAGE>
<TABLE>
Schedule 6.02 to the
Credit Agreement
EXISTING LIENS
<S> <C> <C> <C>
- ------------------------------------- --------------------------------- ------------------------- --------------------
Debtor Secured Party Collateral Debt Secured
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Western State of Missouri [Fixed Assets] Flood
Railway Company Relief Grant
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway GE Capital Fleet Services Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Puckett Machine Company Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway IBM Credit Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Storage Tek Financial Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway General Electric Specific Equipment Operating
Company Capital Corporation Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway GE Capital Modular Trailer Operating
Company Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
</TABLE>
<PAGE>
Schedule 6.07 to the
Credit Agreement
RESTRICTIONS AND CONDITIONS
OF CERTAIN OTHER AGREEMENTS
The Wyandotte Garage Corporation has entered into a mortgage which
restricts its ability to pledge its assets, give guarantees and make
distributions.
<PAGE>
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of January
11, 2000 (as amended and in effect on the date hereof, the "Credit Agreement"),
among Kansas City Southern Industries, Inc., The Kansas City Southern Railway
Company, the lenders from time to time party thereto and The Chase Manhattan
Bank, as administrative agent, collateral agent and issuing bank. Terms defined
in the Credit Agreement are used herein with the same meanings.
The Assignor named below hereby sells and assigns, without
recourse, to the Assignee named below, and the Assignee hereby purchases and
assumes, without recourse, from the Assignor, effective as of the Assignment
Date set forth below, the interests set forth below (the "Assigned Interest") in
the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth below in the Commitment of the
Assignor on the Assignment Date and Revolving Loans owing to the Assignor which
are outstanding on the Assignment Date, together with the participations in
Letters of Credit, LC Disbursements and Swingline Loans held by the Assignor on
the Assignment Date, but excluding accrued interest and fees to and excluding
the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the
Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a
party to and be bound by the provisions of the Credit Agreement and, to the
extent of the Assigned Interest, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest,
relinquish its rights and be released from its obligations under the Credit
Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.17(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee
payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit
Agreement.
This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date"):
<PAGE>
21042580\V-1
Percentage Assigned of
Facility/Commitment (set forth, to at
least 8 decimals, as a Principal Amount
Assigned percentage of the Facility and
(and identifying information the
aggregate Commitments of all as to
individual Competitive Lenders
thereunder) Loans)
Facility
Revolving Commitment Assigned: $ %
Revolving Loans Assigned:
Tranche A Term Loans Assigned:
Tranche B Term Loans Assigned:
Tranche X Term Loans Assigned:
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor] , as Assignor
By: ________________________________
Name:
Title:
[Name of Assignee] , as Assignee
By: ________________________________
Name:
Title:
The undersigned hereby consent to the within assignment: 1/
<PAGE>
THE KANSAS CITY SOUTHERN THE CHASE MANHATTAN BANK,
RAILWAY COMPANY, as Administrative Agent,
By: ________________________ By: ___________________________
Name: Name:
Title: Title:
<PAGE>
FORM OF OPINION OF SONNENSCHEIN NATH & ROSENTHAL EXHIBIT B
SONNENSCHEIN NATH & ROSENTHAL
8000 SEARS TOWER
CHICAGO, ILLINOIS 60606-6404 (312) 876-8000
FACSIMILE
(312) 876-7934
January 11, 2000
To the Lenders, the Administrative
Agent, the Collateral Agent and
the Issuing Bank referred to below
c/o The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, NY 10017
Re: Credit Facilities for the Kansas City Southern Railway Company
Ladies and Gentlemen:
We have acted as counsel for Kansas City Southern Industries, Inc., a
Delaware corporation ("Holdings"), The Kansas City Southern Railway Company, a
Missouri corporation (the "Borrower"), and each other Domestic Subsidiary of
Holdings set forth on Schedule I hereto (which Holdings has advised us includes
all Domestic Subsidiaries which are Significant Subsidiaries), (together with
Holdings and the Borrower, the "Loan Parties"), in connection with the Credit
Agreement dated as of January 11, 2000, among Holdings, the Borrower, the
lenders from time to time party thereto (the "Lenders") and The Chase Manhattan
Bank, as administrative agent (in such capacity, the "Administrative Agent"),
collateral agent (in such capacity, the "Collateral Agent"), issuing bank (in
such capacity, the "Issuing Bank") and swingline lender (the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the same
meanings.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary or advisable
for purposes of this opinion, including (i) the Credit Agreement, (ii) the
Pledge Agreement, (iii) the Security Agreement, (iv) the Guarantee Agreement,
(v) the Indemnity, Subrogation and Contribution Agreement, (vi) each form of
Mortgage, Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Financing Statement described on Schedule II hereto (collectively the
"Mortgage"), to be recorded in the recording offices listed in Schedule II
hereto; (vii) the fee letter from the Administrative Agent and Chase Securities
Inc. dated December 6, 1999 to and acknowledged by Holdings and the Borrower;
(viii) the Perfection Certificate; and (ix) executed copies of the UCC-1
financing statements listed on Schedule III hereto (the "Financing Statements")
(the documents described in the above clauses (i) through (vii) as executed and
delivered on the date hereof being collectively referred to herein as the
"Agreements").
As to questions of fact material to the opinions set forth herein, we
have relied upon the representations of the Loan Parties set forth in the
Agreements, certificates of officers and other representatives of the Loan
Parties and factual information we have obtained from such other sources as we
have deemed reasonable. We have assumed without investigation that there has
been no relevant change or development between the dates as of which the
information cited in the preceding sentence was given and the date of this
letter. We have not independently verified the accuracy of the matters set forth
in the written statements or certificates upon which we have relied, nor have we
undertaken any lien, suit or judgment searches or searches of court dockets in
any jurisdiction. For purposes of the opinion in paragraph 1, we have relied
exclusively upon certificates issued by relevant governmental authorities in the
relevant jurisdictions, and such opinion is not intended to provide any
conclusion or assurance beyond that conveyed by that certificate.
We have assumed (i) the genuineness and authenticity of all documents
examined by us and all signatures thereon, and the conformity to originals of
all copies of all documents examined by us; (ii) that the execution, delivery
and/or acceptance of the Agreements have been duly authorized by all action,
corporate or otherwise, necessary by the parties to the Agreements other than
the Loan Parties (those parties other than the Loan Parties are hereinafter
collectively referred to as the "Other Parties") and that the Agreements are
enforceable against the Other Parties to the extent a party thereto; (iii) the
legal capacity of all natural persons executing the Agreements; (iv) that each
of the Other Parties has satisfied those legal requirements that are applicable
to it to the extent necessary to make the Agreements enforceable against it; (v)
that each of the Other Parties has complied with all legal requirements
pertaining to its status as such status relates to its rights to enforce the
Agreements; (vi) the payment by the Loan Parties' stockholders of each of the
Pledged Subsidiaries (or prior holders of each of their shares of stock) of the
full and sufficient consideration due from them to the applicable issuer of such
shares upon issuance of such shares; (vii) that the Agreements accurately
describe and contain the mutual understandings of the parties, and that there
are no oral or written statements or agreements or usages of trade or courses of
prior dealings among the parties that would modify, amend or vary any of the
terms of the Agreements; (viii) that the Other Parties will act in accordance
with, and will refrain from taking any action that is forbidden by, the terms
and conditions of the Agreements; (ix) the constitutionality or validity of a
relevant statute, rule, regulation or agency action is not in issue; (x) that
each Loan Party holds requisite title and rights to property involved in the
transactions contemplated by the Agreements; (xi) all agreements other than the
Agreements which we have reviewed in connection with our letter would be
enforced as written; (xii) that there has not been any mutual mistake of fact or
misunderstanding, fraud, duress or undue influence; (xiii) that each of the
Other Parties and any agent acting for any of them in connection with the
Agreements have acted without notice of any defense against the enforcement of
any rights created by, or adverse claim to any property in which a security
interest is purported to be created pursuant to, the Agreements, (xiv) none of
the Collateral consists or will consist of consumer goods, equipment used in
farming operations, farm products, crops, timber or minerals and the like
(including oil and gas) or accounts resulting from the sale thereof, any
beneficial interest in a trust or a decedent's estate or letters of credit; (xv)
the representations and warranties in the Agreements and the information on the
schedules to all Agreements regarding the locations and descriptions of
Collateral and chief executive office and other matters are accurate and
complete; (xvi) no accounts, chattel paper or general intangibles are or will be
due from the United States or any State of the United States or any agency or
department of the United States or of any State; (xviii) that no Subsidiary Loan
Party is insolvent or rendered insolent by virtue of the Loan Party's
obligations incurred under the Agreements to which it is a party; and (xix) the
Lenders have given value to each of the Loan Parties within the meaning of
Section 9-203 of the Uniform Commercial Code as in effect in the State(s) of
Illinois, Kansas and Missouri (the "UCC").
We confirm that we do not have any actual knowledge which has caused us
to conclude that our reliance and assumptions cited in the two preceding
paragraphs are unwarranted or that any information supplied in this letter is
wrong.
As used in this opinion with respect to any matter, the qualifying
phrase "to the best of our knowledge" or "our actual knowledge" or such similar
phrase means the conscious awareness of facts or other information by: (i) the
lawyer signing this opinion; (ii) any lawyer who has had active involvement in
negotiating or preparing the Agreements or this opinion or has had a substantial
role in advising Holdings in connection with the Spin-Off. In this regard, it is
noted that we have not made any special review or investigation in connection
with rendering any opinion so qualified other than inquiry of various officers,
in-house legal counsel and key employees of the various Loan Parties and a
review of material agreements brought to our attention.
Based on the foregoing, and in reliance thereon, and subject to the
qualifications, limitations and exceptions stated herein, we are of the opinion,
having due regard for such legal considerations as we deem relevant, that:
1. Each Loan Party (a) is validly existing and in good standing under
the laws of its jurisdiction of organization and is a foreign corporation
qualified to do business and in good standing in each jurisdiction as set forth
on Schedule I attached hereto and (b) has the corporate power and authority to
carry on its business as now conducted.
2. The execution and delivery of the Perfection Certificate and the
Financing Statements and the execution, delivery and performance of each of the
Agreements are within each Loan Party's corporate powers and have been duly
authorized by all necessary corporate and, if required, stockholder action. The
Agreements have been duly executed and delivered by each Loan Party a party
thereto, as applicable, and constitute legal, valid and binding obligations of
each Loan Party, as applicable, enforceable in accordance with their terms.
3. The execution, delivery and performance of the Agreements by each
Loan Party thereto: (a) does not require any consent or approval of,
registration or filing with or any other action by any Governmental Authority,
(b) will not violate any applicable law or regulation or the charter or by-laws,
or any other organizational documents or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
material agreement or other material instrument of which we are aware and which
are binding upon any Loan Party or any Loan Party's assets, or give rise to a
right thereunder to require any payment to be made by any Loan Party and (d)
will not result in the creation or imposition of any Lien on any asset of any
Loan Party, except Liens created under the Agreements, except, in each case, (i)
such consents, approvals, registration and filings which have been obtained or
made and are in full force and effect, (ii) filings necessary to perfect Liens
created under the Agreements and (iii) in any case where, individually or in the
aggregate, the failure to file, obtain consent or any violation could not
reasonably be expected to result in a Material Adverse Effect.
4. To the best of our knowledge, there are no actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending
against or threatened against or affecting any Loan Party (a) as to which there
is a reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect (other than as described in Holdings Form 10K
filed with the SEC for fiscal year ended December 31, 1998 and the Disclosed
Matters) or (b) that involve the Agreements or the Transactions.
5. No Loan Party is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
6. Execution and delivery of the Pledge Agreement, together with
delivery to and the continued possession by the Collateral Agent of (i) all the
Equity Interests pledged under the Pledge Agreement (the "Pledged Equity
Interests") which are (a) represented by certificates, together with stock
powers properly executed in blank with respect thereto or (b) upon the proper
filing of the Financing Statements in the jurisdictions noted thereon and (ii)
all notes representing Indebtedness pledged under the Pledge Agreement (the
"Pledged Indebtedness") together with the note powers properly executed in blank
with respect thereto will, in each case, create and perfect a valid security
interest in the Pledged Equity Interests and Pledged Indebtedness pledged on the
date hereof under the Pledge Agreement.
7. The provisions of the Security Agreement are sufficient to create in
favor of the Collateral Agent for the benefit of the Secured Parties a legal,
valid and enforceable security interest in all right, title and interest of the
respective Loan Parties in the Collateral located in the states of Illinois,
Kansas and Missouri described therein to the extent a security interest can be
created in such Collateral under Article 9 of the Uniform Commercial Code as in
effect in the states of Illinois, Kansas and Missouri. We have examined the
Financing Statements to be filed in the filing offices (the "UCC Filing
Offices") listed for the Loan Parties on Schedule III attached hereto, and upon
the filing of the Financing Statements in the UCC Filing Offices, the Collateral
Agent shall have a perfected security interest in those items and types of
Collateral described in the Security Agreement which are located or deemed
located in Illinois, Missouri or Kansas and in which a security interest may be
perfected by filing a financing statement under Article 9 of the UCC (the "UCC
Collateral").
8. Neither the Administrative Agent, the Collateral Agent nor any
Lender is required to pay any tax or be qualified to do business or file any
designation for service of process or file any reports in the States of
Illinois, Missouri and Kansas or comply with any statutory or regulatory rule or
requirement applicable only to financial institutions chartered or qualified to
do business in the States of Illinois, Missouri and Kansas solely by reason of
its execution and delivery or acceptance of the Mortgage or the other Agreements
or by reason of its participation in any of the transactions under or
contemplated by the Credit Agreement, including, without limitation, the making
of any Loan, the issuance of any Letter of Credit, the making and receipt of
payments pursuant thereto, and the exercise of any right or remedy under or with
respect to the Mortgage, the Credit Agreement or the Security Agreement, and the
validity of the Mortgage and the other Agreements will not be affected by any
failure to so qualify or file. In the states of Missouri and Kansas, the
Administrative Agent, the Collateral Agent and/or the Lender may be required to
quality to do business in such states if, in the exercise of their rights and
remedies, they operate or otherwise conduct business on or with the property
secured by the Mortgage or the Security Agreement.
9. Recording the Mortgage creates (i) a valid mortgage or deed of trust
lien upon such of the Mortgaged Property described therein as constitutes real
property under the law of the States of Illinois, Missouri and Kansas (the "Real
Property") and (ii) a valid security interest in such of the other Mortgaged
Property described therein as is subject to the provisions of Article 9 of the
UCC to the extent such security interest may be perfected by filing under the
UCC in the states of Illinois, Kansas and Missouri (the "UCC Property"), in each
case in favor of the Collateral Agent for the ratable benefit of the Secured
Parties. The recording of the Mortgage in the offices designated in Schedule II
hereto are the only filings, recordings and registrations necessary to perfect,
publish notice of and preserve the Lien of and security interest in the Real
Property located with the county in which each such office is located.
10. Except for the mortgage recordation tax payable in Kansas, no taxes
or other charges, including, without limitation, intangible or documentary stamp
taxes, mortgage or recording taxes, transfer taxes or similar charges, are
payable to the State of Illinois, Missouri or Kansas or to any jurisdiction
therein on account of the execution or delivery of the Mortgage, the Security
Agreement or the other Agreements, the creation of the indebtedness evidenced or
secured thereby, the creation of the Liens and security interests thereunder, or
the filing, recording or registration of the Mortgage or the Financing
Statements, except for nominal filing or recording fees.
11. The Liens and security interests created by the Mortgage and the
Security Agreement on or in the Mortgaged Property and the UCC Property validly
secure the payment of all future Loans made by the Lenders to, and reimbursement
obligations with respect to future Letters of Credit issued for the account of
the Borrower, whether or not at the time such Loans are made or Letters of
Credit are issued an Event of Default or other event not within the control of
the Lenders has relieved or may relieve the Lenders from their obligations to
make such Loans or the Issuing Bank from their obligations to issue Letters of
Credit, and are perfected to the extent set forth in paragraph 7 above with
respect to such future Loans and Letters of Credit. The priority of the Liens
and security interests created by the Mortgage and the Security Agreement will
be the same with respect to future Loans and Letters of Credit as with respect
to Loans made and Letters of Credit issued on the date hereof, except to the
extent that any priority may be affected by any security interest, Lien or other
encumbrance imposed by law in favor of any government or governmental authority
or agency and, with respect to Illinois, except to the extent that such future
loans are made, or future Letters of Credit are issued, more than twenty (20)
years from the date hereof. The foregoing opinions in this paragraph 11
concerning the creation of valid security interests in and priority of future
loans and reimbursement of future Letters of Credit are valid only up to the
maximum amount as set forth in each mortgage. We call to your attention the fact
that the Mortgage covering Real Property in Kansas will not secure future
advances unless (i) the additional Loans are the same kind or quality or relate
to the same transaction or series of transactions as the original loans, or (ii)
the note or other evidence of indebtedness specifically states on its face that
it is secured by the Mortgage.
12. The Mortgage, the Security Agreement and the Financing Statements
conform to the recording requirements of the States of Illinois, Kansas and
Missouri and the Mortgage and the Security Agreement contain substantially all
of the remedial, waiver and other provisions normally contained in mortgages or
deeds of trust and security agreements used in connection with transactions of
the type and value described in the Agreements.
13. The choice of New York law to govern the Agreements (other than the
Mortgage) in which such choice is stipulated is an effective choice of law,
except where there is no logical or reasonable basis for the choice of New York
law and except where the choice of New York law infringes upon a fundamental
policy of the applicable state. Under Illinois law the provision of the
Agreements (excluding the Mortgage) stating that New York law will govern those
Agreements are enforceable in Illinois so long as the court enforcing such
provisions finds that New York bears a reasonable relationship to the
transaction contemplated by the Agreements and that enforcement of the
Agreements in accordance with New York law is not dangerous, inconvenient,
immoral or contrary to the public policy of Illinois. Our opinion herein,
insofar as it relates to the enforceability of the choice of law provisions of
the Agreements designating New York law as the law applicable to the
construction and interpretation of the Agreements by courts of the State of New
York and Federal courts located within the State of New York, is predicated upon
the language of Sections 5-1401 and 5-1402 of the New York General Obligations
Law. We point out that, notwithstanding the language of Sections 5-1401 and
5-1402 of the New York General Obligations Law, state and Federal courts located
within the State of New York have taken into consideration, and may continue to
take into consideration, in determining whether to give full force and effect to
a contractual choice of law provision specifying New York law as applicable,
whether New York has contacts with the transaction at issue which are so minimal
as to make enforcing the choice of law provision inappropriate or unreasonable.
Whether the contacts between the loan transaction and the State of New York are
insufficient to support the choice of New York law specified in the Agreements
is a factual question which cannot be answered with certainty. We point out that
the creation, perfection and enforcement of any security interest in and to all
or any part of the Mortgaged Property under the Mortgage or any other Agreements
will, in all likelihood, be governed by the law of the jurisdiction in which the
Mortgaged Property is located and not by the laws of the State of New York.
14. In connection with the remedies provided in the Mortgage and the
Security Agreement:
(i) The exercise at any time and in any order of any
remedies available against the UCC Property or the UCC
Collateral relating to the Mortgaged Property located within
the States of Kansas, Missouri or Illinois, would not be
affected by, nor would the exercise at any time of such
remedies affect, the exercise of any remedies relating to the
Real Property, unless the Secured Obligations have been paid
and performed in full.
(ii) The exercise of any remedies with respect to any
security or collateral located outside of the States of
Kansas, Missouri or Illinois securing the Obligations will not
affect or limit the Administrative Agent's ability to
foreclose against, or exercise any other remedies with respect
to, the Mortgaged Property or UCC Collateral, either
contemporaneously with, or before or after the exercise of
such remedies against the Collateral located outside of the
States of Kansas, Missouri or Illinois, except to the extent
that the fair value of such security or collateral so sold or
disposed of has been appropriately applied to the payment of
such obligations, or unless such obligations have been paid
and performed in full.
(iii) There is no "one form of action" or similar law
in the States of Kansas, Missouri or Illinois which would
limit the Secured Parties to choosing only one remedy to
enforce their rights under the Mortgage and the other
Agreements.
15. To the extent so empowered under the Agreements and New York law,
the Collateral Agent will have the power without naming all of the Secured
Parties, to exercise remedies under the Mortgage in the states of Illinois and
Kansas, for the realization of the Mortgaged Property or the Collateral (as the
case may be) in its name as Collateral Agent. In the state of Missouri, the
trustee will have the power without naming all of the Secured Parties, to
exercise remedies under the Mortgage.
16. The making of the Loans and the application of the proceeds thereof
by the Loan Parties as provided in the Agreements will not result in a violation
of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
Our opinions as herein expressed are subject to the following
qualifications and limitations:
1. Our opinions are subject to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws.
This exception includes:
(a) the Federal Bankruptcy Code and thus comprehends, among
others, matters of turn-over, automatic stay, avoiding powers,
fraudulent transfer, preference, discharge, conversion of a
non-recourse obligation into a recourse claim, limitations on ipso
facto and anti-assignment clauses and the coverage of pre-petition
security agreements applicable to property acquired after a petition is
filed;
(b) all other Federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and assignment
for the benefit of creditors laws that affect the rights of creditors
generally or that have reference to or affect only creditors of
specific types of debtors;
(c) state fraudulent transfer and conveyance laws; and
(d) judicially developed doctrines in this area, such as
substantive consolidation of entities and equitable subordination.
2. Our opinions are subject to the effect of general principles
of equity, whether applied by a court of law or equity. This limitation
includes principles:
(a) governing the availability of specific performance,
injunctive relief or other equitable remedies, which generally place
the award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief is made;
(b) affording equitable defenses (e.g., waiver, latches
and estoppel) against a party seeking enforcement;
(c) requiring good faith and fair dealing in the
performance and enforcement of a contract by the party seeking its
enforcement;
(d) requiring reasonableness in the performance and
enforcement of an agreement by the party seeking enforcement of the
contract;
(e) requiring consideration of the materiality of
(i) a breach and (ii) the consequences of the breach to the party
seeking enforcement;
(f) requiring consideration of the impracticability
or impossibility of performance at the time of attempted enforcement;
and
(g) affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into the
contract.
3. Our opinions are subject to the effect of the rules of law
that:
(a) limit or affect the enforcement of provisions of a
contract that purport to waive, or to require waiver of, (i) the
obligations of good faith, fair dealing, diligence and reasonableness,
(ii) broadly or vaguely stated rights, (iii) statutory, regulatory or
constitutional rights, except to the extent that the statute,
regulation or constitution explicitly allows waivers; (iv) unknown
future defenses; and (v) rights to damages.
(b) provide that choice of law, forum selection, consent to
jurisdiction, consent to and specification of service of process and
jury waiver clauses in contracts may not be enforceable.
(c) limit the enforceability of provisions releasing,
exculpating or exempting a party from, or requiring indemnification
of a party for, liability for its own action or inaction;
(d) may, where less than all of a contract may be
unenforceable, limit the enforceability of the balance of the contract
to circumstances in which the unenforceable portion is not an essential
part of the agreed exchange;
(e) govern and afford judicial discretion regarding the
determination of damages and entitlement to attorneys' fees and other
costs;
(f) may permit a party that has materially failed to render or
offer performance required by the contract to cure that failure unless
(i) permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or (ii) it was
important in the circumstances to the aggrieved party that performance
occur by the date stated in the contract;
(g) limit the right of a creditor to use force or cause a
breach of the peace in enforcing rights;
(h) relate to the sale of disposition of collateral or
the requirements (including, without limitation, notice) of a
commercially reasonable sale;
(i) may in the absence of a contemporaneous waiver or consent,
discharge a guarantor to the extent that (i) action by a creditor
impairs the value of collateral security for guaranteed debt to the
detriment of a guarantor, or (ii) a guaranteed obligation is materially
modified; or
(j) may restrict or prohibit the ability of the Collateral
Agent to collect rents and profits prior to the time the Collateral
Agent takes legal possession.
4. We express no opinion as to the laws of any jurisdiction other than
the laws of the States of Illinois, Missouri, Kansas and New York (excluding, in
each case, local laws), Delaware corporate laws and the federal laws of the
United States of America. Our opinions herein are expressly limited to the
application and interpretation of the laws of each state by a court of competent
jurisdiction in that state only.
5. Except to the extent that such issues are specifically
addressed herein, we express no opinion as to any of the following legal issues:
(a) pension and employee benefit laws and regulations
(e.g., ERISA);
(b) compliance with fiduciary duty requirements;
(c) fraudulent transfer and fraudulent conveyance laws;
(d) Federal and state tax laws and regulations;
(e) Federal and state laws, regulations and policies
concerning (i) national and local emergency, (ii) possible judicial
deference to acts of sovereign states, and (iii) criminal and civil
forfeiture laws;
(f) Federal and state securities laws and regulations; and
(g) Other Federal and state statutes of general application
to the extent they provide for criminal prosecution (e.g., mail fraud
and wire fraud statutes).
6. We call to your attention the fact that the perfection of the
security interests subject to our opinions, to the extent that perfection
requires the filing of financing statements under the UCC, will be terminated
(a) as to any Collateral acquired by the Loan Parties more than four months
after such Person changes name, identity or corporate structure so as to make
the Financing Statements seriously misleading, unless new appropriate financing
statements indicating the new name, identity or corporate structure of such
Person are properly filed before the expiration of such four month period, and
(b) as to any Collateral consisting of accounts or general intangibles, four
months after any of the Loan Parties changes its chief executive office to a new
jurisdiction unless such security interests are perfected in such new
jurisdiction before that termination.
7. Our opinions in paragraphs 6 and 7 above are subject to the
following qualifications:
(a) The enforcement of the Security Agreement may be subject
to rights of lessees or account debtors, the terms of leases or other
contracts between the Loan Parties and such lessees or account debtors
or other contacts between the Loan Parties and such lessees or account
debtors arising under or outside such leases or other contracts;
(b) We call to your attention that in the case of instruments
(as such term is defined in Article 9 of the UCC) not constituting part
of chattel paper (as such term is defined in Article 9 of the UCC),
security interests therein cannot be perfected by the filing of the
Financing Statements but will be perfected if possession of such
instruments is obtained in accordance with the provisions of Articles 8
and 9 of the UCC.
(c) We call to your attention the fact that in the case of all
Collateral, Article 9 of the applicable UCC requires the filing of
continuation statements within the period of six months prior to the
expiration of five years from the date of the original filings, in
order to maintain the effectiveness of the filings referred to in this
opinion;
(d) We call to your attention that your security interest in
such collateral consisting of proceeds is limited to the extent set
forth in Section 9-306 of UCC.
8. We express no opinion as to:
(a) the existence of any Person's ownership rights in or title
to, or priority of any lien on or with respect to, any property or
assets, including the Collateral;
(b) the validity, perfection or priority of any liens subject
to our opinion above as they relate to any interest in or claim in or
under any policy of insurance, except a claim to proceeds payable by
reason of loss or damage under insurance policies maintained with
respect to Collateral as required by and in compliance with the
Security Agreement;
(c) the validity, perfection or priority of any liens with
respect to any property or assets which are excluded under Section
9-104 of the UCC, including, without limitation, any patents,
trademarks and copyrights, which are subject to (x) a statute or treaty
of the United States which provides for a national or international
registration or a national or international certificate of title for
the perfection or recordation of a lien therein or which specifies a
place of filing different from that specified in the UCC for filing to
perfect or record such lien or (y) a certificate of title statute;
(d) collateral consisting of claims against any government or
governmental agency (including without limitation the United States of
America or any state thereof or any agency or department of the United
States of America or any state thereof);
(e) the enforceability of any provision purporting to govern
submission to jurisdiction or forum selection or to effect any waiver
of objection to venue or that a court is an inconvenient forum, to the
extent that any relevant action or proceeding is not in consideration
of and does not at all relevant times relate to and constitute an
obligation arising out of a transaction covering, in the aggregate, not
less than $l,000,000, or to the extent that the validity, binding
effect or enforceability of any such provision is to be determined by
any court other than a court of the State of New York or a Federal
court located in the State of New York;
(f) the enforceability of any provision purporting to give
Lenders the right to pursue remedies in contravention of ss.ss. 1301
and 1371 of the New York Real Property Actions and Proceedings Law;
(g) the enforceability of any provision purporting to give
Lenders the right to obtain a default order or judgment against the
Loan Parties in the absence of such party's (or such party's duly
appointed agent's) actual receipt of service of a summons and complaint
(or other appropriate legal process papers) or to accelerate
obligations, exercise remedies or foreclose upon collateral without any
notice to the Loan Parties;
(h) the enforceability of any provision purporting to cause an
indemnification, guaranty or undertaking to survive repayment of the
Loan or the satisfaction, foreclosure, settlement, discharge or other
termination of the Loan and the Agreements;
(i) the enforceability of any provision purporting to limit
the ability of the Loan Parties to transfer (voluntarily or
involuntarily, by way of sale, creation of a security interest,
attachment, levy, garnishment or other judicial process) its right,
title or interest in or to any Collateral to the extent the same is
deemed an undue restraint on alienation;
(j) the enforceability of any provision requiring or relating
to the payment of interest (or discount or equivalent amounts) or any
premium or "make whole" payment at a rate or in an amount, after the
maturity or after or upon acceleration of the respective liabilities
evidenced or secured thereby, or after or during the continuance of any
default, event of default or other circumstance, or upon prepayment,
which a court may determine to be unreasonable, a penalty or a
forfeiture;
(k) the enforceability of any provision purporting to create
or waive a trust, agency, attorney-in-fact or other fiduciary
relationship;
(l) the enforceability of any provision purporting to grant a
security interest in or a Lien on any after-acquired Collateral to the
extent such Collateral consists of real property or any interest
therein; or
(m) the enforceability of any provision purporting to
incorporate other documents, instruments or exhibits by reference and
no opinions afforded herein are given with respect to any document,
instrument, or exhibit so incorporated or referenced.
9. The provisions regarding the remedies available to the Collateral
Agent on default as set forth in the Mortgages may be subject to certain
procedural requirements that are not expressly stated in the Mortgages.
10. We express no opinion with respect to any of the following
provisions if they are contained in any of the Agreements (i) self-help,
non-judicial remedies or provisions purporting to grant a right of possession
without resort to judicial action, (ii) any provisions that entitle the
Collateral Agent, as a matter of right, to the appointment of a receiver, (iii)
any provisions imposing penalties, forfeitures, increased interest rates and/or
late payment charges upon delinquency in payment or the occurrence of a default,
(iv) any provision that authorizes the entry of a confession of judgment, (v)
any provision pursuant to which a party has granted to another party any power
to execute documents, settle claims or appear in judicial proceedings on behalf
of such party or to take any other action on behalf of such party, and (vi) any
power of sale or other provision granting to Administrative Agent a right to
foreclose on the Mortgaged Property non-judicially.
11. We offer no opinion on whether a court would give effect to the
provisions of the Mortgages that purport to create an absolute assignment rather
than a collateral assignment or that state that the rents due under any leases
do not constitute property of the Loan Parties (or of any estate of the Loan
Parties) within the meaning of 11 U.S.C. ss. 541.
12. If, and to the extent, any of the Agreements are construed to
provide for the payment of interest on interest, such provisions may be
unenforceable under Bowman v. Neely, 137 Ill. 443 (1891) and other cases to the
same effect. While such cases have not been overruled and it is possible that a
court would follow such precedent, we believe that such cases are unlikely to be
held applicable today in commercial real estate transactions, but render no
opinion with respect to such issue.
13. We have not reviewed and do not opine as to compliance by the
Mortgaged Property with applicable zoning, health, safety, building,
environmental, land use or subdivision laws, ordinances, codes, rules or
regulations.
14. We draw your attention to the fact that 735 ILCS 5/15-1602 grants a
mortgagor the right, which in certain circumstances is exercisable not more than
one in any five year period, to cure the default of a loan secured by real
estate within certain time periods specified in such statute.
15. We express no opinion as to whether the descriptions of the
Mortgaged Property are sufficiently detailed to cause the Mortgage to create a
Lien thereon.
16. We call to your attention the fact that in the case of licenses or
permits, the Loan Parties may not have sufficient rights therein for your
security interest to attach and even if the a Loan Party has sufficient rights
for your security interest to attach, exercise of remedies may be limited by the
terms of the license or permit or require the consent of the issuer of such
license or permit.
17. We call your attention to the fact that the enforceability of any
provision purporting to require the Loan Parties to execute promissory notes in
the future is subject to general principles of equity, and the discretion of a
court of equity as to whether such a provision should be enforced.
This opinion is rendered on the date hereof and we have no continuing
obligation hereunder to inform you of changes of law or fact subsequent to the
date hereof or facts of which we have become aware after the date hereof. This
opinion covers matters as of the date hereof and does not address events which
take place after the date hereof but are contemplated by any of the Agreements,
including, without limitation any agreements or amendments to the Agreements
executed after the date hereof.
This opinion is limited to the matters set forth herein; no opinion may
be inferred or implied beyond the matters expressly stated in this letter.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other Person (other than your successors and assigns as
Lenders and Persons that acquire participations in your Loans) without our prior
written consent.
Very truly yours,
SONNENSCHEIN NATH & ROSENTHAL
<PAGE>
SCHEDULE I
Caymex Transportation, Inc. SCC Holdings, Inc.
Delaware (domestic) Delaware (domestic)
Gateway Eastern Railway Company Southern Development Company
Illinois (domestic) Missouri (domestic)
Gateway Western Railway Company Southern Industrial Services, Inc.
Illinois (domestic) Delaware (domestic)
Kansas Kansas
Missouri Missouri
Global Terminaling Services, Inc. The Kansas City Southern Railway
Delaware (domestic) Company
Missouri Alabama
Texas Arkansas
Kansas
Kansas City Southern Industries, Inc. Louisiana
Missouri (domestic) Missouri (domestic)
Oklahoma
Kansas City Southern Lines, Inc. Tennessee
Delaware (domestic)
Missouri Trans-Serve, Inc.
Arkansas
KCS Transportation Company Delaware (domestic)
Delaware (domestic) Louisiana
Missouri
Veals, Inc.
Mid-South Microwave, Inc. Arkansas
Arkansas Delaware (domestic)
Delaware (domestic) Kansas
Kansas Louisiana
Louisiana Missouri
Missouri Oklahoma
Oklahoma
Texas
Rice-Carden Corporation
Arkansas
Louisiana
Missouri (domestic)
Oklahoma
Texas
<PAGE>
SCHEDULE I
Berger, LLC
Colorado (domestic)
Nevada
Janus Capital Corporation
Colorado (domestic)
Janus Capital International Ltd.
Colorado (domestic)
Connecticut
Janus Distributors, Inc.
Colorado (domestic)
Janus Service Corporation
Colorado (domestic)
Texas
Stilwell Financial, Inc.
Colorado (domestic)
Missouri
Stilwell Management, Inc.
Colorado (domestic)
<PAGE>
Schedule II
To
Opinion of Sonnenschein Nath & Rosenthal
<TABLE>
<S> <C>
- ---------------------------------------------------- --------------------------
Form of Mortgage Counties
- ---------------------------------------------------- --------------------------
- ---------------------------------------------------- --------------------------
Jackson
Form of Mortgage [Deed of Trust] to be Cass
Filed in Missouri/Borrower as Bates
Mortgagor/Grantor Vernon
Barton
Jasper
Newton
McDonald
--------------------------
- ---------------------------------------------------- --------------------------
Form of Mortgage to be filed in Crawford
Kansas/Borrower as Mortgagor
--------------------------
- ---------------------------------------------------- --------------------------
Form of Mortgage [Deed of Trust] to be
filed in Missouri/Southern Development Jackson, Missouri
Corporation as Mortgagor/Grantor
- ---------------------------------------------------- --------------------------
--------------------------
Sangamon, IL
Morgan
Form of Mortgage to be filed in Illinois Scott
against Gateway Western Railway Greene
Company Jersey
Madison
St. Clair
Pike
- ----------------------------------------------------
- ---------------------------------------------------- --------------------------
Pike
Audrain
Form of Mortgage to be filed in Missouri Callaway
against Gateway Western Railway Randolph
Company Boone
Howard
Saline
Lafeyette
Jackson
Ralls
- ----------------------------------------------------
- ---------------------------------------------------- --------------------------
Form of Mortgage [Deed of Trust] to be Cass, Missouri
filed in Missouri/Rice-Carden Corporation as Jackson, Missouri
Grantor Vernon, Missouri
Moniteau, Missouri
- ----------------------------------------------------
- ---------------------------------------------------- --------------------------
Form of Mortgage [Deed of Trust] to be
filed in Kansas/Rice-Carden Corporation Johnson, Kansas
as Grantor Linn, Kansas
- ---------------------------------------------------- --------------------------
</TABLE>
<PAGE>
Schedule III
To
Opinion of Sonnenschein Nath & Rosenthal
<TABLE>
<S> <C>
- ---------------------------------------------------- ---------------------------
Debtor Jurisdiction of Filing
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Caymex Transportation, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Caymex Transportation, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Eastern Railway Company SOS, IL
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Eastern Railway Company SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Eastern Railway Company Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company SOS, IL
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Audrain County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Boone County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Callaway County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Howard County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Lafayette County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Pike County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Ralls County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Randolph County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Gateway Western Railway Company Saline County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Global Terminaling Services, Inc. SOS, DE
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Global Terminaling Services, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Global Terminaling Services, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
KCS Transportation Company SOS, MO
- ---------------------------------------------------- ---------------------------
<PAGE>
- ---------------------------------------------------- ---------------------------
Debtor Jurisdiction of Filing
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
KCS Transportation Company Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Kansas City Southern Industries, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Kansas City Southern Industries, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Kansas City Southern Lines, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Kansas City Southern Lines, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
The Kansas City Southern Railway SOS, KS
Company
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
The Kansas City Southern Railway SOS, MO
Company
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
The Kansas City Southern Railway Cass County, MO
Company
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
The Kansas City Southern Railway Jackson County, MO
Company
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Mid-South Microwave, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Mid-South Microwave, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Rice-Carden Corporation SOS, KS
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Rice-Carden Corporation SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Rice-Carden Corporation Cass County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Rice-Carden Corporation Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Rice-Carden Corporation Moniteau County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Rice-Carden Corporation Vernon County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
SCC Holdings Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
SCC Holdings Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Southern Development Company SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Southern Development Company Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Southern Industrial Services, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Southern Industrial Services, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Trans-Serve, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Trans-Serve, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Veals, Inc. Bates County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Veals, Inc. SOS, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Veals, Inc. Cass County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Veals, Inc. Jackson County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Veals, Inc. Jasper County, MO
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Veals, Inc. Newton County, MO
- ---------------------------------------------------- ---------------------------
</TABLE>
<PAGE>
2
21042580\V-1
EXHIBIT C
GUARANTEE AGREEMENT dated as of January 11,
2000, among KANSAS CITY SOUTHERN INDUSTRIES, INC., a
Delaware corporation ("Holdings"), each Subsidiary of
Holdings listed on Schedule I hereto or becoming a
party hereto as provided in Section 19 hereof (each
individually, a "Subsidiary Guarantor" and,
collectively, together with Holdings, the
"Guarantors") and THE CHASE MANHATTAN BANK ("Chase"),
as collateral agent (the "Collateral Agent") for the
Secured Parties (as defined in the Credit Agreement
referred to below).
Reference is made to the Credit Agreement dated as of January 11, 2000
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Holdings, The Kansas City Southern Railway Company, a
Missouri corporation (the "Borrower"), the lenders from time to time party
thereto (the "Lenders") and Chase, as administrative agent (in such capacity,
the "Administrative Agent"), collateral agent (in such capacity, the "Collateral
Agent") and issuing bank (in such capacity, the "Issuing Bank") Capitalized
terms used and not otherwise defined herein shall have the meanings assigned to
such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower and the
Issuing Bank has agreed to issue Letters of Credit pursuant to, and upon the
terms and subject to the conditions specified in, the Credit Agreement. Each of
the Guarantors acknowledges that it will derive substantial benefit from the
making of the Loans by the Lenders and the issuance of the Letters of Credit by
the Issuing Bank. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned on, among other things,
the execution and delivery by the Guarantors of this Agreement. In order to
induce the Lenders to make Loans and the Issuing Bank to issue the Letters of
Credit, the Guarantors are willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally
guarantees, jointly with the other Guarantors and severally, as a primary
obligor and not merely as a surety, (a) the due and punctual payment by the
Borrower or the applicable Loan Parties of (i) the principal of and interest
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Loans, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made under the Credit Agreement in
respect of any Letter of Credit, when and as due, including payments in respect
of reimbursement of disbursements, interest thereon and obligations to provide
cash collateral and (iii) all other monetary obligations, including fees, costs,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed
or otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of Holdings, the Borrower or
any other Subsidiary to the Secured Parties under the Credit Agreement or any
other Loan Document, (b) the due and punctual payment and performance of all
covenants, agreements, obligations, and liabilities of the Loan Parties,
monetary or otherwise, under or pursuant to the Credit Agreement and the other
Loan Documents and (c) the due and punctual payment of all obligations of the
Borrower under each Hedging Agreement entered into (i) prior to the date hereof
with any counterparty that is a Lender (or an Affiliate thereof) on the date
hereof or (ii) on or after the date hereof with any counterparty that is a
Lender (or an Affiliate thereof) at the time such Hedging Agreement is entered
into, in either case to provide protection against interest rate fluctuations
(all the obligations referred to in the preceding clauses (a) through (c) being
collectively called the "Obligations"). Each Guarantor further agrees that the
Obligations may be extended or renewed, in whole or in part.
SECTION 2. Obligations Not Waived. To the fullest extent
permitted by applicable law, each Guarantor waives presentment to, demand of
payment from and protest to the Borrower or to any other Guarantor of any of the
Obligations, and also waives notice of acceptance of its guarantee and notice of
protest for nonpayment. To the fullest extent permitted by applicable law, the
obligations of each Guarantor hereunder shall not be affected by (a) the failure
of the Administrative Agent, the Collateral Agent, the Issuing Bank or any
Lender to assert any claim or demand or to enforce or exercise any right or
remedy against the Borrower or any other Guarantor under the provisions of the
Credit Agreement, any other Loan Document or otherwise, (b) any rescission,
waiver, amendment or modification of, or any release from any of the terms or
provisions of, this Agreement, any other Loan Document, any other Guarantee or
any other agreement, including with respect to any other Guarantor under this
Agreement, or (c) the failure of Holdings or any Subsidiary to comply with
Section 5.12 of the Credit Agreement and Section 19.
SECTION 3. Guarantee of Payment. Each Guarantor further agrees
that its guarantee constitutes a guarantee of payment when due and not of
collection, and waives any right to require that any resort be had by the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender to
any balance of any deposit account or credit on the books of the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Lender in favor of the
Borrower, any other Guarantor or any other Person.
SECTION 4. No Discharge or Diminishment of Guarantee. The
obligations of each Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason (other than the payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Administrative Agent, the Collateral
Agent, the Issuing Bank or any Lender to assert any claim or demand or to
enforce any remedy under the Credit Agreement, any other Loan Document or any
other instrument or agreement, by any waiver or modification of any provision of
any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or by any other act or omission that may or
might in any manner or to any extent vary the risk of any Guarantor or that
would otherwise operate as a discharge of each Guarantor as a matter of law or
equity (other than the payment in full in cash of all the Obligations).
SECTION 5. Defenses Waived. To the fullest extent permitted by
applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or any other Guarantor or the
unenforceability of the Obligations or any part thereof from any cause, or the
cessation from any cause of the liability of the Borrower or any other
Guarantor, other than the final payment in full in cash of the Obligations. The
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
may, at their election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with any Guarantor or any other
guarantor or exercise any other right or remedy available to them against any
Guarantor or any other guarantor, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
each of the Guarantors waives any defense arising out of any such election even
though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against any other Guarantor or guarantor, as the case may be, or
any security.
SECTION 6. Agreement to Pay; Subordination. In furtherance of
the foregoing and not in limitation of any other right that the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Lender has at law or in
equity against any Guarantor by virtue hereof, upon the failure of the Borrower
to pay any Obligation when and as the same shall become due, whether at
maturity, by acceleration, after notice of prepayment or otherwise, each
Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the
Administrative Agent, the Collateral Agent, the Issuing Bank or such Lender as
designated thereby in cash the amount of such unpaid Obligation. Upon payment by
any Guarantor of any sums to the Administrative Agent, the Collateral Agent, the
Issuing Bank or any Lender as provided above, all rights of such Guarantor
against the Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior payment in full in cash
of all the Obligations. In addition, any indebtedness of any Guarantor now or
hereafter held by any Guarantor is hereby subordinated in right of payment to
the prior payment in full of the Obligations. If any amount shall erroneously be
paid to any Guarantor on account of (i) such subrogation, contribution,
reimbursement, indemnity or similar right or (ii) any such indebtedness of any
Guarantor, such amount shall be held in trust for the benefit of the Lenders and
shall forthwith be paid to the Administrative Agent to be credited against the
payment of the Obligations, whether matured or unmatured, in accordance with the
terms of the Credit Agreement or any other Loan Document.
SECTION 7. Information. Each of the Guarantors assumes all
responsibility for being and keeping itself informed of the Borrower's and the
other Guarantors' financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the Obligations and the nature, scope and
extent of the risks that such Guarantor assumes and incurs hereunder, and agrees
that none of the Administrative Agent, the Collateral Agent, Issuing Banks and
the Lenders will have any duty to advise any of the Guarantors of information
known to it or any of them regarding such circumstances or risks.
SECTION 8. Representations and Warranties; Agreements. Each of
the Guarantors represents and warrants as to itself that all representations and
warranties relating to it contained in any Loan Document to which it is a party
are true and correct in all material respects. Each of the Guarantors agrees
that the provisions of Section 2.17 of the Credit Agreement shall apply equally
to each Guarantor with respect to payments made by it hereunder.
