0000054480-95-000011.txt : 19950811 0000054480-95-000011.hdr.sgml : 19950811 ACCESSION NUMBER: 0000054480-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KANSAS CITY SOUTHERN INDUSTRIES INC CENTRAL INDEX KEY: 0000054480 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 440663509 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04717 FILM NUMBER: 95560282 BUSINESS ADDRESS: STREET 1: 114 W 11TH ST CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8165560303 MAIL ADDRESS: STREET 1: 114 WEST 11TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR [ ] 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 registrant as specified in its charter) Delaware 44-0663509 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 114 West 11th Street, Kansas City, Missouri 64105 (Address of principal executive offices) (Zip Code) (816) 556-0303 (Registrant's telephone number, including area code) No Changes (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1995 Common Stock, $.01 per share par value 42,796,066 Shares KANSAS CITY SOUTHERN INDUSTRIES, INC. FORM 10-Q JUNE 30, 1995 INDEX Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Introductory Comments 1 Consolidated Condensed Balance Sheets - June 30, 1995 and December 31, 1994 2 Consolidated Condensed Statements of Income - Three and Six Months Ended June 30, 1995 and 1994 3 Computation of Primary Earnings per Common Share 3 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1995 and 1994 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION Item 1.Legal Proceedings 18 Item 6.Exhibits and Reports on Form 8-K 18 SIGNATURES 19 KANSAS CITY SOUTHERN INDUSTRIES, INC. FORM 10-Q JUNE 30, 1995 PART I - FINANCIAL INFORMATION Item 1. Financial Statements INTRODUCTORY COMMENTS The Consolidated Condensed Financial Statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These Consolidated Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. The Registrant has announced certain transactions, which, if completed, would significantly change the composition of the Registrant as it is currently structured. Accordingly, the Consolidated Condensed Financial Statements should also be read in conjunction with Item 2.; Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Announcements - included in this Form 10-Q. KANSAS CITY SOUTHERN INDUSTRIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Millions) (Unaudited)
June 30, December 31, 1995 1994 ASSETS Current Assets: Cash and equivalents $ 12.0 $ 12.7 Accounts receivable, net 241.0 232.3 Inventories 49.0 46.6 Other current assets 95.4 88.5 Total current assets 397.4 380.1 Investments (held for operating purposes) 275.6 214.6 Properties (net of $735.8 and $686.0 accumulated depreciation and amortization, respectively) 1,459.0 1,415.3 Intangibles and Other Assets 294.9 220.8 Total assets $ 2,426.9 $ 2,230.8 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Debt due within one year $ 102.8 $ 56.4 Accounts and wages payable 93.3 140.8 Other accrued and current liabilities 182.5 142.4 Total current liabilities 378.6 339.6 Other Liabilities: Long-term debt 1,031.7 928.8 Deferred income taxes 242.3 204.2 Other deferred credits and liabilities 94.1 80.5 Total other liabilities 1,368.1 1,213.5 Minority Interest 7.4 10.5 Stockholders' Equity: Preferred stock 7.1 7.1 Common stock .4 .4 Capital surplus 311.8 338.0 Retained earnings 559.7 530.1 Shares held in trust (200.0) (200.0) ESOP deferred compensation (6.2) (8.4) Total stockholders' equity 672.8 667.2 Total liabilities and stockholders' equity $ 2,426.9 $ 2,230.8
See accompanying notes to consolidated condensed financial statements. KANSAS CITY SOUTHERN INDUSTRIES, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Dollars in Millions, Except per Share Data) (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues $ 308.7 $ 267.2 $ 610.9 $ 532.3 Costs and expenses 239.1 181.2 452.8 361.9 Depreciation and amortization 36.6 27.4 69.5 55.6 Operating Income 33.0 58.6 88.6 114.8 Equity in net earnings of unconsolidated affiliates 5.0 5.1 9.0 11.1 Gain on sale of equity investment -- -- 39.7 -- Interest expense (19.3) (9.5) (38.8) (24.5) Pretax income 18.7 54.2 98.5 101.4 Provision for taxes on income 7.6 20.1 58.3 37.7 Income before minority interest 11.1 34.1 40.2 63.7 Minority interest 2.6 2.3 4.3 4.3 Net Income 8.5 31.8 35.9 59.4 Less-dividends on preferred stock .1 .1 .1 .1 Net Income Applicable to Common Stockholders $ 8.4 $ 31.7 $ 35.8 $ 59.3 Computation of Primary Earnings per Common Share Average Primary Common Shares Outstanding(in thousands)44,417 45,196 44,703 45,129 Primary Earnings per Common Share: $ .19 $ .70 $ .80 $ 1.31 Cash Dividends Paid: Per Common share $.071/2 $ .071/2 $ .15 $ .15 Per Preferred share $ .25 $ .25 $ .50 $ .50
See accompanying notes to consolidated condensed financial statements. KANSAS CITY SOUTHERN INDUSTRIES, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Millions) (Unaudited)
Six Months Ended June 30, 1995 1994 CASH FLOWS PROVIDED BY (USED FOR): OPERATING ACTIVITIES: Net income $ 35.9 $ 59.4 Adjustments to net income: Depreciation and amortization 69.5 55.6 Deferred income taxes 41.5 19.6 Equity in undistributed earnings (8.2) (10.8) Gain on sale of equity investment (39.7) -- Changes in working capital items: Accounts receivable (3.8) (37.8) Inventories (2.3) .7 Other current assets (9.0) (1.0) Accounts payable (48.8) 15.9 Other accrued and current liabilities 42.1 11.7 Other, net 9.9 (3.6) Net 87.1 109.7 INVESTING ACTIVITIES: Property acquisitions (93.8) (155.6) Proceeds from disposal of property 5.8 7.7 Purchase of companies, net of cash acquired (49.7) -- Investment and loans with affiliates (43.3) (24.5) Proceeds from disposal of investments -- .2 Other, net (2.8) 2.1 Net (183.8) (170.1) FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 213.8 131.8 Repayment of long-term debt (68.9) (45.6) Proceeds from stock plans 4.3 2.5 Stock repurchased (43.4) (10.1) Cash dividends paid (6.6) (6.6) Other, net (3.2) (8.3) Net 96.0 63.7 CASH AND EQUIVALENTS Net increase (decrease) (.7) 3.3 At beginning of year 12.7 6.6 At end of period $ 12.0 $ 9.9
See accompanying notes to consolidated condensed financial statements. KANSAS CITY SOUTHERN INDUSTRIES, INC. FORM 10-Q JUNE 30, 1995 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Registrant, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal interim closing procedures) necessary to present fairly the financial position of Kansas City Southern Industries, Inc. ("Registrant" or "KCSI") and its subsidiary companies as of June 30, 1995 and December 31, 1994, the results of operations for the three and six months ended June 30, 1995 and 1994, and cash flows for the six months ended June 30, 1995 and 1994. The Registrant has announced certain transactions, which, if completed, would significantly change the composition of the Registrant as it is currently structured. Accordingly, the Consolidated Condensed Financial Statements should also be read in conjunction with Item 2.; Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Announcements - included in this Form 10-Q, which is hereby incorporated by reference herein. 2. The results of operations for the three and six months ended June 30, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year 1995. 3. The accompanying financial statements have been prepared consistent with accounting principles described more fully in Note 1 of the Registrant's 1994 Annual Report to Stockholders. 4. The Registrant's inventories, $49.0 million at June 30, 1995 and $46.6 million at December 31, 1994, principally represent material and supplies related to rail transportation and DST's output processing operations. Other components of inventories are immaterial. 5. Investments in unconsolidated affiliates and certain other investments accounted for under the equity method of accounting include all entities in which the Registrant or its subsidiaries have significant influence but not more than 50% control. Investments in unconsolidated affiliates (joint ventures) at June 30, 1995, include the equity interests of DST Systems, Inc. ("DST") in Boston Financial Data Services, Inc., The Continuum Company, Inc. ("Continuum"), Argus Health Systems, Inc. ("Argus"), Midland Data Systems, Inc. and Midland Loan Services, L.P.(collectively "Midland"), First of Michigan Capital Corpor- ation, and certain other venture operations plus the Registrant's interests in other companies. Among other provisions, the joint venture agreements contain "change of control" provisions affecting the rights of the partners to acquire the other partners' equity interests in the event of circumstances which would result in a change of control. On January 31, 1995, DST completed the sale of its 50% ownership in IFTC Holdings, Inc., which wholly-owns Investors Fiduciary Trust Company ("IFTC") to State Street Boston Corporation ("State Street"), in a non-cash, tax-free exchange for State Street Common stock. At closing of the transaction, DST received 2,986,111 shares of State Street Common stock (representing an approximate 4% interest in State Street). As a result of this transaction, DST recognized a net gain of $4.7 million in first quarter 1995. With the closing of the transaction, IFTC ceases to be an unconsolidated affiliate of DST and no further equity in earnings of IFTC will be recorded by DST. Combined condensed financial information of unconsolidated affiliates is shown below (dollars in millions): Financial Condition
