-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BUEXpeTDG+G84ONJZYP3WOcnLgw4r/ISC87ElonCNUxj0F/E82rl+U5hXqATJtob 0bRLYSyQA1ghvaX+g1YaIg== 0000054480-03-000032.txt : 20030513 0000054480-03-000032.hdr.sgml : 20030513 20030513172725 ACCESSION NUMBER: 0000054480-03-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KANSAS CITY SOUTHERN 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: 03696438 BUSINESS ADDRESS: STREET 1: 427 WEST 12TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8169831303 MAIL ADDRESS: STREET 1: 427 WEST 12TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 FORMER COMPANY: FORMER CONFORMED NAME: KANSAS CITY SOUTHERN INDUSTRIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 form10q1q03.txt 1ST QUARTER 2003 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 MARCH 31, 2003 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 (Exact name of Company as specified in its charter) DELAWARE 44-0663509 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 427 WEST 12TH STREET, KANSAS CITY, MISSOURI 64105 (Address of principal executive offices) (Zip Code) (816) 983-1303 (Company'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 Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 APRIL 30, 2003 - -------------------------------------------------------------------------------- COMMON STOCK, $.01 PER SHARE PAR VALUE 61,645,382 SHARES - -------------------------------------------------------------------------------- KANSAS CITY SOUTHERN FORM 10-Q MARCH 31, 2003 INDEX PAGE PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Introductory Comments 2 Consolidated Balance Sheets - March 31, 2003 and December 31, 2002 3 Consolidated Statements of Income - Three Months Ended March 31, 2003 and 2002 4 Per Share Data 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002 5 Consolidated Statement of Changes in Stockholders' Equity - Three Months Ended March 31, 2003 6 Notes to Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25 ITEM 4. CONTROLS AND PROCEDURES 25 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 26 SIGNATURES 27 - ---------- KANSAS CITY SOUTHERN FORM 10-Q MARCH 31, 2003 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTRODUCTORY COMMENTS The Consolidated Financial Statements included herein have been prepared by Kansas City Southern (the "Company" or "KCS"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto, as well as Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q. Results for the three months ended March 31, 2003 are not necessarily indicative of the results expected for the full year 2003. 2 KANSAS CITY SOUTHERN CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS) March 31, December 31, 2003 2002 ------------------ ------------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 64.0 $ 19.0 Accounts receivable, net 108.8 118.5 Inventories 36.3 34.2 Other current assets 19.0 44.5 ------------------ ------------------ Total current assets 228.1 216.2 ------------------ ------------------ Investments 430.3 423.1 Properties (net of $702.8 and $702.3 accumulated depreciation and amortization, respectively) 1,339.8 1,337.4 Goodwill 10.6 10.6 Other assets 18.7 21.5 ------------------ ------------------ Total assets $ 2,027.5 $ 2,008.8 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Debt due within one year $ 10.0 $ 10.0 Accounts and wages payable 44.1 47.7 Accrued liabilities 133.4 128.6 ------------------ ------------------ Total current liabilities 187.5 186.3 ------------------ ------------------ Other Liabilities Long-term debt 571.7 572.6 Deferred income taxes 392.9 392.8 Other liabilities and deferred credits 103.7 104.2 ------------------ ------------------ Total other liabilities 1,068.3 1,069.6 ------------------ ------------------ Stockholders' Equity Preferred stock 6.1 6.1 Common stock 0.6 0.6 Retained earnings 767.1 748.5 Accumulated other comprehensive loss (2.1) (2.3) ------------------ ------------------ Total stockholders' equity 771.7 752.9 ------------------ ------------------ Total liabilities and stockholders' equity $ 2,027.5 $ 2,008.8 ================== ==================
See accompanying notes to consolidated financial statements. 3 KANSAS CITY SOUTHERN CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Ended March 31, --------------------------------------- 2003 2002 ------------------ ------------------ Revenues $ 140.2 $ 143.9 Costs and expenses Compensation and benefits 50.5 49.4 Depreciation and amortization 15.9 14.9 Purchased services 15.1 14.0 Operating leases 14.3 13.5 Fuel 12.8 9.5 Casualties and insurance 8.1 7.9 Car hire 2.2 5.2 Other 14.5 16.1 ------------------ ------------------ Total costs and expenses 133.4 130.5 ------------------ ------------------ Operating income 6.8 13.4 Equity in net earnings of unconsolidated affiliates: Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. 6.9 4.8 Other 0.1 0.1 Gain on sale of Mexrail, Inc. - 4.4 Interest expense (11.5) (11.3) Other income 1.3 4.4 ------------------ ------------------ Income before income taxes and cumulative effect of accounting change 3.6 15.8 Income tax provision (benefit) (1.1) 4.1 ------------------ ------------------ Income before cumulative effect of accounting change 4.7 11.7 Cumulative effect of accounting change, net of income taxes of $5.6 million 8.9 - ------------------ ------------------ Net income $ 13.6 $ 11.7 ================== ================== PER SHARE DATA Basic earnings per Common share Income before cumulative effect of accounting change $ 0.08 $ 0.20 Cumulative effect of accounting change, net of income taxes 0.14 - ------------------ ------------------ Total basic earnings per Common share $ 0.22 $ 0.20 ================== ================== Diluted earnings per Common share Income before cumulative effect of accounting change $ 0.08 $ 0.19 Cumulative effect of accounting change, net of income taxes 0.14 - ------------------ ------------------ Total diluted earnings per Common share $ 0.22 $ 0.19 ================== ================== Weighted average Common shares outstanding (in thousands) Basic 61,427 59,777 Potential dilutive Common shares 1,436 2,065 ------------------ ------------------ Diluted 62,863 61,842 ================== ================== Dividends per Preferred share $ .25 $ .25
See accompanying notes to consolidated financial statements. 4 KANSAS CITY SOUTHERN CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS) (UNAUDITED) Three Months Ended March 31, --------------------------------------- 2003 2002 ------------------ ------------------ CASH FLOWS PROVIDED BY (USED FOR): OPERATING ACTIVITIES: Net income $ 13.6 $ 11.7 Adjustments to reconcile net income to net cash Provided by operating activities Depreciation and amortization 15.9 14.9 Deferred income taxes 7.0 1.0 Equity in undistributed earnings of unconsolidated affiliates (7.0) (4.9) Gain on sale of Mexrail, Inc. - (4.4) Gain on sale of property (1.3) (4.5) Cumulative effect of accounting change (8.9) - Tax benefit realized upon exercise of stock options 0.8 0.8 Changes in working capital items Accounts receivable 9.6 (0.6) Inventories (2.1) (0.4) Other current assets 15.6 26.7 Accounts and wages payable (1.8) (8.7) Accrued liabilities 7.9 5.1 Other, net (0.8) (0.5) ------------------ ------------------ Net cash provided by operating activities 48.5 36.2 ------------------ ------------------ INVESTING ACTIVITIES: Property acquisitions (12.1) (17.4) Proceeds from disposal of property 7.5 9.3 Investment in and loans to affiliates - (1.8) Proceeds from sale of Mexrail, Inc. - 31.4 Other, net 1.0 1.3 ------------------ ------------------ Net cash provided by (used for) investing activities (3.6) 22.8 ------------------ ------------------ FINANCING ACTIVITIES: Repayment of long-term debt (0.8) (30.5) Proceeds from stock plans 1.6 2.1 Cash dividends paid (0.1) (0.1) Other, net (0.6) 1.6 ------------------ ------------------ Net cash provided by (used for) financing activities 0.1 (26.9) ------------------ ------------------ CASH AND CASH EQUIVALENTS: Net increase in cash and cash equivalents 45.0 32.1 At beginning of year 19.0 24.7 ------------------ ------------------ At end of period $ 64.0 $ 56.8 ================== ==================
See accompanying notes to consolidated financial statements. 5 KANSAS CITY SOUTHERN CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) (UNAUDITED) Accumulated $25 Par $.01 Par other Preferred Common Retained comprehensive stock stock earnings income (loss) Total ------------- -------------- --------------- -------------- ------------- Balance at December 31, 2002 $ 6.1 $ 0.6 $ 748.5 $ (2.3) $ 752.9 Comprehensive income: Net income 13.6 Change in fair value of cash flow hedge (0.1) Amortization of accumulated other comprehensive income (loss) related to Interest rate swap 0.3 Comprehensive income 13.8 Dividends (0.1) (0.1) Options exercised and stock subscribed 5.1 5.1 ------------- -------------- --------------- -------------- ------------- Balance at March 31, 2003 $ 6.1 $ 0.6 $ 767.1 $ (2.1) $ 771.7 ============= ============== =============== ============== =============
See accompanying notes to consolidated financial statements. 6 KANSAS CITY SOUTHERN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND INTERIM FINANCIAL STATEMENTS. In the opinion of the management of KCS, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal closing procedures) necessary to present fairly the financial position of the Company and its subsidiary companies as of March 31, 2003 and December 31, 2002, the results of its operations for the three months ended March 31, 2003 and 2002, its cash flows for the three months ended March 31, 2003 and 2002, and its changes in stockholders' equity for the three months ended March 31, 2003. The accompanying consolidated financial statements have been prepared consistently with accounting policies described in Note 2 to the consolidated financial statements included in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2002 except as discussed herein in note 7. The results of operations for the three month period ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year 2003. Certain comparative prior year amounts in the consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not impact net income. 2. EARNINGS PER SHARE DATA. The effect of stock options to employees represent the only difference between the weighted average shares used for the basic earnings per share computation compared to the diluted earnings per share computation. The following is a reconciliation from the weighted average shares used for the basic earnings per share computation and the diluted earnings per share computation for the three months ended March 31, 2003 and 2002, respectively (in thousands): Three Months Ended March 31, -------------------------------- 2003 2002 --------------- --------------- Basic shares 61,427 59,777 Effect of dilution: Stock options 1,436 2,065 --------------- --------------- Diluted shares 62,863 61,842 =============== =============== Shares excluded from diluted computation 1,041 20 --------------- --------------- Shares were excluded from the applicable periods diluted earnings per share computation because the exercise prices were greater than the average market price of the common shares. Preferred dividends, which were not material for the periods presented, are the only adjustments that affect the numerator of the diluted earnings per share computation. 3. INVESTMENTS. Investments in unconsolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control. Investments in unconsolidated affiliates at March 31, 2003 include, among others, equity interests in Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), Southern Capital Corporation, LLC ("Southern Capital"), and the Panama Canal Railway Company ("PCRC"). The Company, our Mexican partner, Grupo TMM, S.A. ("Grupo TMM"), and certain of Grupo TMM's affiliates entered into an agreement on February 27, 2002 with TFM, S.A. de C.V. ("TFM") to sell to TFM all of the common stock of Mexrail, Inc. ("Mexrail"), a former 49% unconsolidated affiliate of the Company. Mexrail owns the northern half of the international railway bridge at Laredo and all of the common stock of The Texas-Mexican Railway Company ("Tex-Mex"). The sale closed on March 27, 2002 and the Company received approximately $31.4 million for its 49% interest in Mexrail. The Company used the proceeds from the sale to reduce debt. Although the Company no longer directly owns 49% of Mexrail, it retains an indirect ownership through its ownership of Grupo TFM. The Company's share of the proceeds from the sale of Mexrail to TFM exceeded the carrying value of the Company's investment in Mexrail by $11.2 million. The Company recognized a $4.4 million gain on the sale of Mexrail to TFM in the first quarter of 2002, while the remaining $6.8 million of excess proceeds was deferred and is being amortized into net income over 20 years (see note 10 - Subsequent Events). The Company is party to certain agreements with Grupo TMM covering the Grupo TFM joint venture. These agreements contain "change in control" provisions, provisions intended to preserve the Company's and Grupo TMM's proportionate ownership of the joint venture, and super-majority provisions with respect to voting on certain significant transactions. Such agreements also provide a right of first refusal in the event that either party initiates a divestiture of its equity 7 interest in Grupo TFM and a prohibition on transfers to competitors. Under certain circumstances, such agreements could affect the Company's ownership percentage and rights in these equity affiliates. Condensed financial information of certain unconsolidated affiliates is shown below. All amounts, including those for Grupo TFM, are presented under U.S. GAAP. Financial information of immaterial unconsolidated affiliates has been omitted: FINANCIAL CONDITION (DOLLARS IN MILLIONS): March 31, 2003 December 31, 2002 --------------------------------------- -------------------------------------- Southern Southern PCRC Grupo TFM Capital PCRC Grupo TFM Capital ------------- ----------- ---------- ------------ ------------ ------------- Current assets $ 6.0 $ 268.1 $ 14.1 $ 2.7 $ 265.2 $ 5.5 Non-current assets 86.1 2,074.6 135.9 88.2 2,061.3 139.4 ------------- ----------- ----------- ----------- ------------ ------------ Assets $ 92.1 $ 2,342.7 $ 150.0 $ 90.9 $ 2,326.5 $ 144.9 ============= ========== ============ =========== ============ ============ Current liabilities $ 3.1 $ 172.6 $ 3.3 $ 5.1 $ 147.3 $ - Non-current liabilities 75.0 1,017.5 95.0 70.8 1,045.3 95.1 Minority interest - 351.7 - - 348.0 - Equity of stockholders and partners 14.0 800.9 51.7 15.0 785.9 49.8 ------------- ----------- ----------- ------------ ------------ ------------- Liabilities and equity $ 92.1 $ 2,342.7 $ 150.0 $ 90.9 $ 2,326.5 $ 144.9 ============= =========== =========== ============ ============ ============= KCS's investment $ 7.0 $ 386.8 $ 25.8 $ 7.5 $ 380.1 $ 24.9 ------------- ------------------------ ------------ ------------ -------------
OPERATING RESULTS (DOLLARS IN MILLIONS): Three Months Ended March 31, ---------------------------- 2003 2002 ---------- ---------- Revenues: Grupo TFM $ 168.5 $ 170.8 Southern Capital 8.0 7.5 PCRC 2.4 1.0 Operating costs and expenses: Grupo TFM $ 136.7 $ 135.0 Southern Capital 7.0 5.7 PCRC 3.2 2.9 Net income (loss): Grupo TFM $ 15.0 $ 13.0 Southern Capital 1.0 1.9 PCRC (0.8) (1.8) 4. NONCASH INVESTING AND FINANCING ACTIVITIES. The Company initiated the Fourteenth Offering of KCS common stock under the Employee Stock Purchase Plan ("ESPP") during 2002. Stock subscribed under the Fourteenth Offering will be issued to employees in 2004 and is being paid for through employee payroll deductions in 2003. During the first three months of 2003, the Company has received approximately $0.7 million from payroll deductions associated with the Fourteenth Offering of the ESPP. In the first quarter of 2003, the Company issued approximately 337,917 shares of KCS common stock under the Thirteenth Offering of the ESPP. These shares, totaling a purchase price of approximately $3.5 million, were subscribed and paid for through employee payroll deductions in 2002. 5. DERIVATIVE FINANCIAL INSTRUMENTS. The Company does not engage in the trading of derivatives. The Company's objective is to manage its fuel and interest rate risk through the use of derivative instruments as deemed appropriate. At March 31, 2003, the Company had four fuel swap agreements for a notional amount of approximately 7.5 million gallons of fuel. Under the terms of these swaps, the Company will receive a variable price based upon an average of the spot prices calculated on a monthly basis as reported through a petroleum price reporting service. 8 A summary of these swap agreements to which The Kansas City Southern Railway Company ("KCSR") was a party as of March 31, 2003 is as follows: Trade Date Notional Amount Fixed pay per gallon Expiration Date -------------------- --------------------------- ----------------------- --------------------- November 14, 2002 2.5 million gallons 62.5(cents) December 31, 2003 January 14, 2003 2.5 million gallons 73.8(cents) June 30, 2003 March 18, 2003 1.9 million gallons 65.0(cents) December 31, 2004 March 21, 2003 0.6 million gallons 64.0(cents) June 30, 2004 Additionally, in April of 2003, the Company entered into three additional fuel swaps. A summary of these additional swap agreements is as follows: Trade Date Notional Amount Fixed pay per gallon Expiration Date -------------------- --------------------------- ----------------------- ---------------------- April 11, 2003 0.6 million gallons 67.8(cents) September 30, 2003 April 11, 2003 0.6 million gallons 68.7(cents) December 31, 2003 April 11, 2003 2.5 million gallons 66.0(cents) December 31, 2004
Cash settlements of these swaps occur on a monthly basis on the fifth business day of the month following the month in which the settlement is calculated. These swaps, combined with the Company's forward purchase policies, are designed to hedge the Company's exposure to movements in the price of No. 2 Gulf Coast Heating Oil on which the Company's diesel fuel prices are determined. Using these risk management strategies, the Company is able to limit its risk to rising diesel fuel prices. As of March 31, 2003, the fair market value of the swaps was $0.2 million. For the years ended December 31, 2002 and 2001, KCSR consumed 55.3 million gallons and 57.6 million gallons of fuel, respectively. 6. STOCK PLANS. Proceeds received from the exercise of stock options or subscriptions are credited to the appropriate capital accounts in the year they are exercised. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") in October 1995. This statement allows companies to continue under the approach set forth in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"), for recognizing stock-based compensation expense in the financial statements, but encourages companies to adopt the fair value method of accounting for employee stock options. Under SFAS 123, companies must either record compensation expense based on the estimated grant date fair value of stock options granted or disclose the impact on net income as if they had adopted the fair value method (for grants subsequent to December 31, 1994.) If KCS had measured compensation cost for the KCS stock options granted to its employees and shares subscribed by its employees under the KCS employee stock purchase plan, under the fair value based method prescribed by SFAS 123, net income and earnings per share would have been as follows: Three Months ended March 31, ---------------------------- 2003 2002 ----------- --------------- NET INCOME (IN MILLIONS): $ 13.6 $ 11.7 As reported Total stock-based compensation expense determined under fair value method, net of income taxes (0.5) (0.5) ----------- --------------- Pro forma 13.1 $ 11.2 EARNINGS PER BASIC SHARE: As reported $ 0.22 $ 0.20 Pro forma 0.21 $ 0.19 EARNINGS PER DILUTED SHARE: As reported $ 0.22 $ 0.19 Pro forma 0.21 $ 0.18 7. COMMITMENTS AND CONTINGENCIES. The Company has had no significant changes in its outstanding litigation or other commitments and contingencies from that previously reported in Note 11 of the Company's Annual Report on Form 10-K for the year ended December 31, 2002. The following provides an update of the Houston cases. 9 HOUSTON CASES. In August 2000, KCSR and certain of its affiliates were added as defendants in lawsuits pending in Jefferson and Harris Counties, Texas. These lawsuits allege damage to approximately 3,000 plaintiffs as a result of an alleged toxic chemical release from a tank car in Houston, Texas on August 21, 1998. Litigation involving the shipper and the delivering carrier had been pending for some time, but KCSR, which handled the car during the course of its transport, had not previously been named a defendant. On June 28, 2001, KCSR reached a final settlement with the 1,664 plaintiffs in the lawsuit filed in Jefferson County, Texas. In 2002, KCSR settled with virtually all of the plaintiffs in the lawsuit filed in the 164th Judicial District Court of Harris County, Texas, for approximately $0.3 million. The remaining plaintiffs have indicated that they intend to retain new counsel, yet to date, KCS has not received any notice of new counsel entering the case. 8. NEW ACCOUNTING PRONOUNCEMENTS. In June 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 is effective for fiscal years beginning after June 15, 2002. Under SFAS 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. KCSR, along with other Class I railroads, depreciates track structure (rail, ties, and other track material) in accordance with regulations promulgated by the Surface Transportation Board ("STB"). These regulations require KCSR to depreciate track structure to a net salvage value (gross estimated salvage value less estimated costs to remove the track structure at the end of its useful life). For certain track structure such as ties, with little or no gross salvage value, this practice ultimately results in depreciating an asset below zero, and thus, in effect, results in a liability. Under the requirements of SFAS 143, in the absence of a legal obligation to remove the track structure, such accounting practice is prohibited. The Company adopted the provisions of SFAS 143 in the first quarter of 2003, and, as a result, reviewed its depreciation of track structures to determine instances where the depreciation of removal costs has resulted or would be expected (based on the current depreciation rate) to result in the depreciation of an asset below zero when considering net salvage value. As a result of this review, the Company has estimated the excess depreciation recorded on such assets and has recorded this amount as a reduction in accumulated depreciation of $14.5 million and as a cumulative effect of an accounting change of $8.9 million (net of taxes of $5.6 million) as required by SFAS 143 in the first quarter of 2003. Additionally, depreciation rates applied to certain track structure elements that were previously yielding a negative salvage value have been modified to comply with the provisions of SFAS 143. For the three months ended March 31, 2003, this resulted in a reduction in depreciation expense of approximately $0.3 million. Management currently estimates the net effect of the adoption of SFAS 143 on full year depreciation expense to be approximately $1.4 million. A summary of the pro forma net income and earnings per share had SFAS 143 been applied retroactively is as follows: Three Months Ended March 31, ------------------------------------- 2003 2002 ------------------ ------------------ NET INCOME (IN MILLIONS) As reported $ 13.6 $ 11.7 Pro forma $ 4.7 $ 11.9 EARNINGS PER BASIC SHARE: As reported $ 0.22 $ 0.20 Pro forma $ 0.08 $ 0.20 EARNINGS PER DILUTED SHARE: As reported $ 0.22 $ 0.19 Pro forma $ 0.08 $ 0.19 In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148 provides two additional transition methods for entities that adopt the method of accounting for stock-based compensation as defined in SFAS 123. Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require disclosures in interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method on results of operations. The Company is currently evaluating the provisions of this new accounting pronouncement and does not expect this pronouncement, if adopted, to have a material impact on its consolidated results of operations, financial position, or cash flows. See note 6 for interim disclosures required under SFAS 148. 10 9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION. In September 2000, KCSR issued $200 million of 9 1/2% senior notes due 2008. In addition, in June 2002, KCSR issued $200 million of 7 1/2% senior notes due 2009. Both of these note issues are unsecured obligations of KCSR, however, they are also jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by KCS and certain of the subsidiaries (all of which are wholly-owned) within the KCS consolidated group. For each of these note issues, KCS registered exchange notes with the SEC that have substantially identical terms and associated guarantees and all of the initial senior notes for each issue have been exchanged for $200 million of registered exchange notes for each respective note issue. The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 "Financial statements of guarantors and issuers of guaranteed securities registered or being registered." This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. CONDENSED CONSOLIDATING STATEMENTS OF INCOME Three months ended March 31, 2003 (dollars in millions) ---------------------------------------------------------------------------------- Non- Subsidiary Guarantor Guarantor Consolidating Consolidated Parent Issuer Subsidiaries Subsidiaries Adjustments KCS ----------- ------------- ------------- ------------- -------------- ------------- Revenues $ - $ 138.7 $ 4.8 $ 6.9 $ (10.2) $ 140.2 Costs and expenses 2.3 129.5 4.7 7.1 (10.2) 133.4 ----------- ------------- ------------- ------------- -------------- ------------- Operating income (loss) (2.3) 9.2 0.1 (0.2) - 6.8 Equity in net earnings (losses) of unconsolidated affiliates and subsidiaries 6.3 7.0 - 6.9 (13.2) 7.0 Interest expense (0.2) (11.2) (0.1) - - (11.5) Other income 0.1 1.0 - 0.2 - 1.3 ----------- ------------- ------------- ------------- -------------- ------------- Income (loss) before income taxes and cumulative effect of accounting change 3.9 6.0 - 6.9 (13.2) 3.6 Income tax provision (benefit) (0.8) (0.3) - - - (1.1) ----------- ------------- ------------- ------------- -------------- ------------- Income (loss) before cumulative effect of accounting change 4.7 6.3 - 6.9 (13.2) 4.7 Cumulative effect of accounting change, net of income taxes 8.9 8.9 - - (8.9) 8.9 ----------- ------------- ------------- ------------- -------------- ------------- Net income (loss) $ 13.6 $ 15.2 $ - $ 6.9 $ (22.1) $ 13.6 =========== ============= ============= ============= ============== ============= Three months ended March 31, 2002 (dollars in millions) ---------------------------------------------------------------------------------- Non- Subsidiary Guarantor Guarantor Consolidating Consolidated Parent Issuer Subsidiaries Subsidiaries Adjustments KCS ----------- ------------- ------------- ------------- -------------- ------------- Revenues $ - $ 142.4 $ 3.9 $ 3.7 $ (6.1) $ 143.9 Costs and expenses 2.2 125.3 5.4 3.7 (6.1) 130.5 ----------- ------------- ------------- ------------- -------------- ------------- Operating income (loss) (2.2) 17.1 (1.5) - - 13.4 Equity in net earnings (losses) of unconsolidated affiliates and Subsidiaries 8.9 4.7 - 4.9 (13.6) 4.9 Gain on Sale of Mexrail 4.4 4.4 - - (4.4) 4.4 Interest expense (0.3) (10.8) (0.2) (0.1) 0.1 (11.3) Other income 0.1 4.3 0.1 - (0.1) 4.4 ----------- ------------- ------------- ------------- -------------- ------------- Income (loss) before income taxes 10.9 19.7 (1.6) 4.8 (18.0) 15.8 Income tax provision (benefit) (0.8) 5.5 (0.6) - - 4.1 ----------- ------------- ------------- ------------- -------------- ------------- Net income $ 11.7 $ 14.2 $ (1.0) $ 4.8 $ (18.0) $ 11.7 =========== ============= ============= ============= ============== =============
11 CONDENSED CONSOLIDATING BALANCE SHEETS As of March 31, 2003 (dollars in millions) ------------------------------------------------------------------------------------ Non- Subsidiary Guarantor Guarantor Consolidating Consolidated Parent Issuer Subsidiaries Subsidiaries Adjustments KCS ------------- ------------- ------------- ------------- -------------- ------------- ASSETS Current assets $ 64.8 $ 247.7 $ 15.6 $ 1.9 $ (101.9) $ 228.1 Investments 784.4 419.2 - 463.8 (1,237.1) 430.3 Properties, net 0.2 1335.6 4.0 - - 1,339.8 Goodwill and other assets 2.9 28.9 1.5 5.8 (9.8) 29.3 ------------- ------------- ------------- ------------- -------------- ------------- Total assets $ 852.3 $ 2,031.4 $ 21.1 $ 471.5 $ (1,348.8) $ 2,027.5 ============= ============= ============= ============= ============== ============= LIABILITIES AND EQUITY Current liabilities $ 3.2 $ 251.8 $ 6.9 $ 26.5 $ (100.9) $ 187.5 Long-term debt 1.2 568.7 1.8 - - 571.7 Payable to affiliates 37.0 - 0.5 - (37.5) - Deferred income taxes 7.8 392.1 0.3 2.5 (9.8) 392.9 Other liabilities 31.5 43.6 4.1 25.5 (1.0) 103.7 Stockholders' equity 771.6 775.2 7.5 417.0 (1,199.6) 771.7 ------------- ------------- ------------- ------------- -------------- ------------- Total liabilities and equity $ 852.3 $ 2,031.4 $ 21.1 $ 471.5 $ (1,348.8) $ 2,027.5 ============= ============= ============= ============= ============== ============= As of December 31, 2002 (dollars in millions) ------------------------------------------------------------------------------------ Non- Subsidiary Guarantor Guarantor Consolidating Consolidated Parent Issuer Subsidiaries Subsidiaries Adjustments KCS ------------- ------------- ------------- ------------- -------------- ------------- ASSETS Current assets $ 43.3 $ 234.7 $ 17.6 $ 13.0 $ (92.4) $ 216.2 Investments 769.1 412.1 - 432.5 (1,190.6) 423.1 Properties, net 0.2 1,333.2 3.9 0.1 - 1,337.4 Goodwill and other assets 1.6 30.5 1.7 8.1 (9.8) 32.1 ------------- ------------- ------------- ------------- -------------- ------------- Total assets $ 814.2 $ 2,010.5 $ 23.2 $ 453.7 $ (1,292.8) $ 2,008.8 ============= ============= ============= ============= ============== ============= LIABILITIES AND EQUITY Current liabilities $ 7.2 $ 245.3 $ 9.1 $ 16.2 $ (91.5) $ 186.3 Long-term debt 1.2 569.6 1.8 - - 572.6 Payable to affiliates 12.8 - 0.6 - (13.4) - Deferred income taxes 8.6 391.1 0.3 2.6 (9.8) 392.8 Other liabilities 31.5 44.7 4.0 25.1 (1.1) 104.2 Stockholders' equity 752.9 759.8 7.4 409.8 (1,177.0) 752.9 ------------- ------------- ------------- ------------- -------------- ------------- Total liabilities and equity $ 814.2 $ 2,010.5 $ 23.2 $ 453.7 $ (1,292.8) $ 2,008.8 ============= ============= ============= ============= ============== =============
12 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Three months ended March 31, 2003 (dollars in millions) ------------------------------------------------------------------------------------ Non- Subsidiary Guarantor Guarantor Consolidating Consolidated Parent Issuer Subsidiaries Subsidiaries Adjustments KCS ------------- ------------- ------------- ------------- -------------- ------------- Net cash flows provided by (used for) operating activities: $ (21.0) $ 50.3 $ (1.5) $ 21.4 $ (0.7) $ 48.5 ------------- ------------- ------------- ------------- -------------- ------------- Investing activities: Property acquisitions - (12.0) (0.1) - - (12.1) Proceeds from disposal of property - 7.5 - - - 7.5 Investments in and loans to affiliates - - - (24.2) 24.2 - Proceeds from sale of investments - - - - - - Other, net (2.3) 0.1 0.1 2.4 0.7 1.0 ------------- ------------- ------------- ------------- -------------- ------------- Net (2.3) (4.4) - (21.8) 24.9 (3.6) ------------- ------------- ------------- ------------- -------------- ------------- Financing activities: Proceeds from issuance of long-term debt - - - - - - Repayment of long-term debt - (0.8) - - - (0.8) Proceeds from loans from affiliates 24.2 - - - (24.2) - Repayment of loans from affiliates - - - - - - Proceeds from stock plans 1.6 - - - - 1.6 Cash dividends paid (0.1) - - - - (0.1) Other, net (1.5) 0.4 0.1 0.4 - (0.6) ------------- ------------- ------------- ------------- -------------- ------------- Net 24.2 (0.4) 0.1 0.4 (24.2) 0.1 ------------- ------------- ------------- ------------- -------------- ------------- Cash and cash equivalents: Net increase (decrease) 0.9 45.5 (1.4) - - 45.0 At beginning of period (10.8) 17.4 11.8 0.6 - 19.0 ------------- ------------- ------------- ------------- -------------- ------------- At end of period $ (9.9) $ 62.9 $ 10.4 $ 0.6 $ - $ 64.0 ============= ============= ============= ============= ============== ============= Three months ended March 31, 2002 (dollars in millions) ------------------------------------------------------------------------------------ Non- Subsidiary Guarantor Guarantor Consolidating Consolidated Parent Issuer Subsidiaries Subsidiaries Adjustments KCS ------------- ------------- ------------- ------------- -------------- ------------- Net cash flows provided by (used for) operating activities: $ (10.5) $ 39.3 $ (0.9) $ 8.2 $ 0.1 $ 36.2 ------------- ------------- ------------- ------------- -------------- ------------- Investing activities: Property acquisitions - (17.3) (0.1) - - (17.4) Proceeds from disposal of property - 9.3 - - - 9.3 Investments in and loans to affiliates - - - (9.1) 7.3 (1.8) Proceeds from sale of investments - 31.4 - - - 31.4 Other, net (0.1) 0.8 0.7 - (0.1) 1.3 ------------- ------------- ------------- ------------- -------------- ------------- Net (0.1) 24.2 0.6 (9.1) 7.2 22.8 ------------- ------------- ------------- ------------- -------------- ------------- Financing activities: Proceeds from issuance of long-term debt - - - - - - Repayment of long-term debt - (30.4) - (0.1) - (30.5) Proceeds from loans from affiliates 7.3 - - - (7.3) - Proceeds from stock plans 2.1 - - - - 2.1 Cash dividends paid (0.1) - - - - (0.1) Other, net 0.4 - 0.1 1.1 - 1.6 ------------- ------------- ------------- ------------- -------------- ------------- Net 9.7 (30.4) 0.1 1.0 (7.3) (26.9) ------------- ------------- ------------- ------------- -------------- ------------- Cash and cash equivalents: Net increase (decrease) (0.9) 33.1 (0.2) 0.1 - 32.1 At beginning of period 1.3 23.2 - 0.2 - 24.7 ------------- ------------- ------------- ------------- -------------- ------------- At end of period $ 0.4 $ 56.3 $ (0.2) $ 0.3 $ - $ 56.8 ============= ============= ============= ============= ============== =============
13 10. SUBSEQUENT EVENTS. KCS AND TMM AGREE TO PLACE TFM, THE TEXAS MEXICAN RAILWAY COMPANY AND THE KANSAS CITY SOUTHERN RAILWAY COMPANY UNDER COMMON CONTROL. On April 21, 2003, the Company and Grupo TMM, S.A. ("Grupo TMM") announced a series of agreements that have been approved by their respective boards of directors, that will, following shareholder and regulatory approval, place KCSR, Tex-Mex, and TFM, under the common control of a single transportation holding company, NAFTA Rail, to be headquartered in Kansas City, Missouri. As part of the transaction, subject to shareholder approval, KCS will change its name to NAFTA Rail. The common control of KCSR and Tex-Mex under NAFTA Rail requires approval of the STB in the United States. Additionally, the acquisition of Grupo TFM shares by NAFTA Rail requires the approval of the Antitrust Commission and the Foreign Investment Commission in Mexico. Upon consummation of the transactions contemplated by the series of agreements referred to above, Mr. Michael R. Haverty, Chairman, President and Chief Executive Officer of KCS, will serve as Chairman, President, and Chief Executive Officer of NAFTA Rail. Mr. Jose Serrano, Chairman of the Board and Chief Executive Officer of Grupo TMM, will serve as Vice Chairman of NAFTA Rail and Chairman of TFM. Also joining the NAFTA Rail board of directors will be Mr. Javier Segovia, President of Grupo TMM. The remainder of the 10-person board will be made up of existing KCS directors. Mr. Mario Mohar will remain as General Director of TFM. Upon the terms and subject to the conditions of the agreement to acquire Grupo TFM, TMM Multimodal, S.A. de C.V., a subsidiary of Grupo TMM, will receive 18 million shares of Class A Common Stock of the Company, representing, at the time of the agreement, approximately 22 percent (20% voting, 2% subject to voting restrictions) of the Company, $200 million in cash (with the option to pay up to $80 million of the $200 million cash component due at close to Grupo TMM with up to 6.4 million additional shares of Company stock) and a potential incentive payment of between $100 million and $180 million based on the resolution of certain future contingencies. Grupo TFM owns 80 percent of the common stock of TFM and all the shares entitled to full voting rights. The Mexican Government owns the remaining 20% of TFM. Upon the terms and subject to the conditions of the agreement to acquire Tex-Mex, on May 9, 2003, the Company acquired from TFM 51% of the outstanding stock of Mexrail, Inc. ("Mexrail"), a wholly-owned subsidiary of TFM, for $32.7 million. Tex-Mex is a wholly-owned subsidiary of Mexrail. In addition, the Company has an exclusive option until December 31, 2005 to purchase the remaining outstanding shares of Mexrail as of the date of the exercise of the option. The Company has deposited the initial purchased shares of Mexrail into an irrevocable voting trust pending obtaining approval by the STB of KCS's request to acquire control of Tex-Mex. TFM has a right to repurchase all of the Mexrail stock acquired by the Company at any time for the purchase price paid by the Company, subject to any STB orders or directions. Upon any such repurchase, the agreement automatically terminates. If not exercised within two years of the date of the agreement, TFM's repurchase right expires. KCSR will remain headquartered in Kansas City, Missouri; Tex-Mex in Laredo, Texas; and TFM in Mexico City. KANSAS CITY SOUTHERN RECEIVES APPROVAL OF AMENDMENT OF CREDIT AGREEMENT. On April 3, 2003, the Company received approval of the Company's request for an amendment to certain provisions under its Amended and Restated Credit Agreement from more than 96 percent of the lenders under the agreement. As discussed in the Company's 2002 Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission, Grupo TMM and KCS, or either Grupo TMM or KCS, could be required to purchase the Mexican government's interest in TFM after October 31, 2003. The Company requested an amendment to its Amended and Restated Credit Agreement dated June 12, 2002, in order to provide flexibility in structuring the funding for this transaction. On April 28, the Company entered into a second amendment to its Amended and Restated Credit Agreement under which 93 percent of the lenders specifically approved the Company's investment in further equity interests of Grupo TFM, in equity interests representing 51% of Mexrail's issued and outstanding capital stock and the use of the Company's cash to acquire Mexrail, in connection with the proposed transactions to place KCSR, Tex-Mex and TFM under common control. KCS SELLS SHARES OF REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK. On May 5, 2003, the Company completed the sale of $200 million of Redeemable Cumulative Convertible Perpetual Preferred Stock with a liquidation preference of $500 per share in a private offering. The convertible preferred stock offering was made only by means of an offering memorandum pursuant to Rule 144A. Dividends on the convertible preferred stock will be cumulative and will be payable quarterly at an annual rate of 4.25% of the liquidation preference, when, as and if declared by the Company's 14 board of directors. Accumulated unpaid dividends will cumulate dividends at the same rate as dividends cumulate on the convertible preferred stock. Each share of the convertible preferred stock will be convertible, under certain conditions, and subject to adjustment under certain conditions, into 33.4728 shares of the Company's common stock. On or after May 20, 2008, the Company will have the option to redeem any or all of the preferred stock, subject to certain conditions. Under certain circumstances, at the option of the holders of the preferred stock, the Company may be required to purchase shares of the convertible preferred stock from the holders. The net proceeds from the offering of the convertible preferred stock are expected to be used to pay a portion of the purchase price for the proposed acquisition of a controlling interest of Grupo TFM. The preferred stock, and the common stock to be issued on the conversion of the preferred stock, have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW THE DISCUSSION SET FORTH BELOW, AS WELL AS OTHER PORTIONS OF THIS FORM 10-Q, CONTAINS FORWARD-LOOKING COMMENTS THAT ARE NOT BASED UPON HISTORICAL INFORMATION. SUCH FORWARD-LOOKING COMMENTS ARE BASED UPON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT AND MANAGEMENT'S PERCEPTION THEREOF AS OF THE DATE OF THIS FORM 10-Q. READERS CAN IDENTIFY THESE FORWARD-LOOKING COMMENTS BY THE USE OF SUCH VERBS AS EXPECTS, ANTICIPATES, BELIEVES OR SIMILAR VERBS OR CONJUGATIONS OF SUCH VERBS. THE ACTUAL RESULTS OF OPERATIONS OF KANSAS CITY SOUTHERN ("KCS" OR THE "COMPANY") COULD MATERIALLY DIFFER FROM THOSE INDICATED IN FORWARD-LOOKING COMMENTS. THE DIFFERENCES COULD BE CAUSED BY A NUMBER OF FACTORS OR COMBINATION OF FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE FACTORS IDENTIFIED IN THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED DECEMBER 11, 2001, WHICH IS ON FILE WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION (FILE NO. 1-4717) AND IS HEREBY INCORPORATED BY REFERENCE HEREIN. READERS ARE STRONGLY ENCOURAGED TO CONSIDER THESE FACTORS WHEN EVALUATING FORWARD-LOOKING COMMENTS. THE COMPANY WILL NOT UPDATE ANY FORWARD-LOOKING COMMENTS SET FORTH IN THIS FORM 10-Q. THE DISCUSSION HEREIN IS INTENDED TO CLARIFY AND FOCUS ON THE COMPANY'S RESULTS OF OPERATIONS, CERTAIN CHANGES IN ITS FINANCIAL POSITION, LIQUIDITY, CAPITAL STRUCTURE AND BUSINESS DEVELOPMENTS FOR THE PERIODS COVERED BY THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THIS FORM 10-Q. THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THESE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO, AND IS QUALIFIED BY REFERENCE THERETO. GENERAL KCS, a Delaware corporation, is a holding company with principal subsidiaries and affiliates including the following: o The Kansas City Southern Railway Company ("KCSR"), a wholly-owned subsidiary; o Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), a 46.6% owned unconsolidated affiliate, which owns 80% of the common stock of TFM, S.A. de C.V. ("TFM"). TFM wholly-owns Mexrail, Inc. ("Mexrail"). Mexrail owns 100% of The Texas-Mexican Railway Company ("Tex-Mex"); o Southern Capital Corporation, LLC ("Southern Capital"), a 50% owned unconsolidated affiliate that leases locomotive and rail equipment to KCSR; o Panama Canal Railway Company ("PCRC"), an unconsolidated affiliate of which KCSR owns 50% of the common stock. PCRC owns all of the common stock of Panarail Tourism Company ("Panarail"). KCS, as the holding company, supplies its various subsidiaries with managerial, legal, tax, financial and accounting services, in addition to managing other "non-operating" investments. 15 RECENT DEVELOPMENTS KCS AND TMM ANNOUNCE AGREEMENTS PLACING TFM, THE TEXAS MEXICAN RAILWAY COMPANY AND THE KANSAS CITY SOUTHERN RAILWAY COMPANY UNDER COMMON CONTROL. On April 21, 2003, the Company and Grupo TMM, S.A. ("Grupo TMM") announced a series of agreements that have been approved by their respective boards of directors, that will, following shareholder and regulatory approval, place KCSR, Tex-Mex, and TFM, under the common control of a single transportation holding company, NAFTA Rail, to be headquartered in Kansas City, Missouri. As part of the transaction, subject to shareholder approval, KCS will change its name to NAFTA Rail. The common control of KCSR and Tex-Mex under NAFTA Rail requires approval of the STB in the United States. Additionally, the acquisition of Grupo TFM shares by NAFTA Rail requires the approval of the Antitrust Commission and the Foreign Investment Commission in Mexico. Upon consummation of the transactions contemplated by the series of agreements referred to above, Mr. Michael R. Haverty, Chairman, President and Chief Executive Officer of KCS, will serve as Chairman, President, and Chief Executive Officer of NAFTA Rail. Mr. Jose Serrano, Chairman of the Board and Chief Executive Officer of Grupo TMM, will serve as Vice Chairman of NAFTA Rail and Chairman of TFM. Also joining the NAFTA Rail board of directors will be Mr. Javier Segovia, President of Grupo TMM. The remainder of the 10-person board will be made up of existing KCS directors. Mr. Mario Mohar will remain as General Director of TFM. Upon the terms and subject to the conditions of the agreement to acquire Grupo TFM, TMM Multimodal, S.A. de C.V., a subsidiary of Grupo TMM, will receive 18 million shares of Class A Common Stock of the Company, representing, at the time of the agreement, approximately 22 percent (20% voting, 2% subject to voting restrictions) of the Company, $200 million in cash (with the option to pay up to $80 million of the $200 million cash component due at close to Grupo TMM with up to 6.4 million additional shares of Company stock) and a potential incentive payment of between $100 million and $180 million based on the resolution of certain future contingencies. Grupo TFM owns 80 percent of the common stock of TFM and all the shares entitled to full voting rights. The Mexican Government owns the remaining 20% of TFM. Upon the terms and subject to the conditions of the agreement to acquire Tex-Mex, on May 9, 2003, the Company acquired from TFM 51% of the outstanding stock of Mexrail, Inc. ("Mexrail"), a wholly-owned subsidiary of TFM, for $32.7 million. Tex-Mex is a wholly-owned subsidiary of Mexrail. In addition, the Company has an exclusive option until December 31, 2005 to purchase the remaining outstanding shares of Mexrail as of the date of the exercise of the option. The Company deposited the initial purchased shares of Mexrail into an irrevocable voting trust pending obtaining approval by the STB of KCS's request to acquire control of Tex-Mex. TFM has a right to repurchase all of the Mexrail stock acquired by the Company at any time for the purchase price paid by the Company, subject to any STB orders or directions. Upon any such repurchase, the agreement automatically terminates. If not exercised within two years of the date of the agreement, TFM's repurchase right expires. KCSR will remain headquartered in Kansas City, Missouri; Tex-Mex in Laredo, Texas; and TFM in Mexico City. THOMAS A. MCDONNELL NAMED TO BOARD OF DIRECTORS. On March 19, 2003, the Company announced that Thomas A. McDonnell, President and Chief Executive Officer of DST Systems, Inc. had been named to its board of directors. Mr. McDonnell began his career with Kansas City Southern Railway in 1968. In 1969, he moved to DST Systems, Inc. From 1983 to October 1995, he served as a director of Kansas City Southern Industries, Inc. (now KCS). From December 1989 through October 1995, he served as a director of The Kansas City Southern Railway Company. From September 1983 through October 1995, he served as executive vice president of Kansas City Southern Industries, Inc. (now KCS). KANSAS CITY SOUTHERN RECEIVES APPROVAL OF AMENDMENT OF CREDIT AGREEMENT. On April 3, 2003 the Company received approval of the Company's request for an amendment to certain provisions under its Amended and Restated Credit Agreement from more than 96 percent of the lenders under the agreement. As discussed in the Company's 2002 Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission, Grupo TMM and KCS, or either Grupo TMM or KCS, could be required to purchase the Mexican government's interest in TFM after October 31, 2003. The Company requested an amendment to its Amended and Restated Credit Agreement dated June 12, 2002, in order to provide flexibility in structuring the funding for this transaction. On April 28, the Company entered into a second amendment to its Amended and Restated Credit Agreement under which 93 percent of the lenders specifically approved the Company's investment in further equity interests of Grupo TFM, in equity interests representing 51% of Mexrail's issued and outstanding capital stock and the use of the Company's cash to acquire Mexrail, in connection with the proposed transactions to place KCSR, Tex-Mex and TFM under common control. 16 KCS SELLS SHARES OF REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK. On May 5, 2003, the Company completed the sale of $200 million of Redeemable Cumulative Convertible Perpetual Preferred Stock with a liquidation preference of $500 per share in a private offering. The convertible preferred stock offering was made only by means of an offering memorandum pursuant to Rule 144A. Dividends on the convertible preferred stock will be cumulative and will be payable quarterly at an annual rate of 4.25% of the liquidation preference, when, as and if declared by the Company's board of directors. Accumulated unpaid dividends will cumulate dividends at the same rate as dividends cumulate on the convertible preferred stock. Each share of the convertible preferred stock will be convertible, under certain conditions, and subject to adjustment under certain conditions, into 33.4728 shares of the Company's common stock. On or after May 20, 2008, the Company will have the option to redeem any or all of the preferred stock, subject to certain conditions. Under certain circumstances, at the option of the holders of the preferred stock, the Company may be required to purchase shares of the convertible preferred stock from the holders. The net proceeds from the offering of the convertible preferred stock are expected to be used to pay a portion of the purchase price for the proposed acquisition of a controlling interest of Grupo TFM. The preferred stock, and the common stock to be issued on the conversion of the preferred stock, have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. RESULTS OF OPERATIONS The following table summarizes the income statement components of the Company for the three months ended March 31, 2003 and 2002 respectively, for use in the analysis below. Certain prior period amounts have been reclassified to conform to the current period presentation (IN MILLIONS): Three Months Ended March 31, --------------------------- 2003 2002 ------------- ------------- Revenues $ 140.2 $ 143.9 Costs and expenses 133.4 130.5 ------------- ------------- Operating income 6.8 13.4 Equity in net earnings (losses) of unconsolidated 7.0 4.9 affiliates Gain on sale of Mexrail, Inc. - 4.4 Interest expense (11.5) (11.3) Other income 1.3 4.4 ------------- ------------- Income before income taxes and cumulative effect of accounting change 3.6 15.8 Income tax provision (benefit) (1.1) 4.1 ------------- ------------- Income before cumulative effect of accounting change 4.7 11.7 Cumulative effect of accounting change, net of income taxes 8.9 - ------------- ------------- Net income $ 13.6 $ 11.7 ============= ============= 17 The following table summarizes consolidated KCS revenues, including the revenues and carload statistics of KCSR, for the three months ended March 31, 2003 and 2002, respectively. Certain prior period amounts have been reclassified to reflect changes in the business groups and to conform to the current period presentation. Carloads and Revenues Intermodal Units ------------------------------- ------------------------------- (IN MILLIONS) (IN THOUSANDS) Three months Three months ended March 31, ended March 31, ------------------------------- ------------------------------- 2003 2002 2003 2002 -------------- --------------- -------------- -------------- General commodities: Chemical and petroleum $ 31.2 $ 31.9 36.0 35.9 Paper and forest 33.9 32.0 44.8 43.8 Agricultural and mineral 25.1 25.2 33.5 33.0 -------------- --------------- -------------- -------------- Total general commodities 90.2 89.1 114.3 112.7 Intermodal and automotive 13.5 15.0 71.8 69.5 Coal 24.3 28.8 47.1 58.5 -------------- --------------- -------------- -------------- Carload revenues and carload and intermodal units 128.0 132.9 233.2 240.7 ============== ============== Other rail-related revenues 10.8 8.9 -------------- --------------- Total KCSR revenues 138.8 141.8 Other subsidiary revenues 1.4 2.1 -------------- --------------- Total consolidated revenues $ 140.2 $ 143.9 ============== ===============