SECTION 9. Termination. The Guarantees made hereunder (a)
shall, subject to clause (b) below, terminate when all the Obligations have been
paid in full and the Lenders have no further commitment to lend under the Credit
Agreement and the Issuing Banks have no further commitment to issue Letters of
Credit and (b) shall continue to be effective or be reinstated, as the case may
be, if at any time payment, or any part thereof, of any Obligation is rescinded
or must otherwise be restored by the Administrative Agent, the Collateral Agent,
the Issuing Bank or any Lender or any Guarantor upon the bankruptcy or
reorganization of any Guarantor or otherwise.
SECTION 10. Binding Agreement; Assignments. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Guarantors that are contained in
this Agreement shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Agreement shall become effective
as to any Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Administrative Agent, the Collateral Agent, the Issuing Banks and
the Lenders, and their respective successors and assigns, except that no
Guarantor shall have the right to assign its rights or obligations hereunder or
any interest herein (except in connection with any transaction permitted by
Section 6.04 of the Credit Agreement), and any such attempted assignment shall
be void. This Agreement shall be construed as a separate agreement with respect
to each Guarantor and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other Guarantor and
without affecting the obligations of any other Guarantor hereunder.
SECTION 11. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender hereunder or under the Credit
Agreement or any other Loan Document are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or any other Loan Document or consent to any departure by any
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to a written agreement entered into
between the Guarantors to which such waiver, amendment or modification relates
and the Collateral Agent (with the prior written consent of the Lenders or the
Required Lenders if required under the Credit Agreement).
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Notices. All communications and notices hereunder
shall be in writing and given as provided in Section 9.01 of the Credit
Agreement. All communications and notices hereunder to each Guarantor shall be
given to it in care of Holdings.
SECTION 14. Survival of Agreement; Severability. (a) All
covenants, agreements, representations and warranties made by the Guarantors
herein and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the Administrative Agent, the Collateral Agent, the Issuing Banks
and the Lenders and shall survive the making by the Lenders of the Loans and the
issuance of Letters of Credit by the Issuing Banks regardless of any
investigation made by any of them or on their behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any other fee or amount payable under this Agreement or any other Loan
Document is outstanding and unpaid and as long as the Commitments have not been
terminated.
(b) In the event any one or more of the provisions contained
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision in
any other jurisdiction). The parties shall endeavor in good-faith negotiations
to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 15. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 10. Delivery of an executed signature page to this Agreement
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 16. Rules of Interpretation. The rules of
interpretation specified in Section 1.03 of the Credit Agreement shall be
applicable to this Agreement.
SECTION 17. Jurisdiction; Consent to Service of Process. (a)
Each Guarantor hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees 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.
Nothing in this Agreement shall affect any right that the Administrative Agent,
the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement against any Guarantor or its
properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any New
York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 13. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
SECTION 19. Additional Subsidiary Guarantors. Certain
additional Subsidiaries may be required from time to time, under the terms of
the Credit Agreement, to enter into this Agreement as Subsidiary Guarantors.
Upon execution and delivery by the Collateral Agent and a Subsidiary of an
instrument in the form of Annex 1, such Subsidiary shall become a Subsidiary
Guarantor hereunder with the same force and effect as if originally named as a
Subsidiary Guarantor herein. The execution and delivery of such instrument shall
not require the consent of any Subsidiary Guarantor hereunder. The rights and
obligations of each Subsidiary Guarantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Subsidiary Guarantor as a
party to this Agreement.
SECTION 20. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each of the Administrative Agent, the Collateral
Agent, the Issuing Banks and the Lenders is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other Indebtedness at any time owing by such Person to or
for the credit or the account of any Guarantor against any or all the
obligations of such Guarantor now or hereafter existing under this Agreement
held by such Person, irrespective of whether or not such Person shall have made
any demand under this Agreement and although such obligations may be unmatured.
The rights of each Person under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Person may have.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
-----------------------------------
Name:
Title:
CAYMEX TRANSPORTATION, INC.,
by
-----------------------------------
Name:
Title:
GATEWAY EASTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
GATEWAY WESTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
GLOBAL TERMINALING SERVICES, INC.
by
-----------------------------------
Name:
Title:
KCS TRANSPORTATION COMPANY,
by
-----------------------------------
Name:
Title:
<PAGE>
KANSAS CITY SOUTHERN LINES, INC.,
by
-----------------------------------
Name:
Title:
SCC HOLDINGS, INC.,
by
-----------------------------------
Name:
Title:
MID-SOUTH MICROWAVE, INC.,
by
-----------------------------------
Name:
Title:
RICE-CARDEN CORPORATION,
by
-----------------------------------
Name:
Title:
SOUTHERN DEVELOPMENT COMPANY,
by
-----------------------------------
Name:
Title:
SOUTHERN INDUSTRIAL SERVICES, INC.,
by
-----------------------------------
Name:
Title:
TRANS-SERVE, INC.,
by
-----------------------------------
Name:
Title:
VEALS, INC.,
by
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative Agent,
by
-----------------------------------
Name:
Title:
<PAGE>
Schedule I to the
Guarantee Agreement
SUBSIDIARY GUARANTORS
Guarantor Address
Caymex Transportation, Inc. 114 W. 11th Street
Kansas City, MO 64105
Gateway Eastern Railway Company 114 W. 11th Street
Kansas City, MO 64105
Gateway Western Railway Company 114 W. 11th Street
Kansas City, MO 64105
Global Terminaling Services, Inc. 114 W. 11th Street
Kansas City, MO 64105
KCS Transportation Company 114 W. 11th Street
Kansas City, MO 64105
Kansas City Southern Lines, Inc. 114 W. 11th Street
Kansas City, MO 64105
Mid-South Microwave, Inc. 114 W. 11th Street
Kansas City, MO 64105
Rice-Carden Corporation 114 W. 11th Street
Kansas City, MO 64105
SCC Holdings, Inc. 114 W. 11th Street
Kansas City, MO 64105
Southern Development Company 114 W. 11th Street
Kansas City, MO 64105
Southern Industrial Services, Inc. 114 W. 11th Street
Kansas City, MO 64105
Trans-Serve, Inc. 114 W. 11th Street
Kansas City, MO 64105
Veals, Inc. 114 W. 11th Street
Kansas City, MO 64105
<PAGE>
21042580\V-1
ANNEX 1 to the
Guarantee Agreement
SUPPLEMENT NO. dated as of , to the GUARANTEE
AGREEMENT dated as of January 11, 2000, among KANSAS
CITY SOUTHERN INDUSTRIES, INC., a Delaware
corporation ("Holdings"), each Subsidiary of Holdings
listed on Schedule I thereto or becoming a party
thereto as provided in Section 19 thereof (each
individually, a "Subsidiary Guarantor" and,
collectively, together with Holdings, the
"Guarantors") and THE CHASE MANHATTAN BANK ("Chase"),
as collateral agent (the "Collateral Agent") for the
Secured Parties (as defined in the Credit Agreement
referred to below).
A. Reference is made to the Credit Agreement dated as of
January 11, 2000 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Holdings, The Kansas City Southern Railway
Company, a Missouri corporation (the "Borrower"), the lenders from time to time
party thereto (the "Lenders"), and Chase, as administrative agent (in such
capacity, the "Administrative Agent"), collateral agent (in such capacity, the
"Collateral Agent") and issuing bank (in such capacity, the "Issuing Bank")
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
B. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to such terms in the Guarantee Agreement and
the Credit Agreement.
C. The Subsidiary Guarantors have entered into the Guarantee
Agreement in order to induce the Lenders to make Loans and the Issuing Banks to
issue Letters of Credit. The undersigned Subsidiary of Holdings (the "New
Subsidiary Guarantor") is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Subsidiary Guarantor under the
Guarantee Agreement in order to induce the Lenders to make additional Loans and
as consideration for Loans previously made.
Accordingly, the Administrative Agent and the New Subsidiary
Guarantor agree as follows:
SECTION 1. In accordance with Section 19 of the Guarantee
Agreement, the New Subsidiary Guarantor by its signature below becomes a
Subsidiary Guarantor under the Guarantee Agreement with the same force and
effect as if originally named therein as a Subsidiary Guarantor and the New
Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the
Guarantee Agreement applicable to it as a Subsidiary Guarantor thereunder and
(b) represents and warrants that the representations and warranties made by it
as a Subsidiary Guarantor thereunder are true and correct on and as of the date
hereof. Each reference to a "Subsidiary Guarantor" in the Guarantee Agreement
shall be deemed to include the New Subsidiary Guarantor. The Guarantee Agreement
is hereby incorporated herein by reference.
SECTION 2. The New Subsidiary Guarantor represents and
warrants to the Administrative Agent, the Issuing Banks and the Lenders that
this Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.
SECTION 3. This Supplement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Supplement shall become effective when
the Administrative Agent shall have received counterparts of this Supplement
that, when taken together, bear the signatures of the New Subsidiary Guarantor
and the Administrative Agent. Delivery of an executed signature page to this
Supplement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the
Guarantee Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained
in this Supplement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and in the Guarantee Agreement shall not in any way be affected
or impaired thereby (it being understood that the invalidity of a particular
provision hereof in a particular jurisdiction shall not in and of itself affect
the validity of such provision in any other jurisdiction). The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7. All communications and notices hereunder shall be
in writing and given as provided in Section 13 of the Guarantee Agreement.
SECTION 8. The New Subsidiary Guarantor agrees to reimburse
the Administrative Agent for its reasonable out-of-pocket expenses in connection
with this Supplement, including the fees, disbursements and other charges of
counsel for the Administrative Agent.
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the
Administrative Agent have duly executed this Supplement to the Guarantee
Agreement as of the day and year first above written.
[Name Of New Subsidiary Guarantor],
by _________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as Collateral Agent,
by _________________________
Name:
Title:
<PAGE>
6
EXHIBIT D
INDEMNITY, SUBROGATION and CONTRIBUTION
AGREEMENT dated as January 11, 2000, among KANSAS
CITY SOUTHERN INDUSTRIES, INC., a Delaware
corporation ("Holdings"), THE KANSAS CITY SOUTHERN
RAILWAY COMPANY, a Missouri Corporation (the
"Borrower"), each other Subsidiary of Holdings listed
on Schedule I hereto or becoming a party hereto as
provided in Section 12 hereof (each individually, a
"Subsidiary Guarantor" and, collectively, together
with Holdings and the Borrower, the "Guarantors") and
THE CHASE MANHATTAN BANK ("Chase"), as collateral
agent (the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred
to below).
Reference is made to (a) the Credit Agreement dated as of January 11,
2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Holdings, the Borrower, the lenders from time to time
party thereto (the "Lenders") and Chase, as administrative agent (in such
capacity, the "Administrative Agent"), collateral agent (in such capacity, the
"Collateral Agent") and issuing bank (in such capacity, the "Issuing Bank"), and
(b) the Guarantee Agreement and the other Loan Documents referred to in the
Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the accounts of the Borrower,
pursuant to and upon the terms and subject to the conditions specified in the
Credit Agreement. The Guarantors have guaranteed such Loans and the other
Obligations (as defined in the Guarantee Agreement) of the Borrower under the
Credit Agreement pursuant to the Guarantee Agreement; certain Guarantors have
granted Liens on and security interests in certain of their assets to secure
such guarantees. The obligations of the Lenders to make Loans are conditioned
on, among other things, the execution and delivery by the Borrower and the
Guarantors of an agreement in the form hereof.
Accordingly, the Borrower, each Guarantor and the Collateral Agent
agree as follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Guarantors may have under applicable law (but
subject to Section 3), Holdings and the Borrower agree that (a) in the event a
payment shall be made by any Subsidiary Guarantor under the Guarantee Agreement,
Holdings and the Borrower shall jointly and severally indemnify such Subsidiary
Guarantor for the full amount of any such payment and such Subsidiary Guarantor
shall be subrogated to the rights of the person to whom such payment shall have
been made to the extent of such payment and (b) in the event any assets of any
Subsidiary Guarantor shall be sold pursuant to any Security Document to satisfy
a claim of any Secured Party, Holdings and the Borrower shall jointly and
severally indemnify such Subsidiary Guarantor in an amount equal to the greater
of the book value or the fair market value of the assets so sold in respect of
Obligations.
SECTION 2. Contribution and Subrogation. Each Subsidiary Guarantor (a
"Contributing Guarantor") agrees (subject to Section 3) that, in the event a
payment shall be made by any other Subsidiary Guarantor under the Guarantee
Agreement or assets of any other Subsidiary Guarantor shall be sold pursuant to
any Security Document to satisfy a claim of any Secured Party and such other
Subsidiary Guarantor (the "Claiming Guarantor") shall not have been fully
indemnified by Holdings and the Borrower as provided in Section 1, the
Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal
to the amount of such payment or the greater of the book value or the fair
market value of such assets, as the case may be, in each case multiplied by a
fraction of which the numerator shall be the net worth of the Contributing
Guarantor on the date hereof and the denominator shall be the aggregate net
worth of all the Contributing Guarantors on the date hereof (or, in the case of
any Subsidiary Guarantor becoming a party hereto pursuant to Section 12, the
date of the Supplement hereto executed and delivered by such Subsidiary
Guarantor). Any Contributing Guarantor making any payment to a Claiming
Guarantor pursuant to this Section 2 shall be subrogated to the rights of such
Claiming Guarantor under Section 1 to the extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this
Agreement to the contrary, all rights of the Subsidiary Guarantors under
Sections 1 and 2 and all other rights of indemnity, contribution or subrogation
under applicable law or otherwise shall be fully subordinated to the
indefeasible payment in full in cash of all Obligations which are then due and
payable whether at maturity, by acceleration or otherwise. No failure on the
part of Holdings, the Borrower or any Subsidiary Guarantor to make the payments
required by Sections 1 and 2 (or any other payments required under applicable
law or otherwise) shall in any respect limit the obligations and liabilities of
any Guarantor with respect to its obligations hereunder, and each Guarantor
shall remain liable for the full amount of the obligations of such Guarantor
hereunder.
SECTION 4. Termination. This Agreement shall survive and be in full
force and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash, and so long as the LC Exposure has not been
reduced to zero or any of the Commitments under the Credit Agreement have not
been terminated, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party or any Guarantor
upon the bankruptcy or reorganization of the Borrower, any Guarantor or
otherwise.
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
Collateral Agent or any Guarantor to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy by the
Collateral Agent or any Guarantor preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. None of
the Collateral Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and signed by such
parties.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
Holdings, the Guarantors and the Collateral Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 7. Notices. All communications and notices hereunder shall be
in writing and given as provided in the Credit Agreement and addressed as
specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the parties that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns. Neither Holdings nor any Guarantor may assign or transfer any of its
rights or obligations hereunder (and any such attempted assignment or transfer
shall be void) without the prior written consent of the Required Lenders.
Notwithstanding the foregoing, at the time any Guarantor is released from its
obligations under the Guarantee Agreement in accordance with such Guarantee
Agreement and the Credit Agreement, such Guarantor will cease to have any rights
or obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by Holdings and each Guarantor herein and in the certificates or
other instruments prepared or delivered in connection with this Agreement or the
other Loan Documents shall be considered to have been relied upon by the
Collateral Agent, the other Secured Parties and each Guarantor and shall survive
the making by the Lenders of the Loans and the issuance of the Letters of Credit
by the Issuing Bank and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loans or any other fee or amount
payable under the Credit Agreement or this Agreement or under any of the other
Loan Documents is outstanding and unpaid or the L/C Exposure does not equal zero
and as long as the Commitments have not been terminated.
(b) In case any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, no
party hereto shall be required to comply with such provision for so long as such
provision is held to be invalid, illegal or unenforceable, but the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 10. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement shall be effective with
respect to any Guarantor when a counterpart bearing the signature of such
Guarantor shall have been delivered to the Collateral Agent. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement.
SECTION 11. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 12. Additional Guarantors. Certain additional Subsidiaries may
be required from time to time, under the terms of the Credit Agreement, to enter
into the Guarantee Agreement as a Guarantor. Upon execution and delivery, after
the date hereof, by the Collateral Agent and such a Subsidiary of an instrument
in the form of Annex 1 hereto, such Subsidiary shall become a Guarantor
hereunder with the same force and effect as if originally named as a Guarantor
hereunder. The execution and delivery of any instrument adding an additional
Guarantor as a party to this Agreement shall not require the consent of any
Guarantor hereunder. The rights and obligations of each Guarantor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Guarantor as a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
THE CHASE MANHATTAN BANK, as Collateral Agent,
By
----------------------------
Name:
Title:
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By
----------------------------
Name:
Title:
THE KANSAS CITY SOUTHERN RAILWAY COMPANY,
By
----------------------------
Name:
Title:
CAYMEX TRANSPORTATION, INC.,
by
-----------------------------------
Name:
Title:
GATEWAY EASTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
<PAGE>
GATEWAY WESTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
GLOBAL TERMINALING SERVICES, INC.
by
-----------------------------------
Name:
Title:
KCS TRANSPORTATION COMPANY,
by
-----------------------------------
Name:
Title:
KANSAS CITY SOUTHERN LINES, INC.,
by
-----------------------------------
Name:
Title:
SCC HOLDINGS, INC.,
by
-----------------------------------
Name:
Title:
MID-SOUTH MICROWAVE, INC.,
by
-----------------------------------
Name:
Title:
<PAGE>
RICE-CARDEN CORPORATION,
by
-----------------------------------
Name:
Title:
SOUTHERN DEVELOPMENT COMPANY,
by
-----------------------------------
Name:
Title:
SOUTHERN INDUSTRIAL SERVICES, INC.,
by
-----------------------------------
Name:
Title:
TRANS-SERVE, INC.,
by
-----------------------------------
Name:
Title:
VEALS, INC.,
by
-----------------------------------
Name:
Title:
<PAGE>
Schedule I to the
Indemnity, Subrogation
and Contribution Agreement
SUBSIDIARY GUARANTORS
Guarantor Address
Caymex Transportation, Inc. 114 W. 11th Street
Kansas City, MO 64105
Gateway Eastern Railway Company 114 W. 11th Street
Kansas City, MO 64105
Gateway Western Railway Company 114 W. 11th Street
Kansas City, MO 64105
Global Terminaling Services, Inc. 114 W. 11th Street
Kansas City, MO 64105
KCS Transportation Company 114 W. 11th Street
Kansas City, MO 64105
Kansas City Southern Lines, Inc. 114 W. 11th Street
Kansas City, MO 64105
Mid-South Microwave, Inc. 114 W. 11th Street
Kansas City, MO 64105
Rice-Carden Corporation 114 W. 11th Street
Kansas City, MO 64105
SCC Holdings, Inc. 114 W. 11th Street
Kansas City, MO 64105
Southern Development Company 114 W. 11th Street
Kansas City, MO 64105
Southern Industrial Services, Inc. 114 W. 11th Street
Kansas City, MO 64105
Trans-Serve, Inc. 114 W. 11th Street
Kansas City, MO 64105
Veals, Inc. 114 W. 11th Street
Kansas City, MO 64105
<PAGE>
Annex 1 to the
Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. [ ] dated as of [ ], to the Indemnity,
Subrogation and Contribution Agreement dated as
January 11, 2000, among KANSAS CITY SOUTHERN
INDUSTRIES, INC., a Delaware corporation
("Holdings"), THE KANSAS CITY SOUTHERN RAILWAY
COMPANY, a Missouri Corporation (the "Borrower"),
each Subsidiary of Holdings listed on Schedule I
thereto or becoming a party thereto as provided in
Section 12 thereof (each individually, a "Subsidiary
Guarantor" and, collectively, together with Holdings
and the Borrower, the "Guarantors") and THE CHASE
MANHATTAN BANK ("Chase"), as collateral agent (the
"Collateral Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
A. Reference is made to (a) the Credit Agreement dated as of January
11, 2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Holdings, the Borrower, the lenders from time to time
party thereto (the "Lenders"), and Chase, as administrative agent (in such
capacity, the "Administrative Agent"), collateral agent (in such capacity, the
"Collateral Agent") and issuing bank (in such capacity, the "Issuing Bank"), and
(b) the Guarantee Agreement and the other Loan Documents referred to in the
Credit Agreement. The rules of construction set forth in Section 1.03 of the
Credit Agreement shall apply equally to this Agreement.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Credit Agreement.
C. Holdings and the Subsidiary Guarantors have entered into the
Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders
to make Loans and the Issuing Bank to issue Letters of Credit. Certain
additional Subsidiaries may be required from time to time, under the terms of
the Credit Agreement, to enter into the Guarantee Agreement as a Guarantor upon
becoming a Subsidiary Loan Party. Section 12 of the Indemnity, Subrogation and
Contribution Agreement provides that additional Subsidiaries may become
Guarantors under the Indemnity, Subrogation and Contribution Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary (the "New Guarantor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Guarantor
under the Indemnity, Subrogation and Contribution Agreement in order to induce
the Lenders to make additional Loans and the Issuing Bank to issue additional
Letters of Credit and as consideration for Loans previously made and Letters of
Credit previously issued.
Accordingly, the Collateral Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 12 of the Indemnity, Subrogation
and Contribution Agreement, the New Guarantor by its signature below becomes a
Guarantor under the Indemnity, Subrogation and Contribution Agreement with the
same force and effect as if originally named therein as a Guarantor and the New
Guarantor hereby agrees to all the terms and provisions of the Indemnity,
Subrogation and Contribution Agreement applicable to it as a Guarantor
thereunder. Each reference to a "Guarantor" in the Indemnity, Subrogation and
Contribution Agreement shall be deemed to include the New Guarantor. The
Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein
by reference.
SECTION 2. The New Guarantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
<PAGE>
2
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Guarantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Indemnity, Subrogation and Contribution Agreement shall not in
any way be affected or impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing
and given as provided in Section 7 of the Indemnity, Subrogation and
Contribution Agreement. All communications and notices hereunder to the New
Guarantor shall be given to it at the address set forth under its signature.
SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have
duly executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
[NAME OF NEW GUARANTOR],
By_______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Collateral Agent,
By_______________________________
Name:
Title:
<PAGE>
21042580\V-1
Schedule I to Supplement No. [ ]
to the Indemnity, Subrogation and
Contribution Agreement
GUARANTORS
Name Address
<PAGE>
EXHIBIT E
PLEDGE AGREEMENT dated as of January 11,
2000, among KANSAS CITY SOUTHERN INDUSTRIES, INC., a
Delaware corporation ("Holdings"), THE KANSAS CITY
SOUTHERN RAILWAY COMPANY, INC., a Missouri
corporation (the "Borrower"), each other Subsidiary
of Holdings listed on Schedule I hereto or becoming a
party hereto as provided in Section 24 (collectively,
the "Subsidiary Pledgors"; Holdings, the Borrower and
the Subsidiary Pledgors being referred to
collectively as the "Pledgors") and THE CHASE
MANHATTAN BANK, ("Chase"), as collateral agent (in
such capacity, the "Collateral Agent"), for the
Secured Parties (as defined in the Credit Agreement
referred to below).
Reference is made to (a) the Credit Agreement dated as of January 11,
2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Holdings, the Borrower, the lenders from time to time
party thereto (the "Lenders") and Chase, as administrative agent (in such
capacity, the "Administrative Agent"), collateral agent (in such capacity, the
"Collateral Agent") and issuing bank (in such capacity, the "Issuing Bank"), and
(b) the Guarantee Agreement and the other Loan Documents referred to in the
Credit Agreement. Capitalized terms used and not otherwise defined herein shall
have meanings assigned to them in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned upon, among other
things, the execution and delivery by the Pledgors of a Pledge Agreement in the
form hereof to secure (a) the due and punctual payment by the Borrowers or the
applicable Loan Parties of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrowers under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Loan Parties to the Secured Parties under this Agreement and the other Loan
Documents, (b) the due and punctual payment and performance of all covenants,
agreements, obligations and liabilities of the Loan Parties, monetary or
otherwise, under or pursuant to this Agreement and the other Loan Documents and
(c) unless otherwise agreed to in writing by the applicable Lender thereto, the
due and punctual payment of all obligations of the Borrower under each Hedging
Agreement entered into (i) prior to the date hereof with any counterparty that
is a Lender (or an Affiliate thereof) on the date hereof or (ii) on or after the
date hereof with any counterparty that is a Lender (or an Affiliate thereof) at
the time such Hedging Agreement is entered into, in either case to provide
protection against interest rate fluctuations in either case to provide
protection against interest rate fluctuations (all the obligations referred to
in the preceding clauses (a) through (c) being collectively called the
"Obligations"). Each Pledgor agrees that the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
that the security interest granted hereunder and the obligations of each Pledgor
will survive any extension or renewal of any Obligation.
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself
and each Secured Party (and each of their respective successors and assigns),
hereby agree as follows:
<PAGE>
12
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SECTION 1. Pledge. As security for the payment in full of all
the Obligations, each Pledgor does hereby pledge, transfer, grant, bargain,
sell, convey, hypothecate, set over and deliver and create a security interest
in (collectively, "Pledge") unto the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, all such Pledgor's right, title
and interest in, to and under (i) all the outstanding Equity Interests owned by
it on the date hereof or at any time hereafter in Subsidiaries or other Persons
(but limited to 65% of the outstanding voting Equity Interests and 100% of the
outstanding non-voting Equity Interests in each such Subsidiary that is a
Foreign Subsidiary), including the Equity Interests listed on Schedule II
hereto, (ii) (A) all Indebtedness of Holdings, the Borrower, any other
Subsidiary or any other Person now owned or hereafter acquired by it, including
the Indebtedness listed on Schedule II hereto, and (B) the promissory notes and
other instruments evidencing such Indebtedness, (iii) all payments, whether of
dividends or other distributions, principal or interest or otherwise, and
whether of cash or other assets, from time to time received, receivable or
otherwise distributed, in respect of, in exchange for or upon the conversion of
the Equity Interests or Indebtedness pledged pursuant to clauses (i) and (ii)
above; (iv) subject to Section 5, all rights and privileges of such Pledgor with
respect to the Equity Interests, Indebtedness and other property pledged
pursuant to clauses (i), (ii) and (iii) above; and (v) all proceeds of any of
the foregoing (the collateral referred to in the preceding clauses (i) through
(v) being collectively called the "Collateral").
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
SECTION 2. Delivery of the Collateral; Perfection. (a) Each
Pledgor agrees promptly to deliver or cause to be delivered to the Collateral
Agent any and all certificates or instruments representing any Equity Interests,
Indebtedness or other assets now or hereafter included in the Collateral
(collectively, the "Pledged Securities"). Upon delivery to the Collateral Agent,
all Pledged Securities shall be accompanied by stock or note powers duly
executed in blank or other instruments of transfer satisfactory to the
Collateral Agent and by such other instruments and documents as the Collateral
Agent may reasonably request.
(b) Each Pledgor agrees to take from time to time all such other
actions as shall be required under applicable law or reasonably requested by the
Collateral Agent to perfect and maintain the perfection of the Lien created by
this Agreement, including, in the case of any Collateral in which such Lien
cannot be perfected by the possession of certificates or instruments, the filing
of all such financing statements and similar documents, and the obtaining of all
such acknowledgments of clearing corporations, brokers and other intermediaries,
as shall be required for such perfection under the Uniform Commercial Code or
other law of any applicable jurisdiction.
(c) The Equity Interests and Indebtedness initially included in the
Collateral are set forth in Schedule II hereto. At the time any additional
Equity Interests or Indebtedness shall become part of the Collateral, the
Borrower shall deliver to the Collateral Agent a revised Schedule II, which
shall supersede all Schedules previously delivered pursuant to the requirements
of this paragraph.
<PAGE>
(d) Each Pledgor will cause any Indebtedness owed to such Pledgor that
is evidenced by a duly executed promissory note to be pledged and delivered to
the Collateral Agent pursuant to the terms hereof. Each Pledgor agrees, without
limiting its obligations under paragraph (a) or (b) above, that to the extent it
is required to pledge any limited liability or limited partnership interest in
any Domestic Subsidiary hereunder, it will (i) make or cause to be made all
filings and take all other actions required under paragraph (b) above for the
perfection of the Collateral Agent's Lien in the limited liability company or
limited partnership interests of such Subsidiary under Article 9 of the Uniform
Commercial Code as in effect in each applicable jurisdiction and (ii) deliver to
the Collateral Agent any certificates issued to such Pledgor representing Equity
Interests of any Domestic Subsidiary that is a limited liability company or
limited partnership if such Subsidiary's limited liability company or limited
partnership agreement, as the case may be, provides that the Equity Interests of
such Subsidiary are to be represented by certificates. Each Pledgor represents
and warrants to the Collateral Agent that as of the date hereof none of the
Equity Interests of any of its Domestic Subsidiaries which are limited liability
companies or limited partnerships are represented by certificates.
SECTION 3. Representations, Warranties and Covenants. Each
Pledgor hereby represents, warrants and covenants, as to itself and the
Collateral pledged by it hereunder, to and with the Collateral Agent that:
(a) the Equity Interests pledged hereunder represent the
percentages set forth on Schedule II of the issued and outstanding
Equity Interests of each class of the issuers thereof;
(b) except for the security interest granted hereunder and
except for Permitted Encumbrances, such Pledgor (i) is and will at all
times continue to be the direct owner, beneficially and of record, of
the Collateral listed in Schedule II as being owned by it, except to
the extent permitted by Section 6.02 of the Credit Agreement, (ii)
holds the same free and clear of all Liens, (iii) will make no
assignment, pledge, hypothecation or transfer of, or create or permit
to exist any security interest in or other Lien on, the Collateral,
other than pursuant hereto, and (iv) subject to Section 5, will cause
any and all Collateral, whether for value paid by such Pledgor or
otherwise, to be forthwith deposited with the Collateral Agent and
pledged or assigned hereunder;
(c) such Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will
defend its title or interest thereto or therein against any and all
Liens (other than the Lien created by this Agreement), however arising,
of all Persons whomsoever;
(d) no consent of any other Person (including equity holders
or creditors of any Pledgor) and no consent or approval of any
Governmental Authority or any securities exchange was or is necessary
to the validity of the pledge effected hereby other than such as have
been obtained;
(e) by virtue of the execution and delivery by the Pledgors of
this Agreement and the other actions that have been taken pursuant to
this Agreement, the Collateral Agent will obtain a valid and perfected
first Lien upon and security interest in the Collateral as security for
the payment and performance of the Obligations;
(f) the pledge effected hereby is effective to vest in the
Collateral Agent, on behalf of the Secured Parties, the rights of the
Collateral Agent in the Collateral as set forth herein;
(g) all of the Equity Interests pledged hereunder have been
duly authorized and validly issued and are fully paid and
nonassessable; and
(h) all information set forth herein relating to the
Collateral is accurate and complete in all material respects as of the
date hereof.
<PAGE>
SECTION 4. Registration in Nominee Name; Denominations. The
Collateral Agent, on behalf of the Secured Parties, shall have the right (in its
sole and absolute discretion) to hold the Equity Interests pledged hereunder in
its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or
the name of the Pledgors, endorsed or assigned in blank or in favor of the
Collateral Agent. Each Pledgor will promptly give to the Collateral Agent copies
of any notices or other communications received by it with respect to pledged
Equity Interests registered in the name of such Pledgor. The Collateral Agent
shall at all times have the right to exchange any certificates representing
pledged Equity Interests for certificates of smaller or larger denominations for
any purpose consistent with this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a)
Unless and until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all
voting and/or other consensual rights and powers inuring to an owner of
pledged Equity Interests or any part thereof for any purpose consistent
with the terms of this Agreement, the Credit Agreement and the other
Loan Documents; provided such Pledgor will not be entitled to exercise
any such right if the result thereof would be prohibited by the Credit
Agreement or would reasonably be expected to materially and adversely
affect the rights or the rights and remedies of any of the Secured
Parties under this Agreement or the Credit Agreement or any other Loan
Document or the ability of the Secured Parties to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each
Pledgor, or cause to be executed and delivered to each Pledgor, all
such proxies, powers of attorney and other instruments as such Pledgor
may reasonably request for the purpose of enabling such Pledgor to
exercise the voting and/or consensual rights and powers it is entitled
to exercise pursuant to subparagraph (i) above and to receive the cash
dividends it is entitled to receive pursuant to subparagraph (iii)
below.
(iii) Each Pledgor shall be entitled to receive and retain any
and all cash dividends, interest and principal paid on the Equity
Interests or Indebtedness pledged hereunder to the extent and only to
the extent that such cash dividends, interest and principal are
permitted by, and otherwise paid in accordance with, the terms and
conditions of the Credit Agreement, the other Loan Documents and
applicable laws. All noncash dividends, interest and principal, and all
dividends, interest and principal paid or payable in cash or otherwise
in connection with a partial or total liquidation or dissolution,
return of capital, capital surplus or paid-in surplus, and all other
distributions (other than distributions referred to in the preceding
sentence) made on or in respect of the pledged Equity Interests and
Indebtedness, whether paid or payable in cash or otherwise, whether
resulting from a subdivision, combination or reclassification of the
outstanding Equity Interests of the issuer of any thereof or received
in exchange for such Equity Interests or Indebtedness or any part
thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise, shall be and become part of the
Collateral, and, if received by any Pledgor, shall not be commingled by
such Pledgor with any of its other funds or property but shall be held
separate and apart therefrom, shall be held in trust for the benefit of
the Collateral Agent and shall be forthwith delivered to the Collateral
Agent in the same form as so received (with any necessary endorsement).
<PAGE>
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of any Pledgor to dividends, interest or principal that such
Pledgor is authorized to receive pursuant to paragraph (a)(iii) above shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to receive
and retain such dividends, interest or principal. All dividends, interest or
principal received by the Pledgor contrary to the provisions of this Section 5
shall be held in trust for the benefit of the Collateral Agent, shall be
segregated from other property or funds of such Pledgor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 7. After all
Events of Default have been cured or waived, the Collateral Agent shall, within
five Business Days after all such Events of Default have been cured or waived,
repay to each Pledgor all cash dividends, interest or principal (without
interest), that such Pledgor would otherwise be permitted to retain pursuant to
the terms of paragraph (a)(iii) above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of
Default and upon notice to the applicable Pledgor as set forth in Section 15,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section
5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 5, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority to
exercise such voting and consensual rights and powers. Unless otherwise directed
by the Required Lenders, the Collateral Agent shall have the right from time to
time following and during the continuance of an Event of Default to permit the
Pledgors to exercise such rights. After all Events of Default have been cured or
waived, such Pledgor will have the right to exercise the voting and consensual
rights and powers that it would otherwise be entitled to exercise pursuant to
the terms of paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence and
during the continuance of an Event of Default, subject to applicable regulatory
and legal requirements, the Collateral Agent may sell the Collateral, or any
part thereof, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to Persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Pledgor, and, to the extent permitted by
applicable law, the Pledgors hereby waive all rights of redemption, stay,
valuation and approval any Pledgor now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted.
<PAGE>
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of such Pledgor's Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale at
a broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Collateral Agent may fix and state in the
notice of such sale. At any such sale, the Collateral, or portion thereof, to be
sold may be sold in one lot as an entirety or in separate parcels, as the
Collateral Agent may (in its sole and absolute discretion) determine. The
Collateral Agent shall not be obligated to make any sale of any Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Collateral Agent until the sale price is paid in full by the
purchaser or purchasers thereof, but the Collateral Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any public (or, to the extent permitted by
applicable law, private) sale made pursuant to this Section 6, any Secured Party
may bid for or purchase, free from any right of redemption, stay or appraisal on
the part of any Pledgor (all said rights being also hereby waived and released),
the Collateral or any part thereof offered for sale and may make payment on
account thereof by using any claim then due and payable to it from such Pledgor
as a credit against the purchase price, and it may, upon compliance with the
terms of sale, hold, retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a) a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof, (b) the Collateral Agent shall be free to carry out such sale
pursuant to such agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto (other than any
proceeds remaining after the Obligations have been paid in full),
notwithstanding the fact that after the Collateral Agent shall have entered into
such an agreement all Events of Default shall have been remedied and the
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Collateral Agent may proceed by a suit or suits at
law or in equity to foreclose upon the Collateral and to sell the Collateral or
any portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver.
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses incurred by
the Collateral Agent in connection with such sale or otherwise in
connection with this Agreement, any other Loan Document or any of the
Obligations, including all court costs and the reasonable fees and
expenses of its agents and legal counsel, the repayment of all advances
made by the Collateral Agent hereunder or under any other Loan Document
on behalf of any Pledgor and any other costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under
any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts
so applied to be distributed among the applicable Secured Parties pro
rata in accordance with the amounts of such Obligations owed to them on
the date of any such distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor
agrees to pay upon demand to the Collateral Agent the amount of any and all
reasonable expenses, including the reasonable fees, other charges and
disbursements of its counsel and of any experts or agents, that the Collateral
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Collateral Agent hereunder or (iv) the failure by such
Pledgor to perform or observe any of the provisions hereof.
<PAGE>
(b) Without limitation of its indemnification obligations under the
other Loan Documents, each Pledgor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees, other charges and disbursements,
incurred by or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their respective
obligations thereunder or the consummation of the Transactions and the other
transactions contemplated thereby or (ii) any claim, litigation, investigation
or proceeding relating to any of the foregoing, whether or not any Indemnitee is
a party thereto, provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a final, non-appealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) Any amounts payable under this Section shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation made by or on
behalf of the Collateral Agent or any other Secured Party. All amounts due under
this Section 8 shall be payable on written demand therefor and shall bear
interest at the rate specified in clause (c)(ii) of Section 2.13 of the Credit
Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Upon
the occurrence of and during the existence of an Event of Default each Pledgor
hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may deem necessary
or advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Collateral Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default, with full power of substitution either in
the Collateral Agent's name or in the name of such Pledgor, to ask for, demand,
sue for, collect, receive and give acquittance for any and all moneys due or to
become due under and by virtue of any Collateral, to endorse checks, drafts,
orders and other instruments for the payment of money payable to the Pledgor
representing any interest or dividend or other distribution payable in respect
of the Collateral or any part thereof or on account thereof and to give full
discharge for the same, to settle, compromise, prosecute or defend any action,
claim or proceeding with respect thereto, and to sell, assign, endorse, pledge,
transfer and to make any agreement respecting, or otherwise deal with, the same;
provided, however, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent,
or to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby. The Collateral Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act hereunder, except for their own gross
negligence or wilful misconduct.
<PAGE>
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement or consent to any departure by any
Pledgor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Pledgor in any case shall entitle such Pledgor to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Collateral Agent and the Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, subject to any consent required
in accordance with Section 9.02 of the Credit Agreement. Each Pledgor
acknowledges that the rights and responsibilities of the Collateral Agent under
this Agreement with respect to any action taken by the Collateral Agent or the
exercise or non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Collateral Agent and the Secured
Parties, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Collateral Agent and such Pledgor, the Collateral Agent shall be conclusively
presumed to be acting as agent for the Secured Parties with full and valid
authority so to act or refrain from acting, and no Pledgor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
SECTION 11. Securities Act, etc. In view of the position of
the Pledgors in relation to the Pledged Securities, or because of other current
or future circumstances, a question may arise under the Securities Act of 1933,
as now or hereafter in effect, or any similar statute hereafter enacted
analogous in purpose or effect (such Act and any such similar statute as from
time to time in effect being called the "Federal Securities Laws") with respect
to any disposition of the Collateral permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Collateral, and might also limit
the extent to which or the manner in which any subsequent transferee of any
Collateral could dispose of the same. Similarly, there may be other legal
restrictions or limitations affecting the Collateral Agent in any attempt to
dispose of all or part of the Collateral under applicable Blue Sky or other
state securities laws or similar laws analogous in purpose or effect. Each
Pledgor recognizes that in light of such restrictions and limitations the
Collateral Agent may, with respect to any sale of the Collateral, limit the
purchasers to those who will agree, among other things, to acquire such
Collateral for their own account, for investment, and not with a view to the
distribution or resale thereof. Each Pledgor acknowledges and agrees that in
light of such restrictions and limitations, the Collateral Agent, in its sole
and absolute discretion, (a) may proceed to make such a sale whether or not a
registration statement for the purpose of registering such Collateral or part
thereof shall have been filed under the Federal Securities Laws and (b) may
approach and negotiate with a single potential purchaser to effect such sale.
Each Pledgor acknowledges and agrees that any such sale might result in prices
and other terms less favorable to the seller than if such sale were a public
sale without such restrictions. In the event of any such sale, the Collateral
Agent shall incur no responsibility or liability for selling all or any part of
the Collateral at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions of this Section
11 will apply notwithstanding the existence of a public or private market upon
which the quotations or sales prices may exceed substantially the price at which
the Collateral Agent sells.
<PAGE>
SECTION 12.. Security Interest Absolute. All rights of the
Collateral Agent hereunder, the grant of a security interest in the Collateral
and all obligations of each Pledgor hereunder, shall be absolute and
unconditional irrespective of (a) any lack of validity or enforceability of the
Credit Agreement, any other Loan Document, any agreement with respect to any of
the Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 13. Releases and Termination. This Agreement and the
security interest granted hereby shall terminate when all the Obligations have
been indefeasibly paid in full, the Lenders have no further commitment to lend,
the LC Exposure has been reduced to zero and the Issuing Bank has no further
commitment to issue Letters of Credit under the Credit Agreement. Upon such
Termination, the Collateral Agent shall execute and deliver to the Pledgors, at
the Pledgors' expense, all Uniform Commercial Code termination statements and
similar documents which the Pledgors shall reasonably request to evidence such
termination. Any execution and delivery of termination statements or documents
pursuant to this Section 13 shall be without recourse to or warranty by the
Collateral Agent. A Subsidiary Pledgor shall automatically be released from its
obligations hereunder and the security interest in the Collateral of such
Subsidiary Pledgor shall be automatically released in the event that all the
Equity Interests of such Subsidiary Pledgor shall be sold, transferred or
otherwise disposed of to a person other than Holdings, the Borrower or an
Affiliate of Holdings in a transaction permitted under the terms of the Credit
Agreement. Any Collateral granted hereunder shall be released (automatically and
without further action on the part of the Collateral Agent) upon the sale,
transfer or other disposition of such Collateral to a transferee other than
Holdings, the Borrower or an Affiliate of Holdings, to the extent that such
sale, transfer or other disposition is permitted under the Credit Agreement.
SECTION 14. Notices. All communications and notices hereunder
shall be in writing and given as provided in Section 9.01 of the Credit
Agreement. All communications and notices hereunder to any Subsidiary Pledgor
shall be given to it in care of the Borrower.
SECTION 15. Further Assurances. Each Pledgor agrees to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 16. Successors and Assigns; Binding Effect; Several
Agreement; Assignments. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of any Pledgor that are contained in this Agreement shall bind and inure
to the benefit of its successors and assigns. This Agreement shall become
effective as to any Pledgor when a counterpart hereof executed on behalf of such
Pledgor shall have been delivered to the Collateral Agent and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Pledgor and the Collateral Agent and their
respective successors and assigns, and shall inure to the benefit of such
Pledgor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Pledgor shall have the right
to assign its rights hereunder or any interest herein or in the Collateral (and
any such attempted assignment shall be void), except as expressly contemplated
by this Agreement or the other Loan Documents. This Agreement shall be construed
as a separate agreement with respect to each Pledgor and may be amended,
modified, supplemented, waived or released with respect to any Pledgor without
the approval of any other Pledgor and without affecting the obligations of any
other Pledgor hereunder.
<PAGE>
SECTION 17. Survival of Agreement; Severability. (a) All
covenants, agreements, representations and warranties made by each Pledgor
herein and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the Collateral Agent and the other
Secured Parties and shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit by the Issuing Bank, regardless of any
investigation made by the Secured Parties or on their behalf, and shall continue
in full force and effect until this Agreement shall terminate.
(b) Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction. The
parties to this Agreement shall endeavor in good-faith negotiations to replace
any invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 19. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which, when taken together,
shall constitute a single contract, and shall become effective as provided in
Section 16. Delivery of an executed counterpart of a signature page to this
Agreement by telecopy shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 20. Rules of Interpretation. The rules of
interpretation specified in Sections 1.03 of the Credit Agreement shall be
applicable to this Agreement. Section headings used herein are for convenience
of reference only, are not part of this Agreement and shall not to affect the
construction of, or be taken into consideration in interpreting this Agreement.
SECTION 21. Jurisdiction; Consent to Service of Process. (a)
Each Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of 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, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement or the other
Loan Documents, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that, to the
extent permitted by applicable law, all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees 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. Nothing in this Agreement shall affect any right that the
Collateral Agent or any other Secured Party may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan Documents
against any Pledgor or its properties in the courts of any jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
court referred to in paragraph (a) of this Section. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 14. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
<PAGE>
SECTION 22. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
SECTION 23. Additional Pledgors. Pursuant to Section 5.12 of
the Credit Agreement, certain additional Significant Subsidiaries may be
required under the terms of the Credit Agreement from time to time to enter into
this Agreement as Subsidiary Pledgors. Upon execution and delivery by the
Collateral Agent and a Subsidiary of an instrument in the form of Annex 1, such
Subsidiary shall become a Subsidiary Pledgor hereunder with the same force and
effect as if originally named as a Subsidiary Pledgor herein. The execution and
delivery of such instrument shall not require the consent of any Pledgor
hereunder. The rights and obligations of each Pledgor hereunder shall remain in
full force and effect notwithstanding the addition of any new Subsidiary Pledgor
as a party to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
Name:
Title:
THE KANSAS CITY SOUTHERN RAILWAY COMPANY,
by
Name:
Title:
CAYMEX TRANSPORTATION, INC.,
by
-----------------------------------
Name:
Title:
GATEWAY WESTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
GLOBAL TERMINALING SERVICES, INC.
by
-----------------------------------
Name:
Title:
KCS TRANSPORTATION COMPANY,
by
-----------------------------------
Name:
Title:
<PAGE>
KANSAS CITY SOUTHERN LINES, INC.,
by
-----------------------------------
Name:
Title:
SCC HOLDINGS, INC.,
by
-----------------------------------
Name:
Title:
RICE-CARDEN CORPORATION,
by
-----------------------------------
Name:
Title:
SOUTHERN INDUSTRIAL SERVICES, INC.,
by
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Collateral Agent,
by
Name:
Title:
- -------------------------------------- -------------- ------------ -------
<PAGE>
- ---------------------------- ------------------------- ------------------------
- ---------------------------- ------------------------- ----------------------
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Caymex Transportation, Inc.