June 30, December 31, 1995 1994 Current assets $ 433.9 $ 1,129.7 Non-current assets 159.3 143.6 Assets $ 593.2 $ 1,273.3 Current liabilities $ 314.6 $ 933.9 Non-current liabilities 89.2 73.2 Equity of stockholders and partners 189.4 266.2 Liabilities and equity $ 593.2 $ 1,273.3 Investment in unconsolidated affiliates $ 222.1 $ 166.5
Operating Results
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues: IFTC $ -- $ 19.0 $ -- $ 29.2 All others 176.7 141.7 344.9 285.1 Total Revenues $ 176.7 $ 160.7 $ 344.9 $ 314.3 Costs and expenses: IFTC $ -- $ 16.1 $ -- $ 23.4 All others 163.2 131.2 320.1 263.8 Total Costs and Expenses $ 163.2 $ 147.3 $ 320.1 $ 287.2 Net Income: IFTC $ -- $ 2.9 $ -- $ 5.8 All others 13.5 10.5 24.8 21.3 Total Net Income $ 13.5 $ 13.4 $ 24.8 $ 27.1 Equity in Earnings: IFTC $ -- $ 1.4 $ -- $ 2.9 All others 5.0 3.7 9.0 8.2 Total Equity in Earnings $ 5.0 $ 5.1 $ 9.0 $ 11.1
6. For purposes of the Statement of Cash Flows, the Registrant considers all short-term investments with an original maturity of generally three months or less to be cash equivalents. Other required supplementary disclosures follow: a. Cash Flow Information (in millions):
Six Months Ended June 30, 1995 1994 Interest paid $41.6 $28.6 Income taxes paid (refunded) 11.7 (1.0)
b. Noncash Investing and Financing Activities: In the first quarter of 1994, the Registrant issued approximately 234,000 shares of Common stock under the Seventh Offering of the Employees Stock Purchase Plan. These shares, totaling a purchase price of approximately $4.4 million, were subscribed and paid for through employee payroll deductions in 1993. During the first six months of 1995 and 1994, the Registrant recorded expenses of $2.3 million and $2.1 million, respectively, related to its existing ESOP. These charges, which were non-cash in nature, had the effect of decreasing retained earnings and ESOP deferred compensation with no overall effect upon stockholders' equity. In the first six months of 1995, DST acquired mainframe computer equipment for its Winchester Data Center and production equipment for its output processing facilities in the amount of $4.2 million. This equipment was financed through vendor installment notes and capital leases which required no direct outlay of cash. As further described in Note 5, the Registrant's wholly-owned subsidiary, DST Systems, exchanged its equity interest in IFTC for State Street Common stock. Further details regarding the IFTC transaction, including unaudited pro forma combined financial statements, are disclosed in a Form 8-K filed by the Registrant dated January 31, 1995. 7. In February 1995, DST's wholly-owned subsidiary, Clarke & Tilley Limited, purchased HiPortfolio Pty Ltd. ("HiPortfolio"), an Australian provider of portfolio accounting software and services. Additionally, as part of this transaction, DST acquired the rights to the software marketed by HiPortfolio. As previously disclosed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, DST signed a definitive agreement to purchase substantially all of the assets and business operations of Supervised Service Company ("SSC"), a subsidiary of Kemper Financial Services, Inc. ("Kemper") and the mutual fund shareholder servicing system software owned by Kemper Service Company ("KSC") used to service the Kemper Mutual Funds. In conjunction with and subject to the SSC transaction, DST also agreed to enter into long-term contracts with Kemper to provide mutual fund shareholder system services and portfolio accounting system services for the Kemper Mutual Funds. The trans- action was completed on April 17, 1995. The collective consideration for the HiPortfolio and Kemper transactions was approximately $56 million, $49.7 million net of cash acquired. DST financed these transactions through borrowings from the Registrant and banks. The transactions resulted in the recording of intangibles as the total purchase price exceeded the fair value of the underlying net assets. These additional assets are being depreciated over lives ranging from 3-7 years, while intangibles are being amortized over periods of 7-15 years. 8. May 5, 1995, the Registrant established credit agreements for both KCSI and DST, in the amounts of $400 million and $250 million, respectively. These credit agreements replace approximately $420 million of existing Registrant credit agreements which had been in place for varying periods since 1992. Proceeds of the KCSI credit facility are anticipated to be used for general corporate purposes. The proceeds from the DST credit agreement were used to pay a dividend to KCSI, to repay bridge financing in connection with the Kemper transaction described above, and for general corporate purposes. These agreements include facility fees ranging from .07 - .25 % per annum, below prime interest rates, and terms ranging from one to five years. Among other provisions, the agreements limit subsidiary indebtedness, sale of assets, and coverage ratios. The DST agreements also require minimum consolidated net worth of $50 million plus 75% of the net proceeds of the proposed DST capital stock offering discussed in the management's discussion and analysis of financial condition and results of operations included in this Form 10-Q. 9. On April 19, 1995, the Registrant filed Amendment No.1 to its Registration Statement on Form S-3 with the SEC (File No. 33-69648), registering $500 million in securities. The Registrant has not yet requested that the Registration Statement be declared effective and no securities have been issued. 10.LITIGATION. The Registrant has had no significant changes in its outstanding litigation from that previously reported in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Kansas City Southern Industries, Inc. (the "Registrant") is a Delaware Corporation, organized in 1962, which engages in supervising the operations of its subsidiaries and providing certain managerial, legal and financial services to its subsidiaries. The Registrant's business activities by industry segment and principal subsidiary companies are: Transportation Services - Operating a Class I Common Carrier Railroad system through the Registrant's 100% owned subsidiary The Kansas City Southern Railway Company and its affiliated trucking and other subsidiaries ("KCSR") along with other subsidiaries supporting the transportation segment. Information & Transaction Processing - DST Systems, Inc., ("DST") a 100% owned subsidiary, together with its subsidiaries and joint ventures (principally The Continuum Company, Inc., Boston Financial Data Services, Inc., Argus Health Systems, Inc., Midland Data Services, Inc. and Midland Loan Services L.P.), designs, maintains and operates proprietary on-line shareowner accounting and record keeping data processing systems, primarily for mutual funds, financial services institutions and insurance companies. In addition to data processing, subsidiaries of DST also provide computer output microfilm/microfiche, printing and graphic design services. Financial Asset Management - Management of investments for mutual funds, private and other accounts through Janus Capital Corporation ("Janus"), an 83% owned subsidiary and Berger Associates, Inc. ("Berger") an 80% owned subsidiary. Corporate and Other - Primarily general administrative and corporate operations of the Registrant and other minor subsidiaries. The information contained in this management's discussion and analysis of financial condition and results of operations should be read in conjunction with the notes to consolidated condensed financial statements included in this Form 10-Q. Recent Announcements DST Public Offering - On April 24, 1995, the Registrant's Board of Directors approved a public offering of 51% of its wholly owned subsidiary, DST. The public offering is planned to occur in the fourth quarter of 1995 subject to market conditions. A DST offering would only be made by means of a prospectus and otherwise in compliance with federal and state securities laws. Stock Repurchase Program - On April 24, 1995, the Registrant's Board of Directors also authorized management to repurchase up to six million shares of the Registrant's Common stock in open market transactions as market conditions permit. Payments received by the Registrant from DST in retirement of intercompany debt after a DST public offering would, in part, be used to fund these repurchases. As of July 31, 1995, the Registrant repurchased approximately 1.1 million shares of Common stock in open market transactions. Results of Operations Segment revenues and operating income comparisons follow (dollars in millions):
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues: Transportation Services $ 133.7 $ 123.4 $ 268.7 $ 246.7 Information & Transaction Processing 118.6 101.2 231.2 198.6 Financial Asset Management 57.4 43.7 112.8 88.3 Eliminations, Corporate & Other (1.0) (1.1) (1.8) (1.3) Total $ 308.7 $ 267.2 $ 610.9 $ 532.3 Operating Income: Transportation Services $ 2.6 $ 31.4 $ 32.9 $ 59.4 Information & Transaction Processing 8.9 9.6 21.6 21.6 Financial Asset Management 24.8 19.6 39.6 38.6 Eliminations, Corporate & Other (3.3) (2.0) (5.5) (4.8) Total $ 33.0 $ 58.6 $ 88.6 $ 114.8