The following table summarizes KCS's consolidated costs and expenses for the three months ended March 31, 2003 and 2002, respectively. Certain prior period amounts have been reclassified to conform to the current year presentation. Three Months Ended March 31, ------------------------------- 2003 2002 --------------- --------------- Compensation and benefits $ 50.5 $ 49.4 Depreciation and amortization 15.9 14.9 Purchased services 15.1 14.0 Operating leases 14.3 13.5 Fuel 12.8 9.5 Casualties and insurance 8.1 7.9 Car hire 2.2 5.2 Other 14.5 16.1 --------------- --------------- Total consolidated costs and expenses $ 133.4 $ 130.5 =============== =============== NET INCOME. Net income for the three months ended March 31, 2003 was $13.6 million (22(cent) per diluted share) compared to $11.7 million (19(cent) per diluted share) for the three months ended March 31, 2002. This $1.9 million quarter to quarter increase in net income was primarily the result of the cumulative effect of a change in accounting principle of $8.9 million, (net of income taxes of $5.6 million), a $5.2 million quarter to quarter decrease in income taxes and a $2.1 million quarter to quarter increase in equity in earnings from Grupo TFM. These factors, which led to an increase in net income were partially offset by a $3.7 million decrease in consolidated revenues, a $3.1 million decline in other income, a $2.9 million increase in consolidated operating expenses, and a $0.2 million increase in interest expense. The quarter to quarter increase in net income was also partially reduced by the effect of the $4.4 million gain on the sale of Mexrail to TFM in the first quarter of 2002. REVENUES. Consolidated revenues for the three months ended March 31, 2003 declined $3.7 million to $140.2 compared to $143.9 for the three months ended March 31, 2002. For the quarter ended March 31, 2003, KCSR experienced revenue declines in coal, plastic products, and automotive products. These declines were primarily driven by the continued effects of the slow economy, the loss of certain customers, continued declines in production in certain business 18 segments as well as the effects of the war in Iraq. KCSR did, however, experience increases in revenues for the paper and forest products commodity group as well as intermodal traffic primarily as a result of higher carloadings and intermodal units as well as certain targeted price improvements. The following discussion provides an analysis of KCSR revenues by commodity group for the quarter ended March 31, 2003. CHEMICAL AND PETROLEUM PRODUCTS. Revenues for the three months ended March 31, 2003 decreased $0.7 million (2.3%) compared to the three months ended March 31, 2002. Higher revenues for industrial gases and inorganic products were offset by declines in revenues for plastics products while revenues for organic products remained relatively flat. Increases in revenues for industrial gases were driven by increases in manufacturing production, as well as plant expansions while increases in revenues from inorganic products also resulted from increases in production. Agri-chemical products revenues were adversely affected by reduced production. Revenues from petroleum products were relatively flat as increases in certain commodity carloadings were offset by the relatively lower revenues per carload associated with these commodities. Additionally, revenues from petroleum products continue to be affected by the slow economy, as well as continued high prices associated with petroleum products and the related effects upon demand and production. Chemical and petroleum products revenue accounted for 24.4% and 24.0% of carload revenues for the three months ended March 31, 2003 and 2002, respectively. PAPER AND FOREST PRODUCTS. Revenues for paper and forest products for the three months ended March 31, 2003 increased $1.9 million (6.1%) compared to the three months ended March 31, 2002. Increases in revenues from pulp and paper products and lumber and plywood products were partially reduced by declines in pulpwood, logs, chips, military and other carload revenue. Pulp and paper products revenue increased primarily as a result of strong demand from paper mills served by KCSR in spite of continued weakness in the U.S. economy. Lumber and plywood products revenue continued to increase as a result of continued strength in the housing and homebuilding industry. Decreases in pulpwood, logs and chips product revenue resulted from declines in production, while military and other carload revenues were adversely affected by the war in Iraq as certain military training exercises, for which KCSR handles equipment transportation, were cancelled due to the associated military buildup and deployment of troops to the Middle East. Paper and forest products revenue accounted for 26.5% and 24.1% of carload revenues for the three months ended March 31, 2003 and 2002, respectively. AGRICULTURAL AND MINERAL PRODUCTS.Revenues for agricultural and mineral products for the three months ended March 31, 2003 of $25.1 million were relatively unchanged compared to $25.2 million for the three months ended March 31, 2002. Increases in revenues for export grain and ores and mineral products were primarily offset by decreases in revenues for domestic grain, food products and for stone, clay and glass products. Revenues from export grain increased as a result of increased shipments of grain to Mexico. Revenue increases for ores and mineral products resulted from increased demand from producers. Decreases in domestic grain products were the result of continued general declines in poultry production, which has decreased demand for grain shipments to the Company's poultry producing customers. Revenue for food products declined slightly as a result of reduced production by poultry producers. Agricultural and mineral products revenue accounted for 19.6% and 19.0% of carload revenues for the three months ended March 31, 2003 and 2002, respectively. INTERMODAL AND AUTOMOTIVE. Intermodal and automotive revenues declined $1.5 million (9.7%) for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. Automotive revenues declined $2.3 million (66%) as the impact of the loss of certain Ford and General Motors traffic in the second quarter of 2002 was fully realized in the first quarter of 2003. This loss was partially mitigated by the effect of revenues associated with parts traffic obtained during the three months ended March 31, 2003. Intermodal revenues increased $0.9 million for the three months ended March 31, 2003 as a result of increased traffic. Intermodal and automotive product revenue accounted for 10.6% and 11.3% of carload revenues for the three months ended March 31, 2003 and 2002, respectively. COAL. Coal revenues decreased $4.5 million (15.7%) for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. This decline in coal revenues was the result of the loss of a coal customer in April of 2002, as well as a 15.5% decline in net tons shipped due to lower customer demand. Additionally, coal revenues were impacted by scheduled cyclical maintenance outages at several of KCSR's electric utility customers, which, by comparison, were longer in duration than the maintenance outages during the first quarter of 2002. In addition, most of the utilities were building inventory stockpiles in the first quarter of 2002 but have been reducing these stockpiles inventory thus far in 2003. The impact of these declines in coal revenue was partially offset by higher per-carload revenues. Coal revenue accounted for 18.9% and 21.7% of carload revenues for the three months ended March 31, 2003 and 2002, respectively. 19 OTHER. Other rail related revenues increased $1.9 million (21.4%) for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. This increase was primarily the result of an increase in demurrage revenue of $1.3 million, partially as a result of improved operating efficiencies obtained through the implementation of the Company's transportation operating platform, Management Control System ("MCS"), as well as smaller increases in haulage and other rail revenues. COSTS AND EXPENSES. Consolidated costs and expenses for the three months ended March 31, 2003 increased $2.9 million (2.2%) compared to the three months ended March 31, 2002. This increase was the result of higher operating expenses at KCSR of approximately $5.7 million, partially offset by lower operating expenses at certain other subsidiaries of $2.8 million. Operating expenses for the first quarter were most significantly impacted by increases in fuel costs. See further discussion below for a more comprehensive discussion of operating expenses. COMPENSATION AND BENEFITS. Consolidated compensation and benefits expense increased $1.1 million to $50.5 million for the three months ended March 31, 2003 compared to $49.4 million for the three months ended March 31, 2002 primarily as a result of the implementation of an increase in certain union wages in the third quarter of 2002 as well as higher health insurance related costs. DEPRECIATION AND AMORTIZATION. Consolidated depreciation and amortization expense was $15.9 million for the three months ended March 31, 2003 compared to $14.9 million for the three months ended March 31, 2002. This $1.0 million increase was primarily the result of amortization of previously capitalized costs upon implementation of MCS during the third quarter of 2002. PURCHASED SERVICES. Consolidated purchased services expense for the three months ended March 31, 2003 was $15.1 million compared to $14.0 million for the three months ended March 31, 2002. This $1.1 million increase was a result of higher car and locomotive repairs performed by outside parties, as well as increased legal expenses related to the settlement of certain casualty claims in the first three months of 2003. Additionally, KCSR incurred additional lift fees related to increased intermodal traffic. OPERATING LEASES. For the three months ended March 31, 2003, consolidated operating lease expense was $14.3 million compared to $13.5 million for the three months ended March 31, 2002. This $0.8 million increase was primarily the result of additional lease expense associated with the lease for the Company's new corporate headquarters building. The Company began leasing this facility in the second quarter of 2002. FUEL. Consolidated fuel expense for the three months ended March 31, 2002 increased $3.3 million to $12.8 million compared to $9.5 million for the three months ended March 31, 2002. This quarter to quarter increase was the result of a 42% increase in the average price per gallon, partially mitigated by a 6% decrease in fuel consumption, as well as a $1.3 million fuel cost savings resulting from the Company's fuel hedging program. Fuel cost represented approximately 9.5% of operating costs and expenses for the three months ended March 31, 2003 compared to 7.3% of operating costs and expenses for the three months ended March 31, 2002. CASUALTIES AND INSURANCE. Consolidated casualties and insurance expense was relatively unchanged at $8.1 million for the three months ended March 31, 2003 compared to $7.9 million for the three months ended March 31, 2002. CAR HIRE. Consolidated car hire expense for the three months ended March 31, 2003 was $2.2 million compared to $5.2 million for the three months ended March 31, 2002. This $3.0 million decrease was the result of a reduction of freight cars from other railroads on the Company's rail line combined with an increase in the number of KCSR freight cars being used by other railroads due to improved fleet utilization resulting from MCS, which also reduced utilization lease payments. OTHER EXPENSE. Consolidated other expense for the three months ended March 31, 2003 was $14.5 million compared to $16.1 million for the three months ended March 31, 2002. This $1.6 million decline in other expense was primarily the result of lower costs of sales related to the Company's tie treating facility, as well as lower materials and supplies expense incurred by the Company's other subsidiaries. 20 OPERATING INCOME AND KCS OPERATING RATIO. Consolidated operating income for the three months ended March 31, 2003 decreased $6.6 million to $6.8 million compared to $13.4 million for the same period in 2002. This decrease was the result of a $3.7 million decline in revenue combined with a $2.9 million increase in operating expenses. For the three months ended March 31, 2003, the consolidated operating ratio for KCS was 95.1% compared to 90.7% for the three months ended March 31, 2002. INTEREST EXPENSE. Consolidated interest expense for the three months ended March 31, 2003 increased $0.2 million to $11.5 million compared to $11.3 million for the three months ended March 31, 2002. This increase in interest expense was the result of higher interest rates due to a shift to more fixed rate debt in June 2002, partially offset by the impact of lower debt balances. Consolidated debt balances declined $46.2 million from $627.9 million at March 31, 2002 to $581.7 million at March 31, 2003. OTHER INCOME. The Company's other income for the three months ended March 31, 2003 was $1.3 million compared to $4.4 million for the three months ended March 31, 2002. This $3.1 million decrease was primarily the result of the impact of gains of $3.3 million recorded on the sale of non-operating property during the first quarter of 2002. During the three months ended March 31, 2003, there were no significant gains on the sale of non-operating property. INCOME TAX EXPENSE. The consolidated income tax benefit for the three months ended March 31, 2003 was $1.1 million compared to a consolidated income tax expense of $4.1 million for the same period in 2002. This decrease in income tax expense was primarily the result of reduced domestic operating income, higher interest costs as well as the income tax effect of a one-time gain on the sale of Mexrail recorded in the first quarter of 2002. EQUITY IN NET EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES. The Company recorded equity in earnings of unconsolidated affiliates of $7.0 million compared to $4.9 million for the same period in 2002. This quarter to quarter increase was the result of a $2.1 million increase in equity in net earnings from Grupo TFM. Included within this increase is the impact of the Company's increased ownership of Grupo TFM to 46.6% from 36.9%, which the Company obtained indirectly through the purchase by TFM of the Mexican government's former 24.6% of Grupo TFM in July 2002. For the three months ended March 31, 2003, Grupo TFM's revenues declined approximately 1% while operating expenses increased approximately 1% compared to the same period in 2002. Results for the first quarter of 2003 for Grupo TFM include a $23.0 million deferred income tax benefit (calculated under accounting principles generally accepted in the United States of America - "U.S. GAAP") compared to a deferred income tax benefit of $5.3 million in the first quarter of 2002. This variance was the result of fluctuations in the peso exchange rate and tax benefits derived from the impact of inflation in Mexico. The Company reports its equity in Grupo TFM under U.S. GAAP while Grupo TFM reports under International Accounting Standards ("IAS"). CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted the provisions of SFAS 143 effective January 1, 2003. As a result, the Company changed its method of accounting for removal costs of certain track structure assets and recorded a one time benefit of $8.9 million (net of income taxes of $5.6 million) for the first quarter of 2003. This change is reported as a cumulative effect of an accounting change in the accompanying consolidated financial statements. TRENDS AND OUTLOOK While certain commodity segments experienced revenue growth during the first quarter of 2003, overall revenues continued to be adversely affected by the slow economy. Additionally, for the first quarter of 2003, the Company's operating costs increased primarily as a result of higher fuel costs. As a result of the continuing sluggish economy coupled with higher fuel and certain other operating costs, the Company's domestic operating income for the first quarter of 2003 decreased $6.6 million compared to the first quarter of 2002. Fuel expense increased as a result of a 42% rise in the average price per gallon due to market conditions, partially offset by a 6% reduction in fuel usage. The impact of higher fuel costs on operating expenses was partially offset by lower car hire costs due to a reduction of third party freight cars on the Company's rail line, coupled with improvements in fleet utilization. Additionally, for the first quarter of 2003, net income was favorably affected by a one-time benefit of $8.9 million (net of income taxes of $5.6 million), related to the cumulative effect resulting from a required change in the method of accounting for removal costs of certain railroad track structures. These factors contributed to the Company's first quarter 2003 diluted earnings per share, which increased 16% to 22(cent) per diluted share from 19(cent) per diluted share for the first quarter of 2002. 21 For the first quarter of 2003, Grupo TFM continued to contribute to the Company's net income as equity in earnings of Grupo TFM increased $2.1 million from $4.8 million in the first quarter of 2002 to $6.9 million for the first quarter of 2003. This increase was partially the result of the Company's increased ownership from 36.9% to 46.6%, which the Company obtained indirectly through the purchase by TFM of the Mexican government's former 24.6% ownership of Grupo TFM in July 2002. A current outlook for the Company's businesses for the remainder of 2003 is as follows: (refer to the first paragraph of "Overview" section of this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, regarding forward-looking comments) For the remainder of 2003, management will continue to focus on improving domestic operations. As discussed in "Recent Developments - KCS and TMM Announce Agreements Placing TFM, The Texas Mexican Railway Company, and The Kansas City Southern Railway Company Under Common Control," management has announced a series of agreements that have been approved by the respective boards of directors of the Company and Grupo TMM, that will, following shareholder and regulatory approval, place KCSR, Tex-Mex, and TFM under the common control of a single transportation holding company, NAFTA Rail, to be headquartered in Kansas City, Missouri. Management expects common control of these three railroads, which are already physically linked in an end-to-end configuration, to improve operating efficiency and give shippers in the NAFTA trade corridor a strong transportation alternative. Management expects overall KCSR revenues to increase slightly for the remainder of 2003 compared to the same period in 2002. Except as discussed herein, assuming normalized rail operations, management expects KCSR's variable costs and expenses to be proportionate with revenue activity. Fuel prices will fluctuate subject to market conditions. To mitigate the market risk associated with fuel, KCSR currently has approximately 26% of its remaining budgeted fuel usage hedged for 2003 through purchase commitments as well as fuel swaps, both of which reduce the risk of the adverse impact of rising fuel prices. Insurance costs are expected to rise commensurate with market conditions and depreciation expense is expected to be higher compared to the prior year as a result of the implementation of MCS. The Company expects to continue to participate in the earnings/losses from its equity investments in Grupo TFM, Southern Capital and PCRC. Due to the variability of factors affecting the Mexican economy, management can make no assurances as to the impact that a change in the value of the peso or a change in Mexican inflation will have on the results of Grupo TFM. In addition, upon consummation of the transactions to place KCSR, TFM and Tex-Mex under common control, if it occurs, the Company expects to consolidate the results of operations of TFM and Tex-Mex into its consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES Summary cash flow data for the Company is as follows (IN MILLIONS): Three Months Ended March 31, ------------------------------- 2003 2002 ------------- ------------- Cash flows provided by (used for): Operating activities $ 48.5 $ 36.2 Investing activities (3.6) 22.8 Financing activities 0.1 (26.9) ------------- ------------- Cash and cash equivalents: Net increase 45.0 32.1 At beginning of year 19.0 24.7 ------------- ------------- At end of period $ 64.0 $ 56.8 ============= ============= During the three months ended March 31, 2003, the Company's consolidated cash position increased $45.0 million from December 31, 2002, primarily as a result of operating cash inflows and the proceeds from employee stock plans. These increases were partially offset by debt repayments and property acquisitions. Net operating cash inflows were $48.5 million and $36.2 million for the three months ended March 31, 2003 and 2002, respectively. The $12.3 million increase 22 in operating cash flows was primarily attributable to changes in working capital balances, resulting mainly from the timing of payments and receipts. Net investing cash inflows (outflows) were ($3.6) million and $22.8 million for the three months ended March 31, 2003 and 2002, respectively. This $26.4 million decrease was primarily a result of proceeds received from the sale of Mexrail of $31.4 million during the first quarter of 2002, as well as a $1.8 million quarter to quarter decrease in proceeds received from the disposal of property. These changes in investing cash outflows were partially offset by a $5.2 million quarter to quarter decrease in capital expenditures and a $1.8 million decline in investments in and loans to affiliates. For the first three months of 2003, net financing cash inflows were $0.1 million compared to net financing cash outflows of $26.9 million for the first three months of 2002. This difference was primarily due to net repayments of long-term debt of $0.9 million during the first three months of 2003 compared to net repayments of long-term debt of $30.5 million during the first three months of 2002. Management expects cash flows from operations to be positive throughout the remainder of 2003 as a result of operating income, which has historically resulted in positive operating cash flows. Investing activities are projected to use significant amounts of cash for capital expenditures and investments in subsidiaries pending regulatory approval of the acquisition of Grupo TMM's interest in Grupo TFM. Future roadway improvement projects will continue to be primarily funded by operating cash flows or, secondarily, through borrowings under the Company's line of credit. The Company's consolidated ratio of debt to total capitalization was 43.0% and 43.6% at March 31, 2003 and December 31, 2002, respectively. The Company's debt decreased $0.9 million from $582.6 million at December 31, 2002 to $581.7 million at March 31, 2003 as a result of net repayments of long-term debt. This decrease in debt was coupled with an increase in the Company's stockholders' equity of $18.3 million to $771.7 million at March 31, 2003. This increase was due primarily to net income of $13.6 million and the issuance of common stock under employee stock plans. Management anticipates that the ratio of debt to total capitalization will decrease in the short-term based on the issuance of the $200 million of Redeemable Cumulative Convertible Perpetual Preferred Stock. In addition to operating cash flows, the Company has financing available under a senior secured revolving credit facility ("Credit Facility") with a maximum borrowing amount of $100 million. As of March 31, 2003, all $100 million was available under the Credit Facility. The Amended and Restated Credit Agreement contains, among other provisions, various financial covenants. As a result of certain financial covenants contained in the Amended and Restated Credit Agreement, maximum utilization of the Company's Credit Facility may be restricted. The Company filed a Universal Shelf Registration Statement on Form S-3 ("Initial Shelf" - Registration No. 33-69648) in September 1993, as amended in April 1996, for the offering of up to $500 million in aggregate amount of securities. The SEC declared the Initial Shelf effective on April 22, 1996; however, no securities have been issued thereunder. The Company has carried forward $200 million aggregate amount of unsold securities from the Initial Shelf to a Shelf Registration Statement filed on Form S-3 ("Second Shelf" - Registration No. 333-61006) on May 16, 2001 for the offering of up to $450 million in aggregate amount of securities. The SEC declared the Second Shelf effective on June 5, 2001. Securities in the aggregate amount of $300 million remain available under the Initial Shelf and securities in the aggregate amount of $450 million remain available under the Second Shelf. To date, no securities have been issued under either the Initial Shelf or Second Shelf. As discussed in the 2002 Form 10-K, Grupo TMM and KCS, or either Grupo TMM or KCS, could be required to purchase the Mexican government's interest in TFM. However, this provision is not exercisable prior to October 31, 2003 without the consent of Grupo TFM. If KCS and Grupo TMM, or either KCS or Grupo TMM alone had been required to purchase the Mexican government's 20% interest in TFM, the total purchase price would have been approximately $478 million as of March 31, 2003. The Company is exploring various alternatives for financing this transaction. It is anticipated that this financing, if necessary, can be accomplished using the Company's ability to access the capital markets. No commitments for such financing have been obtained at this time. As discussed in "Recent Developments - Kansas City Southern Receives Approval of Amendment of Credit Agreement," the Company's lenders amended the Company's Amended and Restated Credit Agreement dated June 12, 2002 as Grupo TMM and KCS, or either Grupo TMM or KCS could be required to purchase the Mexican government's interest in TFM after October 31, 2003. On April 3, 2003, the Company announced that more than 96% of the lenders under its Amended and Restated Credit Agreement dated June 12, 2002 approved the Company's request. The Company requested the amendment to 23 existing financial covenants in its Amended and Restated Credit Agreement in order to provide flexibility in structuring the funding for this transaction. The Company sought this amendment in order to maintain its current cash position while analyzing financing alternatives. On April 28, the Company entered into a second amendment to its Amended and Restated Credit Agreement under which 96 percent of the lenders specifically approved the Company's investment in further equity interests of Grupo TFM, in equity interests representing 51% of Mexrail's issued and outstanding capital stock and the use of the Company's cash to acquire Mexrail, in connection with the proposed transactions to place KCSR, Tex-Mex and TFM under common control. The Company believes, based on current expectations, that its cash and other liquid assets, operating cash flows, access to capital markets, borrowing capacity, and other available financing resources are sufficient to fund anticipated operating, capital and debt service requirements and other commitments through 2003. However, the Company's operating cash flows and financing alternatives can be impacted by various factors, some of which are outside of the Company's control. For example, if the Company were to experience a substantial reduction in revenues or a substantial increase in operating costs or other liabilities, its operating cash flows could be significantly reduced. Additionally, the Company is subject to economic factors surrounding capital markets and the Company's ability to obtain financing under reasonable terms is subject to market conditions. Further, the Company's cost of debt relative to potential future debt financing transactions could be impacted by independent rating agencies, which assign debt ratings based on certain credit measurements such as interest coverage and leverage ratios. OTHER NEW ACCOUNTING PRONOUNCEMENTS. In June 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 is effective for fiscal years beginning after June 15, 2002. Under SFAS 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. KCSR, along with other Class I railroads, depreciates track structure (rail, ties, and other track material) in accordance with regulations promulgated by the Surface Transportation Board ("STB"). These regulations require KCSR to depreciate track structure to a net salvage value (gross estimated salvage value less estimated costs to remove the track structure at the end of its useful life). For certain track structure such as ties, with little or no gross salvage value, this practice ultimately results in depreciating an asset below zero, and thus, in effect, results in a liability. Under the requirements of SFAS 143, in the absence of a legal obligation to remove the track structure, such accounting practice is prohibited. The Company adopted the provisions of SFAS 143 in the first quarter of 2003, and, as a result, reviewed its depreciation of track structures to determine instances where the depreciation of removal costs has resulted or would be expected (based on the current depreciation rate) to result in the depreciation of an asset below zero when considering net salvage value. As a result of this review, the Company has estimated the excess depreciation recorded on such assets and has recorded this amount as a reduction in accumulated depreciation of $14.5 million and as a cumulative effect of an accounting change of $8.9 million (net of taxes of $5.6 million) as required by SFAS 143 in the first quarter of 2003. Additionally, depreciation rates applied to certain track structure elements that were previously yielding a negative salvage value have been modified to comply with the provisions of SFAS 143. For the three months ended March 31, 2003, this resulted in a decrease in depreciation expense of approximately $0.3 million. Management currently estimates the net effect of the adoption of SFAS 143 on full year depreciation expense to be approximately $1.4 million. In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148 provides two additional transition methods for entities that adopt the method of accounting for stock-based compensation as defined in FASB Statement No. 123. Additionally, the statement amends the disclosure requirements of Statement 123 to require disclosures in interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method on results of operations. The Company is currently evaluating the provisions of this new accounting pronouncement and does not expect this pronouncement, if adopted, to have a material impact on its consolidated results of operations, financial position, or cash flows. 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There have been no significant changes in the Company's Quantitative and Qualitative Disclosures About Market Risk from that previously reported in the Annual Report on Form 10-K for the year ended December 31, 2002. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of a date within ninety days before the filing of this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses in the internal controls, and therefore no corrective actions were taken. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Part I, Item 1. Financial Statements, note 7 to the Consolidated Financial Statements of this Form 10-Q is hereby incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The Company held its 2003 Annual Meeting of Stockholders ("Annual Meeting") on May 1, 2003. A total of 56,120,518 shares of the Common stock, $.01 per share par value, and Preferred stock, par value $25.00 per share, or 90.9% of the outstanding voting stock on the record date (61,738,162 shares), was represented at the Annual Meeting, thereby constituting a quorum. These shares voted together as a single class. 25 b) Proxies for the meeting were solicited pursuant to Regulation 14A; there was no solicitation in opposition to management's nominees for directors as listed in such Proxy Statement and all such nominees were elected. The voting for the election of directors was as follows: Total Shares ------------------ Election of Three Directors (i) Michael G. Fitt For 55,074,947 Against - Withheld 1,196,566 ----------------- Total 56,271,513 ================= (ii) Michael R. Haverty For 54,995,381 Against - Withheld 1,196,566 ----------------- Total 56,191,947 ================= (iii) Thomas A. McDonnell For 54,701,529 Against - Withheld 1,196,566 ----------------- Total 55,898,095 ================= c) Listed below are the other matters voted on at the Company's Annual Meeting. These matters are fully described in the Company's Definitive Proxy Statement. The voting was as follows: Total Shares ----------------- Reapproval of Section 18.7 (Performance Measures) of KCS's 1991 Amended and Restated Stock Option and Performance Award Plan (as amended and restated effective as of November 7, 2002) for Purposes of Internal Revenue Code Section 162(m). For 47,649,262 Against 8,250,946 Withheld 220,310 ----------------- Total 56,120,518 ================= ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits (3)(I) Articles of Incorporation Exhibit 3.1(a) Restated Articles of Incorporation, incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 originally filed July 12, 2002 (Registration Statement No. 333-92360), as amended and declared effective on July 30, 2002 Exhibit 3.1(b) Certificate of Designations 26 (4) Instruments Defining the Rights of Security Holders, Including Indentures Exhibit 4.1 See Exhibit 3.1(b) (10) Material Contracts Exhibit 10.1 Acquisition Agreement, dated as of April 20, 2003, by and among the Company, KARA Sub, Inc., Grupo TMM, S.A., TMM Holdings, S.A. de C.V. and TMM Multimodal, S.A. de C.V. Exhibit 10.2 Stock Purchase Agreement, dated as of April 20, 2003, by and among the Company, Grupo TMM, S.A. and TFM, S.A. de C.V. Exhibit 10.3 First Amendment dated as of April 3, 2003 to the Amended and Restated Credit Agreement dated as of June 12, 2002, among the Company, KCSR and the lenders party thereto (the "Credit Agreement") Exhibit 10.4 Second Amendment dated as of April 28, 2003 to the Credit Agreement (99) Additional Exhibits Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K The Company furnished a Current Report on Form 8-K dated January 7, 2003 announcing its fourth quarter 2002 meeting, conference call. The information included in this Current Report on Form 8-K was furnished pursuant to Item 9 and shall not be deemed to be filed. The Company furnished a Current Report on Form 8-K dated January 30, 2003 reporting its fourth quarter 2002 operating results. The information included in this Current Report on Form 8-K was furnished pursuant to Item 9 and shall not be deemed to be filed. The Company filed a Current Report on Form 8-K dated March 19, 2003 announcing that Thomas A. McDonnell has been named to its Board of Directors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacities indicated on May 13, 2003. Kansas City Southern /S/ RONALD G. RUSS ------------------------------------------------------ Ronald G. Russ Executive Vice President and Chief Financial Officer (Principal Financial Officer) /S/ LOUIS G. VAN HORN ------------------------------------------------------ Louis G. Van Horn Vice President and Comptroller (Principal Accounting Officer) 27 CERTIFICATIONS I, Michael R. Haverty, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Kansas City Southern; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /S/ MICHAEL R. HAVERTY Michael R. Haverty Chairman, President and Chief Executive Officer 28 CERTIFICATIONS I, Ronald G. Russ, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Kansas City Southern; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /S/ RONALD G. RUSS ---------------------------------------------------- Ronald G. Russ Executive Vice President and Chief Financial Officer 29 EX-99.1 2 exhibit99-1.txt Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Kansas City Southern (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael R. Haverty, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes -Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael R. Haverty Michael R. Haverty Chief Executive Officer May 12, 2003 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO KANSAS CITY SOUTHERN AND WILL BE RETAINED BY KANSAS CITY SOUTHERN AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-99.2 3 exhibit99-2.txt Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Kansas City Southern (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald G. Russ, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes -Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Ronald G. Russ Ronald G. Russ Chief Financial Officer May 12, 2003 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO KANSAS CITY SOUTHERN AND WILL BE RETAINED BY KANSAS CITY SOUTHERN AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-10.4 5 second-amend.txt 2ND AMENDMENT SECOND AMENDMENT dated as of April 28, 2003 (this "AMENDMENT") to the Amended and Restated Credit Agreement (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") dated as of June 12, 2002, among KANSAS CITY SOUTHERN ("HOLDINGS"), THE KANSAS CITY SOUTHERN RAILWAY COMPANY ("the BORROWER"), the LENDERS party thereto and JPMORGAN CHASE BANK, as administrative agent, collateral agent, issuing bank and swingline lender (the "AGENT"). A. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement. B. The Borrower has requested that the Lenders amend certain provisions of the Credit Agreement. The Required Lenders are willing to agree to such amendments on the terms and subject to the conditions of this Amendment. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT. Effective as of the Amendment Effective Date (as defined below), the Credit Agreement is amended as follows: (a) The following new definitions are inserted in their proper alphabetical positions in Section 1.01: 'GRUPO PARENT' means a wholly owned subsidiary of Holdings that is not a Foreign Subsidiary and that will at all times after the completion of the Grupo TFM Acquisition, individually or together with other Loan Parties that are wholly owned Subsidiaries of Holdings, be the record and beneficial owner of all Equity Interests in Grupo TFM owned directly or indirectly by Holdings (except that up to 25% of the Equity Interests in Grupo TFM may be owned by TFM, S.A. de C.V., so long as Grupo TFM owns at least 80% of the issued and outstanding Equity Interests in TFM, S.A. de C.V.). 'GRUPO TFM ACQUISITION' means the acquisition by Holdings, directly or indirectly, from Grupo TMM of all the Equity Interests owned, directly or indirectly, by Grupo TMM in Grupo TFM pursuant to a transaction or series of transactions that result in Grupo Parent or another Loan Party that is a wholly owned subsidiary of Holdings owning directly all the Equity Interests in Grupo TFM that are owned, directly or indirectly by Holdings (except that up to 25% of the Equity Interests in Grupo TFM may be owned by TFM, S.A. de C.V., so long as Grupo TFM owns at least 80% of the issued and outstanding Equity Interests in TFM, S.A. de C.V.). 'GRUPO TMM' means Grupo TMM, S.A., a Mexican corporation. 'KARA SUB' means Kara Sub, Inc., a Delaware corporation. 'MEXRAIL' means Mexrail, Inc., a Delaware corporation." (b) The text of clause (a) of the definition of "Applicable Rate" is amended to read in its entirety as follows (and the provisos at the end of such clause are deleted): "with respect to any Tranche B Term Loan, (i) 2.50% per annum in the case of a Eurodollar Loan and (ii) 1.50% per annum in the case of an ABR Loan" (c) Clause (c) of the definition of "Prepayment Event" is amended by replacing the word "and" immediately before clause (iii) thereof with a comma and inserting the following immediately before the semicolon at the end of such clause: "and (iv) issuances by Holdings of preferred Equity Interests to the extent (A) any such preferred Equity Interests do not require redemptions or repurchases prior to the Tranche B Maturity Date and (B) the net proceeds of such issuances of preferred Equity Interests are used to pay the cash portion of the consideration payable by Holdings as part of the Grupo TFM Acquisition" (d) (i) The definition of "subsidiary" is amended by the insertion at the end thereof of the following sentence: "References in the definitions of "Capital Expenditures", "Consolidated EBITDA", "Consolidated Interest Expense", "Consolidated Net Worth", "Excess Cash Flow" and "Total Indebtedness" to any "subsidiary" or "subsidiaries" of the Borrower shall not under any circumstances include Mexrail, Grupo TFM or any subsidiary of Mexrail or Grupo TFM." (ii) The definition of "Subsidiary" is amended by the insertion at the end thereof of the following sentence. "For purposes of Articles V, VI and VII, "Subsidiary" shall not include Mexrail, Grupo TFM or any subsidiary of Mexrail or Grupo TFM." (iii) The definition of "Subsidiary Loan Party" is amended by the insertion, immediately after "Mid-South Microwave, Inc.", of ", Grupo Parent, Kara Sub, Mexrail (PROVIDED that Mexrail shall only be a Subsidiary Loan Party on and after the date of the Investment contemplated by Section 6.08(m)),". (e) The definitions of "Capital Expenditures", "Consolidated EBITDA", "Consolidated Interest Expense", "Consolidated Net Worth", "Excess Cash Flow" and "Total Indebtedness" are amended to read as follows: "'CAPITAL EXPENDITURES' means, for any period, (a) the additions to property, plant and equipment and other capital expenditures of the Borrower and its consolidated subsidiaries that are (or would be) set forth in a consolidated statement of cash flows of the Borrower for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by the Borrower and its consolidated subsidiaries during such period. 'CONSOLIDATED INTEREST EXPENSE' means, for any period, the sum, without duplication, of (a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations) of the Borrower and the subsidiaries of the Borrower for such period, determined on a consolidated basis in accordance with GAAP, (b) the interest expense of Holdings for such period and (c) all cash dividends paid during such period with respect to preferred Equity Interests issued after the date hereof in respect of which cash dividends are payable; PROVIDED that for purposes of calculating the "Consolidated Interest Expense" with respect to Unit Debentures in the financial covenant set forth in Section 6.13, the "Consolidated Interest Expense", for any period, shall include only the cash interest expense paid on Unit Debentures by Holdings, the Borrower and the subsidiaries of the Borrower for such period. 'CONSOLIDATED NET INCOME' means, for any period, the net income or loss of the Borrower and its subsidiaries for such period determined on a consolidated basis in accordance with GAAP; PROVIDED that there shall be excluded (a) the income of any Person in which any other Person (other than the Borrower or any of its subsidiaries or any director holding qualifying shares in compliance with applicable law) owns an Equity Interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its subsidiaries during such period, and (b) the income or loss of any Person accrued prior to the date it becomes a subsidiary of the Borrower or is merged into or consolidated with the Borrower or any subsidiary of the Borrower or the date that such Person's assets are acquired by the Borrower or any subsidiary of the Borrower. 'CONSOLIDATED NET WORTH' shall mean, on any date, the stockholders' equity of the Borrower on such date, determined on a consolidated basis in accordance with GAAP. 'EXCESS CASH FLOW' means, for any fiscal year, an amount equal to: (a) Consolidated EBITDA for such fiscal year; MINUS (b) cash tax payments made by Holdings, the Borrower and subsidiaries of the Borrower during such fiscal year; MINUS (c) Consolidated Interest Expense for such fiscal year; MINUS (d) (i) Capital Expenditures for such fiscal year (except to the extent attributable to the incurrence of Capital Lease Obligations or otherwise financed by incurring long-term Indebtedness) and (ii) capital contributions, loans and guaranteed Indebtedness and sale and leaseback transactions made during such fiscal year, in each case permitted by Section 6.08(j); MINUS (e) the aggregate principal amount of long-term Indebtedness repaid or prepaid by Holdings, the Borrower and consolidated subsidiaries of the Borrower during such fiscal year, excluding (i) Indebtedness in respect of Revolving Loans and Letters of Credit, (ii) Term Loans prepaid pursuant to Section 2.11(c) (other than any part of such prepayment attributable to gains on asset sales that are included in the calculation of consolidated Net Income for such fiscal year) or (d), and (iii) repayments or prepayments of long-term Indebtedness financed by incurring other long-term Indebtedness; MINUS (f) the aggregate amount of investments or other payments required to be made by the Borrower or any of its subsidiaries during such fiscal year pursuant to mandatory capital calls or similar agreements under joint venture, limited liability company or shareholder agreements. 'TOTAL INDEBTEDNESS' means, as of any date, the sum of (a) the aggregate principal amount of Indebtedness of the Borrower and the subsidiaries of the Borrower outstanding as of such date that would be reflected on a balance sheet of the Borrower prepared as of such date on a consolidated basis in accordance with GAAP, including, without duplication, the aggregate amount of all outstanding Securitization Transactions, and (b) the aggregate principal amount of Indebtedness of Holdings outstanding as of such date." (f) Sections 5.01(a) and (b) are hereby replaced with the following: "(a) within 105 days after the end of each fiscal year of Holdings, (i) for each of Holdings and the Borrower, its audited consolidated balance sheet and related statements of income, changes in stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, in each case, all reported on by KPMG LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of Holdings and the consolidated Subsidiaries or the Borrower and its consolidated subsidiaries, as applicable, on a consolidated basis in accordance with GAAP consistently applied, accompanied by a certificate of said accountants stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines), and (ii) for Holdings and its consolidated Subsidiaries other than Mexrail, Grupo TFM and the subsidiaries of Mexrail and Grupo TFM, its unaudited consolidated balance sheet and related statement of income as of the end of and for such year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of Holdings and its consolidated Subsidiaries other than Mexrail, Grupo TFM and the subsidiaries of Mexrail and Grupo TFM, on a consolidated basis in accordance with GAAP consistently applied; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings, (i) for each of Holdings and the Borrower, its consolidated balance sheet and related statements of income, changes in stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of Holdings and the consolidated Subsidiaries or the Borrower and its consolidated subsidiaries, as applicable, on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes, and (ii) for Holdings and its consolidated Subsidiaries other than Mexrail, Grupo TFM and the subsidiaries of Mexrail and Grupo TFM, its unaudited consolidated balance sheet and related statement of income as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of Holdings and its consolidated Subsidiaries other than Mexrail, Grupo TFM and the subsidiaries of Mexrail and Grupo TFM, on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;" (g) Section 6.01(a) of the Credit Agreement is amended by deleting the word "and" at the end of clause (ix), by relettering clause (x) as clause (xi) and by inserting the following immediately after clause (ix): "(x) Indebtedness of Kara Sub issued to the seller or an affiliate of the seller in connection with the closing of the Grupo TFM Acquisition; PROVIDED that such Indebtedness is canceled or extinguished as part of such closing; and (h) Section 6.08 of the Credit Agreement is amended by deleting the word "and" at the end of clause (k), by relettering clause (l) as clause (n) and by inserting the following immediately after clause (k): "(l) Investments in Equity Interests of Grupo TFM acquired as part of the Grupo TFM Acquisition solely for common stock of Holdings and cash representing proceeds of the issuance and sale after the date of the effectiveness of the Second Amendment to this Agreement of common or preferred Equity Interests of Holdings; PROVIDED that any such preferred Equity Interests do not require redemptions or repurchases prior to the Tranche B Maturity Date and the aggregate amount of such preferred Equity Interests shall not be greater than $200,000,000;" (m) an Investment in Equity Interests representing 51% of the issued and outstanding capital stock of Mexrail acquired, directly or indirectly, by Holdings for consideration consisting of cash in an amount not greater than $33,000,000; and" (i) The heading and text of Section 6.12 of the Credit Agreement are amended to read as follows: "OWNERSHIP OF CAYMEX, NAFTA RAIL, GRUPO PARENT AND GRUPO TFM. (a) Prior to the completion of the Grupo TFM Acquisition, neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, permit (i) any Equity Interest in Caymex to be owned by any Person other than the Borrower, (ii) any Equity Interest in NAFTA Rail to be owned by any Person other than Caymex or (iii) any Equity Interest in Grupo TFM, so long as it is owned directly or indirectly by Holdings, to be owned by any Person other than NAFTA Rail. (b) After the completion of the Grupo TFM Acquisition, neither Holdings nor the Borrower will permit (i) any Equity Interest in Grupo Parent to be owned by any Person other than Holdings or (ii) any Equity Interest in Grupo TFM to be owned by any Person other than Grupo Parent or another Loan Party that is a wholly owned subsidiary of Holdings (except that up to 25% of the Equity Interests in Grupo TFM may be owned by TFM, S.A. de C.V., so long as Grupo TFM owns at least 80% of the issued and outstanding Equity Interests in TFM, S.A. de C.V.)." (j) All references in Sections 6.13, 6.14 and 6.15 to "Holdings" are replaced with references to "Holdings and the Borrower". Section 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each of Holdings and the Borrower hereby represents and warrants to and agrees with each Lender and the Agent that: (a) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects with the same effect as if made on the Amendment Effective Date, except to the extent such representations and warranties expressly relate to an earlier date. (b) Each of Holdings and the Borrower has the requisite power and authority to execute, deliver and perform its obligations under this Amendment and to perform its obligations under the Credit Agreement as amended by this Amendment. (c) The execution, delivery and performance by each of Holdings and the Borrower of this Amendment and the performance by each of Holdings and the Borrower of the Credit Agreement, as amended by this Amendment, (i) have been duly authorized by all requisite action and (ii) will not (A) violate (x) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of Holdings or the Borrower or any Subsidiary, (y) any order of any Governmental Authority or (z) any provision of any indenture, agreement or other instrument to which Holdings or the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (B) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement for borrowed money or other agreement or instrument or (C) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by Holdings or the Borrower. (d) This Amendment has been duly executed and delivered by Holdings and the Borrower. Each of this Amendment and the Credit Agreement, as amended by this Amendment, constitutes a legal, valid and binding obligation of each of Holdings and the Borrower, enforceable against Holdings and the Borrower in accordance with its terms, except as enforceability may be limited by (i) any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. (e) As of the Amendment Effective Date, no Event of Default or Default has occurred and is continuing. (f) At or prior to the completion of the Grupo TFM Acquisition, Holdings and the Borrower will take and cause the Subsidiaries to take all such actions as shall be required or reasonably requested by the Agent to cause the Collateral and Guarantee Requirement to be satisfied after giving effect to such transaction. Section 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective as of April 28, 2003 upon the satisfaction in full of the following conditions precedent (the "AMENDMENT EFFECTIVE DATE"): (a) The Agent shall have received the Amendment Fee (as defined below). (b) The Agent shall have received duly executed counterparts hereof which, when taken together, bear the authorized signatures of Holdings, the Borrower, the Agent and the Required Lenders. (c) All legal matters incidental to this Amendment shall be satisfactory to the Required Lenders, the Agent and Cravath, Swaine & Moore LLP, counsel for the Agent. (d) The Agent shall have received such other documents, instruments and certificates as it or its counsel shall reasonably request. Section 4. AMENDMENT FEE. Holdings and the Borrower agree, jointly and severally, to pay to each Lender that executes and delivers a copy of this Amendment to the Administrative Agent (or its counsel) at or prior to 5:00 p.m., New York City time, on April 28, 2003, an amendment fee (the "AMENDMENT FEE") in an amount equal to 0.25% of the sum of such Lender's Revolving Commitment (whether used or unused) and outstanding Term Loans, in each case as of the Amendment Effective Date. The Amendment Fee shall be payable in immediately available funds on the Amendment Effective Date. Once paid, the Amendment Fee shall not be refundable. Section 5. CREDIT AGREEMENT. Except as specifically stated herein, the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof. As used therein, the terms "Agreement", "herein", "hereunder", "hereto", "hereof" and words of similar import shall, unless the context otherwise requires, refer to the Credit Agreement as modified hereby. The representations, warranties and agreements set forth in Section 4 of this Amendment shall be deemed for all purposes of the Credit Agreement to be incorporated into Articles III and V, respectively, thereof. SECTION 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. Delivery of an executed counterpart of a signature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. Section 8. EXPENSES. The Borrower agrees to reimburse the Agent for its out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore LLP, counsel for the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. KANSAS CITY SOUTHERN, by: ----------------------------------------- Name: Title: THE KANSAS CITY SOUTHERN RAILWAY COMPANY, by: ----------------------------------------- Name: Title: JPMORGAN CHASE BANK, individually and as Administrative Agent, Issuing Bank and Swingline Lender, by: ----------------------------------------- Name: Title: Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: by: ----------------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. KANSAS CITY SOUTHERN, by: /s/ Paul J. Weyandt --------------------------------------- Name: Paul J. Weyandt Title: Vice President and Treasurer THE KANSAS CITY SOUTHERN RAILWAY COMPANY, by: /s/ Paul J. Weyandt --------------------------------------- Name: Paul J. Weyandt Title: Vice President and Treasurer JPMORGAN CHASE BANK, individually and as Administrative Agent, Issuing Bank and Swingline Lender, by: ------------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. KANSAS CITY SOUTHERN, by: --------------------------------------- Name: Title: THE KANSAS CITY SOUTHERN RAILWAY COMPANY, by: --------------------------------------- Name: Title: JPMORGAN CHASE BANK, individually and as Administrative Agent, Issuing Bank and Swingline Lender, by: /s/ Robert Anastaslo ----------------------------------------- Name: Robert Anastaslo Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: The Bank of Nova Scotia by: /s/ V. H. Gibson --------------------------------------- Name: V. Gibson Title: Assistant Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: MASTER SENIOR FLOATING RATE TRUST By: /s/ Joseph Matteo -------------------------------------- Joseph Matteo Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Longhorn CDO II, LTD. By: Merrill Lynch Investment Managers, L.P. an Investment Advisor By: /s/ Joseph Matteo --------------------------------------- Joseph Matteo Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Longhorn CDO (Cayman) LTD. By: Merrill Lynch Investment Managers, L.P. an Investment Advisor by: /s/ Joseph Matteo -------------------------------------- Joseph Matteo Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated, as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: by: /s/ T. Rodney Sirmons ------------------------------------- Name: T. Rodney Sirmons Title: Manager-Operations Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated, as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: Columbia Management Advisers, Inc (f/k/a Stein Roe & Farnham Incorporated), As Advisor by: /s/ Brian W. Good ------------------------------------- Name: Brian W. Good Title: Sr. Vice President & Portfolio Manager Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated, as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: STEIN ROE FARNHAM CLO I LTD. By: Columbia Management Advisers, Inc (f/k/a Stein Roe & Farnham Incorporated), As Portfolio Manager by: /s/ Brian W. Good ------------------------------------- Name: Brian W. Good Title: Sr. Vice President & Portfolio Manager Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: BANK OF TOKYO-MITSUBISHI TRUST COMPANY by: /s/ J. William Rhodes -------------------------------------- Name: J. William Rhodes Title: VP Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H CNC LLC by: /s/ Dorian Herrera ----------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H Cypress Tree-1 LLC by: /s/ Dorian Herrera ----------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H ING-2 LLC by: /s/ Dorian Herrera ----------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H Pondview LLC by: /s/ Dorian Herrera ----------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H Soleil-2 LLC by: /s/ Dorian Herrera ---------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H Sterling LLC by: /s/ Dorian Herrera ----------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: K2H Waterside LLC by: /s/ Dorian Herrera ---------------------------------------- Name: Dorian Herrera Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SEQUILS-Glace Bay, Ltd. By Royal Bank of Canada as Collateral Manager by: /s/ Melissa Marano ----------------------------------------- Name: Melissa Marano Title: Partner Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Bank One, NA by: /s/ Christopher C. Cavalani ----------------------------------------- Name: Christopher C. Cavalani Title: Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank UMB Bank, n.a. by: /s/ Terry Dierks ----------------------------------------- Name: Terry Dierks Title: Senior Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Monument Capital Ltd., as Assignee By: Alliance Capital Management L.P., as Investment Manager By: Alliance Capital Management Corporation, as General Partner by: /s/ Nantha K. Suppiah ----------------------------------------- Name: Nantha K. Suppiah Title: Assistant Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: The Bank of New York by: /s/ M. Scott Donaldson ----------------------------------------- Name: M. Scott Donaldson Title: Assistant Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: PROMETHEUS INVESTMENT FUNDING NO. 1 LTD. By: HVB Credit Advisors LLC by: /s/ Irv Roa ---------------------------------------- Name: Irv Roa Title: Director /s/ Elizabeth Tallmadge Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: PROMETHEUS INVESTMENT FUNDING NO. 2 LTD. By: HVB Credit Advisors LLC by: /s/ Irv Roa ----------------------------------------- Name: Irv Roa Title: Director /s/ Elizabeth Tallmadge Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE SENIOR INCOME TRUST BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE INSTITUTIONAL SENIOR LOAN FUND BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OXFORD STRATEGIC INCOME FUND BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE CDO III, LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE CDO IV, LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: CONSTANTINUS EATON VANCE CDO V, LTD BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: BIG SKY SENIOR LOAN FUND, LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: GRAYSON & CO BY: BOSTON MANAGEMENT AND RESEARCH AS INVESTMENT ADVISOR by: /s/ Barbara Campbell ----------------------------------------- Name: Barbara Campbell Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Venture II CDO 2002, Limited By its investment advisor, Barclays Bank PLC, New York Branch by: /s/ Kenneth Ostmann ----------------------------------------- Name: Kenneth Ostmann Title: Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SEQUILS - PILGRIM I, LTD By: ING Investments, LLC as its investment manager by: /s/ Brian S. Horton ----------------------------------------- Name: Brian S. Horton Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: ML CLO XV PILGRIM AMERICA (CAYMAN) LTD. By: ING Investments, LLC as its investment manager by: /s/ Brian S. Horton ----------------------------------------- Name: Brian S. Horton Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. By: ING Investments, LLC as its investment manager by: /s/ Brian S. Horton ----------------------------------------- Name: Brian S. Horton Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Harris Trust and Savings Bank by: /s/ George M. Dluhy ----------------------------------------- Name: George M. Dluhy Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SIMSBURY CLO. LIMITED By: David L. Babson & Company Inc. under delegation authority from Massachusetts Mutual Life Insurance Company as Collateral Manager by: /s/ Russell D. Morrison ----------------------------------------- Name: Russell D. Morrison Title: Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: MAPLEWOOD (CAYMAN) LIMITED By: David L. Babson & Company Inc. under delegation authority from Massachusetts Mutual Life Insurance Company as Investment Manager by: /s/ Russell D. Morrison ----------------------------------------- Name: Russell D. Morrison Title: Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SAAR HOLDINGS CDO, LIMITED By: David L. Babson & Company Inc. under delegated authority from Massachusetts Mutual Life Insurance Company as Collateral Manager by: /s/ Russell D. Morrison ----------------------------------------- Name: Russell D. Morrison Title: Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: David L. Babson & Company Inc. as Investment Adviser by: /s/ Russell D. Morrison ----------------------------------------- Name: Russell D. Morrison Title: Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: ALLSTATE LIFE INSURANCE COMPANY by: /s/ Jerry D. Zinkula ----------------------------------------- Name: Jerry D. Zinkula Title: Authorized Signatory BY: /s/ Carol L. Kiel ----------------------------------------- Name: Carol L. Kiel Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AIMCO CDO Series 2000-A by: /s/ Jerry D. Zinkula ----------------------------------------- Name: Jerry D. Zinkula Title: Authorized Signatory BY: /s/ Carol L. Kiel ----------------------------------------- Name: Carol L. Kiel Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank WINGED FOOT FUNDING TRUST by: /s/ Ann E. Morris ----------------------------------------- Name: Ann E. Morris Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Centurion CDO II, Ltd. By: American Express Asset Management Group, Inc. as Collateral Manager by: /s/ Yvonne E. Stevens ----------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Sequils - Centurion V, Ltd. By: American Express Asset Management Group, Inc. as Collateral Manager by: /s/ Yvonne E. Stevens ----------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Centurion CDO VI, Ltd. By: American Express Asset Management Group, Inc. as Collateral Manager by: /s/ Yvonne E. Stevens ----------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: American Express Certificate Company By: American Express Asset Management Group, Inc. as Collateral Manager by: /s/ Yvonne E. Stevens ----------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: IDS Life Insurance Company By: American Express Asset Management Group, Inc. as Collateral Manager by: /s/ Yvonne E. Stevens ----------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: LaSalle Bank NA by: /s/ Robert W. Hart ----------------------------------------- Name: Robert W. Hart Title: First Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Fidelity Advisor Series II: Fidelity Advisor Floating Rate High Income Fund by: /s/ Mark Osterheld ----------------------------------------- Name: Mark Osterheld Title: Assistant Treasurer Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager by: /s/ David P. Meyer ----------------------------------------- Name: David P. Meyer Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: U.S. Bank, National Association by: /s/ John P. Mills ----------------------------------------- Name: John P. Mills Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Managing Agent by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AVOLON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: CERES II FINANCE LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Managing Agent (Financial) by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. As Investment Advisor by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: DIVERSIFIED CREDIT PORTFOLIO LTD. By: INVESCO Senior Secured Management, Inc. As Investment Adviser by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: INVESCO CBO 2000-1 LTD. By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SEQUILS-LIBERTY, LTD. By: INVESCO Senior Secured Management, Inc. As Collateral Manager by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SARATOGA CLO I, LIMITED By: INVESCO Senior Secured Management, Inc. As Asset Manager by: /s/ Gregory Stoeckle ----------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Galaxy CLO 1999-1, Ltd. by: /s/ W. Jeffrey Baxter ----------------------------------------- Name: W. Jeffrey Baxter Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OLYMPIC FUNDING TRUST, SERIES 1999-1 by: /s/ Diana M. Himes ----------------------------------------- Name: Diana M. Himes Title: Authorized Agent Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin CLO II, Limited by: /s/ Richard D'Addario ----------------------------------------- Name: Richard D'Addario Title: Senior Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin CLO I, Limited by: /s/ Richard D'Addario ---------------------------------------- Name: Richard D'Addario Title: Senior Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin CLO III, Limited by: /s/ Richard D'Addario ----------------------------------------- Name: Richard D'Addario Title: Senior Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin CLO IV, Limited by: /s/ Richard D'Addario ----------------------------------------- Name: Richard D'Addario Title: Senior Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin Floating Rate Master Series by: /s/ Richard D'Addario ----------------------------------------- Name: Richard D'Addario Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS IV, LTD. By: Octagon Credit Investors, LLC as collateral manager by: /s/ Michael B. Nechamkin ----------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS V, LTD. By: Octagon Credit Investors, LLC as Portfolio Manager by: /s/ Michael B. Nechamkin ----------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS III, LTD. By: Octagon Credit Investors, LLC as Portfolio Manager by: /s/ Michael B. Nechamkin ----------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS II, LLC By: Octagon Credit Investors, LLC as sub-investment manager by: /s/ Michael B. Nechamkin ------------------------------------------ Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: THE CITGROUP/EQUIPMENT FINANCING, INC. by: /s/ Katie J. Saunders ----------------------------------------- Name: Katie J. Saunders Title: Senior Credit Analyst Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: THE INTERNATIONAL COMMERCIAL BANK OF CHINA, CHICAGO BRANCH by: /s/ Kwei-Lin Ho ----------------------------------------- Name: Kewi-Lin Ho Title: VP & General Manger Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: TORONTO DOMINION (NEW YORK), INC. by: /s/ Stacey Malek ----------------------------------------- Name: Stacey Malek Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: JPMorgan Chase Bank by: /s/ Robert Anastasio ----------------------------------------- Name: Robert Anastasio Title: Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: PINEHURST TRADING, INC. by: /s/ Diana M. Himes ----------------------------------------- Name: Diana M. Himes Title: Assistant Vice President Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: by: /s/ Jeffrey H. Fishman ----------------------------------------- Name: Jeffrey H. Fishman Title: VP, Credit Administration Diamond Lease (U.S.A.), Inc. Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Hytron Financial Corp. by: /s/ Anne E. Sullivan ----------------------------------------- Name: Anne E. Sullivan Title: Mgr., Credit & Operations Signature Page to Second Amendment dated as of April 28, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Lender: The Siam Commercial Bank PCL, Singapore Branch by: /s/ Nattapong Samit-Ampaipisarn ----------------------------------------- Name: Nattapong Samit-Ampaipisarn Title: SVP & General Manager by: /s/ Ronald Tay ----------------------------------------- Name: Ronald Tay Title: Head of Corporate & Institutional Banking EX-10.3 6 first-amend.txt 1ST AMENDMENT FIRST AMENDMENT dated as of April 3, 2003 (this "Amendment") to the Amended and Restated Credit Agreement (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") dated as of June 12, 2002 among KANSAS CITY SOUTHERN ("Holdings"), THE KANSAS CITY SOUTHERN RAILWAY COMPANY ("the Borrower"), the LENDERS party thereto and JPMORGAN CHASE BANK, as administrative agent, collateral agent, issuing bank and swingline lender (the "Agent'). A. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement. B. The Borrower has requested that the Lenders amend certain provisions of the Credit Agreement. The Required Lenders are willing to agree to such amendments on the terms and subject to the conditions of this Amendment. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Amendments to the Credit Agreement (a) The definition of "Applicable Rate" is hereby amended by deleting the "and" at the end of the proviso to clause (a) thereof and replacing it with the phrase "; provided further that, notwithstanding clause (a)(i) above, during the period commencing on and including April 4, 2003 and ending on and including the first business day following the delivery to the Administrative Agent of the consolidated financial statements for the quarter ending June 30, 2003, the Applicable Rate for any day with respect to any Tranche B Term Loan shall be 2.25%; provided further that in the event the Leverage Ratio exceeds 5.0 to 1.0, at any time following the delivery of the financial statements for the quarter ending June 30, 2003, the Applicable Rate for any day with respect to any Tranche B Term Loan shall be increased by 0.25% and". (b) Section 6.13 of the Credit Agreement is hereby amended by deleting the table set forth therein and substituting therefor the following: Period Ratio ------ ----- January 1, 2003 to December 31, 2003 2.00 : 1.00 January 1, 2004 and thereafter 2.50 : 1.00 (c) Section 6.14 of the Credit Agreement is hereby amended by deleting the table set forth therein and substituting therefor the following: Period Ratio ------ ----- January 1, 2003 to December 31, 2003 5.75 : 1.00 January 1, 2004 to June 30, 2004 4.25 : 1.00 July 1, 2004 to December 31, 2004 4.00 : 1.00 January 1, 2005 and thereafter 3.75 : 1.00 Section 2. Representations Warranties and Agreements. Each of Holdings and the Borrower hereby represents and warrants to and agrees with each Lender and the Agent that: (a) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects with the same effect as if made on the Amendment Effective Date, except to the extent such representations and warranties expressly relate to an earlier date. (b) Each of Holdings and the Borrower has the requisite power and authority to execute, deliver and perform its obligations under this Amendment and to perform its obligations under the Credit Agreement as amended by this Amendment. (c) The execution, delivery and performance by each of Holdings and the Borrower of this Amendment and the performance by each of Holdings and the Borrower of the Credit Agreement, as amended by this Amendment, (i) have been duly authorized by all requisite action and (ii) will not (A) violate (x) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of Holdings or the Borrower or any Subsidiary, (y) any order of any Governmental Authority or (z) any provision of any indenture, agreement or other instrument to which Holdings or the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (B) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement for borrowed money or other agreement or instrument or (C) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by Holdings or the Borrower. (d) This Amendment has been duly executed and delivered by Holdings and the Borrower. Each of this Amendment and the Credit Agreement, as amended by this Amendment, constitutes a legal, valid and binding obligation of each of Holdings and the Borrower, enforceable against the Borrower and Holdings in accordance with its terms, except as enforceability may be limited by (i) any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. (e) As of the Amendment Effective Date, no Event of Default or Default has occurred and is continuing. Section 3. Conditions to Effectiveness. This Amendment shall be effective as of March 31, 2003 upon the satisfaction in full of the following conditions precedent (the "Amendment Effective Date"): (a) The Agent shall have received the Amendment Fee (as defined below). (b) The Agent shall have received duly executed counterparts hereof which, when taken together, bear the authorized signatures of Holdings, the Borrower, the Agent and the Required Lenders. (c) All legal matters incident to this Amendment shall be satisfactory to the Required Lenders, the Agent and Cravath, Swaine & Moore, counsel for the Agent. (d) The Agent shall have received such other documents, instruments and certificates as it or its counsel shall reasonably request. Section 4. Amendment Fee. Holdings and the Borrower agree, jointly and severally, to pay to each Lender that executes and delivers a copy of this Amendment to the Administrative Agent (or its counsel) at or prior to 12:00 p.m., New York City time, on April 3, 2003, an amendment fee (the "Amendment Fee") in an amount equal to 0.15% of the sum of such Lender's Revolving Commitment (whether used or unused) and outstanding Term Loans, in each case as of the Amendment Effective Date. The Amendment Fee shall be payable in immediately available funds on the Amendment Effective Date. Once paid, the Amendment Fee shall not be refundable. Section 5. Credit Agreement. Except as specifically stated herein, the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof. As used therein, the terms "Agreement", "herein", "hereunder", "hereto", "hereof' and words of similar import shall, unless the context otherwise requires, refer to the Credit Agreement as modified hereby. Section 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 7. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. Delivery of an executed counterpart of a signature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. Section 8. Expenses. The Borrower agrees to reimburse the Agent for its outof-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. KANSAS CITY SOUTHERN, by --------------------------------------------- Name: Title: THE KANSAS CITY SOUTHERN RAILWAY COMPANY, by --------------------------------------------- Name: Title: JPMORGAN CHASE BANK, individually and as Administrative Agent, Issuing Bank and Swingline Lender, by --------------------------------------------- Name: Title: Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: ------------------------------------------------------ by --------------------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written. KANSAS CITY SOUTHERN, by /s/ Paul J. Weyandt --------------------------------------------- Name: Paul J. Weyandt Title: Vice President and Treasurer THE KANSAS CITY SOUTHERN RAILWAY COMPANY, by /s/ Paul J. Weyandt --------------------------------------------- Name: Paul J. Weyandt Title: Vice President and Treasurer JPMORGAN CHASE BANK, individually and as Administrative Agent, Issuing Bank and Swingline Lender, by --------------------------------------------- Name: Title: Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: JPMORGAN CHASE BANK ------------------------------------------------------ by /s/ Robert P. Kellas --------------------------------------------- Name: Robert P. Kellas Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: THE INTERNATIONAL COMMERCIAL BANK OF CHINA CHICAGO BRANCH ------------------------------------------------------ by /s/ Kwei-Lin Ho --------------------------------------------- Name: Kewi-Lin Ho Title: VP and General Manager Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin CLO, II, Limited ------------------------------------------------------ by /s/ Richard D'Addario --------------------------------------------- Name: Richard D'Addario Title: Senior Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin CLO I, Limited ------------------------------------------------------ by /s/ Richard D'Addario --------------------------------------------- Name: Richard D'Addario Title: Senior Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Franklin Floating Rate Master Series ------------------------------------------------------ by /s/ Richard D'Addario --------------------------------------------- Name: Richard D'Addario Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Metropolitan Life Insurance Company ------------------------------------------------------ by /s/ James R. Dingler --------------------------------------------- Name: James R. Dingler Title: Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Harris Trust and Savings Bank ------------------------------------------------------ by /s/ Haig C. Garabedian --------------------------------------------- Name: Haig C. Garabedian Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SAAR HOLDINGS CDO, LIMITED By: David L. Babson & Company Inc. under delegated authority from Massachusetts Mutual Life Insurance Company as Collateral Manager ------------------------------------------------------ by /s/ Mary Ann McCarthy --------------------------------------------- Name: Mary Ann McCarthy Title: Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SIMSBURY CLO, LIMITED By: David L. Babson & Company Inc. under delegated authority from Massachusetts Mutual Life Insurance Company as Collateral Manager ------------------------------------------------------ by /s/ Mary Ann McCarthy --------------------------------------------- Name: Mary Ann McCarthy Title: Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: MAPLEWOOD (CAYMAN) LIMITED By: David L. Babson & Company Inc. under delegated authority from Massachusetts Mutual Life Insurance Company as delegated authority ------------------------------------------------------ by /s/ Mary Ann McCarthy --------------------------------------------- Name: Mary Ann McCarthy Title: Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: David L. Babson & Company Inc. as Investment Adviser ----------------------------------------------------- by /s/ Mary Ann McCarthy -------------------------------------------- Name: Mary Ann McCarthy Title: Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS II, LLC By: Octagon Credit Investors, LLC as sub-investment manager ----------------------------------------------------- by /s/ Michael B. Nechamkin -------------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS III, LTD By: Octagon Credit Investors, LLC as Portfolio Manager ----------------------------------------------------- by /s/ Michael B. Nechamkin -------------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS IV, LTD By: Octagon Credit Investors, LLC as collateral manager ----------------------------------------------------- by /s/ Michael B. Nechamkin -------------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OCTAGON INVESTMENT PARTNERS V, LTD By: Octagon credit Investors, LLC as Portfolio Manager ----------------------------------------------------- by /s/ Michael B. Nechamkin -------------------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: UMB Bank, n.a. ----------------------------------------------------- by /s/ Terry Dierks -------------------------------------------- Name: Terry Dierks Title: Senior Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Venture II CDO 2002, Limited By its investment adviser, Barclays Bank PLC New York Branch, ----------------------------------------------------- by /s/ Kenneth Ostmann -------------------------------------------- Name: Kenneth Ostmann Title: Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: DIAMOND LEASE U.S.A. ----------------------------------------------------- by /s/ Jeffrey H. Fishman -------------------------------------------- Name: Jeffrey H. Fishman Title: VP, Credit Administration Diamond Lease (U.S.A.), Inc. Signature Page to First Amendment dated as of April 3, 2003 to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Monument Capital Ltd., as Assignee By: Alliance Capital Management L.P., as Investment Manager By: Alliance Capital Management Corporation, as General Partner By: /s/ Nantha Suppiah -------------------------------------------- Name: Nantha Suppiah Title: Assistant Vice President New Alliance Global CDO, Limited By: Alliance Capital Management, L.P., as Sub-advisor By: Alliance Capital Management Corporation, as General Partner By: /s/ Nantha Suppiah -------------------------------------------- Name: Nantha Suppiah Title: Assistant Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: BANK OF TOKYO-MITSUBISHI TRUST COMPANY ----------------------------------------------------- by /s/ J. W. Rhodes -------------------------------------------- Name: J. W. Rhodes Title: VP & Mgr Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: IDS Life Insurance Company By: American Express Asset Management Group, Inc. as Collateral Manager ----------------------------------------------------- by /s/ Yvonne E. Stevens -------------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: American Express Certificate Company By: American Express Asset Management Group, Inc. as Collateral Manager ----------------------------------------------------- by /s/ Yvonne E. Stevens -------------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: CENTURION CDO VI, LTD By: American Express Asset Management Group, Inc. as Collateral Manager ----------------------------------------------------- by /s/ Leanne Stavrakis -------------------------------------------- Name: Leanne Stavrakis Title: Director - Operations Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Centurion CDO II, Ltd By: American Express Asset Management Group, Inc. as Collateral Manager ----------------------------------------------------- by /s/ Leanne Stavrakis -------------------------------------------- Name: Leanne Stavrakis Title: Director - Operations Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Sequils - Centurion V, Ltd. By: American Express Asset Management Group, Inc. as Collateral Manager ----------------------------------------------------- by /s/ Leanne Stavrakis -------------------------------------------- Name: Leanne Stavrakis Title: Director - Operations Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: WINGED FOOT FUNDING TRUST ----------------------------------------------------- by /s/ Diana M. Himes -------------------------------------------- Name: Diana M. Himes Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: PINEHURST TRADING, INC. ----------------------------------------------------- by /s/ Diana M. Himes -------------------------------------------- Name: Diana M. Himes Title: Assistant Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OLYMPIC FUNDING TRUST, SERIES 1999-1 ----------------------------------------------------- by /s/ Diana M. Himes -------------------------------------------- Name: Diana M. Himes Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Fleet National Bank ----------------------------------------------------- by /s/ Paul G. Feloney, Jr. -------------------------------------------- Name: Paul G. Feloney, Jr. Title: Managing Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: THE BANK OF NEW YORK ----------------------------------------------------- by /s/ John-Paul Marotta -------------------------------------------- Name: John-Paul Marotta Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager ----------------------------------------------------- by /s/ David P. Meyer -------------------------------------------- Name: David P. Meyer Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Bank One, NA ----------------------------------------------------- by /s/ Christopher C. Cavaiani -------------------------------------------- Name: Christopher C. Cavaiani Title: Director Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor ----------------------------------------------------- by /s/ Payson F. Swaffield -------------------------------------------- Name: Payson F. Swaffield Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE SENIOR INCOME TRUST BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR ----------------------------------------------------- by /s/ Payson F. Swaffield -------------------------------------------- Name: Payson F. Swaffield Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE INSTITUTIONAL SENIOR LOAN FUND BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR ----------------------------------------------------- by /s/ Payson F. Swaffield -------------------------------------------- Name: Payson F. Swaffield Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: OXFORD STRATEGIC INCOME FUND BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR ------------------------------------------------------ by /s/ PAYSON F. SWAFFIELD --------------------------------------------- Name: PAYSON F. SWAFFIELD Title: VICE PRESIDENT Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE CDO III, LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR ---------------------------------------------------- by /s/ PAYSON F. SWAFFIELD ------------------------------------------- Name: PAYSON F. SWAFFIELD Title: VICE PRESIDENT Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: EATON VANCE CDO IV, LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR -------------------------------------------------- by /s/ PAYSON F. SWAFFIELD ----------------------------------------- Name: PAYSON F. SWAFFIELD Title: VICE PRESIDENT Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: CONSTANTINUS EATON VANCE CDO V, LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR -------------------------------------------------- by /s/ PAYSON F. SWAFFIELD ----------------------------------------- Name: PAYSON F. SWAFFIELD Title: VICE PRESIDENT Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: GRAYSON & CO BY: BOSTON MANAGEMENT AND RESEARCH AS INVESTMENT ADVISOR -------------------------------------------------- by /s/ PAYSON F. SWAFFIELD ----------------------------------------- Name: PAYSON F. SWAFFIELD Title: VICE PRESIDENT Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: BIG SKY SENIOR LOAN FUND. LTD. BY: EATON VANCE MANAGEMENT AS INVESTMENT ADVISOR -------------------------------------------------- by /s/ PAYSON F. SWAFFIELD ----------------------------------------- Name: PAYSON F. SWAFFIELD Title: VICE PRESIDENT Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: LASALLE BANK NATIONAL ASSOCIATION -------------------------------------------------- by /s/ Robert W. Hart ----------------------------------------- Name: Robert W. Hart Title: First Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: The Siam Commercial Bank PCL, Singapore Branch By: /s/ Nattapong Samit-Ampaipisarn ----------------------------------------- Name: Nattapong Samit-Ampaipisarn Title: SVP & General Manager By: /s/ Ronald Tay ----------------------------------------- Name: Ronald Tay Title: Head of Corporate & Institutional Banking Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: THE BANK OF NOVA SCOTIA ------------------------------------------------- by /s/ M.D. Smith ----------------------------------------- Name: M.D. Smith Title: Agent Operations Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: Mizuho Corp. Bank, Ltd. ------------------------------------------------- by /s/ Robert Gallagher ---------------------------------------- Name: Robert Gallagher Title: VP Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: PROMETHEUS INVESTMENT FUNDING NO. 1 LTD. By: HVB Credit Advisors LLC ------------------------------------------------- by /s/ Irv Roa ---------------------------------------- Name: Irv Roa Title: Director by /s/ Elizabeth Tallmadge ---------------------------------------- Name: Elizabeth Tallmadge Title: Managing Director Chief Investment Officer Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: PROMETHEUS INVESTMENT FUNDING NO. 2 LTD. By: HVB Credit Advisors LLC ------------------------------------------------- by /s/ Irv Roa ---------------------------------------- Name: Irv Roa Title: Director by /s/ Elizabeth Tallmadge ---------------------------------------- Name: Elizabeth Tallmadge Title: Managing Director Chief Investment Officer Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: SEQUILS-Glace Bay, Ltd. By Royal Bank of Canada as Collateral Manager ------------------------------------------------- by /s/ Melissa Marano ---------------------------------------- Name: Melissa Marano Title: Partner Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: ALLSTATE LIFE INSURANCE COMPANY ------------------------------------------------- by /s/ Chris Goergen ---------------------------------------- Name: Chris Goergen Title: by /s/ Patricia W. Wilson ---------------------------------------- Name: Patricia W. Wilson Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AIMCO CDO Series 2000-A ------------------------------------------------- by /s/ Chris Goergen ---------------------------------------- Name: Chris Goergen Title: by /s/ Patricia W. Wilson ---------------------------------------- Name: Patricia W. Wilson Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: GALAXY CLO 1999-1 LTD. ------------------------------------------------- by /s/ W. Jeffrey Baxter ---------------------------------------- Name: W. Jeffrey Baxter Title: Authorized Agent Longhorn CDO (Cayman) LTD By: Merrill Lunch Investment Mangers, L.P., As Investment Advisor, as a Lender by /s/ Matt Wallack ---------------------------------------- Name: Matt Wallack Title: Authorized Signatory Longhorn CDO II, LTD By: Merrill Lunch Investment Mangers, L.P., As Investment Advisor, as a Lender by /s/ Matt Wallack ---------------------------------------- Name: Matt Wallack Title: Authorized Signatory Master Senior Floating Rate Trust, as a Lender by /s/ Matt Wallack --------------------------------------- Name: Matt Wallack Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: TEXTRON FINANCIAL CORP. ------------------------------------------------ by /s/ Anne E. Sullivan --------------------------------------- Name: Anne E. Sullivan Title: Mgr., Credit & Operations Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: TORONTO DOMINION (NEW YORK), INC. ------------------------------------------------ by /s/ Stacey Malek --------------------------------------- Name: Stacey Malek Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: The CIT Group Equipment Financing, Inc. ------------------------------------------------ by /s/ Katie J. Saunders --------------------------------------- Name: Katie J. Saunders Title: Senior Credit Analyst Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: GE STRUCTURED FINANCE by /s/ Michael Mahoney --------------------------------------- Name: Michael Mahoney Title: Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: STEIN ROE & FARNHAM CLO I LTD. By: Columbia Management Advisers, Inc. (f/k/a Stein Roe & Farnham Incorporated), As Portfolio Manager ------------------------------------------------ by /s/ Kathleen A. Zarn --------------------------------------- Name: Kathleen A. Zarn Title: Senior Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: AURUM CLO 2002-1 LTD. ------------------------------------------------ By: Columbia Management Advisers, Inc. (f/k/a Stein Roe & Farnham Incorporated), As Investment Manager by /s/ Kathleen A. Zarn --------------------------------------- Name: Kathleen A. Zarn Title: Senior Vice President Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: KZH CNC LLC ------------------------------------------------ by /s/ Susan Lee --------------------------------------- Name: Susan Lee Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: KZH ING-2 LLC ------------------------------------------------ by /s/ Susan Lee --------------------------------------- Name: Susan Lee Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: KZH PONDVIEW LLC ------------------------------------------------ by /s/ Susan Lee --------------------------------------- Name: Susan Lee Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: KZH SOLEIL-2 LLC ------------------------------------------------ by /s/ Susan Lee --------------------------------------- Name: Susan Lee Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: KZH STERLING LLC ------------------------------------------------ by /s/ Susan Lee --------------------------------------- Name: Susan Lee Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank Name of Institution: KZH WATERSIDE LLC ------------------------------------------------ by /s/ Susan Lee --------------------------------------- Name: Susan Lee Title: Authorized Agent Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Managing Agent by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank AVALON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank CERES II FINANCE LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Managing Agent (Financial) by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. As Investment Advisor by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank DIVERSIFIED CREDIT PORTFOLIO LTD. By: INVESCO Senior Secured Management, Inc. as Investment Advisor by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank INVESCO CBO 2000-1 LTD. By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank SEQUILS-LIBERTY, LTD. By: INVESCO Senior Secured Management, Inc. As Collateral Manager by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory Signature Page to First Amendment dated as of April 3, 2003 to the to the Amended and Restated Credit Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders party thereto and JPMorgan Chase Bank SARATOGA CLO I, LIMITED By: INVESCO Senior Secured Management, Inc. As Asset Manager by /s/ Gregory Stoeckle --------------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory EX-3.(I)(B) 7 certdes.txt CERTIFICATE OF DESIGNATIONS State of Delaware Secretary of State Division of Corporations Delivered 09:03 AM 05/05/2003 FILED 09:03 AM 05/05/2003 SRV 030287934 - 0579020 FILE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF 4.25% REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK, SERIES C of KANSAS CITY SOUTHERN Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned, Michael R. Haverty, Chairman, President and Chief Executive Officer of Kansas City Southern, a Delaware corporation (hereinafter called the "Corporation"), does hereby certify that the Board of Directors of the Corporation (the "Board of Directors"), pursuant to the provisions of Sections 103 and 151 of the General Corporation Law of the State of Delaware, hereby makes this Certificate of Designations and hereby states and certifies that pursuant to the authority expressly vested in the Board of Directors by its Restated Certificate of Incorporation, the Board of Directors duly adopted the following resolutions: RESOLVED, that, pursuant to Paragraph 4 of the Corporation's Restated Certificate of Incorporation (which authorizes 2,000,000 shares of New Series Preferred Stock, par value $1.00 per share (the "New Series Preferred Stock"), and the authority conferred on the Board of Directors, the Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions, of a series of New Series Preferred Stock. RESOLVED, that each share of such series of New Preferred Stock shall rank equally in all respects and shall be subject to the following provisions: 1. Number and Designation. 400,000 shares of the New Series Preferred Stock of the Corporation shall be designated as "4.25% Redeemable Cumulative Convertible Perpetual Preferred Stock, Series C" (the "Series C Convertible Preferred Stock"). 2. Certain Definitions. As used in this Certificate, the following terms shall have the following meanings, unless the context otherwise requires: "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 1 "Agent Members" shall have the meaning assigned to it in Section 15(a) hereof. "Board of Directors" means either the board of directors of the Corporation or any duly authorized committee of such board. "Business Day" means any day other than a Saturday, Sunday or a day on which state or U.S. federally chartered banking institutions in New York, New York are not required to be open. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents however designated of corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person and any rights (other than debt securities convertible or exchangeable into an equity interest), warrants or options to acquire an equity interest in such Person. "Certificate" means this Certificate of Designations. "Closing Sale Price" of the shares of Common Stock or other capital stock or similar equity interests on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported on the principal United States securities exchange on which shares of Common Stock or such other capital stock or similar equity interests are traded or, if the shares of Common Stock or such other capital stock or similar equity interests are not listed on a United States national or regional securities exchange, as reported by Nasdaq or by the National Quotation Bureau Incorporated. In the absence of such quotations, the Corporation shall be entitled to determine the Closing Sale Price on the basis it considers appropriate. The Closing Sale Price shall be determined without reference to extended or after hours trading. "Common Share Legend" shall have the meaning assigned to it in Section 16(f). "Common Stock" means any stock of any class of the Corporation that has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and that is not subject to redemption by the Corporation. Subject to the provisions of Section 9, however, shares issuable on conversion of the Series C Convertible Preferred Stock shall include only shares of the class designated as common stock of the Corporation at the date of this Certificate (namely, the Common Stock, par value $0.01 per share) or shares of any class or classes resulting from any reclassification or reclassifications thereof and that have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which are not subject to redemption by the Corporation; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable on conversion shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassifications 2 bears to the total number of shares of all such classes resulting from all such reclassifications. "Conversion Agent" shall have the meaning assigned to it in Section 17(a) hereof. "Conversion Price" per share of Series C Convertible Preferred Stock means, on any date, the Liquidation Preference divided by the Conversion Rate in effect on such date. "Conversion Rate" per share of Series C Convertible Preferred Stock means 33.4728 shares of Common Stock, subject to adjustment pursuant to Section 8 hereof. "Corporation" shall have the meaning assigned to it in the preamble to this Certificate, and shall include any successor to such Corporation. "Current Market Price" shall mean the average of the daily Closing Sale Prices per share of Common Stock for the ten consecutive Trading Days selected by the Corporation commencing no more than 30 Trading Days before and ending not later than the earlier of such date of determination and the day before the "ex" date with respect to the issuance, distribution, subdivision or combination requiring such computation immediately prior to the date in question. For purpose of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades, regular way, on the relevant exchange or in the relevant market from which the Closing Sale Price was obtained without the right to receive such issuance or distribution, and (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the time at which such subdivision or combination becomes effective. If another issuance, distribution, subdivision or combination to which Section 8(d) applies occurs during the period applicable for calculating "Current Market Price" pursuant to this definition, the "Current Market Price" shall be calculated for such period in a manner determined by the Board of Directors to reflect the impact of such issuance, distribution, subdivision or combination on the Closing Sale Price of the Common Stock during such period "Depositary" means DTC or its successor depositary. "Dividend Payment Date" means February 15, May 15, August 15 and November 15 each year, or if any such date is not a Business Day, on the next succeeding Business Day. "Dividend Period" shall mean the period beginning on, and including, a Dividend Payment Date and ending on, and excluding, the immediately succeeding Dividend Payment Date. "DTC" shall mean The Depository Trust Corporation, New York, New York. 3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. "Fundamental Change" means the occurrence of any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitutes solely the right to receive consideration which is not all or substantially all common stock that is (or, upon consummation of or immediately following such transaction or event, which will be) listed on a United States national securities exchange or approved (or, upon consummation of or immediately following such transaction or event, which will be approved) for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices. "Fundamental Change Purchase Date" shall have the meaning assigned to it in Section 11(a) hereof. "Global Preferred Shares" shall have the meaning assigned to it in Section 15(a) hereof. "Global Shares Legend" shall have the meaning assigned to it in Section 15(a) hereof. "Initial Purchasers" shall have the meaning assigned to it in the Placement Agreement. "Junior Stock" shall have the meaning assigned to it in Section 3(a) hereof. "Liquidation Preference" shall have the meaning assigned to it in Section 5(a) hereof. "Moody's" means Moody's Investors Services and its successors. "Officer" means the Chairman of the Board, a Vice Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Controller, any Assistant Controller, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Corporation. "Outstanding" means, when used with respect to Series C Convertible Preferred Stock, as of any date of determination, all shares of Series C Convertible Preferred Stock outstanding as of such date; provided, however, that, if such Series C Convertible Preferred Stock is to be redeemed, notice of such redemption has been duly given pursuant to this Certificate and the Paying Agent holds, in accordance with this Certificate, money sufficient to pay the Redemption Price for the shares of Series C Convertible Preferred Stock to be redeemed, then immediately after such Redemption Date such shares of Series C Convertible Preferred Stock shall cease to be outstanding; provided further that, in 4 determining whether the holders of Series C Convertible Preferred Stock have given any request, demand, authorization, direction, notice, consent or waiver or taken any other action hereunder, Series C Convertible Preferred Stock owned by the Corporation shall be deemed not to be Outstanding, except that, in determining whether the Registrar shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Series C Convertible Preferred Stock which the Registrar has actual knowledge of being so owned shall be deemed not to be Outstanding. "Parity Stock" shall have the meaning assigned to it in Section 3(b) hereof. "Paying Agent" shall have the meaning assigned to it in Section 17(a) hereof. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Placement Agreement" means the Placement Agreement dated as of April 29, 2003 among the Corporation, Morgan Stanley & Co. Incorporated and Deutsche Bank Securities Inc. relating to the Series C Convertible Preferred Stock. "Purchase Price" means an amount equal to 100% of the Liquidation Preference per share of Series C Convertible Preferred Stock being purchased, plus an amount equal to any accumulated and unpaid dividends, including Special Dividends, if any, (whether or not earned or declared) thereon to, but excluding, the Fundamental Change Purchase Date; provided that if a Fundamental Change Purchase Date falls after a Record Date and on or prior to the corresponding Dividend Payment Date, the Purchase Price will only be an amount equal to the Liquidation Preference per share of Series C Convertible Preferred Stock being purchased. "Record Date" means (i) with respect to the dividends payable on February 15, May 15, August 15 and November 15 of each year, February 1, May 1, August 1 and November 1 of each year, respectively, or such other record date, not more than 60 days and not less than 10 days preceding the applicable Dividend Payment Date, as shall be fixed by the Board of Directors and (ii) solely for the purpose of adjustments to the Conversion Rate pursuant to Section 8, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). 5 "Redemption Date" means a date that is fixed for redemption of the Series C Convertible Preferred Stock by the Corporation in accordance with Section 6 hereof. "Redemption Price" means an amount equal to the Liquidation Preference per share of Series C Convertible Preferred Stock being redeemed, plus an amount equal to all accumulated and unpaid dividends, including Special Dividends, if any, (whether or not earned or declared) thereon to, but excluding, the Redemption Date; provided that if the Redemption Date shall occur after a Record Date and before the related Dividend Payment Date, the Redemption Price shall be only an amount equal to the Liquidation Preference per share of Series C Convertible Preferred Stock being redeemed. "Registrar" shall have the meaning assigned to it in Section 13 hereof. "Registration Default" shall have the meaning assigned to it in the Registration Rights Agreement. "Registration Rights Agreement" means the Registration Rights Agreement dated as of May 5, 2003, among the Corporation, Morgan Stanley & Co. Incorporated and Deutsche Bank Securities Inc relating to the Series C Convertible Preferred Stock. "Restricted Shares Legend" shall have the meaning assigned to it in Section 15(a). "Rights" shall have the meaning assigned to it in Section 10 hereof. "Rights Agreement" means the Rights Agreement dated as of September 19, 1995 between the Corporation and Harris Trust & Savings Bank, as Rights Agent thereunder. "Rights Plan" shall have the meaning assigned to it in Section 10 hereof. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies Inc., and its successors. "Securities Act" means the Securities Act of 1933, as amended. "Senior Stock" shall have the meaning assigned to it in Section 3(c) hereof. "Series C Convertible Preferred Stock" shall have the meaning assigned to it in Section 1 hereof. "Series C Convertible Preferred Stock Director" shall have the meaning assigned to it in Section 12(c) hereof. "Shelf Registration Statement" shall have the meaning assigned to it in the Registration Rights Agreement. 6 "Special Dividends" shall have the meaning assigned to it in Section 4(f) hereof. "Subsidiary" means, with respect to any Person, (a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (b) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Trading Day" means a day during which trading in securities generally occurs on the New York Stock Exchange or, if the Common Stock is not listed on the New York Stock Exchange, on the principal other national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not listed on a national or regional securities exchange, on Nasdaq or, if the Common Stock is not quoted on Nasdaq, on the principal other market on which the Common Stock is then traded. "Trading Price" of the Series C Convertible Preferred Stock, on any date of determination, means the average of the secondary market bid quotations obtained by the Corporation or a calculation agent appointed by the Corporation for the purpose of determining the Trading Price for 50,000 shares of Series C Convertible Preferred Stock at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers that the Corporation or such calculation agent selects; provided that if three such bids cannot reasonably be obtained by the Corporation or such calculation agent, but two such bids are obtained, then the average of the two bids shall be used, and if only one such bid can reasonably be obtained by us or the calculation agent, that one bid shall be used; provided further that if the Corporation or such calculation agent cannot reasonably obtain at least one bid for 50,000 shares of Series C Convertible Preferred Stock from a nationally recognized securities dealer, or in the Corporation's reasonable judgment, the bid quotations are not indicative of the secondary market value of the Series C Convertible Preferred Stock, then the Trading Price per share of Series C Convertible Preferred Stock shall be deemed to be less than 98% of the product of the Closing Sale Price of the Common Stock and the Conversion Rate on such date. "Transfer Agent" shall have the meaning assigned to it in Section 13 hereof. 3. Rank. The Series C Convertible Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior to the Common Stock and any other class or series of Capital Stock of the Corporation, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the 7 Series C Convertible Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the "Junior Stock"); (b) on a parity with any other class or series of Capital Stock of the Corporation, the terms of which expressly provide that such class or series ranks on a parity with the Series C Convertible Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the "Parity Stock"); and (c) junior to each class or series of Capital Stock of the Corporation, the terms of which expressly provide that such class or series ranks senior to the Series C Convertible Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Capital Stock, the "Senior Stock"). 4. Dividends. (a) Holders of Series C Convertible Preferred Stock shall be entitled to receive, when, as and if, declared by the Board of Directors, out of funds legally available for the payment of dividends, cash dividends at the annual rate of 4.25% of the Liquidation Preference per share. Such dividends shall be payable in arrears in equal amounts quarterly on each Dividend Payment Date, beginning August 15, 2003, in preference to and in priority over dividends on any Junior Stock but subject to the rights of any holders of Senior Stock or Parity Stock. (b) Dividends shall be cumulative from the initial date of issuance or the last Dividend Payment Date for which accumulated dividends were paid, whichever is later, whether or not funds of the Corporation are legally available for the payment of such dividends. Each such dividend shall be payable to the holders of record of shares of the Series C Convertible Preferred Stock, as they appear on the Corporation's stock register at the close of business on a Record Date. Accumulated and unpaid dividends for any past Dividend Periods may be declared and paid at any time, without reference to any Dividend Payment Date, to holders of record on such date, not more than 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. (c) Accumulated and unpaid dividends for any past Dividend Period (whether or not earned and declared) shall cumulate dividends at the annual rate of 4.25% and shall be payable in the manner set forth in this Section 4. (d) The amount of dividends payable for each full Dividend Period for the Series C Convertible Preferred Stock shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for the initial Dividend Period, or any other period shorter or longer than a full Dividend Period, on the Series C Convertible Preferred Stock shall be computed on the basis of 30-day months and a 12-month year. Holders of Series C Convertible Preferred Stock shall not be entitled 8 to any dividends, whether payable in cash, property or stock, in excess of cumulative dividends, as herein provided, on the Series C Convertible Preferred Stock. (e) No dividend shall be declared or paid or set apart for payment or other distribution declared or made, whether in cash, obligations or shares of Capital Stock of the Corporation or other property, directly or indirectly, upon any shares of Junior Stock or Parity Stock, nor shall any shares of Junior Stock or Parity Stock be redeemed, repurchased or otherwise acquired for consideration by the Corporation through a sinking fund or otherwise, unless all accumulated and unpaid dividends, including Special Dividends, if any, through the most recent Dividend Payment Date (whether or not there are funds of the Corporation legally available for the payment of dividends) on the shares of Series C Convertible Preferred Stock and any Parity Stock have been or contemporaneously are declared and paid in full or set apart for payment; provided, however, that, notwithstanding any provisions of this Section 4(e) to the contrary, the Corporation may redeem, repurchase or otherwise acquire for consideration Series C Convertible Preferred Stock and Parity Stock pursuant to a purchase or exchange offer made on the same terms to all holders of such Series C Convertible Preferred Stock and Parity Stock. When dividends are not paid in full, as aforesaid, upon the shares of Series C Convertible Preferred Stock, all dividends declared on the Series C Convertible Preferred Stock and any other Parity Stock shall be declared and paid either (A) pro rata so that the amount of dividends so declared on the shares of Series C Convertible Preferred Stock and each such other class or series of Parity Stock shall in all cases bear to each other the same ratio as accumulated dividends on the shares of Series C Convertible Preferred Stock and such class or series of Parity Stock bear to each other or (B) on another basis that is at least as favorable to the holders of the Series C Convertible Preferred Stock entitled to receive such dividends. (f) Upon a Registration Default, additional dividends shall accumulate on the Series C Convertible Preferred Stock at the rate of 0.50% per annum, whether or not funds of the Corporation are legally available for the payment of such additional dividends, (such additional dividends, the "Special Dividends"), from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. 5. Liquidation Preference. In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, before any payment or distribution of the Corporation's assets (whether capital or surplus) shall be made to or set apart for the holders of Junior Stock, holders of Series C Convertible Preferred Stock shall be entitled to receive $500 per share of Series C Convertible Preferred Stock (the "Liquidation Preference") plus an amount equal to all dividends, including Special Dividends, (whether or not earned or declared) accumulated and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding-up of the Corporation, the Corporation's assets, or proceeds thereof, distributable among the holders 9 of Series C Convertible Preferred Stock are insufficient to pay in full the preferential amount aforesaid and liquidating payments on any Parity Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of the Series C Convertible Preferred Stock and any other Parity Stock ratably in accordance with the respective amounts that would be payable on such shares of Series C Convertible Preferred Stock and any such other Parity Stock if all amounts payable thereon were paid in full. (b) Neither the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock, securities or other consideration, of all or substantially all of the Corporation's property or assets nor the consolidation, merger or amalgamation of the Corporation with or into any corporation or the consolidation, merger or amalgamation of any corporation with or into the Corporation shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. (c) Subject to the rights of the holders of any Parity Stock, after payment has been made in full to the holders of the Series C Convertible Preferred Stock, as provided in this Section 5, holders of Junior Stock shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series C Convertible Preferred Stock shall not be entitled to share therein. 