Global Terminaling Services, Inc.
KCS Transportation Company
The Kansas City Southern Railway Company
Rice-Carden Corporation
SCC Holdings, Inc.
Southern Industrial Services, Inc.
<PAGE>
2
- - 2 -
21042580\V-1
21042580\V-1
<TABLE>
Schedule II to the
Pledge Agreement
EQUITY INTERESTS
- ------------------------------------------------------------------------------------------------------------------
Registered Ownership Percent
Name of Entity Whose Entity Interests are Owner of Class of Number of Represented by
being Pledged (and jurisdiction of Equity Equity Cert Equity Equity Interests
organization) Interests Interests No. Interests Being Pledged
being pledged
<S> <C> <C> <C> <C> <C>
Caymex Transportation, Inc. (Cayman KCSR Common 4 100 100%
Islands, domesticated in Delaware)
Gateway Eastern Railway Company (Illinois) GWRC Common 1 1,000 100%
Gateway Western Railway Company (Illinois) KCS-T Common A-4 21,060,413 100%
Global Terminaling Services, Inc. (d/b/a SIS Common 6 100 100%
Pabtex, Inc.) (Delaware)
The Kansas City Northern Railway Company KCSR Common 3 10 100%
(Delaware)
Kansas City Southern Lines, Inc. KCSI Common 1 1,000 100%
(Delaware)
The Kansas City Southern Railway Company KCSL Preferred KP 445 57 100%
(Missouri) KCSL Common KC 418 9,840,000 100%
The Kansas City Southern Railway Company
(Con't)
KCS Transportation Company (Delaware) KCSR Common 4 500 100%
Mexrail, Inc. (Delaware) KCSR Common 4 4,900 49% see Contr Agmt
Mid-South Microwave, Inc. (Delaware) KCSR Common 5 1,000 100%
Rice-Carden Corporation (Missouri) KCSR Common 31 1,000 100%
SCC Holdings, Inc. (Delaware) KCSR Common 1 10 100%
Registered Ownership Percent
Name of Entity Whose Entity Interests are Owner of Class of Number of Represented by
being Pledged (and jurisdiction of Equity Equity Cert Equity Equity Interests
organization) Interests Interests No. Interests Being Pledged
being pledged
Southern Capital Corporation, LLC SCC Holdings, Membership __ __ 50% Jt Ven/GATX
(Colorado) Inc. Interests
Southern Development Company (Missouri) KCSR Common 19 100 100%
Southern Industrial Services, Inc. KCSL Common 4 110 100%
(Delaware)
Trans-Serve, Inc. (Delaware) SIS Common A5 1,000 100%
Veals, Inc. (Delaware) KCSL Common 8 100 100%
Wyandotte Garage Corporation (Missouri) KCSL Common 34 100 80%
35 14,400
</TABLE>
INDEBTEDNESS
Pledgor Issuer Principal Amount Balance 1/11/00
None.
<PAGE>
21042580\V-1
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of [ ], to the
PLEDGE AGREEMENT dated as of January 11, 2000 (the
"Pledge Agreement"), among KANSAS CITY SOUTHERN
INDUSTRIES, INC., a Delaware corporation
("Holdings"), THE KANSAS CITY SOUTHERN RAILWAY
COMPANY, INC., a Missouri corporation (the
"Borrower"), each other Subsidiary of Holdings listed
on Schedule I thereto or becoming a party thereto as
provided in Section 24 thereof (collectively, the
"Subsidiary Pledgors"; Holdings, the Borrower and the
Subsidiary Pledgors being referred to collectively as
the "Pledgors") and THE CHASE MANHATTAN BANK,
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent"), for the Secured Parties (as
defined in the Credit Agreement referred to below).
A. Reference is made to the Credit Agreement dated as of
January 11, 2000 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Holdings, the Borrower, the lenders from
time to time party thereto (the "Lenders"), and Chase, as administrative agent
(in such capacity, the "Administrative Agent"), collateral agent (in such
capacity, the "Collateral Agent") and issuing bank (in such capacity, the
"Issuing Bank").
B. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in
order to induce the Lenders to make Loans and the Issuing Bank to issue Letters
of Credit. Pursuant to Section 5.12 of the Credit Agreement, certain additional
Subsidiaries may be required to enter into the Pledge Agreement as Subsidiary
Pledgors. The undersigned Subsidiary (the "New Pledgor") is executing this
Supplement in accordance with the requirements of the Credit Agreement and the
Pledge Agreement to become a Subsidiary Pledgor under the Pledge Agreement in
order to induce the Lenders to make additional Loans and the Issuing Bank to
issue additional Letters of Credit and as consideration for Loans previously
made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Pledgor agree as follows:
SECTION 1. In accordance with Section 24 of the Pledge
Agreement, the New Pledgor by its signature below becomes a Pledgor under the
Pledge Agreement with the same force and effect as if originally named therein
as a Pledgor and the New Pledgor hereby agrees (a) to all the terms and
provisions of the Pledge Agreement applicable to it as a Pledgor thereunder and
(b) represents and warrants that the representations and warranties made by it
as a Pledgor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Pledgor, as security for the payment and
performance in full of the Obligations (as defined in the Pledge Agreement),
does hereby create and grant to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns, a
security interest in and lien on all of the New Pledgor's right, title and
interest in and to the Collateral (as defined in the Pledge Agreement) of the
New Pledgor. Each reference to a "Subsidiary Pledgor" or a "Pledgor" in the
Pledge Agreement shall be deemed to include the New Pledgor. The Pledge
Agreement is hereby incorporated herein by reference.
SECTION 2. The New Pledgor represents and warrants to the
Collateral Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Pledgor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by telecopy shall be
as effective as delivery of a manually signed counterpart of this Supplement.
SECTION 4. The New Pledgor hereby represents and warrants that
Schedule II attached hereto includes a true and correct listing of all the
Equity Interests and intercompany Indebtedness owned by it (and such Schedule
shall be substituted for Schedule II to the Pledge Agreement as heretofore in
effect).
SECTION 5. Except as expressly supplemented hereby, the Pledge
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Any provision of this Supplement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality, or
unenforceability without affecting the validity, legality, and enforceability of
the remaining provisions hereof and the Pledge Agreement; and the invalidity of
a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction. The Parties shall endeavor in good-faith
negotiations to replace any invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be
in writing and given as provided in Section 15 of the Pledge Agreement. All
communications and notices hereunder to the New Pledgor shall be given to it in
care of the Borrower.
SECTION 9. The New Pledgor agrees to reimburse the Collateral
Agent for its reasonable out-of-pocket expenses in connection with this
Supplement, including the reasonable fees, other charges and disbursements of
counsel for the Collateral Agent.
<PAGE>
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.
[Name of New Pledgor],
by
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as Collateral Agent,
by
Name:
Title:
<PAGE>
EXHIBIT F
SECURITY AGREEMENT dated as of
January 11, 2000, among KANSAS CITY SOUTHERN
INDUSTRIES, INC., a Delaware corporation
("Holdings"), THE KANSAS CITY SOUTHERN RAILWAY
COMPANY, INC., a Missouri corporation (the
"Borrower"), each other Subsidiary of Holdings listed
on Schedule I hereto or becoming a party hereto as
provided in Section 7.15 (collectively, the
"Subsidiary Grantors"; Holdings, the Borrower and the
Subsidiary Grantors being referred to collectively as
the "Grantors") and THE CHASE MANHATTAN BANK,
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent"), for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of January 11,
2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Holdings, the Borrower, the lenders from time to time
party thereto (the "Lenders") and Chase, as administrative agent (in such
capacity, the "Administrative Agent"), collateral agent (in such capacity, the
"Collateral Agent") and issuing bank (in such capacity, the "Issuing Bank"), and
(b) the Guarantee Agreement and the other Loan Documents referred to in the
Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in the
Credit Agreement. The obligations of the Lenders to make such Loans and of the
Issuing Bank to issue such Letters of Credit are conditioned upon, among other
things, the execution and delivery by the Grantors of an agreement in the form
hereof to secure the Obligations.
Accordingly, the Grantors and the Collateral Agent, on behalf of itself
and each Secured Party (and each of their respective successors or assigns),
hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. (a) Unless the context
otherwise requires, all capitalized terms used but not otherwise defined herein
shall have the meanings set forth in the Credit Agreement and all references to
the Uniform Commercial Code shall mean the Uniform Commercial Code in effect in
the State of New York as of the date hereof.
(b) As used herein, the following terms shall have the following
meanings:
"Account Debtor" shall mean any person who is or who may become
obligated to any Grantor under, with respect to or on account of an Account.
"Account Rights" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"Accounts" shall mean any and all right, title and interest of any
Grantor to payment for goods and services sold or leased, including any such
right evidenced by chattel paper, whether due or to become due, whether or not
it has been earned by performance, and whether now or hereafter acquired or
arising in the future, including payments due from Affiliates of the Grantors.
<PAGE>
24
21042580\V-1
"Chattel Paper" shall mean (a) a writing or writings which evidence
both a monetary obligation and a security interest in or a lease of specific
Equipment and (b) all other property now or hereafter constituting "chattel
paper" under the Uniform Commercial Code as in effect in the State of New York
or its equivalent in other jurisdictions, in each case that are now or hereafter
owned by Grantor.
"Collateral" shall mean all (a) Account Rights, (b) Documents, (c)
Inventory, (d) Chattel Paper, (e) Contract Rights, (f) Equipment, (g) General
Intangibles, (h) cash and cash accounts, (i) Intellectual Property, (j)
Investment Property and (k) Proceeds; provided that "Collateral" shall not
include any Excluded Asset.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried for a Commodity Customer.
"Commodity Contract" shall mean a commodity futures contract, an option
on a commodity futures contract, a commodity option or any other contract that,
in each case, is (a) traded on or subject to the rules of a board of trade that
has been designated as a contract market for such a contract pursuant to the
federal commodities laws or (b) traded on a foreign commodity board of trade,
exchange or market, and is carried on the books of a Commodity Intermediary for
a Commodity Customer.
"Commodity Customer" shall mean a person for whom a Commodity
Intermediary carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a person who is registered as a
futures commission merchant under the federal commodities laws or (b) a person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to federal commodities laws.
"Contract Rights" shall mean the rights of any Grantor to bill and
receive payment for completed work under any and all contracts, agreements or
purchase orders.
"Copyright License" shall mean any written agreement, now or hereafter
in effect, granting any right to any Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office or
any similar offices in any other country.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Documents" shall mean all instruments, certificates representing
shares of capital securities, files, records, ledger sheets and documents
covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a person identified in the records of a
Securities Intermediary as the person having a Security Entitlement against the
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such person is the
Entitlement Holder.
<PAGE>
"Equipment" shall mean all equipment, furniture and furnishings and all
tangible personal property similar to any of the foregoing, including Rolling
Stock, tools, parts and supplies of every kind and description, and all
improvements, accessions or appurtenances thereto, that are now or hereafter
owned by any Grantor. The term Equipment shall include Fixtures.
"Excluded Asset" means (i) any asset listed on Schedule II hereto and
(ii) any other asset subject to a Lien permitted pursuant to Section 6.02(viii)
of the Credit Agreement to the extent the agreement creating such Lien or the
Indebtedness secured by such Lien prohibits the granting of a second Lien on
such asset; provided that upon the termination of all prior Liens on any of the
foregoing assets, such asset shall cease to be an excluded asset.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a
person or a share, participation or other interest in a person or in property or
an enterprise of a person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Intangibles" shall mean all choices in action and causes of
action and all other assignable intangible personal property of any Grantor of
every kind and nature (other than Account Rights) now owned or hereafter
acquired by any Grantor, including all rights and interests in partnerships,
limited partnerships, limited liability companies and other unincorporated
entities, corporate or other business records, indemnification claims and
contract rights (including (a) rights under leases, whether entered into as
lessor or lessee (but excluding real estate leases), (b) rights under any
Hedging Agreement, (c) any intercompany payment obligations not evidenced by any
instrument, (d) any written agreement, now or hereafter in effect, granting any
right to any third party under any Copyright now or hereafter owned by any
Grantor or which such Grantor otherwise has the right to license, and all rights
of such Grantor under any such agreement, (e) any written agreement, now or
hereafter in effect, granting to any third party any right to make, use or sell
any invention on which a Patent, now or hereafter owned by any Grantor or which
any Grantor otherwise has the right to license, is in existence, and all rights
of any Grantor under any such agreement, (f) any written agreement, now or
hereafter in effect, granting any right to any third party to use any Trademark
now or hereafter owned by any Grantor or which such Grantor otherwise has the
right to license, and all rights of such Grantor under any such agreement, and
(g) other agreements, goodwill, registrations, franchises, tax refund claims and
any letter of credit, guarantee, claim, security interest or other security held
by or granted to any Grantor to secure payment by an Account Debtor of any of
the Account Rights).
"Intellectual Property" shall mean all intangible, intellectual and
similar property of any Grantor of every kind and nature now owned or hereafter
acquired by any Grantor, including inventions, designs, Patents, Copyrights,
Licenses, Trademarks, trade secrets, confidential or proprietary technical and
business information, know-how, show-how or other data or information, software
and databases and all embodiments or fixations thereof and related
documentation, registrations and franchises, and all additions, improvements and
accessions to, and books and records describing or used in connection with, any
of the foregoing.
<PAGE>
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated
or uncertificated), Security Entitlements, Securities Accounts, Commodity
Contracts and Commodity Accounts of any Grantor, whether now owned or hereafter
acquired by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party, other
than those licenses or license agreements which by their terms prohibit (or as
to which applicable law prohibits) assignment or a grant of a security interest
by such Grantor.
"Obligations" shall mean (a) the due and punctual payment of (i) the
principal of and interest (including interest accruing during the pendency of
any bankruptcy, insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, (ii) each payment required to be made under the Credit
Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
Holdings, the Borrower or any other Subsidiary to the Secured Parties under the
Credit Agreement or any other Loan Document, (b) the due and punctual payment
and performance of all covenants, agreements, obligations, and liabilities of
the Loan Parties, monetary or otherwise, under or pursuant to the Credit
Agreement and the other Loan Documents and (c) the due and punctual payment of
all obligations of the Borrower under each Hedging Agreement entered into (i)
prior to the date hereof with any counterparty that is a Lender (or an Affiliate
thereof) on the date hereof or (ii) on or after the date hereof with any
counterparty that is a Lender, in either case to provide protection against
interest rate fluctuations (or an Affiliate thereof) at the time such Hedging
Agreement is entered into in either case to provide protection against interest
rate fluctuations.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any Grantor any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any third party, is in existence, and
all rights of any Grantor under any such agreement.
"Patents" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all letters patent of the United States or any
other country, all registrations and recordings thereof and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country and (b) all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof and the inventions disclosed or claimed therein, including
the right to make, use and/or sell the inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the
form of Exhibit C to the Credit Agreement or any other form approved by the
Collateral Agent, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of the Borrower.
<PAGE>
"Proceeds" shall mean any consideration received from the sale,
exchange, license, lease or other disposition of any asset or property that
constitutes Collateral, any value received as a consequence of the possession of
any Collateral and any payment received from any insurer or other Person or
entity as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include, (a) any claim of any Grantor against any third
party for (and the right to sue and recover for and the rights to damages or
profits due or accrued arising out of or in connection with) (i) past, present
or future infringement of any Patent now or hereafter owned by any Grantor or
licensed to any Grantor under a Patent License, (ii) past, present or future
infringement or dilution of any Trademark now or hereafter owned by any Grantor
or licensed under a Trademark License or injury to the goodwill associated with
or symbolized by any Trademark now or hereafter owned by any Grantor, (iii)
past, present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
to a Grantor under a Copyright License and (b) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
"Rolling Stock" shall mean any gondola, boxcar, tanker, locomotive or
railcar of any type.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or traded on securities exchanges or securities markets or (ii) are a
medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the Uniform Commercial Code (other than as
expressly excluded by Section 8-103(c), (e), and (f) of such Article).
"Securities Account" shall mean an account to which a Financial Asset
is or may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Security Entitlements" shall mean the rights and property interests of
an Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such term in
Section 2.01.
"Securities Intermediary" shall mean (a) a clearing corporation or (b)
a person, including a bank or broker, that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
"Trademark License" shall mean any written agreement, now or hereafter
in effect, granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration
applications filed in connection therewith, including registrations and
registration applications in the United States Patent and Trademark Office, any
State of the United States or any similar offices in any other country or any
political subdivision thereof, and all extensions or renewals thereof, (b) all
goodwill associated therewith or symbolized thereby and (c) all other assets,
rights and interests that uniquely reflect or embody such goodwill.
SECTION 1.02. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
<PAGE>
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations and any extensions,
renewals, modifications or refinancings of the Obligations, each Grantor hereby
mortgages and pledges to the Collateral Agent, its successors and assigns, for
the ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, its successors and assigns, for the ratable benefit of the Secured
Parties, a security interest in, all such Grantor's right, title and interest
in, to and under the Collateral (the "Security Interest"). Without limiting the
foregoing, the Collateral Agent is hereby authorized to file one or more
financing statements (including fixture filings), continuation statements,
filings with the United States Patent and Trademark Office or United States
Copyright Office (or any successor office or any similar office in any other
country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor, and naming any Grantor or the
Grantors as debtors and the Collateral Agent as Secured Party.
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any other
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and warrant to the
Collateral Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant to
the Collateral Agent the Security Interest in such Collateral pursuant hereto
and to execute, deliver and perform its obligations in accordance with the terms
of this Agreement, without the consent or approval of any other person other
than any consent or approval which has been obtained.
SECTION 3.02. Filings. The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
have been delivered to the Collateral Agent for filing in each governmental,
municipal or other office specified in Schedule 6 to the Perfection Certificate,
which are all the filings, recordings and registrations that are necessary to
publish notice of and protect the validity of and to establish a legal, valid
and perfected security interest in favor of the Collateral Agent (for the
ratable benefit of the Secured Parties) in respect of all Collateral in which
the Security Interest may be perfected by filing, recording or registration in
the United States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements or, the change of any Grantor's name, location,
identity or corporate structure, with respect to the filing of financing
statements or amendments to filed financing statements.
<PAGE>
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations and (b) a perfected
security interest in all Collateral in which a security interest may be
perfected by filing, recording or registering a financing statement or analogous
document in the United States (or any political subdivision thereof) and its
territories and possessions pursuant to the Uniform Commercial Code or other
applicable law in such jurisdictions. The Security Interest is and shall be
prior to any other Lien on any of the Collateral, other than Liens expressly
permitted to be prior to the Security Interest pursuant to Section 6.02 of the
Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. No Grantor has filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant to
Section 6.02 of the Credit Agreement.
SECTION 3.05 Intellectual PropertySECTION 3.05 Intellectual Property.
(a) On the date hereof, all material Intellectual Property is valid, subsisting,
unexpired and enforceable, has not been abandoned and does not infringe the
intellectual property rights of any other person.
(b) None of the Intellectual Property is the subject of any licensing
or franchise agreement pursuant to which such Grantor is the licensor or
franchisor.
(c) No holding decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(d) No action or proceeding is pending, or, to the knowledge of such
Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question
the validity of any Intellectual Property or such Grantor's ownership interest
therein, or (ii) which, if adversely determined, would have a material adverse
effect on the value of any Intellectual Property.
(e) Fully executed security agreements in the form hereof and
containing a description of all Collateral consisting of Intellectual Property
shall have been received and recorded within three months after the execution of
this Agreement with respect to United States Patents and United States
registered Trademarks (and Trademarks for which United States registration
applications are pending) and within one month after the execution of this
Agreement with respect to United States registered Copyrights by the United
States Patent and Trademark Office and the United States Copyright Office
pursuant to 35 U.S.C. ss. 261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the
regulations thereunder, as applicable, and otherwise as may be required pursuant
to the laws of any other necessary jurisdiction, to protect the validity of and
to establish a legal, valid and perfected security interest in favor of the
Collateral Agent (for the ratable benefit of the Secured Parties) in respect of
all Collateral consisting of Patents, Trademarks and Copyrights in which a
security interest may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).
<PAGE>
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. Each Grantor agrees within 30 days of the occurrence of
any change referred to in the preceding sentence to make all filings under the
Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral. Each
Grantor agrees promptly to notify the Collateral Agent if any material portion
of the Collateral owned or held by such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Collateral Agent
may reasonably request, promptly to prepare and deliver to the Collateral Agent
a duly certified schedule or schedules in form and detail satisfactory to the
Collateral Agent showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. Protection of Security. Each Grantor shall, at its own
cost and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement and which
has a material adverse effect on the value of the Collateral.
SECTION 4.03. Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with
the execution and delivery of this Agreement, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith. If any amount payable to
any Grantor under or in connection with any of the Collateral shall be or become
evidenced by any promissory note or other instrument, such note or instrument
shall be immediately pledged and delivered to the Collateral Agent, duly
endorsed in a manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by adding additional schedules hereto to specifically
identify any asset or item that may constitute Collateral; provided, however,
that any Grantor shall have the right, exercisable within 10 days after it has
been notified by the Collateral Agent of the specific identification of such
Collateral, to advise the Collateral Agent in writing of any inaccuracy of the
representations and warranties made by such Grantor hereunder with respect to
such Collateral. Each Grantor agrees that it will use its best efforts to take
such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Collateral Agent of
the specific identification of such Collateral.
SECTION 4.04. Inspection and Verification. The Collateral Agent and
such persons as the Collateral Agent may reasonably designate shall have the
right, upon reasonable notice and at reasonable times at the Grantors' own cost
and expense, to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantors' affairs with the officers of the
Grantors and their independent accountants and to verify under reasonable
procedures, in accordance with Section 5.09 of the Credit Agreement, the
validity, amount, quality, quantity, value, condition and status of, or any
other matter relating to, the Collateral, including, in the case of Accounts or
Collateral in the possession of any third person, by contacting Account Debtors
or the third person possessing such Collateral for the purpose of making such a
verification. The Collateral Agent shall have the absolute right to share any
information it gains from such inspection or verification with any Secured
Party.
SECTION 4.05. Taxes; Encumbrances. At its option and after notice
pursuant to Section 7.01, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted pursuant to
Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Collateral to the extent any Grantor fails to do so as
required by the Credit Agreement or this Agreement, and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Loan Documents.
SECTION 4.06. Assignment of Security Interest. If at any time any
Grantor shall take a security interest in any property of an Account Debtor or
any other person to secure payment and performance of an Account, such Grantor
shall promptly assign such security interest to the Collateral Agent. Such
assignment need not be filed of public record unless necessary to continue the
perfected status of the security interest against creditors of and transferees
from the Account Debtor or other person granting the security interest.
SECTION 4.07. Continuing Obligations of the Grantors. Each Grantor
shall remain liable to observe and perform all the conditions and obligations to
be observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
<PAGE>
SECTION 4.08. Use and Disposition of Collateral. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by Section 6.02 of the Credit Agreement. None of the
Grantors shall make or permit to be made any transfer of the Collateral and each
Grantor shall remain at all times in possession of the Collateral owned by it,
except that (a) Inventory may be sold in the ordinary course of business and (b)
unless and until the Collateral Agent shall notify the Grantors that an Event of
Default shall have occurred and be continuing and that during the continuance
thereof the Grantors shall not sell, convey, lease, assign, transfer or
otherwise dispose of any Collateral (which notice may be given by telephone if
promptly confirmed in writing), the Grantors may use and dispose of the
Collateral in any lawful manner not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document. Without limiting the
generality of the foregoing, each Grantor agrees that it shall not permit any
Inventory with an aggregate fair market value in excess of $100,000 to be in the
possession or control of any warehouseman, bailee, agent or processor at any
time unless such warehouseman, bailee, agent or processor shall have been
notified of the Security Interest and shall have agreed in writing to hold the
Inventory subject to the Security Interest and the instructions of the
Collateral Agent and to waive and release any Lien held by it with respect to
such Inventory, whether arising by operation of law or otherwise..
SECTION 4.09. Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the Account Rights, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged.
SECTION 4.10. Insurance. (a) The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accordance with Section 5.07 of the Credit
Agreement.
(b) Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems advisable. All sums disbursed by the Collateral Agent in connection with
this Section 4.10, including reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, shall be payable, upon demand, by the
Grantors to the Collateral Agent and shall be additional Obligations secured
hereby.
(c) Each Grantor agrees to cause all insurance policies related to the
insurance described in clause (a) of this Section 4.10 to be endorsed or
otherwise amended to include a lender's loss payable endorsement, in form and
substance reasonably satisfactory to the Collateral Agent.
SECTION 4.11. Legend. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its books, records and documents
evidencing or pertaining to Account Rights with an appropriate reference to the
fact that such Account Rights have been assigned to the Collateral Agent for the
benefit of the Secured Parties and that the Collateral Agent has a security
interest therein.
SECTION 4.12. Intellectual Property. (a) Each Grantor agrees that it
will not, nor will it permit any of its licensees to, do any act, or omit to do
any act, whereby any Patent which is material to the conduct of such Grantor's
business may become invalidated or dedicated to the public, and agrees that it
shall continue to mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each
work covered by a material Copyright, continue to publish, reproduce, display,
adopt and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it
knows or has reason to know that any Patent, Trademark or Copyright material to
the conduct of its business may become abandoned, lost or dedicated to the
public, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, United States Copyright Office or
any court or similar office of any country) regarding such Grantor's ownership
of any Patent, Trademark or Copyright, its right to register the same, or to
keep and maintain the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly informs
the Collateral Agent, and, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor's
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
(h) Upon and during the continuance of an Event of Default, each
Grantor shall use its best efforts to obtain all requisite consents or approvals
by the licensor of each Copyright License, Patent License or Trademark License
to effect the assignment of all of such Grantor's right, title and interest
thereunder to the Collateral Agent or its designee.
<PAGE>
ARTICLE V
Power of Attorney
SECTION 5.01. Power of Attorney. Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall have
the right, with power of substitution for each Grantor and in each Grantor's
name or otherwise, for the use and benefit of the Collateral Agent and the
Secured Parties, upon the occurrence and during the continuance of an Event of
Default (a) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences of payment relating
to the Collateral or any part thereof; (b) to demand, collect, receive payment
of, give receipt for and give discharges and releases of all or any of the
Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading
relating to any of the Collateral; (d) to send verifications of Account Rights
to any Account Debtor; (e) to commence and prosecute any and all suits, actions
or proceedings at law or in equity in any court of competent jurisdiction to
collect or otherwise realize on all or any of the Collateral or to enforce any
rights in respect of any Collateral; (f) to settle, compromise, compound, adjust
or defend any actions, suits or proceedings relating to all or any of the
Collateral; (g) to notify, or to require any Grantor to notify, Account Debtors
to make payment directly to the Collateral Agent; and (h) to use, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Collateral, and to do all other acts and things necessary to carry
out the purposes of this Agreement, as fully and completely as though the
Collateral Agent were the absolute owner of the Collateral for all purposes;
provided, however, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent or any Secured Party to make any commitment
or to make any inquiry as to the nature or sufficiency of any payment received
by the Collateral Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted to be taken by the Collateral Agent or
any Secured Party with respect to the Collateral or any part thereof shall give
rise to any defense, counterclaim or offset in favor of any Grantor or to any
claim or action against the Collateral Agent or any Secured Party. It is
understood and agreed that the appointment of the Collateral Agent as the agent
and attorney-in-fact of the Grantors for the purposes set forth above is coupled
with an interest and is irrevocable. The provisions of this Section shall in no
event relieve any Grantor of any of its obligations hereunder or under any other
Loan Document with respect to the Collateral or any part thereof or impose any
obligation on the Collateral Agent or any Secured Party to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Collateral Agent or any Secured Party of any other
or further right which it may have on the date of this Agreement or hereafter,
whether hereunder, under any other Loan Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained) and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral, exercise any Grantor's right to bill and receive payment for
completed work, and, generally, to exercise any and all rights afforded to a
Secured Party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing any Collateral which constitutes a "security" under
applicable securities law for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor, and each Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay and appraisal which such
Grantor now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice
(which each Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of Collateral. Such notice, in the case of a public sale, shall
state the time and place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or portion thereof,
will first be offered for sale at such board or exchange. Any such public sale
shall be held at such time or times within ordinary business hours and at such
place or places as the Collateral Agent may fix and state in the notice (if any)
of such sale. At any such sale, the Collateral, or portion thereof, to be sold
may be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall
apply the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by
the Administrative Agent or the Collateral Agent (in its capacity as
such hereunder or under any other Loan Document) in connection with
such collection or sale or otherwise in connection with this Agreement
or any of the Obligations, including all court costs and the fees and
expenses of its agents and legal counsel, the repayment of all advances
made by the Collateral Agent hereunder or under any other Loan Document
on behalf of any Grantor and any other costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under
any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts
so applied to be distributed among the Secured Parties pro rata in
accordance with the amounts of the Obligations owed to them on the date
of any such distribution); and
THIRD, to the Grantors, their successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral Agent
may be exercised, at the option of the Collateral Agent, upon the occurrence and
during the continuation of an Event of Default; provided that any license,
sub-license or other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and notices
hereunder to any Grantor shall be given to Holdings.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter this Agreement shall be binding upon such Grantor and the
Collateral Agent and their respective successors and assigns and shall inure to
the benefit of such Grantor, the Collateral Agent and the other Secured Parties
and their respective successors and assigns, except that no Grantor shall have
the right to assign or transfer its rights or obligations hereunder or any
interest herein or in the Collateral (and any such assignment or transfer shall
be void) except as expressly contemplated by this Agreement or the Credit
Agreement. This Agreement shall be construed as a separate agreement with
respect to each Grantor and may be amended, modified, supplemented, waived or
released with respect to any Grantor without the approval of any other Grantor
and without affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses; Indemnification.
(a) Each Grantor jointly and severally agrees to pay upon demand to the
Collateral Agent the amount of any and all reasonable expenses, including the
reasonable fees, disbursements and other charges of its counsel and of any
experts or agents, which the Collateral Agent may incur in connection with (i)
the administration of this Agreement (including the customary fees and charges
of the Collateral Agent for any audits conducted by it or on its behalf with
respect to the Account Rights or Inventory), (ii) the custody or preservation
of, or the sale of, collection from or other realization upon any of the
Collateral, (iii) the exercise, enforcement or protection of any of the rights
of the Collateral Agent hereunder or (iv) the failure of any Grantor to perform
or observe any of the provisions hereof.
<PAGE>
(b) Without limitation of its indemnification obligations under the
other Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document, or any investigation made by or on
behalf of the Collateral Agent or any other Secured Party. All amounts due under
this Section 7.06 shall be payable on written demand therefor and shall bear
interest at the rate specified in clause (c)(ii) of Section 2.13 of the Credit
Agreement.
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the
Lenders under the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Loan Document or consent to any
departure by any Grantor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Grantor in any case shall entitle such
Grantor or any other Grantor to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Collateral Agent and the Grantor or Grantors with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
<PAGE>
SECTION 7.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract (subject to Section 7.04),
and shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings used herein are
for the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees 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. Nothing in this Agreement shall affect any right that the
Collateral Agent, the Administrative Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Loan Documents against any Grantor or its properties in the courts of
any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 7.14. Termination. This Agreement and the Security Interest
shall terminate when all the Obligations (other than wholly contingent
indemnification obligations) have been indefeasibly paid in full, the Lenders
have no further commitment to lend, the LC Exposure has been reduced to zero and
the Issuing Bank has no further commitment to issue Letters of Credit under the
Credit Agreement, at which time the Collateral Agent shall execute and deliver
to the Grantors, at the Grantors' expense, all Uniform Commercial Code
termination statements, terminations and reassignments for mortgages and
assignments of copyrights, patents and trademarks, and similar documents which
the Grantors shall reasonably request to evidence such termination. Any
execution and delivery of termination statements or documents pursuant to this
Section 7.14 shall be without recourse to or warranty by the Collateral Agent.
<PAGE>
SECTION 7.15. Additional Grantors. Pursuant to Section 5.12 of the
Credit Agreement, each Significant Subsidiary (other than any Foreign
Subsidiary) that was not in existence or was not a Significant Subsidiary on the
date of the Credit Agreement is required to enter into this Agreement as a
Grantor upon becoming such a Subsidiary. Upon execution and delivery by the
Collateral Agent and such a Subsidiary of a Supplement in the form of Annex 1
hereto, such Subsidiary shall become a Grantor hereunder with the same force and
effect as if originally named as a Grantor herein. The execution and delivery of
any such instrument shall not require the consent of any Grantor hereunder. The
rights and obligations of each Grantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Grantor as a party to this
Agreement.
SECTION 7.16. Releases and Termination. This Agreement and the security
interest granted hereby shall terminate when all the Obligations have been
indefeasibly paid in full, the Lenders have no further commitment to lend, the
LC Exposure has been reduced to zero and the Issuing Bank has no further
commitment to issue Letters of Credit under the Credit Agreement. Upon such
Termination, the Collateral Agent shall execute and deliver to the Grantors, at
the Grantors' expense, all Uniform Commercial Code termination statements and
similar documents which the Grantors shall reasonably request to evidence such
termination. Any execution and delivery of termination statements or documents
pursuant to this Section 7.15 shall be without recourse to or warranty by the
Collateral Agent. A Subsidiary Grantor shall automatically be released from its
obligations hereunder and the security interest in the Collateral of such
Subsidiary Grantor shall be automatically released in the event that all the
Equity Interests of such Subsidiary Grantor shall be sold, transferred or
otherwise disposed of to a person other than Holdings, the Borrower or an
Affiliate of Holdings in a transaction permitted under the terms of the Credit
Agreement. Any Collateral granted hereunder shall be released (automatically and
without further action on the part of the Collateral Agent) upon the sale,
transfer or other disposition of such Collateral to a transferee other than
Holdings, the Borrower or an Affiliate of Holdings, to the extent that such
sale, transfer or other disposition is permitted under the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
--------------------------
Name:
Title:
THE KANSAS CITY SOUTHERN RAILWAY COMPANY,
by
--------------------------
Name:
Title:
CAYMEX TRANSPORTATION, INC.,
by
-----------------------------------
Name:
Title:
GATEWAY EASTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
GATEWAY WESTERN RAILWAY COMPANY,
by
-----------------------------------
Name:
Title:
GLOBAL TERMINALING SERVICES, INC.
by
-----------------------------------
Name:
Title:
<PAGE>
KCS TRANSPORTATION COMPANY,
by
-----------------------------------
Name:
Title:
KANSAS CITY SOUTHERN LINES, INC.,
by
-----------------------------------
Name:
Title:
SCC HOLDINGS, INC.,
by
-----------------------------------
Name:
Title:
MID-SOUTH MICROWAVE, INC.,
by
-----------------------------------
Name:
Title:
RICE-CARDEN CORPORATION,
by
-----------------------------------
Name:
Title:
SOUTHERN DEVELOPMENT COMPANY,
by
-----------------------------------
Name:
Title:
SOUTHERN INDUSTRIAL SERVICES, INC.,
by
-----------------------------------
Name:
Title:
TRANS-SERVE, INC.,
by
-----------------------------------
Name:
Title:
VEALS, INC.,
by
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Collateral Agent,
by
------------------------
Name:
Title:
<PAGE>
21042580\V-1
Schedule 1 to the
Security Agreement
SUBSIDIARY GRANTORS
Caymex Transportation, Inc.
Gateway Eastern Railway Company
Gateway Western Railway Company
Global Terminaling Services, Inc.
KCS Transportation Company
Kansas City Southern Lines, Inc.
Mid-South Microwave, Inc.
Rice-Carden Corporation
SCC Holdings, Inc.
Southern Development Company
Southern Industrial Services, Inc.
Trans-Serve, Inc.
Veals, Inc.
<PAGE>
Schedule II to the
Security Agreement
None.
<PAGE>
Annex 1 to the
Security Agreement
SUPPLEMENT NO. dated as of [ ] to the
Security Agreement dated as of January 11, 2000,
among THE KANSAS CITY SOUTHERN INDUSTRIES, INC., a
Delaware corporation ("Holdings"), KANSAS CITY
SOUTHERN RAILWAY COMPANY, INC., a Delaware
corporation (the "Borrower"), each other Subsidiary
of Holdings listed on Schedule I thereto or becoming
a party thereto as provided in Section 7.15 thereof
(collectively, the "Subsidiary Grantors"; Holdings,
the Borrower and the Subsidiary Grantors being
referred to collectively as the "Grantors") and THE
CHASE MANHATTAN BANK, ("Chase"), as collateral agent
(in such capacity, the "Collateral Agent"), for the
Secured Parties (as defined in the Credit Agreement
referred to below).
A. Reference is made to (a) the Credit Agreement dated as of January
11, 2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Holdings, the Borrower, the lenders from time to time
party thereto (the "Lenders"), and Chase, as administrative agent (in such
capacity, the "Administrative Agent"), collateral agent (in such capacity, the
"Collateral Agent") and issuing bank (in such capacity, the "Issuing Bank"), and
(b) the Guarantee Agreement and the other Loan Documents referred to in the
Credit Agreement.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Section 7.15 of the Security Agreement provides that additional
Subsidiaries may become Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Subsidiary (the "New Grantor") is executing this Supplement in accordance with
the requirements of the Credit Agreement to become a Grantor under the Security
Agreement in order to induce the Lenders to make additional Loans and the
Issuing Bank to issue additional Letters of Credit and as consideration for
Loans previously made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.15 of the Security Agreement,
the New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Credit Agreement),
does hereby create and grant to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns, a
security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor. Each reference to a "Grantor" in the Security Agreement shall be
deemed to include the New Grantor. The Security Agreement is hereby incorporated
herein by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
<PAGE>
3
[NYCorp;971826.3:4443C:01/27/2000--2:42p]
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it in
care of the Borrower.
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
<PAGE>
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.
<PAGE>
[NYCorp;971826.3:4443C:01/27/2000--2:42p]
[Name of New Grantor],
by
Name:
Title:
THE CHASE MANHATTAN BANK, as Collateral Agent,
by
Name:
Title:
<PAGE>
- - 3 -
1/ Consents to be included to the extent required by Section 9.04(b) of the
Credit Agreement.
(..continued)
21042577\V-1
21042577\V-1
CONFORMED COPY
364-DAY
COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of January 11, 2000
among
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
THE LENDERS NAMED HEREIN,
BANK OF AMERICA, N.A., as Documentation Agent
FLEET NATIONAL BANK, as Syndication Agent
and
THE CHASE MANHATTAN BANK,
as Administrative Agent and Swingline Lender,
------------------------------------
CHASE SECURITIES INC., as Advisor, Lead Arranger and Book Manager,
<PAGE>
3
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS........................................................1
SECTION 1.01. Defined Terms...................................................1
SECTION 1.02. Terms Generally................................................11
ARTICLE II. THE CREDITS......................................................11
SECTION 2.01. Commitments....................................................11
SECTION 2.02. Loans..........................................................11
SECTION 2.03. Competitive Bid Procedure......................................12
SECTION 2.04. Standby Borrowing Procedure....................................14
SECTION 2.05. Refinancings...................................................14
SECTION 2.06. Fees...........................................................14
SECTION 2.07. Repayment of Loans; Evidence of Debt...........................15
SECTION 2.08. Interest on Loans..............................................15
SECTION 2.09. Default Interest...............................................16
SECTION 2.10. Alternate Rate of Interest.....................................16
SECTION 2.11. Termination and Reduction of Commitments.......................16
SECTION 2.12. Prepayment.....................................................16
SECTION 2.13. Reserve Requirements; Change in Circumstances..................17
SECTION 2.14. Change in Legality.............................................18
SECTION 2.15. Indemnity......................................................18
SECTION 2.16. Pro Rata Treatment.............................................19
SECTION 2.17. Sharing of Setoffs.............................................19
SECTION 2.18. Payments.......................................................19
SECTION 2.19. Taxes..........................................................19
SECTION 2.20. Termination or Assignment of Commitments
Under Certain Circumstances....................................21
SECTION 2.21. Lending Offices and Lender Certificates;
Survival of Indemnity..........................................21
SECTION 2.22. Swingline Loans................................................21
ARTICLE III. REPRESENTATIONS AND WARRANTIES..................................22
SECTION 3.01. Corporate Existence and Standing...............................22
SECTION 3.02. Authorization and Validity.....................................23
SECTION 3.03. No Conflict; Governmental Consent..............................23
SECTION 3.04. Compliance with Laws; Environmental and Safety Matters.........23
SECTION 3.05. Financial Statements...........................................23
SECTION 3.06. No Material Adverse Change.....................................24
SECTION 3.07. Ownership of Properties........................................24
SECTION 3.08. Subsidiaries...................................................24
SECTION 3.09. Litigation; Contingent Obligations.............................24
SECTION 3.10. Material Agreements............................................24
SECTION 3.11. Regulation U...................................................24
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.....24
SECTION 3.13. Use of Proceeds................................................25
SECTION 3.14. Taxes..........................................................25
SECTION 3.15. Accuracy of Information........................................25
SECTION 3.16. Employee Benefit Plans.........................................25
SECTION 3.17. No Undisclosed Dividend Restrictions...........................25
SECTION 3.18. Year 2000......................................................25
ARTICLE IV. CONDITIONS OF LENDING AND THE AAA AGREEMENT......................25
SECTION 4.01. All Borrowings.................................................25
SECTION 4.02. First Borrowing................................................26
SECTION 4.03. AAA Agreement..................................................26
ARTICLE V. AFFIRMATIVE COVENANTS.............................................26
SECTION 5.01. Conduct of Business and Maintenance of Properties..............27
SECTION 5.02. Insurance......................................................27
SECTION 5.03. Compliance with Laws and Taxes.................................27
SECTION 5.04. Financial Statements, Reports, etc.............................27
SECTION 5.05. Other Notices..................................................28
SECTION 5.06. Access to Properties and Inspections...........................28
SECTION 5.07. Use of Proceeds................................................28
ARTICLE VI. NEGATIVE COVENANTS...............................................28
SECTION 6.01. Indebtedness...................................................29
SECTION 6.02. Liens..........................................................29
SECTION 6.03. Sale and Lease-Back Transactions...............................30
SECTION 6.04. Mergers, Consolidations and Transfers of Assets................30
SECTION 6.05. Transactions with Affiliates...................................30
SECTION 6.06. Certain Other Agreements.......................................31
SECTION 6.07. Certain Financial Covenants....................................31
SECTION 6.08. Margin Stock...................................................31
ARTICLE VII. EVENTS OF DEFAULT...............................................31
ARTICLE VIII. THE AGENT......................................................33
ARTICLE IX. MISCELLANEOUS....................................................34
SECTION 9.01. Notices........................................................34
SECTION 9.02. Survival of Agreement..........................................35
SECTION 9.03. Binding Effect.................................................35
SECTION 9.04. Successors and Assigns.........................................35
SECTION 9.05. Expenses; Indemnity............................................37
SECTION 9.06. Right of Setoff................................................37
SECTION 9.07. Applicable Law.................................................37
SECTION 9.08. Waivers; Amendment.............................................37
SECTION 9.09. Interest Rate Limitation.......................................38
SECTION 9.10. Entire Agreement...............................................38
SECTION 9.11. Waiver of Jury Trial...........................................38
SECTION 9.12. Severability...................................................38
SECTION 9.13. Counterparts...................................................38
SECTION 9.14. Headings.......................................................38
SECTION 9.15. Jurisdiction; Consent to Service of Process....................39
SECTION 9.16. Confidentiality................................................39
SECTION 9.17. AAA Agreement Authorization....................................39
<PAGE>
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.17 Dividend Restrictions
Schedule 6.01 Indebtedness
Schedule 6.02 Liens
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Form of AAA Agreement
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Sonnenschein Nath & Rosenthal
Exhibit E Compliance Certificate
Exhibit F Form of Confidentiality Agreement
Exhibit G Form of Administrative Questionnaire
<PAGE>
46
364-DAY COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY
AGREEMENT dated as of January 11, 2000, among KANSAS
CITY SOUTHERN INDUSTRIES, INC., a Delaware
corporation ("KCSI" or at all times prior to the
Assumption Date (as defined below), the "Borrower"),
the lenders party hereto (the "Lenders"), THE CHASE
MANHATTAN BANK, as Administrative Agent for the
Lenders (in such capacity, the "Agent"), BANK OF
AMERICA, N.A., as Documentation Agent for the
Lenders, and FLEET NATIONAL BANK, as Syndication
Agent for the Lenders.
KCSI proposes to distribute all the issued and outstanding
common stock of Stilwell (such term and each other capitalized term used but not
otherwise defined herein having the meaning assigned to it in Article I) to the
shareholders of KCSI. Prior to the date of the Spin-Off, the rights and
obligations of KCSI under this Agreement will be assigned and delegated to, and
assumed by, Stilwell pursuant to, and in accordance with the terms of, the AAA
Agreement. On the Assumption Date, KCSI will be released from all obligations
hereunder, and Stilwell will be the borrower and the sole obligor hereunder.
Following the Spin-Off, Stilwell may assign and delegate all or a portion of its
rights and obligations hereunder to one or more of its domestic subsidiaries;
provided that such subsidiaries' obligations are guaranteed by Stilwell.
KCSI has requested the Lenders to extend credit in order to
enable it to borrow on a standby revolving credit basis on and after the date
hereof and at any time and from time to time prior to the Assumption Date a
principal amount not in excess of $200,000,000 at any time outstanding. KCSI has
also requested the Lenders to provide a procedure pursuant to which the Lenders
may be invited to bid on an uncommitted basis on short-term borrowings by the
Borrower.
The proceeds of the initial borrowing by KCSI will be used to
repay approximately $125,000,000 of existing indebtedness of KCSI. No borrowings
by KCSI will be permitted after the Assumption Date. Any borrowings by Stilwell
and the Subsidiary Borrowers after the Assumption Date will be used for general
corporate purposes of Stilwell and the Subsidiary Borrowers including, without
limitation, (a) to provide liquidity for a commercial paper program of Stilwell
and (b) the financing of non-hostile acquisitions.