The Registrant reported second quarter 1995 earnings of $8.5 million, ($.19 per share), significantly below the $31.8 million, ($.70 per share) earned in the second quarter 1994. However, included in second quarter and year to date 1995 consolidated results is approximately $17.8 million, or $.39 per share and $19.7 million, or $.44 per share, respectively, of unusual costs and expenses related to employee separations and other personnel related activities, unusual system congestion related expenses, and reserves for contracts, leases, and property in the Transportation Services segment. Second quarter 1994 also benefited from the reversal of certain KCSI Holding Company employment tax and interest accruals ($.06 per share) resulting from the favorable outcome, in second quarter 1994, of long standing employment tax issues. Consolidated second quarter 1995 revenues rose 16% to $308.7 million compared to prior year, while operating income of $33 million declined 44% from $58.6 million. Revenue growth in all of the Registrant's primary business lines was offset by increased operating expenses, particularly those associated with the Registrant's Transportations Services segment. For the six months ended June 30, 1995, earnings of $35.9 million ($.80 per share) decreased 40% from comparable prior year earnings of $59.4 million. Included in 1995 year to date earnings is the one time gain on the sale of DST's 50% investment in Investors Fiduciary Trust Company ("IFTC") in exchange for an approximate 4% common stock interest in State Street Boston Corporation, previously reported in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. The IFTC transaction resulted in a net gain of $4.7 million, or $.10 per share in first quarter 1995. Second quarter and year to date 1995 results also include non-cash acquisition related intangible amortization expenses of $.09 per share and $.17 per share, respectively, versus $.06 per share and $.12 per share, for second quarter and year to date 1994, respectively. The 1995 amounts reflect DST acquisitions (SSC and HiPortfolio), the fourth quarter 1994 Berger acquisition, and 1995 additional investments in Janus. TRANSPORTATION SERVICES
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues $ 133.7 $ 123.4 $ 268.7 $ 246.7 Costs and expenses 116.1 80.2 206.3 161.5 Depreciation and amortization 15.0 11.8 29.5 25.8 Operating income 2.6 31.4 32.9 59.4 Unconsolidated affiliates .1 .1 Interest expense (12.9) (9.0) (25.4) (20.6) Pretax income (10.2) 22.4 7.6 38.8 Income taxes (4.1) 9.4 3.1 16.1 Net income $ (6.1) $ 13.0 $ 4.5 $ 22.7
Transportation Services, comprised principally of The Kansas City Southern Railway Company ("KCSR"), reported a loss of $6.1 million for the second quarter 1995, significantly below the $13 million income for second quarter 1994. Transportation revenues rose 8% to $133.7 million, while operating income declined to $2.6 million on higher operating costs. Included in the higher operating costs were $30.9 million of pretax unusual costs and expenses related to employee separations, other personnel related activities and system congestion, primarily at KCSR. KCSR second quarter general commodity carloadings improved 4% from first quarter 1994 on increased volumes of farm products, pulp/paper, chemicals and petroleum products, but somewhat offset by lower non-metallic ores and lumber/wood traffic. Intermodal traffic rose 51% in second quarter 1995 over second quarter 1994 on continued strong volumes. Unit coal revenues improved 14% from second quarter 1994 resulting from a mix of length of haul and rates and the seasonality of coal shipments, and resumption of shipments to a Monticello, Texas, electric utility plant ("TUMCO"), which had been out of service since late 1993 and came back on line in June, 1995. KCSR operating expenses in second quarter 1995 were 45% higher, principally the result of unusual costs and expenses totaling $29.9 million, pre-tax. These unusual costs and expenses include $4.6 million for employee separations and benefit related costs; $7 million for increased casualty related reserves; $8.1 million for the cost of inefficient utilization of locomotive and rolling stock equipment and terminating certain equipment leases caused by a combination of increased demand and changes in service delivery requirements; and $4.9 million of other unusual system congestion related expenses. Excluding these unusual costs and expenses, operating expenses would still have been 8% higher from increased fuel, car hire, salaries and wages, casualties and equipment lease expenses all associated with increased traffic volumes and system congestion. Depreciation and amortization was 27% higher than second quarter 1994, reflecting the completion of the KCSR roadbed improvement program in the second half of 1994. Interest expense also continued to be higher in second quarter 1995 compared to prior year from a combination of higher rates and balances and the one time reversal of employment tax related interest accruals, which resulted from the resolution of certain tax issues in 1994. Transportation Services also included improved results from the Registrant's Pabtex petroleum coke export facility on higher volumes, offset by reduced earnings at Southern Credit Corporation compared to second quarter 1994. For the first six months of 1995, Transportation Services contribution to the Registrant's consolidated net income declined 80% from prior year, from $22.7 million to $4.5 million. Revenues increased 9%, led by volume increases in farm products, intermodal, chemical and petroleum traffic but were more than offset by the previously described unusual costs and expenses, fuel expense on both increased volume and higher prices, depreciation associated with the completion of the roadbed rebuilding program, and interest expense on rate and balance increases. INFORMATION & TRANSACTION PROCESSING DST SYSTEMS, INC.
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues $ 118.6 $ 101.2 $ 231.2 $ 198.6 Costs and expenses 92.1 78.5 177.1 152.0 Depreciation and amortization 17.6 13.1 32.5 25.0 Operating income 8.9 9.6 21.6 21.6 Unconsolidated affiliates 4.9 5.2 8.9 11.2 Gain on sale of equity investment -- -- 39.7 -- Interest expense (6.0) (3.8) (10.6) (7.4) Pretax income 7.8 11.0 59.6 25.4 Income taxes 2.5 3.2 41.2 7.4 Minority interest (.1) (.1) (.1) (.3) Net income $ 5.4 $ 7.9 $ 18.5 $ 18.3
DST recorded second quarter 1995 earnings contribution to the Registrant's consolidated earnings of $5.4 million, a decline of 32% from the $7.9 million contribution to the Registrant's consolidated results in the second quarter 1994. The lower DST second quarter results were due to the absence of Investors Fiduciary Trust Company ("IFTC") earnings ($1.4 million pre-tax in 1994), increased interest expense of $1.4 million pre-tax related to indebtedness associated with a special $150 million dividend made in May, 1995 to KCSI, and increased costs associated with DST's developmental and international business units. The combination of these items reduced DST net income by $2.2 million after-tax, equivalent to $.05 per share. DST revenues increased 17% to $118.6 million in second quarter 1995 as mutual fund shareowner accounts serviced increased to 34.2 million, 3.2 million (10%) over comparable June 30, 1994, and a 7% increase over the 32.1 million at year end 1994 (representative of the growth in DST's mutual fund clients) and which led to increased mutual fund processing volumes. Operating earnings from "core" business activities at DST increased over second quarter 1994 on higher mutual fund processing revenues, partially due to accounts processed as a result of the previously announced Kemper transaction. These increased earnings were offset by operating losses on developmental and international business units, particularly Belvedere Financial Systems, Inc., which incurred additional product infrastructure development costs, and Clarke & Tilley, as a result of the recent acquisition of Hi Portfolio Pty, Ltd., as insufficient time has elapsed to implement the planned operational synergies. Depreciation and amortization increased 34% over second quarter 1994 due to increased investment in computer mainframe equipment and amortization of certain acquisition costs associated with the HiPortfolio and Supervised Service Company ("SSC") transactions. Equity in DST's unconsolidated affiliates earnings of $4.9 million for the second quarter 1995 declined only slightly from comparable 1994. The previously discussed absence of earnings from IFTC was substantially offset by higher earnings reported by The Continuum Company, Boston Financial Data Services, Inc., and Argus Health Systems, Inc., DST's other major unconsolidated affiliates, all on improved volumes for their respective business lines. DST's Midland Data Systems and First of Michigan joint ventures reported slightly lower earnings than prior years second quarter on lower volumes. During the first six months of 1995, DST's contribution to the Registrant's consolidated net income increased slightly over the same period prior year from $18.3 million to $18.5 million as revenues rose 16% to $231.2 million. Revenues from international and developmental business units increased $12.6 million, or 83% during the six months ended June 30, 1995 versus the comparable period in 1994. Costs and expenses increased 16.5% to $177.1 million over the comparable 1994 period. Expenses from international and developmental units increased $13.7 million or 73% from the six months ended June 30, 1994, to the comparable period in 1995. Depreciation and amortization increased $7.5 million or 30% over the first six months of 1994 on increased amortization associated with the SSC and HiPortfolio acquisitions and further depreciation of investment in data processing equipment. Earnings from unconsolidated affiliates decreased $2.3 million from the comparable 1994 period which included IFTC earnings of $2.9 million. IFTC was sold in first quarter 1995, generating a net gain of $4.7 million. FINANCIAL ASSET MANAGEMENT JANUS CAPITAL CORP. & BERGER ASSOCIATES, INC.