6. Redemption of the Series C Convertible Preferred Stock. Shares of Series C Convertible Preferred Stock shall be redeemable by the Corporation in accordance with this Section 6. (a) The Corporation may not redeem any shares of Series C Convertible Preferred Stock before May 20, 2008. On or after May 20, 2008, the Corporation shall have the option to redeem, subject to Section 6(k) hereof and Paragraph 4(h) of the Restated Certificate of Incorporation, some or all the shares of Series C Convertible Preferred Stock at the Redemption Price, but only if the Closing Sale Price of the Common Stock for 20 Trading Days within a period of 30 consecutive Trading Days ending on the Trading Day prior to the date the Corporation gives notice of such redemption pursuant to this Section 6 exceeds 135% of the Conversion Price in effect on each such Trading Day. (b) In the event the Corporation elects to redeem shares of Series C Convertible Preferred Stock, the Corporation shall: (i) send a written notice to the Registrar and Transfer Agent of the Redemption Date, stating the number of shares to be redeemed and the Redemption Price, at least 35 days before the Redemption Date (unless a shorter period shall be satisfactory to the Registrar and Transfer Agent); (ii) send a written notice by first class mail to each holder of record of the Series C Convertible Preferred Stock at 10 such holder's registered address, not fewer than 30 nor more than 90 days prior to the Redemption Date stating: (A) the Redemption Date; (B) the Redemption Price and whether such Redemption Price will be paid in cash, shares of Common Stock, or, if a combination thereof, the percentages of the Redemption Price in respect of which the Corporation will pay in cash and shares of Common Stock; (C) the Conversion Price and the Conversion Ratio; (D) the name and address of the Paying Agent and Conversion Agent; (E) that shares of Series C Convertible Preferred Stock called for redemption may be converted at any time before 5:00 p.m., New York City time on the Business Day immediately preceding the Redemption Date; (F) that holders who want to convert shares of the Series C Convertible Preferred Stock must satisfy the requirements set forth in Section 6 of this Certificate; (G) that shares of the Series C Convertible Preferred Stock called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (H) if fewer than all the outstanding shares of the Series C Convertible Preferred Stock are to be redeemed by the Corporation, the number of shares to be redeemed; (I) that, unless the Corporation defaults in making payment of such Redemption Price, dividends in respect of the shares of Series C Convertible Preferred Stock called for redemption will cease to accumulate on and after the Redemption Date; (J) the CUSIP number of the Series C Convertible Preferred Stock; and (K) any other information the Corporation wishes to present; and (iii) (A) publish the information set forth in Section 6(b)(ii) once in a daily newspaper printed in the English language and of general circulation in the Borough of Manhattan, The City of New York, (B) issue a press release containing such 11 information and (C) publish such information on the Corporation's web site on the World Wide Web. (c) The Redemption Price shall be payable, at the Corporation's election, in cash, shares of Common Stock, or a combination of cash and shares of Common Stock; provided that the Corporation shall not be permitted to pay all or any portion of the Redemption Price in shares of Common Stock unless: (i) the Corporation shall have given timely notice pursuant to Section 6(b) hereof of its intention to purchase all or a specified percentage of the Series C Convertible Preferred Stock with shares of Common Stock as provided herein; (ii) the Corporation shall have registered such shares of Common Stock under the Securities Act and the Exchange Act, in each case, if required; (iii) such shares of Common Stock have been approved for listing of on a national securities exchange or have been approved for quotation in an inter-dealer quotation system of any registered United States national securities association; and (iv) any necessary qualification or registration under applicable state securities laws have been obtained, if required. If the foregoing conditions are not satisfied with respect to any holder or holders of Series C Convertible Preferred Stock prior to the close of business on the last day prior to the Redemption Date and the Corporation has elected to purchase the Series C Convertible Preferred Stock pursuant to this Section through the issuance of shares of Common Stock, then, notwithstanding any election by the Corporation to the contrary, the Corporation shall pay the entire Redemption Price of the Series C Convertible Preferred Stock of such holder or holders in cash. (d) Payment of the specified portion of the Redemption Price in shares of Common Stock pursuant to Section 6(c) hereof shall be made by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the portion of the Redemption Price, as the case may be, to be paid in shares of Common Stock by (ii) 97.5% of the average of the Closing Sale Prices of the Common Stock for the 5 Trading Days ending on the third Trading Day prior to the Redemption Date (appropriately adjusted to take into account the occurrence during such period of any event described in Sections 8). The Corporation shall not issue fractional shares of Common Stock in payment of the Redemption Price. Instead, the Corporation shall pay cash based on the Closing Sale Price of the Common Stock on the Redemption Date for all fractional shares. Upon determination of the actual number of shares of Common Stock to be issued upon redemption of the Series C Convertible Preferred Stock, the Corporation shall be required to disseminate a press release through Dow Jones & Corporation, Inc. or Bloomberg Business News containing this information or publish the information on the 12 Corporation's web site or through such other public medium as the Corporation may use at that time. (e) If the Corporation gives notice of redemption, then, by 12:00 p.m., New York City time, on the Redemption Date, to the extent sufficient funds are legally available, the Corporation shall, with respect to: (i) shares of the Series C Convertible Preferred Stock held by DTC or its nominees, deposit or cause to be deposited, irrevocably with DTC cash or shares of Common Stock, as applicable, sufficient to pay the Redemption Price and shall give DTC irrevocable instructions and authority to pay the Redemption Price to holders of such shares of the Series C Convertible Preferred Stock; and (ii) shares of the Series C Convertible Preferred Stock held in certificated form, deposit or cause to be deposited, irrevocably with the Paying Agent cash or shares of Common Stock, as applicable, sufficient to pay the Redemption Price and shall give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to holders of such shares of the Series C Convertible Preferred Stock upon surrender of their certificates evidencing their shares of the Series C Convertible Preferred Stock. (f) If on the Redemption Date, DTC and/or the Paying Agent holds or hold money or shares of Common Stock, as applicable, sufficient to pay the Redemption Price for the shares of Series C Convertible Preferred Stock delivered for redemption as set forth herein, dividends shall cease to accumulate as of the Redemption Date on those shares of the Series C Convertible Preferred Stock called for redemption and all rights of holders of such shares shall terminate, except for the right to receive the Redemption Price pursuant to this Section 6 and the right to convert such shares of Series C Convertible Preferred Stock as provided in Section 7(a)(iii). For the avoidance of doubt, the Corporation intends that the provisions of Paragraph 4(h) of the Corporation's Restated Certificate of Incorporation relating to the termination of rights of shares of preferred stock called for redemption upon deposit (if earlier than the Redemption Date) of funds sufficient to pay the Redemption Price shall not apply to the Series C Convertible Preferred Stock or this Certificate. (g) Payment of the Redemption Price for shares of the Series C Convertible Preferred Stock is conditioned upon book-entry transfer or physical delivery of certificates representing the Series C Convertible Preferred Stock, together with necessary endorsements, to the Paying Agent at any time after delivery of the notice of redemption. (h) If the Redemption Date falls after a Record Date and before the related Dividend Payment Date, holders of the shares of Series C Convertible Preferred Stock at the close of business on that Record Date 13 shall be entitled to receive the dividend payable on those shares on the corresponding Dividend Payment Date. (i) If fewer than all the outstanding shares of Series C Convertible Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected by lot or pro rata (with any fractional shares being rounded to the nearest whole share) as may be determined by the Board of Directors (j) Upon surrender of a certificate or certificates representing shares of the Series C Convertible Preferred Stock that is or are redeemed in part, the Corporation shall execute and the Transfer Agent shall authenticate and deliver to the holder, a new certificate of certificates representing shares of the Series C Convertible Preferred Stock in an amount equal to the unredeemed portion of the shares of Series C Convertible Preferred Stock surrendered for partial redemption. (k) Notwithstanding the foregoing provisions of this Section 6, unless full cumulative dividends (whether or not declared) on all outstanding shares of Series C Convertible Preferred Stock have been paid or contemporaneously are declared and paid or set apart for payment for all Dividend Periods terminating on or before the Redemption Date, none of the shares of Series C Convertible Preferred Stock shall be redeemed, and no sum shall be set aside for such redemption, unless pursuant to a purchase or exchange offer made on the same terms to all holders of Series C Convertible Preferred Stock and any Parity Stock. Pursuant to Paragraph 4(h) of the Corporation's Restated Certificate of Incorporation, the Corporation may not redeem the Series C Convertible Preferred Stock if (i) as of the date of giving the redemption notice of any redemption pursuant to this Section 6, such redemption would, if such date where the Redemption Date, reduce the net assets of the Corporation remaining after such redemption below twice the aggregate amount payable upon voluntary or involuntary liquidation, dissolution or winding up to the holders of Senior Stock or Parity Stock upon such liquidation, dissolution or winding up, or (ii) all cumulative dividends for the current and all prior dividend periods have not been declared and paid or have not been declared and set apart for payment on all shares of the Corporation having a right to cumulative dividends. 7. Conversion. (a) Right to Convert. Each share of Series C Convertible Preferred Stock shall be convertible in accordance with, and subject to, this Section 7 into a number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) equal to the Conversion Rate in effect at such time. The Series C Convertible Preferred Stock shall be convertible only upon any of the events, and for the period, specified in the following clauses (i) through (v) below. Notwithstanding the foregoing, if any shares of Series C Convertible Preferred Stock are to be redeemed pursuant to Section 6, such conversion right shall cease and terminate, as to the shares of the Series C Convertible Preferred Stock to be redeemed, at 5:00 p.m., New York City time on the Business Day immediately preceding the Redemption Date, 14 unless the Corporation shall default in the payment of the Redemption Price therefor, as provided herein. Upon the determination that holders of the Series C Convertible Preferred Stock are or will be entitled to convert shares of Series C Convertible Preferred Stock in accordance with any of the following provisions, the Corporation shall issue a press release and publish such information on its website on the World Wide Web. (i) Conversion Rights Based on Common Stock Price. At any time after June 30, 2003, the Series C Convertible Preferred Stock may be surrendered for conversion into shares of Common Stock in any fiscal quarter of the Corporation (and only during such fiscal quarter), if, as of the last day of the preceding fiscal quarter of the Corporation, the Closing Sale Price of the Common Stock for at least 20 Trading Days in a period of 30 consecutive Trading Days ending on the last Trading Day of such fiscal quarter is more than 110% of the Conversion Price as of the last day of such preceding fiscal quarter. (ii) Conversion Rights Upon Credit Rating Events. The Series C Convertible Preferred Stock may be surrendered for conversion after the earlier of (a) the date the Series C Convertible Preferred Stock is assigned a credit rating by both S&P and Moody's and (b) May 3, 2003, in each case, during any period in which (1) the credit rating assigned to the Series C Convertible Preferred Stock by S&P is below CCC, (2) the credit rating assigned to the Series C Convertible Preferred Stock by Moody's is below Caa3, (3) either S&P or Moody's does not assign a credit rating to the Series C Convertible Preferred Stock or (4) any rating is suspended or withdrawn by either S&P or Moody's. (iii) Conversion Rights Upon Notice of Redemption. The Series C Convertible Preferred Stock that has been called for redemption pursuant to Section 6 hereof may be surrendered at any time prior to 5:00 p.m. New York City time on the Business Day immediately preceding the Redemption Date. (iv) Conversion Rights Upon Occurrence of Certain Corporate Transactions. (1) If the Corporation is a party to a consolidation, merger or binding share exchange pursuant to which shares of Common Stock would be converted into cash, securities or other property as set forth in Section 9, each share of Series C Convertible Preferred Stock may be surrendered for conversion at any time from and after the date that is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual date of such transaction and, at the effective time of the transaction, the right to convert a Series C Convertible Preferred Stock into shares of Common Stock shall be changed into a right to convert such Series C Convertible Preferred Stock into the kind and amount of cash, securities or other property of the Corporation 15 or another Person that the holder would have received if the holder had converted such Series C Convertible Preferred Stock immediately prior to the transaction. (2) If the Corporation distributes to all holders of any class of Common Stock (1) rights or warrants entitling them to purchase, for a period expiring within 45 days of the record date for such distribution, Common Stock at less than the average Closing Sale Price for the 10 Trading Days preceding the declaration date for such distribution, or (2) cash, assets, debt securities or rights to purchase the Corporation's securities, which distribution has a per share value exceeding 5% of the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the declaration date for such distribution, the Series C Convertible Preferred Stock may be surrendered for conversion on the date that the Corporation gives notice to the holders of such right, which shall not be less than 20 days prior to the time ("Ex-Dividend Time") immediately prior to the commencement of "ex-dividend" trading for such distribution on the New York Stock Exchange or such other principal national or regional exchange or market on which the Common Stock is then listed or quoted for such dividend or distribution, and the Series C Convertible Preferred Stock may be surrendered for conversion at any time thereafter until the earlier of close of business on the Business Day prior to the Ex-Dividend Time and the date the Corporation announces that such dividend or distribution will not take place. Notwithstanding the foregoing, holders shall not have the right to surrender shares of Series C Convertible Preferred Stock for conversion pursuant to this Section 7(a)(iv)(2) if they will otherwise participate in the distribution described above without first converting Series C Convertible Preferred Stock into Common Stock. (v) Conversion Upon Satisfaction Of Trading Price Condition. The Series C Convertible Preferred Stock may be surrendered for conversion any time during the five Business Day period after any five consecutive Trading Day period in which the Trading Price for each day of such five Trading Day period was less than 98% of the product of the Closing Sale Price and the Conversion Rate in effect on each such Trading Day. (b) Conversion Procedures. (i) Conversion of shares of the Series C Convertible Preferred Stock may be effected by any holder thereof upon the surrender to the Corporation, at the principal office of the Corporation or at the office of the Conversion Agent as may be designated by the Board of Directors, of the certificate or certificates for such shares of the Series C Convertible Preferred Stock to be converted accompanied a complete and manually signed Notice of Conversion (as set forth in the form of Series C Convertible Preferred Stock certificate attached hereto) along with (A) appropriate endorsements and transfer documents as required by the Registrar or Conversion Agent and (B) if required 16 pursuant to Section 7(c) funds equal to the dividend payable on the next Dividend Payment Date. In case such Notice of Conversion shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Corporation shall pay any documentary, stamp or similar issue or transfer taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of the Series C Convertible Preferred Stock pursuant hereto. The conversion of the Series C Convertible Preferred Stock will be deemed to have been made on the date (the "Conversion Date") such certificate or certificates have been surrendered and the receipt of such Notice of Conversion and payment of all required transfer taxes, if any (or the demonstration to the satisfaction of the Corporation that such taxes have been paid). Promptly (but no later than two Business Days) following the Conversion Date, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock to which the holder of shares of the Series C Convertible Preferred Stock being converted (or such holder's transferee) shall be entitled, and (ii) if less than the full number of shares of the Series C Convertible Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted. On the Conversion Date, the rights of the holder of the Series C Convertible Preferred Stock as to the shares being converted shall cease except for the right to receive shares of Common Stock and the Person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. (ii) Anything herein to the contrary notwithstanding, in the case of Global Preferred Shares, Notices of Conversion may be delivered and shares of the Series C Convertible Preferred Stock representing beneficial interests in respect of such Global Preferred Shares may be surrendered for conversion in accordance with the applicable procedures of the Depositary as in effect from time to time. (c) Dividend and Other Payments Upon Conversion. (i) If a holder of shares of Series C Convertible Preferred Stock exercises conversion rights, such shares will cease to accumulate dividends as of the end of the day immediately preceding the Conversion Date. On conversion of the Series C Convertible Preferred Stock, except for conversion during the period from the close of business on any Record Date corresponding to a Dividend Payment Date to the close of business on the Business Day immediately preceding such Dividend Payment Date, in which case the holder on such Dividend Record Date shall receive the dividends payable on such Dividend Payment Date, accumulated and unpaid dividends on the converted share of Series C Convertible Preferred Stock shall not be cancelled, extinguished or forfeited, but rather shall be 17 deemed to be paid in full to the holder thereof through delivery of the Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Series C Convertible Preferred Stock being converted pursuant to the provisions hereof. Shares of the Series C Convertible Preferred Stock surrendered for conversion after the close of business on any Record Date for the payment of dividends declared and before the opening of business on the Dividend Payment Date corresponding to that Record Date must be accompanied by a payment to the Corporation in cash of an amount equal to the dividend payable in respect of those shares on such Dividend Payment Date; provided that a holder of shares of the Series C Convertible Preferred Stock on a Record Date who converts such shares into shares of Common Stock on the corresponding Dividend Payment Date shall be entitled to receive the dividend payable on such shares of the Series C Convertible Preferred Stock on such Dividend Payment Date, and such holder need not include payment to the Corporation of the amount of such dividend upon surrender of shares of the Series C Convertible Preferred Stock for conversion. (ii) Notwithstanding the foregoing, if shares of the Series C Convertible Preferred Stock are converted during the period between the close of business on any Record Date and the opening of business on the corresponding Dividend Payment Date and the Corporation has called such shares of the Series C Convertible Preferred Stock for redemption during such period, or the Corporation has designated a Fundamental Change Purchase Date during such period, then, in each case, the holder who tenders such shares for conversion shall receive the dividend payable on such Dividend Payment Date and need not include payment of the amount of such dividend upon surrender of shares of the Series C Convertible Preferred Stock for conversion. (d) Fractional Shares. In connection with the conversion of any shares of the Series C Convertible Preferred Stock, no fractions of shares of Common Stock shall be issued, but the Corporation shall pay a cash adjustment in respect of any fractional interest in an amount equal to the fractional interest multiplied by the Closing Sale Price of the Common Stock on the Conversion Date, rounded to the nearest whole cent. (e) Total Shares. If more than one share of the Series C Convertible Preferred Stock shall be surrendered for conversion by the same holder at the same time, the number of full shares of Common Stock issuable on conversion of those shares shall be computed on the basis of the total number of shares of the Series C Convertible Preferred Stock so surrendered. (f) Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Corporation shall: 18 (i) at all times reserve and keep available, free from preemptive rights, for issuance upon the conversion of shares of the Series C Convertible Preferred Stock such number of its authorized but unissued shares of Common Stock as shall from time to time be sufficient if necessary to permit the conversion of all outstanding shares of the Series C Convertible Preferred Stock; (ii) prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series C Convertible Preferred Stock, comply with all applicable federal and state laws and regulations that require action to be taken by the Corporation (including, without limitation, the registration or approval, if required, of any shares of Common Stock to be provided for the purpose of conversion of the Series C Convertible Preferred Stock hereunder); (iii) ensure that all shares of Common Stock delivered upon conversion of the Series C Convertible Preferred Stock, upon delivery, be duly and validly issued and fully paid and nonassessable, free of all liens and charges and not subject to any preemptive rights. 8. Conversion Rate Adjustments. The Conversion Rate shall be adjusted from time to time by the Corporation in accordance with the provisions of this Section 8. (a) If the Corporation shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution by a fraction, (i) the numerator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for the determination of stockholders entitled to receive such dividend or other distribution plus the total number of shares of Common Stock constituting such dividend or other distribution; and (ii) the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. If any dividend or distribution of the type described in this Section 8(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. 19 (b) If the Corporation shall issue rights or warrants to all holders of any class of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the average of the Closing Sale Prices of the Common Stock for the 10 Trading Days preceding the declaration date for such distribution, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction, (i) the numerator of which shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the total number of additional shares of Common Stock offered for subscription or purchase, and (ii) the denominator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at a price equal to the average of the Closing Sale Prices of the Common Stock for the 10 Trading Days preceding the declaration date for such distribution. Such adjustment shall be successively made whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at a price less than the average of the Closing Sale Prices of the Common Stock for the 10 Trading Days preceding the declaration date for such distribution, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Corporation for such rights or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) If the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following 20 the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) If the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of Capital Stock of the Corporation or evidences of its indebtedness or assets (including securities, but excluding (x) any rights or warrants referred to in 8(b), (y) any dividend or distribution (I) paid exclusively in cash or (II) referred to in Section 8(a) and (z) any distribution referred to in Section 8(g)) (any of the foregoing hereinafter in this called the "Distributed Property")), then, in each such case, the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect on the Record Date with respect to such distribution by a fraction, (i) the numerator of which shall be the Current Market Price on such Record Date; and (ii) the denominator of which shall be the Current Market Price on such Record Date less the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Record Date of the portion of the Distributed Property so distributed applicable to one share of Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Record Date; provided that if the then Fair Market Value (as so determined) of the portion of the Distributed Property so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Series C Convertible Preferred Stock shall have the right to receive upon conversion the amount of Distributed Property such holder would have received had such holder converted each share Series C Convertible Preferred Stock on the Record Date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the Fair Market Value of any distribution for purposes of this by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price on the applicable Record Date. Rights or warrants (including rights under the Corporation's Rights Agreement) distributed by the Corporation to all holders of Common Stock 21 entitling the holders thereof to subscribe for or purchase shares of the Corporation's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this 8(d) (and no adjustment to the Conversion Rate under this 8(d) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under this 8(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Certificate, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this 8(d) was made, (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants that shall have expired or been terminated without exercise thereof, the Conversion Rate shall be readjusted as if such expired or terminated rights and warrants had not been issued. For purposes of this Section 8(d), Section 8(a) and Section 8(b), any dividend or distribution to which this Section 8(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Rate adjustment required by this Section 8(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Rate adjustment required by Sections 8(a) and 8(b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "the date fixed for the determination of stockholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of Sections 8(a) and 8(b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed 22 "outstanding at the close of business on the date fixed for such determination" within the meaning of 8(a). (e) If the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Stock cash, excluding any dividend or distribution in connection with the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, to the extent that the aggregate amount of cash distributions per share of Common Stock in any twelve month period exceeds the greater of (x) the annualized amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Conversion Rate pursuant to this Section 8(e) (as adjusted to reflect subdivisions, or combinations of the Common Stock), and (y) 5% of the average of the Closing Sale Price during the ten Trading Days immediately prior to the date of declaration of such dividend, then, in such case, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on such record date by a fraction, (i) the numerator of which shall be the Current Market Price on such record date; and (ii) the denominator of which shall be the Current Market Price on such record date less the amount of cash so distributed (including only the amount of cash distributed in excess of the threshold set forth above) applicable to one share of Common Stock, such adjustment to be effective immediately prior to the opening of business on the day following the Record Date; provided that if the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Series C Convertible Preferred Stock shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each share of Series C Convertible Preferred Stock on the Record Date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 8(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this 8(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) If a tender or exchange offer made by the Corporation or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per 23 share of Common Stock having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction, (i) the numerator of which shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, such adjustment to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Corporation is obligated to purchase shares pursuant to any such tender or exchange offer, but the Corporation is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. (g) If the Corporation pays a dividend or makes a distribution to all holders of its Common Stock consisting of capital stock of any class or series, or similar equity interests, of or relating to a Subsidiary or other business unit of the Corporation, the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect on the Record Date with respect to such distribution by a fraction, (i) the numerator of which shall be the sum of (A) the average of the Closing Sale Prices of the Common Stock for the ten (10) Trading Days commencing on and including the fifth Trading Day after the date on which "ex-dividend trading" commences for such dividend or distribution on The New York Stock Exchange or such other national or regional exchange 24 or market which such securities are then listed or quoted (the "Ex-Dividend Date") plus (B) the fair market value of the securities distributed in respect of each share of Common Stock for which this Section 8(g) applies, which shall equal the number of securities distributed in respect of each share of Common Stock multiplied by the average of the Closing Sale Prices of those distributed securities for the ten (10) Trading Days commencing on and including the fifth Trading Day after the Ex-Dividend Date; and (ii) the denominator of which shall be the average of the Closing Sale Prices of the Common Stock for the ten (10) Trading Days commencing on and including the fifth Trading Day after the Ex-Dividend Date, such adjustment to become effective immediately prior to the opening of business on the day following fifteenth Trading Day after the Ex-Dividend Date; provided that if (x) the average of the Closing Sale Prices of the Common Stock for the ten (10) Trading Days commencing on and including the fifth Trading Day after the Ex-Dividend Date minus (y) the fair market value of the securities distributed in respect of each share of Common Stock for which this Section 8(g) applies (as calculated in Section 8(g)(i) above) is less than $1.00, then the adjustment provided by for by this Section 8(g) shall not be made and in lieu thereof the provisions of Section 9 shall apply to such distribution. (h) In case of a tender or exchange offer made by a Person other than the Corporation or any Subsidiary of the Corporation for an amount that increases the offeror's ownership of Common Stock to more than 25% of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) that as of the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) exceeds the Closing Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Offer Expiration Time by a fraction, (i) the numerator of which shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any 25 Accepted Purchased Shares) at the Offer Expiration Time and the Closing Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Offer Expiration Time multiplied by the Closing Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, such adjustment to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 8(h) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Corporation to engage in any transaction described in Section 9. (i) The Corporation may make such increases in the Conversion Rate in addition to those required by Sections 8(a), (b), (c), (d), (e), (f) , (g) and (h) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Corporation from time to time may increase the Conversion Rate by any amount for any period of time if the Board of Directors shall have made a determination that such increase would be in the best interests of the Corporation, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Corporation shall mail to holders of the Series C Convertible Preferred Stock a notice of the increase prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which they will be in effect. (j) No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such rate; provided that any adjustments that by reason of this Section 8(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 8 shall be made by the Corporation and shall be made to the nearest cent or to the nearest one-ten thousandth (1/10,000) of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest or, except as set forth in this Section 8, for any issuance of Common Stock or convertible or exchangeable securities or rights to purchase Common Stock or convertible 26 or exchangeable securities. To the extent the Securities become convertible into cash, assets, property or securities (other than Capital Stock of the Corporation), subject to Section 9, no adjustment need be made thereafter as to the cash, assets, property or such securities. Dividends will not accrue on any cash into which the Series C Convertible Preferred Stock is convertible. (k) Whenever the Conversion Rate is adjusted as herein provided, the Corporation shall promptly file with the Conversion Agent an Officer's certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a responsible officer of the Conversion Agent shall have received such Officer's certificate, the Conversion Agent shall not be deemed to have knowledge of any adjustment of the Conversion Rate and may assume that the last Conversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to the each holder of Series C Convertible Preferred Stock at his last address appearing on the register within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (l) For purposes of this Section 8, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation, unless such treasury shares participate in any distribution or dividend that requires an adjustment pursuant to this Section 8, but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. 9. Effect of Reclassification, Consolidation, Merger or Sale on Conversion Privilege. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 8(c) applies), (ii) any consolidation, merger or combination of the Corporation with another Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of all or substantially all of the properties and assets of the Corporation to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then each share of Series C Convertible Preferred Stock shall be convertible into the kind and amount of shares of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Series C Convertible Preferred Stock (assuming, for such purposes, a sufficient number of authorized shares of Common Stock are available to convert all such Series C Convertible Preferred Stock) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance 27 assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 9 the kind and amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). (b) The Corporation shall cause notice of the application of this 9 within twenty (20) days after the occurrence of the events specified in Section 9(a) and shall issue a press release containing such information and publish such information on its website on the World Wide Web. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. (c) The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances, and the provisions of Section 8 shall apply to any shares of Capital Stock received by the holders of Common Stock in any such reclassification, change, consolidation, merger, combination, sale or conveyance. (d) If this Section 9 applies to any event or occurrence, Section 8 shall not apply. 10. Rights Issued in Respect of Common Stock Issued Upon Conversion. Each share of Common Stock issued upon conversion of the Series C Convertible Preferred Stock shall be entitled to receive the appropriate number of common stock or preferred stock purchase rights, as the case may be, including without limitation, the rights under the Rights Agreement (collectively, the "Rights"), if any, that shares of Common Stock are entitled to receive and the certificates representing the Common Stock issued upon such conversion shall bear such legends, if any, in each case as may be provided by the terms of any shareholder rights agreement adopted by the Corporation, as the same may be amended from time to time (in each case, a "Rights Plan"). Provided that such Rights Plan requires that each share of Common Stock issued upon conversion of Series C Convertible Preferred Stock at any time prior to the distribution of separate certificates representing the Rights be entitled to receive such Rights, then, notwithstanding anything else to the contrary in this Certificate, there shall not be any adjustment to the conversion privilege or Conversion Rate as a result of the issuance of Rights, but an adjustment to the Conversion Rate shall be made pursuant to Section 8(d) upon the separation of the Rights from the Common Stock. 11. Fundamental Change. 28 (a) Repurchase Right. If there shall occur a Fundamental Change, shares of Series C Convertible Preferred Stock shall be purchased by the Corporation at the option of the holders thereof as of the date specified by the Corporation that is not less than 20 Business Days nor more than 35 Business Days after the occurrence of the Fundamental Change (the "Fundamental Change Purchase Date"), subject to satisfaction by or on behalf of any holder of the requirements set forth in Section 11(c). The Purchase Price shall be paid, at the option of the Corporation, in cash, shares of Common Stock, or any combination thereof; provided that the Corporation shall not be permitted to pay all or any portion of the Purchase Price in shares of Common Stock unless: (i) the Corporation shall have given timely notice pursuant to Section 11(b) hereof of its intention to purchase all or a specified percentage of the Preferred Shares with shares of Common Stock as provided herein; (ii) the Corporation shall have registered such shares of Common Stock under the Securities Act and the Exchange Act, in each case, if required; (iii) such shares of Common Stock have been approved for listing of on a national securities exchange or have been approved for quotation in an inter-dealer quotation system of any registered United States national securities association; and (iv) any necessary qualification or registration under applicable state securities laws have been obtained, if required; provided further that if the Corporation shall be prohibited under any agreements applicable to it from paying the Purchase Price in cash, or an event of default (howsoever described) shall arise under any such agreement upon the payment of the Purchase Price in cash, then, notwithstanding any notice by the Corporation to the contrary, the Corporation shall, to the extent not prohibited by such agreements and applicable law, pay the Purchase Price in Common Stock or, in the case of a merger in which the Corporation is not the surviving Person, Common Stock of the surviving Person or its direct or indirect parent. If the foregoing conditions to pay the Purchase Price in shares of Common Stock are not satisfied with respect to any holder or holders of Series C Convertible Preferred Stock prior to the close of business on the last day prior to the Fundamental Change Purchase Date and the Corporation has elected to purchase the Series C Convertible Preferred Stock pursuant to this Section through the issuance of shares of Common Stock, then, notwithstanding any election by the Corporation to the contrary, the Corporation shall pay the entire Purchase Price of the Series C Convertible Preferred Stock of such holder or holders in cash. (b) Notice to Holders. Within 15 Business Days after the occurrence of a Fundamental Change, the Corporation shall mail a written notice of the Fundamental Change to each holder, issue a press release containing such notice and publish such notice on its website on the World 29 Wide Web. The notice shall include the form of a Fundamental Change Purchase Notice to be completed by the holder and shall state: (i) the date of such Fundamental Change and, briefly, the events causing such Fundamental Change; (ii) the date by which the Fundamental Change Purchase Notice pursuant to this Section 11 must be given; (iii) the Fundamental Change Purchase Date; (iv) the Purchase Price that will be payable with respect to the shares of Series C Convertible Preferred Stock as of the Fundamental Change Purchase Date, and whether such Purchase Price will be paid in cash, shares of Common Stock, or, if a combination thereof, the percentages of the Purchase Price in respect of which the Corporation will pay in cash and shares of Common Stock; (v) the name and address of each Paying Agent and Conversion Agent; (vi) the Conversion Rate and any adjustments thereto; (vii) that Series C Convertible Preferred Stock as to which a Fundamental Change Purchase Notice has been given may be converted into Common Stock pursuant to this Certificate only to the extent that the Fundamental Change Purchase Notice has been withdrawn in accordance with the terms of this Certificate; (viii) the procedures that the holder of Series C Convertible Preferred Stock must follow to exercise rights under this Section 11; and (ix) the procedures for withdrawing a Fundamental Change Purchase Notice, including a form of notice of withdrawal. If any of the Series C Convertible Preferred Stock is in the form of Global Preferred Shares, then the Corporation shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to the purchase of Global Preferred Shares. (c) Conditions to Purchase. (i) A holder of shares of Series C Convertible Preferred Stock may exercise its rights specified in Section 11(a) upon delivery of a written notice (which shall be in substantially the form included as an attachment to the Series C Convertible Preferred Stock (attached as Exhibit E hereto) and which may be delivered by letter, overnight courier, hand delivery, facsimile transmission or in any other written form and, in the case of Global Preferred Shares, may be delivered electronically or by other means in accordance with the Depositary's 30 customary procedures) of the exercise of such rights (a "Fundamental Change Purchase Notice") to any Transfer Agent at any time prior to the close of business on the Business Day immediately before the Fundamental Change Purchase Date. (ii) The delivery of such share of Series C Convertible Preferred Stock to the Transfer Agent (together with all necessary endorsements) at the office of such Transfer Agent shall be a condition to the receipt by the holder of the Fundamental Change Purchase Price. (iii) Any purchase by the Corporation contemplated pursuant to the provisions of this Section 11(c) shall be consummated by the delivery of the consideration to be received by the holder promptly following the later of the Fundamental Change Purchase Date and the time of delivery of such share of Series C Convertible Preferred Stock to the Transfer Agent in accordance with this Section 11(c). (d) Withdrawal of Fundamental Change Notwithstanding anything herein to the contrary, any holder of Series C Convertible Preferred Stock delivering to a Transfer Agent the Fundamental Change Purchase Notice shall have the right to withdraw such Fundamental Change Purchase Notice in whole or as to a portion thereof that is a share of Series C Convertible Preferred Stock or an integral multiple thereof at any time prior to the close of business on the Business Day before the Fundamental Change Purchase Date by delivery of a written notice of withdrawal to the Transfer Agent in accordance with provisions of this 11(d). The Transfer Agent shall promptly notify the Corporation of the receipt by it of any Fundamental Change Purchase Notice or written withdrawal thereof. A Fundamental Change Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Transfer Agent in accordance with the Fundamental Change Purchase Notice at any time prior to the close of business on the applicable Fundamental Change Purchase Date specifying: (i) if certificated shares of Series C Convertible Preferred Stock have been issued, the certificate numbers for such shares in respect of which such notice of withdrawal is being submitted, or if not, such information as required by the Depositary; (ii) the number of shares of Series C Convertible Preferred Stock, in integral multiples, with respect to which such notice of withdrawal is being submitted; and (iii) the number of shares of Series C Convertible Preferred Stock, if any, that remain subject to the original Fundamental Change Purchase Notice and have been or will be delivered for purchase by the Corporation. 31 The Transfer Agent will promptly return to the respective holders thereof any shares of Series C Convertible Preferred Stock with respect to which a Fundamental Change Purchase Notice has been withdrawn in compliance with this Certificate, in which case, upon such return, the Fundamental Change Purchase Notice with respect thereto shall be deemed to have been withdrawn. (e) Global Preferred Shares. Anything herein to the contrary notwithstanding, in the case of Global Preferred Shares, any Fundamental Change Purchase Notice may be delivered or withdrawn and the shares of Series C Convertible Preferred Stock in respect of such Global Preferred Shares may be surrendered or delivered for purchase in accordance with the applicable procedures of the Depositary as in effect from time to time. (f) Effect of Fundamental Change Purchase Notice. Upon receipt by the Transfer Agent of the Fundamental Change Purchase Notice, the holder of the shares of Series C Convertible Preferred Stock in respect of which such Fundamental Change Purchase Notice was given shall (unless such Fundamental Change Purchase Notice is withdrawn as specified below) thereafter be entitled to receive the Purchase Price with respect to such shares of Series C Convertible Preferred Stock, subject to 11(c) hereof. Such Purchase Price shall be paid to such holder promptly following the later of (a) the Fundamental Change Purchase Date with respect to such shares of Series C Convertible Preferred Stock and (b) the time of delivery of such shares of Series C Convertible Preferred Stock to the Transfer Agent by the holder thereof in the manner required by this Section. Shares of Series C Convertible Preferred Stock in respect of which a Fundamental Change Purchase Notice has been given by the holder thereof may not be converted into Common Stock on or after the date of the delivery of such Fundamental Change Purchase Notice unless such Fundamental Change Purchase Notice has first been validly withdrawn as specified in Section 11(d) above. (g) Payment of Purchase Price in Common Stock. Payment of the specified portion of the Purchase Price in shares of Common Stock pursuant to Section 11(a) hereof shall be made by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the portion of the Purchase Price, as the case may be, to be paid in shares of Common Stock by (ii) 97.5% of the average of the Closing Sale Prices of the Common Stock for the 5 Trading Days ending on the third Trading Day prior to the Fundamental Change Purchase Date (appropriately adjusted to take into account the occurrence, during such period of any event described in Section 8). The Corporation will not issue fractional shares of Common Stock in payment of the Purchase Price. Instead, the Corporation will pay cash based on the Closing Sale Price for all fractional shares on the Fundamental Change Purchase Date. If a holder of Series C Convertible Preferred Stock elects to have more than one share of Series C Convertible Preferred Stock purchased, the number of shares of Common Stock shall be based on the aggregate number of shares of Series C Convertible Preferred Stock to be purchased. Upon determination of the actual number of shares of Common Stock to be issued upon repurchase of Series C Convertible Preferred Stock, the 32 Corporation shall be required to disseminate a press release through Dow Jones & Corporation, Inc. or Bloomberg Business News containing this information or publish the information on the Corporation's Web site or through such other public medium as the Corporation may use at that time. (h) Deposit of Purchase Price. Prior to 11:00 a.m. (New York City time) on the Business Day immediately following the Fundamental Change Purchase Date, the Corporation shall deposit with the Paying Agent an amount of cash (in immediately available funds if deposited on such Business Day), Common Stock, or combination of cash and Common Stock, as applicable, sufficient to pay the aggregate Purchase Price of all shares of Series C Convertible Preferred Stock or portions thereof which are to be purchased as of the Fundamental Change Purchase Date. The manner in which the deposit required by this Section 11(h) is made by the Corporation shall be at the option of the Corporation, provided, however, that such deposit shall be made in a manner such that the Paying Agent shall have immediately available funds on the date of deposit. If a Paying Agent holds, in accordance with the terms hereof, cash, Common Stock or cash and Common Stock, as applicable, sufficient to pay the Purchase Price of any share of Series C Convertible Preferred Stock for which a Fundamental Change Purchase Notice has been tendered and not withdrawn in accordance with this Certificate on the Business Day following the Fundamental Change Purchase Date then, immediately after such Fundamental Change Purchase Date, such share of Series C Convertible Preferred Stock will cease to be outstanding, dividends (including Special Dividends) will cease to accrue and the rights of the holder in respect thereof shall terminate (other than the right to receive the Purchase Price as aforesaid). The Corporation shall publicly announce the number of shares of Series C Convertible Preferred Stock purchased as a result of such Fundamental Change on or as soon as practicable after the Fundamental Change Purchase Date. (i) Series C Convertible Preferred Stock Purchased in Part. Upon surrender of a certificate or certificates representing shares of the Series C Convertible Preferred Stock that is or are purchased in part, the Corporation shall execute and the Transfer Agent shall authenticate and deliver to the holder, a new certificate of certificates representing shares of the Series C Convertible Preferred Stock in an amount equal to the unpurchased portion of the shares of Series C Convertible Preferred Stock surrendered for partial purchase. (j) Repayment to the Corporation. The Paying Agent shall return to the Corporation any cash that remains unclaimed for two years, subject to applicable unclaimed property law, together with interest, if any, thereon held by them for the payment of the Fundamental Change Purchase Price; provided, however, that to the extent that the aggregate amount of cash deposited by the Corporation pursuant to this Section exceeds the aggregate Purchase Price of the Series C Convertible Preferred Stock or portions thereof which the Corporation is obligated to purchase as of the Fundamental Change Purchase Date, then on the Business Day following the Fundamental Change Purchase Date, the 33 Paying Agent shall return any such excess to the Corporation. Thereafter, any holder entitled to payment must look to the Corporation for payment as general creditors, unless an applicable abandoned property law designates another Person. 12. Voting Rights. (a) The holders of record of shares of the Series C Convertible Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this Section 7, as otherwise provided in the Corporation's Restated Certificate of Incorporation, or as otherwise provided by law. (b) The affirmative vote of holders of at least two-thirds of the outstanding shares of the Series C Convertible Preferred Stock and all other preferred stock ranking on a parity with the Series C Convertible Preferred Stock with like voting rights , voting as a single class, in person or by proxy, at a special meeting called for the purpose, or by written consent in lieu of meeting, shall be required to alter, repeal or amend, whether by merger, consolidation, combination, reclassification or otherwise, any provisions of the Restated Certificate of Incorporation if the amendment would amend, alter or affect the powers, preferences or rights of the Preferred Stock, so as to adversely affect the holders thereof, including, without limitation, the creation of, or increase in the authorized number of, shares of any class or series of Senior Stock; provided however, that (i) any increase in the amount of the authorized common stock or authorized preferred stock or the creation and issuance of other series of common stock or preferred stock ranking on a parity with or junior to the preferred stock as to dividends and upon liquidation will not be deemed to materially and adversely affect such powers, preference or special rights; and (ii) the creation of, or increase in the authorized number of, shares of any class or series of Senior Stock shall be deemed to materially and adversely affect such powers, preference or special rights. (c) If at any time (1) dividends on any shares of Series C Convertible Preferred Stock or any other class or series of Parity Stock having like voting rights shall be in arrears for dividend periods, whether or not consecutive, containing in the aggregate a number of days equivalent to six calendar quarters or (2) the Corporation shall have failed to pay the Redemption Price when due or the Purchase Price when due, then, in each case, the holders of shares of Series C Convertible Preferred Stock (voting separately as a class with all other series of preferred stock ranking on parity with the Series C Convertible Preferred Stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect at the next annual meeting of the stockholders of the Corporation or at a special meeting called for such purpose, whichever is earlier, two of the authorized number of the Corporation's directors (each, a "Series C Convertible Preferred Stock Director") at the next annual meeting of stockholders and each subsequent meeting until all dividends accumulated on the Series C Convertible Preferred Stock have been fully 34 paid or set aside for payment. The term of office of such Series C Convertible Preferred Stock Directors will terminate immediately upon the termination of the right of the holders of Series C Convertible Preferred Stock to vote for directors. Each holder of shares of the Series C Convertible Preferred Stock will have one vote for each share of Series C Preferred Stock held. At any time after voting power to elect directors shall have become vested and be continuing in the holders of the Series C Convertible Preferred Stock pursuant to this 12(c), or if a vacancy shall exist in the offices of Series C Convertible Preferred Stock Directors, the Board of Directors may, and upon written request of the holders of record of at least 25% of the Outstanding Series C Convertible Preferred Stock addressed to the Chairman of the Board of the Corporation shall, call a special meeting of the holders of the Series C Convertible Preferred Stock (voting separately as a class with all other series of preferred stock ranking on parity with the Series C Convertible Preferred Stock upon which like voting rights have been conferred and are exercisable) for the purpose of electing the Series C Convertible Preferred Stock Directors that such holders are entitled to elect. At any meeting held for the purpose of electing Series C Convertible Preferred Stock Directors, the presence in person or by proxy of the holders of at least a majority of the Outstanding Series C Convertible Preferred Stock shall be required to constitute a quorum of such Series C Convertible Preferred Stock. Any vacancy occurring in the office of a Series C Convertible Preferred Stock Director may be filled by the remaining Series C Convertible Preferred Stock Director unless and until such vacancy shall be filled by the holders of the Series C Convertible Preferred Stock and other Parity Stock having like voting rights, if any. The Series C Convertible Preferred Stock Directors shall agree, prior to their election to office, to resign upon any termination of the right of the holders of Series C Convertible Preferred Stock to vote as a class for Series C Convertible Preferred Stock Directors as herein provided, and upon such termination, the Series C Convertible Preferred Stock Directors then in office shall forthwith resign. 