The Lenders are willing to extend such credit to KCSI on the
terms and subject to the conditions herein set forth. Accordingly, KCSI, the
Lenders and the Agent agree as follows:
ARTICLE I. DEFINITIONSARTICLE I. DEFINITIONS
SECTION 1.01. Defined TermsSECTION 1.01. Defined Terms.
As used in this Agreement, the
------------------------------------------
following terms shall have the meanings specified below:
"AAA Agreement" shall mean the Assignment, Assumption and
Amendment Agreement in the form of Exhibit B entered into by KCSI, Stilwell and
the Agent, on behalf of the Lenders, prior to the Spin-Off Date.
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Standby Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of
(a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire supplied by the Agent in the form of Exhibit G.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person specified and in any case shall include, when used with respect to the
Borrower or any Subsidiary, any joint venture in which the Borrower or such
Subsidiary holds an equity interest.
"Agent's Fees" shall have the meaning assigned to such term in
Section 2.06(b).
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate
of interest per annum publicly announced from time to time by the Agent as its
prime rate in effect at its principal office in New York City; the Prime Rate is
not intended to be the lowest rate of interest charged by the Agent in
connection with extensions of credit to debtors; each change in the Prime Rate
shall be effective on the date such change is publicly announced as effective.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it. "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate
or both for any reason, including the inability or failure of the Agent to
obtain sufficient quotations in accordance with the terms thereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Percentage" shall mean on any date, with respect
to the Loans comprising any Eurodollar Standby Borrowing or
ABR Borrowing or the Facility Fee, as the case may be, the
applicable percentage set forth in the table below based upon
the ratings applicable on such date to Index Debt:
================================== =============== ================= ==========
<TABLE>
Ratings Applicable to Index Debt Eurodollar
(S&P/Moody's) Facility Fee Standby Loan ABR Loan Spread
Spread
<S> <C> <C> <C>
- ---------------------------------- --------------- ----------------- ----------------
- ---------------------------------- --------------- ----------------- ----------------
Category 1 .085% .265% 0%
- ----------
A- or higher or A3 or higher
- ---------------------------------- --------------- ----------------- ----------------
- ---------------------------------- --------------- ----------------- ----------------
Category 2 .125% .325% 0%
- ----------
BBB+ or Baa1
- ---------------------------------- --------------- ----------------- ----------------
- ---------------------------------- --------------- ----------------- ----------------
Category 3 .150% .350% 0%
- ----------
BBB or Baa2
- ---------------------------------- --------------- ----------------- ----------------
- ---------------------------------- --------------- ----------------- ----------------
Category 4 .175% .450% 0%
- ----------
BBB- or Baa3
- ---------------------------------- --------------- ----------------- ----------------
- ---------------------------------- --------------- ----------------- ----------------
Category 5 .250% .625% 0%
- ----------
lower than or equal to BB+ or
lower than or equal to Ba1
================================== =============== ================= ================
</TABLE>
For purposes of the foregoing, (i) if the ratings established or deemed to have
been established by Moody's and S&P shall fall within different Categories, the
lower rating shall be disregarded, (ii) if Moody's or S&P shall not have in
effect a rating for Index Debt (other than because such rating agency shall no
longer be in the business of rating corporate debt obligations), such rating
agency will be deemed to have established a rating for Index Debt in Category 5
and (iii) if any rating established or deemed to have been established by
Moody's or S&P shall be changed (other than as a result of a change in the
rating system of Moody's or S&P), such change shall be effective as of the date
on which it is first announced by the applicable rating agency. Each change in
the Applicable Percentage shall apply during the period commencing on the
effective date of such change and ending on the date immediately preceding the
effective date of the next such change. If the rating system of Moody's or S&P
shall change, or if either such rating agency shall cease to be in the business
of rating corporate debt obligations, KCSI and the Lenders shall negotiate in
good faith to amend the references to specific ratings in this definition to
reflect such changed rating system or the nonavailability of ratings from such
rating agency, and pending the effectiveness of such amendment, the Applicable
Percentage shall be determined by reference to the rating most recently in
effect from such rating agency.
"Assessment Rate" shall mean, for any day, the annual
assessment rate in effect on such day that is payable by a member of the Bank
Insurance Fund classified as "well-capitalized" and within supervisory subgroup
"B" (or a comparable successor risk classification) within the meaning of 12
C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time deposits made in dollars
at the offices of such member in the United States; provided that if, as a
result of any change in any law, rule or regulation, it is no longer possible to
determine the Assessment Rate as aforesaid, then the Assessment Rate shall be
such annual rate as shall be reasonably determined by the Agent to be
representative of the cost of such insurance to the Lenders.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the Agent,
in the form of Exhibit C.
"Assumption" shall mean a transaction pursuant to this
Agreement and the AAA Agreement and on terms consistent in all material respects
with those disclosed to the Lenders prior to the date of this Agreement and
consummated prior to the Spin-Off in which (a) Stilwell becomes the Borrower
under this Agreement pursuant to the AAA Agreement and becomes liable for all
the Obligations to the same extent as KCSI (and the conditions to the
effectiveness set forth in the AAA Agreement are satisfied), (b) no person
(other than Stilwell) receives any consideration (other than common stock of
Stilwell) and (c) the assets and liabilities of Stilwell are the same as those
disclosed in the Confidential Memorandum.
"Assumption Date" shall mean the date on which the AAA
Agreement becomes effective in accordance with the terms thereof.
"Attributable Debt" shall mean, in connection with a Sale and
Leaseback Transaction, the present value (discounted in accordance with GAAP at
the debt rate implied in the lease) of the obligations of the Lessee for rental
payments during the term of the Lease.
"Berger" shall mean Stilwell Management, Inc., formerly known
as Berger Associates, Inc., a Delaware corporation.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrower" shall mean (a) prior to the Assumption Date, KCSI
and (b) on or after the Assumption Date, Stilwell.
"Borrowing" shall mean (a) a group of Loans of a single Type
made by the Lenders (or, in the case of a Competitive Borrowing, by the Lender
or Lenders whose Competitive Bids have been accepted pursuant to Section 2.03)
on a single date and as to which a single Interest Period is in effect or (b) a
Swingline Loan.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capitalized Lease Obligations" of any person shall mean the
obligations of such person under any lease that would be capitalized on a
balance sheet of such person prepared in accordance with GAAP, and the amount of
such obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986.
A "Change in Control" shall be deemed to have occurred if (i)
at any time prior to the Spin-Off, KCSI shall cease to own 100% of the voting
securities of Stilwell, (ii) at any time, less than 75% of the members of the
board of directors of the Borrower shall be (A) individuals who are members of
such board on the latest of the date hereof, the Assumption Date and the date of
the Spin-Off or (B) individuals whose election, or nomination for election by
the Borrower's stockholders, was approved by a vote of at least 75% of the
members of the board then still in office who are members of the board on the
latest of the date hereof, the Assumption Date and the date of the Spin-Off or
(iii) at any time, any person (other, prior to the Spin-Off, than KCSI), or any
two or more persons acting as a partnership, limited partnership, syndicate, or
other group for the purpose of acquiring, holding or disposing of securities of
the Borrower, shall become, according to public announcement or filing, the
"beneficial owner" (as defined in Rule 13d-3 issued under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of securities of the
Borrower representing 30% or more (calculated in accordance with such Rule
13d-3) of the combined voting power of the Borrower's then outstanding voting
securities.
"Chase" shall mean The Chase Manhattan Bank.
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Revolving Loans and to acquire participations
in Swingline Loans hereunder, expressed as an amount representing the maximum
aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.11 and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment
is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to
which such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $200,000,000. The Commitments
shall automatically and permanently terminate on the Maturity Date if not
terminated earlier pursuant to Section 2.11.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a
notification made by the Borrower pursuant to Section 2.03(d) in the form of
Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid
made by a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar
Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of
interest offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant
to Section 2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by the Borrower
under the bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan from a Lender to the
Borrower pursuant to the bidding procedure described in Section 2.03. Each
Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"Confidential Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated December 1999.
"Consolidated EBITDA" shall mean, for any period, the sum for
such period of (a) Consolidated Net Income, (b) Consolidated Interest Expense,
(c) provision for income taxes and (d) any amount which in the determination of
Consolidated Net Income has been deducted for depreciation expense or
amortization expense, in each case determined in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period,
total interest expense of the Borrower and the Consolidated Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net
income of the Borrower and the Consolidated Subsidiaries on a consolidated basis
for such period but without giving effect to any extraordinary gains and gains
from the sale of assets (other than in the ordinary course of business),
determined in accordance with GAAP.
"Consolidated Net Worth" shall mean, on any date the
stockholders' equity of the Borrower and the Consolidated Subsidiaries on such
date, computed and consolidated in accordance with GAAP.
"Consolidated Subsidiary" shall mean each Subsidiary the
financial statements of which shall be required to be consolidated with the
financial statements of the Borrower in accordance with GAAP.
"Consolidated Total Assets" shall mean the total assets of the
Borrower and the Consolidated Subsidiaries on a consolidated basis at any time,
determined in accordance with GAAP.
"Consolidated Total Indebtedness" shall mean at any date all
Indebtedness of the Borrower and the Consolidated Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any Subsidiary, are treated
as a single employer under Section 414(b) or 414(c) of the Code or, solely for
purposes of Section 302 of ERISA and Section 412 of the Code, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States
of America.
"DST Systems" shall mean DST Systems, Inc., a Delaware
corporation.
"Environmental Lien" shall mean a Lien in favor of any
governmental entity for (a) any liability under Federal or state environmental
laws or regulations (including, without limitation, RCRA and CERCLA) or (b)
damages arising from costs incurred by such governmental entity in response to a
release of a hazardous or toxic waste, substance or constituent, or other
substance into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Borrowing
comprised of Eurodollar Competitive Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan
or Eurodollar Standby Loan.
"Eurodollar Standby Borrowing" shall mean a Borrowing
comprised of Eurodollar Standby Loans.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VII.
"Facility Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Fee Letter" shall mean the letter agreement dated as of
December 6, 1999 among KCSI, the Agent and Chase Securities Inc.
"Fees" shall mean the Facility Fee, the Utilization Fee and
the Agent's Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (expressed in the form of a
decimal to no more than four decimal places) specified by the Lender making such
Loan in its Competitive Bid.
"GAAP" shall mean U.S. generally accepted accounting
principles, applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of a person means any agreement by which such
person assumes, guarantees, endorses, contingently agrees to purchase or provide
funds for the payment of, or otherwise becomes liable upon, the obligation of
any other person, or agrees to maintain the net worth or working capital or
other financial condition of any other person or otherwise assures any creditor
of such other person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract and shall include, without
limitation, the contingent liability of such person in connection with any
application for a Letter of Credit. The term "Guarantee" used as a verb has a
corresponding meaning.
"Indebtedness" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money, (b) all obligations of
such person evidenced by bonds, debentures, notes, acceptances, equipment trust
certificates or similar instruments, (c) all obligations of such person issued
or assumed as the deferred purchase price of property or services other than
accounts payable arising in the ordinary course of such person's business on
terms customary in the trade, (d) all obligations of such person, whether or not
assumed, secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien or payable
out of the proceeds or production from property owned or acquired by such
person, (e) Capitalized Lease Obligations of such person, (f) all Guarantees by
such person of Indebtedness of others and (g) any other obligations or
securities (other than up to $200,000,000 stated value of the convertible
preferred stock of the Borrower which may be issued and sold to an employee
stock ownership plan for employees of the Borrower and the Subsidiaries) which
such person is directly or indirectly obligated to repay, redeem, retire,
extinguish or repurchase (i) at a fixed or determinable date, whether by
operation of a sinking fund or otherwise, (ii) at the option of any person other
than the issuer thereof or (iii) upon the occurrence of a condition not solely
within the control of the issuer thereof or obligor thereon, such as a
redemption out of future earnings. The Indebtedness of any person shall include
the Indebtedness of any other entity (including any partnership in which such
person is a general partner) to the extent such person is liable therefor as a
result of such person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
person is not liable therefor.
"Index Debt" shall mean the senior unsecured non-credit
enhanced long-term indebtedness for borrowed money of KCSI.
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months' duration or a
Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day
that would have been an Interest Payment Date for such Loan had successive
Interest Periods of three months' duration or 90 days duration, as the case may
be, been applicable to such Loan and, in addition, the date of any refinancing
or conversion of such Loan with or to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter,
as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on
the date of such Borrowing and ending on the date 90 days thereafter or, if
earlier, on the Maturity Date or the date of prepayment of such Borrowing, (c)
as to any Fixed Rate Borrowing, the period commencing on the date of such
Borrowing and ending on the date specified in the Competitive Bids in which the
offer to make the Fixed Rate Loans comprising such Borrowing were extended,
which shall not be earlier than seven days after the date of such Borrowing or
later than 360 days after the date of such Borrowing and (d) as to any Swingline
Loan, the period commencing on the date of such Swingline Loan and ending on the
earlier of (x) the Maturity Date and (y) the date specified in the notice
requesting such Swingline Loan, which shall be no later than five Business Days
after the date of such Swingline Loan; provided, however, that if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of
Eurodollar Loans only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"Janus" shall mean Janus Capital Corporation, a Colorado
corporation.
"KCSI" shall mean Kansas City Southern Industries, Inc., a
Delaware corporation.
"KCSI Confidential Information Memorandum" shall mean the
Confidential Information Memorandum dated December 1999 in connection with the
credit facilities made available to KCSI and KCSR in January 2000.
"KCSR" shall mean The Kansas City Southern Railway Company, a
Missouri corporation.
"Lenders" shall mean (a) the financial institutions listed on
Schedule 2.01 (other than any such financial institution that has ceased to be a
party hereto pursuant to an Assignment and Acceptance) and (b) any financial
institution that has become a party hereto pursuant to an Assignment and
Acceptance. Unless the context clearly indicates otherwise, the term "Lenders"
shall include the Swingline Lender.
"Letter of Credit" of a person shall mean a letter of credit
or similar instrument that is issued upon the application of such person or upon
which such person is an account party or for which such person is in any way
liable.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, the rate appearing on Page 3750 of the
Telerate Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Agent from time to time for purposes of providing quotations
of interest rates applicable to dollar deposits in the London interbank market)
at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan" shall mean a Competitive Loan or a Standby Loan,
whether made as a Eurodollar Loan, an ABR Loan, a Fixed Rate Loan or a Swingline
Loan, each as permitted hereby.
"Loan Documents" shall mean this Agreement, the AAA Agreement,
the Guarantee Agreement and the Fee Letter.
"Margin" shall mean, as to any Eurodollar Competitive Loan,
the margin (expressed as a percentage rate per annum in the form of a decimal to
no more than four decimal places) to be added to or subtracted from the LIBO
Rate in order to determine the interest rate applicable to such Loan, as
specified in the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Maturity Date" shall mean January 9, 2001.
"Multiemployer Plan" shall mean a Plan that is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA as to which the
Borrower or any member of the Controlled Group may have any liability.
"Multiple Employer Plan" shall mean a Plan that is a
single-employer plan which has two or more contributing sponsors at least two of
whom are not under common control or who made contributions under such Plan
during the preceding five years.
"Nelson" shall mean Nelson Money Managers plc, an English
corporation.
"1999 Credit Agreement" shall mean the Amended and Restated
364-Day Competitive Advance and Revolving Credit Facility Agreement dated as of
May 14, 1999 among KCSI, the lenders party thereto, Chase, as administrative
agent, and Bank of America NT&SA, as documentation agent, as amended,
supplemented or otherwise modified from time to time.
"Obligations" shall mean all unpaid principal of and accrued
and unpaid interest on the Loans, all accrued and unpaid Fees and all other
obligations of the Borrower to the Lenders or to any Lender or the Agent arising
under the Loan Documents.
"PBGC" shall mean the Pension Benefit Guarantee Corporation
referred to and defined in ERISA.
"Person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership, limited liability
company or government, or any agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code as to which the Borrower or any member of the Controlled
Group may have any liability.
"Pro Rata Percentage" of any Lender at any time shall mean the
percentage of the Total Commitment represented by such Lender's Commitment. In
the event that the Total Commitment shall have expired or been terminated, the
Pro Rata Percentage with respect to any Lender shall be such Lender's Pro Rata
Percentage most recently in effect prior to such expiration or termination of
the Total Commitment, giving effect to any subsequent assignments pursuant to
Section 9.04.
"Projections" shall have the meaning assigned to such term in
Section 3.05(b).
"RCRA" shall mean the Resources Conservation and Recovery Act,
as the same may be amended from time to time.
"Register" shall have the meaning given such term in Section
9.04(d).
"Regulation D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Reportable Event" shall mean any reportable event as defined
in Section 4043 of ERISA and the regulations issued under such Section with
respect to a Plan (other than a Multiemployer Plan), excluding, however, such
events as to which the PBGC by regulation or by technical update waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event; provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a reportable event regardless of the issuance of any waiver in accordance with
Section 412(d) of the Code.
"Required Lenders" shall mean, at any time, (a)(i) the Agent
and Lenders in the aggregate holding more than 50% of the Total Commitment or
(ii) for purposes of acceleration pursuant to clause (ii) of Article VII or if
the Total Commitment has been terminated, the Agent and Lenders in the aggregate
representing more than 50% of the aggregate Revolving Credit Exposure or (b)(i)
Lenders in the aggregate holding more than 66-2/3% of the Total Commitment or
(ii) for purposes of acceleration pursuant to clause (ii) of Article VII or if
the Total Commitment has been terminated, Lenders in the aggregate representing
more than 66-2/3% of the Revolving Credit Exposure.
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Revolving Credit Exposure" shall mean, with respect to any
Lender at any time, the aggregate principal amount at such time of all
outstanding Standby Loans of such Lender plus the aggregate amount at such time
of such Lender's Swingline Exposure.
"Sale and Leaseback Transaction" shall have the meaning
assigned to such term in Section 6.03.
"Significant Subsidiary" shall mean, on any date of
determination, each of (a) KCSR, (b) Stilwell, (c) Janus, (d) Berger, (e) Berger
LLC, a subsidiary of Berger and (f) any other Subsidiary the assets of which
represent on such date more than 10% of the consolidated total assets of the
Borrower and the Consolidated Subsidiaries determined in accordance with GAAP.
"Specified Subsidiary" shall mean, at any time, a Subsidiary,
the total assets of which exceed at such time 3% of the total assets of the
Borrower and the Consolidated Subsidiaries, determined in accordance with GAAP.
"Spin-Off" shall mean the distribution of all of the shares of
common stock of Stilwell to the shareholders of KCSI.
"Standby Borrowing" shall mean a borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant
to Section 2.04 in the form of Exhibit A-5.
"Standby Loans" shall mean the revolving loans made by the
Lenders to the Borrower pursuant to Section 2.04. Each Standby Loan shall be a
Eurodollar Standby Loan or an ABR Loan.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board and any other banking authority to which
the Agent is subject (a) with respect to the Base CD Rate (as such term is used
in the definition of "Alternate Base Rate"), for new negotiable nonpersonal time
deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency
Liabilities (as defined in Regulation D). Such reserve percentages shall include
any imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefits of or credit for proration, exemptions or offsets.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"STB" shall mean the Surface Transportation Board, a board
established within the Department of Transportation or any successor Federal
agency charged with similar regulation of common carriers.
"Stilwell" shall mean Stilwell Financial, Inc., a Delaware
corporation that at all times prior to the Spin-Off will be a direct wholly
owned subsidiary of KCSI.
"subsidiary" shall mean, with respect to any person, any
corporation, partnership, limited liability company, association or other
business entity of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or
more than 50% of the general partnership interests or limited liability company
interests or other ownership interests are, at the time any determination is
being made, owned, controlled or held.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Swingline Exposure" means, at any time, the aggregate
principal amount of all Swingline Loans outstanding at such time. The Swingline
Exposure of any Lender at any time shall equal its Pro Rata Percentage of the
aggregate Swingline Exposure at such time.
"Swingline Lender" means Chase, in its capacity as lender of
Swingline Loans hereunder or another Lender that has agreed to provide Swingline
Loans hereunder; provided that the Borrower shall have delivered to the Agent a
written notice that it has elected to replace Chase as Swingline Lender (it
being understood that there shall be only one Swingline Lender hereunder at any
time).
"Swingline Loan" means a Loan made pursuant to Section 2.22.
"Total Commitment" shall mean at any time the aggregate amount
of the Lenders' Commitments, as in effect at such time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Transfer Transaction" shall mean a transaction on terms
consistent in all material respects with those disclosed to the Lenders prior to
the date of this Agreement and consummated prior to the Spin-Off in which KCSI
contributed to Stilwell the assets and operations of KCSI's financial asset
management business, including (i) 100% of the capital stock of Berger, (ii)
approximately 82% of the capital stock of Janus, (iii) approximately 32% of the
capital stock of DST Systems and (iv) approximately 80% of the capital stock of
Nelson.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the Adjusted LIBO Rate, the LIBO Rate, the Alternate Base Rate and the
Fixed Rate.
"Unfunded Liabilities" shall mean, on any date of
determination, (a) in the case of Multiemployer Plans and Multiple Employer
Plans, the liability of the Borrower and the Subsidiaries if they were to incur
a complete withdrawal from each such plan and (b) in the case of all other
Plans, all "unfunded benefit liabilities" as defined in Section 4001(a)(18) of
ERISA.
"Utilization Fee" shall have the meaning assigned to such term
in Section 2.06(b).
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms GenerallySECTION 1.02. Terms Generally.
The definitions in Section 1.01 shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided, however, that, for purposes of determining
compliance with any covenant set forth in Article VI, such terms shall be
construed in accordance with GAAP as in effect on the date of this Agreement
applied on a basis consistent with the application used in preparing the
Borrower's audited financial statements referred to in Section 3.05. In the
event that any change in GAAP materially affects any provision of this
Agreement, the parties hereto agree that, at the request of the Borrower or the
Required Lenders, they shall negotiate in good faith in order to amend the
affected provisions in such a way as will restore the parties to their
respective positions prior to such change, and, following any such request,
until such amendment becomes effective, the Borrower's compliance with such
provisions shall be determined on the basis of GAAP as in effect immediately
before such change in GAAP became effective.
ARTICLE II. THE CREDITSARTICLE II. THE CREDITS
SECTION 2.01. CommitmentsSECTION 2.01. Commitments. Subject to
the terms and conditions and relying upon the representations and warranties
herein set forth, each Lender agrees, severally and not jointly, to make Standby
Loans to the Borrower, at any time and from time to time on and after the date
hereof and until the earlier of the Maturity Date and the termination of the
Commitment of such Lender, in an aggregate principal amount at any time
outstanding not to exceed such Lender's Commitment minus the amount by which the
Competitive Loans outstanding at such time or Swingline Loans outstanding at
such time shall be deemed to have used such Commitment pursuant to Section 2.16,
subject, however, to the conditions that at no time shall (a) the sum of (i) the
total Revolving Credit Exposures plus (ii) the outstanding aggregate principal
amount of all Competitive Loans made by all Lenders exceed the Total Commitment,
and (b) such Lender's Revolving Credit Exposure exceed such Lender's Commitment.
Each Lender's Commitment is set forth opposite its respective name in Schedule
2.01. Such Commitments may be terminated or reduced from time to time pursuant
to Section 2.11.
Within the foregoing limits, the Borrower may borrow, pay or
prepay and reborrow hereunder, on and after the date hereof and prior to the
Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. LoansSECTION 2.02. Loans. (a) Each Standby Loan
shall be made as part of a Borrowing consisting of Loans made by the Lenders
ratably in accordance with their Commitments; provided, however, that the
failure of any Lender to make any Standby Loan shall not in itself relieve any
other Lender of its obligation to lend hereunder (it being understood, however,
that no Lender shall be responsible for the failure of any other Lender to make
any Loan required to be made by such other Lender). Each Competitive Loan shall
be made in accordance with the procedures set forth in Section 2.03. The Standby
Loans or Competitive Loans or Swingline Loans comprising any Borrowing shall be
(i) in the case of Competitive Loans, in an aggregate principal amount which is
an integral multiple of $1,000,000 and not less than $5,000,000, (ii) in the
case of Standby Loans, in an aggregate principal amount which is an integral
multiple of $1,000,000 and not less than $5,000,000 (or an aggregate principal
amount equal to the remaining balance of the available Commitments) and (iii) in
the case of Swingline Loans, in an aggregate principal amount which is an
integral multiple of $100,000 and not less than $500,000.
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable, and each
Swingline Loan shall be comprised entirely of ABR Loans unless otherwise agreed
by the Borrower and the Swingline Lender pursuant to Section 2.08(d). Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of this Agreement. Borrowings of more
than one Type may be outstanding at the same time; provided, however, that the
Borrower shall not be entitled to request any Borrowing which, if made, would
result in an aggregate of more than thirteen separate Standby Loans of any
Lender being outstanding hereunder at any one time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Loans.
(c) Subject to Section 2.05, each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Agent in New York, New York, not later than
12:00 noon, New York City time, and the Agent shall by 3:00 p.m., New York City
time, credit the amounts so received to the general deposit account of the
Borrower with the Agent or, if a Borrowing shall not occur on such date because
any condition precedent herein specified shall not have been met, return the
amounts so received to the respective Lenders; provided that Swingline Loans
shall be made as provided in Section 2.22. Competitive Loans shall be made by
the Lender or Lenders whose Competitive Bids therefor are accepted pursuant to
Section 2.03 in the amounts so accepted and Standby Loans shall be made by the
Lenders pro rata in accordance with Section 2.16. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder; provided that the Commitments and Competitive Bids of
the Lenders are several and no Lender shall be responsible for any other
Lender's failure to make Loans as required. Unless the Agent shall have received
notice from a Lender prior to the date of any Borrowing that such Lender will
not make available to the Agent such Lender's portion of such Borrowing, the
Agent may assume that such Lender has made such portion available to the Agent
on the date of such Borrowing in accordance with this paragraph (c) and the
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Lender shall
not have made such portion available to the Agent, such Lender and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the Agent
at (i) in the case of the Borrower, the interest rate applicable at the time to
the Loans comprising such Borrowing and (ii) in the case of such Lender, the
Federal Funds Effective Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount shall constitute such Lender's Loan as part of
such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Competitive Bid ProcedureSECTION 2.03.
Competitive Bid Procedure. (a) In order to request Competitive Bids, the
Borrower shall hand deliver, telex or telecopy to the Agent a duly completed
Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the
Agent (i) in the case of a Eurodollar Competitive Borrowing, not later than
10:00 a.m., New York City time, four Business Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00
a.m., New York City time, one Business Day before a proposed Competitive
Borrowing. No ABR Loan shall be requested in, or made pursuant to, a Competitive
Bid Request. A Competitive Bid Request that does not conform substantially to
the format of Exhibit A-1 may be rejected in the Agent's sole discretion, and
the Agent shall promptly notify the Borrower of such rejection by telex or
telecopier. Such request shall in each case refer to this Agreement and specify
(x) whether the Borrowing then being requested is to be a Eurodollar Borrowing
or a Fixed Rate Borrowing, (y) the date of such Borrowing (which shall be a
Business Day) and the aggregate principal amount thereof which shall be in a
minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000, and (z) the Interest Period with respect thereto (which may not end
after the Maturity Date). Promptly after its receipt of a Competitive Bid
Request that is not rejected as aforesaid, the Agent shall invite by telecopier
(in the form set forth in Exhibit A-2 hereto) the Lenders to bid, on the terms
and conditions of this Agreement, to make Competitive Loans pursuant to the
Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each
Competitive Bid by a Lender must be received by the Agent via telecopier, in the
form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive
Borrowing, not later than 9:30 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 9:30 a.m., New York City time, on the day of a
proposed Competitive Borrowing. Multiple bids will be accepted by the Agent.
Competitive Bids that do not conform substantially to the format of Exhibit A-3
may be rejected by the Agent after conferring with, and upon the instruction of,
the Borrower, and the Agent shall notify the Lender making such nonconforming
bid of such rejection as soon as practicable. Each Competitive Bid shall refer
to this Agreement and specify (x) the principal amount (which shall be in a
minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000
and which may equal the entire principal amount of the Competitive Borrowing
requested by the Borrower) of the Competitive Loan or Loans that the Lender is
willing to make to the Borrower, (y) the Competitive Bid Rate or Rates at which
the Lender is prepared to make the Competitive Loan or Loans and (z) the
Interest Period and the last day thereof. If any Lender shall elect not to make
a Competitive Bid, such Lender shall so notify the Agent via telecopier (I) in
the case of Eurodollar Competitive Loans, not later than 9:30 a.m., New York
City time, three Business Days before a proposed Competitive Borrowing, and (II)
in the case of Fixed Rate Loans, not later than 9:30 a.m., New York City time,
on the day of a proposed Competitive Borrowing; provided, however, that failure
by any Lender to give such notice shall not cause such Lender to be obligated to
make any Competitive Loan as part of such Competitive Borrowing. A Competitive
Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The Agent shall promptly notify the Borrower by telecopier
of all the Competitive Bids made, the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid was made
and the identity of the Lender that made each bid. The Agent shall send a copy
of all Competitive Bids to the Borrower for its records as soon as practicable
after completion of the bidding process set forth in this Section 2.03.
(d) The Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d), accept or reject any
Competitive Bid referred to in paragraph (c) above. The Borrower shall notify
the Agent by telephone, confirmed by telecopier in the form of a Competitive Bid
Accept/Reject Letter in the form of Exhibit A-4 hereto, whether and to what
extent it has decided to accept or reject any of or all the bids referred to in
paragraph (c) above, (x) in the case of a Eurodollar Competitive Borrowing, not
later than 10:30 a.m., New York City time, three Business Days before a proposed
Competitive Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later
than 10:30 a.m., New York City time, on the day of a proposed Competitive
Borrowing; provided, however, that (i) the failure by the Borrower to give such
notice shall be deemed to be a rejection of all the bids referred to in
paragraph (c) above, (ii) the Borrower shall not accept a bid made at a
particular Competitive Bid Rate if the Borrower has decided to reject a bid made
at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive
Bids accepted by the Borrower shall not exceed the principal amount specified in
the Competitive Bid Request and shall be in a minimum principal amount of
$5,000,000, (iv) if the Borrower shall accept a bid or bids made at a particular
Competitive Bid Rate but the amount of such bid or bids shall cause the total
amount of bids to be accepted by the Borrower to exceed the amount specified in
the Competitive Bid Request, then the Borrower shall accept a portion of such
bid or bids in an amount equal to the amount specified in the Competitive Bid
Request less the amount of all other Competitive Bids accepted with respect to
such Competitive Bid Request, which acceptance, in the case of multiple bids at
such Competitive Bid Rate, shall be made pro rata in accordance with the amount
of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause
(iv) above, no bid shall be accepted for a Competitive Loan unless such
Competitive Loan is in a minimum principal amount of $5,000,000 and an integral
multiple of $1,000,000; provided further, however, that if a Competitive Loan
must be in an amount less than $5,000,000 because of the provisions of clause
(iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any
integral multiple thereof, and in calculating the pro rata allocation of
acceptances of portions of multiple bids at a particular Competitive Bid Rate
pursuant to clause (iv) the amounts shall be rounded to integral multiples of
$1,000,000 in a manner which shall be in the discretion of the Borrower. A
notice given by the Borrower pursuant to this paragraph (d) shall be
irrevocable.
(e) The Agent shall promptly notify each bidding Lender
whether or not its Competitive Bid has been accepted (and if so, in what amount
and at what Competitive Bid Rate) by telecopy sent by the Agent, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) A Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request.
(g) If the Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such bid directly to the Borrower one
quarter of an hour earlier than the latest time at which the other Lenders are
required to submit their bids to the Agent pursuant to paragraph (b) above.
(h) All Notices required by this Section 2.03 shall be given
in accordance with Section 9.01.
SECTION 2.04. Standby Borrowing ProcedureSECTION 2.04. Standby
Borrowing Procedure. In order to request a Standby Borrowing, the Borrower shall
hand deliver or telecopy to the Agent in the form of Exhibit A-5 (a) in the case
of a Eurodollar Standby Borrowing, not later than 10:30 a.m., New York City
time, three Business Days before a proposed borrowing and (b) in the case of an
ABR Borrowing, not later than 10:30 a.m., New York City time, on the day of a
proposed borrowing. No Fixed Rate Loan shall be requested or made pursuant to a
Standby Borrowing Request. Such notice shall be irrevocable and shall in each
case specify (i) whether the Borrowing then being requested is to be a
Eurodollar Standby Borrowing or an ABR Borrowing; (ii) the date of such Standby
Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if
such Borrowing is to be a Eurodollar Standby Borrowing, the Interest Period with
respect thereto. If no election as to the Type of Standby Borrowing is specified
in any such notice, then the requested Standby Borrowing shall be an ABR
Borrowing. If no Interest Period with respect to any Eurodollar Standby
Borrowing is specified in any such notice, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration. If the Borrower shall
not have given notice in accordance with this Section 2.04 of its election to
refinance a Standby Borrowing prior to the end of the Interest Period in effect
for such Borrowing, then the Borrower shall (unless such Borrowing is repaid at
the end of such Interest Period) be deemed to have given notice of an election
to refinance such Borrowing with an ABR Borrowing. The Agent shall promptly
advise the Lenders of any notice given pursuant to this Section 2.04 and of each
Lender's portion of the requested Borrowing.
SECTION 2.05. RefinancingsSECTION 2.05. Refinancings. The
Borrower may refinance all or any part of any Borrowing with a Borrowing of the
same or a different Type made pursuant to Section 2.03 or Section 2.04, subject
to the conditions and limitations set forth herein and elsewhere in this
Agreement, including refinancings of Competitive Borrowings with Standby
Borrowings and Standby Borrowings with Competitive Borrowings. Any Borrowing or
part thereof so refinanced shall be deemed to be repaid in accordance with
Section 2.07 with the proceeds of a new Borrowing hereunder and the proceeds of
the new Borrowing, to the extent they do not exceed the principal amount of the
Borrowing being refinanced, shall not be paid by the Lenders to the Agent or by
the Agent to the Borrower pursuant to Section 2.02(c); provided, however, that
(i) if the principal amount extended by a Lender in a refinancing is greater
than the principal amount extended by such Lender in the Borrowing being
refinanced, then such Lender shall pay such difference to the Agent for
distribution to the Lenders described in (ii) below, (ii) if the principal
amount extended by a Lender in the Borrowing being refinanced is greater than
the principal amount being extended by such Lender in the refinancing, the Agent
shall return the difference to such Lender out of amounts received pursuant to
(i) above, and (iii) to the extent any Lender fails to pay the Agent amounts due
from it pursuant to (i) above, any Loan or portion thereof being refinanced with
such amounts shall not be deemed repaid in accordance with Section 2.07 and
shall be payable by the Borrower. This Section shall not apply to Swingline
Borrowings, which may not be refinanced.
SECTION 2.06. FeesSECTION 2.06. Fees. (a) The Borrower agrees
to pay to each Lender, through the Agent, a facility fee (a "Facility Fee") at a
rate per annum equal to the Applicable Percentage from time to time in effect on
the amount of the Commitment of such Lender, whether used or unused, during the
period commencing with the date hereof to but excluding the date on which such
Commitment terminates; provided that if such Lender continues to have any
Revolving Credit Exposure after its Commitment terminates, then such Facility
Fee shall continue to accrue on the daily amount of such Lender's Revolving
Credit Exposure from and including the date on which its Commitment terminates
to but excluding the date on which such Lender ceases to have any Revolving
Credit Exposure. Accrued Facility Fees shall be payable in arrears on the last
day of March, June, September and December of each year and on the date on which
the Commitments terminate, commencing on the first such date to occur after the
date hereof; provided that any Facility Fees accruing after the date on which
the Commitments terminate shall be payable on demand. All Facility Fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(b) For any day on which the outstanding principal amount of
Loans shall be greater than 33% of the total Commitments, the Borrower shall pay
to the Agent for the account of each Lender a utilization fee (a "Utilization
Fee") equal to 0.125% per annum on the aggregate amount of each Lender's
outstanding Loans on such day. The accrued Utilization Fees, if any, shall be
payable in arrears on the last day of each March, June, September and December
and on the date or dates on which the Commitments terminate and any outstanding
Loans are repaid. All Utilization Fees shall be computed on the basis of a year
of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(c) The Borrower agrees to pay the Agent, for its own account,
the fees (the "Agent's Fees") at the times and in the amounts previously agreed
by the Borrower and the Agent.
(d) All Fees shall be paid on the dates due, in immediately
available funds, to the Agent for distribution, if and as appropriate, among the
Lenders. Once paid, none of the Fees shall be refundable under any circumstances
absent manifest error.
SECTION 2.07. Repayment of Loans; Evidence of DebtSECTION
2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay (i) to the Administrative Agent for the account
of each Lender the then unpaid principal amount of each Revolving Loan on the
Maturity Date, (ii) to the Administrative Agent for the account of each Lender
the then unpaid principal amount of each Competitive Loan on the last day of the
Interest Period applicable to such Loan and (iii) to the Swingline Lender the
then unpaid principal amount of each Swingline Loan on the earlier of the
Maturity Date and the fifth Business Day after such Swingline Loan is made;
provided that on each date that a Revolving Borrowing or Competitive Borrowing
is made, the Borrower shall repay all Swingline Loans then outstanding.
(b) The outstanding principal balance of each Competitive
Loan, each Standby Loan and each Swingline Loan shall be payable on the last day
of the Interest Period applicable to such Loan and on the Maturity Date. Each
Competitive Loan, each Standby Loan and each Swingline Loan shall bear interest
from the date thereof on the outstanding principal balance thereof as set forth
in Section 2.08. Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement. The Agent shall maintain accounts in which it will record
(i) the amount of each Loan made hereunder, the Type of each Loan made and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Agent hereunder from
the Borrower and each Lender's share thereof. The entries made in the accounts
maintained pursuant to this Section 2.07 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Agent to maintain such accounts or any error therein shall not in any
manner (i) affect the obligations of the Borrower to repay the Loans in
accordance with their terms or (ii) cause the Borrower's obligations to be
greater than they would have been absent such failure or error.
(c) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Agent. Thereafter, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.08. Interest on LoansSECTION 2.08. Interest on
Loans. (a) Subject to the provisions of Section 2.09, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to (i)
in the case of each Eurodollar Standby Loan, the Adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Percentage, and
(ii) in the case of each Eurodollar Competitive Loan, the LIBO Rate for the
Interest Period in effect for such Borrowing plus the Margin offered by the
Lender making such Loan and accepted by the Borrower pursuant to Section 2.03.
Interest on each Eurodollar Borrowing shall be payable on each applicable
Interest Payment Date. The Adjusted LIBO Rate and the LIBO Rate for each
Interest Period shall be determined by the Agent, and such determination shall
be conclusive absent manifest error. The Agent shall promptly advise the
Borrower and each Lender, as appropriate, of such determination.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as the case may
be, when determined by reference to the Prime Rate and over a year of 360 days
at all other times) at a rate per annum equal to the Alternate Base Rate plus
the Applicable Percentage. Interest on each ABR Borrowing shall be payable on
each applicable Interest Payment Date. The Alternate Base Rate shall be
determined by the Agent, and such determination shall be conclusive absent
manifest error. The Agent shall promptly advise the Borrower and each Lender of
such determination.
(c) Subject to the provisions of Section 2.09, each Fixed Rate
Loan shall bear interest at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the fixed rate
of interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03. Interest on each Fixed Rate Loan shall be payable on
the Interest Payment Dates applicable to such Loan except as otherwise provided
in this Agreement.
(d) Subject to the provisions of Section 2.09, each Swingline
Loan shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be) at such rate per
annum as shall be agreed to in writing by the Borrower and the Swingline Lender
with respect to such Swingline Loan or, if no such agreement shall be made, at a
rate per annum equal to the Alternate Base Rate. Interest on each Swingline Loan
shall be payable on each applicable Interest Payment Date.
SECTION 2.09. Default InterestSECTION 2.09. Default Interest.
If the Borrower shall default in the payment of the principal of or interest on
any Loan or any other amount becoming due hereunder, whether by scheduled
maturity, notice of prepayment, acceleration or otherwise, the Borrower shall on
demand from time to time from the Agent pay interest, to the extent permitted by
law, on such defaulted amount up to (but not including) the date of actual
payment (after as well as before judgment) at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360 days) equal to the
Alternate Base Rate plus the Applicable Percentage plus 2%.
SECTION 2.10. Alternate Rate of InterestSECTION 2.10.
Alternate Rate of Interest. In the event, and on each occasion, that on the day
two Business Days prior to the commencement of any Interest Period for a
Eurodollar Borrowing the Agent shall have determined that dollar deposits in the
principal amounts of the Eurodollar Loans comprising such Borrowing are not
generally available in the London interbank market, or that the rates at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to any Lender of making or maintaining its Eurodollar Loan during such
Interest Period, or that reasonable means do not exist for ascertaining the
Adjusted LIBO Rate or the LIBO Rate, the Agent shall, as soon as practicable
thereafter, give written or telecopy notice of such determination to the
Borrower and the Lenders. In the event of any such determination, until the
Agent shall have advised the Borrower and the Lenders that the circumstances
giving rise to such notice no longer exist, (i) any request by the Borrower for
a Eurodollar Competitive Borrowing pursuant to Section 2.03 shall be of no force
and effect and shall be denied by the Agent and (ii) any request by the Borrower
for a Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to
be a request for an ABR Borrowing. In the event of any such determination, the
Lenders shall negotiate with the Borrower, at its request, as to the interest
rate which the Loans comprising such an ABR Borrowing shall bear; provided that
such Loans shall bear interest as provided in Section 2.08(b) pending the
execution by the Borrower and the Lenders of a written agreement providing for a
different interest rate. Each determination by the Agent hereunder shall be
conclusive absent manifest error.
SECTION 2.11. Termination and Reduction of CommitmentsSECTION
2.11. Termination and Reduction of Commitments. (a) Upon at least three Business
Days' prior irrevocable written or telecopy notice to the Agent, the Borrower
may at any time in whole permanently terminate, or from time to time in part
permanently reduce, the Total Commitment; provided, however, that (i) each
partial reduction of the Total Commitment shall be in an integral multiple of
$1,000,000 and in a minimum principal amount of $5,000,000 and (ii) no such
termination or reduction shall be made if, after giving effect to any concurrent
prepayment of the Loans in accordance with Section 2.12, the sum of the
Revolving Credit Exposures plus the aggregate outstanding principal amount of
the Competitive Loans would exceed the Total Commitment.
(b) Each reduction in the Total Commitment hereunder shall be
made ratably among the Lenders in accordance with their respective Commitments.
The Borrower shall pay to the Agent for the account of the Lenders, on the date
of each termination or reduction, the Facility Fees on the amount of the
Commitments so terminated or reduced accrued through the date of such
termination or reduction.
(c) Unless previously terminated, the Commitments shall
terminate on the Maturity Date.
SECTION 2.12. PrepaymentSECTION 2.12. Prepayment. (a) The
Borrower shall have the right at any time and from time to time to prepay any
Standby Borrowing, in whole or in part, upon giving written or telecopy notice
(or telephone notice promptly confirmed by written or telecopy notice) to the
Agent: (i) before 10:00 a.m., New York City time, three Business Days prior to
prepayment, in the case of Eurodollar Loans, and (ii) before 10:00 a.m., New
York City time, one Business Day prior to prepayment, in the case of ABR Loans;
provided, however, that each partial prepayment shall be in an amount which is
an integral multiple of $1,000,000 and not less than $5,000,000. The Borrower
shall not have the right to prepay any Competitive Borrowing.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.11, the Borrower shall pay or prepay so much
of the Standby Borrowings as shall be necessary in order that the aggregate
principal amount of the Competitive Loans and the total Revolving Credit
Exposures will not exceed the Total Commitment after giving effect to such
termination or reduction. In the event of any termination of all of the
Commitments, the Borrower shall repay or prepay all outstanding Standby Loans
and all outstanding Swingline Loans on the date of such termination.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to Section
2.15 but shall otherwise be without premium or penalty. All prepayments under
this Section 2.12 shall be accompanied by accrued interest on the principal
amount being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in
CircumstancesSECTION 2.13. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such
Lender or any Fees or other amounts payable hereunder (other than changes in
respect of taxes imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal or applicable lending office
or by any political subdivision or taxing authority therein), or shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of or credit extended by
such Lender (except any such reserve requirement which is reflected in the
Adjusted LIBO Rate), or shall impose on such Lender or the London interbank
market any other condition affecting this Agreement or any Eurodollar Loan or
Fixed Rate Loan made by such Lender, and the result of any of the foregoing
shall be to increase the direct cost to such Lender of making or maintaining any
Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received
or receivable by such Lender hereunder or (whether of principal, interest or
otherwise) by an amount reasonably deemed by such Lender to be material, then
the Borrower will pay to such Lender upon demand such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered. Notwithstanding the foregoing, no Lender shall be entitled
to request compensation under this paragraph with respect to any Competitive
Loan if it shall have been aware of the change giving rise to such request at
the time of submission of the Competitive Bid pursuant to which such Competitive
Loan shall have been made.
(b) If any Lender shall have determined that the applicability
of any law, rule, regulation or guideline adopted pursuant to or arising out of
the July 1988 report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled "International Convergence of Capital Measurement
and Capital Standards", or the adoption after the date hereof of any other law,
rule, regulation or guideline regarding capital adequacy, or any change in any
of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender (or any lending office of such Lender) or any Lender's holding company
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, if any, as a consequence of
this Agreement or the Loans made by such Lender pursuant hereto to a level below
that which such Lender or such Lender's holding company could have achieved but
for such applicability, adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount reasonably deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered. It is acknowledged
that this Agreement is being entered into by the Lenders on the understanding
that the Lenders will not be required to maintain capital against their
Commitments under currently applicable laws, regulations and regulatory
guidelines. In the event the Lenders shall be advised by any Governmental
Authority or shall otherwise determine on the basis of pronouncements of any
Governmental Authority that such understanding is incorrect, it is agreed that
the Lenders will be entitled to make claims under this paragraph (b) based upon
market requirements prevailing on the date hereof for commitments under
comparable credit facilities against which capital is required to be maintained.