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues $ 57.4 $ 43.7 $ 112.8 $ 88.3 Costs and expenses 29.3 21.8 66.9 45.9 Depreciation and amortization 3.3 2.3 6.3 3.8 Operating income 24.8 19.6 39.6 38.6 Interest expense (1.5) (.4) (2.6) (.8) Pretax income 23.3 19.2 37.0 37.8 Income taxes 9.5 7.4 15.2 14.7 Minority interest 2.7 2.4 4.4 4.6 Net income $ 11.1 $ 9.4 $ 17.4 $ 18.5
Financial Asset Management contribution to second quarter 1995 consolidated Registrant results of $11.1 million rose 18% over comparable 1994 results on a 31% improvement in revenues to $57.4 million. Operating income also improved 27% resulting from the revenue gains. Net income did not increase in proportion to revenue improvement due to increased intangible amortization and interest expenses related to acquisition of a controlling interest Berger in late 1994 along with the acquisition of additional ownership in Janus in early 1995. Janus and Berger combined to total $29.6 billion in assets under management at June 30, 1995, a 14% increase over the $25.9 billion at December 31, 1994. Shareholder accounts grew to 2.5 million versus the 2.4 million at year end 1994. Favorable market conditions during the first six months of 1995, especially in late second quarter, fueled the rise in assets under management and produced the revenue improvement. Combined Financial Asset Management operating expenses also rose in second quarter 1995, primarily from the increased business volumes. However, Janus marketing and promotional expenses declined significantly from first quarter 1995 levels. Additionally, salaries and wages benefitted from the termination of certain Janus compensation arrange- ments in fourth quarter 1994. Combined Financial Asset Management depreciation and amortization expense in second quarter 1995 was $3.3 million, compared to $2.3 million in 1994 second quarter. The increase is due to the Berger acquisi- tion in late 1994 along with the acquisition of an additional ownership in Janus in early 1995. For the first six months of 1995, Financial Asset management contributed $17.4 million to the Registrant's consolidated results, $1.1 million or 6% below the comparable 1994 period. The first six months of 1995 included earnings from Berger Associates, Inc., which was not consolidated until fourth quarter of 1994. Janus revenues were up $8.4 million or 10% from the comparable 1994 period, with Berger recording revenues of $16.1 million in 1995. Costs and expenses increased 46% in the first half of 1995 over the prior year. The in- crease includes marketing and promotional expenses incurred primarily in the first quarter of 1995 on a major print and television advertising campaign, higher variable costs associated with increased business volumes, costs related to the first quarter establishment of Janus' own line of money market funds, and the addition of Berger. Lower year to date 1995 salaries and wages expenses were experienced by Janus due to the fourth quarter 1994 termination of certain compensation arrangements as described in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. ELIMINATIONS, CORPORATE & OTHER
Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenues $ (1.0) $ (1.1) $ (1.9) $ (1.3) Costs and expenses 1.6 .7 2.4 2.5 Depreciation and amortization .7 .2 1.2 1.0 Operating loss (3.3) (2.0) (5.5) (4.8) Unconsolidated affiliates -- (.1) -- (.1) Interest income (expense) 1.1 3.7 (.2) 4.3 Pretax income (loss) (2.2) 1.6 (5.7) (.6) Income tax (benefits) (.3) .1 (1.2) (.5) Net income (loss) $ (1.9) $ 1.5 $ (4.5) $ (.1)
Eliminations, Corporate & Other recorded net losses of $1.9 million versus a profit of $1.5 million from the equivalent period in second quarter 1994. Registrant general and administrative expenses were lower in second quarter 1995 versus 1994, however, comparability with prior year costs and expenses is affected by the reversal in second quarter 1994 of certain employment tax and interest expense accruals resulting from the favorable outcome of long standing employment tax issues, which reduced overall second quarter 1994 costs and expenses. For the first six months of 1995, Eliminations, Corporate & Other contributed a loss of $(4.5) million to the Registrant's consolidated results, versus a loss of $(.1) during the first six months of 1994, due primarily to the absence of the reversal of the tax and interest expense accrual which occurred in 1994 as described above. TRENDS AND OUTLOOK The Registrant reported earnings of $.19 per share for the second quarter 1995, significantly lower than second quarter 1994 earnings of $.70. Consolidated revenues rose 16% to $308.7 million from revenue growth in all of the Company's primary business segments. Transportation Services operated at increased traffic levels compared to prior year but reported decreased earnings as $17.8 million ($.39 per share) in unusual costs and expenses for the quarter were incurred. Information & Transaction Processing reported lower second quarter operating income on higher costs at its developmental and international units, offsetting core business growth. Financial Asset Management earnings were higher on both increased revenues at Janus and the inclusion of Berger in 1995. A current outlook for the Registrant's three core businesses for the remainder of 1995 is as follows: a) Transportation Services - KCSR rail operations are expected to continue to experience increased traffic levels, as intermodal, paper, chemicals, petroleum, and grain traffic carloadings continue to enjoy strong volumes; unit coal revenues are slightly ahead of prior year and should benefit from the resumption of shipments to the "TUMCO" electric utility plant in June 1995. Improvement to system congestion caused by increased traffic levels are anticipated throughout the rest of 1995. b) Information & Transac- tion Processing - DST has shown continued revenue growth in both it's "core" and developmental and international business segments. Increased operating income levels in "core" business lines have been offset by higher than expected costs in developmental and international units. While continued investment in developmental and international units will continue throughout 1995, management expects improvement by the end of the year. DST's growth will depend on growth in the mutual fund, insurance, pharmaceutical claim, international, and other financial services markets it serves. DST's earnings for the remainder of 1995 will continue to be affected by increased interest expense associated with indebtedness incurred for payment of a special $150 million dividend to KCSI. c) Financial Asset Management - Janus' assets under management grew in second quarter 1995, increasing more than 9%, with shareholder accounts also increas- ing. Berger assets under management and shareholder accounts remained flat for most of the second quarter. Future growth will be largely dependent on pre- vailing financial market conditions, which have generally been favorable in the first half of 1995, and relative performance of the Janus and Berger products. Lower operating expenses at Janus, including reduced levels of marketing from those in first quarter 1995 coupled with lower salaries associated with the 1994 termination of certain Janus compensation arrangements, should continue to be sustained throughout the remainder of 1995. Liquidity and Capital Resources Summary cash flow data is as follows (in millions):
Six Months Ended June 30, 1995 1994 Cash flows provided by (used for): Operating activities $ 87.1 $ 109.7 Investing activities (183.8) (170.1) Financing activities 96.0 63.7 Net increase (decrease) in cash and equivalents (.7) 3.3 Cash and equivalents at beginning of year 12.7 6.6 Cash and equivalents at end of period $ 12.0 $ 9.9
During the first six months of 1995, the Registrant's cash position remained relatively unchanged, decreasing from $12.7 million at December 31, 1994, to $12.0 million at June 30, 1995. Operating cash flows and proceeds from issuance of long term debt in excess of repayments, were used for property acquisitions, investment in affiliates, and purchase of companies. Operating cash flows for the first six months of 1995 of $87.1 million decreased $22.6 million compared to prior year. The decrease was chiefly attributable to lower net income; a net change in working capital items, primarily a decrease in accounts payable, partially offset by an increase in accrued liabilities; and an increase in depreciation and amortization. Net income includes a non cash gain of $4.7 million, net of deferred taxes, from the sale of IFTC, as described more fully in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. During the first six months of 1995, cash was invested in KCSR road property additions and additions related to DST's Winchester Data Center expansion and data processing equipment needs. KCSR capital expenditures for property acquisitions have, however, declined 42% in the first six months of 1995 compared to prior year, due largely to the completion of a long term capital improvement program in late 1994. Cash was also used for investment acquisitions, principally DST purchase of Supervised Service Company ("SSC") from Kemper Financial Services and further investment in international companies; and investments and loans with affiliates, which was principally re- lated to the Janus minority restructuring. Financing cash flows were generated through issuance of long-term debt in excess of repayments. Debt proceeds were used at KCSR for working capital, DST for working capital and acquisition investments, Southern Leasing for portfolio growth as well as Registrant Common stock repurchases. The Registrant also made principal payments totaling $4.2 million with respect to the Registrant's Employee Stock Ownership Plan ("ESOP") indebtedness. Cash flows from operations are expected to increase during the remainder of 1995 from positive operating income, which have historically resulted in favorable cash flows, and higher levels of depreciation and amortization than prior year. Investing activities will continue to use significant amounts of cash, although such amounts will be reduced from 1994 levels as KCSR has completed its roadbed capital improvement program. The Registrant anticipates that continued roadway improvement investments will be funded by KCSR operating cash flow. Other capital expenditures may be funded through debt. Investing cash flows will also be used for completion of the expansion of DST's Winchester Data Center, expected to be completed in the latter half of 1995. In addition to operating cash flows, the Registrant has available financing arrangements at subsidiary levels (including remaining credit from the pre- viously described new $250 million credit agreement at DST), remaining credit from $400 million in the Registrant's previously described new credit agreement, of which $419.1 million was available at June 30, 1995, proceeds available with respect to the Registrant's $200 million Note and Medium Term Notes shelf filing, of which $100 million were issued at June 30, 1995 and $500 million with respect to a Universal Shelf Offering filed in September 1993 and as amended April 19, 1995. The Registrant has not yet requested that the $500 million Universal Shelf Offering be declared effective by the Securities and Exchange Commission and no securities have been issued. As further described under "Recent Announcements" in Item 2 of this Form 10-Q, the Registrant has announced its intention to sell 51% of DST later this year, market conditions permitting. Should this occur, it would result in significant cash being generated for the Registrant. Such proceeds are currently anticipated to be used for debt repayment, purchase of Registrant common stock, and general corporate purposes. The Registrant believes these positive operating cash flows and available financing resources are sufficient to fund working capital and other requirements for the remainder of 1995. The Registrant's debt ratio (debt as a percent of total debt plus equity) at June 30, 1995 was 62.8% compared to 59.6% for the year ended December 31, 1994. While consolidated equity increased in the first six months of 1995, consoli- dated debt more than proportionately increased from borrowings to finance the Common stock repurchases, acquisitions and investments described earlier. PART II - OTHER INFORMATION Item 1. Legal Proceedings Part I, Item 1, Footnote 10 to the financial statements of this Form 10-Q is hereby incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit 10.1 - Five-Year Competitive Advance and Revolving Credit Facility Agreement dated May 5, 1995 among Kansas City Southern Industries, Inc. and the lenders named. Exhibit 10.2 - Employment agreement dated May 15, 1995, among Kansas City Southern Industries, Inc., The Kansas City Southern Railway Company, and Michael R. Haverty. Exhibit 27.1 - Financial Data Schedule. b) Reports on Form 8-K The Registrant filed a Form 8-K dated May 15, 1995, under Item 5 reporting the retirement and resignation of George W. Edwards, Jr. President and Chief Executive Officer of the Kansas City Southern Railway and a Director and Executive Vice President of the Registrant. Mr. Edwards is succeeded by Michael R. Haverty, former President of The Atchison, Topeka, and Santa Fe Railway. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacities indicated on August 9, 1995. Kansas City Southern Industries, Inc. /s/ Joseph D. Monello Joseph D. Monello Vice President & Chief Financial Officer (Principal Financial Officer) /s/ Louis G. Van Horn Louis G. Van Horn Comptroller (Principal Accounting Officer) EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-Q, CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED 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. QTR-2 DEC-31-1994 JUN-30-1995 12,000,000 0 241,000,000 0 49,000,000 397,400,000 2,194,800,000 735,800,000 2,426,900,000 378,600,000 1,031,700,000 400,000 0 7,100,000 665,300,000 2,426,900,000 0 610,900,000 0 522,300,000 0 0 38,800,000 98,500,000 58,300,000 35,900,000 0 0 0 35,900,000 .80 0