13. Transfer Agent and Registrar. The duly appointed Transfer Agent and Registrar for the Series C Convertible Preferred Stock shall be UMB Bank, N.A.. The Corporation may, in its sole discretion, remove the Transfer Agent in accordance with the agreement between the Corporation and the Transfer Agent; provided that the Corporation shall appoint a successor transfer agent who shall accept such appointment prior to the effectiveness of such removal. 14. Currency. All shares of Series C Convertible Preferred Stock shall be denominated in U.S. currency, and all payments and distributions thereon or with respect thereto shall be made in U.S. currency. All references herein to "$"or "dollars" refer to U.S. currency. 15. Form. Series C Convertible Preferred Stock shall be issued in the form of one or more permanent global shares of Series C Convertible Preferred Stock in definitive, fully registered form with the global legend (the "Global Shares Legend") and, until such time as otherwise determined by the Corporation and the Registrar, the restricted shares legend (the "Restricted Shares Legend"), each as set forth on the form of Series C Convertible Preferred 35 Stock certificate attached hereto as Exhibit A (each, a "Global Preferred Share"), which is hereby incorporated in and expressly made a part of this Certificate. The Global Preferred Share may have notations, legends or endorsements required by law, stock exchange rules, agreements to which the Corporation is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Corporation). The Global Preferred Share shall be deposited on behalf of the holders of the Series C Convertible Preferred Stock represented thereby with the Registrar, at its New York office, as custodian for DTC or a Depositary, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Corporation and countersigned and registered by the Registrar as hereinafter provided. The aggregate number of shares represented by each Global Preferred Share may from time to time be increased or decreased by adjustments made on the records of the Registrar and the Depositary or its nominee as hereinafter provided. This Section 15(a) shall apply only to a Global Preferred Share deposited with or on behalf of the Depositary. The Corporation shall execute and the Registrar shall, in accordance with this Section, countersign and deliver initially one or more Global Preferred Shares that (i) shall be registered in the name of Cede & Co. or other nominee of the Depositary and (ii) shall be delivered by the Registrar to Cede & Co. or pursuant to instructions received from Cede & Co. or held by the Registrar as custodian for the Depositary pursuant to an agreement between the Depositary and the Registrar. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Certificate with respect to any Global Preferred Share held on their behalf by the Depositary or by the Registrar as the custodian of the Depositary or under such Global Preferred Share, and the Depositary may be treated by the Corporation, the Registrar and any agent of the Corporation or the Registrar as the absolute owner of such Global Preferred Share for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Corporation, the Registrar or any agent of the Corporation or the Registrar from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Share. Owners of beneficial interests in Global Preferred Shares shall not be entitled to receive physical delivery of certificated shares of Series C Convertible Preferred Stock, unless (x) DTC is unwilling or unable to continue as Depositary for the Global Preferred Share and the Corporation does not appoint a qualified replacement for DTC within 90 days, (y) DTC ceases to be a "clearing agency" registered under the Exchange Act or (z) the Corporation decides to discontinue the use of book-entry transfer through DTC (or any successor Depositary). In either such case, the Global Preferred Share shall be exchanged in whole for definitive shares of Series C Convertible Preferred Stock in registered form, with the same terms and of an equal aggregate Liquidation Preference, and bearing a Restricted Shares Legend (unless the Corporation determines otherwise in accordance with applicable law). Definitive shares of Series C Convertible Preferred Stock shall be registered in the name or names of the Person or Person specified by DTC in a written instrument to the Registrar. 36 (b) (i) An Officer shall sign the Global Preferred Share for the Corporation, in accordance with the Corporation's bylaws and applicable law, by manual or facsimile signature. (ii) If an Officer whose signature is on a Global Preferred Share no longer holds that office at the time the Transfer Agent authenticates the Global Preferred Share, the Global Preferred Share shall be valid nevertheless. (iii) A Global Preferred Share shall not be valid until an authorized signatory of the Transfer Agent manually countersigns Global Preferred Share. The signature shall be conclusive evidence that the Global Preferred Share has been authenticated under this Certificate. Each Global Preferred Share shall be dated the date of its authentication. 16. Registration; Transfer. (a) The Series C Convertible Preferred Stock and the Common Stock issuable upon conversion of the shares of Series C Convertible Preferred Stock have not been registered under the Securities Act and may not be resold, pledged or otherwise transferred prior to the date when they no longer constitute "restricted securities" for purposes of Rule 144(k) under the Securities Act other than (i) to the Corporation, (ii) to "qualified institutional buyers" pursuant to and in compliance with Rule 144A under the Securities Act ("Rule 144A"), (iii) pursuant to an exemption from the registration requirements of the Securities Act provided by Rule 144 under the Securities Act or (iv) pursuant to an effective registration statement under the Securities Act, in each case, in accordance with any applicable securities laws of any state of the United States. (b) Notwithstanding any provision to the contrary herein, so long as a Global Preferred Share remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Preferred Share, in whole or in part, or of any beneficial interest therein, shall only be made in accordance with this Section 16; provided, however, that a beneficial interest in a Global Preferred Share bearing the Restricted Shares Legend may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in a different Global Preferred Share not bearing the Restricted Shares Legend in accordance with the transfer restrictions set forth in the Restricted Shares Legend and the provisions set forth in Section 16(c)(ii). (c) (i) Except for transfers or exchanges made in accordance with Section 16(c)(ii), transfers of a Global Preferred Share shall be limited to transfers of such Global Preferred Share in whole, but not in part, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. (ii) If an owner of a beneficial interest in a Global Preferred Share deposited with the Depositary or with the Registrar as custodian for the Depositary wishes at any time to 37 transfer its interest in such Global Preferred Share bearing the Restricted Shares Legend to a Person who is eligible to take delivery thereof in the form of a beneficial interest in a Global Preferred Share not bearing the Restricted Shares Legend, such owner may, subject to the rules and procedures of the Depositary, cause the exchange of such interest for a new beneficial interest in the applicable Global Preferred Share. Upon receipt by the Registrar at its office in The City of New York of (A) instructions from the holder directing the Registrar to transfer its interest in the applicable Global Preferred Share, such instructions to contain the name of the transferee and appropriate account information, (B) a certificate in the form of Certificate of Transfer on the reverse side of the form of Series C Convertible Preferred Stock certificate attached hereto as Exhibit B, given by the transferor, to the effect set forth therein, and (C) such other certifications, legal opinions and other information as the Corporation or the Registrar may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then the Registrar shall instruct the Depositary to reduce or cause to be reduced such Global Preferred Share bearing the Restricted Shares Legend (in the form attached as Schedule A) by the number of shares of the beneficial interest therein to be exchanged and to debit or cause to be debited from the account of the Person making such transfer the beneficial interest in the Global Preferred Share that is being transferred, and concurrently with such reduction and debit, the Registrar will instruct the Depositary to increase or cause to be increased the applicable Global Preferred Share not bearing the Restricted Shares Legend by the aggregate number of shares being exchanged and to credit or cause to be credited to the account of the transferee the beneficial interest in the Global Preferred Share that is being transferred. (d) Except in connection with a Shelf Registration Statement contemplated by and in accordance with the terms of the Registration Rights Agreement relating to the Series C Convertible Preferred Stock and shares of Common Stock issuable on conversion of the Series C Convertible Preferred Stock (collectively, the "Registrable Securities") if shares of Series C Convertible Preferred Stock are issued upon the transfer, exchange or replacement of Series C Convertible Preferred Stock bearing the Restricted Shares Legend, or if a request is made to remove such Restricted Shares Legend on Series C Convertible Preferred Stock, the Series C Convertible Preferred Stock so issued shall bear the Restricted Shares Legend and the Restricted Shares Legend shall not be removed unless there is delivered to the Corporation and the Registrar such satisfactory evidence, which may include an opinion of counsel licensed to practice law in the State of New York, as may be reasonably required by the Corporation or the Registrar, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 38 under the Securities Act or that such shares of Series C Convertible Preferred Stock are not "restricted securities" within the meaning of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence, the Registrar, at the direction of the Corporation, shall countersign and deliver shares of Series C Convertible Preferred Stock that do not bear the Restricted Shares Legend. (e) The Corporation will refuse to register any transfer of Series C Convertible Preferred Stock or any Common Stock issuable upon conversion of the shares of Series C Convertible Preferred Stock that is not made in accordance with the provisions of the Restricted Shares Legend and the provisions of Rule 144A or pursuant to a registration statement that has been declared effective under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act; provided that the provisions of this paragraph (e) shall not be applicable to any Series C Convertible Preferred Stock that does not bear any Restricted Shares Legend or to any Common Stock that does not bear the Common Share Legend. (f) Common Stock issued upon a conversion of the Series C Convertible Preferred Stock prior to the effectiveness of a Shelf Registration Statement shall be delivered in certificated form and shall bear the common share legend (the "Common Share Legend") set forth in Exhibit C hereto and include on its reverse side the Form of Certificate of Transfer for Common Stock set out in Exhibit D. If (i) shares of Common Stock issued prior to the effectiveness of a Shelf Registration Statement are to be registered in a name other than that of the holder of Series C Convertible Preferred Stock or (ii) shares of Common Stock represented by a certificate bearing the Common Share Legend are transferred subsequently by such holder, then the holder must deliver to the Registrar a certificate in substantially the form of Exhibit D as to compliance with the restrictions on transfer applicable to such Common Stock and the Registrar shall not be required to register any transfer of such Common Stock not so accompanied by a properly completed certificate. Such Common Share Legend may be removed, and new certificates representing the Common Stock may be issued, upon the presentation of satisfactory evidence that such Common Share Legend is no longer required as described above in paragraph (c) of this Section 16 with respect to the Series C Convertible Preferred Stock. 17. Paying Agent and Conversion Agent. (a) The Corporation shall maintain in the Borough of Manhattan, City of New York, State of New York (i) an office or agency where Series C Convertible Preferred Stock may be presented for payment (the "Paying Agent") and (ii) an office or agency where Series C Convertible Preferred Stock may be presented for conversion (the "Conversion Agent"). The Transfer Agent shall act as Paying Agent and Conversion Agent, unless another Paying Agent or Conversion Agent is appointed by the Corporation. The Corporation may appoint the Registrar, 39 the Paying Agent and the Conversion Agent and may appoint one or more additional paying agents and one or more additional conversion agents in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent and the term "Conversion Agent" includes any additional conversion agent. The Corporation may change any Paying Agent or Conversion Agent without prior notice to any holder. The Corporation shall notify the Registrar of the name and address of any Paying Agent or Conversion Agent appointed by the Corporation. If the Corporation fails to appoint or maintain another entity as Paying Agent or Conversion Agent, the Registrar shall act as such. The Corporation or any of its Affiliates may act as Paying Agent, Registrar, coregistrar or Conversion Agent. (b) Payments due on the Series C Convertible Preferred Stock shall be payable at the office or agency of the Corporation maintained for such purpose in The City of New York and at any other office or agency maintained by the Corporation for such purpose. Payments shall be payable by United States dollar check drawn on, or wire transfer (provided, that appropriate wire instructions have been received by the Registrar at least 15 days prior to the applicable date of payment) to a U.S. dollar account maintained by the holder with, a bank located in New York City; provided that at the option of the Corporation, payment of dividends may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Series C Convertible Preferred Stock register. Notwithstanding the foregoing, payments due in respect of beneficial interests in the Global Preferred Share shall be payable by wire transfer of immediately available funds in accordance with the procedures of the Depositary. 18. Headings. The headings of the Sections of this Certificate are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. 40 IN WITNESS WHEREOF, Kansas City Southern has caused this Certificate of Designations to be signed and attested by the undersigned this fifth day of May, 2003. KANSAS CITY SOUTHERN By: /s/ M.R. Haverty --------------------------------- Name: Michael R. Haverty Title: Chairman, President & CEO [CORPORATE SEAL] ATTEST: By: /s/ Jay M. Nadlman --------------------------------- Name: Jay M. Nadlman Title: Associate General Counsel and Corporate Secretary EXHIBIT A FORM OF 4.25% REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK, SERIES C Number: ___ ____________ Shares CUSIP NO.: ______________ 4.25% Redeemable Cumulative Convertible Perpetual Preferred Stock, Series C (par value $1.00 per share) (liquidation preference $500.00 per share) OF KANSAS CITY SOUTHERN FACE OF SECURITY UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE CERTIFICATE OF DESIGNATIONS REFERRED TO BELOW. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH KANSAS CITY SOUTHERN (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE RIGHTS OF THE COMPANY AND THE WITHIN MENTIONED TRANSFER AGENT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. KANSAS CITY SOUTHERN, a Delaware corporation (the "Corporation"), hereby certifies that Cede & Co. or registered assigns (the "Holder") is the registered owner of fully paid and non-assessable shares of preferred stock of the Corporation designated the 4.25% Redeemable Cumulative Convertible Perpetual Preferred Stock, Series C, par value $1.00 per share and liquidation preference $500.00 per share (the "Series C Convertible Preferred Stock"). The shares of Series C Convertible Preferred Stock are transferable on the books and records of the Registrar, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Series C Convertible Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designations of the Corporation dated May 5, 2003, as the same may be amended from time to time in accordance with its terms (the "Certificate of Designations"). Capitalized terms used herein but not defined shall have the respective meanings given them in the Certificate of Designations. The Corporation will provide a copy of the Certificate of Designations to a Holder without charge upon written request to the Corporation at its principal place of business. Reference is hereby made to select provisions of the Series C Convertible Preferred Stock set forth on the reverse hereof, and to the Certificate of Designations, which select provisions and the Certificate of Designations shall for all purposes have the same effect as if set forth at this place. Upon receipt of this certificate, the Holder is bound by the Certificate of Designations and is entitled to the benefits thereunder. Unless the Transfer Agent's Certificate of Authentication hereon has been properly executed, the shares of Series C Convertible Preferred Stock evidenced hereby shall not be entitled to any benefit under the Certificate of Designations or be valid or obligatory for any purpose. IN WITNESS WHEREOF, Kansas City Southern has executed this certificate as of the date set forth below. KANSAS CITY SOUTHERN By: ------------------------------- Name: Title: Dated: _______________ TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the certificates representing shares of Preferred Stock referred to in the within mentioned Certificate of Designations. UMB Bank, N.A., as Transfer Agent By: ------------------------------- Name: Title:Authorized Signatory Dated: ____________________ REVERSE OF SECURITY KANSAS CITY SOUTHERN 4.25% Redeemable Cumulative Convertible Perpetual Preferred Stock, Series C Dividends on each share of Series C Convertible Preferred Stock shall be payable in cash at a rate per annum set forth on the face hereof or as provided in the Certificate of Designations. The shares of Series C Convertible Preferred Stock shall be redeemable as provided in the Certificate of Designations. The shares of Series C Convertible Preferred Stock shall be convertible into the Corporation's Common Stock in the manner and according to the terms set forth in the Certificate of Designations. Upon a Fundamental Change, holders of shares of Series C Convertible Preferred Stock will have the right to require the Corporation to purchase such shares in the manner and according to the terms set forth in the Certificate of Designations. As required under Delaware law, the Corporation shall furnish to any Holder upon request and without charge, a full summary statement of the designations, voting rights preferences, limitations and special rights of the shares of each class or series authorized to be issued by the Corporation so far as they have been fixed and determined. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Series C Convertible Preferred Stock evidenced hereby to: ________________________________________________________________ ________________________________________________________________ (Insert assignee's social security or tax identification number) ________________________________________________________________ (Insert address and zip code of assignee) ________________________________________________________________ ________________________________________________________________ and irrevocably appoints: ________________________________________________________________ agent to transfer the shares of Series C Convertible Preferred Stock evidenced hereby on the books of the Transfer Agent and Registrar. The agent may substitute another to act for him or her. Date: __________________ Signature: ______________________ (Sign exactly as your name appears on the other side of this Series C Convertible Preferred Stock Certificate) Signature Guarantee: _____________________1 _____________________ 1 Signature must be guaranteed by an "eligible guarantor institution" (i.e. a bank, stockbroker, savings and loan association or credit union) meeting the requirements of the Registrar, which requirements include membership or participation in Securities Transfer Agents Medallion Program ("STAMP") or other such "signature guaranteed program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series C Convertible Preferred Stock) The undersigned hereby irrevocably elects to convert (the "Conversion") _______ shares of 4.25% Redeemable Cumulative Convertible Perpetual Preferred Stock, Series C (the "Series C Convertible Preferred Stock"), represented by stock certificate No(s). __ (the "Series C Convertible Preferred Stock Certificates") into shares of common stock, par value $0.01 per share ("Common Stock"), of Kansas City Southern (the "Corporation") according to the conditions of the Certificate of Designations establishing the terms of the Series C Convertible Preferred Stock (the "Certificate of Designations"), as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Series C Convertible Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Series C Convertible Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933 (the "Act") or pursuant to an exemption from registration under the Act. Any holder, upon the exercise of its conversion rights in accordance with the terms of the Certificate of Designations and the Series C Convertible Preferred Stock, agrees to be bound by the terms of the Registration Rights Agreement. The Corporation is not required to issue shares of Common Stock until the original Series C Convertible Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or its Transfer Agent. The Corporation shall issue and deliver shares of Common Stock to an overnight courier not later than two business days following receipt of the original Series C Convertible Preferred Stock Certificate(s) to be converted. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designations. Date of Conversion: __________________________________________ Applicable Conversion Rate: __________________________________ Number of shares of Convertible Series C Convertible Preferred Stock to be Converted: ___________________________ Number of shares of Common Stock to be Issued: _____________________________________ Signature: ____________________________________________________ Name: _________________________________________________________ Address:2 _____________________________________________________ Fax No.: ______________________________________________________ _______________ 2 Address where shares of Common Stock and any other payments or certificates shall be sent by the Corporation. SCHEDULE A SCHEDULE OF EXCHANGES FOR GLOBAL SECURITY The initial number of shares of Series C Convertible Preferred Stock represented by this Global Preferred Share shall be __________. The following exchanges of a part of this Global Preferred Share have been made: _____________________________________________________________________ Number of shares Amount of Amount of represented decrease in increase in by this number of number of Global shares shares Preferred represented represented Share by this by this following Signature of Date Global Global such authorized of Preferred Preferred decrease or officer Exchange Share Share increase of Registrar __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ __________ ___________ ____________ ____________ ______________ EXHIBIT B FORM OF CERTIFICATE OF TRANSFER (Transfers pursuant to 16(c)(ii) or 16(e) of the Certificate of Designations) UMB Bank, N.A., as Transfer Agent 928 Grand Boulevard Kansas City, MO 64106 Attn: Nancy Hoffman Re: Kansas City Southern 4.25% Redeemable Cumulative Convertible Perpetual Preferred Stock, Series C (the "Series C Convertible Preferred Stock") Reference is hereby made to the Certificate of Designations relating to the Series C Convertible Preferred Stock dated May 5, 2003, as such may be amended from time to time (the "Certificate of Designations"). Capitalized terms used but not defined herein shall have the respective meanings given them in the Certificate of Designations. This Letter relates to _____ shares of the Series C Convertible Preferred Stock (the "Securities") which are held in the form of a Global Preferred Share bearing the Restricted Shares Legend (CUSIP NO. ) with the Depository in the name of [name of transferor] (the "Transferor") to effect the transfer of the Securities. In connection with such request, and in respect of the Series C Convertible Preferred Stock, the Transferor does hereby certify that shares of the Series C Convertible Preferred Stock are being transferred (i) in accordance with applicable securities laws of any state of the United States or any other jurisdiction and (ii) in accordance with their terms: CHECK ONE BOX BELOW, AS APPLICABLE: (1) [ ] to a transferee that the Transferor reasonably believes is a qualified institutional buyer, within the meaning of Rule 144A under the Securities Act, purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A; (2) [ ] pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available); (3) [ ] in accordance with another exemption from the registration requirements of the Securities Act (based upon an opinion of counsel if the Corporation so requests); (4) [ ] to the Corporation or a subsidiary thereof; or (5) [ ] pursuant to a registration statement that has been declared effective under the Securities Act. Unless one of the boxes is checked, the Transfer Agent will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (2) or (3) is checked, the Transfer Agent shall be entitled to require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Corporation has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. [Name of Transferor] By:___________________________ Name: Title: Dated: cc: Kansas City Southern P.O. Box 219335 Kansas City, Missouri 64121-9335 Attn: Corporate Secretary EXHIBIT C Form of Common Share Legend "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH KANSAS CITY SOUTHERN (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE RIGHTS OF THE COMPANY AND THE WITHIN MENTIONED TRANSFER AGENT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." EXHIBIT D FORM OF CERTIFICATE OF TRANSFER FOR COMMON STOCK (Transfers pursuant to Section 16(f) of the Certificate of Designations) [Transfer Agent] Attn: Re: Kansas City Southern 4.25% Redeemable Cumulative Convertible Perpetual Series C Convertible Preferred Stock (the "Series C Convertible Preferred Stock") Reference is hereby made to the Certificate of Designations relating to the Series C Convertible Preferred Stock dated May 5, 2003, as such may be amended from time to time (the "Certificate of Designations"). Capitalized terms used but not defined herein shall have the respective meanings given them in the Certificate of Designations. This letter relates to ____ shares of Common Stock represented by the accompanying certificate(s) that were issued upon conversion of the Series C Convertible Preferred Stock and which are held in the name of [name of transferor] (the "Transferor") to effect the transfer of such Common Stock. In connection with such request and in respect of the shares of Common Stock, the Transferor does hereby certify that the shares of Common Stock are being transferred (i) in accordance with applicable securities laws of any state of the United States or any other jurisdiction and (ii) in accordance with their terms: CHECK ONE BOX BELOW (1) [ ] pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available); (2) [ ] in accordance with another exemption from the registration requirements of the Securities Act (based upon an opinion of counsel if the Corporation so requests); (3) [ ] to the Corporation or a subsidiary thereof; or (4) [ ] pursuant to a registration statement that has been declared effective under the Securities Act. Unless one of the boxes is checked, the Transfer Agent will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (1) or (2) is checked, the Transfer Agent shall be entitled to require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Corporation has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. [Name of Transferor] By: ____________________ Name: Title: Dated: cc: Kansas City Southern P.O. Box 219335 Kansas City, Missouri 64121-9335 Attn: Corporate Secretary EXHIBIT E FORM OF NOTICE OF ELECTION OF REDEMPTION UPON A FUNDAMENTAL CHANGE TO: KANSAS CITY SOUTHERN The undersigned hereby irrevocably acknowledges receipt of a notice from Kansas City Southern (the "Corporation") as to the occurrence of a Fundamental Change with respect to the Corporation and requests and instructs the Corporation to purchase _____ shares of Series C Convertible Preferred Stock in accordance with the terms of the Certificate at the Purchase Price. Capitalized terms used but not defined herein shall have the meanings ascribed thereto pursuant to the Certificate of Designations. Dated: _____________ ____________________ ____________________ Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Security in every particular without alteration or enlargement or any change whatever. Aggregate Accreted Liquidation Preference to be redeemed (if less than all): ____________________________ ____________________________ Social Security or Other Taxpayer Identification Number EX-10.2 8 mxagmt.txt STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT BY AND AMONG KANSAS CITY SOUTHERN, a Delaware corporation, GRUPO TMM, S.A., a sociedad anonima organized under the laws of the United Mexican States, TFM, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the United Mexican States, Table of Contents ARTICLE I. PURCHASE AND SALE OF TRANSFERRED SHARES...........................2 1.1 Purchase and Sale. ...................................................2 --- ----------------- 1.2 The Initial Closing. .................................................2 --- ------------------- 1.3 Purchase Price. ......................................................2 --- -------------- 1.4 Purchase Option ......................................................2 --- 1.5 Deliveries at Closing. ...............................................2 --- --------------------- 1.6 Voting Trust. ........................................................2 --- ------------ ARTICLE II. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION........2 2.1 Representations and Warranties of GTMM and TFM. ......................2 --- ---------------------------------------------- 2.2 Representations and Warranties of KCS. ...............................3 --- ------------------------------------- ARTICLE III. REPRESENTATIONS AND WARRANTIES CONCERNING MX AND TMX............4 3.1 Organization, Qualification, and Corporate Power. ....................4 --- ------------------------------------------------ 3.2 Capitalization of MX and TMX...........................................4 --- ---------------------------- 3.3 Brokers' Fees..........................................................5 --- ------------- 3.4 Title to Assets........................................................5 --- --------------- 3.5 Financial Statements...................................................5 --- -------------------- 3.6 Events Subsequent to Most Recent Fiscal Year End.......................6 --- ------------------------------------------------ 3.7 Undisclosed Liabilities................................................7 --- ----------------------- 3.8 Legal Compliance.......................................................7 --- ---------------- 3.9 Tax Matters............................................................7 --- ----------- 3.10 Real Property.........................................................8 ---- ------------- 3.11 Intellectual Property.................................................9 ---- --------------------- 3.12 Tangible Assets. ...................................................11 ---- --------------- 3.13 Contracts............................................................11 ---- --------- 3.14 Employee Benefit Plans...............................................12 ---- ---------------------- 3.15 Labor Matters........................................................14 ---- ------------- 3.16 Notes and Accounts Receivable. .....................................14 ---- ----------------------------- 3.17 Powers of Attorney. ................................................14 ---- ------------------ 3.18 Insurance............................................................14 ---- --------- 3.19 Litigation...........................................................15 ---- ---------- 3.20 Guaranties. ........................................................15 ---- ---------- 3.21 Environmental Matters................................................15 ---- --------------------- 3.22 Corporate Books and Records. .......................................16 ---- --------------------------- 3.23 Disclosure. ........................................................16 ---- ---------- ARTICLE IV. COVENANTS OF GTMM AND TFM.......................................16 4.1 Conduct of MX and TMX Through Closing Date. .........................16 --- ------------------------------------------ 4.2 Access to Information. ..............................................16 --- --------------------- 4.3 Notice of Developments................................................16 --- ---------------------- ARTICLE V. COVENANTS OF ALL PARTIES.........................................17 5.1 General. ............................................................17 --- ------- 5.2 Cooperation to Obtain STB Approval....................................17 --- ---------------------------------- 5.3 Notice of Developments. .............................................17 --- ---------------------- ARTICLE VI. CONDITIONS TO OBLIGATION TO CLOSE...............................17 6.1 Mutual Conditions to Obligations to Close.............................17 --- ----------------------------------------- 6.2 Conditions to Obligations of KCS to Close. ..........................18 --- ----------------------------------------- 6.3 Conditions to Obligations of TFM to Close. ..........................18 --- ----------------------------------------- ARTICLE VII. REMEDIES FOR BREACHES OF THIS AGREEMENT........................19 7.1 Survival of Representations and Warranties. .........................19 --- ------------------------------------------ 7.2 Indemnification Provisions for Benefit of KCS.........................19 --- --------------------------------------------- 7.3 Indemnification Provisions for Benefit of GTMM and TFM. .............19 --- ------------------------------------------------------ 7.4 Determination of Adverse Consequences. ..............................20 --- ------------------------------------- 7.5 Specific Performance. ...............................................20 --- -------------------- ARTICLE VIII. TERMINATION...................................................20 8.1 Termination of Agreement..............................................20 --- ------------------------ 8.2 Effect of Termination. ..............................................20 --- --------------------- ARTICLE IX..................................................................21 ARTICLE IX. MISCELLANEOUS...................................................21 9.1 Amendments and Waivers. .............................................21 --- ---------------------- 9.2 Entire Agreement. ...................................................21 --- ---------------- 9.3 Counterparts. .......................................................21 --- ------------ 9.4 No Third-Party Beneficiaries. .......................................21 --- ---------------------------- 9.5 Succession and Assignment. ..........................................21 --- ------------------------- 9.6 Headings. ...........................................................21 --- -------- 9.7 Notices...............................................................22 --- ------- 9.8 Expenses. ...........................................................22 --- -------- 9.9 Announcements. ......................................................22 --- ------------- 9.10 Governing Law; Venue and Jurisdiction................................22 ---- ------------------------------------- 9.11 Severability. ......................................................23 ---- ------------ 9.12 Construction. ......................................................23 ---- ------------ 9.13 Incorporation of Exhibits, Annexes, and Schedules. .................23 ---- ------------------------------------------------- ARTICLE X. DEFINITIONS......................................................23 Exhibit A Form of Voting Trust Agreement Annex I Exceptions to Representations and Warranties of GTMM and TFM Concerning the Transaction Disclosure Schedule: Exceptions to Representations and Warranties Concerning MX and TMX Annex II Exceptions to Representations and Warranties of KCS Concerning the Transaction Disclosure Schedule: Exceptions to Representations and Warranties Concerning MX and TMX -ii- STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of April 20, 2003, is made and entered into by and among: 1. Grupo TMM, S.A., ("GTMM"), a sociedad anonima, organized under the laws of the United Mexican States ("UMS"); 2. TFM, S.A. de C.V. ("TFM"), a sociedad anonima de capital variable, organized under the laws of the UMS; and 3. Kansas City Southern ("KCS"), a Delaware corporation, each of them a "Party" and collectively the "Parties." RECITALS A. GTMM owns more than 96% of the capital stock of TMM Multimodal, S.A.de C.V. a sociedad anonima de capital variable ("MM"). B. KCS owns all of the capital stock of The Kansas City Southern Railway Company ("KCSR"). C. MM directly owns 51% and KCS indirectly owns 49% (through Nafta Rail, S.A. de C.V., a sociedad anonima de capital variable and wholly-owned Subsidiary of KCS) of the full voting shares of Grupo TFM, S.A. de C.V., a sociedad anonima de capital variable ("GTFM"). D. GTFM owns all of the full voting shares of the capital stock of TFM. E. Mexrail, Inc., a Delaware corporation, ("MX") is a wholly-owned Subsidiary of TFM. MX owns all of the capital stock of the Texas Mexican Railway Company, a Texas corporation ("TMX"). MX also owns other assets (including real estate) and the northern one-half of the railroad bridge between Laredo, Texas (USA) and Nuevo Laredo, Mexico. F. TFM wishes to sell, and KCS wishes to acquire, 51% of the outstanding shares of the capital stock of MX (the "Initially Transferred Shares") and in addition grant KCS an exclusive option to purchase the remaining shares of the capital stock of MX as of the date of the exercise of such option to purchase (the "Subsequently Transferred Shares"). All of the issued and outstanding shares of the capital stock of MX acquired by KCS, including the Initially Transferred Shares and the Subsequently Transferred Shares are referred to hereinafter as the "MX Shares" or as the "Transferred Shares." NOW, THEREFORE, in consideration of the above recitals and the representations, warranties and covenants contained in this Agreement, the parties, intending to be legally bound, agree as follows: ARTICLE I. PURCHASE AND SALE OF TRANSFERRED SHARES 1.1 Purchase and Sale. Upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and covenants herein set forth, TFM shall sell, assign, transfer, convey and deliver to KCS, free and clear of all Liens, and KCS shall purchase and accept from TFM, the Transferred Shares. 1.2 The Initial Closing. Subject to Article VI of this Agreement, the initial closing of the purchase and sale of the Initially Transferred Shares (the "Initial Closing") shall take place on such date as the parties agree, at the offices of Sonnenschein Nath & Rosenthal, 4520 Main, Kansas City, Missouri, or at such other time (no later than June 30, 2003) or place as agreed to in writing by KCS, GTMM and TFM (the date on which the Closing occurs, the "Initial Closing Date"). The Initial Closing shall be effective as of the close of business on the Initial Closing Date. 1.3 Purchase Price. The aggregate purchase price to be paid by KCS for the Initially Transferred Shares shall be the sum of $32,680,000 (the "Initial Purchase Price"). The Initial Purchase Price shall be paid to TFM in cash (U.S. dollars) at the Initial Closing by wire transfer of same day funds. 1.4. Purchase Option. TFM hereby grants to KCS an irrevocable and exclusive option until 5:00 PM (Eastern Standard Time) on December 31, 2005 to purchase the Subsequently Transferred Shares (the "Purchase Option"). Any purchase made by KCS pursuant to the Purchase Option may be exercised by KCS upon three (3) days written notice to TFM (the "Subsequent Closing" and as with the Initial Closing, each a "Closing") and shall be upon the same terms and conditions set forth in this Agreement, including, but not limited to, the per share purchase price, which shall be the same as the Initial Purchase Price, and the conditions to closing set forth in Article VI of this Agreement. TFM is expressly prohibited from taking any action or non-action which would render any of the representations, warranties and covenants set forth in this Agreement untrue or ineffective between the Initial Closing Date and the Subsequent Closing. 1.5 Deliveries at Closing. At each Closing, (i) GTMM and TFM will deliver to KCS the various certificates and documents referred to in ss.6.2 below, (ii) KCS will deliver to GTMM and TFM the certificate referred to in ss.6.3 below, (iii) TFM will deliver to KCS stock certificates representing the applicable Transferred Shares for such Closing, endorsed in blank or accompanied by duly executed assignment documents, and (iv) KCS will deliver to TFM the applicable Purchase Price for such Closing. 1.6 Voting Trust. Simultaneously with the purchase by KCS from TFM of the Transferred Shares, KCS shall deposit the Initially Transferred Shares into an irrevocable voting -2- trust (the "Voting Trust") in accordance with the terms and conditions of a voting trust agreement (the "Voting Trust Agreement") substantially in the form attached hereto as Exhibit A. ARTICLE II. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION 2.1 Representations and Warranties of GTMM and TFM. GTMM and TFM represent and warrant to KCS that the statements contained in this ss.2.1 are correct and complete as of the date of this Agreement and will be correct and complete as of each Closing (as though made then and as though such Closing date were substituted for the date of this Agreement throughout this ss.2.1), except as set forth in Annex I attached hereto. (a) Organization of GTMM and TFM. GTMM is a sociedad anonima and TFM is a sociedad anonima de capital variable, each duly organized, validly existing, and in good standing under the laws of the UMS. (b) Authorization of Transaction. The execution, delivery and performance of this Agreement by each of GTMM and TFM, and the consummation by TFM of the transaction contemplated hereby, are within the respective corporate powers of each of them, and have been duly authorized, as to each of them, by all necessary corporate action. This Agreement constitutes the valid and legally binding obligation of each of GTMM and TFM, enforceable in accordance with its terms and conditions. Neither GTMM nor TFM need give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transaction contemplated by this Agreement. (c) Non-Contravention. Except as set forth in ss.2.1 of the Disclosure Schedule, the execution, delivery and performance of this Agreement by each of GTMM and TFM, and the consummation by TFM of the transaction contemplated hereby, do not and will not (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which GTMM or TFM is subject, or violate any provision of the charter or bylaws of GTMM or TFM, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which GTMM or TFM is a party or by which any of them is bound or to which any of their assets is subject. (d) Brokers' Fees. Neither GTMM nor TFM has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transaction contemplated by this Agreement for which KCS, MX or TMX could become liable or obligated. (e) MX Shares. TFM holds of record and owns beneficially the MX Shares, free and clear of any restrictions on transfer (other than those set forth in the Stock Purchase Agreement, dated as of February 27, 2002, among GTMM, MM, KCS and TFM (the "2002 Stock Purchase Agreement"), the GTFM bylaws, and the Shareholders Agreement.), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. TFM is not a party to any option, warrant, purchase right, or other contract or commitment that -3- could require TFM to sell, transfer, or otherwise dispose of any of the MX Shares (other than this Agreement). TFM is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of the MX Shares (other than the 2002 Stock Purchase Agreement, the GTFM bylaws, and the Shareholders Agreement). Prior to the Subsequent Closing, TFM shall not, directly or indirectly, transfer, sell, give, encumber, assign, pledge or otherwise deal with or dispose of all or any part of the MX Shares (other than pursuant to this Agreement). 2.2 Representations and Warranties of KCS. KCS represents and warrants to GTMM and TFM that the statements contained in this ss.2.2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Initial Closing Date (as though made then and as though the Initial Closing Date were substituted for the date of this Agreement throughout this ss.2.2), except as set forth in Annex II attached hereto. (a) Organization of KCS. KCS is a corporation duly organized, validly existing, and in good standing under the laws of Delaware. (b) Authorization of Transaction. The execution, delivery and performance by KCS of this Agreement and the consummation by KCS of the transaction contemplated hereby are within KCS's corporate powers and have been duly authorized by all necessary corporate action. This Agreement constitutes the valid and legally binding obligation of KCS, enforceable in accordance with its terms and conditions. KCS need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transaction contemplated by this Agreement. (c) Non-Contravention. The execution, delivery and performance of this Agreement by KCS, and the consummation by KCS of the transaction contemplated hereby, do not and will not (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which KCS is subject, or violate any provision of its charter or bylaws, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which KCS is a party or by which it is bound or to which any of its assets is subject, except the consents required under the KCS Credit Agreement (d) Brokers' Fees. KCS has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transaction contemplated by this Agreement for which GTMM or TFM could become liable or obligated. ARTICLE III. REPRESENTATIONS AND WARRANTIES CONCERNING MX AND TMX GTMM and TFM represent and warrant to KCS that the statements contained in this Article III are correct and complete as of the date of this Agreement and will be correct and complete as of the Initial Closing Date (as though made then and as though the Initial Closing Date were substituted for the date of this Agreement throughout this Article III), except as set -4- forth in the disclosure schedule delivered by GTMM and TFM to KCS on the date hereof and initialed by the Parties (the "Disclosure Schedule"). 3.1 Organization, Qualification, and Corporate Power. MX is a corporation duly organized, validly existing, and in good standing under the laws of Delaware. TMX is a corporation duly organized, validly existing, and in good standing under the laws of Texas. Each of MX and TMX is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not reasonably be expected to have a Material Adverse Effect. Each of MX and TMX has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. ss.3.1 of the Disclosure Schedule lists the directors and officers of each of MX and TMX. 3.2 Capitalization of MX and TMX. (a) The entire authorized capital stock of MX consists of 10,000 shares of common stock, no par value, of which 10,000 shares are issued and outstanding. MX holds no shares of MX's capital stock in its treasury. All of the issued and outstanding shares have been duly authorized, and are validly issued, fully paid, and nonassessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, preemptive rights or other contracts or commitments that could require MX to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to MX. TFM is the record and beneficial owner of 100% of the MX Shares, and TFM owns the MX Shares free and clear of all Liens, and there are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of MX, other than the 2002 Stock Purchase Agreement, the GTFM bylaws, and the Shareholders Agreement. (b) The entire authorized capital stock of TMX consists of 25,009 shares of common stock, [no] par value, of which 25,009 shares are issued and outstanding. TMX holds no shares of TMX's capital stock in its treasury. All of the issued and outstanding shares have been duly authorized, and are validly issued, fully paid, and nonassessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, preemptive rights or other contracts or commitments that could require TMX to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to TMX. MX is the record and beneficial owner of 100% of the TMX capital stock (except for one qualifying share of the capital stock of TMX owned by each of its directors, the equitable interest of each such share being held by MX). MX owns the TMX capital stock free and clear of all Liens, and there are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of TMX, other than the 2002 Stock Purchase Agreement, the GTFM bylaws, and the Shareholders Agreement. 3.3 Brokers' Fees. Neither MX nor TMX has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transaction contemplated by this Agreement. -5- 3.4 Title to Assets. MX and TMX each own or have a right to possess and use all of the properties and assets necessary to operate the business of MX and TMX as each has been conducted immediately prior to the date of this Agreement. 3.5 Financial Statements. The financial statements (collectively the "Financial Statements") heretofore provided to KCS by GTMM and TFM, consisting of (i) the audited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended 1999, 2000, 2001 and 2002, for MX and TMX have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly, in all material respects, the financial condition of MX and TMX as of such dates and the results of operations of MX and TMX for such periods (subject in the case of any interim financial statements to normal year-end adjustments and lack footnotes and other presentation items). 3.6 Events Subsequent to Most Recent Fiscal Year End. Since December 31, 2002 MX and TMX have carried out their respective businesses in an ordinary manner, consistent with past practices and there has not been any event or occurrence that has had or would reasonably be expected to have a Material Adverse Effect. 3.7 Undisclosed Liabilities. Except as disclosed in the Financial Statements, neither MX nor TMX has any liabilities or obligations of any nature that would be required under GAAP to be included on a consolidated balance sheet of MX or the notes to the consolidated balance sheet, except as would not reasonably be expected to have a Material Adverse Effect. 3.8 Legal Compliance. Each of MX and TMX has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against either of them alleging any failure so to comply, except where the failure to comply would not have a Material Adverse Effect. 3.9 Tax Matters. (a) Except as stated in ss.3.9 of the Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect, all MX and TMX Tax returns required to be filed on or before the Closing Date have been duly and timely filed (taking into account all proper extensions) with the appropriate Taxing authorities and all such Tax returns were complete and accurate, and all Taxes shown on the described returns have been paid. (b) Except as stated in ss.3.9 of the Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect: (i) neither GTMM, TFM, MX or TMX has received any written notice of deficiency or assessment for Taxes of MX or TMX, which have not been paid or finally settled; (ii) no claim has been made in writing by any Taxing authority in a jurisdiction where MX and TMX do not file Tax returns that either company is or may be subject to Taxation by that jurisdiction; (iii) no audit of any Tax return filed by MX or TMX is pending, ongoing, or to the Knowledge of GTMM or TFM, threatened; (iv) neither MX nor TMX has asked for or received a waiver of any statute of limitation concerning Taxes or the -6- payment of Taxes that are due or would be due prior to the Closing Date; and (v) neither MX nor TMX has any liability for the Taxes of any other person. (c) There are no liens for Taxes on any assets of MX or TMX other than Liens for current Taxes (i) not yet due and payable or (ii) that would not have a Material Adverse Effect. (d) There are no Tax sharing or Tax indemnity agreements or similar arrangements involving MX and TMX and any other person. (e) MX and TMX have each complied in all material respects with all applicable governmental rules relating to the payment, collection and withholding of Taxes. (f) Except as stated on ss.3.9 of the Disclosure Schedule, there is no Tax litigation pending or to the Knowledge of GTMM and TFM (or the directors of TFM appointed by GTMM) threatened against MX or TMX. (g) From December 31, 2002 until the date of this Agreement, MX and TMX (i) have made no change in any accounting method used for Tax purposes or in depreciation or amortization policies, and have made no election for Tax purposes which is not consistent with the method, policies and elections made prior to the date of the Financial Statements; and (ii) have not settled any pending Tax audits or settled any Tax liability. 3.10 Real Property. (a) ss.3.10 of the Disclosure Schedule lists and describes briefly all real property that either MX or TMX owns. With respect to each such parcel of owned real property the identified owner has good and marketable title to the parcel of real property, free and clear of any Lien, easement, covenant, or other restriction, except for installments of special assessments not yet delinquent, recorded easements, covenants, and other restrictions, and utility easements, building restrictions, zoning restrictions, and other easements and restrictions existing generally with respect to properties of a similar character which do not affect materially and adversely the current use, occupancy, or value, or the marketability of title, of the property subject thereto. 