(c) Failure on the part of any Lender to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period shall not constitute a
waiver of such Lender's right to demand compensation with respect to such period
or any other period. The protection of this Section shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
SECTION 2.14. Change in LegalitySECTION 2.14. Change in
Legality. (a) Notwithstanding any other provision herein, if any change in any
law or regulation or in the interpretation thereof by any governmental authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request by the Borrower for a Eurodollar Standby
Borrowing shall, as to such Lender only, be deemed a request for an ABR
Loan unless such declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, and
(x) all payments and prepayments of principal which would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans and (y) such Lender shall negotiate with
the Borrower, at its request, as to the interest rate which such ABR Loans shall
bear; provided that such Loans shall bear interest as provided in Section
2.08(b) pending the execution by the Borrower and such Lender of a written
agreement providing for a different interest rate.
(b) For purposes of this Section 2.14, a notice to the
Borrower by any Lender shall be effective as to each Eurodollar Loan, if lawful,
on the last day of the Interest Period currently applicable to such Eurodollar
Loan; in all other cases such notice shall be effective on the date of receipt
by the Borrower.
SECTION 2.15. IndemnitySECTION 2.15. Indemnity. The Borrower
shall indemnify each Lender against any loss or expense which such Lender may
sustain or incur as a consequence of (a) any failure by the Borrower to fulfill
on the date of any borrowing hereunder the applicable conditions set forth in
Article IV, (b) any failure by the Borrower to borrow or to refinance or
continue any Loan hereunder, for any reason other than a default by such Lender,
after irrevocable notice of such borrowing, refinancing or continuation has been
given pursuant to Section 2.03 or 2.04, (c) any payment, prepayment or
conversion of a Eurodollar Loan or Fixed Rate Loan required by any other
provision of this Agreement or otherwise made or deemed made on a date other
than the last day of the Interest Period applicable thereto, (d) any default in
payment or prepayment of the principal amount of any Loan or any part thereof or
interest accrued thereon, as and when due and payable (at the due date thereof,
whether by scheduled maturity, acceleration, irrevocable notice of prepayment or
otherwise) or (e) the occurrence of any Event of Default, including, in each
such case, any loss or reasonable expense sustained or incurred or to be
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a Eurodollar
Loan or Fixed Rate Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by such Lender, of (i) its
cost of obtaining the funds for the Loan being paid, prepaid, converted or not
borrowed (assumed to be the Adjusted LIBO Rate or, in the case of a Fixed Rate
Loan, the fixed rate of interest applicable thereto) for the period from the
date of such payment, prepayment or failure to borrow to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid or not borrowed for such period or Interest Period, as the case may be.
SECTION 2.16. Pro Rata TreatmentSECTION 2.16. Pro Rata
Treatment. Except as required under Section 2.14, each Standby Borrowing, each
payment or prepayment of principal of any Standby Borrowing, each payment of
interest on the Standby Loans, each payment of the Facility Fees, each reduction
of the Commitments and each refinancing of any Borrowing with a Standby
Borrowing of any Type, shall be allocated pro rata among the Lenders in
accordance with their respective Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective principal amounts
of their outstanding Standby Loans). Each payment of principal of any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective principal
amounts of their outstanding Competitive Loans comprising such Borrowing. Each
payment of interest on any Competitive Borrowing shall be allocated pro rata
among the Lenders participating in such Borrowing in accordance with the
respective amounts of accrued and unpaid interest on their outstanding
Competitive Loans comprising such Borrowing. For purposes of determining the
available Commitments of the Lenders at any time, each outstanding Competitive
Borrowing and each outstanding Swingline Loan shall be deemed to have utilized
the Commitments of the Lenders (including those Lenders which shall not have
made Loans as part of such Competitive Borrowing and those Lenders that shall
not have made Swingline Loans) pro rata in accordance with such respective
Commitments. Each Lender agrees that in computing such Lender's portion of any
Borrowing to be made hereunder, the Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
SECTION 2.17. Sharing of SetoffsSECTION 2.17. Sharing of
Setoffs. Each Lender agrees that if it shall, through the exercise of a right of
banker's lien, setoff or counterclaim against the Borrower, or pursuant to, a
secured claim under Section 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, obtain payment (voluntary or involuntary)
in respect of any Standby Loan or Loans or participations in Swingline Loans as
a result of which the unpaid principal portion of the Standby Loans or
participations in Swingline Loans shall be proportionately less than the unpaid
principal portion of the Standby Loans or participations in Swingline Loans of
any other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Standby Loans and participations in
Swingline Loans of such other Lender, so that the aggregate unpaid principal
amount of the Standby Loans and participations in the Standby Loans and
participations in Swingline Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans and
participations in Swingline Loans then outstanding as the principal amount of
its Standby Loans and participations in Swingline Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans and participations in Swingline Loans outstanding
prior to such exercise of banker's lien, setoff or counterclaim or other event;
provided, however, that, if any such purchase or purchases or adjustments shall
be made pursuant to this Section 2.17 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation
pursuant to the foregoing arrangements deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Standby Loan or Swingline Loan
directly to the Borrower in the amount of such participation.
SECTION 2.18. PaymentsSECTION 2.18. Payments. (a) The Borrower
shall make each payment (including principal of or interest on any Borrowing or
any Fees or other amounts but excluding principal and interest on Swingline
Loans, which shall be paid directly to the Swingline Lender except as provided
in Section 2.22(c)) hereunder and under any other Loan Document not later than
12:00 (noon), New York City time, on the date when due in dollars to the Agent
at its offices at 270 Park Avenue, New York, New York, in immediately available
funds.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.19. TaxesSECTION 2.19. Taxes. (a) Any and all
payments by the Borrower hereunder shall be made, in accordance with Section
2.18, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding taxes imposed on the Agent's or any Lender's (or
any transferee's or assignee's, including a participation holder's (any such
entity a "Transferee")) net income and franchise taxes imposed on the Agent or
any Lender (or Transferee) by the United States or any jurisdiction under the
laws of which it is organized or in which its applicable lending office is
located or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the Lenders
(or any Transferee) or the Agent, (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.19) such
Lender (or Transferee) or the Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee)
and the Agent for the full amount of Taxes and Other Taxes (including any Taxes
or Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.19) paid by such Lender (or Transferee) or the Agent, as the case may be, and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after the date any
Lender (or Transferee) or the Agent, as the case may be, makes written demand
therefor. If a Lender (or Transferee) or the Agent shall become aware that it is
entitled to receive a refund in respect of Taxes or Other Taxes, it shall
promptly notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such refund
at the Borrower's expense. If any Lender (or Transferee) or the Agent receives a
refund in respect of any Taxes or Other Taxes for which such Lender (or
Transferee) or the Agent has received payment from the Borrower hereunder it
shall promptly notify the Borrower of such refund and shall, within 30 days
after receipt of a request by the Borrower (or promptly upon receipt, if the
Borrower has requested application for such refund pursuant hereto), repay such
refund to the Borrower (but only to the extent of indemnity payments made, or
additional amounts paid, by the Borrower under this Section 2.19 with respect to
the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of such Lender (or Transferee) or the Agent and without interest;
provided that the Borrower, upon the request of such Lender (or Transferee) or
the Agent, agrees to return such refund (plus penalties, interest or other
charges) to such Lender (or Transferee) or the Agent in the event such Lender
(or Transferee) or the Agent is required to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its address
referred to in Section 9.01, the original or a certified copy of a receipt
issued by the appropriate Governmental Authority evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.19
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) Each Lender (or Transferee) which is organized outside the
United States shall deliver to the Borrower two copies of either Internal
Revenue Service Form W-8 BEN or Form W-8 ECI, or, in the case of a Lender (or
Transferee) claiming exemption from U.S. Federal withholding tax under Section
871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a
Form W-8, or any subsequent versions thereof or successors thereto (and, if such
Non-U.S. Lender delivers a Form W-8, a certificate representing that such
Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not
a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Borrower and is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code)) properly
completed and duly executed by such Lender (or Transferee) establishing that
such payment is totally exempt from, or is eligible for a reduced rate of,
United States Federal withholding tax. Such forms shall be delivered by each
Lender organized outside the United States on or before the date it becomes a
party to this Agreement (or, in the case of a Transferee that is a participation
holder, on or before the date such participation holder becomes a Transferee
hereunder) and on or before the date, if any, such Lender changes its applicable
lending office by designating a different lending office (a "New Lending
Office"). In addition, each Lender organized outside the United States shall
deliver such forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Lender. Notwithstanding any other provision of this
Section 2.19(f), a Lender organized outside the United States shall not be
required to deliver any form pursuant to this Section 2.19(f) that it is not
legally able to deliver. Unless the Borrower and the Agent have received forms
or other documents satisfactory to them indicating that payments hereunder are
not subject to United States withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, the Borrower or the Agent shall
withhold taxes from such payments at the applicable statutory rate in the case
of payments to or for any Lender (or Transferee) organized under the laws of a
jurisdiction outside the United States.
(g) The Borrower shall not be required to pay any additional
amounts to any Lender (or Transferee) in respect of United States Federal
withholding tax pursuant to paragraph (a) above to the extent that the
obligation to pay such additional amounts existed on the date such Lender (or
Transferee) became a party to this Agreement (or in the case of a Transferee
that is a participation holder, on the date such participation holder became a
Transferee hereunder) or would not have arisen but for a failure by such Lender
(or Transferee) to comply with the provisions of paragraph (f) above unless such
failure results from (i) a change in applicable law, regulation or official
interpretation thereof, (ii) an amendment, modification or revocation of any
applicable tax treaty or a change in official position regarding the application
or interpretation thereof, in each case after the date of the first Borrowing
(and, in the case of a Transferee, after the date of assignment or transfer) or
(iii) an assignment, participation, transfer or designation made at the request
of the Borrower; provided, however, the Borrower shall be required to pay those
amounts to any Lender (or Transferee) that it was required to pay hereunder
prior to the failure of such Lender (or Transferee) to comply with the
provisions of such paragraph (f).
(h) Any Lender (or Transferee) claiming any additional amounts
payable pursuant to this Section 2.19 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
requested by the Borrower or to change the jurisdiction of its applicable
lending office if the making of such a filing or change would avoid the need for
or reduce the amount of any such additional amounts which may thereafter accrue
and would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender (or Transferee).
SECTION 2.20. Termination or Assignment of Commitments Under
Certain
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CircumstancesSECTION 2.20. Termination or Assignment of Commitments Under
Certain Circumstances. In the event that any Lender shall fail to pay the Agent
amounts due it pursuant to Section 2.05(i) or any Lender shall have delivered a
notice or certificate pursuant to Section 2.13 or Section 2.14, or the Borrower
shall be required to make additional payments to any Lender under Section 2.19,
the Borrower shall have the right, at its own expense, upon notice to such
Lender and the Agent, to require such Lender to transfer and assign without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04) all its interests, rights and obligations under this Agreement to
another financial institution which shall assume such obligations; provided that
(i) no such termination or assignment shall conflict with any law, rule or
regulation or order of any Governmental Authority, (ii) the Borrower or the
assignee, as the case may be, shall pay to the affected Lender in immediately
available funds on the date of such termination or assignment the principal of
and interest accrued to the date of payment on the Loans (other than Competitive
Loans and participations in Swingline Loans) made by it hereunder and all other
amounts accrued for its account or owed to it hereunder and (iii) if a
Commitment is being assigned, the Borrower shall have received the prior written
consent of the Swingline Lender (which consent will not be unreasonably
withheld).
SECTION 2.21. Lending Offices and Lender Certificates;
Survival of IndemnitySECTION 2.21. Lending Offices and Lender Certificates;
Survival of Indemnity. To the extent reasonably possible, each Lender shall
designate an alternate lending office with respect to its Eurodollar Loans and
Fixed Rate Loans to reduce any liability of the Borrower to such Lender under
Section 2.13 or to avoid the unavailability of Eurodollar Loans under Section
2.10 or 2.14, so long as such designation is not disadvantageous to such Lender.
A good faith certificate of a Lender setting forth a reasonable basis of
computation and allocation of the amount due under Section 2.13 or 2.15 shall be
final, conclusive and binding on the Borrower in the absence of manifest error.
The amount specified in any such certificate shall be payable on demand after
receipt by the Borrower of such certificate. The obligations of the Borrower
under Sections 2.13 and 2.15 shall survive the payment of all amounts due under
any Loan Document and the termination of this Agreement.
SECTION 2.22. Swingline LoansSECTION 2.22. Swingline Loans.
(a) Subject to the terms and conditions set forth herein, the Swingline Lender
agrees to make Swingline Loans to the Borrower from time to time on and after
the date hereof and until the earlier of the Maturity Date and the termination
of the Commitments in an aggregate principal amount at any time outstanding that
will not result in (i) the aggregate principal amount of all outstanding
Swingline Loans exceeding $10,000,000 or (ii) the sum of the total Revolving
Credit Exposures plus the aggregate principal amount of outstanding Competitive
Loans exceeding the Total Commitment then in effect; provided that the Swingline
Lender shall not be required to make a Swingline Loan to refinance an
outstanding Swingline Loan. Each Swingline Loan shall bear interest at a rate
described in Section 2.08(d). Within the foregoing limits and subject to the
terms and conditions set forth herein, the Borrower may borrow, repay and
reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Agent of such request by telephone (confirmed by telecopy), not later than 12:00
noon, New York City time, on the day of a proposed Swingline Loan. Each such
notice shall be irrevocable and shall specify (i) the requested date of such
Swingline Loan (which shall be a Business Day), (ii) the Interest Period with
respect to the requested Swingline Loan (which may not end after the Maturity
Date), (iii) the amount of the requested Swingline Loan and (iv) the maturity of
the requested Swingline Loan (which shall be no later than five Business Days
after the date of such Swingline Loan). The Agent will promptly advise the
Swingline Lender of any such notice received from the Borrower. The Swingline
Lender shall make each Swingline Loan available to the Borrower by wire transfer
of immediately available funds to account number 987-087-8577 maintained by the
Borrower with UMB Bank, N.A. (ABA #101000695) by 3:00 p.m., New York City time,
on the requested date of such Swingline Loan. The Borrower shall have the right
at any time and from time to time to prepay any Swingline Loan, in whole or in
part, upon giving written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to the Swingline Lender and to the
Agent before 12:00 (noon), (New York time) on the date of prepayment at the
Swingline Lender's address for notices in the Administrative Questionnaire.
(c) The Swingline Lender may by written notice given to the
Agent not later than 10:00 a.m., New York City time, on any Business Day require
the Lenders to acquire participations on such Business Day in all or a portion
of the Swingline Loans outstanding. Such notice shall specify the aggregate
amount of Swingline Loans in which Lenders will participate. Promptly upon
receipt of such notice, the Agent will give notice thereof to each Lender,
specifying in such notice such Lender's percentage of such Swingline Loan or
Loans (which shall be equal to such Lender's Pro Rata Percentage). Each Lender
hereby absolutely and unconditionally agrees, upon receipt of notice as provided
above, to pay to the Agent, for the account of the Swingline Lender, such
Lender's percentage of such Swingline Loan or Loans. Each Lender acknowledges
and agrees that its obligation to acquire participations in Swingline Loans
pursuant to this paragraph is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of an Event of Default or a Default or reduction or termination of
the Total Commitment, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever. Each Lender shall comply
with its obligation under this paragraph by wire transfer of immediately
available funds, in the same manner as provided in Section 2.02(c) with respect
to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis,
to the payment obligations of the Lenders), and the Agent shall promptly pay to
the Swingline Lender the amounts so received by it from the Lenders. The Agent
shall notify the Borrower of any participations in any Swingline Loan acquired
pursuant to this paragraph, and thereafter payments in respect of such Swingline
Loan shall be made to the Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Agent; any such amounts received by the Agent shall be promptly
remitted by the Agent to the Lenders that shall have made their payments
pursuant to this paragraph and to the Swingline Lender, as their interests may
appear. The purchase of participations in a Swingline Loan pursuant to this
paragraph shall not relieve the Borrower of any default in the payment thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIESARTICLE III. REPRESENTATIONS AND
WARRANTIES
The Borrower represents and warrants to each of the Lenders
that:
SECTION 3.01. Corporate Existence and StandingSECTION 3.01.
Corporate Existence and Standing. Each of the Borrower and the Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
where the failure to so qualify would have a material adverse effect on the
Borrower or such Subsidiary.
SECTION 3.02. Authorization and ValiditySECTION 3.02.
Authorization and Validity. The Borrower has the corporate power and authority
and legal right to execute and deliver the Loan Documents and to perform its
obligations thereunder (collectively, the "Transactions"). The Transactions have
been duly authorized by proper corporate proceedings, and the Loan Documents
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency, moratorium or similar laws affecting
the enforcement of creditors' rights generally.
SECTION 3.03. No Conflict; Governmental ConsentSECTION 3.03.
No Conflict; Governmental Consent. None of the Transactions will violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on the Borrower or any Subsidiary or the Borrower's or any Subsidiary's
articles or certificate of incorporation or by-laws (including, without
limitation, the Interstate Commerce Commission Termination Act of 1995 (the
"Interstate Commerce Act") and the regulations promulgated thereunder) or the
provisions of any indenture, instrument or agreement to which the Borrower or
any Subsidiary is a party or is subject, or by which it, or its property, is
bound, or conflict therewith or constitute a default thereunder, or result in
the creation or imposition of any Lien in, of or on the property of the Borrower
or any Subsidiary pursuant to the terms of any such indenture, instrument or
agreement. No order, consent, approval, license, authorization, or validation
of, or filing, recording or registration with, or exemption by, any governmental
or public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with the execution, delivery and
performance of, or the legality, validity, binding effect or enforceability of,
any of the Loan Documents.
SECTION 3.04. Compliance with Laws; Environmental and Safety
MattersSECTION 3.04. Compliance with Laws; Environmental and Safety Matters. (a)
The Borrower and the Subsidiaries have, to the best knowledge and belief of the
Borrower, complied in all material respects with all applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
their respective businesses or the ownership of their respective properties
(including, without limitation, the Interstate Commerce Act and the Railway
Labor Act).
(b) The Borrower and each Subsidiary has complied in all
material respects with all Federal, state, local and other statutes, ordinances,
orders, judgments, rulings and regulations relating to environmental pollution
or to environmental regulation or control or to employee health or safety.
Neither the Borrower nor any Subsidiary has received notice of any material
failure so to comply. The Borrower's and the Subsidiaries' facilities do not
manage any hazardous wastes, hazardous substances, hazardous materials, toxic
substances, toxic pollutants or substances similarly denominated, as those terms
or similar terms are used in the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Hazardous Materials Transportation Act, the Toxic Substance Control Act, the
Clean Air Act, the Clean Water Act or any other applicable law relating to
environmental pollution or employee health and safety, in violation in any
material respect of any law or any regulations promulgated pursuant thereto. The
Borrower is aware of no events, conditions or circumstances involving
environmental pollution or contamination or employee health or safety that could
reasonably be expected to result in material liability on the part of the
Borrower or any Subsidiary.
SECTION 3.05. Financial StatementsSECTION 3.05. Financial
Statements. (a) KCSI has heretofore furnished to the Lenders its (i)
consolidated balance sheets, statements of income, changes in stockholders'
equity and cash flows as of and for the fiscal year ended December 31, 1998,
audited by and accompanied by the opinion of Price Waterhouse, independent
public accountants, and (ii) its unaudited consolidated balance sheets and
statements of income as of and for the fiscal quarter and the three-month period
ended September 30, 1999, certified by its chief financial officer. Such
financial statements present fairly the financial condition and results of
operations of KCSI and its consolidated subsidiaries as of such dates and for
such periods. Such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of KCSI and the Consolidated Subsidiaries as
of the dates thereof. Such financial statements were prepared in accordance with
GAAP applied on a consistent basis.
(b) KCSI has also heretofore furnished to the Lenders certain
pro forma statements and other financial information containing estimates and
projections of the future financial performance of KCSI's financial asset
management division as set forth in the Confidential Memorandum and in the KCSI
Confidential Information Memorandum (such financial statements and financial
information being collectively called the "Projections"). The Projections were
prepared in good faith using due and careful consideration and represent KCSI's
best estimates as of the date of the Projections of the financial performance of
KCSI's financial asset management division .
(c) In addition to the representations and warranties set
forth above in this Section 3.05, the Borrower has advised the Lenders that for
financial reporting purposes the Securities and Exchange Commission has taken
the position that Janus should be deconsolidated and treated as an equity
investment in the financial statements of Stilwell and KCSI. To the extent the
Securities and Exchange Commission prevails in its position or KCSI and Stilwell
concede such position with the consequence that the financial statements
previously delivered to the Lenders must be restated to conform with GAAP by
presenting Janus as an equity investment, (i) the representations set forth in
clauses (a) or (b) of this Section 3.05 shall not be deemed to be untrue in any
material respect and (ii) each reference in the Loan Documents to a
"Consolidated Subsidiary" or "Consolidated Subsidiaries" (other than in Section
6.07 hereof and the application of the defined terms used therein) shall be
deemed to include Janus and its consolidated subsidiaries. The Borrower hereby
represents and warrants to the Lenders that any such restatement of the
financial statements of KCSI or Stilwell will not materially impact KCSI's or
Stilwell's net income or earnings per share or the ability of KCSI or Stilwell
to comply with the financial covenants set forth in Section 6.07.
SECTION 3.06. No Material Adverse ChangeSECTION 3.06. No
Material Adverse Change. No
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material adverse change in the business, properties, financial condition,
prospects or results of operations of the Borrower and the Consolidated
Subsidiaries has occurred since December 31, 1998.
SECTION 3.07. Ownership of PropertiesSECTION 3.07. Ownership
of Properties. On the date hereof, each of the Borrower and the Subsidiaries has
good title, free of all Liens (other than those permitted by Section 6.02), to
all of the properties and assets reflected in its financial statements as owned
by it.
SECTION 3.08. SubsidiariesSECTION 3.08. Subsidiaries. Schedule
3.08 contains an accurate list of all of (a) the significant joint ventures and
(b) Subsidiaries of the Borrower which have any assets or operations, in each
case on the date hereof, setting forth their respective jurisdictions of
organization and the percentage of their respective ownership interest held by
the Borrower or other Subsidiaries. All of the issued and outstanding shares of
capital stock of such Subsidiaries have been duly authorized and issued and are
fully paid and nonassessable.
SECTION 3.09. Litigation; Contingent ObligationsSECTION 3.09.
Litigation; Contingent Obligations. Except as set forth in Schedule 3.09 or as
disclosed in KCSI's Annual Report on Form 10-K dated December 31, 1998 filed
with the Securities and Exchange Commission, (i) there is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any Consolidated Subsidiary that (A) is required to be disclosed in
any filing with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, or (B) might materially adversely
affect the business, properties, financial condition, prospects or results of
operations of the Borrower or the ability of the Borrower to perform its
obligations under the Loan Documents and (ii) neither the Borrower nor any
Consolidated Subsidiary has any material contingent obligations.
SECTION 3.10. Material AgreementsSECTION 3.10. Material
Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement
or instrument or subject to any charter or other corporate restriction
materially and adversely affecting its business, properties or assets,
operations or condition (financial or otherwise). Neither the Borrower nor any
Subsidiary is in default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in (a) any agreement to which
it is a party, which default might have a material adverse effect on the
consolidated business, properties, financial condition, prospects or results of
operations of the Borrower and the Consolidated Subsidiaries or (b) any
agreement or instrument evidencing or governing Indebtedness which default would
allow the holders thereof to cause such Indebtedness to become due prior to its
stated maturity, result in any mandatory repayment, prepayment or redemption
thereof, or require that any offer be made to effect any repurchase or
redemption thereof.
SECTION 3.11. Regulation USECTION 3.11. Regulation U. Margin
Stock constitutes less than 25% of those assets of the Borrower and the
Subsidiaries that are subject to any limitation on sale, pledge, or other
restriction hereunder.
SECTION 3.12. Investment Company Act; Public Utility Holding
Company ActSECTION 3.12. Investment Company Act; Public Utility Holding Company
Act. (a) Neither the Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(b) Neither the Borrower nor any Subsidiary is a "holding
company" or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
SECTION 3.13. Use of ProceedsSECTION 3.13. Use of Proceeds.
The Borrower will use the proceeds of the Loans only for the purposes set forth
in the recitals to this Agreement.
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SECTION 3.14. TaxesSECTION 3.14. Taxes. The Borrower and the
Consolidated Subsidiaries have filed all United States federal tax returns and
all other tax returns which are required to be filed and have paid all taxes due
pursuant to said returns or pursuant to any assessment received by the Borrower
or any Consolidated Subsidiary, including without limitation all federal and
state withholding taxes and all taxes required to be paid pursuant to applicable
law, except such taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided. The United States income tax returns
of the Borrower and the Consolidated Subsidiaries have been audited by the
Internal Revenue Service through the fiscal year ended December 31, 1989. No tax
Liens have been filed, and no claims are being asserted with respect to any such
taxes (other than Liens and claims which are being contested in good faith by
appropriate proceedings). The charges, accruals and reserves on the books of the
Borrower and the Consolidated Subsidiaries in respect of any taxes or other
governmental charges are adequate.
SECTION 3.15. Accuracy of InformationSECTION 3.15. Accuracy of
Information. No information, exhibit or report furnished by KCSI or any
subsidiary of KCSI to the Agent or to any Lender in connection with the
negotiation of the Loan Documents contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statements
contained therein not misleading.
SECTION 3.16. Employee Benefit PlansSECTION 3.16. Employee
Benefit Plans. The Unfunded Liabilities of all Plans do not in the aggregate
exceed $5,000,000. Each Plan complies in all material respects with all
applicable requirements of law and regulations, no Reportable Event has occurred
or is reasonably expected to occur with respect to any Plan and neither the
Borrower nor any other member of the Controlled Group has (i) taken any steps to
terminate any Plan, (ii) initiated any steps to withdraw from any Plan or (iii)
incurred any Withdrawal Liability.
SECTION 3.17. No Undisclosed Dividend RestrictionsSECTION
3.17. No Undisclosed Dividend Restrictions. Except as set forth in Schedule 3.17
and except for limitations on the payment of dividends under applicable law,
none of the Subsidiaries is subject to any agreement, amendment, covenant or
understanding that directly or indirectly (through the application of financial
covenants or otherwise) prohibits the ability of such entity to declare or pay
dividends.
SECTION 3.18. Year 2000SECTION 3.18. Year 2000. There has not
occurred, and the Borrower does not expect that there will occur, any material
disruption in the operations or business systems of the Borrower or its
Subsidiaries resulting from the inability of computer systems of the Borrower
and its Subsidiaries or equipment containing embedded microchips to recognize or
properly process dates in or following the year 2000.
ARTICLE IV. CONDITIONS OF LENDING AND THE AAA AGREEMENTARTICLE IV. CONDITIONS
OF LENDING AND THE AAA AGREEMENT
The obligations of the Lenders to make Loans hereunder are
subject to the satisfaction of the following conditions:
SECTION 4.01. All BorrowingsSECTION 4.01. All Borrowings.
On the date of each Borrowing, including each Borrowing in which Loans are
refinanced with new Loans as contemplated by Section 2.05:
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(a) The Agent shall have received a notice of such Borrowing
as required by Section 2.03 or Section 2.04, as applicable, or in the
case of a Borrowing of a Swingline Loan, the Swingline Lender and the
Agent shall have received a notice requesting such Swingline Loan as
requested by Section 2.22.
(b) The representations and warranties set forth in Article
III hereof (except, in the case of a refinancing of a Standby Borrowing
with a new Standby Borrowing that does not increase the aggregate
principal amount of the Loans of any Lender outstanding, the
representations set forth in Sections 3.06 and 3.09(i)) shall be true
and correct on and as of the date of such Borrowing with the same
effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing, no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First BorrowingSECTION 4.02. First Borrowing.
On the date hereof:
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(a) The Agent shall have received a favorable written opinion
of Sonnenschein Nath & Rosenthal, counsel to the Borrower, to the
effect set forth in Exhibit D hereto, dated the date hereof and
addressed to the Lenders. The Borrower hereby instructs such counsel to
deliver such opinion to the Agent.
(b) All legal matters incident to this Agreement and the
Borrowings hereunder shall be satisfactory to the Lenders and to
Cravath, Swaine & Moore, counsel for the Agent.
(c) The Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments
thereto, of the Borrower, certified as of a recent date by the
Secretary of State of the State of Delaware and a certificate as to the
good standing of the Borrower as of a recent date, from such Secretary
of State; (ii) a certificate of the Secretary or an Assistant Secretary
of the Borrower dated the date hereof and certifying (A) that attached
thereto is a true and complete copy of the by-laws of the Borrower as
in effect on the date hereof and at all times since a date prior to the
date of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Loan Documents and the
borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that the
certificate or articles of incorporation of the Borrower have not been
amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above,
and (D) as to the incumbency and specimen signature of each officer
executing any Loan Document or any other document delivered in
connection herewith on behalf of the Borrower; (iii) a certificate of
another officer as to the incumbency and specimen signature of the
Secretary or Assistant Secretary executing the certificate pursuant to
(ii) above; and (iv) such other documents as the Lenders or Cravath,
Swaine & Moore, counsel for the Agent, may reasonably request.
(d) The Agent shall have received a certificate, dated the
date hereof and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01.
(e) The Agent shall have received all Fees and other amounts
due and payable on or prior to the date hereof.
(f) There shall be no litigation, actual or threatened, that
in the reasonable judgment of the Agent would (i) be likely to affect
materially and adversely the business, assets, condition (financial or
otherwise) or prospects of KCSI or Stilwell or (ii) be materially
inconsistent with the assumptions underlying the pro forma financial
information and projections previously delivered to the Agent and the
Lenders pursuant to Section 3.05(b).
(g) No Event of Default or Default (each as defined in the
1999 Credit Agreement) shall have occurred and be continuing.
SECTION 4.03. AAA AgreementSECTION 4.03. AAA Agreement. On the
Assumption Date, each condition set forth in Section 4 of the AAA Agreement
shall have been satisfied or waived by the Required Lenders. Execution of the
AAA Agreement shall be deemed to constitute a representation and warranty by
Stilwell on the Assumption Date as to the matters specified in paragraphs (b)
and (c) of Section 4.01 hereof.
ARTICLE V. AFFIRMATIVE COVENANTSARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender that, until
the Commitments have expired or been terminated and the principal of or interest
on each Loan, any Fees or any other expenses or amounts payable under any Loan
Document shall have been paid in full, unless the Required Lenders shall
otherwise consent in writing:
SECTION 5.01. Conduct of Business and Maintenance of
PropertiesSECTION 5.01. Conduct of Business and Maintenance of Properties. (a)
The Borrower will, and will cause each Significant Subsidiary to, carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted and to do all things
necessary to remain duly incorporated, validly existing and in good standing as
a domestic corporation in its jurisdiction of incorporation and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted; provided that if the Spin-Off is completed, KCSI will,
and will cause each Subsidiary to, cause the Spin-Off to be completed (i) in
accordance with applicable law, (ii) as disclosed in Stilwell's Form 10
previously delivered to the Agent and (iii) on terms and with results consistent
with the pro forma financial information previously delivered to the Agent and
the Lenders.
(b) The Borrower will, and will cause each Significant
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
their properties material to the conduct of their business in good repair,
working order and condition, and make all necessary and proper repairs, renewals
and replacements so that their businesses carried on in connection therewith may
be properly conducted at all times.
SECTION 5.02. InsuranceSECTION 5.02. Insurance. The Borrower
will, and will cause each Consolidated Subsidiary to, maintain with financially
sound and reputable insurance companies insurance on all their property in such
amounts and covering such risks as is consistent with sound business practice
and customary with companies engaged in similar lines of business, and the
Borrower will furnish to any Lender upon request full information as to the
insurance carried.
SECTION 5.03. Compliance with Laws and TaxesSECTION 5.03.
Compliance with Laws and Taxes. (a) The Borrower will, and will cause each
Consolidated Subsidiary to, comply in all material respects with all laws
(including, without limitation, ERISA, the Interstate Commerce Act and the Fair
Labor Standards Act, as amended), rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject.
(b) The Borrower will, and will cause each Consolidated
Subsidiary to, pay when due all taxes, assessments and governmental charges and
levies upon it or its income, profits or property, except those which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
SECTION 5.04. Financial Statements, Reports, etc.SECTION 5.04.
Financial Statements, Reports, etc. The Borrower will maintain, for itself and
each Consolidated Subsidiary, a system of accounting established and
administered in accordance with GAAP and will furnish to the Agent and each
Lender:
(a) within 105 days after the close of each of its fiscal
years, an unqualified (except for qualifications relating to changes in
accounting principles or practices reflecting changes in GAAP and
required or approved by the Borrower's independent certified public
accountants) audit report certified by independent certified public
accountants, of nationally recognized standing, prepared in accordance
with GAAP on a consolidated basis for itself and the Consolidated
Subsidiaries, including balance sheets as of the end of such period and
related statements of income and changes in stockholders' equity and
cash flows, accompanied by a certificate of said accountants that, in
the course of their examination necessary for their certification of
the foregoing, they have obtained no knowledge of any Default or Event
of Default, or if, in the opinion of such accountants, any Default or
Event of Default shall exist, stating the nature and status thereof;
(b) within 60 days after the close of each of the first three
quarterly periods of each of its fiscal years, for itself and the
Consolidated Subsidiaries, unaudited consolidated balance sheets as at
the close of each such period, consolidated statements of income and a
consolidated statement of cash flows for the period from the beginning
of such fiscal year to the end of such quarter, all certified by its
chief financial officer;
(c) together with the financial statements required hereunder,
a compliance certificate in substantially the form of Exhibit E signed
by its chief financial officer showing the calculations necessary to
determine compliance with this Agreement and stating that no Default or
Event of Default exists, or if any Default or Event of Default exists,
stating the nature and status thereof;
(d) as soon as possible and in any event within 10 days after
any Responsible Officer of the Borrower knows or has reason to know
that (i) any Reportable Event has occurred with respect to any Plan,
(ii) any Withdrawal Liability has been incurred with respect to any
Multiemployer Plan or (iii) the Borrower or any member of the
Controlled Group has received any notice concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is,
or is expected to be, insolvent or in reorganization within the meaning
of Title IV of ERISA, a statement, signed by the chief financial
officer of the Borrower, describing such Reportable Event, Withdrawal
Liability or notice and the action which the Borrower proposes to take
with respect thereto;
(e) as soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (i) any notice or claim to the
effect that the Borrower or any Subsidiary is or may be liable to any
person as a result of the release by the Borrower, any of the
Subsidiaries, or any other person of any toxic or hazardous waste or
substance into the environment or that all or any of its properties is
subject to an Environmental Lien and (ii) any notice alleging any
violation of any Federal, state or local environmental, health or
safety law or regulation by the Borrower or any Subsidiary, which
would, in the case of either of the preceding clauses (i) and (ii),
have a material adverse effect upon the operations of the Borrower and
the Consolidated Subsidiaries, taken as a whole;
(f) promptly upon the furnishing thereof to the shareholders
of the Borrower, copies of all financial statements, reports and proxy
statements so furnished;
(g) promptly upon the filing thereof, copies of all
registration statements and annual, quarterly, monthly or other regular
reports which the Borrower or any Consolidated Subsidiary files with
the Securities and Exchange Commission or financial reports material to
the interests of the Lenders or to the ability of the Borrower to
perform its obligations under the Loan Documents and filed by any of
them with the STB; and
(h) such other information (including financial information)
as the Agent or any Lender may from time to time reasonably request.
SECTION 5.05. Other NoticesSECTION 5.05. Other Notices. The
Borrower will, and will cause each Subsidiary to, give prompt notice in writing
to the Lenders of the occurrence of any Default or Event of Default and of any
other development, financial or otherwise, which might materially adversely
affect its business, properties or affairs or the ability of the Borrower to
repay the Obligations.
SECTION 5.06. Access to Properties and InspectionsSECTION
5.06. Access to Properties and Inspections. The Borrower will, and will cause
each Consolidated Subsidiary to, permit the Agent and the Lenders to make
reasonable inspections of the properties, corporate books and financial records
of the Borrower and each Consolidated Subsidiary, to make reasonable
examinations and copies of the books of accounts and other financial records of
the Borrower and each Consolidated Subsidiary, and to discuss the affairs,
finances and accounts of the Borrower and each Consolidated Subsidiary with, and
to be advised as to the same by, their respective officers at such reasonable
times and intervals as the Lenders may designate; provided that (a) any
inspection by any Lender shall be at such Lender's own expense and (b) the
Lenders shall coordinate the timing of their inspections through the Agent.
SECTION 5.07. Use of ProceedsSECTION 5.07. Use of Proceeds.
The Borrower will, and will cause each of the Subsidiaries to, use the proceeds
of the Loans only for the purposes set forth in the recitals to this Agreement.
The Borrower will not, nor will it permit any Subsidiary to, use any of the
proceeds of the Loans (a) for any purpose that entails a violation of, or that
is inconsistent with, the provisions of the Regulations of the Board including
Regulation U or X or (b) to make any acquisition for which the board of
directors of the target company has not given its consent or approval.
ARTICLE VI. NEGATIVE COVENANTSARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the
Agent that, until the Commitments have expired or been terminated and the
principal of or interest on each Loan, any Fees or any other expenses or amounts
payable under any Loan Document shall have been paid in full, unless the
Required Lenders shall otherwise consent in writing:
SECTION 6.01. IndebtednessSECTION 6.01. Indebtedness.
(a) The Borrower will not permit any Subsidiary to incur, create or suffer to
exist any Indebtedness, except:
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(i) Indebtedness (secured by Liens) existing on the date
hereof and described in Schedule 6.01;
(ii) Indebtedness of the Subsidiaries incurred to finance all
or a portion of the purchase price of assets acquired in the ordinary
course of their railroad transportation or financial services
businesses which Indebtedness is secured solely by a Lien on the assets
being acquired provided that such Indebtedness would not cause a
Default or an Event of Default under any other Section of this
Agreement;
(iii) Attributable Debt permitted under Section 6.03;
(iv) other Indebtedness of the Subsidiaries not secured by any
Liens and incurred in the ordinary course of business and refinancings
thereof, in an aggregate principal amount at any one time outstanding
not to exceed 25% of Consolidated Net Worth at such time, provided that
such Indebtedness would not cause a Default or an Event of Default
under any other Section of this Agreement; and
(v) Guarantees of the Obligations by any Subsidiary in favor
of the Agent and the Lenders as required under paragraph (c) below.
(b) The Borrower shall not incur, create or suffer to exist
any Indebtedness ("Subordinated Indebtedness") that by its terms is subordinated
in right of payment to any other indebtedness, unless the Obligations constitute
senior indebtedness that is entitled, to the satisfaction of the Required
Lenders, to the benefits of the subordination provisions of such Subordinated
Indebtedness.
(c) The Borrower will not permit (i) any Significant
Subsidiary to Guarantee any Indebtedness of the Borrower or (ii) any Significant
Subsidiary to Guarantee any Indebtedness Guaranteed by the Borrower, unless, in
the case of each of the preceding clauses (i) and (ii), prior thereto such
Significant Subsidiary shall have executed and delivered to the Agent, for the
benefit of the Lenders, an unconditional Guarantee with respect to the
Obligations satisfactory in form and substance to the Agent.
SECTION 6.02. LiensSECTION 6.02. Liens. The Borrower will not,
nor will it permit any Subsidiary to, create, incur, or suffer to exist any
Environmental Lien securing clean-up costs or fines in excess of $25,000,000 in
aggregate principal amount except for Environmental Liens that are being
contested in good faith by appropriate proceedings and the enforcement of which
is stayed. The Borrower shall at all times assure that any Liens on its assets
(other than Liens permitted under clauses (a) through (f) below) shall be for
the equal and ratable benefit of the Lenders and the Agent. The Borrower will
not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any
other Lien in, of or on the property (now or hereafter acquired), or on any
income or revenues or rights in respect of any thereof, of the Borrower or any
Subsidiary, except:
(a) Liens for taxes, assessments or governmental charges or
levies on its property if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings;
(b) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary
course of business that secure payment of obligations not more than 60
days past due except for such Liens as are being contested in good
faith by appropriate proceedings;
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(d) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and that do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of the Borrower
or the Consolidated Subsidiaries;
(e) Liens existing on the date hereof and described in
Schedule 6.02 hereto; provided that such Liens shall secure only those
obligations that they secure on the date hereof;
(f) Liens, granted on property or assets solely to secure
Indebtedness evidencing all or a portion of the purchase price of
property or assets or any refinancing thereof provided that such Lien
attaches only to the property or assets being acquired and that any
such refinancing does not increase the aggregate principal amount of
such Indebtedness but only to the extent that such Indebtedness would
not result in a Default or an Event of Default under any other Section
of this Agreement; and
(g) Liens, in addition to Liens permitted under the above
clauses (a) through (f), on property or assets having on the date of
determination an aggregate depreciated book value (determined in
accordance with GAAP) that, when taken together with the aggregate
amount of all Attributable Debt in connection with all Sale and
Leaseback Transactions of the Borrower and the Subsidiaries (other than
Sale and Leaseback Transactions consummated prior to the date hereof or
pursuant to the last sentence of Section 6.03), does not exceed 15% of
Consolidated Net Worth, so long as any such Liens on property or assets
of the Borrower (as opposed to assets solely of the Subsidiaries) shall
also be for the pari passu benefit of the Lenders as provided above.
SECTION 6.03. Sale and Lease-Back TransactionsSECTION 6.03.
Sale and Lease-Back Transactions. The Borrower will not, and will not permit any
Subsidiary to, enter into any arrangement, directly or indirectly, with any
person whereby it shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred (a "Sale and Leaseback Transaction"); provided that the Borrower or
any Subsidiary may enter into any Sale and Leaseback Transaction if (a) at the
time of such Transaction no Default or Event of Default shall have occurred and
be continuing, (b) the proceeds from the sale of the subject property shall be
at least equal to its fair market value on the date of such sale and (c) the
aggregate amount of all Attributable Debt in connection with all Sale and
Leaseback Transactions of the Borrower and the Subsidiaries (other than Sale and
Leaseback Transactions consummated prior to the date hereof or pursuant to the
last sentence of this Section 6.03), when taken together with the depreciated
book value (determined in accordance with GAAP) of all assets or property on
which there shall exist any Liens pursuant to Section 6.02(g), does not exceed
15% of Consolidated Net Worth on any date of determination. Notwithstanding the
foregoing, the Borrower or any Subsidiary may enter into any Sale and Leaseback
Transaction between the Borrower or any Subsidiary and the joint venture
involving Southern Capital Corporation, LLC.
SECTION 6.04. Mergers, Consolidations and Transfers of
AssetsSECTION 6.04. Mergers, Consolidations and Transfers of Assets. The
Borrower will not, and will not permit any Subsidiary to, merge into or
consolidate with any other person, or permit any other person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any substantial part of its
assets (whether now owned or hereafter acquired) or any capital stock of any
Subsidiary, except that (a) the Borrower and any Subsidiary may sell assets in
the ordinary course of business, (b) subject to Section 5.01(a), the Borrower
may complete the Spin-Off; provided, that the Borrower will not complete the
Spin-Off unless the Assumption shall have been completed; and (c) if at the time
thereof and immediately after giving effect thereto no Event of Default or
Default shall have occurred and be continuing (i) any wholly owned Subsidiary
may merge into the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any wholly owned Subsidiary may merge into or
consolidate with any other wholly owned Subsidiary in a transaction in which the
surviving entity is a wholly owned Subsidiary and no person other than the
Borrower or a wholly owned Subsidiary receives any consideration and (iii) the
Borrower and the Subsidiaries may sell, transfer, lease or dispose of assets out
of the ordinary course of business having depreciated book values (determined in
accordance with GAAP) that in the aggregate for all assets so disposed of during
the term of this Agreement do not exceed 15% of Consolidated Net Worth on any
date of determination to any other person.
SECTION 6.05. Transactions with AffiliatesSECTION 6.05.
Transactions with Affiliates. The Borrower will not, and will not permit any
Subsidiary to, sell or transfer any property or assets to, or purchase or
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates (other than any Subsidiary), except
that the Borrower or any Subsidiary may engage in any of the foregoing
transactions in the ordinary course of business at prices and on terms and
conditions which, taken as a whole, are not less favorable to the Borrower or
such Subsidiary than would prevail in an arm's-length transaction with unrelated
third parties.
SECTION 6.06. Certain Other AgreementsSECTION 6.06. Certain
Other Agreements. The Borrower will not, and will not permit any Subsidiary to
(i) be bound by or enter into any agreement, amendment, covenant, understanding
or revision to any agreement which directly or indirectly (through the
application of financial covenants or otherwise) prohibits or restricts the
ability of such Subsidiary to declare and pay dividends or make any loans or
advances or any other distribution to the Borrower (except for limitations on
the payment of dividends set forth in Schedule 3.17 or imposed by applicable
law); or (ii) be bound by or enter into any agreement, indenture, contract,
instrument, amendment or lease containing any covenant restricting the
incurrence of Indebtedness or governing the Borrower's and the Subsidiaries'
financial condition if such covenant is more restrictive than the analogous
provision of this Agreement unless (A) the Borrower has delivered a copy of such
document to the Agent not less than 10 Business Days prior to executing the same
and (B) the Borrower enters into an amendment to this Agreement to add the more
restrictive covenant or to conform the analogous provision of this Agreement to
such more restrictive covenant.
SECTION 6.07. Certain Financial CovenantsSECTION 6.07.
Certain Financial Covenants. The Borrower will not:
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(a) permit the ratio of Consolidated Total Indebtedness to the
sum of Consolidated Total Indebtedness and Consolidated Net Worth to exceed .60
at any time; or
(b) permit the assets of the Subsidiaries, other than the
Significant Subsidiaries, to represent in the aggregate at any time more than
25% of Consolidated Total Assets.