EX-10.1 3 CONFORMED COPY FIVE-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT Dated as of May 5, 1995 among KANSAS CITY SOUTHERN INDUSTRIES, INC., THE LENDERS NAMED HEREIN, [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] and [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated as of May 5, 1995, among KANSAS CITY SOUTHERN INDUSTRIES, INC., a Delaware corporation (the "Borrower"), the lenders listed in Schedule 2.01 (the "Lenders") [INFORMATION SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] as administrative agent for the Lenders (in such capacity, the "Agent"). The Borrower (such term and each other capitalized term used but not otherwise defined herein having the meaning assigned to it in Article I) 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 Maturity Date a principal amount not in excess of $300,000,000 at any time outstanding. The proceeds of such borrowings are to be used for general corporate purposes, including to provide backup liquidity for commercial paper. The Borrower 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 Lenders are willing to extend such credit to the Borrower on the terms and subject to the conditions herein set forth. Accordingly, the Borrower, the Lenders and the Agent agree as follows: ARTICLE I. DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "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 in the form of Exhibit B hereto. "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: [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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, the Borrower 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 date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Agent's domestic offices. "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. "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 Berger Associates, Inc., a Delaware corporation. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Borrowing" shall mean 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. "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, 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 date hereof 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 date hereof or (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 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. [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] "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 hereunder as set forth in Schedule 2.01 hereto, as such Lender's Commitment may be permanently terminated or reduced from time to time pursuant to Section 2.11. The Commitments shall automatically and permanently term- inate 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 April 1995. "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 (including amortization of debt discount) 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 Credit Agreements" shall mean the 364-Day and the Three-Year credit agreements among DST Systems, the Lenders and Chase, as administrative agent. "DST Systems" shall mean DST Systems, Inc., a Missouri corporation which shall be permitted under the DST Credit Agreements to reorganize as 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 A Agreement" shall mean the 364-day credit agreement dated the date hereof among the Borrower, the Lenders and the Agent. "Facility Fee" shall have the meaning assigned to such term in Section 2.06(a). "Facilities" shall mean the credit arrangements under this Agreement and the Facility A Agreement. "Fee Letter" shall mean the letter agreement dated as of May 2, 1995 among the Borrower, DST and the Agent. "Fees" shall mean the Facility 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 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. "Holding Company" shall mean a corporation which, at all times prior to an Offering, is a direct, wholly owned Delaware subsidiary of the Borrower. "ICC" shall mean the Interstate Commerce Commission or any successor Federal agency charged with similar regulation of common carriers. "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 partnership in which such person is a general partner. "Index Debt" shall mean senior, unsecured, non-credit-enhanced, long-term indebtedness for borrowed money of the Borrower. "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 and (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; 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. "KCSR" shall mean The Kansas City Southern Railway Company, a Missouri corporation. "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, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate at which dollar deposits approximately equal in principal amount to (i) in the case of a Standby Borrowing the Agent's portion of such Eurodollar Borrowing and (ii) in the case of a Competitive Borrowing, a principal amount that would have been the Agent's portion of such Competitive Borrowing had such Competitive Borrowing been a Standby Borrowing, and for a maturity comparable to such Interest Period are offered to 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 or a Fixed Rate Loan, as permitted hereby. "Loan Documents" shall mean this Agreement, the Facility A 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 May 5, 2000. "Moody's" shall mean Moody's Investors Service, Inc. "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. "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. "Offering" shall mean (a) the closing of an initial public offering and sale of shares of common stock of DST Systems, or (b) the closing of an initial public offering and sale of shares of common stock of the Holding Company and the contribution of net proceeds of such offering and sale to DST Systems, which in the case of either (a) or (b) above results in the receipt by DST Systems of net cash proceeds equal to at least the lower of (i) all of the net cash proceeds of such offering and sale (which in any event shall not be less than [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT]) and (ii) [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT]. "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 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. "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 G" shall mean Regulation G 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. "Reincorporation Transaction" shall mean a transaction prior to an Offering in which DST Systems becomes a subsidiary of the Holding Company or merges with or into the Holding Company or a direct, wholly owned Delaware subsidiary of the Holding Company, and in the event of any such merger, (a) the surviving company in such merger remains or becomes the Borrower under the DST Credit Agreements and remains or becomes liable for all the Obligations to the same extent as the original Borrower, (b) no person receives any consideration other than common stock of such surviving corporation or the Holding Company, and (c) the assets and liabilities of the surviving corporation are the same as those of DST Systems immediately prior to such merger. "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 at least 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 holding at least 50% of the aggregate unpaid principal amount of the Loans or (b)(i) Lenders in the aggregate holding at least 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 holding at least 66-2/3% of the aggregate unpaid principal amount of the Loans. "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. "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) prior to an Offering, DST Systems and the Holding Company, (c) Janus and (d) 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. "S&P" shall mean Standard and Poor's Ratings Group. "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. "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. "subsidiary" shall mean, with respect to any person, any corporation, partnership, 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 are, at the time any determination is being made, owned, controlled or held. "Subsidiary" shall mean any subsidiary of the Borrower. "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. "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 . "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 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 CREDITS SECTION 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 shall be deemed to have used such Commitment pursuant to Section 2.16, subject, however, to the conditions that (a) at no time shall (i) the sum of (x) the outstanding aggregate principal amount of all Standby Loans made by all Lenders plus (y) the outstanding aggregate principal amount of all Competitive Loans made by all Lenders exceed (ii) the Total Commitment, and (b) at all times the outstanding aggregate principal amount of all Standby Loans made by each Lender shall equal the product of (i) the percentage which its Commitment represents of the Total Commitment times (ii) the outstanding aggregate principal amount of all Standby Loans made pursuant to Section 2.04. 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. 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 Stand- by Loans or Competitive 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 and (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). (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. 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. 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. 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 avail- able 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 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, 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 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. 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. SECTION 2.06. [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] (b) 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. (c) 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 circum- stances absent manifest error. SECTION 2.07. Repayment of Loans; Evidence of Debt. The outstanding principal balance of each Competitive Loan and Standby Loan shall be payable on the last day of the Interest Period applicable to such Loan and on the Maturity Date. Each Competitive Loan and each Standby 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. SECTION 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. SECTION 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 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 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 which would reduce the Total Commitment to an amount less than the aggregate outstanding principal amount of the Competitive Loans. (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. SECTION 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 Standby Loans outstanding will not exceed the Total Commitment after giving effect to such termination or reduction. (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 otherwise 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 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 inter- pretation 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 Competi- tive 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. (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 Legality. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the inter- pretation thereof by any governmental authority charged with the administra- tion 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 contem- plated 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. 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 here- under, 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 reemploy- ing the funds so paid, prepaid or not borrowed for such period or Interest Period, as the case may be. SECTION 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 compris- ing 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 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) 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 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 as a result of which the unpaid principal portion of the Standby Loans shall be proportionately less than the unpaid principal portion of the Standby 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 of such other Lender, so that the aggregate unpaid principal amount of the Standby Loans and participations in the Standby Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Standby Loans then outstanding as the principal amount of its Standby Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Standby Loans outstanding prior to such exer- cise of banker's lien, setoff or counterclaim or other event; provided, how- ever, 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 in a Standby Loan 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 directly to the Borrower in the amount of such participation. SECTION 2.18. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any Fees or other amounts) 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. 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 Trans- feree) 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 Govern- mental 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 execu- tion, delivery or registration of, or otherwise with respect to, this Agree- ment 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 1001 or Form 4224, or, in the case of a Lender (or Trans- feree) 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 participa- tion 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 obliga- tion to pay such additional amounts existed on the date such Lender (or Trans- feree) 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 Trans- feree 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 lend- ing 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 dis- advantageous to such Lender (or Transferee). SECTION 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 re- course (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 and (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 made by it hereunder and all other amounts accrued for its account or owed to it hereunder. SECTION 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. ARTICLE III. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to each of the Lenders that: SECTION 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 incorpora- tion and has all requisite authority to conduct its business in each juris- diction 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 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 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 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 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 Statements. (a) The Borrower 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, 1994, 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 March 31, 1995, certified by its chief financial officer. Such financial statements present fairly the financial condition and results of operations of the Borrower 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 the Borrower and the Consolidated Subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. (b) The Borrower 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 the Borrower as set forth in the Confidential 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 the Borrower's best estimates as of the date of the Projections of the financial performance of the Borrower . SECTION 3.06. No Material Adverse Change. No 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, 1994. SECTION 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. Subsidiaries. Schedule 3.08 contains an accurate list of all of the joint ventures and Subsidiaries of the Borrower 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 non- assessable. SECTION 3.09. Litigation; Contingent Obligations. Except as set forth in Schedule 3.09 or as disclosed in the Borrower's Annual Report on Form 10-K dated December 31, 1994 filed with the Securities and Exchange Commission, (i) there is no litigation, arbitration, governmental investiga- tion, 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 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 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 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 Proceeds. The Borrower will use the proceeds of the Loans only for the purposes set forth in the recitals to this Agreement. SECTION 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 Information. No information, exhibit or report furnished by the Borrower or any Subsidiary 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 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 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. ARTICLE IV. CONDITIONS OF LENDING The obligations of the Lenders to make Loans hereunder are subject to the satisfaction of the following conditions: SECTION 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: (a) The Agent shall have received a notice of such Borrowing as required by Section 2.03 or Section 2.04, as applicable. (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 Borrowing. On the date hereof: (a) The Agent shall have received a favorable written opinion of Richard P. Bruening, Vice-President and General Counsel of 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT], 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT], 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) The DST Credit Agreements shall have been, or shall simultaneously be, executed and delivered. (g) The Borrower shall have terminated the Total Commitment under the Credit Agreement dated as of December 8, 1992 (the "1992 Credit Agreement"), between the Borrower, the lenders named therein and [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT], in the manner provided therein and any Loans outstanding (other than any Competitive Loans that have been made by any Lenders) thereunder (together with accrued interest on such Loans) and all accrued fees and other amounts due thereunder shall have been paid in full in the manner provided therein (capitalized terms used in this clause (g) having the meanings ascribed to them in the 1992 Credit Agreement). The Borrower shall not have requested any additional Competitive Loans under the 1992 Credit Agreement, and each Competitive Loan that has been made by any Lenders under the 1992 Credit Agreement that remains outstanding after the date hereof shall be deemed to reduce the available Commitments hereunder by the principal amount of such Competitive Loan until the repayment of such Competitive Loan. ARTICLE V. AFFIRMATIVE COVENANTS The Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, unless the Required Lenders shall otherwise consent in writing: SECTION 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 at any time prior to an Offering, DST may implement the Reincorporation Transaction, in which case, the Borrower agrees that upon such reorganization, it will cause DST to deliver to the Agent a copy of the certificate of incorporation of DST, certified by the Secretary of State of the State of Delaware. (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. 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 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. 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 ICC; 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 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 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 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 provi- sions of the Regulations of the Board including Regulation G, 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 5.08. Ratings. The Borrower will use commercially reasonable efforts to obtain and maintain ratings of Index Debt at all times from Moody's and S&P (unless, in either case, such rating agency shall cease to rate corporate debt obligations) and will promptly notify the Lenders upon obtaining knowledge of any change (or prospective change) in, or cessation (or prospective cessation) of, such ratings. ARTICLE VI. NEGATIVE COVENANTS The Borrower covenants and agrees with each Lender and the Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, unless the Required Lenders shall otherwise consent in writing: SECTION 6.01. Indebtedness. (a) The Borrower will not permit any Subsidiary to incur, create or suffer to exist any Indebtedness, except: (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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 satis- factory in form and substance to the Agent. SECTION 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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) and those specified in clause (g) 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), does not exceed [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 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), 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 pursu- ant to Section 6.02(g), does not exceed [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] of Consolidated Net Worth on any date of determination. 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, (b) the Borrower may permit DST Systems to implement the Reincorporation Transaction; (c) the Borrower may sell the real property listed in Schedule 6.04, (d) the Borrower may sell Berger to DST, (e) the Borrower may complete an Offering and transfer capital stock of DST Systems (or of the Holding Company) after an Offering as consideration for acquisitions of capital stock or assets (other than cash or cash equivalents) and (f) 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 trans- action 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] of Consolidated Net Worth on any date of determination to any other person. SECTION 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 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 Covenants. The Borrower will not: (a) permit the ratio of Consolidated Total Indebtedness to the sum of Consolidated Total Indebtedness and Consolidated Net Worth to exceed (I)[EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] at any time from the date hereof through December 31, 1995 and (ii)[EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] at any time there- after; or (b) permit the assets of the Subsidiaries, other than the Significant Subsidiaries, to represent in the aggregate at any time more than [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] of Consolidated Total Assets. SECTION 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 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 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 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 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 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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 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) the Borrower shall cease to own beneficially at least 90% of the outstanding voting securities of KCSR or at least 80% of the outstanding voting securities of Janus or, prior to an Offering, DST Systems; 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 auto- matically 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 AGENT In order to expedite the transactions contemplated by this Agreement, [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] 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 instruc- tions 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 here- under, 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. MISCELLANEOUS SECTION 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 and Chief Financial Officer (Telecopy No. (816) 556-0192), with a copy to the Senior Vice President and General Counsel (Telecopy No. (816) 556-0227); (b) [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] (c) if to a Lender, to it at its address (or telecopy number) set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party 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 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 un- revoked direction from such party given in accordance with this Section 9.01. SECTION 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 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. SECTION 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 must give their prior written consent to such assignment (which consent shall not be un- reasonably 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 sub- ject 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 assigning Lender shall not assign any percentage of its rights and obligations under this Agreement without assigning the same percentage of its rights and obligations under the Facility A Agreement, in each case to the same assignee, (v) the parties to each such assignment shall execute and de- liver to the Agent an Assignment and Acceptance and a processing and recordation fee of $3,000 and (vi) 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 Agree- ment (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)). Notwithstand- ing 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 instru- ment 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 inde- pendently 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 exer- cise 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 Commit- ment 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, 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 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 here- under. 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. SECTION 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 there- of (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 [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT], 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 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 obliga- tions 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 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. SECTION 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 exclu- sive 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 there- of, or decrease the rate of interest on any Loan, without the prior written con- sent of each Lender affected thereby, (ii) change or extend the Commitment or decrease the Facility Fees of any Lender without the prior written consent of such Lender, or (iii) amend or modify the provisions of Section 2.16, the provi- sions 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 hereunder without the prior written consent of the Agent. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section and any con- sent by any Lender pursuant to this Section shall bind any person subsequently acquiring a Loan from it. SECTION 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 re- served 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 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 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 appli- cable, by, among other things, the mutual waivers and certifications in this Section 9.11. SECTION 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. 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. 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 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. 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 non-confidential basis from a source other than the Borrower or its Affiliates or the Agent, or (C) was available to such Lender on a non-confi- dential 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. IN WITNESS WHEREOF, the Borrower, 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/ Joseph D. Monello, Jr. Name: Joseph D. Monello, Jr. Title: Vice President and Chief Financial Officer SIGNATURES AND PARTICIPATING BANK GROUP [EXCLUDED INFORMATION IS SUBJECT TO REQUEST FOR CONFIDENTIAL TREATMENT] EX-10.2 4 EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into as of this 15th day of May, 1995, by and among Kansas City Southern Industries, Inc. ("KCSI"), a Delaware corporation, The Kansas City Southern Railway Company, a Missouri corporation ("Railway") and Michael R. Haverty, an individual ("Executive"). WHEREAS, KCSI, Railway and Executive desire for Railway to employ Executive for the period and on the terms and conditions set forth in this Agreement and to provide an incentive to Executive to remain in the employ of Railway hereafter, particularly in the event of any Change in Control of KCSI (as herein defined), thereby establishing and preserving continuity of management of Railway. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it is agreed by and between Railway and Executive as follows: 1. Employment. Railway hereby employs Executive as its President and Chief Executive Officer, to have general supervision over, responsibility for and control of the day-to-day business and affairs of Railway, subject to the powers vested in the Board of Directors of Railway (the "Board") and in the stockholder of Railway. The Executive shall have such other powers, duties and responsibilities consistent with his position as President and Chief Executive Officer of Railway as may be prescribed from time to time by the Board. Executive shall faithfully perform his duties under this Agreement to the best of his ability in accordance with the reasonable directions of the Board and shall devote all of his working time and efforts to the business and affairs of Railway and its affiliates; provided, however, that to an extent consistent with the needs of Railway and its affiliates, Executive shall be entitled to expend a reasonable amount of time on civic and philanthropic activities and the management of personal and family investments. 2. Compensation. (a) Base Compensation. Railway shall pay Executive as compensation for his services hereunder an annual base salary at the rate of Five Hundred Thousand Dollars ($500,000.00), to be paid in equal installments on Railway's normal payroll dates. (b) Incentive Compensation. During the term of this Agreement, Executive shall not be entitled to participate in the KCSI or Railway Incentive Compensation Plan. In lieu thereof: (I) Executive may receive a cash bonus up to $500,000 for the period from the date of this Agreement through December 31, 1995 as determined in the sole discretion of the KCSI Board of Directors. Such bonus shall be payable within 60 days after December 31, 1995. (ii) For the period January 1, 1996 through December 31, 1998, Executive shall have the right to earn Performance Shares under the KCSI Restated and Amended 1991 Stock Option and Performance Award Plan up to a total of 42,000 shares of KCSI common stock ("Performance Shares"). The right to earn such Performance Shares shall be based on performance goals which are established in part (60%) on the three year cumulative return on Annual Average Capital Employed and in part (40%, annually awarded) on growth in Net Income during each Annual Period commencing January 1, 1996. The performance goals are to (A) exceed KCSR actual experience and (B) move toward meeting and exceeding industry average, with the actual targets to be approved by the KCSI Board of Directors in connection with approval of a 1996-8 business plan to be developed by Executive. For purposes of the performance goals to be established by the Board of Directors, the following definitions shall apply: Net Income shall mean after-tax net income as reported by the KCSI Transportation Division in accordance with generally accepted accounting principles, in effect for the applicable period, applied on a consistent basis prior to financial statement classifications for discontinued operations, cumulative effect of changes in accounting principles, extraordinary items and prior period adjustments. Capital Employed shall mean the total of the Transportation Division short term debt, long term debt and stockholder equity as reported in KCSI's quarterly financial statements. Average Annual Capital Employed shall mean the total of the Capital Employed as of the end of each quarter in an Annual Period and the end of the prior Annual Period, divided by five (5). Annual Period shall mean each period of January 1 through December 31 during the term of this Agreement, commencing January 1, 1996, or the period of January 1, 1995 through December 31, 1995, as the case may be. (iii) In the event of termination of employment by reason of the death or disability of Executive or termination of Executive's employment by Railway or KCSI under Paragraph 4(C) of this Agreement other than at year-end, Executive shall be entitled to receive: (A) A pro rata number of the Performance Shares awarded on the basis of growth in Net Income which could be earned in the Annual Period in which the termination occurs. The Net Income during the portion of the Annual Period employed shall be annualized in computing annual Net Income growth, and the number of shares awarded shall be based on the portion of the Annual Period employed. Growth in Net Income for a portion of an Annual Period shall be based on growth through the month-end which is closest to the date of termination of employment. (B) A pro rata number of the Performance Shares awarded on the basis of Annual Average Capital Employed, computed using the cumulative return on Average Annual Capital Employed from January 1, 1996 through the date of termination. Return on Average Annual Capital Employed for less than an Annual Period shall be based on the return through the end of the calendar quarter which is closest to the date of termination of employment. (C) Stock Options. As additional compensation for his services hereunder, Executive has been granted an option to purchase a total of One Hundred Thousand (100,000) shares of common stock of KCSI on the terms and conditions set forth in the standard Stock Option Agreement approved by the Compensation Committee of KCSI, subject to the further provisions of this Paragraph 2(c). The said option shall become exercisable on January 1, 1999, provided Executive remains employed by Railway through December 31, 1998. However, the option shall become exercisable early, subject to Executive's continued employment by Railway, in accordance with the following schedule if the common stock of KCSI shall have had a fair market value per share (based on closing price on the New York Stock Exchange) for at least thirty (30) consecutive trading days at or above the threshold prices set forth below: Number of Shares For Which Option Becomes Threshold Price Exercisable Early $50.00 33,333 60.00 33,333 70.00 33,334
Provided Executive remains employed by Railway through December 31, 1998, the option shall become exercisable on January 1, 1999, but only for a period of thirty (30) days, with respect to any shares as to which the option shall not have previously become exercisable. With respect to any shares as to which the option becomes exercisable prior to July 1, 1998, such exercisability shall continue for a period of ten (10) years from the date of grant of the option. 3. Benefits. During the term of his employment hereunder, Railway shall provide Executive with coverage under such benefit plans and programs as are made generally available to executive employees of Railway, provided (a) Railway shall have no obligation with respect to any plan or program if Executive is not eligible for coverage thereunder, and (b) Executive acknowledges that stock options and other stock and equity participation awards are granted in the discretion of the KCSI Board of Directors or Compensa- tion Committee and that Executive has no right to receive stock options or other equity participation awards or any particular number or level of stock options or other awards. Executive acknowledges that all rights and benefits under benefit plans and programs shall be governed by the official text of each such plan or program and not by any summary or description thereof or any provision of this Agreement and that Railway is under no obligation to continue in effect or to fund any such plan or program, except as provided in Paragraph 7 hereof. Railway also shall reimburse Executive for ordinary and necessary travel and other business expenses in accordance with policies and procedures established by Railway. 4. Term. (a) Basic Term. This Agreement shall continue in effect until December 31, 1998, except that this Agreement and Executive's employment hereunder shall terminate automatically on the death or disability of Executive and may be terminated at an earlier time in accordance with Paragraph 4(b) or 4(C) below. For purposes of this Agreement, Executive shall be deemed to be disabled if he is unable to engage in a significant portion of his normal duties for Railway by reason of any physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than six (6) months. (b) Early Termination. Prior to June 30, 1998, Executive may terminate his employment upon any material breach of this Agreement by Railway or KCSI, and Railway or KCSI may terminate Executive's employment "for cause". For purposes of this Agreement, termination "for cause" shall mean termination based upon any one or more of the following: (I) Any material breach of this Agreement by Executive; (ii) Executive's dishonesty involving Railway or KCSI or any subsidiary of Railway or KCSI; (iii) Gross negligence or willful misconduct in the performance of Executive's duties as determined in good faith by the Board; (iv) Willful failure by Executive to follow reasonable instructions of the Board concerning the operations or business of Railway or any subsidiary of Railway; (v) Executive's fraud or criminal activity; or (vi) Embezzlement or misappropriation by Executive. (C) Railway or KCSI may terminate this Agreement and Executive's employment other than for cause immediately upon notice to Executive and in such event, Railway shall provide severance benefits to Executive in accordance with Paragraph 5 below. 5. Severance Payment. In the event of termination of Executive's employment under Paragraph 4(C) of this Agreement, Railway shall continue, for a period of twenty-four (24)months following such termination, (I) to pay to Executive as severance pay a monthly amount equal to one-twelfth (1/12th) of the annual base salary provided for in Section 2(a) of this Agreement, and, (ii) to reimburse Executive for the cost (including state and federal income taxes payable with respect to this reimbursement) of obtaining comparable coverage to the health and life insurance provided under this Agreement, unless Executive is provided comparable coverage in connection with other employment. The foregoing obligations of Railway shall continue until the end of the said twenty-four (24) month period notwithstanding the death or disability of Executive during said period (except, in the event of death, the obligation to reimburse Executive for the cost of life insurance shall not continue). After termination of employment, Executive shall not be entitled to accrue or receive benefits under the KCSI Executive Plan or the KCSI Incentive Compensation Plan with respect to the severance pay provided herein, notwithstanding that benefits under such plans then are still generally available to executive employees of Railway; contributions and benefits under such plans, if any, with respect to the year of termination shall be based solely upon compensation paid to Executive for periods prior to termination. In the year of termination, Executive shall be entitled to participate in the KCSI Profit Sharing Plan and the KCSI Employee Stock Ownership Plan (if Railway employees then still participate in such plans) only if the Executive meets all requirements of such plans for participation in such year. 6. Non-Disclosure; Duties; Survival. (a) Non-Disclosure. During the term of this Agreement and at all times after any termination of this Agreement, Executive shall not, either directly or indirectly, use or disclose any KCSI trade secret, except to the extent necessary for Executive to perform his duties for KCSI or Railway while an employee. For purposes of this Agreement, the term "KCSI trade secret" shall mean any information regarding the business or activities of KCSI or any subsidiary or affiliate, including any formula, pattern, compilation, program, device, method, technique, process, customer list, technical information or other confidential or proprietary information, that (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (b) is the subject of efforts of KCSI or its subsidiary or affiliate that are reasonable under the circumstance to maintain its secrecy. In the event of any breach of this Paragraph 6 by Executive, Railway shall be entitled to terminate any and all remaining severance benefits under Paragraph 5 above and shall be entitled to pursue such other legal and equitable remedies as may be available. (b) Duties. Upon termination of this Agreement by KCSI, Railway or Executive for any reason, Executive shall immediately return to KCSI or Railway all KCSI trade secrets which exist in tangible form and shall sign such written resignations from all positions as an officer, director or member of any committee or board of KCSI and all direct and indirect subsidiaries and affiliates of KCSI as may be required by KCSI or Railway and shall sign such other documents and papers relating to Executive's employment, benefits and benefit plans as KCSI or Railway may reasonably request. (C) Survival. The provisions of Paragraphs 6(a) and (b) of this Agreement shall survive any termination of this Agreement by KCSI, Railway or Executive, and the provisions of Paragraph 5 shall survive any termination of this Agreement as to which Paragraph 5 is applicable. 