3.11 ss.3.10 of the Disclosure Schedule (and all Annexes thereto) lists and describes briefly all real property leased or subleased to either MX or TMX or from either MX or TMX. With respect to each material lease and sublease listed in ss.3.10 of the Disclosure Schedule (or any Annex thereto), (i) the lease or sublease is legal, valid, binding, enforceable, and in full force and effect in all material respects, (ii) no party to the lease or sublease is in material breach or default, and (iii) no event has occurred which, with notice or lapse of time, would constitute a material breach or default or permit termination, modification, or acceleration thereunder. 3.12 Tangible Assets. The buildings, machinery, equipment, and other tangible assets that MX and TMX own and lease, other than tangible assets having a book value of less than $1 million, are in good condition and repair, normal wear and tear excepted. 3.13 Contracts. As of the date of this Agreement, the Scheduled Contracts (as defined below) of MX and TMX are legal, valid and binding obligations of MX or TMX, respectively, -7- and are in full force and effect, enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization and similar laws relating generally to the enforceability of contracts and the availability of equitable remedies. As of the date of this Agreement, neither GTMM, TFM, MX or TMX has received notice of cancellation of or default under any Scheduled Contract, where such default would reasonably be expected to have a Material Adverse Effect. ss.3.13 of the Disclosure Schedule lists the following contracts and other agreements to which either MX or TMX is a party (the "Scheduled Contracts"): (a) any agreements to which either GTMM or TFM or any of their Affiliates (other than MX or TMX) are a party; (b) any agreements which constitute nondisclosure agreements or confidentiality agreements which could reasonably be expected to have a significant effect on the conduct of the business of MX, TMX, or KCS; (c) any agreements pursuant to which MX or TMX is either obligated to pay or entitled to receive in excess of $2 million during any twelve month period; (d) any agreements that are employment, management, consulting or severance agreements with any officer or director of MX or TMX; (e) any agreements that include any noncompetition or nonsolicitation covenant or any exclusive dealing or similar arrangement that limits the ability of MX or TMX to compete (geographically or otherwise) in any line of business or which would so limit KCS following the Closing; or (f) any trackage rights agreements, interline or interchange agreements with other railroads. 3.14 Employee Benefit Plans. (a) ss.3.14 of the Disclosure Schedule identifies each Employee Plan. TFM has made available to KCS copies of each such Employee Plan (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto) and the most recent actuarial valuation report prepared in connection with any Employee Plan and, if applicable, the Internal Revenue Service determination letters. No Employee Plan is a Title IV Plan. (b) As of the Most Recent Fiscal Month End, MX and TMX did not have an aggregate unfunded liability of MX and TMX in respect of all Employee Plans or Benefit Arrangements described under Sections 4(b)(5) or 401(a)(1) of ERISA, computed using reasonable actuarial assumptions that would reasonably be expected to have a Material Adverse Effect. -8- (c) No transaction prohibited by ss.406 of ERISA or ss.4975 of the Code has occurred with respect to any Employee Plan or arrangement which is covered by Part 4, Title I of ERISA, which transaction has or will cause MX and TMX to incur any liability under ERISA, the Code or otherwise which would reasonably be expected to result in a Material Adverse Effect, excluding transactions effected pursuant to and in compliance with a statutory or administrative exemption. Neither MX, TMX nor any ERISA Affiliate of them has (i) except where the failure thereof would not reasonably be expected to result in a Material Adverse Effect, engaged in, or is a successor or parent corporation to an entity that has engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to incur prior to the Initial Closing Date, (A) any liability under Title IV of ERISA arising in connection with the termination of, or a complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA or (B) any liability under ss.4971 of the Code that in either case could become a liability of MX and TMX or KCS or any of its ERISA Affiliates after the Initial Closing Date which would reasonably be expected to have a Material Adverse Effect. (d) Each Employee Plan that is intended to be qualified under ss.401(a) of the Code has received a favorable determination, and, to the Knowledge of any of GTMM, TFM and the directors (appointed by TFM) and officers of MX and TMX, nothing has occurred since that determination that would adversely affect such determination in a manner which would reasonably be expected to have a Material Adverse Effect. Each Employee Benefit Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code, except to the extent that failure to so comply would not reasonably be expected to have a Material Adverse Effect. (e) ss.3.14 of the Disclosure Schedule identifies each material Benefit Arrangement. TFM has made available to KCS copies or descriptions of each material Benefit Arrangement (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof. Each Benefit Arrangement has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations and has been maintained in good standing with applicable regulatory authorities, except to the extent that failure to so comply would not reasonably be expected to have a Material Adverse Effect. (f) Except as set forth on ss.3.14 of the Disclosure Schedule and except as provided in this Agreement, there is no contract, plan or arrangement (written or otherwise) to which MX or TMX are parties covering any employee or former employee of MX or TMX that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of ss.280G of the Code, to the extent that such payments would reasonably be expected to have a Material Adverse Effect. (g) Except as set forth on ss.3.14 of the Disclosure Schedule and except as provided in this Agreement, no employee or former employee of MX or TMX will become entitled to any bonus, retirement, severance, job security or similar benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transaction contemplated hereby, -9- to the extent that such benefits would reasonably be expected to have a Material Adverse Effect. 3.15 Labor Matters. MX and TMX are in compliance with all currently applicable legislation in the various jurisdictions where they operate, with respect to terms and conditions of employment of their workforce, including legislation governing unionized labor, and are not engaged in any unfair labor practice, failure to comply with which or engagement in which, as the case may be, would reasonably be expected to have a Material Adverse Effect. Except as disclosed in ss.3.15 of the Disclosure Schedule, (i) neither MX nor any of its Subsidiaries is a party, or is otherwise subject, to any collective bargaining agreement or other labor union contract applicable to its employees, (ii) there are no material activities or proceedings by a labor union or representative thereof to organize any employees of MX or TMX outside of the Ordinary Course of Business, (iii) there are no pending negotiations between MX or TMX and any labor union or representative thereof regarding any proposed material changes to any existing collective bargaining agreement, (iv) there are no pending, and MX and TMX have not experienced since January 1, 2000, any labor disputes, lockouts, strikes, slowdowns, work stoppages, or threats thereof which would reasonably be expected to have a Material Adverse Effect, (v) MX and TMX are not in default and have not breached in any material respect the terms of any applicable collective bargaining or other labor union contract, and there are no material grievances outstanding against MX, TMX or any of its Subsidiaries or their employees under any such agreement or contract which would reasonably be expected to have a Material Adverse Effect, (vi) there is no unfair labor practice complaint pending, or to the Knowledge of any of GTMM, TFM and the directors (appointed by TFM) and officers of MX and TMX threatened, against MX or TMX before the National Labor Relations Board or any other investigation, charge, prosecution, suit or other proceeding before any court or arbitrator or any governmental body, agency or official relating to the employees of MX or TMX or the representation thereof which would reasonably be expected to have a Material Adverse Effect, (vii) there are no claims or actions pending, or to the Knowledge of any of GTMM, TFM and the directors (appointed by TFM) and officers of MX and TMX threatened, between MX or TMX and any of their employees or labor organizations representing or seeking to represent such employees which would reasonably be expected to have a Material Adverse Effect and (viii) to the Knowledge of any of GTMM, TFM and the directors (appointed by TFM) and officers of MX and TMX, there are no facts or circumstances involving any employee that would form the basis of, or give rise to, any cause of action, including, without limitation, unlawful termination based on discrimination of any kind that would reasonably be expected to result in a Material Adverse Effect. 3.16 Powers of Attorney. Other than those powers of attorney approved by the Boards of Directors of either MX or TMX, to the Knowledge of any of GTMM, TFM and the directors (appointed by TFM) and officers of MX and TMX, there are no material outstanding powers of attorney executed on behalf of MX or TMX. 3.17 Insurance. ss.3.17 of the Disclosure Schedule includes a list of all policies of fire, liability, product liability, workers' compensation, health and other forms of insurance presently in effect with respect to MX's and TMX's business (the "Insurance Policies"), including the named insured(s) and all beneficiaries thereunder, and true and complete copies of the Insurance Policies have been made available to KCS. Neither MX nor TMX has been refused any -10- insurance with respect to any aspect of the operations of its business, nor has its coverage been rescinded by any insurance carrier to which it has applied for insurance or with which it has carried insurance. No notice of cancellation or termination has, as of the date of this Agreement, been received with respect to any such policy. The activities, business, and operations of MX and TMX have been conducted in such a manner so as to conform in all material respects to all material provisions of the Insurance Policies. 3.18 Litigation. There are no legal, administrative, arbitral or other proceedings (including disciplinary proceedings), claims, suits, actions or governmental or regulatory investigations of any nature that are pending or, to the knowledge of GTMM, TFM, MX or TMX threatened against MX or TMX or any of their officers, directors or properties which would reasonably be expected to have a Material Adverse Effect or that challenge the validity or propriety of the transactions contemplated by this Agreement. There is no injunction, order, judgment or decree imposed upon MX or TMX, or any material portion of the assets or business of MX or TMX. 3.19 Environmental Matters. MX and TMX (i) are in compliance with, and are not subject to any liability under applicable Environmental Laws; (ii) hold all Environmental Permits necessary to conduct their current operations and (iii) are in compliance with their respective Environmental Permits, except where the failure to hold or be in compliance with such Environmental Permits would not be expected to have a Material Adverse Effect. Except as would not reasonably be expected to have a Material Adverse Effect on MX or TMX, neither GTMM, TFM, MX nor TMX has received any written notice, demand, letter, claim or request for information alleging that MX or TMX may be in violation of, or have liability under, any Environmental Law. Neither MX nor TMX (x) has entered into or agreed to any consent decree or order or is subject to any judgment, decree or judicial order relating to compliance with Environmental Laws, Environmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Materials and no investigation, litigation or other proceeding is pending or, to the Knowledge of GTMM and TFM, threatened, with respect thereto or (y) is an indemnitor or has assumed liability in connection with any pending demand, notice, claim, or other allegation, or to the Knowledge of GTMM and TFM, any claim threatened, by or against any third-party relating to any liability under any Environmental Law or relating to any Hazardous Materials. None of the real property owned or leased from/to or operated by MX or TFM is listed or, to the Knowledge of GTMM and TFM, proposed for listing, on any list of sites maintained by any competent governmental authority requiring investigation or cleanup. ARTICLE IV. COVENANTS OF GTMM AND TFM 4.1 Conduct of MX and TMX Through Initial Closing Date. Except as otherwise expressly set forth in this Agreement, during the period from the date of this Agreement through the Initial Closing Date, GTMM and TFM will not cause or permit MX or TMX to engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, neither MX nor TMX will declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, -11- or otherwise acquire any of its capital stock. GTMM and TFM will use their commercially reasonable efforts to cause each of MX and TMX to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. 4.2 Access to Information. From the date of this Agreement through the Initial Closing Date, GTMM and TFM give (and will cause each of MX and TMX to give) KCS, its counsel, financial advisors, auditors and other authorized representatives full access to the offices, properties, books and records of MX and TMX, will furnish to KCS, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request, and GTMM and TFM will cooperate (and will instruct the employees, counsel and financial advisors of MX and TMX to cooperate) with KCS in its investigation of the business of MX and TMX, as the case may be. KCS will treat and hold as such any Confidential Information it receives from any of GTMM, TFM, MX and TMX in the course of the reviews contemplated by this ss.4.2, and will not use any of the Confidential Information except in connection with this Agreement. 4.3 Notice of Developments. From the date of this Agreement through the Initial Closing Date, GTMM and TFM will give prompt written notice to KCS of any material adverse development causing a breach of any of the representations and warranties in Article III above. No disclosure by any Party pursuant to this ss.4.3, however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. ARTICLE V. COVENANTS OF ALL PARTIES 5.1 General. Subject to the terms and conditions of this Agreement, each of the Parties will use its commercially reasonable efforts to take all action and to do all things necessary, proper, or advisable under applicable laws and regulations in order to consummate and make effective the transaction contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article VI below). 5.2 Cooperation to Obtain STB Approval. From the date of this Agreement until such time as the Surface Transportation Board ("STB") either approves or denies KCS's request to acquire control of TMX and such an order becomes final after judicial review or failure to appeal, GTMM and TFM will cooperate with KCS, and KCS will cooperate with GTMM, and TFM, to obtain approval from the STB for KCS to acquire control of TMX. 5.3 Notice of Developments. From the date of this Agreement through the Subsequent Closing Date, each Party will give prompt written notice to other all Parties of any material adverse development causing a breach by the notifying Party of any of the representations and warranties in Article II above. No disclosure by any Party pursuant to this ss.5.3, however, shall be deemed to amend or supplement Annex I or Annex II, or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. -12- ARTICLE VI. CONDITIONS TO OBLIGATION TO CLOSE 6.1 Mutual Conditions to Obligations to Close. The obligations of both KCS and TFM to consummate the transaction contemplated by this Agreement are subject to satisfaction of the following conditions: (a) No Governmental Action: As of each Closing, no action shall have been taken, and no statute, rule, regulation or order shall have been enacted, adopted or issued by any state or federal government or governmental agency in the United States or Mexico that would prevent the consummation of the transaction contemplated by this Agreement. (b) No Litigation: As of each Closing, there shall be no injunction, restraining order or order of any nature by any court of competent jurisdiction that prevents the consummation of the transaction contemplated by this Agreement. (c) Governmental Approvals: As of each Closing, all governmental approvals (if any) required to consummate the transaction contemplated by this Agreement shall have been obtained. 6.2 Conditions to Obligations of KCS to Close. The obligations of KCS to consummate the transaction contemplated by this Agreement are subject to satisfaction, at or before each Closing, of all of the following conditions. KCS may waive in writing any or all of these conditions, in whole or in part, at or at any time prior to the applicable Closing, with or without prior notice, but no such waiver by KCS shall constitute a waiver by KCS of any condition not so waived or of any other right or remedy of KCS, at law or in equity. (a) Performance: Each of GTMM and TFM shall have performed and complied in all material respects, through each Closing, with each of its respective agreements, obligations and covenants under this Agreement. (b) Representations and Warranties: The representations and warranties made by each of GTMM and TFM in Article II of this Agreement shall be true and correct in all material respects (i) at the date when made and (ii) at each Closing. The representations and warranties made by each of GTMM and TFM concerning MX and TMX in Article III of this Agreement shall be true and correct in all material respects (i) at the date when made and (ii) at the Initial Closing Date. (c) Certificates: KCS shall have received certificates, reasonably satisfactory in form and substance to KCS, of officers of GTMM and TFM certifying that, to the best of each such officer's Knowledge, the conditions set forth in Sections 6.2(a) and 6.2(b) have been satisfied in all respects and that the Board of Directors of each GTMM and TFM has approved the execution of this Agreement and has authorized the consummation of the transaction contemplated by this Agreement. (d) Resignations: KCS shall have received the resignations, effective as of the Initial Closing, and reasonably satisfactory in form and substance to KCS, of each director -13- of MX and TMX. Following the Initial Closing, the Trustee shall vote the Trust Stock in the Trustee's sole discretion, having due regard for the interests of the holders of the Trust Certificates and the minority shareholders in MX and TMX, to nominate and elect directors to fill those vacant director positions. The Trustee shall not, without the prior approval of the STB, vote the Trust Stock to elect any current officer or director of GTMM, GTFM, TFM, KCS, or any of their majority owned affiliates. 6.3 Conditions to Obligations of TFM to Close. The obligations of TFM to consummate the transaction contemplated by this Agreement are subject to satisfaction, at or before each Closing, of all of the following conditions. TFM may waive in writing any or all of these conditions, in whole or in part, at or at any time prior to each Closing, with or without prior notice, but no such waiver by TFM shall constitute a waiver by TFM of any condition not so waived or of any other right or remedy of TFM, at law or in equity. (a) Performance: KCS shall have performed and complied in all material respects, through each Closing, with each of its respective agreements, obligations and covenants under this Agreement. (b) Representations and Warranties: The representations and warranties made by KCS in this Agreement shall be true and correct in all material respects (i) at the date when made and (ii) at each Closing. (c) Certificate: TFM shall have received a certificate, reasonably satisfactory in form and substance to TFM, of an officer of KCS certifying that, to the best of such officer's Knowledge, the conditions set forth in Sections 6.3(a) and 6.3(b) have been satisfied in all respects and that the Board of Directors of KCS has approved the execution of this Agreement and has authorized the consummation of the transaction contemplated by this Agreement. (d) Fairness Opinion: TFM shall have received a fairness opinion complying with the requirements of the agreements listed in ss.6.3 of the Disclosure Schedule. ARTICLE VII. REPURCHASE RIGHT 7.1 TFM's Right to Repurchase. TFM shall retain the right to repurchase all of the Transferred Shares from KCS at any time for an amount equal to the Purchase Price. Such right shall be unconditional and may be exercised in the sole discretion of TFM by written notice to KCS given by the Chairman of TFM and without any other corporate approvals of TFM or GTMM. (a) Closing Of The Repurchase. Subject to any STB approval requirements, the "Repurchase Closing" shall take place on the fifth business day after receipt of such notice by KCS at such time and place as agreed to in writing by KCS and TFM. At the Repurchase Closing and subject to any STB orders or directions, TFM shall pay the Purchase Price for its repurchase of the Transferred Shares in cash by wire transfer of same day funds. At the Repurchase Closing, KCS shall deliver to TFM stock certificates representing the Transferred Shares endorsed in blank or accompanied by duly executed assignment documents or, if the -14- Transferred Shares are being held by the Trustee pursuant to the Voting Trust Agreement, KCS shall deliver to TFM a certificate certifying that KCS has given the Trustee irrevocable instructions to deliver to TFM stock certificates representing the Transferred Shares endorsed in blank or accompanied by duly executed assignment documents. (b) Termination Of The Repurchase Right. If not exercised within two years of the date of this Agreement, TFM's right to repurchase the Transferred Shares under ss.7.1 shall expire. (c) Termination of Agreement. Upon any such repurchase, this Agreement shall automatically terminate and be of no further force or effect; provided, however, that in the event of termination of this Agreement, if TFM shall for any reason reacquire the Transferred Shares, then the parties intend for the terms and conditions of the 2002 Stock Purchase Agreement, the GTFM bylaws, and the Shareholders Agreement to become again valid and fully enforceable against the parties thereto. ARTICLE VIII. COVENANTS OF KCS 8.1 Except with the written consent of TFM, KCS shall not, for a period of five years from the date hereof, sell, lease or encumber, or permit MX to sell, lease or encumber, the northern half of the railroad bridge between Laredo and Nuevo Laredo. ARTICLE IX. REMEDIES FOR BREACHES OF THIS AGREEMENT 9.1 Survival of Representations and Warranties. All of the representations and warranties of GTMM and TFM contained in Article III above (other than ss.3.19 above) shall survive the Initial Closing hereunder and continue in full force and effect for a period of two years thereafter; provided, however, that the representations and warranties contained in ss.3.19 above shall survive the Initial Closing hereunder and continue in full force and effect for a period of five years thereafter. All of the other representations and warranties of the Parties contained in this Agreement (including the representations and warranties of the Parties contained in Article II above and the representations and warranties of GTMM and TFM contained in ss.3.9 above) shall survive for the applicable statutes of limitations. 9.2 Indemnification Provisions for Benefit of KCS. (a) In the event either GTMM or TFM breaches any of its representations, warranties, and covenants contained herein, and, if there is an applicable survival period pursuant to ss.9.1 above, provided that KCS makes a written claim for indemnification within such survival period, then GTMM and TFM, jointly and severally, agree to indemnify KCS from and against any Adverse Consequences KCS may suffer through and after the date of the claim for indemnification (including any Adverse Consequences KCS may suffer after the end of any -15- applicable survival period) resulting from, arising out of, or caused by the breach of any such representation or warranty or covenant. (b) The obligation of GTMM and TFM to indemnify KCS pursuant to ss.9.2(a) above for any breach of representation or warranty shall be limited to 51% of the Adverse Consequences and then only to the extent that such 51% of the Adverse Consequences amount to, in the aggregate, $2 million or more; provided, that for purposes of calculating this limitation on indemnification, (i) Adverse Consequences shall be calculated without regard to any Material Adverse Effect and (ii) shall not apply to any Adverse Consequences arising out of or resulting from any action or omission on the part of GTMM or TFM or any of their respective affiliates that involve a crime, fraud, willful misconduct or gross negligence. 9.3 Indemnification Provisions for Benefit of GTMM and TFM. In the event KCS breaches any of its representations, warranties, and covenants contained herein, and, if there is an applicable survival period pursuant to ss.9.1 above, provided that GTMM or TFM makes a written claim for indemnification against KCS within such survival period, then KCS agrees to indemnify the claiming Party from and against the entirety of any Adverse Consequences such Party may suffer through and after the date of the claim for indemnification (including any Adverse Consequences GTMM or TFM may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach. 9.4 Determination of Adverse Consequences. The Parties shall make appropriate adjustments for Tax consequences and insurance coverage and take into account the time cost of money in determining Adverse Consequences for purposes of this Article IX. All indemnification payments under this Article IX shall be deemed adjustments to the Purchase Price. 9.5 Specific Performance. Notwithstanding the indemnification provisions of this Article IX, the Parties acknowledge that monetary damages would not provide an adequate remedy in the event that one or more Parties were to fail to comply with the terms and conditions of the Agreement. Accordingly, the Parties agree that, in addition to any right to monetary damages that any Party may have at law and under the terms of this Agreement, each Party shall be entitled to the equitable remedy of specific performance in order to force any other Party to strictly comply with the terms and conditions of this Agreement. ARTICLE X. TERMINATION 10.1 Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (a) this Agreement may terminated by mutual written consent of all of the Parties at any time prior to the Initial Closing; (b) KCS may terminate this Agreement by giving written notice to GTMM and TFM at any time prior to the Initial Closing in the event GTMM or TFM has breached any material -16- representation, warranty, or covenant contained in this Agreement in any material respect, KCS has notified GTMM and TFM of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach; and (c) GTMM and TFM may terminate this Agreement by giving written notice to KCS at any time prior to the Initial Closing in the event KCS has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, GTMM or TFM has notified KCS of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach. 10.2 Effect of Termination. If any Party terminates this Agreement pursuant to ss.10.1 above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach). ARTICLE XI. MISCELLANEOUS 11.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement, and no consent to any departure from any of such terms by any of the Parties, shall be valid unless the same shall be in writing and signed by all of the Parties (except that a permitted waiver of a Closing condition under ss. 6.2 or ss. 6.3 hereof need not be signed by all Parties). No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 11.2 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties concerning the sale of the Transferred Shares by TFM to KCS, and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof; provided, that in the event of termination of this Agreement or if notwithstanding the occurrence of a Closing, if TFM shall for any reason reacquire the MX Shares, then the parties intend for the terms and conditions of the 2002 Stock Purchase Agreement, the GTFM bylaws, and the Shareholders Agreement to become again valid and fully enforceable against the parties thereto. 11.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 11.4 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. 11.5 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of all of the Parties; provided, however, that KCS may (i) -17- assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases KCS nonetheless shall remain responsible for the performance of all of its obligations hereunder). 11.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 11.7 Notices. All notices, requests, demands, claims, and other communications hereunder shall be made in writing (including fax communications, with delivery confirmation as provided hereunder) and delivered at the domicile or fax number of the addressee thereof, or at such other domicile as any of the Parties shall notify the other Parties in writing as provided in this Section. Any notice, request, demand, claim, or other communication hereunder shall be effective when received by the Party to whom it is addressed. All communication by fax shall be affirmatively confirmed by confirmation page from the sending fax machine and by telephonic confirmation of receipt by an officer of the receiving Party. For purposes of this Section and until changed by written notice to each of the other Parties, each of the Parties designates the domicile for receipt of notices and communications as is written below such Party's corporate name in the signature pages hereof. 11.8 Expenses. Whether of not the transaction contemplated by this Agreement is consummated, all costs and expenses, including (without limitation) legal fees, consulting fees, finder's fees, investment banking fees and trustee's fees, incurred in connection with this Agreement and the transaction contemplated thereby shall be paid by the Party incurring such costs or expenses except as otherwise provided in this Agreement. 11.9 Announcements. The Parties shall consult with one another with regard to all media releases and other announcements issued at or prior to a Closing concerning the transaction contemplated by this Agreement; and, except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, no Party hereto shall issue any such press release or other publicity concerning the transaction contemplated by this Agreement without the prior written consent of the other Parties. 11.10 Governing Law; Dispute Resolution. (a) Resolution of any and all disputes between KCS, on the one hand, and one or more of GTMM or TFM, on the other hand (each of KCS, on the one hand, and one or more of GTMM or TFM, on the other hand, a "Dispute Party" and together, the "Dispute Parties") arising from or in connection with this Agreement or any transactions contemplated by this Agreement, whether based on contract, tort, common law, equity, statute, regulation, order or otherwise, ("Disputes") including Disputes arising in connection with claims by third persons, shall be exclusively governed by and settled in accordance with the provisions of this ss.11.10; provided, that the foregoing shall not preclude equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending resolution of Disputes hereunder. -18- (b) THIS AGREEMENT, THE LEGAL RELATIONS BETWEEN THE PARTIES HERETO AND THE ADJUDICATION AND ENFORCEMENT THEREOF, SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO APPLICABLE CHOICE OF LAW PROVISIONS THEREOF. (c) As to any Dispute which is not resolved in the ordinary course of business, the Dispute Parties shall first attempt in good faith to promptly resolve any Dispute by negotiations between executives. Either of the Dispute Parties may initiate this procedure by delivery of written notice of the Dispute (the "Dispute Notice") to the other. Not later than 20 days after delivery of the Dispute Notice, one executive of one of the Dispute Parties with authority to settle the Dispute shall meet with the one executive of the other Dispute Party with authority to settle the Dispute at a reasonably acceptable time and place, and thereafter as such executives shall deem reasonably necessary. The executives shall exchange relevant information and endeavor to resolve the Dispute. Prior to any such meeting, each Dispute Party's executive shall advise the other as to any individuals who will attend such meeting with the executive. All negotiations pursuant to this ss.11.10(c) shall be confidential and shall be treated as compromise negotiations for purposes of Rule 408 of the Federal Rules of Evidence and similarly under other local or foreign rules of evidence. (d) Each Dispute Party hereby agrees to submit all Disputes not resolved pursuant to ss.11.10(c) hereof to final and binding arbitration in New York, New York. Either Dispute Party may initiate such arbitration by delivery of a demand therefor (the "Arbitration Demand") to the other Dispute Party not sooner than 60 days after the date of delivery of the Dispute Notice but promptly thereafter; provided, that if a Dispute Party rejects participation in the procedures provided under ss.11.10(c), the other Dispute Party may initiate arbitration at such earlier time as such rejection shall become reasonably apparent, and, whenever arbitration is initiated, may seek recovery of any damages or expenses arising from such rejection, including attorney's fees and expenses, Arbitration Costs (as defined below) in connection with arbitration hereunder. (i) Three Arbitrators shall be appointed (the "Arbitrators"), one of whom shall be appointed by KCS, one by GTMM, and the third of whom, who shall act as the chairman of the arbitral tribunal, shall be appointed by the first two Arbitrators within 10 business days of the first two Arbitrators confirmation by the American Arbitration Association. If either Dispute Party fails to appoint an Arbitrator within 10 business days of a request in writing by the other Dispute Party to do so or if the first two Arbitrators cannot agree on the appointment of the third Arbitrator within 10 business days of their confirmation by the American Arbitration Association, then such Arbitrator shall be appointed by the American Arbitration Association in accordance with its International Arbitration Rules. As soon as the arbitration tribunal has been convened, a hearing date shall be set within 15 days thereafter; provided, that the Arbitrators may extend the date of the hearing upon request of any Dispute Party to the extent necessary to insure that such Dispute Party is given a reasonable period of time to prepare for the hearing. Written submittals in the English language shall be presented and exchanged by -19- both Dispute Parties five business days before the hearing date. At such time the Dispute Parties shall also exchange copies of all documentary evidence upon which they will rely at the arbitration hearing and a list of the witnesses whom they intend to call to testify at the hearing. The Arbitrators shall make their determination as promptly as practicable after conclusion of the hearing. (ii) The arbitration shall be conducted in the English language pursuant to the Commercial Arbitration Rules of American Arbitration Association. Notwithstanding the foregoing, (A) each Dispute Party shall have the right to audit the books and records of the other Dispute Party that are reasonably related to the Dispute; (B) each Dispute Party shall provide to the other, reasonably in advance of any hearing, copies of all documents which a Dispute Party intends to present in such hearing; (C) all hearings shall be conducted on an expedited schedule; and (D) all proceedings shall be confidential, except that either Dispute Party may at its expense make a stenographic record thereof. (iii) The Arbitrators shall endeavor to complete all hearings not later than 120 days after their tribunal has been convened, and shall make a final award as promptly as practicable thereafter. Such award shall be communicated, in writing, by the Arbitrators to the Dispute Parties, and shall contain specific findings of fact and conclusions of law in accordance with the governing law set forth in ss.11.10(c) of this Agreement. Any award of such Arbitrators shall be final and binding upon the Parties to this Agreement and shall not be attacked by any of the Parties to this Agreement in any court of law and may be enforced in any court having jurisdiction, including expressly the courts of the State of Delaware, United States of America, and the courts of the Federal District of Mexico. The Arbitrators shall apportion all costs and expenses of the arbitration, including the Arbitrators' fees and expenses, fees and expenses of experts and fees and expenses of translators ("Arbitration Costs") between the prevailing and non-prevailing Dispute Party as the Arbitrators shall deem fair and reasonable. In circumstances where (A) a Dispute has been asserted or defended against on grounds that the Arbitrators deem manifestly unreasonable, or (B) the non-prevailing Dispute Party has rejected participation in procedures under ss.11.10(c), the Arbitrators may assess all Arbitration Costs against the non-prevailing Dispute Party and may include in the award the prevailing Dispute Party's attorney's fees and expenses in connection with any and all proceedings under this ss.11.10. Notwithstanding the foregoing, in no event may the arbitrator award multiple or punitive damages. (e) Pursuant to an agreement of the Parties or a judicial determination that a Dispute is not subject to final and binding arbitration as set forth in ss.11.10, KCS and each of GTMM and TFM irrevocably agrees that any legal action or proceeding against it with respect to this Agreement and any transaction contemplated by this Agreement shall be brought only in the courts of the State of Delaware, or of Federal courts of the United States of America sitting in Delaware, and by execution and delivery of this Agreement, KCS and each of GTMM and TFM irrevocably submits to the venue and jurisdiction of each such court and irrevocably waives any -20- objection or defense such party may have to venue or personal jurisdiction in any such court for the purpose of resolving any claim, dispute, cause of action arising out of or related to this Agreement (including any claim that the suit or action has been brought in an inconvenient forum and any right to which it may become entitled on account of place of residence or domicile), the alleged breach of this Agreement, the enforcement of the terms of this Agreement and the other terms contemplated hereby. A final judgment in any suit, action or proceeding shall be conclusive and may be enforced in any court where jurisdiction over the Parties may be had or in which the Parties are subject to service of process. (f) Each of the Parties irrevocably appoints CT Corporation (the "Process Agent"), at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801 (302-658-7581), as its agent and true and lawful attorney-in-fact in its name, place and stead to accept on behalf of each of the Parties and their respective properties and revenues, service of copies of the summons and complaint and any other process which may be served in any such suit, action or proceeding brought in the State of Delaware, and each of the Parties agrees that failure of the Process Agent to give any notice of any such service of process to any of the Parties shall not impair or affect the validity of such service or the enforcement of any judgment based thereon. 11.11 Severability. If any one or more of the provisions contained in this Agreement or in any document executed in connection herewith shall be held invalid, illegal or unenforceable under applicable law, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired and shall remain in full force and effect. 11.12 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. 11.13 Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. ARTICLE XII. DEFINITIONS "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in settlement, liabilities, obligations, Taxes, Liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses. -21- "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Arbitration Costs" has the meaning set forth in ss.11.10(d) above. "Arbitration Demand" has the meaning set forth in ss.11.10(d) above. "Arbitrators" has the meaning set forth in ss.11.10(d) above. "Benefit Arrangement" means any employment, severance or similar contract or arrangement (whether or not written) or any plan, policy, fund, program or contract or arrangement (whether or not written) providing for compensation, bonus, profit-sharing, stock option, or other stock related rights or other forms of incentive or deferred compensation, vacation benefits, insurance coverage (including any self-assured arrangements), health or medical benefits, disability benefits, workers' compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits) that (i) is not an Employee Plan, (ii) is entered into, maintained, administered or contributed to, by MX or TMX or any of their ERISA Affiliates, and (iii) covers any employee or former employee of MX or TMX. "Closing" has the meaning set forth in ss.1.2 above. "Closing Date" has the meaning set forth in ss.1.2 above. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means, with respect to MX or TMX, all proprietary and confidential business information and data of MX or TMX that is not generally known by or readily ascertainable by or available to, on a legal or authorized basis, the general public; provided, however, that "Confidential Information" shall not include any information: (a) which is already known by the receiving Party; or (b) which before being divulged by the disclosing Party (i) has become generally known to the public through no wrongful act of the receiving Party or its representatives or agents, (ii) has been received by the receiving Party from a third party without (to the receiving Party's knowledge) restriction on disclosure and without (to the receiving Party's knowledge) a breach by the third party of an obligation of confidentiality, or (iii) is independently developed by the receiving Party without use of the Confidential Information received from a disclosing Party. "Disclosure Schedule" has the meaning set forth in Article III above. "Dispute Notice" has the meaning set forth in ss.11.10(c) above. "Dispute Parties" has the meaning set forth in ss.11.10(a) above. "Dispute Party" has the meaning set forth in ss.11.10(a) above. -22- "Disputes" has the meaning set forth in ss.11.10(a) above. "Employee Benefit Plan" means any "employee benefit plan" (as such term is defined in ERISA ss.3(3)) and any other employee benefit plan, program or arrangement of any kind maintained by MX and TMX. "Employee Plan" means any "employee benefit plan", as defined in ss.3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is maintained, administered or contributed to by MX or TMX or any of their ERISA Affiliates, and (iii) covers any employee or former employee of MX or TMX. "Environmental Laws" means any applicable federal, state, local, provincial or foreign law (including, without limitation, common law), treaty, judicial decision, regulation, rule, judgment, order, decree, injunction, permit, or legally binding governmental restriction or requirement, or any legally binding agreement with any governmental authority or other third party, relating to human health and safety (as relating to the environment), the environment or, as impacting human health or the environment, to pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials. "Environmental Permits" means, as to any entity, all permits, licenses, franchises, certificates, approvals and other similar authorizations of governmental authorities required by Environmental Laws regarding the business of such entity as currently conducted. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means each entity which is treated as a single employer with MX for purposes of Code ss.414. "Financial Statement" has the meaning set forth in ss.3.5 above. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "GTFM" has the meaning set forth in the Recitals above. "GTMM" has the meaning set forth in the preface above. "Hazardous Substances" means, in each case as regulated under any Environmental Law, any pollutant, contaminant, waste or chemical or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substance, waste or material, or any substance, waste or material having any constituent elements displaying any of the foregoing characteristics, including, without limitation, petroleum, its derivatives, by-products and other hydrocarbons, and any substance, waste or material regulated under any Environmental Law. -23- "Income Tax" means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not. "Initial Closing" has the meaning set forth in ss.1.2 above. "Initial Closing Date" has the meaning set forth in ss.1.2 above. "Initial Purchase Price" has the meaning set forth in ss.1.3 above. "Initially Transferred Shares" has the meaning set forth in the Recitals above. "KCS Credit Agreement" means the Amended and Restated Agreement dated as of June 12, 2002 among Kansas City Southern, The Kansas City Southern Railway Company, the Lenders Party thereto, and J.P.Morgan Chase Bank, Administrative Agent. "KCSR" has the meaning set forth in the Recitals above. "Knowledge" means actual knowledge after reasonable investigation. "Lien" means, with respect to any asset, any mortgage, pledge, encumbrance, charge, or other security interest of any kind in respect of such asset, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable , (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Material Adverse Effect" means, with respect to MX, a change, event or occurrence that has had, or is reasonably likely to have, a material adverse effect on the business, assets, properties, liabilities, financial condition or results of operations of MX and its Subsidiaries, taken as a whole, other than any change, event or occurrence resulting from (i) changes in the railroad industry in the United States or Mexico generally, (ii) changes in general economic conditions in the United States or the securities markets in general, (iii) terrorist activities or the commencement or escalation of any war or armed hostilities, which do not disproportionately affect MX or its Subsidiaries, or (iv) performance of this Agreement in accordance with its terms. "MM" has the meaning set forth in the Recitals above. "Most Recent Balance Sheet" means the balance sheet contained within the Most Recent Financial Statements. "Most Recent Financial Statements" has the meaning set forth in ss.3.5 above. "Most Recent Fiscal Month End" has the meaning set forth in ss.3.5 above. "Most Recent Fiscal Year End" has the meaning set forth in ss.3.5 above. -24- "Multiemployer Plan" means a multiemployer plan, as defined in ss.3(37) of ERISA, which is subject to ss.4022A of ERISA. "MX" has the meaning set forth in the Recitals above. "MX Shares" has the meaning set forth in the Recitals above. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Party" has the meaning set forth in the preface above. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Process Agent" has the meaning set forth in ss.11.10(f) above. "Purchase Option" has the meaning set forth in ss.1.4 above. "Purchase Price" has the meaning set forth in ss.1.3 above. "Shareholders Agreement" means the Agreement dated May 1997 by and among KCS, Caymex Transportation, Grupo Servia, S.A. de C.V., Transportacion Maritima Mexicana, S.A. de C.V. and TMM Multimodal, S.A. de C.V. "Subsequent Closing" has the meaning set forth in ss.1.2 above. "Subsequently Transferred Shares" has the meaning set forth in the Recitals above. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Surface Transportation Board" or "STB" shall mean that government agency that administers the ICC Termination Act of 1995 Pub. L. No. 104-88, 109 Stat. 803, enacted December 29, 1995. "Tax" means any federal, state, local, or foreign tax, including any interest, penalty, or addition thereto, whether disputed or not. "TFM" has the meaning set forth in the preface above. "Title IV Plan" means an Employee Plan subject to Title IV of ERISA other than any Multiemployer Plan. -25- "TMX" has the meaning set forth in the Recitals above. "Transferred Shares" has the meaning set forth in the Recitals above. ***** -26- IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. KANSAS CITY SOUTHERN By: /s/ M.R. Haverty --------------------------------------- Name: Michael R. Haverty Title: Chairman, President & CEO GRUPO TMM, S.A. By: /s/ Jose Serrano --------------------------------------- Name: Jose Serrano Title: Chairman By: /s/ Javier Segovia --------------------------------------- Name: Javier Segovia Title: President TFM, S.A. de C.V. By: /s/ Mario Mohar --------------------------------------- Name: Mario Mohar Title: President By: /s/ Javier Segovia --------------------------------------- Name: Javier Segovia Title: Director EX-10.1 9 acqagmt.txt ACQUISITION AGREEMENT ACQUISITION AGREEMENT by and among KANSAS CITY SOUTHERN, a Delaware corporation, KARA Sub, Inc., a Delaware corporation, GRUPO TMM, S.A., a sociedad anonima organized under the laws of the United Mexican States, TMM HOLDINGS, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the United Mexican States, and TMM MULTIMODAL, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the United Mexican States DATED AS OF APRIL 20, 2003 Table of Contents ARTICLE 1 STOCK PURCHASE.....................................................1 Section 1.1 Stock Purchase.................................................1 Section 1.2 Stock Purchase Price...........................................1 ARTICLE 2 SUBSIDIARY INVESTMENT..............................................2 Section 2.1 Subsidiary Investment..........................................2 ARTICLE 3 THE MERGER.........................................................2 Section 3.1 The Merger.....................................................2 Section 3.2 Name Change, Certificate of Incorporation and Bylaws...........2 Section 3.3 Board and Officers.............................................2 Section 3.4 Merger Integration Committee...................................3 ARTICLE 4 CLOSING............................................................3 Section 4.1 Closing........................................................3 Section 4.2 Actions at Closing.............................................3 Section 4.3 Conversion of Securities.......................................4 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLERS..........................5 Section 5.1 Organization and Related Matters...............................5 Section 5.2 Authorized Capitalization......................................6 Section 5.3 GTFM and GTFM Subsidiaries.....................................7 Section 5.4 Authority; No Violation........................................7 Section 5.5 Consents and Approvals.........................................8 Section 5.6 Financial Statements; Undisclosed Liabilities..................9 Section 5.7 Contracts......................................................9 Section 5.8 Intellectual Property Rights..................................10 Section 5.9 Employee Benefit Matters......................................10 Section 5.10 Labor and Other Employment Matters...........................11 Section 5.11 Tax Matters..................................................13 Section 5.12 Legal Proceedings............................................14 Section 5.13 Permits and Compliance.......................................14 Section 5.14 Environmental Matters........................................15 Section 5.15 Properties...................................................15 Section 5.16 Insurance....................................................16 Section 5.17 No Other Broker..............................................16 Section 5.18 No GTFM Material Adverse Effect..............................16 Section 5.19 Sufficiency of and Title to Assets...........................16 Section 5.20 Information in Filed Documents...............................16 Section 5.21 Transactions with Affiliates.................................17 Section 5.22 No Loss of Significant Customers.............................17 Section 5.23 Trading in and Ownership of KCS Common Stock.................17 Section 5.24 Solvency.....................................................17 Section 5.25 Termination of Option Agreement..............................17 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF KCS.............................18 Section 6.1 Organization and Related Matters..............................18 Section 6.2 Authority; No Violation.......................................18 Section 6.3 Consents and Approvals........................................20 - i - Section 6.4 Authorized Capitalization.....................................20 Section 6.5 SEC Filings...................................................21 Section 6.6 Financial Statements; Undisclosed Liabilities.................21 Section 6.7 No Other Broker...............................................21 Section 6.8 Information in Filed Documents................................22 Section 6.9 No KCS Material Adverse Effect................................22 Section 6.10 KARA Sub.....................................................22 Section 6.11 Legal Proceedings............................................22 Section 6.12 KCS Capital Resources........................................22 Section 6.13 Employee Benefit Matters.....................................23 Section 6.14 Labor and Other Employment Matters...........................23 Section 6.15 Tax..........................................................23 Section 6.16 Permits and Compliance.......................................23 Section 6.17 Environmental Matters........................................24 Section 6.18 Properties...................................................24 ARTICLE 7 COVENANTS AND ADDITIONAL AGREEMENTS...............................25 Section 7.1 Conduct of Business by the GTFM Group.........................25 Section 7.2 Conduct of Business by KCS and its Subsidiaries...............27 Section 7.3 Access to Information; Confidentiality........................28 Section 7.4 Regulatory Matters; Governing Documents; Third-Party Consents.28 Section 7.5 Stockholder and Debtholder Approvals..........................29 Section 7.6 Tax Matters...................................................30 Section 7.7 Insurance.....................................................30 Section 7.8 Notification of Certain Matters...............................30 Section 7.9 Further Assurances............................................31 Section 7.10 Third-Party Matters..........................................31 Section 7.11 Efforts of Parties to Close..................................32 Section 7.12 Expenses.....................................................33 Section 7.13 VAT Contingency Payment......................................33 Section 7.14 Financing for the Acquisition................................33 Section 7.15 Release......................................................33 ARTICLE 8 CONDITIONS........................................................34 Section 8.1 Mutual Conditions.............................................34 Section 8.2 Conditions to the Obligations of KCS..........................34 Section 8.3 Conditions to the Obligations of Sellers......................35 ARTICLE 9 TERMINATION.......................................................37 Section 9.1 Termination...................................................37 Section 9.2 Survival after Termination....................................37 ARTICLE 10 INDEMNIFICATION..................................................38 Section 10.1 Survival of Representations, Warranties and Covenants; Exclusive Monetary Remedies...............................................38 Section 10.2 Indemnification by Sellers...................................38 Section 10.3 Indemnification by KCS.......................................39 Section 10.4 Procedures for Third-Party Claims............................40 Section 10.5 Tax Indemnification..........................................41 ARTICLE 11 DEFINITIONS......................................................41 Section 11.1 Certain Defined Terms........................................41 ARTICLE 12 MISCELLANEOUS....................................................47 - ii - Section 12.1 Amendments; Waiver...........................................47 Section 12.2 Entire Agreement.............................................47 Section 12.3 Interpretation...............................................48 Section 12.4 Severability.................................................48 Section 12.5 Notices......................................................49 Section 12.6 Headings.....................................................50 Section 12.7 Binding Effect; Persons Benefiting; No Assignment............50 Section 12.8 No Third Party Beneficiaries.................................50 Section 12.9 Counterparts.................................................50 Section 12.10 Specific Enforcement........................................50 Section 12.11 Governing Law; Dispute Resolution...........................50 Section 12.12 Announcements...............................................53 Section 12.13 Termination Fee.............................................53 - iii - TABLE OF DEFINED TERMS Term.. Page Section 2003 Notes.........................9.....................5.5 2006 Notes.........................9.....................5.5 Acquisition........................1................Preamble Affiliate.........................40....................11.1 Agreement..........................1................Preamble Ancillary Agreements...............1................Preamble Applicable Law....................40....................11.1 Arbitration Costs.................51...........12.11(d)(iii) Arbitration Demand................50................12.11(d) Arbitrators.......................50.............12.11(d)(i) Benefit Plan......................10..................5.9(a) Board of Directors.................2.....................3.3 Business Day......................40....................11.1 Buyer Parties.....................31.................7.10(c) Certificate of Merger..............2.....................3.1 Change of Control.................40....................11.1 Closing............................3.....................4.1 Closing Date.......................3.....................4.1 Code..............................22....................6.13 Concession........................41....................11.1 Confidentiality Agreement.........41....................11.1 Consulting Agreement..............41....................11.1 Contracts.........................41....................11.1 Control...........................41....................11.1 Del. G.C.L.........................2.....................3.1 Disputes..........................49................12.11(a) Dispute Notice....................50................12.11(c) Dispute Parties...................49................12.11(a) Dispute Party.....................49................12.11(a) Effective Time.....................2.....................3.1 Encumbrance.......................41....................11.1 Environmental Laws................41....................11.1 Environmental Permit..............42....................11.1 ERISA.............................22....................6.13 ERISA Affiliate...................42....................11.1 Exchange Act......................42....................11.1 Expiration Date...................37.................10.1(a) Final Resolution of the VAT Claim.42....................11.1 GAAP..............................42....................11.1 Governmental Authority............42....................11.1 GTFM...............................1................Preamble GTFM Assets.......................16....................5.19 - iv - GTFM Benefit Plan.................10..................5.9(a) GTFM Business.....................42....................11.1 GTFM Financial Statements..........9.....................5.6 GTFM Form 20-F....................43....................11.1 GTFM Group........................43....................11.1 GTFM Insurance Policies...........16....................5.16 GTFM Material Adverse Effect......43....................11.1 GTFM Shares........................1.....................1.1 GTFM Subsidiaries..................7..................5.3(a) GTFM Trademarks...................43....................11.1 GTFM Voting Debt...................6.....................5.2 Hazardous Materials...............43....................11.1 HSR Act...........................43....................11.1 Income Taxes......................43....................11.1 Indemnified Party.................39.................10.4(a) Intellectual Property.............43....................11.1 Investment Advisers Act...........44....................11.1 Investment Company Act............44....................11.1 KARA Sub...........................1................Preamble KARA Sub Common Stock..............2.....................2.1 KCS................................1................Preamble KCS Acquisition Proposal..........31.................7.10(c) KCS Assets........................44....................11.1 KCS Business......................44....................11.1 KCS Disclosure Schedule...........17..Article 6 Introduction KCS Financial Statements..........20.....................6.6 KCS Indemnitees...................37....................10.2 KCS Material Adverse Effect.......44....................11.1 KCS SEC Documents.................21.....................6.5 KCS Stock Option Plan.............44....................11.1 KCS Voting Debt...................20.....................6.4 Knowledge.........................44....................11.1 Law...............................44....................11.1 Losses............................38....................10.2 Merger.............................1................Preamble Merger Integration Committee.......3.....................3.4 MM.................................1................Preamble MM Subsidiaries...................44....................11.1 NAFTA Rail.........................2.....................3.2 NYSE..............................44....................11.1 Parties............................1................Preamble Permits...........................14.................5.13(a) Permitted Encumbrance.............45....................11.1 Person............................45....................11.1 Proceedings.......................14....................5.12 Process Agent.....................52................12.11(f) Put Agreement.....................45....................11.1 Put Purchase Price................45....................11.1 - v - Reconciliation.....................9.....................5.6 Scheduled Contracts................9.....................5.7 SEC...............................45....................11.1 Securities........................45....................11.1 Securities Act....................45....................11.1 Securities Laws...................45....................11.1 Seller Disclosure Schedule.........5..Article 5 Introduction Seller Indemnitees................38....................10.3 Seller Material Adverse Effect....45....................11.1 Seller Parties....................30.................7.10(a) Sellers............................5..Article 5 Introduction Strategic Investor................45....................11.1 Stock Purchase.....................1................Preamble Stock Purchase Price...............1.....................1.1 Straddle Period...................29..................7.6(b) Subsidiary........................46....................11.1 Subsidiary Investment..............1................Preamble Surviving Company..................2.....................3.1 Tax...............................45....................11.1 Tax Return........................46....................11.1 Taxing Authority..................46....................11.1 Termination Date..................36..............9.1(a)(vi) TFM...............................46....................11.1 Third-Party Claim.................39.................10.4(a) TMM................................1................Preamble TMM Account........................1.....................1.2 TMM Acquisition Proposal..........30.................7.10(a) TMMH...............................1................Preamble UMS................................1................Preamble U.S...............................46....................11.1 VAT...............................46....................11.1 VAT Claim.........................46....................11.1 VAT Contingency Payment...........32....................7.13 VAT Payment.......................46....................11.1 Exhibit 1 KARA Sub Note Exhibit A Amended and Restated Certificate of Incorporation of the Surviving Company Exhibit B Bylaws of the Surviving Company Exhibit C Agreement of Assignment and Assumption of Put Obligations Exhibit D Boards of Directors, Committees and Officers of Surviving Company, GTFM and GTFM Subsidiaries and Merger Integration Committee Exhibit E Seller Disclosure Schedule Exhibit F KCS Disclosure Schedule Exhibit G-1. Form of Opinion Letter of Milbank, Tweed, Hadley & McCloy LLP Exhibit G-2 Form of Opinion Letter of Haynes & Boone, L.C. Exhibit H-1 Form of Opinion Letter of Sonnenschein Nath & Rosenthal Exhibit H-2 Form of Opinion Letter of Jay Nadlman, Esq. - vi - ACQUISITION AGREEMENT, dated as of April 20, 2003 (this "Agreement"), by and among KANSAS CITY SOUTHERN, a Delaware corporation ("KCS"), KARA Sub, Inc., a Delaware corporation ("KARA Sub"), GRUPO TMM, S.A., a sociedad anonima organized under the laws of the United Mexican States ("UMS") ("TMM"), TMM HOLDINGS, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the UMS and a subsidiary of TMM ("TMMH") and TMM MULTIMODAL, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the UMS ("MM") and a subsidiary of TMMH (collectively, the "Parties"). WHEREAS, each of the Boards of Directors of KCS, TMM, TMMH and MM has approved and declared advisable the acquisition by KCS of all of MM's interest in GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the UMS ("GTFM") through (i) the purchase by KARA Sub from MM of all of the capital stock of GTFM held by MM (the "Stock Purchase"), (ii) the investment by MM in KARA Sub (the "Subsidiary Investment") and (iii) the merger of KARA Sub with and into KCS (the "Merger") upon the terms and subject to the conditions of this Agreement (collectively, the Stock Purchase, Subsidiary Investment and the Merger comprise the "Acquisition"); and WHEREAS, certain of the Parties and other parties are entering into ancillary agreements (the "Ancillary Agreements," identified hereinafter) to carry out certain of the objectives of this Agreement and of the Acquisition. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the Parties agree as follows: ARTICLE 1 STOCK PURCHASE Section 1.1 Stock Purchase. Upon the terms and subject to satisfaction or waiver of the conditions set forth in Article 8, at the Closing, KARA Sub shall purchase, acquire and receive from MM, and MM shall sell, assign, transfer, convey and deliver to KARA Sub, all GTFM Shares held by MM, consisting of 25,500 shares of Series "A" fixed capital stock of GTFM and 3,842,901 shares of Series "A" variable capital stock of GTFM (collectively the "GTFM Shares"), for the consideration described in Section 1.2 (the "Stock Purchase Price"). Section 1.2 Stock Purchase Price. The Stock Purchase Price to be paid by KARA Sub to MM at the Closing for the purchase of the GTFM Shares shall be paid by the delivery of: (i) $200 million, in immediately available funds, by wire transfer to the account designated by TMM to KCS at least three business days prior to the Closing Date (the "TMM Account"), provided, that KCS may, at its option, elect to pay up to $80 million of such amount by delivering to MM a number of shares of KCS Common Stock, or of KCS Class A Common Stock determined by dividing the amount that KCS so elects to pay other than in cash by $12.50 (such election to be made by written notice to the Sellers not less than 30 days prior to the -1- Closing specifying the amount which KCS elects to pay through the delivery of Common Stock or Class A Common Stock and the class of such stock, which notice shall be irrevocable once given); and (ii) a subordinated promissory note evidencing an indebtedness of KARA Sub in the principal amount of $25,000,000, having the terms and conditions set forth in the form of note attached hereto as Exhibit 1 (the "KARA Sub Note"). KCS covenants and agrees to provide KARA Sub with sufficient funds to make all payments required to be made by it under this Agreement. ARTICLE 2 SUBSIDIARY INVESTMENT Section 2.1 Subsidiary Investment. At the Closing, immediately following the Stock Purchase, MM shall subscribe for and purchase from KARA Sub 100 shares of KARA Sub common stock, $.01 par value ("KARA Sub Common Stock"), representing 10% of the issued and outstanding shares of KARA Sub Common Stock, and KARA Sub shall issue, sell and transfer to MM the KARA Sub Common Stock in consideration for delivery by MM to KARA Sub of the KARA Sub Note. ARTICLE 3 THE MERGER Section 3.1 The Merger. Immediately following the Subsidiary Investment, KARA Sub shall be merged with and into KCS in accordance with the General Corporation Law of the State of Delaware ("Del. G.C.L."). KCS and KARA Sub shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the Del. G.C.L. (the date and time of the filing of the Certificate of Merger being the "Effective Time"). At the Effective Time, the effects of the Merger shall be as provided in the Certificate of Merger and the applicable provisions of the Del. G.C.L. As a result of the Merger, the separate corporate existence of KARA Sub shall cease and KCS shall continue as the surviving corporation of the Merger (the "Surviving Company"). Section 3.2 Name Change, Certificate of Incorporation and Bylaws. At the Effective Time, KCS shall change its name to "NAFTA Rail Corporation" or such other name as shall be determined by KCS and its Restated Certificate of Incorporation and Bylaws shall be amended in their entirety to contain the provisions set forth, respectively, in Exhibits A and B to this Agreement, which shall become, respectively, the Amended and Restated Certificate of Incorporation and Bylaws of the Surviving Company. At the Effective Time, the Charter and Bylaws, or other organizational documents of GTFM and each GTFM Subsidiary shall be amended as determined by KCS. Section 3.3 Board and Officers. At the Effective Time, the Board of Directors of the Surviving Company (the "Board of Directors") shall be comprised of eleven members (provided, that KCS may add a representative of a Strategic Investor in KCS as a twelfth director) divided into three classes, each class to be as equal in number as practicable, to serve staggered three-year terms. At or promptly following the Effective Time, the Board of Directors shall establish, -2- and appoint the members of, such committees as the Board of Directors deems appropriate, which shall include the committees set forth in Exhibit D to this Agreement. Included in Exhibit D are the names of the members of the respective initial Board of Directors (including those persons designated to be members of the committees of the Board of Directors), and the initial executive officers, of the Surviving Company, and of GTFM and the GTFM Subsidiaries, each to hold office at the Effective Time. Each person identified in Exhibit D to this Agreement shall hold office in accordance with the applicable charter documents and Ancillary Agreements and until the earlier of their resignations or removal as permitted under such charter documents and Ancillary Agreements, or until their respective successors are duly elected and qualified, as the case may be. Section 3.4 Merger Integration Committee. The Board of Directors shall appoint, effective as of the Effective Time, a merger integration committee ("Merger Integration Committee"), comprised initially of the persons identified as such in Exhibit D. The Merger Integration Committee shall assist the Board of Directors for a period of one year in managing the transition of ownership and operation of GTFM contemplated by this Agreement and shall have such other duties and responsibilities as may be assigned by the Board of Directors, consistent with the Ancillary Agreements. ARTICLE 4 CLOSING Section 4.1 Closing. Unless this Agreement shall have been earlier terminated in accordance with the terms hereof, the consummation of the transactions contemplated by this Agreement (the "Closing") shall, subject to the satisfaction or waiver of the conditions set forth in Article 8, take place at the offices of Sonnenschein Nath & Rosenthal, 1221 Avenue of the America, 24th Floor, New York, New York, on the second (2nd) Business Day after all of the conditions set forth in Article 8 have been satisfied or waived (other than the conditions that relate to actions to be taken at the Closing) or at such other date, time and place as KCS and MM shall mutually agree in writing (the date on which the Closing takes place, the "Closing Date"). The closing of the Acquisition is dependent upon the closing of each of the Stock Purchase, the Subsidiary Investment and the Merger and if any one of the Stock Purchase, the Subsidiary Investment or the Merger shall not close, then the Acquisition shall not close and all consideration theretofore paid or exchanged shall be promptly returned. Section 4.2 Actions at Closing. At the Closing: (a) KCS shall cause KARA Sub to deliver to MM the Stock Purchase Price, including the KARA Sub Note, duly executed and in proper form to evidence the indebtedness of KCS Sub represented thereby and MM shall, and TMM shall cause MM to, deliver to KARA Sub the stock certificates for the GTFM Shares duly endorsed in favor of KARA Sub in proper form to transfer ownership to KARA Sub of such shares free and clear of any and all Encumbrances. (b) MM shall, and TMM shall cause MM to, deliver to KARA Sub the KARA Sub Note, duly endorsed for transfer to KARA Sub free and clear of any and all Encumbrances, other than Encumbrances arising solely by operation of law, and KCS shall cause KARA Sub to issue and deliver to MM the KARA Sub Common Stock. -3- (c) KCS and KARA Sub shall file the Certificate of Merger with the Secretary of State of Delaware to effect the Merger. (d) The Parties shall deliver and receive, respectively, the opinions of counsel referred to in Section 8.2(f) and 8.3(e) and the officers' certificates referred to in Section 8.2(c) and 8.3(c). (e) KCS and Consultant shall execute and deliver the Consulting Agreement, which shall become effective on the first business day following the Closing Date. (f) KCS and TMM shall execute and deliver the Marketing and Services Agreement. KCS, TMM and the other parties thereto shall execute and deliver the Stockholders' Agreement and the Registration Rights Agreement. (g) TMM and KCS shall execute and deliver an agreement by which TMM assigns its rights, and KCS assumes TMM's obligations, to purchase TFM stock pursuant to the Put Agreement and indemnifying TMM from KCS's non-performance of such obligations, such agreement to be substantially in the form of Exhibit C hereto. (h) To the extent in the possession of TMM or MM, TMM and MM shall, and TMM shall cause MM to, deliver to GTFM all files and books of account, including business, financial and tax records, of GTFM, including, without limitation, minute books, stock record books, the Concession Agreement and supporting exhibits and records relating thereto and work papers. In addition, TMM and MM shall, and TMM shall cause MM to, deliver to GTFM or KCS such other documents, resolutions, appointments, powers of attorney and instruments of transfer necessary or appropriate to implement this Agreement and effect the transactions contemplated hereby and by the Ancillary Agreements, in each case as KCS may reasonably request and in form and substance reasonably acceptable to KCS. (i) MM shall cause the Secretary of GTFM to make the corresponding notation in the Stock Registry Book of GTFM evidencing KARA Sub as the record, legal and beneficial owner of the GTFM Shares as of the Closing Date. (j) The written resignations of all directors and officers (or, as to officers, evidence reasonably acceptable to KCS of corporate action sufficient to effect their removal and replacement) of GTFM and GTFM Subsidiaries effective as of the Closing Date, except for those persons identified on Exhibit D as to continue in office, shall be delivered to KCS, accompanied by evidence reasonably satisfactory to KCS that prior to such resignation, the election of the successors to directors resigning was approved by at least two-thirds of the entire Board of Directors of such corporations. (k) All actions taken at the Closing pursuant to this Agreement shall be deemed to have been taken simultaneously and no actions or transactions will be deemed to have taken place, or documents delivered, or payments made, unless all actions and transactions have been completed and all documents have been executed and delivered. Section 4.3 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any other action on the part of any Party: -4- (a) each share of KARA Sub Common Stock issued and outstanding immediately prior to the Effective Time and held of record and beneficially by MM shall be converted into and exchanged for 180,000 shares of Class A Common Stock of the Surviving Company, representing in the aggregate 18,000,000 shares of Class A Common Stock of the Surviving Company and having the par value and the rights and limitations described in Article Fourth of Exhibit A to this Agreement; (b) each share of KARA Sub Common Stock issued and outstanding immediately prior to the Effective Time and held of record and beneficially by KCS shall be cancelled; (c) each share of KCS Common Stock, and each share of KCS Preferred Stock, issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding as one share of Common Stock, and one share of Preferred Stock, respectively, of the Surviving Company, having the par value and the rights and limitations described in Article Fourth of Exhibit A to this Agreement; (d) each share of KCS Common Stock and each share of KCS Preferred Stock that is owned by KCS immediately prior to the Effective Time as treasury stock shall remain as one share of treasury stock of the Surviving Company having the par value and the rights and limitations described in Article Fourth of Exhibit A to this Agreement; and (e) each option to acquire KCS Common Stock issued and outstanding immediately prior to the Effective Time shall be adjusted as necessary to provide that, at the Effective Time, such option shall be deemed an option to acquire, on the same terms and conditions as were applicable under such option, the number of shares of Common Stock of the Surviving Company equal to the number of shares of KCS Common Stock subject to such option. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLERS Except as set forth in the disclosure schedule attached as Exhibit E to this Agreement (the "Seller Disclosure Schedule"), TMM, TMMH and MM ("Sellers"), jointly and severally, represent and warrant to KCS as follows: Section 5.1 Organization and Related Matters. (a) TMM is a sociedad anonima, duly formed, validly existing and in good standing under the laws of the UMS. TMM has the corporate power and authority necessary to carry on its business in the manner as it is now being conducted and to own, lease and operate all of its properties and assets. The copy of TMM's Corporate Charter and Bylaws previously provided to KCS is a complete and correct copy of such instrument as in effect on the date hereof. Sellers have provided KCS with an English translation of such documents. (b) TMMH is a S.A. de C.V., duly formed, validly existing and in good standing under the laws of the UMS. TMMH has the corporate power and authority necessary to carry on its business in the manner it is now being conducted and to own, lease and operate all of its properties and assets. TMMH is a subsidiary of TMM, which owns all of the issued and -5- outstanding capital stock of TMMH, except as set forth in Section 5.1 of the Seller Disclosure Schedule. (c) MM is a S.A. de C.V., duly formed, validly existing and in good standing under the laws of the UMS. MM has the corporate power and authority necessary to carry on its respective business in the manner it is now being conducted and to own, lease and operate all of its properties and assets. MM is a subsidiary of TMMH, which owns all of the issued and outstanding capital stock of MM, except as set forth in Section 5.1 of the Seller Disclosure Schedule. (d) GTFM is a S.A. de C.V., duly formed, validly existing and in good standing under the laws of the UMS, and each of the GTFM Subsidiaries is a S.A. de C.V. or other business entity duly formed, validly existing and in good standing under the laws of the UMS. GTFM has the corporate power and authority necessary to carry on its business in the manner it is now being conducted and to own, lease and operate all of its properties and assets. (e) Each of TMM, TMMH, MM, GTFM and the Subsidiaries of GTFM is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such qualification or licensing necessary, except in jurisdictions where the failure of such license or qualification would not individually or in the aggregate have a GTFM Material Adverse Effect. (f) The copies of the Corporate Charter and Bylaws of each of TMMH, MM, GTFM, and of each of the GTFM Subsidiaries, delivered to KCS by TMM prior to the execution of this Agreement are complete and correct copies of such instruments as in effect on the date hereof and Sellers have provided KCS with English translations of such documents. Section 5.2 Authorized Capitalization. The authorized capital stock of GTFM consists of (i) 25,500 shares of Series "A" fixed capital, of which 25,500 shares are held by MM, (ii) 3,842,901 shares of Series "A" variable capital, of which 3,842,901 shares are held by MM, (iii) 24,500 shares of Series "B" fixed capital, of which 24,500 shares are held by NAFTA Rail, S.A. de C.V., (iv) 3,692,199 shares of Series "B" variable capital, of which 3,692,199 shares are held by NAFTA Rail, S.A. de C.V., and (v) 2,478,470 shares of Series "LII" variable capital, of which 2,478,470 are held by TFM. Except as set forth in Section 5.2 of the Seller Disclosure Schedule, there are no other shares of capital stock of GTFM or other ownership interests in GTFM issued, reserved for issuance or outstanding. All of the shares of capital stock of GTFM outstanding are duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights and are not subject to any voting trust agreement (or similar agreement), or other Contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares to which GTFM or any of the Sellers is a party or by which GTFM or any of the Sellers is bound. Except as set forth in this Section 5.2, there is no outstanding option, warrant, convertible or exchangeable security, right, subscription, call, right of first refusal, legally binding commitment, preemptive right or other agreement or right of any kind to which GTFM or the Sellers are a party or are otherwise bound entitling any Person to purchase or otherwise acquire (including by exchange or conversion) from GTFM or any GTFM Subsidiary any shares of capital stock of GTFM. Except as set forth in the Put Agreement, there are no outstanding obligations of GTFM or any of its Subsidiaries to redeem, repurchase or otherwise acquire any of -6- the shares of capital stock of GTFM or any shares of capital stock (or other ownership interests) of any of its Subsidiaries. Neither GTFM nor any GTFM Subsidiary has outstanding any bonds, debentures, notes or other indebtedness generally having the right to vote (or convertible into, or exchangeable for, Securities having the right to vote) on any matters on which holders of shares of capital stock of GTFM may consent or vote ("GTFM Voting Debt"). There are no options, warrants, rights, convertible or exchangeable Securities, "phantom" interests or other ownership interest appreciation rights, commitments, Contracts, arrangements or undertakings of any kind to which GTFM or any of its Subsidiaries is a party or by which any of them is bound (i) obligating GTFM or any of its Subsidiaries or any other Person to issue, deliver or sell, or cause to be issued, delivered or sold, existing or additional shares of capital stock of GTFM or capital stock (or other ownership interests) of any GTFM Subsidiary, or any security convertible into or exercisable or exchangeable for any of the foregoing or for GTFM Voting Debt, (ii) obligating GTFM or any GTFM Subsidiary or any other Person to issue, grant, extend or enter into any such option, warrant, call, right, security commitment, Contract, arrangement or undertaking, (iii) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of the shares of capital stock of GTFM or capital stock (or other ownership interests) of any GTFM Subsidiary or (iv) that give rise to a right to receive any payment from GTFM or any GTFM Subsidiary upon the execution of this Agreement or the consummation of the Merger or any of the other transactions contemplated hereby, except as set forth in this Section 5.2. Notwithstanding the disclosures set forth in Section 5.2 of the Seller Disclosure Schedule or otherwise, the shares of GTFM to be purchased by KARA Sub from MM pursuant to this Agreement shall be acquired by KARA Sub free and clear of any and all Encumbrances, except for any Encumbrances created by KARA Sub or its Affiliates or by operation of law. Section 5.3 GTFM and GTFM Subsidiaries. (a) Section 5.3 of the Seller Disclosure Schedule lists each Subsidiary of GTFM (the "GTFM Subsidiaries") and their respective jurisdictions of incorporation or organization and the outstanding shares of capital stock and other ownership interests, if any, of the GTFM Subsidiaries, and the record owner thereof. All of the outstanding shares of capital stock of, or other equity interests in, each of the GTFM Subsidiaries have been validly issued and are fully paid and nonassessable and such shares or interests owned directly or indirectly by GTFM free and clear of all Encumbrances and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests, except as set forth in Section 5.3 of the Seller Disclosure Schedule. Except for the capital stock or other ownership interests of the GTFM Subsidiaries as set forth on Section 5.3 of the Seller Disclosure Schedule, GTFM does not beneficially own directly or indirectly any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person. (b) Neither GTFM nor any of the GTFM Subsidiaries engage in or conduct any business other than as set forth in the GTFM Form 20-F, or as set forth in Section 5.3 of the Seller Disclosure Schedule. Neither GTFM nor any of the GTFM Subsidiaries has taken any action or commenced or threatened any legal proceeding for the administration, winding-up or provisional winding-up or dissolution of GTFM or any of the GTFM Subsidiaries or seeking to enter into any arrangement or composition for the benefit of creditors, or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of any of the properties, -7- revenues, undertakings or assets of GTFM or any of the GTFM Subsidiaries, nor have any orders been made for any of the foregoing. Section 5.4 Authority; No Violation. (a) TMM, TMMH and MM each has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite action on their respective parts, and no other corporate action on the part of TMM, TMMH or MM is necessary to approve this Agreement or the Ancillary Agreements to which it is a party or to authorize or consummate the transactions contemplated hereby or thereby, other than approvals from the shareholders of TMM and MM. TMM has received the opinion of JP Morgan Securities, Inc. that the consideration to be received in the Acquisition is fair from a financial point of view to TMM. This Agreement and the Ancillary Agreements to which it is a party have been duly and validly executed and delivered by TMM, TMMH and MM (except for those Ancillary Agreements that are not dated the date hereof, which Ancillary Agreements shall be duly and validly executed and delivered prior to the Closing) and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by the other Parties hereto and thereto) constitute valid and binding obligations of TMM, TMMH and MM (except for those Ancillary Agreements that are not dated the date hereof, which Ancillary Agreements shall constitute valid and binding obligations of TMM, TMMH and MM at the Closing), enforceable against TMM, TMMH and MM in accordance with their terms, except as (i) the enforceability thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the rights of creditors generally and the availability of equitable relief (whether in proceedings at law or in equity) and (ii) rights to indemnification may be limited by the Securities Laws and the policies underlying such laws. (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements to which it is a party by TMM, TMMH or MM nor the consummation by TMM, TMMH or MM of any of the transactions contemplated hereby or thereby to be performed by them, nor compliance by TMM, TMMH or MM with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Charter or Bylaws of TMM, TMMH or MM or the charter or bylaws or comparable organizational documents of GTFM or any GTFM Subsidiary or (ii) assuming that the consents and approvals referred to in Section 5.5 are duly obtained, (x) violate, conflict with or require any notice, filing, consent, waiver or approval under any Applicable Law to which TMM, TMMH, MM, GTFM or the GTFM Subsidiaries or any of their respective properties, Contracts or assets are subject, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with or without notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate or result in a right of acceleration of the performance required by, result in the creation of any liability under, result in the creation of any Encumbrance other than any Permitted Encumbrance upon the properties, Contracts or assets of TMM, TMMH, MM, GTFM or the GTFM Subsidiaries under, or require any notice, approval, waiver or consent under, any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which TMM, TMMH, MM, GTFM or any of the -8- GTFM Subsidiaries is a party, or by which TMM, TMMH, MM, GTFM or any of the GTFM Subsidiaries or any of their properties or assets may be bound or affected, except, in the case of this clause (ii), as set forth in Section 5.4 of the Seller Disclosure Schedule or as would not have or be reasonably expected to have, individually or in the aggregate, a GTFM Material Adverse Effect or result in an Encumbrance on the GTFM Shares. Section 5.5 Consents and Approvals. Except (i) as set forth in Section 5.5 of the Seller Disclosure Schedule and in the Ancillary Agreements, (ii) the prior approval of the Mexican Foreign Investments Commission, (iii) clearance by the Mexican Antitrust Commission, (iv) notice to the Mexican Ministry of Communications and Transportation, (v) compliance with and filings under the Securities Laws as may be required in connection with this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby, (vi) any required filings with the NYSE, (vii) the filing of the Certificate of Merger, (viii) consents from the holders of TMM's outstanding 9 1/2% Notes due 2003 (the "2003 Notes") and 10 1/4% Notes due 2006 (the "2006 Notes"), and (ix) the expiration or earlier termination of the waiting period under the HSR Act, no consents or approvals of, or filings, declarations or registrations with any Governmental Authority, any third party or any other Person are necessary on the part of the Sellers in connection with the execution and delivery by each Seller of this Agreement or the Ancillary Agreements to which it is a party and the consummation by the Sellers of the Acquisition and the other transactions contemplated by this Agreement and the Ancillary Agreements other than such consents, approvals, filings, declarations or registrations which if not obtained would not reasonably be expected to have a GTFM Material Adverse Effect. To the best of Sellers' Knowledge, no control share, anti-takeover or similar statute under the laws of the UMS is applicable to the transactions contemplated hereby or by the Ancillary Agreements. Section 5.6 Financial Statements; Undisclosed Liabilities. The audited consolidated financial statements of GTFM and its consolidated Subsidiaries for the period ended December 31, 2002, as approved by the shareholders of GTFM, previously provided to KCS (the "GTFM Financial Statements") present fairly, in all material respects, in conformity with IAS applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of GTFM and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). The reconciliation ("Reconciliation") to U.S. GAAP from IAS of the GTFM Financial Statements, provided by GTFM to KCS, fairly presents in all material respects all adjustments necessary to reflect the presentation of such financial statements on a U.S. GAAP basis. Except as set forth in the GTFM Financial Statements, neither GTFM nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by IAS, or the Reconciliation, to be set forth on a consolidated balance sheet of GTFM and the consolidated GTFM Subsidiaries or in the notes thereto or which, individually or in the aggregate, could reasonably be expected to have a GTFM Material Adverse Effect. Section 5.7 Contracts. Section 5.7 of the Seller Disclosure Schedule sets forth a complete and accurate list or description, as of the date of this Agreement, of all Contracts: (i) that are between GTFM or any of the GTFM Subsidiaries, on the one hand, and Sellers or any Affiliate of Seller (other than GTFM and its Subsidiaries) on the other hand, (ii) which constitute nondisclosure agreements or confidentiality agreements which could reasonably be expected to have a significant effect on the conduct of the GTFM Business or the business of the Surviving -9- Company; (iii) pursuant to which GTFM or any of its Subsidiaries is either obligated to pay or entitled to receive in excess of $10 million in any year (that is not otherwise required to be disclosed pursuant to this Section 5.7); (iv) that are employment, management, consulting or severance agreements with any officer or director of GTFM or any of its Subsidiaries; (v) that include any noncompetition or nonsolicitation covenant or any exclusive dealing or similar arrangement that limits the ability of GTFM or any of its Subsidiaries to compete (geographically or otherwise) in any line of business or which would so limit the Surviving Company or any of its Subsidiaries after the Effective Time or (vi) trackage rights agreements, interline or interchange agreements with other railroads (collectively, the "Scheduled Contracts"). As of the date hereof, each of the Contracts is a legal, valid and binding obligation of GTFM or its Subsidiaries (assuming the due authorization, execution and delivery by the other Parties thereto) and is in full force and effect and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditors generally and by the availability of equitable remedies (whether in proceedings at law or in equity). As of the date of this Agreement, neither GTFM nor any of its Subsidiaries has received notice of cancellation of or default under or intent to cancel or call a default under any of the Scheduled Contracts. Assuming receipt of the consents and approvals set forth in Section 5.5, to the best of the Sellers' Knowledge, nothing has occurred which with or without notice or lapse of time or both would constitute a material breach of or a material default under any of the Scheduled Contracts. Section 5.8 Intellectual Property Rights. (a) With respect to all Intellectual Property used in the conduct of the GTFM Business, GTFM or a Subsidiary of GTFM either has all right, title and interest in or valid and binding rights under Contract to use such Intellectual Property, except where the failure to have such rights would not reasonably be expected to have a GTFM Material Adverse Effect. Except as disclosed in Section 5.8 of the Seller Disclosure Schedule or as would not reasonably be expected to have a GTFM Material Adverse Effect, (i) all registrations with and applications to Governmental Authorities in respect of Intellectual Property owned by GTFM or a Subsidiary of GTFM are valid and in full force and effect, (ii) there are no material restrictions on the direct or indirect transfer of any Contract, or any interest therein, held by GTFM or any Subsidiary in respect of such Intellectual Property, (iii) to the Knowledge of the Sellers neither GTFM nor any Subsidiary of GTFM is in default (or with the giving of notice or lapse of time or both, would be in default) in any material respect under any Contract to use such Intellectual Property and (iv) to the Knowledge of the Sellers, such Intellectual Property is not being infringed by any other Person. Neither GTFM nor any Subsidiary of GTFM has received notice that GTFM or any Subsidiary of GTFM is infringing in any material respect any Intellectual Property of any other Person, to the Knowledge of Sellers, no claim is pending or has been made to such effect that has not been resolved and, to the Knowledge of the Sellers, neither GTFM nor any Subsidiary of GTFM is infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, could reasonably be expected to have a GTFM Material Adverse Effect. TMM shall transfer to GTFM or KCS, effective upon the closing, all right, title and interest in and to that certain trademark of mixed type, owned by TMM, registered with the Mexican Institute of Industrial Property under number 53951, class 37, in connection with the name "TFM" and its design, and shall execute and deliver all documents reasonably required by KCS to effect such transfer to the transferee and its successors and assigns. -10- Section 5.9 Employee Benefit Matters. (a) Section 5.9 of the Seller Disclosure Schedule sets forth a true and complete list of each material pension plan, deferred compensation plan, retirement income plan, stock option or stock purchase plan, profit sharing plan, bonus plan or policy, employee group insurance plan, hospitalization plan, disability plan or other employee benefit plan, program, policy or practice, formal or informal, funded or unfunded, to any current or former director, officer or employee (or to any dependent or beneficiary thereof) of GTFM or any Subsidiary of GTFM under which GTFM or any Subsidiary of GTFM has any present or future material obligation or liability, whether actual or contingent. Each such plan, agreement, program, policy and arrangement shall be referred to as a "Benefit Plan." Each Benefit Plan is further designated in Section 5.9 of the Seller Disclosure Schedule as either currently or formerly maintained, sponsored or contributed to by GTFM (a "GTFM Benefit Plan") or by any other entity (in which case such entity is identified). Neither GTFM nor any GTFM Subsidiary, nor to the Knowledge of Sellers, any other Person, has any express or implied commitment, whether legally enforceable or not, to modify, change or terminate any GTFM Benefit Plan, other than with respect to a modification, change or termination required by Applicable Law. (b) With respect to each Benefit Plan, GTFM has delivered or made available to KCS true, current, correct and complete copies of (i) each Benefit Plan (or, if not written, a written summary of its material terms), including without limitation all plan documents, adoption agreements, trust agreements, insurance Contracts or other funding vehicles and all amendments thereto, (ii) any summaries and summary plan descriptions, including any summary of material modifications, distributed to Benefit Plan participants, (iii) the most recent actuarial report or other financial statement relating to such Benefit Plan, as applicable, and (iv) all filings made with any Governmental Authorities with respect to any Benefit Plan. (c) Each Benefit Plan has been administered in material compliance with its terms and all Applicable Laws and material contributions required to be made under the terms of any of the Benefit Plans as of the date of this Agreement have been timely made or, if not yet due, have been properly reflected in the GTFM Financial Statements. With respect to the Benefit Plans, no event has occurred and there exists no condition or set of circumstances in connection with which GTFM could be subject to any material liability (other than for liabilities to pay benefits) under the terms of, or with respect to, such Benefit Plans, or any Applicable Law. (d) Except as disclosed in Section 5.9 of the Seller Disclosure Schedule: (i) there has been no prohibited transaction (within the meaning of Applicable Law) with respect to any Benefit Plan that could result in material liability to GTFM or the Surviving Company, (ii) each Benefit Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability (other than liability for ordinary administrative expenses typically incurred in a termination event), (iii) no suit, administrative proceeding, action or other litigation has been brought or, to the Knowledge of Sellers, is threatened, against or with respect to any such Benefit Plan, including any audit or inquiry by any Governmental Authority, (iv) all tax, annual reporting and other governmental filings required have been timely filed with the appropriate Governmental Authority and all notices and disclosures have been timely provided to participants and (v) each Benefit Plan meets the requirement for deductibility under the law and regulations of the UMS. -11- (e) No Benefit Plan exists, and no other payment shall be made that, as a result of the execution of this Agreement or the transactions contemplated by this Agreement (whether alone or in connection with a subsequent event), could result in the payment to any employee of the GTFM Group of any money or other property or could result in the increase, acceleration or provision of any payments, other rights or benefits to any such employee. Section 5.10 Labor and Other Employment Matters. (a) Sellers have made available to KCS a complete and accurate list (giving name, job title and current payroll compensation of each current employee of each company in the GTFM Group. None of the members of the GTFM Group has any responsibility or liability to any of its employees for any delinquent payments of wages, salaries, commissions, bonuses or other direct compensation for any services performed for it or amounts required to be reimbursed to such employee or paid to such employee for mandatory profit sharing, housing, mandatory retirement benefits, vacation benefits or social security benefits required under Mexican law in an amount that would have a GTFM Material Adverse Effect. (b) Except as would not reasonably be expected to have a GTFM Material Adverse Effect, each of the members of the GTFM Group (i) are in compliance in all material respects with all Applicable Law respecting labor, employment, immigration, fair employment practices, terms and conditions of employment, workers' compensation, occupational safety, plant closings, wages and hours and any other Law applicable to any of their employees, and (ii) has withheld all amounts required by Applicable Law or by agreement to be withheld from the wages, salaries, and other payments to employees, and (iii) is not liable for any arrears of wages or any Taxes or any penalty for failure to comply with any of the foregoing. (c) No current officer of any member of the GTFM Group has given notice of termination of employment to the GTFM Group, nor do Sellers otherwise have any Knowledge, that any such officer intends to terminate his or her employment with the GTFM Group. (d) The Mexican Railway Workers Union (El Sindicato deTrabajadores Ferrocarrileros de la Republica Mexicana) is the only trade union or labor union representing any employees of GTFM or any of its Subsidiaries. Sellers have provided to KCS a true and complete copy of the collective bargaining agreement and any amendments thereof. Neither GTFM nor any of its Subsidiaries is a party, or is otherwise subject, to any other collective bargaining agreement or other labor union contract applicable to its employees. There are no material activities or proceedings by a labor union or representative thereof to organize any employees of GTFM or any of its Subsidiaries. There are no pending negotiations between GTFM or any of its Subsidiaries and any labor union or representative thereof regarding any proposed material changes to any existing collective bargaining agreement and no such collective bargaining agreement is subject to expiration or renewal within one year after the date hereof or the extension or renewal of such an agreement or the entering of any such agreement. There are no pending, and none of GTFM or any of its Subsidiaries has experienced since December 31, 2001 any, material labor disputes, lockouts, strikes, slowdowns, work stoppages, or threats thereof nor, to the knowledge of the Sellers, has any event occurred or does any circumstance exist that would provide a reasonable basis for any such dispute, lockout, strike, slowdown, work stoppage or threat thereof. GTFM and its Subsidiaries are not in default and have not breached in any material respect the terms of any applicable collective bargaining or other labor union contract, -12- and there are no material claims or grievances outstanding against GTFM, any of its Subsidiaries, or any of their respective employees under any such agreement or contract. (e) Except as specified in Section 5.10 of the Seller Disclosure Schedule, (i) there are no claims, disputes or actions pending, or to the Knowledge of Sellers threatened, between GTFM or any of its Subsidiaries, on the one hand, and any of their employees, on the other hand, and (ii) to the Knowledge of Sellers, there are no facts or circumstances involving any employee that would form the basis of, or give rise to, any cause of action, including, without limitation, unlawful termination based on discrimination of any kind, except in case of such clause (i) or (ii) as would not reasonably be expected to have, individually or in the aggregate, a GTFM Material Adverse Effect. Section 5.11 Tax Matters. (a) Except as set forth in Section 5.11 of the Seller Disclosure Schedule or as would not have a GTFM Material Adverse Effect, all Tax Returns and reports of GTFM and the GTFM Subsidiaries required to be filed on or before the Closing Date have been duly and timely filed (taking into account all proper extensions) with the appropriate Taxing Authorities and all such Tax Returns were complete, correct and accurate. All Taxes shown on such Tax Returns as owed by GTFM or the GTFM Subsidiaries have been paid. (b) Except as set forth in Section 5.11 of the Seller Disclosure Schedule, neither GTFM nor any of the GTFM Subsidiaries has received any written notice of deficiency or assessment from any Taxing Authority with respect to material liabilities for Taxes of GTFM or any of the GTFM Subsidiaries which have not been paid or finally settled. No claim has ever been made in writing by an authority in a jurisdiction where GTFM or any of the GTFM Subsidiaries do not file Tax Returns that such entity is or may be subject to taxation by that jurisdiction. Except as set forth in Section 5.11 of the Seller Disclosure Schedule, no audit of any Tax Return concerning GTFM or any of the GTFM Subsidiaries is pending, being conducted, or to the Knowledge of Sellers, threatened to be instituted by a Taxing Authority. Except as set forth in Section 5.11 of the Seller Disclosure Schedule, neither GTFM nor any of the GTFM Subsidiaries has in effect a waiver of any statute of limitation in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency that will be in effect as of the Closing Date. (c) There are no liens for Taxes on any assets of GTFM or any of the GTFM Subsidiaries other than liens for current Taxes (i) not yet due and payable or (ii) that would not have a GTFM Material Adverse Effect. (d) Except as set forth in Section 5.11 of the Seller Disclosure Schedule, neither GTFM nor any of the GTFM Subsidiaries has any liability for the Taxes of any other Person as a transferee or successor, by Contract or otherwise. (e) There are no Tax sharing or Tax indemnity agreements or similar arrangements with respect to or involving GTFM or any of the GTFM Subsidiaries, other than agreements among GTFM and Subsidiaries in which GTFM owns directly or indirectly all equity interest. (f) Each of GTFM and the GTFM Subsidiaries has complied in all material respects with all applicable governmental rules relating to the payment, collection and withholding of Taxes. -13- (g) Except as set forth in Section 5.11 of the Seller Disclosure Schedule, there is no Tax Litigation pending or to the Knowledge of Sellers threatened against GTFM and/or the GTFM Subsidiaries. (h) To the Knowledge of the Sellers neither GTFM nor any of its Subsidiaries will suffer any adverse tax consequences in the UMS from ceasing, as a result of the Acquisition, to be members of the TMM consolidated group. (i) During the period from the date of the GTFM Financial Statements until the date of this Agreement, GTFM and each of the GTFM Subsidiaries (i) have made no change in any accounting method used for Tax purposes or in depreciation or amortization policies, and have made no election for Tax purposes which is not consistent with the method, policies and elections made prior to the date of the GTFM Financial Statements; and (ii) have not settled any pending Tax audits or settled any Tax liability. Section 5.12 Legal Proceedings. Except as set forth in Section 5.12 of the Seller Disclosure Schedule, there are no legal, administrative, arbitral or other proceedings (including disciplinary proceedings), claims, suits, actions or governmental or regulatory investigations of any nature whether in the UMS or elsewhere (collectively, "Proceedings") that are pending or, to the Knowledge of Sellers, threatened against GTFM or any of the GTFM Subsidiaries or any of their respective directors or officers (in their capacity as such) or the GTFM Assets or the GTFM Business, which if determined adversely would have a GTFM Material Adverse Effect, or that challenge the validity or propriety of the transactions contemplated by this Agreement or by any of the Ancillary Agreements. There is no injunction, order, judgment or decree imposed upon GTFM or any of the GTFM Subsidiaries, any material portion of the GTFM Assets or the GTFM Business. Section 5.13 Permits and Compliance. (a) Section 5.13 of the Seller Disclosure Schedule sets forth a true and complete list of all licenses, franchises, concessions, decrees, permits and authorizations required under Applicable Law (collectively, "Permits") currently held by GTFM and each of its Subsidiaries and which are required to operate the GTFM Business as currently conducted where the failure to hold such Permits would reasonably be expected to have a GTFM Material Adverse Effect. Each of GTFM and its Subsidiaries (i) holds, and at all times has held, and at Closing will hold, all Permits for the lawful ownership, operation and use of the GTFM Assets and the conduct of the GTFM Business, (ii) has been and is in compliance with each such Permit, and (iii) has not received notice asserting any violation of any such Permit, in each case, where the failure to hold or comply or such violation would reasonably be expected to have a GTFM Material Adverse Effect. (b) Except for normal examinations conducted by any Governmental Authority in the regular course of the business of GTFM and its Subsidiaries or as would not reasonably be expected to have a GTFM Material Adverse Effect, since December 31, 2001, no Governmental Authority has provided written notice to GTFM or any of its Subsidiaries of any threatened proceeding or investigation into the business or operations of GTFM or any of its Subsidiaries or any of their members, officers, directors or employees in their capacity as such with GTFM or any of its Subsidiaries and, to the Knowledge of the Sellers, no such proceedings or -14- investigations are contemplated. There is no unresolved deficiency, violation or exception claimed or asserted by any Governmental Authority with respect to any examination of any of GTFM or any of its Subsidiaries. (c) Neither GTFM nor any of its Subsidiaries