SECTION 6.08. Margin StockSECTION 6.08. Margin Stock. The
Borrower will not, nor will it permit any Subsidiary to, own or acquire Margin
Stock such that at any time Margin Stock of the Borrower and its Subsidiaries
represents more than 25% of the value of the assets of the Borrower and its
Subsidiaries on a consolidated basis that are subject to Section 6.02 or Section
6.04.
ARTICLE VII. EVENTS OF DEFAULTARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made or deemed made by or
on behalf of the Borrower or any Subsidiary to the Lenders or the Agent
under or in connection with this Agreement, any Loan, or any
certificate or information delivered in connection with this Agreement
or any other Loan Document shall be materially false on the date as of
which made;
(b) nonpayment of principal of any Loan when due;
(c) nonpayment of interest upon any Loan or of any Fee or
other Obligations (other than an amount referred to in (b) above) under
any of the Loan Documents within five days after the same becomes due;
(d) the breach by the Borrower of any of the terms or
provisions of Section 5.07 or in Article VI;
(e) the breach by the Borrower (other than a breach which
constitutes an Event of Default under (a), (b), (c) or (d) above) of
any of the terms or provisions of this Agreement which is not remedied
within fifteen days after written notice from the Agent or any Lender;
(f) failure of the Borrower or any Subsidiary to pay any
Indebtedness in excess of $10,000,000 (or its equivalent in any other
currency) in aggregate principal amount when due; or the default by the
Borrower or any Subsidiary in the performance of any term, provision or
condition contained in any agreement under which any Indebtedness in
excess of $10,000,000 (or its equivalent in any other currency) in
aggregate principal amount was created or is governed, the effect of
which is to permit the holder or holders of such Indebtedness to cause
such Indebtedness to become due prior to its stated maturity; or the
default by the Borrower or any Subsidiary in the performance of any
term, provision or condition contained in any agreement under which any
Indebtedness in excess of $10,000,000 (or its equivalent in any other
currency) in aggregate principal amount was created or is governed, the
effect of which is to cause the holder or holders of such Indebtedness
or a trustee or other representative of such holders to cause such
Indebtedness to become due prior to its stated maturity; or any
Indebtedness in excess of $10,000,000 (or its equivalent in any other
currency) in aggregate principal amount shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled
payment) prior to the stated maturity thereof;
(g) the Borrower or any Specified Subsidiary shall (i) have an
order for relief entered with respect to it under the Federal
Bankruptcy Code, (ii) not pay, or admit in writing its inability to
pay, its debts generally as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) apply for, seek, consent
to, or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part
of its property, (v) institute any proceeding seeking an order for
relief under the Federal Bankruptcy Code or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (vi) take any corporate action to authorize or effect any
of the foregoing actions set forth in this paragraph (g) or (vii) fail
to contest in good faith any appointment or proceeding described in the
following paragraph (h);
(h) without the application, approval or consent of the
Borrower or any Subsidiary, a receiver, trustee, examiner, liquidator
or similar official shall be appointed for the Borrower or any
Specified Subsidiary or any substantial part of its property, or a
proceeding described in clause (v) of the preceding paragraph (g) shall
be instituted against the Borrower or any Specified Subsidiary and such
appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of 60 consecutive days;
(i) any court, government or governmental agency shall
condemn, seize or otherwise appropriate, or take custody or control of
all of the property of the Borrower or any Subsidiary or an amount of
such property or assets having depreciated book values (determined in
accordance with GAAP) that in the aggregate for all properties and
assets so appropriated or taken during the term of this Agreement
exceed 15% of Consolidated Net Worth on any date of determination;
(j) the Borrower or any Subsidiary shall fail within 30 days
to pay, bond or otherwise discharge any judgment or order for the
payment of money in excess of $5,000,000 (or its equivalent in any
other currency) that is not stayed on appeal or otherwise being
appropriately contested in good faith;
(k) the Unfunded Liabilities of all Plans shall exceed in the
aggregate $5,000,000, or any Reportable Event shall occur in connection
with any Plan or any Withdrawal Liability in excess of $2,500,000 shall
be incurred with respect to any Multiemployer Plan or the Borrower or
any member of the Controlled Group has received any notice concerning
the imposition of Withdrawal Liability in excess of $2,500,000 or a
determination that a Multiemployer Plan with respect to which the
potential Withdrawal Liability of the Borrower or any member of the
Controlled Group would exceed $2,500,000 is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of
ERISA;
(l) a Change in Control shall have occurred; or
(m) prior to the completion of the Spin-Off, the Borrower
shall fail to be the beneficial owner of at least (i) 90% of the
outstanding voting securities of KCSR, (ii) 80% of the outstanding
voting securities of Janus, (iii) 80% of the outstanding voting
securities of Berger or (iv) 100% of the outstanding voting securities
of Stilwell;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Agent, at the request of the Required Lenders,
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate forthwith the Commitments and (ii)
declare the Loans then outstanding to be forthwith due and payable in whole or
in part, whereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Loan Document,
shall become forthwith due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding; and in any event with respect to the Borrower
described in paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan Document, shall
automatically become due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
ARTICLE VIII. THE AGENTARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as Agent on
behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the
Agent to take such actions on behalf of such Lender or holder and to exercise
such powers as are specifically delegated to the Agent by the terms and
provisions hereof and of the other Loan Documents, together with such actions
and powers as are reasonably incidental thereto. The Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Borrower of any Event of
Default specified in this Agreement of which the Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute to each
Lender copies of all notices, financial statements and other materials delivered
by the Borrower pursuant to this Agreement as received by the Agent.
Neither the Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower of any of the terms, conditions, covenants or agreements contained in
any Loan Document. The Agent shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or any other Loan Documents or other instruments or agreements. The
Agent shall in all cases be fully protected in acting, or refraining from
acting, in accordance with written instructions signed by the Required Lenders
and, except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Agent shall, in the absence of knowledge to the contrary, be entitled to rely on
any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. Neither
the Agent nor any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or the Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The Agent
may execute any and all duties hereunder by or through agents or employees and
shall be entitled to rely upon the advice of legal counsel selected by it with
respect to all matters arising hereunder and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel.
The Lenders hereby acknowledge that the Agent shall be under
no duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement unless it shall be requested in writing to do
so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent
as provided below, the Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right, after consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent which shall be a bank with an office in New York, New
York, having a combined capital and surplus of at least $50,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as Agent
hereunder by a successor bank, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After the Agent's resignation hereunder, the provisions of this Article and
Section 9.05 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, the Agent in
its individual capacity and not as Agent shall have the same rights and powers
as any other Lender and may exercise the same as though it were not the Agent,
and the Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Agent.
Each Lender agrees (i) to reimburse the Agent, on demand, in
the amount of its pro rata share (based on its Commitment hereunder or, if the
Total Commitment shall be terminated, the percentage it holds of the aggregate
outstanding principal amount of the Loans) of any expenses incurred for the
benefit of the Lenders by the Agent, including counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, which
shall not have been reimbursed by the Borrower and (ii) to indemnify and hold
harmless the Agent and any of its directors, officers, employees or agents, on
demand, in the amount of such pro rata share, from and against any and all
liabilities, taxes, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against it in its capacity as the
Agent or any of them in any way relating to or arising out of this Agreement or
any other Loan Document or any action taken or omitted by it or any of them
under this Agreement or any other Loan Document, to the extent the same shall
not have been reimbursed by the Borrower; provided that no Lender shall be
liable to the Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or wilful misconduct of the Agent or any of
its directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUSARTICLE IX. MISCELLANEOUS
SECTION 9.01. NoticesSECTION 9.01. Notices. Notices and other
communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
(a) if to the Borrower, to it at 114 West 11th Street, Kansas
City, Missouri 64105-1808, Attention of the Vice President - Finance
(Telecopy No. (816) 983-1192), with a copy to the Vice President and
Secretary (Telecopy No. (816) 983-1192);
(b) if to the Agent, to it at The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, NY 10081, Attention of Margaret Swales (Telecopy No. (212)
552-5662) for Standby Borrowings and Chris Consomer (Telecopy No. (212)
552-5627) for Competitive Borrowings, with a copy to Chase Securities
Inc., 10 South LaSalle Street Chicago, IL 60603, Attention of Deborah
K. Welles (Telecopy No. (312) 807-4077); and
(c) if to the Swingline Lender, to it at The Chase Manhattan
Bank, Attention of Margaret Swales (Telecopy No. (212) 552-5662); and
(d) if to a Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or other telegraphic communications equipment of the sender, or on the
date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 9.01.
SECTION 9.02. Survival of AgreementSECTION 9.02. Survival of
Agreement. All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the Lenders and shall
survive the making by the Lenders of the Loans, regardless of any investigation
made by the Lenders or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
Fee or any other amount payable under this Agreement or any other Loan Document
is outstanding and unpaid and so long as the Commitments have not been
terminated.
SECTION 9.03. Binding EffectSECTION 9.03. Binding Effect. This
Agreement shall become effective when it shall have been executed by the
Borrower and the Agent and when the Agent shall have received copies hereof
which, when taken together, bear the signatures of each Lender, and thereafter
shall be binding upon and inure to the benefit of the Borrower, the Agent and
each Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior consent of all the Lenders. Delivery of an executed
signature page of any Loan Document by facsimile transmission shall be effective
as delivery of a manually executed counterpart thereof.
SECTION 9.04. Successors and AssignsSECTION 9.04. Successors
and Assigns. (a) Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of the Borrower, the Agent or the Lenders that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment and the Standby Loans at the time owing to
it); provided, however, that (i) except in the case of an assignment to a Lender
or an Affiliate of such Lender, the Borrower and the Agent (and, in the case of
an assignment of all or a portion of a Commitment or any Lender's obligations in
respect of its Swingline Exposure, the Swingline Lender must give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld), (ii) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Lender's rights and obligations under this
Agreement, (iii) the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Agent) shall not be less
than $10,000,000 (and shall be an integral multiple of $1,000,000), (iv) the
parties to each such assignment shall execute and deliver to the Agent an
Assignment and Acceptance and a processing and recordation fee of $3,000 and (v)
the assignee, if it shall not be a Lender, shall deliver to the Agent an
Administrative Questionnaire. Upon acceptance and recording pursuant to
paragraph (e) of this Section 9.04, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, (A) the assignee thereunder shall be
a party hereto and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this Agreement
and (B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto (but shall
continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19 and 9.05,
as well as to any Fees accrued for its account hereunder and not yet paid)).
Notwithstanding the foregoing, any Lender assigning its rights and obligations
under this Agreement may retain any Competitive Loans made by it outstanding at
such time, and in such case shall retain its rights hereunder in respect of any
Loans so retained until such Loans have been repaid in full in accordance with
this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Standby Loans and
Competitive Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or the financial condition of
the Borrower or any Subsidiary or the performance or observance by the Borrower
or any Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.04 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(d) The Agent shall maintain at one of its offices in The City
of New York a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the "Register"). The entries in the
Register shall be conclusive in the absence of manifest error and the Borrower,
the Agent and the Lenders may treat each person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee and, if applicable,
the Swingline Lender, an Administrative Questionnaire completed in respect of
the assignee (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) above and, if
required, the written consent of the Borrower and the Agent to such assignment,
the Agent shall (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Lenders.
(f) Each Lender may without the consent of the Borrower, the
Swingline Lender or the Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.13, 2.15 and 2.19 to the same extent as if
they were Lenders, provided that the participating banks or other entities shall
not be entitled to receive any more than the selling Lender would have received
had it not sold the participation and (iv) the Borrower, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of the
Borrower relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments, modifications
or waivers decreasing any fees payable hereunder or the amount of principal of
or the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans or
changing or extending the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such proposed
assignee or participant shall execute a confidentiality agreement in the form of
Exhibit F hereto.
(h) Any Lender may at any time assign all or any portion of
its rights under this Agreement issued to it to a Federal Reserve Bank; provided
that no such assignment shall release a Lender from any of its obligations
hereunder. In order to facilitate such an assignment to a Federal Reserve Bank,
the Borrower, shall, at the request of the assigning Lender, duly execute and
deliver to the assigning Lender a promissory note or notes evidencing the Loans
made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its
rights or duties hereunder, except as provided in the AAA Agreement.
SECTION 9.05. Expenses; IndemnitySECTION 9.05. Expenses;
Indemnity. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses
incurred by the Agent in connection with the preparation of this Agreement and
the other Loan Documents or in connection with any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by the Agent or any Lender
in connection with the enforcement or protection of their rights in connection
with this Agreement and the other Loan Documents or in connection with the Loans
made, including the reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Agent, and, in connection with any such
amendment, modification or waiver or any such enforcement or protection, the
fees, charges and disbursements of any other counsel for the Agent or any
Lender. The Borrower further agrees that it shall indemnify the Lenders from and
hold them harmless against any documentary taxes, assessments or charges made by
any Governmental Authority by reason of the execution and delivery of this
Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, each Lender
and each of their respective directors, officers, employees and agents (each
such person being called an "Indemnitee") against, and to hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees, charges and disbursements, incurred
by or asserted against any Indemnitee arising out of, in any way connected with,
or as a result of (i) the execution or delivery of this Agreement or any other
Loan Document or any agreement or instrument contemplated thereby, the
performance by the parties thereto of their respective obligations thereunder or
the consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses (i) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted
from the negligence or wilful misconduct of such Indemnitee and (ii) have not,
in whole or in part, arisen out of or resulted from any act, or omission to act,
of the Borrower or any of its Affiliates.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agent or any Lender. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of SetoffSECTION 9.06. Right of Setoff. If
an Event of Default shall have occurred and be continuing, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of the Borrower
against any of and all the obligations of the Borrower now or hereafter existing
under this Agreement and other Loan Documents held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement or
such other Loan Document and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable LawSECTION 9.07. Applicable Law.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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SECTION 9.08. Waivers; AmendmentSECTION 9.08. Waivers;
Amendment. (a) No failure or delay of the Agent or any Lender in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Agent and the Lenders hereunder and under the other Loan
Documents are cumulative and are not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provision of this Agreement or any
other Loan Document or consent to any departure by the Borrower therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (ii) change or extend the
Commitment or decrease the Facility Fees or Utilization Fees of any Lender
without the prior written consent of such Lender, or (iii) amend or modify the
provisions of Section 2.16, the provisions of this Section or the definition of
"Required Lenders", without the prior written consent of each Lender; provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Agent or the Swingline Lender hereunder without the
prior written consent of the Agent or the Swingline Lender, as the case may be.
Each Lender shall be bound by any waiver, amendment or modification authorized
by this Section and any consent by any Lender pursuant to this Section shall
bind any person subsequently acquiring a Loan from it.
SECTION 9.09. Interest Rate LimitationSECTION 9.09. Interest
Rate Limitation. Notwithstanding anything herein to the contrary, if at any time
the applicable interest rate, together with all fees and charges which are
treated as interest under applicable law (collectively the "Charges"), as
provided for herein or in any other document executed in connection herewith, or
otherwise contracted for, charged, received, taken or reserved by any Lender,
shall exceed the maximum lawful rate (the "Maximum Rate") which may be
contracted for, charged, taken, received or reserved by such Lender in
accordance with applicable law, the rate of interest payable on the Loans made
by such Lender, together with all Charges payable to such Lender, shall be
limited to the Maximum Rate.
SECTION 9.10. Entire AgreementSECTION 9.10. Entire Agreement.
This Agreement and the other Loan Documents constitute the entire contract
between the parties relative to the subject matter hereof. Any previous
agreement among the parties with respect to the subject matter hereof is
superseded by this Agreement and the other Loan Documents. Nothing in this
Agreement or in the other Loan Documents, expressed or implied, is intended to
confer upon any party other than the parties hereto and thereto any rights,
remedies, obligations or liabilities under or by reason of this Agreement or the
other Loan Documents.
SECTION 9.11. Waiver of Jury TrialSECTION 9.11. Waiver of Jury
Trial. Each party hereto hereby waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
litigation directly or indirectly arising out of, under or in connection with
this Agreement or any of the other Loan Documents. Each party hereto (a)
certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (b) acknowledges
that it and the other parties hereto have been induced to enter into this
Agreement and the other Loan Documents, as applicable, by, among other things,
the mutual waivers and certifications in this Section 9.11.
SECTION 9.12. SeverabilitySECTION 9.12. Severability. In the
event any one or more of the provisions contained in this Agreement or in any
other Loan Document should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9.13. CounterpartsSECTION 9.13. Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together shall constitute but
one contract, and shall become effective as provided in Section 9.03.
SECTION 9.14. HeadingsSECTION 9.14. Headings. Article and
Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of
ProcessSECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees 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. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against any other party or its properties in the
courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this agreement or the other
Loan Documents in any New York State or Federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.16. ConfidentialitySECTION 9.16. Confidentiality.
(a) Each Lender agrees to keep confidential and not to disclose (and to cause
its officers, directors, employees, agents, Affiliates and representatives to
keep confidential and not to disclose) all Information (as defined below),
except that such Lender shall be permitted to disclose Information (i) to such
of its officers, directors, employees, advisors, agents, Affiliates and
representatives as need to know such Information in connection with the
servicing and protection of its interests in respect of its Loans and
Commitments, the Loan Documents and the Transactions; (ii) to the extent
required by applicable laws and regulations or by any subpoena or similar legal
process or requested by any Governmental Authority having jurisdiction over such
Lender; (iii) to the extent such Information (A) becomes publicly available
other than as a result of a breach by such Lender of this Agreement, (B) is
generated by such Lender or becomes available to such Lender on a
nonconfidential basis from a source other than the Borrower or its Affiliates or
the Agent, or (C) was available to such Lender on a nonconfidential basis prior
to its disclosure to such Lender by the Borrower or its Affiliates or the Agent;
(iv) as provided in Section 9.04(g); or (v) to the extent the Borrower shall
have consented to such disclosure in writing. As used in this Section 9.16,
"Information" shall mean the Confidential Memorandum and any other confidential
materials, documents and information relating to the Borrower that the Borrower
or any of its Affiliates may have furnished or made available or may hereafter
furnish or make available to the Agent or any Lender in connection with this
Agreement.
(b) Each Transferee shall be deemed, by accepting any
assignment or participation hereunder, to have agreed to be bound by this
Section 9.16.
SECTION 9.17. AAA Agreement AuthorizationSECTION 9.17. AAA
Agreement Authorization. Each of the Lenders hereby authorizes and instructs the
Agent to execute and deliver, on such Lender's behalf, in connection with the
Spin-Off and the Assumption, the AAA Agreement. Each of KCSI, each Lender and
the Agent acknowledges that pursuant to the AAA Agreement, upon execution
thereof by KCSI, Stilwell and the Agent, on behalf of the Lenders, and subject
to the satisfaction (or waiver by the Required Lenders) of the conditions set
forth therein (i) KCSI shall assign and delegate to Stilwell its rights and
obligations hereunder and shall thereafter be released from its obligations
hereunder, (ii) this Agreement shall be amended and restated as provided in the
AAA Agreement and (iii) Stilwell shall assume the obligations assigned and
delegated to it by KCSI and shall become and be the sole obligor under this
Agreement as amended by the AAA Agreement.
IN WITNESS WHEREOF, KCSI, the Agent and the Lenders have
caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
/s/ Anthony P. McCarthy
---------------------------
Name: Anthony P. McCarthy
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent and as Swingline Lender,
by
/s/ Laurie B. Perper
------------------------
Name: Laurie B. Perper
Title: Vice President
BANK OF AMERICA, N.A., individually and as Documentation
Agent,
by
/s/ John G. Hayes
Name: John G. Hayes
Title: Principal
FLEET NATIONAL BANK, individually and as Syndication Agent,
by
/s/ Thomas E. McKinlay
--------------------------
Name: Thomas E. McKinlay
Title: Senior Vice President
BANK HAPOALIM,
by
/s/ Conrad Wagner /s/ Marc Bosc
Name: Conrad Wagner Marc Bosc
Title: First Vice President Vice President
THE BANK OF NEW YORK,
by
/s/ Scott H. Buitekant
--------------------------
Name: Scott H. Buitekant
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA,
by
/s/ F. C. H. Ashby
----------------------
Name: F. C. H. Ashby
Title: Senior Manager Loan Operations
DEUTSCHE BANK AG, NEW YORK and/or CAYMAN ISLANDS BRANCHES,
by
/s/ Elizabeth Zieglmeier
Name: Elizabeth Zieglmeier
Title: Director
by
/s/ Clinton M. Johnson
Name: Clinton M. Johnson
Title: Managing Director
THE FUJI BANK, LIMITED,
by
/s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Senior Vice President & Group Head
MERCANTILE BANK,
by
/s/ Barry P. Sullivan
Name: Barry P. Sullivan
Title: Vice President
NATIONAL AUSTRALIA BANK LIMITED,
by
/s/ Michael G. McHugh
Name: Michael G. McHugh
Title: Vice President
STATE STREET BANK AND TRUST COMPANY,
by
/s/ Vincent Starck
Name: Vincent Starck
Title: Assistant Vice President
<PAGE>
UMB BANK, N.A.,
by
/s/ Terry Dierks
Name: Terry Dierks
Title: Senior Vice President
<PAGE>
2
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/ Jay White
Name: Jay White
Title: Vice President
by
/s/ Kenneth R. Crespo
Name: Kennth R. Crespo
Title: Vice President
<PAGE>
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank, as Agent
for the Lenders referred to below
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Chris Consomer
with a copy to:
Chase Securities Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: Deborah K. Welles
[Date]
Re: 364-Day Credit Agreement Referred to Below
Dear Sirs:
The undersigned, Kansas City Southern Industries, Inc. (the
"Borrower"), refers to the 364-Day Competitive Advance and Revolving Credit
Facility Agreement dated as of January 11, 2000 (as it may hereafter be amended,
modified, extended or restated from time to time, the "Credit Agreement"), among
the Borrower, the Lenders from time to time party thereto, The Chase Manhattan
Bank, as Administrative Agent, Bank of America, N.A., as Documentation Agent,
and Fleet National Bank, as Syndication Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Credit Agreement. The Borrower hereby gives you notice pursuant to Section
2.03(a) of the Credit Agreement that it requests a Competitive Borrowing under
the Credit Agreement, and in that connection sets forth below the terms on which
such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day)
(B) Principal amount of
Competitive Borrowing1
(C) Interest rate basis2
(D) Interest Period and the last
day thereof3
Upon acceptance of any or all of the Loans offered by the
Banks in response to this request, the Borrower shall be deemed to have
represented and warranted that the conditions to lending specified in Sectin
4.01(b) and (c) of the Credit Agreement have been satisfied.
Very truly yours,
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
Title: [Responsible Officer]
<PAGE>
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Bank]
[Address]
Attention:
[Date]
Re: 364-Day Credit Agreement Referred to Below
Dear Sirs:
Reference is made to the 364-Day Competitive Advance and
Revolving Credit Facility Agreement dated as of January 11, 2000 (as it may
hereafter be amended, modified, extended or restated from time to time, the
"Credit Agreement"), among Kansas City Southern Industries, Inc. (the
"Borrower"), the Lenders from time to time party thereto, The Chase Manhattan
Bank, as Administrative Agent, Bank of America, N.A., as Documentation Agent,
and Fleet National Bank, as Syndication Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Credit Agreement. The Borrower made a Competitive Bid Request on , 20 ,
pursuant to Section 2.03(a) of the Credit Agreement, and in that connection you
are invited to submit a Competitive Bid by [Date]/[Time].4 Your Competitive Bid
must comply with Section 2.03(b) of the Credit Agreement and the terms set forth
below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
(B) Principal amount of
Competitive Borrowing
(C) Interest rate basis
(D) Interest Period and the last
day thereof
Very truly yours,
THE CHASE MANHATTAN BANK, as Agent,
by
Title:
<PAGE>
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank, as Agent
for the Lenders referred to below
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Chris Consomer
with a copy to:
Chase Securities Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: Deborah K. Welles
[Date]
Re: 364-Day Credit Agreement Referred to Below
Dear Sirs:
The undersigned, [Name of Bank], refers to the 364-Day
Competitive Advance and Revolving Credit Facility Agreement dated as of January
11, 2000 (as it may hereafter be amended, modified, extended or restated from
time to time, the "Credit Agreement"), among Kansas City Southern Industries,
Inc. (the "Borrower"), the Lenders from time to time party thereto, The Chase
Manhattan Bank, as Administrative Agent, Bank of America, N.A., as Documentation
Agent, and Fleet National Bank, as Syndication Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The undersigned hereby makes a Competitive Bid
pursuant to Section 2.03(b) of the Credit Agreement, in response to the
Competitive Bid Request made by the Borrower on , 19 , and in that connection
sets forth below the terms on which such Competitive Bid is made:
(A) Principal Amount5
(B) Competitive Bid Rate6
(C) Interest Period and last
day thereof
The undersigned hereby confirms that it is prepared, subject
to the conditions set forth in the Credit Agreement, to extend credit to the
Borrower upon acceptance by the Borrower of this bid in accordance with Section
2.03(d) of the Credit Agreement.
Very truly yours,
[NAME OF BANK],
by
Title:
<PAGE>
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank, as Agent
for the Lenders referred to below
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Chris Consomer
with a copy to:
Chase Securities Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: Deborah K. Welles
Re: 364-Day Credit Agreement Referred to Below
Dear Sirs:
The undersigned, Kansas City Southern Industries Inc. (the
"Borrower"), refers to the 364-Day Credit Agreement dated as of January 11, 2000
(as it may hereafter be amended, modified, extended or restated from time to
time, the "Credit Agreement"), among the Borrower, the Lenders from time to time
party thereto, The Chase Manhattan Bank, as Administrative Agent, Bank of
America, N.A., as Documentation Agent, and Fleet National Bank, as Syndication
Agent.
In accordance with Section 2.03(c) of the Credit Agreement, we
have received a summary of bids in connection with our Competitive Bid Request
dated ___________ and in accordance with Section 2.03(d) of the Credit
Agreement, we hereby accept the following bids for maturity on [date]:
<PAGE>
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
<PAGE>
We hereby reject the following bids:
<PAGE>
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
<PAGE>
The $ should be deposited in The Chase Manhattan Bank account number [ ] on
[date].
Very truly yours,
KANSAS CITY SOUTHERN
INDUSTRIES, INC.,
by
Name:
Title:
<PAGE>
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
The Chase Manhattan Bank, as Agent
for the Lenders referred to below
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Margaret Swales
with a copy to:
Chase Securities Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: Deborah K. Welles
[Date]
Re: 364-Day Credit Agreement Referred to Below
Dear Sirs:
The undersigned, Kansas City Southern Industries, Inc. (the
"Borrower"), refers to the 364-Day Competitive Advance and Revolving Credit
Facility Agreement dated as of January 11, 2000 (as it may hereafter be amended,
modified, extended or restated from time to time, the "Credit Agreement"), among
the Borrower, the Lenders from time to time party thereto and The Chase
Manhattan Bank, as Administrative Agent, Bank of America, N.A., as Documentation
Agent, and Fleet National Bank, as Syndication Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to
Section 2.04 of the Credit Agreement that it requests a Standby Borrowing under
the Credit Agreement, and in that connection sets forth below the terms on which
such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day)
(B) Principal Amount of
Standby Borrowing7
(C) Interest rate basis8
(D) Interest Period and the last
day thereof9
<PAGE>
3
Upon acceptance of any or all of the Loans made by the Lenders
in response to this request, the Borrower shall be deemed to have represented
and warranted that the conditions to lending specified in Section 4.01(b) and
(c) of the Credit Agreement have been satisfied.
Very truly yours,
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
by
Title: [Responsible Officer]
<PAGE>
EXHIBIT B
FORM OF AAA AGREEMENT
ASSIGNMENT, ASSUMPTION AND AMENDMENT
AGREEMENT (this "AAA Agreement") dated as of January
11, 2000, among KANSAS CITY SOUTHERN INDUSTRIES,
INC., a Delaware corporation ("KCSI"), STILWELL
FINANCIAL, INC., a Delaware corporation ("Stilwell"),
and THE CHASE MANHATTAN BANK, a New York banking
corporation, as agent (in such capacity, the "Agent")
for the Lenders (as defined below) and as Swingline
Lender (in such capacity, the "Swingline Lender"),
relating to the Credit Agreement dated as of January
11, 2000 (the "Credit Agreement"), among KCSI, the
lenders from time to time party thereto (the
"Lenders"), The Chase Manhattan Bank, as Agent and as
Swingline Lender, Bank of America, N.A., as
Documentation Agent, and Fleet National Bank, as
Syndication Agent. Capitalized terms used and not
defined herein shall have the meanings assigned to
such terms in the Credit Agreement or in the Amended
Credit Agreement (as defined below), as applicable.
WHEREAS, KCSI, the Lenders, the Swingline Lender and the Agent
are parties to the Credit Agreement;
WHEREAS, KCSI and Stilwell have entered into a Contribution
Agreement dated as of July 7, 1999, which, effective as of July 1, 1999 as
between KCSI and Stilwell, provided for the transfer of certain capital stock,
investments and other assets and rights as provided therein (the "Contribution
Agreement");
WHEREAS, the parties hereto desire to provide that in
accordance with the Contribution Agreement and in order to complete the
Assumption in accordance with the Credit Agreement, KCSI's rights and
obligations under the Credit Agreement, including the Commitments thereunder and
any outstanding Loans, shall be assigned and delegated to, and assumed by,
Stilwell, all in accordance with the Credit Agreement;
WHEREAS, in the event that KCSI and Stilwell consummate the
Assumption, the parties hereto have agreed that this AAA Agreement shall be
executed by KCSI, Stilwell, the Swingline Lender and the Agent, on behalf of the
Lenders, whereupon KCSI shall be released from all obligations under the Credit
Agreement and the Credit Agreement shall be amended and restated as provided
herein (the Credit Agreement, after giving effect to the amendments provided for
in this AAA Agreement, the "Amended Credit Agreement") with Stilwell assuming
KCSI's obligations under the Credit Agreement and becoming the sole obligor
under the Amended Credit Agreement;
WHEREAS, the Lenders, the Swingline Lender and the Agent are
willing, subject to the terms and conditions of this AAA Agreement, to effect
certain amendments to the Credit Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements
contained in this AAA Agreement and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. Assignment, Delegation, Assumption and Release.
Subject to the conditions set forth in Section 4 hereof, (a) KCSI hereby assigns
and delegates to Stilwell all its rights and obligations under (i) the Credit
Agreement, including the Commitments thereunder and any outstanding Loans, and
(ii) the Fee Letter and the commitment letter executed in connection therewith
(such assigned and delegated obligations being collectively referred to herein
as the "Assigned Obligations"), (b) Stilwell hereby assumes and agrees to
perform the Assigned Obligations and (c) KCSI is hereby released from all
obligations under the Credit Agreement, the Fee Letter and the commitment letter
executed in connection therewith.
<PAGE>
9
SECTION 2. Amendment. Subject to the conditions set forth in
Section 4 hereof:
----------
(a) The Credit Agreement, including all schedules and exhibits
thereto, is hereby amended, subject to applicable provisions set forth
therein as to the survival of certain rights and obligations, into an
amended and restated credit agreement (the "Amended Credit Agreement")
identical in form and substance to the Credit Agreement except as
expressly modified below. Each reference in the Amended Credit
Agreement and in the exhibits thereto to "the Borrower" or to "Kansas
City Southern Industries, Inc." shall be deemed to be a reference to
Stilwell.
(b) The third paragraph of the preamble of the Amended Credit
Agreement is amended to read in its entirety as follows:
"The proceeds of borrowings hereunder are to
be used for general corporate purposes including,
without limitation, (a) to provide liquidity for a
commercial paper program and (b) to finance
nonhostile acquisitions."
(c) Section 1.01 of the Credit Agreement is hereby amended as
follows:
(i) The following new definitions shall be added to
Section 1.01 of the Credit Agreement in the appropriate
alphabetical order and shall read in their entirety as
follows:
"'Guarantee Agreement' shall mean a
Guarantee Agreement, substantially in the form of
Exhibit A to the AAA Agreement, made by the Borrower
in favor of the Agent for the benefit of the
Lenders."
"'Guarantor' shall mean Stilwell."
"'Subsidiary Borrowers' shall have the
meaning assigned to such term in Section 2.23."
(ii) The following definitions are hereby deleted:
"Consolidated Total Assets",
"Index Debt", and
"STB".
(iii) The following definitions are amended to read
in their entirety as follows:
"'Applicable Percentage' shall mean on any
date, with respect to (a) the Loans comprising any
Eurodollar Standby Borrowing, 0.35% per annum, (b)
the Loans comprising any ABR Borrowing, 0.0% per
annum, and (c) the Facility Fee, 0.15% per annum."
"'Loan Documents' shall mean this Agreement,
the AAA Agreement, the Guarantee Agreement, the Fee
Letter (and the commitment letter executed in
connection therewith) and any assignment document
pursuant to which the Borrower shall assign and
delegate its rights and obligations to a Subsidiary
Borrower in accordance with Section 2.23."
"'Obligations' shall mean all unpaid
principal of and accrued and unpaid interest on the
Loans, all accrued and unpaid Fees and all other
obligations of the Borrower and the Subsidiary
Borrowers to the Lenders or to any Lender or the
Agent arising under the Loan Documents."
<PAGE>
"'Significant Subsidiary' shall mean, on any
date of determination, each of (a) Janus, (b) Berger,
(c) Berger LLC, a Subsidiary of Berger, and (d) any
Subsidiary the assets of which represent on such date
more than 10% of the consolidated total assets of the
Borrower and the Consolidated Subsidiaries determined
in accordance with GAAP."
(d) Section 2.22(b) of the Credit Agreement is amended by
deleting the reference therein to "account number 987-087-8577" and
replacing it with a reference to "account number 987-096-4961".
(e) A new Section 2.23 shall be added to the text and the
table of contents of the Credit Agreement and shall read in its
entirety as follows:
"SECTION 2.23. Delegation and Assumption of Loans.
The Borrower may from time to time assign and delegate its
rights and obligations in respect of all or a portion of any
Borrowing and its obligations under the Loan Documents to one
or more of its Subsidiaries that is a domestic Subsidiary
(each such Subsidiary, a "Subsidiary Borrower"); provided that
such Subsidiary Borrower will assume such obligations,
pursuant to an assignment that will result in the Borrower
being relieved of its obligations as a Borrower in respect of
the Borrowing or portion thereof so assigned (but not any
obligations in respect of such Borrowing that arise under
other Loan Documents in the Borrower's capacity as a
Guarantor) and the applicable Subsidiary Borrower succeeding
to all such obligations. The Lenders agree to permit such
assignments, subject to the prior satisfaction of the
following conditions in respect of each such assignment:
(a) each such assignment shall be made
pursuant to documentation reasonably satisfactory in
form and substance to the Agent;
(b) each such assignment shall be subject to
all the terms and conditions hereof that would be
applicable to the relevant type of Borrowing on the
date of such assignment by the Borrower; and
(c) the Guarantee Agreement shall have been
executed and delivered by Stilwell and shall be in
full force and effect; and
(d) the Agent may, in its sole discretion,
require, as an additional condition to any such
assignment, the delivery of such certificates and
legal opinions as to the assignment and the assignee
as it shall reasonably request including evidence of
resolutions duly adopted by the Board of Directors of
the applicable Subsidiary Borrower authorizing the
execution, delivery and performance of the applicable
Loan Documents and the borrowings thereunder, and
that such resolutions have not been modified,
rescinded or amended and are in full force and
effect."
(f) Section 3.02 of the Credit Agreement is amended to read
in its entirety as follows:
"SECTION 3.02. Authorization and Validity. Each of
the Borrower and each Subsidiary Borrower has the corporate
power and authority and legal right to execute and deliver the
Loan Documents to which it is a party and to perform its
obligations thereunder (collectively, the "Transactions"). The
Transactions have been duly authorized by proper corporate
proceedings, and the Loan Documents constitute legal, valid
and binding obligations of the Borrower and the Subsidiary
Borrowers enforceable against the Borrower and the Subsidiary
Borrowers in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting the enforcement of
creditors' rights generally."
(g) Section 3.03 of the Credit Agreement is amended by
deleting the parenthetical "(including, without limitation, the
Interstate Commerce Commission Termination Act of 1995 (the "Interstate
Commerce Act") and the regulations promulgated thereunder)" from the
fourth and fifth lines thereof.
(h) Section 3.04(a) of the Credit Agreement is amended by
deleting the parenthetical "(including, without limitation, the
Interstate Commerce Act and the Railway Labor Act)" from the end
thereof.
<PAGE>
(i) Section 5.01 of the Credit Agreement is hereby amended to
read in its entirety as follows:
"SECTION 5.01. Conduct of Business; Maintenance of
Ownership of Subsidiaries and Maintenance of Properties. (a)
The Borrower will, and will cause each Significant Subsidiary
to, carry on and conduct its business in substantially the
same manner and in substantially the same fields of enterprise
as it is presently conducted and to do all things necessary to
remain duly incorporated, validly existing and in good
standing as a domestic corporation in its jurisdiction of
incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is
conducted.
(b) The Borrower will at all times own, directly or
indirectly, not less than 66-2/3% of the outstanding voting
securities of both Janus and Berger, in each case free and
clear of any Liens on such securities.
(c) The Borrower will, and will cause each
Significant Subsidiary to, do all things necessary to
maintain, preserve, protect and keep their properties material
to the conduct of their business in good repair, working order
and condition, and make all necessary and proper repairs,
renewals and replacements so that their businesses carried on
in connection therewith may be properly conducted at all
times.
(d) If the Spin-Off is completed, the Borrower will
cause the Spin-Off to be completed (i) in accordance with
applicable law, (ii) as disclosed in its Form 10 previously
delivered to the Agent and (iii) on terms and with results
consistent with the pro forma financial information previously
delivered to the Agent and the Lenders."
(j) Section 5.03(a) of the Credit Agreement is amended by
deleting the words ", the Interstate Commerce Act" from the
parenthetical contained therein.
(k) Section 5.04(g) of the Credit Agreement is amended by
deleting the words "and filed by any of them with the STB" from the end
thereof.
(l) Section 6.01(a) of the Credit Agreement is amended by (x)
deleting the words "railroad transportation or" from the second line of
clause 6.01(a)(ii); (y) deleting the word "and" at the end of clause
6.01(a)(iv); inserting new clauses 6.01(a)(v) and 6.01(a)(vi) that read
in their entirety as follows:
"(v) Indebtedness of the Subsidiary Borrowers under the Loan
Documents;
(vi) Indebtedness of Subsidiaries under the 1999 Credit
Agreement; and", and (z) renumbering existing clause 6.01(a)(v) as
clause 6.01(a)(vii).
(m) Section 6.03 of the Credit Agreement is amended by
deleting the last sentence thereof.
(n) Section 6.04 of the Credit Agreement is amended to read
as follows:
<PAGE>
SECTION 6.04. Mergers, Consolidations and Transfers
of Assets. The Borrower will not, and will not permit any
Subsidiary to, merge into or consolidate with any other
person, or permit any other person to merge into or
consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions)
all or any substantial part of its assets (whether now owned
or hereafter acquired) or any capital stock of any Subsidiary,
except that (a) the Borrower and any Subsidiary may sell
assets in the ordinary course of business and (b) if at the
time thereof and immediately after giving effect thereto no
Event of Default or Default shall have occurred and be
continuing (i) any wholly owned Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any wholly owned Subsidiary may
merge into or consolidate with any other wholly owned
Subsidiary in a transaction in which the surviving entity is a
wholly owned Subsidiary and no person other than the Borrower
or a wholly owned Subsidiary receives any consideration, (iii)
the Borrower and the Subsidiaries may sell, transfer, lease or
dispose of assets out of the ordinary course of business
having depreciated book values (determined in accordance with
GAAP) that in the aggregate for all assets so disposed of
during the term of this Agreement (other than pursuant to the
following clause (iv)) do not exceed 15% of Consolidated Net
Worth on any date of determination to any other person and
(iv) the Borrower may sell the common stock of DST Systems for
cash to a third party buyer that is not an Affiliate of the
Borrower."
(o) Section 6.07 of the Credit Agreement is amended to read
in its entirety as follows:
"SECTION 6.07. Certain Financial Covenants. The
Borrower will not:
----------------------------
(a) permit at any date the ratio of
Consolidated Total Indebtedness on such date to
Consolidated EBITDA for the period of four quarters
most recently ended as of such date to exceed 2.0 to
1.0;
(b) permit for any period of four
consecutive fiscal quarters the ratio of Consolidated
EBITDA for such period to Consolidated Interest
Expense for such period to be less than 4.0 to 1.0;
or
(c) permit Consolidated Net Worth to be less
than $325,000,000 at any time."
(p) Article VII, clause (m) is amended to read as follows:
"(m) the Borrower shall cease to own beneficially at
least 66-2/3% of the outstanding voting securities of either
Berger or Janus."
(q) Section 9.01(a) of the Credit Agreement is hereby amended
to read as follows:
"(a) if to the Borrower, to it at 114 West 11th
Street, Kansas City, Missouri 64105-1808, Attention of the
Vice President - Finance (Telecopy No. (816) 983-1192), with a
copy to the Vice President and Secretary (Telecopy No. (816)
983-1192);"
(r) Subsection 9.08(b) of the Credit Agreement is hereby
amended by (i) deleting the word "or" at the end of clause 9.08(b)(ii)
and (ii) inserting a new clause 9.08(b)(iv) immediately following
clause 9.08(b)(iii) that reads in its entiretly as follows:
"or (iv) release the Guarantor from its Guarantee
under the Guarantee Agreement, or limit its liability in
respect of such Guarantee, in any case without the prior
written consent of each Lender".
(s) Each reference to "Kansas City Southern Industries, Inc."
in the Exhibits to the Credit Agreement shall be changed to a reference
to "Stilwell Financial, Inc." in the Amended Credit Agreement.
(t) The table of contents of the Credit Agreement is amended
as follows:
(i) Adding the following Section reference:
"Section 2.23 Delegation and Assumption of
Borrowings..."
(ii) Revising the following Section reference:
"Section 5.01 Conduct of Business;
Maintenance of Ownership of Subsidiaries and
Maintenance of Properties..."
(u) Each of Schedule 3.08, 3.09, 3.17, 6.01, 6.02 and 6.04 to
the Credit Agreement is hereby replaced by Schedule 3.08, 3.09, 3.17,
6.01, 6.02 and 6.04 attached hereto.
SECTION 3. Representations and Warranties. Each of KCSI and
Stilwell represents and warrants to each of the Lenders that:
-------------------------------
<PAGE>
(a) This AAA Agreement has been duly authorized, and executed
and delivered by it and constitutes its legal, valid and binding
obligation enforceable in accordance with its terms.
(b) The representations and warranties set forth in Article
III of each of the Credit Agreement and the Amended Credit Agreement,
are true and correct in all material respects on the date hereof with
the same effect as if made on the date hereof, except to the extent
such representations and warranties expressly relate to an earlier
date.
(c) Before and after giving effect to this AAA Agreement, no
Default or Event of Default has occurred and is continuing under the
Credit Agreement or the Amended Credit Agreement, as the case may be.
SECTION 4. Conditions to Effectiveness. This AAA Agreement
shall become effective as of the date (the "Effective Date") first above written
upon the satisfaction of the following conditions precedent (capitalized terms
used in this Section 4 shall have the meanings assigned thereto in the Amended
Credit Agreement):
(a) The Agent shall have received counterparts of this AAA
Agreement which, when taken together, bear the signatures of all the
parties hereto.
(b) The Agent shall have received, on behalf of itself and the
Lenders, a favorable written opinion of counsel for the Borrower,
substantially to the effect set forth in Exhibit D of the Credit
Agreement (but referring to this AAA Agreement and the Credit Agreement
as amended hereby and to Stilwell as the Borrower thereunder), (i)
dated the date hereof, (ii) addressed to the Agent and the Lenders, and
(iii) covering such other matters relating to this AAA Agreement, the
Loan Documents and the Transactions as the Agent shall reasonably
request, and each of KCSI and Stilwell hereby instructs such counsel to
deliver such opinion.
(c) All legal matters incident to this AAA Agreement the
borrowings and extensions of credit hereunder and the other Loan
Documents shall be reasonably satisfactory to the Lenders and to
Cravath, Swaine & Moore, counsel for the Agent.
(d) The Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments
thereto, of Stilwell, certified as of a recent date by the Secretary of
State of the State of Delaware, and a certificate as to the good
standing of Stilwell as of a recent date from such Secretary of State;
(ii) a certificate of the Secretary or an Assistant Secretary of
Stilwell dated the date hereof and certifying (A) that attached thereto
is a true and complete copy of the by-laws of Stilwell as in effect on
the date hereof and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is
a true and complete copy of resolutions duly adopted by the Board of
Directors of Stilwell authorizing the execution, delivery and
performance of this Agreement and the Loan Documents and the borrowings
hereunder and thereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C)
that the certificate or articles of incorporation of Stilwell have not
been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above,
and (D) as to the incumbency and specimen signature of each officer
executing any Loan Document or any other document delivered in
connection herewith on behalf of Stilwell (iii) a certificate of
another officer as to the incumbency and specimen signature of the
Secretary or Assistant Secretary executing the certificate pursuant to
(ii) above; and (iv) such other documents as the Lenders or Cravath,
Swaine & Moore, counsel for the Agent, may reasonably request.
(e) There shall be no litigation, actual or threatened, that
in the reasonable judgment of the Agent would (a) be likely to affect
materially and adversely the business, assets, condition (financial or
otherwise) or prospects of Stilwell or the ability of Stilwell to
perform its obligations under the Loan Documents or (b) be materially
inconsistent with the assumptions underlying the pro forma financial
information and projections previously delivered to the Agent and the
Lenders pursuant to Section 3.05(b).
<PAGE>
(f) After giving effect to the Transfer Transaction and this
AAA Agreement, the representations and warranties set forth in the
Amended Credit Agreement shall be true and correct in all material
respects, no Default or Event of Default shall have occurred and be
continuing under either the Credit Agreement or the Amended Credit
Agreement and Stilwell and its subsidiaries shall be in compliance on a
pro forma basis with Section 6.07 of the Amended Credit Agreement.