7. Continuation of Employment Upon Change in Control. (a) Continuation of Employment. Subject to the terms and conditions of this Agreement, in the event of a Change in Control of KCSI (as defined in Paragraph 7(d)) at any time during the term of this Agreement, Executive will remain in the employ of Railway for a period of an additional three years from the date of such Change in Control (the "Control Change Date"). In the event of a Change in Control of KCSI, subject to the terms and conditions of this Agreement, Railway shall, for the three year period (the "Three-Year Period") immediately following the Control Change Date, continue to employ Executive at not less than the executive capacity Executive held immediately prior to the Change in Control of KCSI. During the Three-Year Period, Railway shall continue to pay Executive salary on the same basis, at the same intervals, and at a rate not less than that, paid to Executive at the Control Change Date. (b) Benefits. During the Three-Year Period, Executive shall be entitled to participate, on the basis of his executive position, in each of the following plans (together, the "Specified Benefits") in existence, and in accordance with the terms thereof, at the Control Change Date: (I) any incentive compensation plan; (ii) any benefit plan, and trust fund associated therewith, related to (A) life, health, dental, disability, or accidental death and dismemberment insurance, (B) profit sharing, thrift or deferred savings (including deferred compensation, such as under Sec. 401(k) plans), (C) retirement or pension benefits, (D) ERISA excess benefits and (E) tax favored employee stock ownership (such as under ESOP, TRASOP, TCESO or PAYSOP programs); and (iii) any other benefit plans hereafter made generally available to executives of Executive's level or to the employees of Railway generally. In addition, on the Control Change Date, all 42,000 Performance Shares shall become fully vested without regard to any performance goals yet to be achieved and all outstanding options held by Executive under any stock option plan of KCSI or its affiliates shall become immediately exercisable, except that no option may be exercised earlier than permitted by the governing stock option plan. (c) Payment. With respect to any plan or agreement under which Executive would be entitled at the Control Change Date to receive Specified Benefits as a general obligation of Railway which has not been separately funded (including specifically, but not limited to, those referred to under Paragraphs 7(b)(I) and 7(b)(ii)(D) above), Executive shall receive within five (5) days after such date full payment in cash (discounted to then present value on the basis of a rate of 7.5 percent per annum) of all amounts to which he is then entitled thereunder. (d) Change in Control of KCSI. For purposes of this Agreement, a "Change in Control of KCSI" shall be deemed to have occurred if (a) for any reason at any time less than seventy-five percent (75%) of the members of the Board of Directors of KCSI (the "KCSI Board") shall be individuals who were members of the KCSI Board on the date of this Agreement or individuals whose election, or nomination for election by KCSI's stockholders, was approved by a vote of at least seventy-five percent (75%) of the members of the KCSI Board then still in office who were members of the KCSI Board on the date of this Agreement, or (b) any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934 (the "Exchange Act")) shall have become, according to a public announcement or filing, without the prior approval of the KCSI Board, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of KCSI representing thirty percent (30%) (forty percent (40%) with respect to Paragraph 7(C) hereof) or more (calculated in accordance with Rule 13d-3) of the combined voting power of KCSI's then outstanding voting securities (such "person" hereafter referred to as a "Major Stockholder"); or (C) the stockholders of KCSI shall have approved a merger, consolidation or dissolution of KCSI or a sale, lease, exchange or disposition of all or substantially all of KCSI's assets, or a Major Stockholder shall have proposed any such transaction, unless any such merger, consolidation, dissolution, sale, lease, exchange or disposition shall have been approved by a least seventy-five percent (75%) of the members of the KCSI Board who were either (I) members of the KCSI Board on the date of this Agreement or (ii) elected or nominated by at least seventy-five percent (75%) of the members of the KCSI Board then still in office who were members of the KCSI Board on the date of this Agreement. (e) Termination After Control Change Date. Notwithstanding any other provision of this Agreement, at any time after the Control Change Date, Railway may, through its Board, terminate the employment of Executive (the "Termination"), but within five (5) days of the Termination it shall pay to Executive his full base salary through the Termination, to the extent not theretofore paid, plus a lump sum amount (the "Special Severance Payment") equal to the product (discounted to then present value on the basis of a rate of 7.5% per annum) of his annual base salary in effect at Termination multiplied by the number of years and any portion thereof remaining in the Three-Year Period (or if the balance of the Three-Year Period after Termination is less than one year, for one year, [hereinafter called the "Extended Period"]). Specified Benefits to which Executive was entitled immediately prior to Termination shall continue until the end of the Three-Year Period (or the Extended Period, if applicable); provided that: (a) if any plan pursuant to which Specified Benefits are provided immediately prior to Termination would not permit continued participation by Executive after Termination, then Railway shall pay to Executive within five (5) days after Termination a lump sum payment equal to the amount of Specified Benefits Executive would have received if Executive had been fully vested and a continuing participant in such plan to the end of the Three-Year Period or the Extended Period, if applicable; and (b) if Executive obtains new employment following Termination, then following any waiting period applicable to participation in any plan of the new employer, Executive shall continue to be entitled to receive benefits pursuant to this sentence only to the extent such benefits would exceed those available to Executive under comparable plans of the Executive's new employer (but Executive shall not be required to repay any amounts then already received by him). (f) Resignation After Control Change Date. In the event of a Change in Control of KCSI, thereafter, upon good reason (as defined below), Executive may, at any time during the Three-Year Period or the Extended Period, in his sole discretion, on not less than thirty (30) days' written notice to the Secretary of Railway and effective at the end of such notice period, resign his employment with Railway (the "Resignation"). Within five (5) days of such a Resignation, Railway shall pay to Executive his full base salary through the effective date of such Resignation, to the extent not theretofore paid, plus a lump sum amount equal to the Special Severance Payment (computed as provided in the first sentence of Paragraph 7(e), except that for purposes of such computation all references to "Termination" shall be deemed to be references to "Resignation"). Upon Resignation of Executive, Specified Benefits to which Executive was entitled immediately prior to Resignation shall continue on the same terms and conditions as provided in Paragraph 7(e) in the case of Termination (including equivalent payments provided for therein). For purposes of this Agreement, Executive shall have "good reason" if there occurs without his consent (a) a reduction in the character of the duties assigned to Executive or in Executive's level of work responsibility or conditions; (b) a reduction in Executive's base salary as in effect immediately prior to the Control Change Date or as the same may have been increased thereafter; (c) a failure by Railway or its successor to (I) continue any of the plans of the type referred to in Paragraph 7(b) which shall have been in effect at the Control Change Date (including those providing for Specified Benefits) or to continue Executive as a participant in any of such plans on at least the basis in effect immediately prior to the Control Change Date; or (ii) provide other plans under which at least equivalent compensation and benefits are available and in which Executive continues to participate on a basis at least equivalent to his participation in the Railway plans in effect immediately prior to the Control Change Date; or (iii) to make the payment required under Paragraph 7(c); (d) the relocation of the principal executive offices of Railway or its successor to a location outside the metropolitan area of Kansas City, Missouri or requiring Executive to be based anywhere other than Railway's principal executive office except for required travel on Railway's business to an extent substantially consistent with Executive's obligations immediately prior to the Control Change Date; or (e) any breach by Railway of this Agreement to the extent not previously specified. (g) Termination for Cause After Control Change Date. Notwithstanding any other provision of this Agreement, at any time after the Control Change Date, Executive may be terminated by Railway "for cause" without notice and without any payment hereunder only if such termination is for an act of dishonesty by Executive constituting a felony under the laws of the State of Missouri which resulted or was intended to result in gain or personal enrichment of Executive at Railway's expense. (h) Gross-Up Provision. If any portion of any payments received by Executive from Railway on or after the Control Change Date (whether payable pursuant to the terms of this Agreement or any other plan, agreement or arrangement with KCSI, its successors or any person whose actions result in a Change of Control), shall be subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor statutory provision ("Parachute Payments"), Railway shall pay to Executive, within five (5) days of Executive's Termination or Resignation such additional amounts as are necessary so that, after taking into account any tax imposed by such Section 4999 or any successor statutory provision on any such Parachute Payments (as well as any income tax or Section 4999 tax on payments made pursuant to this sentence), Executive is in the same after-tax position that Executive would have been in if such Section 4999 or any successor statutory provision did not apply and no payments were made pursuant to this sentence. (I) Mitigation and Expenses. (a) Other Employment. After the Control Change Date, Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and except as expressly set forth herein no such other employment, if obtained, or compensation or benefits payable in connection therewith shall reduce any amounts or benefits to which Executive is entitled hereunder. (b) Expenses. If any dispute should arise under this Agreement after the Control Change Date involving an effort by Executive to protect, enforce or secure rights or benefits claimed by Executive hereunder, Railway shall pay (promptly upon demand by Executive accompanied by reasonable evidence of incurrence) all reasonable expenses (including attorneys' fees) incurred by Executive in connection with such dispute, without regard to whether Executive prevails in such dispute except that Executive shall repay Railway any amounts so received if a court having jurisdiction shall make a final, nonappealable determination that Executive acted frivolously or in bad faith by such dispute. To assure Executive that adequate funds will be made available to discharge Railway's obligations set forth in the preceding sentence, Railway has established a trust and upon the occurrence of a Change in Control of KCSI shall promptly deliver to the trustee of such trust to hold in accordance with the terms and conditions thereof that sum which the Board shall have determined is reasonably sufficient for such purpose. (j) Successors in Interest. The rights and obligations of Executive, Railway and KCSI under this Paragraph 7 shall inure to the benefit of and be binding in each and every respect upon the direct and indirect successors and assigns of Railway, KCSI and Executive, regardless of the manner in which such successors of assigns shall succeed to the interest of Railway, KCSI or Executive hereunder, and this Paragraph 7 shall not be terminated by the voluntary or involuntary dissolution of Railway or KCSI or by any merger or consolidation or acquisition involving Railway or KCSI, or upon any transfer of all or substantially all of Railway's or KCSI's assets, or terminated otherwise than in accordance with its terms. In the event of any such merger or consolidation or transfer of assets, the provisions of this Paragraph 7 shall be binding upon and shall inure to the benefit of the surviving corporation or the corporation or other person to which such assets shall be transferred. (k) Prevailing Provisions. On and after the Control Change Date, the provisions of this Paragraph 7 shall control and take precedence over any other provisions of this Agreement which are in conflict with or address the same or a similar subject matter as the provisions of this Paragraph 7. 8. Notice. Notices and all other communications to either party pursuant to this Agreement shall be in writing and shall be deemed to have been given when personally delivered, delivered by telecopy or deposited in the United States mail by certified or registered mail, postage prepaid, addressed, in the case of Railway, to Railway, 114 West 11th Street, Kansas City, Missouri 64105, Attention: Secretary, or, in the case of the Executive, to him at 1188 Hobson Mill Drive, Naperville, Illinois 60540 and a copy to Robert H. Wheeler, Oppenheimer, Wolff and Donnelly, 180 N. Stetson, Two Prudential Plaza, Suite 4500, Chicago, Illinois 60601, or to such other address as a party shall designate by notice to the other party. 9. Amendment. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, waiver, modification or discharge is approved by the Board and agreed to in a writing signed by Executive and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. 10. Successors and Assigns; Assignment by Executive Prohibited. The rights and obligations of Railway under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Railway. Except as provided in Paragraph 7(j), neither this Agreement nor any of the payments or benefits hereunder may be pledged, assigned or transferred by Executive either in whole or in part in any manner, without the prior written consent of Railway. 11. Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 12. Controlling Law and Jurisdiction. The validity, interpretation and performance of this Agreement shall be subject to and construed under the laws of the State of Missouri, without regard to principles of conflicts of law. 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior and contemporaneous agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. THE KANSAS CITY SOUTHERN RAILWAY COMPANY By________________________________________ Landon H. Rowland, Chairman of the Board KANSAS CITY SOUTHERN INDUSTRIES, INC. By________________________________________ Landon H. Rowland, President __________________________________________ Michael R. Haverty