(g) The Agent shall have received a certificate, dated the
date of this AAA Agreement and signed by a Financial Officer of KCSI,
with respect to the Credit Agreement, and Stilwell, with respect to the
Amended Credit Agreement, confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c) of Section 4.01 of the
applicable agreement.
(h) The Agent shall have received all Fees and other amounts
due and payable on or prior to the date hereof, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by KCSI or Stilwell hereunder or
under any other Loan Document.
(i) On the date hereof (i) the Guarantee Agreement shall have
been duly executed and delivered to the Agent by the Guarantor and
shall be in full force and effect and (ii) Stilwell shall have executed
and delivered a promissory note in favor of any Lender that previously
had obtained a promissory note from KCSI pursuant to Section 2.07 of
the Credit Agreement and such promissory notes shall be in full force
and effect.
(j) The Transfer Transaction and the Assumption shall have
been completed in accordance with applicable law and on terms and with
results consistent with the pro forma financial information and
projections previously delivered to the Agent and the Lenders.
(k) Immediately after giving effect to the Assumption and the
Spin-Off, (i) Stilwell and its subsidiaries shall have outstanding no
indebtedness or preferred stock other than (v) Loans outstanding under
the Credit Agreement, (w) Loans outstanding under the 1999 Credit
Agreement, (x) other indebtedness in an aggregate amount outstanding at
any time no greater than $10,000,000 (or its equivalent in any other
currency), (y) preferred stock of subsidiaries of Stilwell owned by
Stilwell and (z) other indebtedness and preferred stock reasonably
satisfactory to the Lenders and (ii) Stilwell shall not nor shall any
of its subsidiaries, under the terms of any agreements entered into
with KCSI or any other Person, be responsible for any direct or
contingent liabilities other than (y) those historically associated
with the businesses and assets transferred to Stilwell in the Transfer
Transaction and (z) obligations under the Amended Credit Agreement and
under the 1999 Credit Agreement.
(l) All governmental and third party approvals required in
connection with the Transfer Transaction and this AAA Agreement and the
transactions contemplated hereby and thereby shall have been obtained
on terms reasonably satisfactory to the Agent, all applicable appeal
periods in connection with any such governmental approvals shall have
expired and there shall be no governmental or judicial action, actual
or threatened, that could reasonably be expected to restrain, prevent
or impose burdensome conditions on the Transfer Transaction or this AAA
Agreement or the transactions contemplated hereby or thereby.
(m) The Lenders shall have received a consolidated balance
sheet of Stilwell as of September 30, 1999, giving effect to the
Contribution Agreement as if it had occurred on such date, which shall
not be materially inconsistent with the pro forma financial information
and projections previously delivered to the Agent and the Lenders.
SECTION 5. APPLICABLE LAW. THIS AAA AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
---------------
SECTION 6. Credit Agreement. Until the occurrence of the
Effective Date as provided in Section 4 hereof, the Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof and
the rights and obligations of the parties thereto shall not be affected hereby,
and all Fees and interest accruing under the Credit Agreement shall continue to
accrue at the rates provided for therein.
<PAGE>
SECTION 7. Amended Credit Agreement; Borrower. Any reference
in the Amended Credit Agreement, or in any documents or instruments required
thereunder or annexes or schedules thereto, referring to the Credit Agreement,
shall be deemed to refer to the Amended Credit Agreement. As used in the Amended
Credit Agreement, the terms "Agreement", "this Agreement", "herein",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, mean the Amended Credit Agreement. Except as
expressly modified by this AAA Agreement, the terms and provisions of the Credit
Agreement are hereby confirmed and ratified in all respects and shall remain in
full force and effect as the terms and provisions of the Amended Credit
Agreement. Each reference in the Amended Credit Agreement to "the Borrower"
shall mean Stilwell Financial, Inc. and not Kansas City Southern Industries,
Inc.
SECTION 8. Counterparts. This AAA Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contracts. Delivery of an
executed counterpart of a signature page of this AAA Agreement by facsimile
transmission shall be as effective of a manually executed counterpart of this
AAA Agreement.
SECTION 9. Expenses. The Borrower agrees to reimburse the
Agent for their out-of-pocket expenses in connection with this AAA Agreement
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this AAA
Agreement to be duly executed by their respective authorized officers as of the
day and year first written above.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
by
Name:
Title:
STILWELL FINANCIAL, INC.,
by
Name:
Title:
THE CHASE MANHATTAN BANK, individually, as Swingline
Lender and as Agent,
by
Name:
Title:
<PAGE>
EXHIBIT A
to the Assignment, Assumption
and Amendment Agreement
[Form of]
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT (this "Agreement") dated as of
January 11, 2000, between STILWELL FINANCIAL, INC., a Delaware
corporation (the "Borrower" or the "Guarantor"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, as
administrative agent (the "Agent") for the Lenders (as defined
in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of January 11,
2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among KANSAS CITY SOUTHERN INDUSTRIES, INC. ("KCSI"), the
Lenders from time to time party thereto, The Chase Manhattan Bank, as swingline
lender and as administrative agent for the Lenders, Bank of America, N.A., as
Documentation Agent, and Fleet National Bank, as Syndication Agent, and (b) the
Assignment, Assumption and Amendment Agreement dated the date hereof among KCSI,
the Guarantor and the Agent (as amended, supplemented or otherwise modified from
time to time, the "AAA Agreement"). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the Credit
Agreement, as amended by the AAA Agreement (the "Amended Credit Agreement").
The Lenders have agreed to make Loans to the Borrower pursuant to, and
upon the terms and subject to the conditions specified in, the Amended Credit
Agreement.
Pursuant to Section 2.23 of the Amended Credit Agreement, the Borrower
may from time to time assign and delegate its rights and obligations in respect
of all or a portion of any Borrowing to one or more Subsidiary Borrowers that
will assume such obligations pursuant to an assignment that will result in the
Borrower being relieved of its obligations as a Borrower in respect of the
Borrowing or portion thereof so assigned (but not any obligations in respect of
such Borrowing that arise under other Loan Documents in the Borrower's capacity
as a Guarantor hereunder) and the applicable Subsidiary Borrower succeeding to
all such obligations.
It is a condition precedent to the effectiveness of the AAA Agreement
that the Guarantor shall have executed and delivered this Agreement to the Agent
for the ratable benefit of the Lenders.
In consideration of the premises and to induce the Agent, on behalf of
the Lenders, to enter into this Agreement and permit the assignment and
delegation of Borrowings to Subsidiary Borrowers, as provided in Section 2.23 of
the Amended Credit Agreement, the Guarantor hereby agrees with the Agent, for
the ratable benefit of the Lenders, as follows:
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. The Guarantor unconditionally guarantees, as a
primary obligor and not merely as a surety, (a) the due and punctual payment of
the Obligations and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Loan Parties under or pursuant to
the Amended Credit Agreement and the other Loan Documents (all the monetary and
other obligations referred to in the preceding clauses (a) and (b) being
collectively called the "Guaranteed Obligations"). The Guarantor further agrees
that the Guaranteed Obligations may be extended, renewed or modified, in whole
or in part, without notice to or further assent from it, and that it will remain
bound upon its guarantee notwithstanding any extension, renewal or modification
of any Guaranteed Obligation.
SECTION 2. Guaranteed Obligations Not Waived. To the fullest extent
permitted by applicable law, the Guarantor waives presentment to, demand of
payment from and protest to any Subsidiary Borrower or the Guarantor of any of
the Guaranteed Obligations, and also waives notice of acceptance of its
guarantee and notice of protest for nonpayment. To the fullest extent permitted
by applicable law, the obligations of the Guarantor hereunder shall not be
affected by (a) the failure of the Agent or any Lender to assert any claim or
demand or to enforce or exercise any right or remedy against any Subsidiary
Borrower or the Guarantor, under the provisions of the Amended Credit Agreement,
any other Loan Document or otherwise or (b) any rescission, waiver, amendment or
modification of, or any release from any of the terms or provisions of this
Agreement, any other Loan Document, any Guarantee or any other agreement.
<PAGE>
5
SECTION 3. Guarantee of Payment. The Guarantor further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Agent or any Lender to
any balance of any deposit account or credit on the books of the Agent or any
Lender in favor of any Subsidiary Borrower or any other person.
SECTION 4. No Discharge or Diminishment of Guarantee. The obligations
of the Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Guaranteed Obligations), including any claim of waiver,
release, surrender, alteration or compromise of any of the Guaranteed
Obligations, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of the Guarantor hereunder
shall not be discharged or impaired or otherwise affected by the failure of the
Agent or any Lender to assert any claim or demand or to enforce any remedy under
the Amended Credit Agreement, any other Loan Document or any other agreement, by
any waiver or modification of any provision of any thereof, by any default,
failure or delay, wilful or otherwise, in the performance of the Guaranteed
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of the Guarantor or that would otherwise operate as
a discharge of the Guarantor as a matter of law or equity (other than the
indefeasible payment in full in cash of all the Guaranteed Obligations).
SECTION 5. Defenses of Subsidiary Borrower Waived. To the fullest
extent permitted by applicable law, the Guarantor waives any defense based on or
arising out of any defense of any Subsidiary Borrower or the unenforceability of
the Guaranteed Obligations or any part thereof from any cause, or the cessation
from any cause of the liability of any Subsidiary Borrower, other than the final
and indefeasible payment in full in cash of the Guaranteed Obligations. The
Agent and any Lender may, at their election, compromise or adjust any part of
the Guaranteed Obligations, make any other accommodation with any Subsidiary
Borrower or exercise any other right or remedy available to them against any
Subsidiary Borrower, without affecting or impairing in any way the liability of
the Guarantor hereunder except to the extent the Guaranteed Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
the Guarantor waives any defense arising out of any such election even though
such election operates, pursuant to applicable law, to impair or to extinguish
any right of reimbursement or subrogation or other right or remedy of the
Guarantor against any Subsidiary Borrower.
SECTION 6. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Agent or any Lender
has at law or in equity against any Guarantor by virtue hereof, upon the failure
of any Subsidiary Borrower to pay any Guaranteed Obligation when and as the same
shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, the Guarantor hereby promises to and will forthwith
pay, or cause to be paid, to the Agent or such Lender as designated thereby in
cash the amount of such unpaid Guaranteed Obligations. Upon payment by the
Guarantor of any sums to the Agent or any Lender as provided above, all rights
of the Guarantor against any Subsidiary Borrower arising as a result thereof by
way of right of subrogation, contribution, reimbursement, indemnity or otherwise
shall in all respects be subordinate and junior in right of payment to the prior
indefeasible payment in full in cash of all the Guaranteed Obligations. In
addition, any indebtedness of any Subsidiary Borrower now or hereafter held by
the Guarantor is hereby subordinated in right of payment to the prior payment in
full of the Guaranteed Obligations. If any amount shall erroneously be paid to
the Guarantor on account of (i) such subrogation, contribution, reimbursement,
indemnity or similar right or (ii) any such indebtedness of any Subsidiary
Borrower, such amount shall be held in trust for the benefit of the Lenders and
shall forthwith be paid to the Agent to be credited against the payment of the
Guaranteed Obligations, whether matured or unmatured, in accordance with the
terms of the Loan Documents.
SECTION 7. Information. The Guarantor assumes all responsibility for
being and keeping itself informed of each of the Subsidiary Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks that the Guarantor assumes and incurs hereunder, and agrees that none of
the Agent or the Lenders will have any duty to advise the Guarantor of
information known to it or any of them regarding such circumstances or risks.
SECTION 8. Representations and Warranties. The Guarantor represents and
warrants that all representations and warranties contained in the Amended Credit
Agreement are true and correct with the same effect as if made on and as of the
date hereof, except to the extent that such representations and warranties
expressly relate to an earlier date.
<PAGE>
SECTION 9. Termination. The Guarantees made hereunder (a) shall
terminate when all the Guaranteed Obligations have been indefeasibly paid in
full and the Lenders have no further commitments to lend under the Amended
Credit Agreement and (b) shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Guaranteed
Obligation is rescinded or must otherwise be restored by any Lender or the
Guarantor upon the bankruptcy or reorganization of any Subsidiary Borrower, the
Guarantor or otherwise.
SECTION 10. Binding Effect; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Guarantor that are contained in this Agreement
shall bind and inure to the benefit of each party hereto and their respective
successors and assigns. This Agreement shall become effective when a counterpart
hereof executed on behalf of the Guarantor shall have been delivered to the
Agent, and a counterpart hereof shall have been executed on behalf of the Agent,
and thereafter shall be binding upon the Guarantor and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Guarantor, the Agent and the Lenders, and their respective successors and
assigns, except that the Guarantor shall not have the right to assign its rights
or obligations hereunder or any interest herein (and any such attempted
assignment shall be void).
SECTION 11. Waivers; Amendment. (a) No failure or delay of the Agent in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agent and the Lenders hereunder
and under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or consent to any departure by the Guarantor therefrom shall in
any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Guarantor in any case shall entitle the Guarantor to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Guarantor with respect to which such waiver, amendment or modification
relates and the Agent, with the prior written consent of the Required Lenders
(except as otherwise provided in the Amended Credit Agreement).
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-------------
SECTION 13. Notices. Except as set forth in the sentence immediately
following, all communications and notices hereunder shall be in writing and
given as provided in Section 9.01 of the Amended Credit Agreement.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Agent and the Lenders and shall survive the making
by the Lenders of the Loans regardless of any investigation made by the Agent,
the Lenders or on their behalf, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any other fee or
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or the Revolving Credit Exposure does not equal zero and as long as
the Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
<PAGE>
SECTION 15. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 10. Delivery of an executed signature page to this Agreement
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 16. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Amended Credit Agreement shall be applicable to
this Agreement.
SECTION 17. Jurisdiction; Consent to Service of Process. (a) The
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees 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. Nothing in this Agreement shall affect any right that the Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or the other Loan Documents against the Guarantor or its
properties in the courts of any jurisdiction.
(b) The Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 13. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 18.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
STILWELL FINANCIAL, INC.,
by
---------------------------
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, as Agent,
by
----------------------------
Name:
Title:
<PAGE>
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the 364-Day Competitive Advance and
Revolving Credit Facility Agreement dated as of January 11, 2000 (the "Credit
Agreement"), among Kansas City Southern Industries, Inc., a Delaware corporation
(the "Borrower"), the lenders from time to time party thereto (the "Lenders"),
The Chase Manhattan Bank, as agent for the Lenders (in such capacity, the
"Agent"), Bank of America, N.A., as Documentation Agent, and Fleet National
Bank, as Syndication Agent. Terms defined in the Credit Agreement are used
herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth on the reverse
hereof, the interests set forth on the reverse hereof (the "Assigned Interest")
in the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the Effective Date and the Competitive Loans and
Standby Loans and Swingline Loans owing to the Assignor which are outstanding on
the Effective Date. Each of the Assignor and the Assignee hereby makes and
agrees to be bound by all the representations, warranties and agreements set
forth in Section 9.04(c) of the Credit Agreement, a copy of which has been
received by each such party. From and after the Effective Date (i) the Assignee
shall be a party to and be bound by the provisions of the Credit Agreement and,
to the extent of the interests assigned by this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and under the Loan Documents
and (ii) the Assignor shall, to the extent of the interests assigned by this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the
Agent together with (i) if the Assignee is organized under the laws of a
jurisdiction outside the United States, the forms specified in Section 2.19(f)
of the Credit Agreement, duly completed and executed by such Assignee, (ii) if
the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire and (iii) a processing and recordation fee of
$3,000.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment):
<PAGE>
2
<PAGE>
<TABLE>
2
<S> <C> <C>
Percentage Assigned of
Facility/Commitment (set forth,
Principal Amount assigned to at least 8 decimals, as a
(and identifying information percentage of the Facility and
as to individual Competitive the aggregate Commitments of all
---
Facility Loans) Lenders thereunder)
- -------------------------- ---------------------------------- -------------------
Commitment Assigned:
$ %
Standby Loans:
Competitive Loans:
Swingline Loans:
</TABLE>
<PAGE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
Accepted */
-
, as Assignor THE CHASE MANHATTAN BANK, as Agent
- -------------
By: By:
-----------------------
Name: Name:
Title: Title:
, as Assignee KANSAS CITY SOUTHERN INDUSTRIES, INC.,
- -------------
By: By:
-----------------------
Name: Name:
Title: Title:
THE CHASE MANHATTAN BANK, as Swingline Lender,
By:
Name:
Title:
<PAGE>
- --------------------
*/ To be completed only if consents are required under Section 9.04(b).
<PAGE>
EXHIBIT D
January 11, 2000
To the Lenders. the Administrative Agent
and Swingline Lender referred to below
c/o The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, NY 10017
Ladies and Gentlemen:
We have acted as counsel for Kansas City Southern Industries, Inc., a
Delaware corporation (the "Company") in connection with the 364-Day Competitive
Advance and Revolving Credit Facility Agreement (the "Credit Agreement") dated
as of January 11, 2000, among the Company, as borrower, the lenders from time to
time party thereto (the "Lenders"), Bank of America, N.A., as documentation
agent, Fleet National Bank as syndication agent, and The Chase Manhattan Bank,
as administrative agent and swingline lender (the "Agent"). Terms defined in the
Credit Agreement are used herein with the same meanings.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary or advisable
for purposes of this opinion, including:
(i) The Credit Agreement and the notes payable to each Lender
which have been executed and delivered by the Company on the date
hereof (the "Notes");
(ii) The Certificate of Incorporation of the Company as
certified by the Secretary of State of Delaware as of a recent date;
(iii) The By-laws of the Company as in effect on the date
hereof;
(iv) The resolutions duly adopted by written consent to action
by the Board of Directors of the Company on December 2, 1999,
authorizing, among other things, that an officer of the Company execute
and deliver the Credit Agreement and any documents contemplated
thereby;
(v) A certificate issued by the Secretary of State of Delaware
dated December 10, 1999, as to the good standing of the Company in the
State of Delaware and a certificate issued by the Secretary of State of
Missouri as to the qualification and good standing of the Company in
the State of Missouri dated December 13, 1999; and
(vi) The Certificate of Incorporation for each of the
Company's Significant Subsidiaries (listed on Schedule I hereto).
As to questions of fact material to the opinions set forth herein, we
have relied upon the representations of the Company set forth in the Credit
Agreement, certificates of officers and other representatives of the Company and
factual information we have obtained from such other sources as we have deemed
reasonable. We have assumed without investigation that there has been no
relevant change or development between the dates as of which the information
cited in the preceding sentence was given and the date of this letter. We have
not independently verified the accuracy of the matters set forth in the written
statements or certificates upon which we have relied, nor have we undertaken any
lien, suit or judgment searches or searches of court dockets in any
jurisdiction. For purposes of the opinion in paragraph 1, we have relied
exclusively upon certificates issued by relevant governmental authorities in the
relevant jurisdictions, and such opinion is not intended to provide any
conclusion or assurance beyond that conveyed by those certificates.
We have assumed (i) the genuineness and authenticity of all documents
examined by us and all signatures thereon, and the conformity to originals of
all copies of all documents examined by us; (ii) that the execution, delivery
and/or acceptance of the Credit Agreement have been duly authorized by all
action, corporate or otherwise, necessary by the parties to the Credit Agreement
other than the Company (those parties other than the Company are hereinafter
collectively referred to as the "Other Parties" and that the Credit Agreement is
enforceable against each of the Other Parties); (iii) the legal capacity of all
natural persons executing the Credit Agreement; (iv) that each of the Other
Parties has satisfied those legal requirements that are applicable to it to the
extent necessary to make the Credit Agreement enforceable against it; (v) that
each of the Other Parties has complied with all legal requirements pertaining to
its status as such status relates to its rights to enforce the Credit Agreement;
(vi) that the Credit Agreement accurately describes and contains the mutual
understandings of the parties, and that there are no oral or written statements
or agreements or usages of trade or courses of prior dealings among the parties
that would modify, amend or vary any of the terms of the Credit Agreement; (vii)
that the Other Parties will act in accordance with, and will refrain from taking
any action that is forbidden by, the terms and conditions of the Credit
Agreement; (viii) the constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue; (ix) all agreements other than the
Credit Agreement which we have reviewed in connection with our letter would be
enforced as written; (x) that there has not been any mutual mistake of fact or
misunderstanding, fraud, duress or undue influence; and (xi) the representations
and warranties in the Credit Agreement are accurate and complete.
We confirm that we do not have any actual knowledge which has caused us
to conclude that our reliance and assumptions cited in the two preceding
paragraphs are unwarranted or that any information supplied in this letter is
wrong.
As used in this opinion with respect to any matter, the qualifying
phrase "to the best of our knowledge" or "our actual knowledge" or such similar
phrase means the conscious awareness of facts or other information by: (i) the
lawyer signing this opinion; and (ii) any lawyer who has had active involvement
in negotiating or preparing the Credit Agreement or that has had a substantial
role in advising the Company or any of its Significant Subsidiaries in
connection with the Spin-Off. In this regard, it is noted that we have not made
any special review or investigation in connection with rendering any opinion so
qualified other than inquiry of various officers, in-house legal counsel and key
employees of the Company and a review of material agreements brought to our
attention.
Based on the foregoing, and in reliance thereon, and subject to the
qualifications, limitations and exceptions stated herein, we are of the opinion,
having due regard for such legal considerations as we deem relevant, that:
1. Each of the Company and its Significant Subsidiaries: (a) is
validly existing and in good standing under the laws of its jurisdiction of
incorporation, (b) has the corporate power and authority to conduct its
businesses as now conducted and (c) is qualified to do business as a foreign
corporation in those jurisdictions, if any, identified on Schedule I attached
hereto.
2. The execution, delivery and performance of the Credit Agreement and
the Notes are within the Company's corporate powers and have been duly
authorized by all necessary corporate action, and the Credit Agreement and the
Notes have been duly executed and delivered by the Company.
3. No approval, authorization, consent, adjudication or order of, or
filing with, any Governmental Authority, which has not been obtained or made, is
required to be obtained or made by the Company or any Significant Subsidiary in
connection with the execution, delivery and performance of the Credit Agreement
or in connection with the borrowings or repayments thereof made in connection
with the Credit Agreement.
4. The execution and delivery of the Credit Agreement and the Notes by
the Company and the performance by the Company of the Obligations have been duly
authorized by all necessary corporate action and proceedings on the part of the
Company and do not:
(a) require any consent of the Company's shareholders;
(b) violate or conflict with any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Company or
any Significant Subsidiary or the Company's or any Significant
Subsidiary's articles of incorporation or bylaws or violate or conflict
with or result in a default under any indenture. material instrument or
material agreement binding upon the Company or any Significant
Subsidiary, and of which we are aware; or
(c) result in, or require the creation or imposition of any
Lien pursuant to the provisions of any indenture, material instrument
or material agreement binding upon the Company or any Significant
Subsidiary and of which we are aware.
5. Each of the Credit Agreement and the Notes constitutes the legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
6. To the best of our knowledge, and except as disclosed in the Form
10-K of the Company for the fiscal year ended December 31, 1998 filed with the
Securities and Exchange Commission and in Schedule 3.09 of the Credit Agreement,
there is no action, suit, governmental inquiry, investigation or other
proceeding pending or overtly threatened against the Company or any Significant
Subsidiary that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to materially adversely affect the business,
properties, financial condition or results of operations of the Company and its
Significant Subsidiaries taken as a whole or the ability of the Company to
perform its obligations under the Credit Agreement and the Notes.
7. The making of the Loans and the application of the proceeds thereof
by the Company as provided in the Credit Agreement will not result in a
violation of Regulation T, U or Y of the Board of Governors of the Federal
Reserve Board.
8. The Company is not (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
Our opinions as herein expressed are subject to the following
qualifications and limitations:
1. Our opinions are subject to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws.
This exception includes:
(a) the Federal Bankruptcy Code and thus comprehends, among
others, matters of turn-over, automatic stay, avoiding powers,
fraudulent transfer, preference, discharge, conversion of a
non-recourse obligation into a recourse claim, limitations on ipso
facto and anti-assignment clauses and the coverage of pre-petition
security agreements applicable to property acquired after a petition is
filed;
(b) all other Federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and assignment
for the benefit of creditors laws that affect the rights of creditors
generally or that have reference to or affect only creditors of
specific types of debtors;
(C) state fraudulent transfer and conveyance laws; and
(d) judicially developed doctrines in this area, such as
substantive consolidation of entities and equitable subordination.
2. Our opinions are subject to the effect of general principles
of equity, whether applied by a court of law or equity. This limitation includes
principles:
(a) governing the availability of specific performance,
injunctive relief or other equitable remedies, which generally place
the award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief is made;
(b) affording equitable defenses (e.g., waiver, latches and
estoppel) against a party seeking enforcement;
(c) requiring good faith and fair dealing in the performance
and enforcement of a contract by the party seeking its enforcement;
(d) requiring reasonableness in the performance and
enforcement of an agreement by the party seeking enforcement of the
contract;
(e) requiring consideration of the materiality of (i) a
breach and (ii) the consequences of the breach to the party seeking
enforcement;
(f) requiring consideration of the impracticability or
impossibility of performance at the time of attempted enforcement; and
(g) affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into the
contract.
3. Our opinions are subject to the effect of the rules of law that:
(a) limit or affect the enforcement of provisions of a
contract that purport to waive, or to require waiver of, (i) the
obligations of good faith, fair dealing, diligence and reasonableness,
(ii) broadly or vaguely stated rights, (iii) statutory, regulatory or
constitutional rights, except to the extent that the statute,
regulation or constitution explicitly allows waivers; (iv) unknown
future defenses; and (v) rights to damages;
(b) provide that choice of law, forum selection, consent to
jurisdiction, consent to and specification of service of process and
jury waiver clauses in contracts are not necessarily binding;
(c) limit the enforceability of provisions releasing,
exculpating or exempting a party from, or requiring indemnification of
a party for, liability for its own action or inaction;
(d) may, where less than all of a contract may be
unenforceable, limit the enforceability of the balance of the contract
to circumstances in which the unenforceable portion is not an essential
part of the agreed exchange;
(e) govern and afford judicial discretion regarding the
determination of damages and entitlement to attorneys' fees and other
costs;
(f) may permit a party that has materially failed to render or
offer performance required by the contract to cure that failure unless
(i) permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or (ii) it was
important in the circumstances to the aggrieved party that performance
occur by the date stated in the contract; and
(g) limit the enforceability of any provision purporting: (i)
to cause an indemnification, guaranty or undertaking to survive
repayment of the Loans or the satisfaction, disclosure, settlement,
discharge or other termination of the Credit Agreement; (ii) to require
the payment of interest (or discount or equivalent amounts) or any
premium or "make whole" payment at a rate or in an amount, after the
maturity or after or upon acceleration of the respective liabilities
evidenced or secured thereby, or after or during the continuance of any
default, event of default or other circumstance, or upon repayment,
which a court may determine to be unreasonable, a penalty or a
forfeiture or (iii) to create or waive a trust, agency,
attorney-in-fact or other fiduciary relationship.
4. We express no opinion as to the laws of any jurisdiction other than
the laws of the States of Missouri and New York (excluding, in each case, local
laws), Delaware corporate laws and the federal laws of the United States of
America.
5. Except to the extent that such issues are specifically addressed
herein, we express no opinion as to any of the following legal issues:
(a) pension and employee benefit laws and regulations (e.g.
ERISA);
(b) compliance with fiduciary duty requirements;
(c) fraudulent transfer and fraudulent conveyance laws:
(d) Federal and state tax laws and regulations;
(e) Federal and state laws, regulations and policies
concerning (i) national and local emergency, (ii) possible judicial
deference to acts of sovereign states, and (iii) criminal civil
forfeiture laws;
(f) Federal and state securities laws and regulations; and
(g) other Federal and state statutes of general application
to the extent they provide for criminal prosecution (e.g., mail fraud
and wire fraud statutes).
6. We call your attention to the fact that the enforceability of any
provision purporting to require any party to execute promissory notes in the
future is subject to general principles of equity and the discretion of a court
of equity as to whether such a provision should be enforced.
This opinion is rendered on the date hereof and we have no continuing
obligation hereunder to inform you of changes of law or fact subsequent to the
date hereof or facts of which we have become aware after the date hereof. This
opinion covers matters as of the date hereof and does not address events which
may take place after the date hereof but are contemplated by the Credit
Agreement or amendments to the Credit Agreement after the date hereof.
This opinion is limited to the matters set forth herein; no opinion may
be inferred or implied beyond the matters expressly stated in this letter.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other Person (other than your successors and assigns as
Lenders and Persons that acquire participations in your Loans) without our prior
written consent.
i ` :~" _: % _21
<PAGE>
SCHEDULE I
Caymex Transportation, Inc. SCC Holdings, Inc.
Delaware (domestic) Delaware (domestic)
Gateway Eastern Railway Company Southern Development Company,
Illinois (domestic) Missouri (domestic)
Gateway Western Railway Company Southern Industrial Services, Inc.
Illinois (domestic) Delaware (domestic)
Kansas Kansas
Missouri Missouri
Global Terminaling Services, Inc. The Kansas City Southern Railway
Delaware (domestic) Company
Missouri Alabama
Texas Arkansas
Kansas
Kansas City Southern Industries, Inc. Louisiana
Missouri (domestic) Missouri (domestic)
Oklahoma
Kansas City Southern Lines, Inc. Tennessee
Delaware (domestic)
Missouri Trans-Serve, Inc.
Arkansas
KCS Transportation Company Delaware (domestic)
Delaware (domestic) Louisiana
Missouri
Veals, Inc.
Mid-South Microwave, Inc. Arkansas
Arkansas Delaware (domestic)
Delaware (domestic) Kansas
Kansas Louisiana
Louisiana Missouri
Missouri Oklahoma
Oklahoma
Texas
Rice-Carden Corporation
Arkansas
Louisiana
Missouri (domestic)
Oklahoma
Texas
<PAGE>
SCHEDULE I
Berger, LLC
Colorado (domestic)
Nevada
Janus Capital Corporation
Colorado (domestic)
Janus Capital International Ltd.
Colorado (domestic)
Connecticut
Janus Distributors, Inc.
Colorado (domestic)
Janus Service Corporation
Colorado (domestic)
Texas
Stilwell Financial, Inc.
Colorado (domestic)
Missouri
Stilwell Management, Inc.
Colorado (domestic)
<PAGE>
10
<PAGE>
EXHIBIT E
[FORM OF]
COMPLIANCE CERTIFICATE
To: The Lenders party to the
Credit Agreement described below
care of
The Chase Manhattan Bank, as Agent
for the Lenders referred to below
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Margaret Swales
with a copy to:
Chase Securities Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: John Hinard
This Compliance Certificate is furnished pursuant to the
364-Day Credit Agreement dated as of January 11, 2000 (the "Agreement"), among
Kansas City Southern Industries, Inc. (the "Borrower"), the Lenders from time to
time party thereto, The Chase Manhattan Bank, as Agent, Bank of America, N.A.,
as Documentation Agent, and Fleet National Bank, as Syndication Agent. Unless
otherwise defined herein, the terms used in this Compliance Certificate have the
meanings assigned to them in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected chief financial officer of the
Borrower;
2. I have reviewed the terms of the Agreement and I have made,
or have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and the Subsidiaries during the
accounting period covered by the attached financial statements;
3. The form attached hereto sets forth financial data and
computations evidencing the Borrower's and the Subsidiaries' compliance with
certain covenants of the Agreement, all of which data and computations are true,
complete and correct; and
4. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or event which
constitutes a Default or an Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Compliance Certificate, except as set forth below:
[Describe the exceptions by listing, in detail, the nature of
the condition or event, the period during which it has existed
and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event]
The foregoing certifications, together with the computations
required by the Credit Agreement attached hereto and the financial statements
delivered with this Compliance Certificate in support hereof, are made and
delivered this day of , 20.
Name:
Title:
<PAGE>
EXHIBIT F
[Letterhead of Prospective Assignee or Participant]
[FORM OF]
CONFIDENTIALITY AGREEMENT
[Date]
The Chase Manhattan Bank, as Agent
for the Lenders referred to below
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Margaret Swales
with a copy to:
Chase Securities Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: Deborah K. Welles
Kansas City Southern Industries, Inc.
Confidentiality Agreement
Dear Sirs:
In connection with our possible acquisition of an interest in
the credit facility (the "Facility") established by the 364-Day Credit Agreement
dated as of January 11, 2000, among the Borrower as defined therein, the lenders
from time to time party thereto (the "Lenders"), The Chase Manhattan Bank, as
Agent, Bank of America, N.A., as Documentation Agent, and Fleet National Bank,
as Syndication Agent, you, the Borrower or any Lender may furnish us with
confidential documents, materials and information (the "Information") relating
to the Borrower.
We agree to keep confidential and not to disclose (and to
cause our officers, directors, employees, agents, Affiliates and representatives
to keep confidential and not to disclose) and, at the request of you or the
Borrower, promptly to return or destroy, the Information and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that we
shall be permitted to disclose Information (i) to such of our officers,
directors, employees, agents, Affiliates and representatives as need to know
such Information in connection with such acquisition; (ii) to the extent
required by applicable laws and regulations or by any subpoena or similar legal
process, or requested by any governmental agency or authority having
jurisdiction over us; (iii) to the extent such Information (A) becomes publicly
available other than as a result of a breach by us of this letter, (B) is
generated by us or becomes available to us on a nonconfidential basis from a
source other than you, the Borrower or any Lender or (C) was available to us on
a nonconfidential basis prior to its disclosure to us by you, the Borrower or
any Lender; or (iv) to the extent the Borrower shall have consented in writing
to such disclosure.
Notwithstanding anything to the contrary contained above, we
shall be entitled to retain all Information to use for the administration of our
interests and the protection of our rights under the Facility.
The Borrower shall be a third party beneficiary of this
Agreement.
Very truly yours,
[Name of potential
participant/assignee]
by
Name:
Title:
<PAGE>
Exhibit G
[Chase Manhattan Bank Letterhead]
ADMINISTRATIVE QUESTIONNAIRE
Please accurately complete the following information and return via FAX to the
attention of Daniel Krauss The Chase Manhattan Bank as soon as possible.
FAX Number: 212-552-5662
LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:
- ----------------------------------------------------------
GENERAL INFORMATION - DOMESTIC LENDING OFFICE:
Institution Name:
----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:
Institution Name:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
CONTACTS/NOTIFICATION METHOD:
- -----------------------------
CREDIT CONTACTS:
Primary Contact
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Phone Number:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
FAX Number:
- -------------------------- ----------------------------------------------------
Backup Contact
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Phone Number:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
FAX Number:
- -------------------------- ----------------------------------------------------
TAX WITHHOLDING:
Non Resident Alien Y* N
---------- -----------
* Form 4224 Enclosed
Tax ID Number
--------------------------------
CONTACTS/NOTIFICATION METHOD:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Phone Number:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Fax Number:
- -------------------------- ----------------------------------------------------
BID LOAN NOTIFICATION:
Contact
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Phone Number:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Fax Number:
- -------------------------- ----------------------------------------------------
PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
- -------------------------------------------------------------------------------
Routing Transit/ABA number of Bank where funds are to be transferred:
- -------------------------------------------------------------------------------
Name of Account: (If applicable)
- -------------------------------------------------------------------------------
Account Number:
- -------------------------------------------------------------------------------
Additional Information:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MAILINGS:
Please specify who should receive financial information:
Name:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
Street Address:
- -------------------------- ----------------------------------------------------
----------------------------------------------------
City, State, Zip Code:
- -------------------------- ----------------------------------------------------
It is very important that all of the above information is accurately filed in
and returned promptly. If you have any questions, please call a representative
at Loan & Agency Services on 212-552-7909.
<PAGE>
SCHEDULE 2.01
Commitments
Name of Lender Commitment
The Chase Manhattan Bank $20,000,000
Bank of America, N.A. $18,000,000
Fleet National Bank $18,000,000
The Bank of New York $15,000,000
The Bank of Nova Scotia $15,000,000
Deutsche Bank AG, New York and/or Cayman Island Branches $15,000,000
The Fuji Bank, Ltd. $15,000,000
Mercantile Bank $15,000,000
National Australia Bank $15,000,000
State Street Bank and Trust Company $15,000,000
Westdeutsche Landesbank Girozentrale $15,000,000
Bank Hapoalim B.M. $12,000,000
UMB Bank, N.A. $12,000,000
-----------
Total Commitment $200,000,000
<PAGE>
14072105 v4
KANSAS CITY SOUTHERN INDUSTRIES, INC.
SCHEDULE 3.08 TO
364-DAY COMPETITIVE ADVANCE
AND REVOLVING CREDIT AGREEMENT
SUBSIDIARIES AND JOINT VENTURES
<TABLE>
<S> <C> <C>
Transportation Subsidiaries Percentage of State or other Jurisdiction of
---------------------------
Ownership Incorporation or Organization
Canama Transportation, Inc. (1) 100 Cayman Islands
Caymex Transportation, Inc. (2) 100 Cayman Islands
(Domesticated in Delaware)
Gateway Eastern Railway Company (3) 100 Illinois
Gateway Western Railway Company (4) 100 Illinois
Global Terminaling Services, Inc. (5) 100 Delaware
Kansas City Southern Lines, Inc. (6) 100 Delaware
KCS Transportation Company (2) 100 Delaware
Mid-South Microwave, Inc. (2) 100 Delaware
NAFTA Rail, S.A. de C.V. (1) 100 Mexico
SCC Holdings, Inc. (2) 100 Delaware
Southern Capital Corporation, LLC (16) 50 Colorado
North American Freight Transportation Alliance Rail 100 Delaware
Corporation (7)
Panama Canal Railway Company (17) 50 Cayman Islands
Port Arthur Bulk Marine Terminal Co. (8) 80 Partnership
Rice-Carden Corporation (2) 100 Missouri
Southern Development Company (2) 100 Missouri
Southern Industrial Services, Inc. (7) 100 Delaware
The Kansas City Southern Railway Company (7) 100 Missouri
TransFin Insurance, Ltd. (7) 100 Vermont
Trans-Serve, Inc. (5) 100 Delaware
Veals, Inc. (7) 100 Delaware
Wyandotte Garage Corporation (7) 80 Missouri
Financial Asset Percentage of State or Other Jurisdiction of
Management Subsidiaries Ownership Incorporation or Organization
Berger LLC (9) 80 Delaware
Berger Distributors, Inc. (10) 100 Delaware
DST Systems, Inc. (9) 32 Delaware
Stilwell Financial, Inc. (6) 100 Delaware
FAM UK Limited (11) 100 United Kingdom
Stilwell Management, Inc. (11) 100 Delaware
Fillmore Agency, Inc. (11) 100 Colorado
Fountain Investments, Inc. (11) 100 Missouri
Fountain Investments UK (11) 100 United Kingdom
Janus Capital Corporation (11) 82 Colorado
Janus Capital International Ltd. (12) 100 Colorado
Janus Distributors, Inc. (12) 100 Colorado
Janus Service Corp. (12) 100 Colorado
Joseph Nelson Limited (13) 100 United Kingdom
Nelson Investment Planning Limited (13) 100 United Kingdom
Nelson Investment Management Limited (13) 100 United Kingdom
Nelson Money Managers plc (15) 80 United Kingdom
PVI, Inc. (11) 100 Delaware
Taproot Limited (13) 100 United Kingdom
<PAGE>
Notes to Schedule 3.08:
(1) Subsidiary of Caymex Transportation, Inc.
(2) Subsidiary of The Kansas City Southern Railway Company
(3) Subsidiary of Gateway Western Railway Company
(4) Subsidiary of KCS Transportation Company
(5) Subsidiary of Southern Industrial Services, Inc.
(6) Subsidiary of Kansas City Southern Industries, Inc.
(7) Subsidiary of Kansas City Southern Lines, Inc.
(8) Subsidiary of Rice-Carden Corporation
(9) Subsidiary of Stilwell Management, Inc.
(10) Subsidiary of Berger LLC
(11) Subsidiary of Stilwell Financial, Inc.
(12) Subsidiary of Janus Capital Corporation
(13) Subsidiary of Nelson Money Managers plc
(14) Subsidiary of Joseph Nelson Limited
(15) Subsidiary of FAM UK Limited
(16) Subsidiary of SCC Holdings, Inc.
(17) Subsidiary of Canama Transportation, Inc.
</TABLE>
<PAGE>
- - 2 -
14070118\V-1
14072105 v4
KANSAS CITY SOUTHERN INDUSTRIES, INC.
SCHEDULE 3.09 TO
364-DAY COMPETITIVE ADVANCE
AND REVOLVING CREDIT AGREEMENT
LITIGATION
Duncan Case
In 1998, a jury in Beauregard Parish, Louisiana returned a verdict
against the Borrower in the amount of $16.3 million. The Louisiana state case
arose from a railroad crossing accident which occurred at Oretta, Louisiana on
September 11, 1994, in which three individuals were injured. Of the three, one
was injured fatally, one was rendered quadriplegic and the third suffered less
serious injures.
Subsequent to the verdict, the trial court held that the plaintiffs
were entitled to interest on the judgment from the date the suit was filed,
dismissed the verdict against one defendant and reallocated the judgment of that
verdict to the remaining defendants. The resulting total judgment against the
Borrower, together with interest, was approximately $26.7 million at September
30, 1999.
On November 3, 1999 the Third Circuit Court of Appeals in Louisiana
affirmed the judgment. Review will now be sought in the Louisiana Supreme Court.
Bogalusa Cases
In July 1996, the Borrower was named as one of 27 defendants in various
lawsuits in Louisiana and Mississippi arising from the explosion of a rail car
loaded with chemicals in Bogalusa, Louisiana on October 23, 1995. As a result of
the explosion, nitrogen dioxide and oxides of nitrogen were released into the
atmosphere over parts of that town and the surrounding area allegedly causing
evacuations and injuries. Approximately 25,000 residents of Louisiana and
Mississippi have asserted claims to recover damages allegedly caused by exposure
to the chemicals.
The Borrower neither owned nor leased the rail car or the rails on
which the rail car was located at the time of the explosion in Bogalusa. The
Borrower did, however, move the rail car from Jackson to Vicksburg, Mississippi,
where it was loaded with chemicals, and back to Jackson where the car was
tendered to the Illinois Central Railway Company ("IC"). The explosion occurred
more than 15 days after the Borrower last transported the rail car. The car was
loaded by the shipper in excess of its standard weight, but under the car's
capacity, when it was transported by the Borrower to interchange with the IC.
The trial of a group of 20 plaintiffs in the Mississippi lawsuits
arising from the chemical release resulted in a jury verdict and judgment in
favor of the Borrower in June 1999. The jury found that the Borrower was not
negligent and that the plaintiffs had failed to prove that they were damaged.
The trial of the Louisiana class action and the trial of another group of
Mississippi plaintiffs could both begin during the year 2000.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
SCHEDULE 3.17 TO
364-DAY COMPETITIVE ADVANCE
AND REVOLVING CREDIT AGREEMENT
DIVIDEND RESTRICTIONS
The Wyandotte Garage Corporation has entered into a mortgage which
restricts its ability to pledge its assets, give guarantees and make
distributions.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
SCHEDULE 6.01 TO
364-DAY COMPETITIVE ADVANCE
AND REVOLVING CREDIT AGREEMENT
INDEBTEDNESS
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Obligor Payee Description Maturity Balance
------- ----- ----------- --------
@9/30/99
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City
Southern Railway Chemical Bank Locomotive Purchase 8/04 $4,620,550
Company
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City Chemical Bank Locomotive Purchase 1/03 7,807,834
Southern Railway Company
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City The Chase Manhattan Locomotive Purchase 12/06 43,265,552
Southern Railway Company Bank
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City Bank of New York Locomotive Purchase 5/03 14,405,798
Southern Railway Company
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City Connecticut Bank and Capital Lease/ 6/04 1,156,314
Southern Railway Company Trust Rolling Stock
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City Trinity Industries Capital Lease/ 2/06 614,048
Southern Railway Company Rolling Stock
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
The Kansas City Pitney Bowes Capital Lease/ 9/09 2,339,322
Southern Railway Company Rolling Stock
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Gateway Western Railway State of Illinois Jacksonville 1/06 556,063
Company Rehabilitation Project
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Gateway Western Railway State of Illinois East St. Louis 4/07 242,220
Company Rehabilitation Project
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Gateway Western Railway State of Illinois Roadhouse to 1/07 2,378,894
Company East Louisiana
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Venice Intermodel
Gateway Western Railway State of Illinois Facility 12/09 1,844,644
Company Rehabilitation
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Gateway Eastern Railway State of Illinois Rehabilitation 2/18 914,645
Company Project Wann-Lenox
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Wyandotte Garage Lincoln National Mortgage on Property 12/12 5,653,829
Corporation
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Southern Industrial
Services, Inc./ IRB IRB 5/04 5,000,000
TranServe, Inc.
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Contingent Capital
Kansas City Southern TFM contribution N/A 74,600,000
Industries, Inc. obligation
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Contingent Capital 7,500,000
Kansas City Southern Panama Canal Railway contribution N/A (+5% of Project
Industries, Inc. Company obligation Completion Costs)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
<PAGE>
- - 2 -
KANSAS CITY SOUTHERN INDUSTRIES, INC.
SCHEDULE 6.02 TO
364-DAY COMPETITIVE ADVANCE
AND REVOLVING CREDIT AGREEMENT
LIENS
<TABLE>
<S> <C> <C> <C>
- ------------------------------------- --------------------------------- ------------------------- --------------------
Debtor Secured Party Collateral Debt Secured
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Chemical Bank Specific Locomotives $4,620,550
Company
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Chemical Bank Specific Locomotives 7,807,834
Company
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Bank of New York Specific Locomotives 14,405,798
Company
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway The Chase Specific Locomotives 43,265,552
Company Manhattan Bank
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Connecticut Capital Lease/ 1,156,314
Company Bank and Trust Rolling Stock
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Trinity Capital Lease/ 614,048
Company Rolling Stock
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Pitney Bowes Capital Lease/ 2,339,322
Company Rolling Stock
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Western Railway Company State of Illinois Rehabilitation Project 556,063
Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Western Railway Company State of Illinois Rehabilitation Project 242,220
Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Western Railway Company State of Illinois Rehabilitation Project 2,378,894
Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Western Railway Company State of Illinois Rehabilitation Project 1,844,644
Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Eastern Railway Company State of Illinois Rehabilitation Project 914,645
Assets
- ------------------------------------- --------------------------------- ------------------------- --------------------
<PAGE>
- ------------------------------------- --------------------------------- ------------------------- --------------------
Wyandotte Garage Corporation Lincoln National Real 5,653,829
Property
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Southern Industrial Services, IRB Plant 5,000,000
Inc./TranServe
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
Gateway Western State of Missouri [Fixed Assets] Flood
Railway Company Relief Grant
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway GE Capital Fleet Services Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Puckett Machine Company Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway IBM Credit Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway Storage Tek Financial Specific Equipment Operating
Company Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway General Electric Specific Equipment Operating
Company Capital Corporation Under Operating Leases Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
- ------------------------------------- --------------------------------- ------------------------- --------------------
The Kansas City Southern Railway GE Capital Modular Trailer Operating
Company Leases
- ------------------------------------- --------------------------------- ------------------------- --------------------
1/ Not less than $5,000,000 (and in integral multiples $1,000,000) or
greater than the Total Commitment then available.
2/ Eurodollar Loan or Fixed Rate Loan.
-
3/ Which shall be subject to the definition of "Interest Period" and end
not later than the Maturity Date. 4/ The Competitive Bid must be received
by the Agent (i) in the case of Eurodollar Loans, not later than
9:30 a.m., New York City time, three Business Days before a proposed Competitive
Borrowing, and (ii) in the case of Fixed Rate Loans, not later than 9:30 a.m.,
New York City time, on the Business Day of a proposed Competitive Borrowing.
5/ Not less than $5,000,000 or greater than the requested Competitive
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the Agent.
6/ LIBO Rate + or - %, in the case of Eurodollar Loans or %, in the case of Fixed Rate Loans.
-
7/ Not less than $5,000,000 (and in integral multiples of $1,000,000) or greater than the Total
-
Commitment then available.
8/ Eurodollar Loan or ABR Loan.
-
9/ Which shall be subject to the definition of "Interest Period" and end
not later than the Maturity Date.
</TABLE>
(..continued)
5
CONFORMED COPY
AAA AGREEMENT
ASSIGNMENT, ASSUMPTION AND AMENDMENT
AGREEMENT (this "AAA Agreement") dated as of January
11, 2000, among KANSAS CITY SOUTHERN INDUSTRIES,
INC., a Delaware corporation ("KCSI"), STILWELL
FINANCIAL, INC., a Delaware corporation ("Stilwell"),
and THE CHASE MANHATTAN BANK, a New York banking
corporation, as agent (in such capacity, the "Agent")
for the Lenders (as defined below) and as Swingline
Lender (in such capacity, the "Swingline Lender"),
relating to the Credit Agreement dated as of January
11, 2000 (the "Credit Agreement"), among KCSI, the
lenders from time to time party thereto (the
"Lenders"), The Chase Manhattan Bank, as Agent and as
Swingline Lender, Bank of America, N.A., as
Documentation Agent, and Fleet National Bank, as
Syndication Agent. Capitalized terms used and not
defined herein shall have the meanings assigned to
such terms in the Credit Agreement or in the Amended
Credit Agreement (as defined below), as applicable.
WHEREAS, KCSI, the Lenders, the Swingline Lender and the Agent
are parties to the Credit Agreement;
WHEREAS, KCSI and Stilwell have entered into a Contribution
Agreement dated as of July 7, 1999, which, effective as of July 1, 1999 as
between KCSI and Stilwell, provided for the transfer of certain capital stock,
investments and other assets and rights as provided therein (the "Contribution
Agreement");
WHEREAS, the parties hereto desire to provide that in
accordance with the Contribution Agreement and in order to complete the
Assumption in accordance with the Credit Agreement, KCSI's rights and
obligations under the Credit Agreement, including the Commitments thereunder and
any outstanding Loans, shall be assigned and delegated to, and assumed by,
Stilwell, all in accordance with the Credit Agreement;
WHEREAS, in the event that KCSI and Stilwell consummate the
Assumption, the parties hereto have agreed that this AAA Agreement shall be
executed by KCSI, Stilwell, the Swingline Lender and the Agent, on behalf of the
Lenders, whereupon KCSI shall be released from all obligations under the Credit
Agreement and the Credit Agreement shall be amended and restated as provided
herein (the Credit Agreement, after giving effect to the amendments provided for
in this AAA Agreement, the "Amended Credit Agreement") with Stilwell assuming
KCSI's obligations under the Credit Agreement and becoming the sole obligor
under the Amended Credit Agreement;
WHEREAS, the Lenders, the Swingline Lender and the Agent are
willing, subject to the terms and conditions of this AAA Agreement, to effect
certain amendments to the Credit Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements
contained in this AAA Agreement and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. Assignment, Delegation, Assumption and Release.
Subject to the conditions set forth in Section 4 hereof, (a) KCSI hereby assigns
and delegates to Stilwell all its rights and obligations under (i) the Credit
Agreement, including the Commitments thereunder and any outstanding Loans, and
(ii) the Fee Letter and the commitment letter executed in connection therewith
(such assigned and delegated obligations being collectively referred to herein
as the "Assigned Obligations"), (b) Stilwell hereby assumes and agrees to
perform the Assigned Obligations and (c) KCSI is hereby released from all
obligations under the Credit Agreement, the Fee Letter and the commitment letter
executed in connection therewith.
SECTION 2. Amendment. Subject to the conditions set forth in
Section 4 hereof:
-----------
(a) The Credit Agreement, including all schedules and exhibits
thereto, is hereby amended, subject to applicable provisions set forth
therein as to the survival of certain rights and obligations, into an
amended and restated credit agreement (the "Amended Credit Agreement")
identical in form and substance to the Credit Agreement except as
expressly modified below. Each reference in the Amended Credit
Agreement and in the exhibits thereto to "the Borrower" or to "Kansas
City Southern Industries, Inc." shall be deemed to be a reference to
Stilwell.
(b) The third paragraph of the preamble of the Amended Credit
Agreement is amended to read in its entirety as follows:
"The proceeds of borrowings hereunder are to
be used for general corporate purposes including,
without limitation, (a) to provide liquidity for a
commercial paper program and (b) to finance
nonhostile acquisitions."
(c) Section 1.01 of the Credit Agreement is hereby amended as
follows:
(i) The following new definitions shall be added to
Section 1.01 of the Credit Agreement in the appropriate
alphabetical order and shall read in their entirety as
follows:
"'Guarantee Agreement' shall mean a
Guarantee Agreement, substantially in the form of
Exhibit A to the AAA Agreement, made by the Borrower
in favor of the Agent for the benefit of the
Lenders."
"'Guarantor' shall mean Stilwell."
"'Subsidiary Borrowers' shall have the
meaning assigned to such term in Section 2.23."
(ii) The following definitions are hereby deleted:
"Consolidated Total Assets",
"Index Debt", and
"STB".
(iii) The following definitions are amended to read
in their entirety as follows:
"'Applicable Percentage' shall mean on any
date, with respect to (a) the Loans comprising any
Eurodollar Standby Borrowing, 0.35% per annum, (b)
the Loans comprising any ABR Borrowing, 0.0% per
annum, and (c) the Facility Fee, 0.15% per annum."
"'Loan Documents' shall mean this Agreement,
the AAA Agreement, the Guarantee Agreement, the Fee
Letter (and the commitment letter executed in
connection therewith) and any assignment document
pursuant to which the Borrower shall assign and
delegate its rights and obligations to a Subsidiary
Borrower in accordance with Section 2.23."
"'Obligations' shall mean all unpaid
principal of and accrued and unpaid interest on the
Loans, all accrued and unpaid Fees and all other
obligations of the Borrower and the Subsidiary
Borrowers to the Lenders or to any Lender or the
Agent arising under the Loan Documents."
"'Significant Subsidiary' shall mean, on any
date of determination, each of (a) Janus, (b) Berger,
(c) Berger LLC, a Subsidiary of Berger, and (d) any
Subsidiary the assets of which represent on such date
more than 10% of the consolidated total assets of the
Borrower and the Consolidated Subsidiaries determined
in accordance with GAAP."
(d) Section 2.22(b) of the Credit Agreement is amended by
deleting the reference therein to "account number 987-087-8577" and
replacing it with a reference to "account number 987-096-4961".
(e) A new Section 2.23 shall be added to the text and the
table of contents of the Credit Agreement and shall read in its
entirety as follows:
"SECTION 2.23. Delegation and Assumption of Loans.
The Borrower may from time to time assign and delegate its
rights and obligations in respect of all or a portion of any
Borrowing and its obligations under the Loan Documents to one
or more of its Subsidiaries that is a domestic Subsidiary
(each such Subsidiary, a "Subsidiary Borrower"); provided that
such Subsidiary Borrower will assume such obligations,
pursuant to an assignment that will result in the Borrower
being relieved of its obligations as a Borrower in respect of
the Borrowing or portion thereof so assigned (but not any
obligations in respect of such Borrowing that arise under
other Loan Documents in the Borrower's capacity as a
Guarantor) and the applicable Subsidiary Borrower succeeding
to all such obligations. The Lenders agree to permit such
assignments, subject to the prior satisfaction of the
following conditions in respect of each such assignment:
(a) each such assignment shall be made
pursuant to documentation reasonably satisfactory in
form and substance to the Agent;
(b) each such assignment shall be subject to
all the terms and conditions hereof that would be
applicable to the relevant type of Borrowing on the
date of such assignment by the Borrower; and
(c) the Guarantee Agreement shall have been
executed and delivered by Stilwell and shall be in
full force and effect; and
(d) the Agent may, in its sole discretion,
require, as an additional condition to any such
assignment, the delivery of such certificates and
legal opinions as to the assignment and the assignee
as it shall reasonably request including evidence of
resolutions duly adopted by the Board of Directors of
the applicable Subsidiary Borrower authorizing the
execution, delivery and performance of the applicable
Loan Documents and the borrowings thereunder, and
that such resolutions have not been modified,
rescinded or amended and are in full force and
effect."
(f) Section 3.02 of the Credit Agreement is amended to read
in its entirety as follows:
"SECTION 3.02. Authorization and Validity. Each of
the Borrower and each Subsidiary Borrower has the corporate
power and authority and legal right to execute and deliver the
Loan Documents to which it is a party and to perform its
obligations thereunder (collectively, the "Transactions"). The
Transactions have been duly authorized by proper corporate
proceedings, and the Loan Documents constitute legal, valid
and binding obligations of the Borrower and the Subsidiary
Borrowers enforceable against the Borrower and the Subsidiary
Borrowers in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting the enforcement of
creditors' rights generally."
(g) Section 3.03 of the Credit Agreement is amended by
deleting the parenthetical "(including, without limitation, the
Interstate Commerce Commission Termination Act of 1995 (the "Interstate
Commerce Act") and the regulations promulgated thereunder)" from the
fourth and fifth lines thereof.
(h) Section 3.04(a) of the Credit Agreement is amended by
deleting the parenthetical "(including, without limitation, the
Interstate Commerce Act and the Railway Labor Act)" from the end
thereof.
(i) Section 5.01 of the Credit Agreement is hereby amended to
read in its entirety as follows:
"SECTION 5.01. Conduct of Business; Maintenance of
Ownership of Subsidiaries and Maintenance of Properties. (a)
The Borrower will, and will cause each Significant Subsidiary
to, carry on and conduct its business in substantially the
same manner and in substantially the same fields of enterprise
as it is presently conducted and to do all things necessary to
remain duly incorporated, validly existing and in good
standing as a domestic corporation in its jurisdiction of
incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is
conducted.
(b) The Borrower will at all times own, directly or
indirectly, not less than 66-2/3% of the outstanding voting
securities of both Janus and Berger, in each case free and
clear of any Liens on such securities.
(c) The Borrower will, and will cause each
Significant Subsidiary to, do all things necessary to
maintain, preserve, protect and keep their properties material
to the conduct of their business in good repair, working order
and condition, and make all necessary and proper repairs,
renewals and replacements so that their businesses carried on
in connection therewith may be properly conducted at all
times.
(d) If the Spin-Off is completed, the Borrower will
cause the Spin-Off to be completed (i) in accordance with
applicable law, (ii) as disclosed in its Form 10 previously
delivered to the Agent and (iii) on terms and with results
consistent with the pro forma financial information previously
delivered to the Agent and the Lenders."
(j) Section 5.03(a) of the Credit Agreement is amended by
deleting the words ", the Interstate Commerce Act" from the
parenthetical contained therein.
(k) Section 5.04(g) of the Credit Agreement is amended by
deleting the words "and filed by any of them with the STB" from the end
thereof.
(l) Section 6.01(a) of the Credit Agreement is amended by (x)
deleting the words "railroad transportation or" from the second line of
clause 6.01(a)(ii); (y) deleting the word "and" at the end of clause
6.01(a)(iv); inserting new clauses 6.01(a)(v) and 6.01(a)(vi) that read
in their entirety as follows:
"(v) Indebtedness of the Subsidiary Borrowers under the Loan
Documents;
(vi) Indebtedness of Subsidiaries under the 1999 Credit
Agreement; and",
and (z) renumbering existing clause 6.01(a)(v) as clause 6.01(a)(vii).
(m) Section 6.03 of the Credit Agreement is amended by
deleting the last sentence thereof.
(n) Section 6.04 of the Credit Agreement is amended to read
as follows:
SECTION 6.04. Mergers, Consolidations and Transfers
of Assets. The Borrower will not, and will not permit any
Subsidiary to, merge into or consolidate with any other
person, or permit any other person to merge into or
consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions)
all or any substantial part of its assets (whether now owned
or hereafter acquired) or any capital stock of any Subsidiary,
except that (a) the Borrower and any Subsidiary may sell
assets in the ordinary course of business and (b) if at the
time thereof and immediately after giving effect thereto no
Event of Default or Default shall have occurred and be
continuing (i) any wholly owned Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any wholly owned Subsidiary may
merge into or consolidate with any other wholly owned
Subsidiary in a transaction in which the surviving entity is a
wholly owned Subsidiary and no person other than the Borrower
or a wholly owned Subsidiary receives any consideration, (iii)
the Borrower and the Subsidiaries may sell, transfer, lease or
dispose of assets out of the ordinary course of business
having depreciated book values (determined in accordance with
GAAP) that in the aggregate for all assets so disposed of
during the term of this Agreement (other than pursuant to the
following clause (iv)) do not exceed 15% of Consolidated Net
Worth on any date of determination to any other person and
(iv) the Borrower may sell the common stock of DST Systems for
cash to a third party buyer that is not an Affiliate of the
Borrower."
(o) Section 6.07 of the Credit Agreement is amended to read
in its entirety as follows:
"SECTION 6.07. Certain Financial Covenants. The
Borrower will not:
----------------------------
(a) permit at any date the ratio of
Consolidated Total Indebtedness on such date to
Consolidated EBITDA for the period of four quarters
most recently ended as of such date to exceed 2.0 to
1.0;
(b) permit for any period of four
consecutive fiscal quarters the ratio of Consolidated
EBITDA for such period to Consolidated Interest
Expense for such period to be less than 4.0 to 1.0;
or
(c) permit Consolidated Net Worth to be less
than $325,000,000 at any time."
(p) Article VII, clause (m) is amended to read as follows:
"(m) the Borrower shall cease to own beneficially at
least 66-2/3% of the outstanding voting securities of either
Berger or Janus."
(q) Section 9.01(a) of the Credit Agreement is hereby amended
to read as follows:
"(a) if to the Borrower, to it at 114 West 11th
Street, Kansas City, Missouri 64105-1808, Attention of the
Vice President - Finance (Telecopy No. (816) 983-1192), with a
copy to the Vice President and Secretary (Telecopy No. (816)
983-1192);"
(r) Subsection 9.08(b) of the Credit Agreement is hereby
amended by (i) deleting the word "or" at the end of clause 9.08(b)(ii)
and (ii) inserting a new clause 9.08(b)(iv) immediately following
clause 9.08(b)(iii) that reads in its entiretly as follows:
"or (iv) release the Guarantor from its Guarantee
under the Guarantee Agreement, or limit its liability in
respect of such Guarantee, in any case without the prior
written consent of each Lender".
(s) Each reference to "Kansas City Southern Industries, Inc."
in the Exhibits to the Credit Agreement shall be changed to a reference
to "Stilwell Financial, Inc." in the Amended Credit Agreement.
(t) The table of contents of the Credit Agreement is amended
as follows:
(i) Adding the following Section reference:
"Section 2.23 Delegation and Assumption of
Borrowings..."
(ii) Revising the following Section reference:
"Section 5.01 Conduct of Business;
Maintenance of Ownership of Subsidiaries and
Maintenance of Properties..."
(u) Each of Schedule 3.08, 3.09, 3.17, 6.01, 6.02 and 6.04 to
the Credit Agreement is hereby replaced by Schedule 3.08, 3.09, 3.17,
6.01, 6.02 and 6.04 attached hereto.
SECTION 3. Representations and Warranties. Each of KCSI and
Stilwell represents and warrants to each of the Lenders that:
--------------------------------
(a) This AAA Agreement has been duly authorized, and executed
and delivered by it and constitutes its legal, valid and binding
obligation enforceable in accordance with its terms.
(b) The representations and warranties set forth in Article
III of each of the Credit Agreement and the Amended Credit Agreement,
are true and correct in all material respects on the date hereof with
the same effect as if made on the date hereof, except to the extent
such representations and warranties expressly relate to an earlier
date.
(c) Before and after giving effect to this AAA Agreement, no
Default or Event of Default has occurred and is continuing under the
Credit Agreement or the Amended Credit Agreement, as the case may be.
SECTION 4. Conditions to Effectiveness. This AAA Agreement
shall become effective as of the date (the "Effective Date") first above written
upon the satisfaction of the following conditions precedent (capitalized terms
used in this Section 4 shall have the meanings assigned thereto in the Amended
Credit Agreement):
(a) The Agent shall have received counterparts of this AAA
Agreement which, when taken together, bear the signatures of all the
parties hereto.
(b) The Agent shall have received, on behalf of itself and the
Lenders, a favorable written opinion of counsel for the Borrower,
substantially to the effect set forth in Exhibit D of the Credit
Agreement (but referring to this AAA Agreement and the Credit Agreement
as amended hereby and to Stilwell as the Borrower thereunder), (i)
dated the date hereof, (ii) addressed to the Agent and the Lenders, and
(iii) covering such other matters relating to this AAA Agreement, the
Loan Documents and the Transactions as the Agent shall reasonably
request, and each of KCSI and Stilwell hereby instructs such counsel to
deliver such opinion.
(c) All legal matters incident to this AAA Agreement the
borrowings and extensions of credit hereunder and the other Loan
Documents shall be reasonably satisfactory to the Lenders and to
Cravath, Swaine & Moore, counsel for the Agent.
(d) The Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments
thereto, of Stilwell, certified as of a recent date by the Secretary of
State of the State of Delaware, and a certificate as to the good
standing of Stilwell as of a recent date from such Secretary of State;
(ii) a certificate of the Secretary or an Assistant Secretary of
Stilwell dated the date hereof and certifying (A) that attached thereto
is a true and complete copy of the by-laws of Stilwell as in effect on
the date hereof and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is
a true and complete copy of resolutions duly adopted by the Board of
Directors of Stilwell authorizing the execution, delivery and
performance of this Agreement and the Loan Documents and the borrowings
hereunder and thereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C)
that the certificate or articles of incorporation of Stilwell have not
been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above,
and (D) as to the incumbency and specimen signature of each officer
executing any Loan Document or any other document delivered in
connection herewith on behalf of Stilwell (iii) a certificate of
another officer as to the incumbency and specimen signature of the
Secretary or Assistant Secretary executing the certificate pursuant to
(ii) above; and (iv) such other documents as the Lenders or Cravath,
Swaine & Moore, counsel for the Agent, may reasonably request.
(e) There shall be no litigation, actual or threatened, that
in the reasonable judgment of the Agent would (a) be likely to affect
materially and adversely the business, assets, condition (financial or
otherwise) or prospects of Stilwell or the ability of Stilwell to
perform its obligations under the Loan Documents or (b) be materially
inconsistent with the assumptions underlying the pro forma financial
information and projections previously delivered to the Agent and the
Lenders pursuant to Section 3.05(b).
(f) After giving effect to the Transfer Transaction and this
AAA Agreement, the representations and warranties set forth in the
Amended Credit Agreement shall be true and correct in all material
respects, no Default or Event of Default shall have occurred and be
continuing under either the Credit Agreement or the Amended Credit
Agreement and Stilwell and its subsidiaries shall be in compliance on a
pro forma basis with Section 6.07 of the Amended Credit Agreement.
(g) The Agent shall have received a certificate, dated the
date of this AAA Agreement and signed by a Financial Officer of KCSI,
with respect to the Credit Agreement, and Stilwell, with respect to the
Amended Credit Agreement, confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c) of Section 4.01 of the
applicable agreement.
(h) The Agent shall have received all Fees and other amounts
due and payable on or prior to the date hereof, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by KCSI or Stilwell hereunder or
under any other Loan Document.
(i) On the date hereof (i) the Guarantee Agreement shall have
been duly executed and delivered to the Agent by the Guarantor and
shall be in full force and effect and (ii) Stilwell shall have executed
and delivered a promissory note in favor of any Lender that previously
had obtained a promissory note from KCSI pursuant to Section 2.07 of
the Credit Agreement and such promissory notes shall be in full force
and effect.
(j) The Transfer Transaction and the Assumption shall have
been completed in accordance with applicable law and on terms and with
results consistent with the pro forma financial information and
projections previously delivered to the Agent and the Lenders.
(k) Immediately after giving effect to the Assumption and the
Spin-Off, (i) Stilwell and its subsidiaries shall have outstanding no
indebtedness or preferred stock other than (v) Loans outstanding under
the Credit Agreement, (w) Loans outstanding under the 1999 Credit
Agreement, (x) other indebtedness in an aggregate amount outstanding at
any time no greater than $10,000,000 (or its equivalent in any other
currency), (y) preferred stock of subsidiaries of Stilwell owned by
Stilwell and (z) other indebtedness and preferred stock reasonably
satisfactory to the Lenders and (ii) Stilwell shall not nor shall any
of its subsidiaries, under the terms of any agreements entered into
with KCSI or any other Person, be responsible for any direct or
contingent liabilities other than (y) those historically associated
with the businesses and assets transferred to Stilwell in the Transfer
Transaction and (z) obligations under the Amended Credit Agreement and
under the 1999 Credit Agreement.
(l) All governmental and third party approvals required in
connection with the Transfer Transaction and this AAA Agreement and the
transactions contemplated hereby and thereby shall have been obtained
on terms reasonably satisfactory to the Agent, all applicable appeal
periods in connection with any such governmental approvals shall have
expired and there shall be no governmental or judicial action, actual
or threatened, that could reasonably be expected to restrain, prevent
or impose burdensome conditions on the Transfer Transaction or this AAA
Agreement or the transactions contemplated hereby or thereby.
(m) The Lenders shall have received a consolidated balance
sheet of Stilwell as of the last day of the fiscal quarter most
recently ended prior to the execution of this AAA Agreement, giving
effect to the Contribution Agreement as if it had occurred on such
date, which shall not be materially inconsistent with the pro forma
financial information and projections previously delivered to the Agent
and the Lenders.
SECTION 5. APPLICABLE LAW. THIS AAA AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
----------------
SECTION 6. Credit Agreement. Until the occurrence of the
Effective Date as provided in Section 4 hereof, the Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof and
the rights and obligations of the parties thereto shall not be affected hereby,
and all Fees and interest accruing under the Credit Agreement shall continue to
accrue at the rates provided for therein.
SECTION 7. Amended Credit Agreement; Borrower. Any reference
in the Amended Credit Agreement, or in any documents or instruments required
thereunder or annexes or schedules thereto, referring to the Credit Agreement,
shall be deemed to refer to the Amended Credit Agreement. As used in the Amended
Credit Agreement, the terms "Agreement", "this Agreement", "herein",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, mean the Amended Credit Agreement. Except as
expressly modified by this AAA Agreement, the terms and provisions of the Credit
Agreement are hereby confirmed and ratified in all respects and shall remain in
full force and effect as the terms and provisions of the Amended Credit
Agreement. Each reference in the Amended Credit Agreement to "the Borrower"
shall mean Stilwell Financial, Inc. and not Kansas City Southern Industries,
Inc.
SECTION 8. Counterparts. This AAA Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contracts. Delivery of an
executed counterpart of a signature page of this AAA Agreement by facsimile
transmission shall be as effective of a manually executed counterpart of this
AAA Agreement.
SECTION 9. Expenses. The Borrower agrees to reimburse the
Agent for their out-of-pocket expenses in connection with this AAA Agreement
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this AAA
Agreement to be duly executed by their respective authorized officers as of the
day and year first written above.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
by
/s/ Richard P. Bruening
Name: Richard P. Bruening
Title: Vice President, General Counsel and
Secretary
STILWELL FINANCIAL, INC.,
by
/s/ Anthony P. McCarthy
Name: Anthony P. McCarthy
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK, individually, as
Swingline Lender and as Agent,
by
/s/ Laurie B. Perper
Name: Laurie B. Perper
Title: Vice President
<PAGE>
EXHIBIT A
to the Assignment, Assumption
and Amendment Agreement
[Form of]
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT (this "Agreement") dated as of
January 11, 2000, between STILWELL FINANCIAL, INC., a Delaware
corporation (the "Borrower" or the "Guarantor"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, as
administrative agent (the "Agent") for the Lenders (as defined
in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of January 11,
2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among KANSAS CITY SOUTHERN INDUSTRIES, INC. ("KCSI"), the
Lenders from time to time party thereto, The Chase Manhattan Bank, as swingline
lender and as administrative agent for the Lenders, Bank of America, N.A., as
Documentation Agent, and Fleet National Bank, as Syndication Agent, and (b) the
Assignment, Assumption and Amendment Agreement dated the date hereof among KCSI,
the Guarantor and the Agent (as amended, supplemented or otherwise modified from
time to time, the "AAA Agreement"). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the Credit
Agreement, as amended by the AAA Agreement (the "Amended Credit Agreement").
The Lenders have agreed to make Loans to the Borrower pursuant to, and
upon the terms and subject to the conditions specified in, the Amended Credit
Agreement.
Pursuant to Section 2.23 of the Amended Credit Agreement, the Borrower
may from time to time assign and delegate its rights and obligations in respect
of all or a portion of any Borrowing to one or more Subsidiary Borrowers that
will assume such obligations pursuant to an assignment that will result in the
Borrower being relieved of its obligations as a Borrower in respect of the
Borrowing or portion thereof so assigned (but not any obligations in respect of
such Borrowing that arise under other Loan Documents in the Borrower's capacity
as a Guarantor hereunder) and the applicable Subsidiary Borrower succeeding to
all such obligations.
It is a condition precedent to the effectiveness of the AAA Agreement
that the Guarantor shall have executed and delivered this Agreement to the Agent
for the ratable benefit of the Lenders.
In consideration of the premises and to induce the Agent, on behalf of
the Lenders, to enter into this Agreement and permit the assignment and
delegation of Borrowings to Subsidiary Borrowers, as provided in Section 2.23 of
the Amended Credit Agreement, the Guarantor hereby agrees with the Agent, for
the ratable benefit of the Lenders, as follows:
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. The Guarantor unconditionally guarantees, as a
primary obligor and not merely as a surety, (a) the due and punctual payment of
the Obligations and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Loan Parties under or pursuant to
the Amended Credit Agreement and the other Loan Documents (all the monetary and
other obligations referred to in the preceding clauses (a) and (b) being
collectively called the "Guaranteed Obligations"). The Guarantor further agrees
that the Guaranteed Obligations may be extended, renewed or modified, in whole
or in part, without notice to or further assent from it, and that it will remain
bound upon its guarantee notwithstanding any extension, renewal or modification
of any Guaranteed Obligation.
SECTION 2. Guaranteed Obligations Not Waived. To the fullest extent
permitted by applicable law, the Guarantor waives presentment to, demand of
payment from and protest to any Subsidiary Borrower or the Guarantor of any of
the Guaranteed Obligations, and also waives notice of acceptance of its
guarantee and notice of protest for nonpayment. To the fullest extent permitted
by applicable law, the obligations of the Guarantor hereunder shall not be
affected by (a) the failure of the Agent or any Lender to assert any claim or
demand or to enforce or exercise any right or remedy against any Subsidiary
Borrower or the Guarantor, under the provisions of the Amended Credit Agreement,
any other Loan Document or otherwise or (b) any rescission, waiver, amendment or
modification of, or any release from any of the terms or provisions of this
Agreement, any other Loan Document, any Guarantee or any other agreement.
SECTION 3. Guarantee of Payment. The Guarantor further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Agent or any Lender to
any balance of any deposit account or credit on the books of the Agent or any
Lender in favor of any Subsidiary Borrower or any other person.
SECTION 4. No Discharge or Diminishment of Guarantee. The obligations
of the Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Guaranteed Obligations), including any claim of waiver,
release, surrender, alteration or compromise of any of the Guaranteed
Obligations, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of the Guarantor hereunder
shall not be discharged or impaired or otherwise affected by the failure of the
Agent or any Lender to assert any claim or demand or to enforce any remedy under
the Amended Credit Agreement, any other Loan Document or any other agreement, by
any waiver or modification of any provision of any thereof, by any default,
failure or delay, wilful or otherwise, in the performance of the Guaranteed
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of the Guarantor or that would otherwise operate as
a discharge of the Guarantor as a matter of law or equity (other than the
indefeasible payment in full in cash of all the Guaranteed Obligations).
SECTION 5. Defenses of Subsidiary Borrower Waived. To the fullest
extent permitted by applicable law, the Guarantor waives any defense based on or
arising out of any defense of any Subsidiary Borrower or the unenforceability of
the Guaranteed Obligations or any part thereof from any cause, or the cessation
from any cause of the liability of any Subsidiary Borrower, other than the final
and indefeasible payment in full in cash of the Guaranteed Obligations. The
Agent and any Lender may, at their election, compromise or adjust any part of
the Guaranteed Obligations, make any other accommodation with any Subsidiary
Borrower or exercise any other right or remedy available to them against any
Subsidiary Borrower, without affecting or impairing in any way the liability of
the Guarantor hereunder except to the extent the Guaranteed Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
the Guarantor waives any defense arising out of any such election even though
such election operates, pursuant to applicable law, to impair or to extinguish
any right of reimbursement or subrogation or other right or remedy of the
Guarantor against any Subsidiary Borrower.
SECTION 6. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Agent or any Lender
has at law or in equity against any Guarantor by virtue hereof, upon the failure
of any Subsidiary Borrower to pay any Guaranteed Obligation when and as the same
shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, the Guarantor hereby promises to and will forthwith
pay, or cause to be paid, to the Agent or such Lender as designated thereby in
cash the amount of such unpaid Guaranteed Obligations. Upon payment by the
Guarantor of any sums to the Agent or any Lender as provided above, all rights
of the Guarantor against any Subsidiary Borrower arising as a result thereof by
way of right of subrogation, contribution, reimbursement, indemnity or otherwise
shall in all respects be subordinate and junior in right of payment to the prior
indefeasible payment in full in cash of all the Guaranteed Obligations. In
addition, any indebtedness of any Subsidiary Borrower now or hereafter held by
the Guarantor is hereby subordinated in right of payment to the prior payment in
full of the Guaranteed Obligations. If any amount shall erroneously be paid to
the Guarantor on account of (i) such subrogation, contribution, reimbursement,
indemnity or similar right or (ii) any such indebtedness of any Subsidiary
Borrower, such amount shall be held in trust for the benefit of the Lenders and
shall forthwith be paid to the Agent to be credited against the payment of the
Guaranteed Obligations, whether matured or unmatured, in accordance with the
terms of the Loan Documents.
SECTION 7. Information. The Guarantor assumes all responsibility for
being and keeping itself informed of each of the Subsidiary Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks that the Guarantor assumes and incurs hereunder, and agrees that none of
the Agent or the Lenders will have any duty to advise the Guarantor of
information known to it or any of them regarding such circumstances or risks.
SECTION 8. Representations and Warranties. The Guarantor represents and
warrants that all representations and warranties contained in the Amended Credit
Agreement are true and correct with the same effect as if made on and as of the
date hereof, except to the extent that such representations and warranties
expressly relate to an earlier date.
SECTION 9. Termination. The Guarantees made hereunder (a) shall
terminate when all the Guaranteed Obligations have been indefeasibly paid in
full and the Lenders have no further commitments to lend under the Amended
Credit Agreement and (b) shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Guaranteed
Obligation is rescinded or must otherwise be restored by any Lender or the
Guarantor upon the bankruptcy or reorganization of any Subsidiary Borrower, the
Guarantor or otherwise.
SECTION 10. Binding Effect; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Guarantor that are contained in this Agreement
shall bind and inure to the benefit of each party hereto and their respective
successors and assigns. This Agreement shall become effective when a counterpart
hereof executed on behalf of the Guarantor shall have been delivered to the
Agent, and a counterpart hereof shall have been executed on behalf of the Agent,
and thereafter shall be binding upon the Guarantor and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Guarantor, the Agent and the Lenders, and their respective successors and
assigns, except that the Guarantor shall not have the right to assign its rights
or obligations hereunder or any interest herein (and any such attempted
assignment shall be void).
SECTION 11. Waivers; Amendment. (a) No failure or delay of the Agent in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agent and the Lenders hereunder
and under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or consent to any departure by the Guarantor therefrom shall in
any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Guarantor in any case shall entitle the Guarantor to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Guarantor with respect to which such waiver, amendment or modification
relates and the Agent, with the prior written consent of the Required Lenders
(except as otherwise provided in the Amended Credit Agreement).
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
---------------
SECTION 13. Notices. Except as set forth in the sentence immediately
following, all communications and notices hereunder shall be in writing and
given as provided in Section 9.01 of the Amended Credit Agreement.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Agent and the Lenders and shall survive the making
by the Lenders of the Loans regardless of any investigation made by the Agent,
the Lenders or on their behalf, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any other fee or
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or the Revolving Credit Exposure does not equal zero and as long as
the Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 15. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 10. Delivery of an executed signature page to this Agreement
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 16. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Amended Credit Agreement shall be applicable to
this Agreement.
SECTION 17. Jurisdiction; Consent to Service of Process. (a) The
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees 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. Nothing in this Agreement shall affect any right that the Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or the other Loan Documents against the Guarantor or its
properties in the courts of any jurisdiction.
(b) The Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 13. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 18.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
STILWELL FINANCIAL, INC.,
by
---------------------------
Name:
Title:
<PAGE>
18
THE CHASE MANHATTAN BANK, as Agent,
by
----------------------------
Name:
Title:
<PAGE>
STILWELL FINANCIAL, INC.
SCHEDULE 3.08 TO
AMENDED AND RESTATED 364-DAY COMPETITIVE
ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT
SUBSIDIARIES AND JOINT VENTURES
<TABLE>
<S> <C> <C>
Financial Asset Percentage of State or Other Jurisdiction of
Management Subsidiaries Ownership Incorporation or Organization
Berger LLC (1) 80 Delaware
Berger Distributors, Inc. (2) 100 Delaware
DST Systems, Inc. (1) 32 Delaware
Fillmore Agency, Inc. (3) 100 Colorado
Fountain Investments, Inc. (3) 100 Missouri
Fountain Investments UK (3) 100 United Kingdom
Janus Capital Corporation (3) 82 Colorado
Janus Capital International Ltd. (4) 100 Colorado
Janus Distributors, Inc. (4) 100 Colorado
Janus Service Corp. (4) 100 Colorado
Joseph Nelson Limited (5) 100 United Kingdom
Nelson Investment Planning Limited (5) 100 United Kingdom
Nelson Investment Management Limited (5) 100 United Kingdom
Nelson Money Managers plc (6) 80 United Kingdom
PVI, Inc. (3) 100 Delaware
FAM UK Limited (3) 100 United Kingdom
Stilwell Management, Inc. (3) 100 Delaware
Taproot Limited (5) 100 United Kingdom
Notes to Schedule 3.08:
(1) Subsidiary of Stilwel Management, Inc.
(2) Subsidiary of Berger LLC
(3) Subsidiary of Stilwell Financial, Inc.
(4) Subsidiary of Janus Capital Corporation
(5) Subsidiary of Nelson Money Managers plc
(6) Subsidiary of FAM UK Limited
</TABLE>
<PAGE>
STILWELL FINANCIAL, INC.
SCHEDULE 3.09 TO
AMENDED AND RESTATED 364-DAY COMPETITIVE
ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT
LITIGATION: CONTINGENT OBLIGATIONS
None
<PAGE>
STILWELL FINANCIAL, INC.
SCHEDULE 3.17 TO
AMENDED AN D RESTATED 364-DAY COMPETITIVE
ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT
DIVIDEND RESTRICTIONS
None
<PAGE>
- - 2 -
STILWELL FINANCIAL, INC.
SCHEDULES 6.01 and 6.02 TO
AMENDED AND RESTATED 364-DAY COMPETITIVE
ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT
INDEBTEDNESS SECURED BY LIENS
None
"KANSAS CITY SOUTHERN INDUSTRIES, INC."
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES-
<TABLE>
Years Ended December 31,
=====================================================================
1999 1998 1997 1996 1995
====== ====== ====== ======= ========
<S> <C> <C> <C> <C> <C>
Earnings:
"Pretax Income (Loss), excluding equity in "
earnings of unconsolidated affilites $551.8 $331.5 $64.0 $167.2 $484.5
Interest Expense on Indebtedness 63.3 66.1 63.7 59.6 77.0
Portion of Rents Representative
of an Appropriate Interest Factor 23.4 23.5 21.3 13.9 17.2
Equity in Undistributed Earnings of
50% Owned Affiliates 5.6 (2.3) 2.8 0.8 5.7
Distributed Earnings of Less Than 50%
Owned Affiliates - - - 3.7 0.9
Fixed Charges of 50% Owned Affiliates 5.1 6.0 6.0 1.3 1.3
------ ------ ------ ------ ------
Income (Loss) as Adjusted $649.2 $424.8 $157.8 $246.5 $586.6
------ ------ ------ ------ ------
Fixed Charges:
Interest Expense on Indebtedness $63.3 $66.1 $63.7 $59.6 $77.0
Capitalized Interest - - 7.4 - -
Portion of Rents Representative
of an Appropriate Interest Factor 23.4 23.5 21.3 13.9 17.2
Fixed Charges of 50% Owned Affiliates 5.1 6.0 6.0 1.3 1.3
------ ------ ------ ------ ------
Total Fixed Charges $91.8 $95.6 $98.4 $74.8 $95.5
------ ------ ------ ------ ------
Ratio of Earnings to Fixed Charges 7.07 4.44 (a) 1.60 (b) 3.30 6.14
(a) Includes one-time non-cash charge of $36.0 million ($23.2 million after-
tax) resulting from the merger of a wholly owned subsidiary of DST with
USCS International, Inc. Excluding this one-time item, the ratio for 1998
is 4.75."
"(b) Includes one-time restructuring, asset impairment and other charges.
Excluding these one-time items, the ratio for 1997 is 3.60."
Note: Exclude amortization expense on intangible debt discount due to
immateriality
</TABLE>
Page 1
Subsidiaries of the Company
Kansas City Southern Industries, Inc., a Delaware Corporation, has no parent.
All subsidiaries of the Company listed below are included in the consolidated
financial statements unless otherwise indicated
<TABLE>
<S> <C> <C>
State or
Percentage other Jurisdiction
of of Incorporation
Ownership or Organization
Animal Resources, Inc. *(2) 49% Missouri
BBOI Worldwide LLC * (6) 50 Delaware
Berger LLC (20) 97 Nevada
Berger/Bay Isle LLC * (6) 50 Delaware
Berger Distributors LLC (20) 100 Delaware
Canama Transportation (14) 100 Cayman
Islands
Caymex Transportation, Inc. (1) 100 Delaware
DST Systems, Inc. * 32 Missouri
FAM UK Limited (16) 100 United
Kingdom
Fillmore Agency, Inc. (5) 100 Colorado
Fountain Investments, Inc. 100 Missouri
Fountain Investments UK (16) 100 United
Kingdom
Gateway Eastern Railway Company (12) 100 Illinois
Gateway Western Railway Company (7) 100 Illinois
Global Terminaling Services, Inc.
(formerly Pabtex, Inc) (3) 100 Delaware
Grupo Transportacion Ferroviaria
Mexicana, S.A. de C.V. *(13) 37 Mexico
Janus Capital Corporation 82 Colorado
Janus Capital International Ltd (5) 100 Colorado
Janus Capital International (UK) Limited (23) 100 United
Kingdom
Janus Distributors, Inc. (5) 100 Colorado
Janus Service Corp. (5) 100 Colorado
Joplin Southern Corporation (11) 47 Missouri
Joplin Union Depot * 33 Missouri
Joseph Nelson Limited (18) 100 United
Kingdom
Kansas City Southern Lines, Inc. 100 Delaware
KC Terminal Railway (22) 8 Missouri
KCS Transportation Company (1) 100 Delaware
Martec Pharmaceutical, Inc. *(2) 49 Delaware
Mexrail, Inc. *(22) 49 Delaware
Mid-South Microwave, Inc. (1) 100 Delaware
NAFTA Rail, S.A. de C.V. (14) 100 Mexico
Nelson Investment Planning Limited (19) 100 United
Kingdom
Nelson Investment Management Limited (18) 100 United
Kingdom
Nelson Money Managers plc (17) 80 United
Kingdom
North American Freight Transportation
Alliance Rail Corporation (21) 100 Delaware
Panama Canal Railway Company (15) 50 Cayman
Islands
Port Arthur Bulk Marine Terminal Co. (9) 80 Partnership
PVI, Inc. 100 Delaware
Rice-Carden Corporation (1) 100 Missouri
Southern Capital Corporation, LLC *(22) 50 Delaware
<PAGE>
Page 2
State or
Percentage other Jurisdiction
of of Incorporation
Ownership or Organization
Southern Development Company (1) 100 Missouri
Southern Industrial Services, Inc. (21) 100 Delaware
Stilwell Financial, Inc. (formerly FAM
Holdings, Inc.) 100 Delaware
Stilwell Management, Inc. (formerly Berger
Associates, Inc.) 100 Delaware
Taproot Limited (18) 100 United
Kingdom
The Kansas City Southern Railway Company (21) 100 Missouri
The Texas Mexican Railway Company *(8) 100 Texas
TFM, S.A. de C.V. *(10) 80 Mexico
TransFin Insurance, Ltd. (21) 100 Vermont
Trans-Serve, Inc. (3) (4) 100 Delaware
Veals, Inc. (21) 100 Delaware
Wyandotte Garage Corporation (21) 80 Missouri
* Unconsolidated Affiliate, Accounted for Using the Equity Method
(1) Subsidiary of The Kansas City Southern Railway Company
(2) Subsidiary of PVI, Inc.
(3) Subsidiary of Southern Industrial Services, Inc.
(4) Conducting business as Superior Tie & Timber
(5) Subsidiary of Janus Capital Corporation
(6) Unconsolidated Affiliate of Stilwell Management, Inc.
(7) Subsidiary of KCS Transportation Company
(8) Subsidiary of Mexrail, Inc.
(9) Subsidiary of Rice-Carden Corporation
(10) Subsidiary of Grupo TFM
(11) Subsidiary of Southern Development Company
(12) Subsidiary of Gateway Western Railway Company
(13) Subsidiary of NAFTA Rail, S.A. de C.V.
(14) Subsidiary of Caymex Transportation, Inc.
(15) Subsidiary of Canama Transportation
(16) Subsidiary of Stilwell Financial, Inc.
(17) Subsidiary of FAM UK Limited
(18) Subsidiary of Nelson Money Managers plc
(19) Subsidiary of Joseph Nelson Limited
(20) Subsidiary of Stilwell Management, Inc.
(21) Subsidiary of Kansas City Southern Lines, Inc.
(22) Unconsolidated affiliate of The Kansas City Southern Railway Company
(23) Subsidiary of Janus Capital International Ltd
Subsidiaries and Affiliates not shown, if taken in the aggregate, would not
constitute a significant subsidiary of the Company. Subsidiaries and affiliates
of DST Systems, Inc. are not shown.
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-50517, 33-50519, 33-64511 and 333-91993) and on
Form S-3 (No. 33-69648) of Kansas City Southern Industries, Inc. of our report
dated March 16, 2000 relating to the financial statements, which appears in this
Form 10-K. We also consent to the incorporation by reference in the Registration
Statements referred to above of our report dated February 29, 2000 relating to
the financial statements of DST Systems, Inc., which appears in the DST Systems,
Inc. Annual Report on Form 10-K for the year ended December 31, 1999. The
financial statements of DST Systems, Inc. for the year ended December 31, 1999
together with our report thereon have been incorporated by reference in this
Form 10-K.
/s/ PricewaterhouseCoopers
Kansas City, Missouri
April 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-Q, CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND
STATEMENT OF INCOME OF KANSAS CITY SOUTHERN INDUSTRIES, INC., COMMISSION FILE
NUMBER 1-4717, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 336,100,000
<SECURITIES> 23,900,000
<RECEIVABLES> 287,900,000
<ALLOWANCES> 0
<INVENTORY> 40,500,000
<CURRENT-ASSETS> 733,500,000
<PP&E> 1,971,100,000
<DEPRECIATION> 623,300,000
<TOTAL-ASSETS> 3,088,900,000
<CURRENT-LIABILITIES> 416,700,000
<BONDS> 750,000,000
0
6,100,000
<COMMON> 1,100,000
<OTHER-SE> 1,275,900,000
<TOTAL-LIABILITY-AND-EQUITY> 3,088,900,000
<SALES> 0
<TOTAL-REVENUES> 1,813,700,000
<CGS> 0
<TOTAL-COSTS> 1,231,300,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,300,000
<INCOME-PRETAX> 603,700,000
<INCOME-TAX> 223,100,000
<INCOME-CONTINUING> 323,300,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323,300,000
<EPS-BASIC> 2.93
<EPS-DILUTED> 2.79
</TABLE>