is in violation of any Applicable Laws or orders of any Governmental Authority except as would not reasonably be expected to have a GTFM Material Adverse Effect. No event has occurred or exists that would (with or without notice or lapse of time) give rise to any obligation on the part of GTFM or any of its Subsidiaries to undertake or to bear all or any portion of the cost of any remedial action of any nature which would reasonably be expected to have a GTFM Material Adverse Effect. (d) Without limiting the generality of the foregoing, to the Knowledge of Sellers no basis exist for revocation, material modification or termination prior to the expiration, of the concession held by TFM to operate rail freight transportation services in Mexico. Section 5.14 Environmental Matters. GTFM and each of its Subsidiaries (i) are in compliance with, and are not subject to any liability under, in each case with respect to all, applicable Environmental Laws; (ii) hold all Environmental Permits necessary to conduct their current operations and (iii) are in compliance with their respective Environmental Permits, except where the failure to hold or be in compliance with such Environmental Permits would not be expected to have a GTFM Material Adverse Effect. Except as would not reasonably be expected to have a GTFM Material Adverse Effect, neither GTFM nor any of its Subsidiaries has received any written notice, demand, letter, claim or request for information alleging that GTFM or any of its Subsidiaries may be in violation of, or liable under, any Environmental Law. Neither GTFM nor any of its Subsidiaries (x) has entered into or agreed to any consent decree or order or is subject to any judgment, decree or judicial order relating to compliance with Environmental Laws, Environmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Materials and no investigation, litigation or other proceeding is pending or, to the Knowledge of the Sellers, threatened, with respect thereto or (y) is an indemnitor or has assumed liability in connection with any pending demand, notice, claim, or other allegation, or to the Knowledge of the Sellers, any claim threatened, by or against any third-party relating to any liability under any Environmental Law or relating to any Hazardous Materials. None of the real property owned or leased or operated by GTFM or any of its Subsidiaries is listed or, to the Knowledge of the Sellers, proposed for listing on any list of sites maintained by Governmental Authority requiring investigation or cleanup. Section 5.15 Properties. Section 5.15 of the Seller Disclosure Schedule sets forth a true and complete list of all real property and interests in real property owned or leased by GTFM or any of the GTFM Subsidiaries and a summary of the lease agreements with respect thereto (true and correct copies of which leases have been provided to KCS) and a true and complete list of all personal property, equipment and fixtures (other than items having a book value of less than $1 million individually) owned by GTFM or any of the GTFM Subsidiaries, all of which personal property, equipment and fixtures are -15- in good condition and repair, normal wear and tear excepted. Each of GTFM and the GTFM Subsidiaries has good and marketable title to, or valid and enforceable leasehold or concession interests in, all of its properties and tangible assets necessary to conduct the GTFM Business as currently conducted except where the failure to have such title or interest would not reasonably be expected to have a GTFM Material Adverse Effect. All of such property and assets which constitute personal property, equipment, and fixtures, are in good condition and repair, normal wear and tear excepted. Except as set forth in Section 5.15 of the Seller Disclosure, all of such assets and properties, other than assets and properties in which GTFM or any of the GTFM Subsidiaries has a leasehold interest, are free and clear of all Encumbrances other than Permitted Encumbrances and Encumbrances which would not individually or in the aggregate reasonably be expected to have a GTFM Material Adverse Effect. Each of GTFM and the GTFM Subsidiaries has complied in all material respects with the terms of all leases and concessions (including the Concession) to which it is a party and under which it is in occupancy, and all such leases and concessions (including the Concession) are in full force and effect. Section 5.16 Insurance. Section 5.16 of the Seller Disclosure Schedule includes a list of all policies of fire, liability, product liability, workers' compensation, health and other forms of insurance presently in effect with respect to the GTFM Business (the "GTFM Insurance Policies"), including the named insured(s) and all beneficiaries thereunder, and true and complete copies of the GTFM Insurance Policies have been delivered to KCS. Neither GTFM, nor any of the GTFM Subsidiaries has been refused any insurance with respect to any aspect of the operations of its business, nor has its coverage been rescinded by any insurance carrier to which it has applied for insurance or with which it has carried insurance. No notice of cancellation or termination has been received with respect to any such policy. The activities and operations of GTFM and each of the GTFM Subsidiaries have been conducted in a manner so as to conform in all material respects to all material provisions of the GTFM Insurance Policies. Section 5.17 No Other Broker. Other than J.P. Morgan Chase, the fees and expenses of which have been or will be paid by TMM, no broker, finder or similar intermediary is entitled to any broker's, finder's or similar fee or other remuneration from or as a result of engagement by, Sellers or any of their respective Affiliates in connection with this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby. Section 5.18 No GTFM Material Adverse Effect. Since December 31, 2002, (i) GTFM and the GTFM Subsidiaries have conducted their respective businesses only in the ordinary course, consistent with past practice, and (ii) there has not been (x) any GTFM Material Adverse Effect or any event or development that could, individually or in the aggregate, reasonably be expected to have a GTFM Material Adverse Effect or (y) to the Knowledge of Sellers any event or development that would, individually or in the aggregate, reasonably be expected to materially delay or prevent the consummation of, or the performance by Sellers or any of their respective Affiliates, of any of their obligations under, this Agreement or any of the Ancillary Agreements, to which any Seller is a party. Section 5.19 Sufficiency of and Title to Assets. GTFM and each of the GTFM Subsidiaries owns or licenses, and upon the consummation of the Merger, the Surviving Company and its Subsidiaries will own or license, all right, title and interest in and to all of the properties, assets, Contracts and rights of any kind, whether tangible or intangible, real or personal (including, without limitation, the Concession), necessary to enable GTFM (prior to the Closing) and the Surviving Company (after the Closing) to conduct the GTFM Business as presently conducted (the "GTFM Assets"), free and clear of any Encumbrances other than Permitted Encumbrances, except as set forth in Section 5.19 of the Seller Disclosure Schedule. -16- Section 5.20 Information in Filed Documents. None of the information regarding any of TMM, TMMH, MM, GTFM or any of the GTFM Subsidiaries supplied or to be supplied by Sellers prior to the Closing expressly for inclusion or incorporation by reference in any documents to be filed with any Governmental Authority prior to the Closing in connection with the transactions contemplated hereby, including, without limitation, the proxy materials to be filed with the SEC by KCS in connection with the Merger, will, at the respective times such information is supplied, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 5.21 Transactions with Affiliates. Except for this Agreement, the Ancillary Agreements and the other agreements contemplated herein to be entered into in connection with the transactions contemplated hereby and thereby, no Contract, understanding or arrangement between GTFM or any of the GTFM Subsidiaries, on the one hand, and TMM or any of its Affiliates (other than GTFM and its Subsidiaries), on the other hand, will continue in effect subsequent to the Closing Date, except as described in Section 5.21 of the Seller Disclosure Schedule. Except as set forth in Section 5.21 of the Seller Disclosure Schedule, none of TMM or any of its Subsidiaries or Affiliates (other than GTFM and its Subsidiaries) provides any material services to GTFM or any of the GTFM Subsidiaries, except pursuant to the Management Services Agreement, originally dated as of May 9, 1997, between TMM and TFM, which agreement shall be terminated and of no further force and effect as of the Effective Time other than with respect to amounts due or indemnification or other obligations relating to periods prior to Closing, none of which may reasonably be expected to be material individually or in the aggregate. At the Closing Date, the Parties shall settle the net intercompany receivables as follows: (A) the parties shall calculate the amount, if any, of open accounts receivables due over 30 days (i) from TMM Logistics, S.A. de C.V. or any other Subsidiary of TMM (other than GTFM, any of the GTFM Subsidiaries, Mexrail or any subsidiary of Mexrail), on the one hand, to GTFM or any of the GTFM Subsidiaries or Mexrail or any Subsidiary of Mexrail, on the other hand, and (ii) from GTFM or any of the GTFM Subsidiaries or Mexrail or any Subsidiary of Mexrail, on the one hand, to TMM Logistics, S.A. de C.V. or any other Subsidiary of TMM (other than GTFM, any of the GTFM Subsidiaries, Mexrail or any subsidiary of Mexrail), on the other hand; (B) the Parties shall calculate the absolute value of the difference between the amount in clause (i), above, and the amount in clause (ii), above (the "Net Receivable Amount"); (C) if the amount in clause (i), above is greater than clause (ii), then TMM shall, or shall cause one or more of its Subsidiaries to, pay to KCS the Net Receivable Amount; and (D) if the amount of clause (ii) is greater than clause (i), then KCS shall, or shall cause one or more its Subsidiaries to, pay to TMM the Net Receivable Amount. All calculations required by this Section 5.21 shall be provided not later than five business days prior to the Closing. Section 5.22 No Loss of Significant Customers. From January 1, 2002 through the Business Day immediately preceding the date of this Agreement, neither GTFM or any of the GTFM Subsidiaries has had any customer which has canceled, terminated or failed to renew any Contract with such entity which accounted for more than $10 million in revenues to such entity in either of the last two fiscal years. Section 5.23 Trading in and Ownership of KCS Common Stock. None of Sellers or any of their respective Affiliates has, during the sixty (60) Business Days prior to the date hereof, either directly or indirectly, bought or sold, or otherwise effected any trade in any shares of KCS -17- Common Stock, or any Security derivative of KCS Common Stock and none of Sellers or any of their respective Affiliates, own as of the or date of this Agreement any shares of KCS Common Stock or any security derivative of KCS Common Stock. Section 5.24 Solvency. No insolvency or bankruptcy proceedings against TMM or any of its Subsidiaries are pending as of the last business day preceding the date of this Agreement. Section 5.25 Termination of Option Agreement. Prior to the Closing Date, the Amended and Restated Option Agreement between MM and The Bank of New York, as Trustee, dated October 25, 2002, as amended by Amendment Number One to the Amended and Restated Option Agreement, dated December 10, 2002 (the "Option Agreement"), entered into in connection with the Logistics Trust 2000-A (the "Trust") formed pursuant to the Second Amended and Restated Master Trust Agreement, dated as of December 10, 2002 (the "Master Trust Agreement"), between TMM and The Bank of New York, as Trustee, will have been terminated or amended, and the Master Trust Agreement and the Transaction Documents (as defined in the Master Trust Agreement) shall have been terminated or amended so that as of the Closing Date (i) there shall be no outstanding option, warrant, right, subscription, call, legally binding commitment or other agreement or right of any kind entitling any Person (including The Bank of New York, as Trustee of the Trust) to acquire, or any other Encumbrance arising under such agreements on, any shares of capital stock of GTFM and (ii) the provision in Section 6.4 of the Option Agreement requiring a written agreement to be bound by the terms of the Option Agreement and related agreements shall not apply to the purchase of the GTFM Shares under this Agreement and the purchase of the GTFM Shares by KARA Sub will be effective without KARA Sub or KCS entering into any agreement to be bound by the terms of the Option Agreement and related agreements. Seller shall have provided to KARA Sub evidence reasonably satisfactory to KARA Sub of such amendment or termination. Prior to the Closing Date, MM will cause each legend affixed to any stock certificates evidencing GTFM Shares pursuant to the Option Agreement to be cancelled or removed, and MM will cause any annotation that was required by the Option Agreement to be placed in the Stockholders Registry Book of GTFM to be cancelled or removed. Prior to the Closing Date, the Amended and Restated Put Option Agreement between MM and The Bank of New York, as Trustee, dated October 25, 2002, as amended by Amendment Number One to the Amended and Restated Option Agreement, dated December 10, 2002, entered into in connection with the Trust shall have been terminated or amended, and the Master Trust Agreement and the Transaction Documents (as defined in the Master Trust Agreement) shall have been terminated or amended so that as of the Closing Date there shall be no obligation of KCS, KARA Sub or any of their Affiliates to purchase or otherwise acquire any certificate or other interest in or related to the Trust and Seller shall have provided to KARA Sub evidence reasonably satisfactory to KARA Sub of such amendment or termination. Unless the Option Agreement is terminated or amended to make such requirement inapplicable MM shall have provided notice at or prior to the Closing date to the Trustee of the sale of the GTFM Shares as required by Section 6.4 of the Option Agreement. -18- ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF KCS Except as set forth in the disclosure schedule attached as Exhibit F to this Agreement (the "KCS Disclosure Schedule"), KCS hereby represents and warrants to each of the Sellers as follows: Section 6.1 Organization and Related Matters. (a) KCS is a corporation, duly formed, validly existing and in good standing under the laws of the State of Delaware, and each of its Subsidiaries is a corporation or other business entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. KCS has the corporate power and authority and each of its Subsidiaries has the corporate or other applicable power and authority necessary to carry on their respective businesses in the manner as they are now being conducted and to own, lease and operate all of their respective properties and assets. (b) KCS and each of its respective Subsidiaries is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such qualification or licensing necessary except in jurisdictions where the failure of such license or qualification would not individually or in the aggregate have a KCS Material Adverse Effect. Section 6.2 Authority; No Violation. (a) Each of KCS and KARA Sub has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate action on the part of KCS and KARA Sub and no other corporate action on the part of KCS and KARA Sub is necessary to approve this Agreement or the Ancillary Agreements to which it is a party or authorize or consummate the transactions contemplated hereby and thereby, except for obtaining the approval of its stockholders as described in Section 6.3. KCS has received the opinion of Deutsche Bank that the Acquisition is fair from a financial point of view to KCS. This Agreement and the Ancillary Agreements to which it is a party have been duly and validly executed and delivered by KCS and KARA Sub (except for those Ancillary Agreements that are not dated the date hereof, which Ancillary Agreements shall be duly and validly executed and delivered prior to the Closing) and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by the other Parties hereto and thereto) constitute valid and binding obligations of KCS and KARA Sub (except for those Ancillary Agreements that are not dated the date hereof, which Ancillary Agreements shall constitute valid and binding obligations of KCS and KARA Sub at the Closing), enforceable against KCS and KARA Sub in accordance with their terms, except as (i) the enforceability thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the rights of creditors generally and the availability of equitable relief (whether in proceedings at law -19- or in equity) and (ii) rights to indemnification may be limited by the Securities Laws and the policies underlying such laws. (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements to which it is a party by KCS and KARA Sub nor the consummation by KCS and KARA Sub of the transactions contemplated hereby or thereby to be performed by KCS and KARA Sub, nor compliance by KCS and KARA Sub with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Certificate of Incorporation or Bylaws of KCS or KARA Sub, (ii) assuming that the consents and approvals referred to in Section 6.3 are duly obtained, (x) violate, conflict with or require any notice, filing, consent or approval under any Applicable Law to which KCS or any of its Subsidiaries or any of its properties, Contracts or assets are subject, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with or without notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate or result in a right of acceleration of the performance required by, result in the creation of any liability under, result in the creation of any Encumbrance upon the properties, Contracts or assets of KCS or KARA Sub under, or require any notice, approval or consent under, any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which KCS or any of its Subsidiaries is a party, or by which KCS or any of its Subsidiaries, or any of its properties or assets, may be bound or affected except in the case of this clause (ii) in each case as would not have or reasonably be expected to have a KCS Material Adverse Effect. (c) The shares of Class A Common Stock to be issued in the Merger, and, if KCS elects, in payment of a portion of the purchase price pursuant to Section 1.2, have been duly authorized and, when issued as contemplated by this Agreement and the Merger Agreement as the case may be, will be duly and validly issued, fully paid and non-assessable and free of any pre-emptive rights and entitled to the benefits and rights set forth in the Certificate of Incorporation of KCS, as in effect at the Effective Time. All shares of KCS Common Stock issuable upon conversion of the Class A Common Stock issued in the Merger and, if KCS elects, in payment of a portion of the purchase price pursuant to Section 1.2, will be, upon any such conversion in accordance with the terms of the Certificate of Incorporation as in effect at the Effective Time, validly issued, fully paid, and non-assessable and free of any pre-emptive rights. Section 6.3 Consents and Approvals. (a) The affirmative vote of the holders of (i) a majority of the votes cast by all outstanding shares of KCS Common Stock and KCS Preferred Stock, voting together as a single class, to approve (x) Amendment to KCS's Certificate of Incorporation in accordance with the Del. G.C.L. and (y) the issuance of the Class A Common Stock in accordance with the Del. G.C.L. and the rules of the NYSE, is the only vote of the holders of any Security of KCS necessary to approve this Agreement and the other transactions contemplated by this Agreement and the Ancillary Agreements. (b) Except for (i) the prior approval of the Mexican Foreign Investments Commission, clearance by the Mexican Competition Commission and notice to the Mexican Ministry of Communications and Transportation, (ii) compliance with and filings under the Securities Laws as may be required in connection with this Agreement and the Ancillary Agreements and the -20- transactions contemplated hereby and thereby, (iii) any required filings with the NYSE, (iv) the filing of the Certificate of Merger and (v) Bank consents under Amended and Restated Credit Agreement dated June 12, 2002; no consents or approvals of, or filings, declarations or registrations with any Governmental Authority, any third party or any other Person are necessary in connection with the execution and delivery by KCS of this Agreement and the Ancillary Agreements to which it is a party and the consummation by KCS of the Acquisition or the other transactions contemplated by this Agreement and the Ancillary Agreements. (c) KCS has taken or shall take prior to Closing all corporate action necessary to assure that the transactions contemplated hereby and by the Ancillary Agreements will (i) not be prohibited by Section 203 of the Delaware General Corporation Law and (ii) not constitute a "trigger event" under the KCS Shareholder Rights Plan. To the best of KCS's Knowledge, no other control share, anti-takeover or similar statute under the laws of any state is applicable to the transactions contemplated hereby or by the Ancillary Agreements. Section 6.4 Authorized Capitalization. The authorized capital stock of KCS consists of 400,000,000 shares of Common Stock, $.01 par value per share, 840,000 shares of Preferred Stock, $25 par value per share and 2,000,000 shares of New Series Preferred Stock, $1.00 par value per share. As of March 31, 2003, there were (i) 61,631,987 shares of KCS Common Stock and 242,170 shares of KCS Preferred Stock, issued and outstanding, (ii) 5,048,669 shares of KCS Common Stock reserved for issuance pursuant to options granted pursuant to the KCS Stock Option Plan and (iii) no shares of New Series Preferred Stock outstanding. All of the shares of KCS Common Stock and KCS Preferred Stock outstanding at the date of this Agreement are listed for trading on the NYSE. All of the shares of capital stock of KCS outstanding are duly authorized, validly issued, fully paid, nonassessable and free of any preemptive rights and are not subject to any voting trust agreement (or similar agreement) or other Contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares to which KCS is a party, except for restricted share agreements between KCS and certain of its officers and limited stock appreciation rights. Except as set forth in this Section 6.4, there is no outstanding option, warrant, convertible or exchangeable security, right, subscription, call, right of first refusal, legally binding commitment, preemptive right or other agreement or right of any kind to purchase or otherwise acquire (including by exchange or conversion) from KCS or any KCS Subsidiary any shares of capital stock of KCS. There are no outstanding obligations of KCS or any of its Subsidiaries to redeem, repurchase or otherwise acquire any of the shares of capital stock of KCS or any shares of capital stock (or other ownership interests) of any of its Subsidiaries. Neither KCS nor any KCS Subsidiary has outstanding any bonds, debentures, notes or other indebtedness generally having the right to vote (or convertible into, or exchangeable for, Securities having the right to vote) on any matters on which holders of shares of capital stock of KCS may consent or vote ("KCS Voting Debt"). There are no options, warrants, rights, convertible or exchangeable Securities, "phantom" interests or other ownership interest appreciation rights, commitments, Contracts, arrangements or undertakings of any kind to which KCS or any of its Subsidiaries is a party or by which any of them is bound (i) obligating KCS or any of its Subsidiaries or any other Person to issue, deliver or sell, or cause to be issued, delivered or sold, existing or additional shares of capital stock of KCS or capital stock (or other ownership interests) of its Subsidiaries, or any security convertible into or exercisable or exchangeable for any of the foregoing or for KCS Voting Debt, (ii) obligating KCS or any of its Subsidiaries or any other Person to issue, grant, extend or enter into any such option, warrant, call, right, security commitment, Contract, arrangement or undertaking, -21- (iii) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of the shares of capital stock of KCS or capital stock (or other ownership interests) of its Subsidiaries or (iv) that give rise to a right to receive any payment upon the execution of this Agreement or the consummation of the Merger or any of the other transactions contemplated hereby, except as set forth in this Section 6.4. Section 6.5 SEC Filings. Since December 31, 1999, KCS has filed with the SEC all documents required to be filed by it under the Exchange Act or the Securities Act and as of their requisite dates (or the dates of any amendments thereto) such documents (the "KCS SEC Documents") did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act and the applicable rules of the SEC thereunder. Section 6.6 Financial Statements; Undisclosed Liabilities. The audited consolidated financial statements and unaudited interim financial statements of KCS and its consolidated Subsidiaries included in the KCS SEC Documents (the "KCS Financial Statements") present fairly, in all material respects, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of KCS and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). Except as set forth in the KCS Financial Statements or the KCS SEC Documents filed prior to the date of this Agreement, neither KCS nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of KCS and the consolidated KCS Subsidiaries or in the notes thereto or which, individually or in the aggregate, could reasonably be expected to have a KCS Material Adverse Effect. Section 6.7 No Other Broker. Other than Deutsche Bank, whose fees and expenses will be paid by KCS, no broker, finder or similar intermediary is entitled to any broker's, finder's or similar fee or other commission from or as a result of engagement by KCS or any of its Subsidiaries in connection with this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby. Section 6.8 Information in Filed Documents. None of the information regarding KCS or any of its Subsidiaries supplied or to be supplied by KCS for inclusion in any documents to be filed with any Governmental Authority prior to Closing in connection with the transactions contemplated hereby will, at the respective times such information is supplied by KCS, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 6.9 No KCS Material Adverse Effect. Since September 30, 2002, (i) KCS and its Subsidiaries have conducted their respective businesses only in the ordinary course, consistent with past practice, (ii) there has not been any KCS Material Adverse Effect or any event or development that could, individually or in the aggregate, reasonably be expected to have a KCS Material Adverse Effect, and (iii) to the Knowledge of KCS, there has not occurred any event or -22- development that would, individually or in the aggregate, reasonably be expected to prevent the consummation of the Acquisition or the performance by KCS of its obligations under this Agreement or any of the Ancillary Agreements to which it is a party. Section 6.10 KARA Sub. The authorized capital stock of KARA Sub consists of 1,000 shares of common stock, $.01 par value per share. There are 900 shares issued and outstanding, all of which are owned by KCS, free and clear of all Encumbrances. All of the shares of capital stock of KARA Sub outstanding are duly authorized, validly issued, fully paid, nonassessable and free of any preemptive rights and are not subject to any voting trust agreement (or similar agreement) or other Contract restricting or otherwise relating to the voting, dividend rights of disposition of such shares. KARA Sub is not a party to any Contract other than this Agreement. KARA Sub has not conducted any business other than in connection with the transactions contemplated by this Agreement and the Ancillary Agreements and has incurred no material indebtedness and has no material assets. Section 6.11 Legal Proceedings. There are no Proceedings that are pending or, to the Knowledge of KCS, threatened against KCS or any of its Subsidiaries or any of their respective directors or officers (in their capacity as such) or the KCS Assets or the KCS Business which (i) if adversely determined, would have a KCS Material Adverse Effect or (ii) challenge the validity or propriety of the transactions contemplated by this Agreement or by any of the Ancillary Agreements. Section 6.12 KCS Capital Resources. The information set forth in the KCS Report on Form 10-K for the year ended December 31, 2002 filed with the SEC accurately sets forth anticipated material capital expenditures required to maintain in good repair and working order the KCS Assets and to provide for material additions to KCS property, plant and equipment necessary to conduct the business of KCS as described in such SEC Report. KCS has access to capital resources sufficient to fund such capital expenditures in the amount and at the time required. Section 6.13 Employee Benefit Matters. Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") that is maintained, administered or contributed to by KCS or any of its Subsidiaries for employees or former employees of KCS and its Subsidiaries has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended, ("Code"). No prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan, excluding transactions effected pursuant to a statutory or administrative exemption. For each such plan which is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated funding deficiency," as defined in Section 412 of the Code, has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding, for these purposes, accrued but unpaid contributions) exceeds the present value of all benefits accrued under such plan as determined using reasonable actuarial assumptions. Section 6.14 Labor and Other Employment Matters. There are no existing or, to the Knowledge of KCS and its Subsidiaries, threatened, labor disputes with employees of KCS and its Subsidiaries which would be reasonably expected to have a KCS Material Adverse Effect. -23- Section 6.15 Tax. KCS and its Subsidiaries have filed all federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes shown thereon and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith, except as would not, individually or in the aggregate, have a KCS Material Adverse Effect; and, except as disclosed in Section 6.15 of the KCS Disclosure Schedule, there is no tax deficiency which has been or might reasonably be expected to be asserted or threatened against KCS or any of its Subsidiaries, except as would not, individually or in the aggregate, have a KCS Material Adverse Effect. Section 6.16 Permits and Compliance. (a) Except as would not, individually or in the aggregate, have a KCS Material Adverse Effect, (i) each of KCS and its Subsidiaries owns, possesses or has obtained all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof and (ii) neither KCS nor any of its Subsidiaries has received notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in Section 6.15 of the KCS Disclosure Schedule. (b) Except for normal examinations conducted by any Governmental Authority in the regular course of the business of KCS and its Subsidiaries or as would not reasonably be expected to have a KCS Material Adverse Effect, since December 31, 2001, no Governmental Authority has provided written notice to KCS or any of its Subsidiaries of any threatened proceeding or investigation into the business or operations of KCS or any of its Subsidiaries or any of their members, officers, directors or employees in their capacity as such with KCS or any of its Subsidiaries. (c) Neither KCS nor any of its Subsidiaries is in violation of any Applicable Laws or orders of any Governmental Authority, except as would not reasonably be expected to have a KCS Material Adverse Effect. No event has occurred or exists that would (with or without notice or lapse of time) give rise to any obligation on the part of KCS or any of its Subsidiaries to undertake or to bear all or any portion of the cost of any remedial action of any nature which would reasonably be expected to have a KCS Material Adverse Effect. Section 6.17 Environmental Matters. KCS and each of its Subsidiaries (i) are in compliance with, and are not subject to any liability under, in each case, all applicable Environmental Laws; (ii) hold all Environmental Permits necessary to conduct their current operations and (iii) are in compliance with their respective Environmental Permits, except where the failure to hold or be in compliance with such Environmental Permits would not reasonably be expected to have a KCS Material Adverse Effect. Neither KCS nor any of its Subsidiaries has received any written notice, demand, letter, claim or request for information alleging that KCS or any of its Subsidiaries may be in violation of, or liable under, any Environmental Law, except where the preceding would not reasonably be expected to have a KCS Material Adverse Effect. Neither KCS nor any of its Subsidiaries (x) has entered into or agreed to any consent decree or order or is subject to any judgment, decree or judicial order relating to compliance with -24- Environmental Laws, Environmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Materials and no investigation, litigation or other proceeding is pending or, to the Knowledge of KCS and its Subsidiaries, threatened with respect thereto, except as would not reasonably be expected to have a KCS Material Adverse Effect or (y) is an indemnitor or has assumed liability in connection with any pending demand, notice, claim, or other allegation, or to the Knowledge of KCS and its Subsidiaries, any claim threatened by or against any third-party relating to any liability under any Environmental Law or relating to any Hazardous Materials, except as would not reasonably be expected to have a KCS Material Adverse Effect. None of the real property owned or leased or operated by KCS or any of its Subsidiaries is listed or, to the Knowledge of KCS and its Subsidiaries, proposed for listing on any list of sites maintained by any Governmental Authority requiring investigation or cleanup, except as would not reasonably be expected to have a KCS Material Adverse Effect. Section 6.18 Properties. Each of KCS and its Subsidiaries has good and marketable title to, or valid and enforceable leasehold, easement or concession interests in, all of its properties and tangible assets necessary to conduct the KCS Business as currently conducted, except where the failure to have such title or interest would not reasonably be expected to have a KCS Material Adverse Effect. All of such property and assets which constitute personal property, equipment, and fixtures, are in good condition and repair, normal wear and tear excepted. Each of KCS and its Subsidiaries has complied in all material respects with the terms of all leases and concessions to which it is a party and under which it is in occupancy, and all such leases and concessions are in full force and effect, except in each case as would not reasonably be expected to have a KCS Material Adverse Effect. ARTICLE 7 COVENANTS AND ADDITIONAL AGREEMENTS Section 7.1 Conduct of Business by the GTFM Group. During the period from the date of this Agreement and continuing through the Closing Date, except as expressly permitted or required by this Agreement or with the prior written consent of KCS, Sellers shall use commercially reasonable efforts to cause GTFM and each of its Subsidiaries to (i) carry on its business in the ordinary course consistent with past practice and (ii) use commercially reasonable efforts to preserve their present business organizations and relationships (including keeping available the present services of their employees and preserving their rights, franchises, goodwill and relations with their customers and others with whom they conduct business). Without limiting the generality of the foregoing, except as expressly permitted or required by this Agreement or consented to in writing by KCS, Sellers shall use commercially reasonable efforts to cause GTFM, and each of the GTFM Subsidiaries not to, directly or indirectly: (a) amend or agree to amend their charters or bylaws (or comparable organizational documents), or merge with or into or consolidate with, or agree to merge with or into or consolidate with, any other Person, subdivide or in any way reclassify any of their membership interests, shares or any other ownership interests, or change or agree to change in any manner the rights of their membership interests, shares or any other ownership interests or liquidate or dissolve; -25- (b) (i) issue, sell, redeem or acquire any share or any other ownership interest or any debt security in GTFM or any of the GTFM Subsidiaries; (ii) issue, sell or grant any option, warrant, convertible or exchangeable Security, right, "phantom" or other ownership interest, subscription, call, unsatisfied preemptive right or other agreement or right of any kind to purchase or otherwise acquire (including by exchange or conversion) any shares or any other ownership interests in GTFM or any of the GTFM Subsidiaries; or (iii) enter into any Contracts, agreements or arrangements to issue, redeem, acquire or sell any shares or any other ownership interests in GTFM or any of the GTFM Subsidiaries; (c) incur any indebtedness for borrowed money in excess of $30 million for the facility at Toluca, or $10 million in the aggregate (outstanding at any one time) for other purposes, or guarantee any liability, obligation or indebtedness (whether or not currently due or payable) of any other Person or incur any GTFM Voting Debt; (d) except as required by law or IAS, make any change in their accounting methods or practices for Tax or accounting purposes or make any change in depreciation or amortization policies or rates adopted by them for Tax or accounting purposes or make any material, or change any existing, Tax election, settle any pending audits or make voluntary disclosure agreements or settle or compromise any Tax liability, except in the case of any such liability to the extent reserved for on the GTFM Financial Statements or except to the extent such change would not have a GTFM Material Adverse Effect; (e) make any loan or advance or capital contribution to any of their Affiliates who are not members of the GTFM Group, or any of their officers, directors, employees, consultants, agents or other representatives (other than reasonable and customary travel advances made in the ordinary course of business consistent with past practice); (f) sell, transfer, lease, license, offer to sell, abandon or make any other disposition of any of their assets or rights or grant or suffer, or agree to grant or suffer, any Encumbrance other than Permitted Encumbrances on any of their assets or rights, other than in the ordinary course of business consistent with past practice and not exceeding $5 million in the aggregate; (g) except as expressly permitted pursuant to subsection (o) below, settle any claim, action or proceeding involving any liability for money damages or any restrictions upon any of their operations, any of the GTFM Assets or the GTFM Business, except to the extent such settlement would not have a GTFM Material Adverse Effect; (h) create, renew, amend, terminate or cancel, any Contract other than in the ordinary course of business consistent with past practice and providing for consideration payable by or to GTFM or any GTFM Subsidiaries equal to or less than $1 million individually; (i) enter into, amend, or agree to enter into or amend any Contract, agreement or arrangement or any financial transaction with any of their officers, directors, consultants, agents representatives, (in the case of agents and representatives, other than in the ordinary course of business consistent with past practice), or Affiliates who are not members of the GTFM Group; provided, however, that this clause (i) shall not prohibit the performance of Contracts executed prior to the date of this Agreement, the terms of which have been disclosed to KCS in the Seller Disclosure Schedule; -26- (j) declare or make any dividends or declare or make any other distributions of any kind payable to MM or any Affiliate of MM (other than any other member of the GTFM Group); (k) acquire or agree to acquire in any manner any equity interests in, or any business of, any Person or other business organization or division thereof, including by way of merger, consolidation, or purchase of an equity interest or assets; (l) enter into, amend, modify or renew any Benefit Plan or other written employment, consulting, severance or similar employment agreements or arrangements, or grant any salary or wage increase or increase in severance or termination pay or increase any employee benefit or hire any new employee for a management position, except as may be required by Applicable Law; and except in the ordinary course of business consistent with past practice. (m) take any action to accelerate any material rights or benefits, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement, Benefit Plan or employment, indemnification, severance or termination agreement; (n) make or incur any capital expenditures in excess of those set forth in the GTFM 2003 Capital Budget, a copy of which has been provided to KCS, or cease to make capital expenditures in the ordinary course of business consistent with past practice; (o) cancel any indebtedness or waive any claims or rights in amounts, in each case, in excess of $500,000 in the aggregate; (p) accrue or pay any bonuses to any employee of the GTFM Group other than in the ordinary course of business consistent with past practices , except as set forth in Section 7.1 of the Seller Disclosure Schedule; or (q) authorize or agree (by Contract or otherwise) to do any of the foregoing. Section 7.2 Conduct of Business by KCS and its Subsidiaries. (a) During the period from the date of this Agreement and continuing through the Closing Date, except as expressly permitted or required by this Agreement or with the prior written consent of TMM, KCS and its Subsidiaries shall (i) carry on their business in the ordinary course consistent with past practice, (ii) use commercially reasonable efforts to preserve their present business organizations and relationships (including keeping available the present services of their employees and preserving their rights, franchises, goodwill and relations with their customers and others with whom they conduct business), (iii) take no action that would reasonably be expected to prevent completion of, or materially delay, the Acquisition, or change materially the terms of the Acquisition to the detriment of Sellers, and (iv) take none of the following actions that would materially change the economic benefits of the Acquisition to the detriment of the Sellers: (u) amend their charters or bylaws (or comparable organizational documents), or merge or consolidate with, any other Person, subdivide or reclassify their common stock or other ownership interests, or change the rights of their common stock or other ownership interests or liquidate or dissolve; -27- (v) issue, sell or acquire any common stock or other ownership interest of any of the KCS Subsidiaries; (w) make any loan or advance or capital contribution to any of their Affiliates (other than any KCS Subsidiary), or any of their officers, directors, employees, consultants, agents or other representatives (other in the ordinary course of business consistent with past practice; (x) declare or make any dividends or declare or make any other distributions of any kind on or payable to the holders of its capital stock (other than regularly scheduled dividends payable on KCS preferred stock); (y) acquire any equity interests in, or assets of any business of, any Person; or (z) authorize or agree to do any of the foregoing. (b) In connection with obtaining the funds necessary for the Purchase Price, KCS shall keep apprised on a current basis regarding any negotiations, and consult on a non-binding basis with, Javier Serrano Segovia concerning any KCS asset disposition and with Jacinto Marina Cortez concerning any Acquisition financing arrangements. Section 7.3 Access to Information; Confidentiality. (a) Between the date of this Agreement and the Closing Date, subject to Applicable Laws relating to the exchange and disclosure of information and to the Confidentiality Agreements, the Parties and their respective Affiliates shall afford to each other and to their respective authorized agents and representatives access, upon reasonable notice and during normal business hours, to all properties of, and all Contracts, documents and information of or relating to the assets, liabilities, business, customers, employees, operations, personnel and other aspects of their respective businesses; provided, however, that such access shall be conducted in a manner which does not unreasonably interfere with a Party's normal operations. (b) The Parties agree to continue to be bound by and comply with the provisions set forth in the Confidentiality Agreements, and all amendments thereto, the provisions of which are hereby incorporated herein by reference, to the extent such provisions are not in conflict with the terms of this Agreement. Section 7.4 Regulatory Matters; Governing Documents; Third-Party Consents. (a) The Parties shall cooperate with each other and use their commercially reasonable efforts promptly to prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as practicable all permits, consents, approvals, waivers and authorizations of all Governmental Authorities, third parties and other Persons which are necessary or advisable to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, and requests for required consents under the Contracts, including, without limitation, those referred to in Sections 5.5 and 6.3. KCS and Sellers agree to take all reasonable steps necessary to satisfy any conditions or requirements -28- imposed by any Governmental Authority in connection with the consummation of the transactions contemplated by this Agreement, other than those conditions or requirements, in the aggregate, the satisfaction of which are reasonably likely to result in either a GTFM Material Adverse Effect, a KCS Material Adverse Effect or a Seller Material Adverse Effect. The Parties agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all Governmental Authorities, third parties and other Persons necessary or advisable to consummate the Merger and the other transactions contemplated by this Agreement and the Ancillary Agreements and each Party will keep the other Parties apprised of the status of matters relating to completion of the transactions contemplated herein and therein. (b) The Parties shall promptly advise each other party hereto upon receiving any communication from any Governmental Authority whose consent or approval is required for consummation of the transactions contemplated by this Agreement or the Ancillary Agreements. (c) Each Party will (i) take promptly all actions necessary to make the filings required of such Party or its Affiliates under the HSR Act (which filings shall include a request for the early termination of the waiting period under the HSR Act), (ii) comply at the earliest practicable date with any request for additional information received by such Party or its Affiliates from the Federal Trade Commission or the Antitrust Division of the Department of Justice pursuant to the HSR Act and (iii) cooperate with each other Party in connection with such other Party's filing under the HSR Act and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement commenced by either the Federal Trade Commission or the Antitrust Division of the Department of Justice or state attorneys general. (d) KCS shall promptly after the date of this Agreement (i) file before the Mexican Antitrust Commission (Comision Federal de Competencia) the notification required pursuant to Articles 20 and 21 of the Mexican Antitrust Law (Ley Federal de Competencia Economica), using commercially reasonable efforts to assure that the notification is accurate and complete and contains all of the information required pursuant to the regulations of the Mexican Antitrust Law (Reglamento de la Ley Federal de Competencia Economica) and other official forms therefor, and (ii) that any request for any additional information that may be required or otherwise solicited by the Mexican Antitrust Commission from KCS or any of its Affiliates in connection with such notification is complied with on a timely basis. Sellers shall promptly provide KCS with all information regarding Sellers, GTFM and GTFM Subsidiaries that may be necessary for KCS to satisfy its obligations under this Section 7.4(d). The Parties shall cooperate with each other in connection with such Mexican antitrust notification and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement, commenced by either the Antitrust Commission directly or as a result of any person filing any claim before such Antitrust Commission in connection therewith. (e) TMM shall cause to be taken all action necessary and appropriate to amend the Bylaws of GTFM and the GTFM Subsidiaries to contain the provisions set forth in Exhibit C. (f) TMM shall use its commercially reasonable efforts to obtain the consents of the Lessor and the Lenders required under the Sublease of Locomotives identified in Section 5.5 of Sellers' Disclosure Schedule, to the change of control resulting from the Acquisition. -29- Section 7.5 Stockholder and Debtholder Approvals. (a) As soon as practicable following the date of this Agreement, KCS shall prepare and file with the SEC a proxy statement for a special meeting of its stockholders to be called to approve the matters referred to in Section 6.3(a) and to obtain clearance of such proxy statement from the SEC. As soon as practicable after the definitive proxy statement has been cleared by the SEC, KCS will call and give notice of a special meeting of its stockholders, cause a proxy statement and any amendments thereto to be mailed to its stockholders, convene the special meeting of its stockholders and seek to obtain the approval of its stockholders to the matters set forth therein as requiring such approval, including recommending such approval to its Stockholders, provided that the KCS Board may withdraw its recommendation of the Acquisition if it is advised by counsel to the effect that because of a third party proposal occurring after the date of the Board's initial approval of the Acquisition, for the Board to continue to recommend the Acquisition would be a breach of the Board's fiduciary duties to the KCS Stockholders. (b) As soon as practicable following the date of this Agreement, TMM shall use its commercially reasonable efforts to obtain the approval of its stockholders and of the stockholders of MM referred to in Section 5.4. The Boards of Directors of TMM and of MM shall recommend such approval to their respective stockholders. (c) As soon as practicable following the date of this Agreement, TMM shall use its commercially reasonable efforts to obtain the approvals of its debtholders referred to in Section 5.5. Section 7.6 Tax Matters. (a) TMM shall prepare or cause to be prepared and shall timely file or cause to be timely filed all Tax Returns for GTFM and the GTFM Subsidiaries for all periods ending on or prior to the Closing Date. To the extent permitted by law, all such Tax Returns shall be prepared in a manner consistent with past practices of GTFM and the GTFM Subsidiaries, respectively. (b) The Surviving Company shall prepare or cause to be prepared and timely file or cause to be timely filed any Tax Returns of GTFM or the GTFM Subsidiaries for Tax periods that begin before the Closing Date and end after the Closing Date (a "Straddle Period"). To the extent permitted by law, all such Tax Returns shall be prepared in a manner consistent with past practices of GTFM and the GTFM Subsidiaries. (c) After the Closing Date, the Surviving Company, TMM and their respective Subsidiaries shall provide each other with such cooperation and information relating to TMM, GTFM, the Surviving Company or their respective Subsidiaries as the Parties reasonably may request in (i) filing any Tax Return, (ii) determining any liability for Taxes or a right to a Tax refund or (iii) conducting or defending any proceeding in respect of Taxes. Such cooperation and information shall include provisions by the Surviving Company to provide powers of attorney for the purpose of signing Tax Returns and defending any Tax Audits for Pre-Closing Periods. (d) At the Closing, TMM and GTFM shall deliver to the Surviving Company and the Surviving Company shall, and shall cause GTFM and the GTFM Subsidiaries to, retain for a period of six (6) years following the Closing Date, all Tax Returns, books and records (including -30- computer files) of, or with respect to the activities of, GTFM and the GTFM Subsidiaries for all taxable periods from date of incorporation to the Closing Date for GTFM and all GTFM Subsidiaries. (e) The Surviving Company shall, in consultation with TMM, control, manage and be solely responsible for any audit, contest, claim, proceeding or inquiry with respect to Taxes for any Taxable period ending on or before the Closing Date and for any Straddle Period and shall have the right, in consultation with TMM, to settle or contest any such audit, contest, claim, proceeding or inquiry; provided, however, that the Surviving Company shall not settle any such issue that would adversely affect TMM or any of its respective Subsidiaries in a material way, without the prior written consent of TMM, which consent shall not be unreasonably withheld or delayed. Section 7.7 Insurance. Each of the Sellers shall cause GTFM and the GTFM Subsidiaries shall maintain in effect and pay all premiums due thereon for the period ending on the Closing Date with respect to any and all fidelity bonds maintained by them on the date hereof and all GTFM Insurance Policies or procure comparable replacement policies and bonds (or such replacement coverage as is obtainable on a commercially reasonable basis) and maintain such policies and bonds in effect until the Closing Date. Section 7.8 Notification of Certain Matters. Each party to this Agreement shall give prompt notice to the other Parties, to the extent known by such party, of (i) the occurrence, or failure to occur, of any event or existence of any condition that has caused or could reasonably be expected to cause any of the representations or warranties of such party contained in this Agreement to be untrue or inaccurate in any material respect at any time after the date of this Agreement, up to and including the Closing Date; (ii) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by such party under this Agreement. Section 7.9 Further Assurances. Each party to this Agreement shall execute such documents and other papers and perform such further acts as may be reasonably required to carry out the provisions of this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby. Upon the request of KCS, Sellers and their respective Affiliates shall promptly execute and deliver such further instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as KCS may reasonably request to effectuate the purposes of this Agreement and the Ancillary Agreements. Section 7.10 Third-Party Matters. (a) From the date of this Agreement to the Effective Time, (i) neither Sellers, nor any of their respective Affiliates, officers, directors, employees, members, shareholders, representatives or agents, including any investment banker, attorney or accountant engaged by any of them shall, directly or indirectly solicit, encourage or facilitate inquiries or proposals, or enter into any agreement, with respect to, or initiate or participate in any negotiations or discussions with any Person concerning, any acquisition or purchase of all or a substantial portion of the assets of, or of any equity interest in, or any merger or business combination with, TMMH, MM, GTFM or any of their respective Subsidiaries, and (ii) TMM shall not enter into any agreement with any Person concerning any acquisition or purchase of a controlling equity interest in TMM by any -31- Competitor (as defined in the Stockholders' Agreement which is part of the Ancillary Agreements) (each acquisition, purchase, merger or business combination, a "TMM Acquisition Proposal"), or furnish any information regarding a TMM Acquisition Proposal to any such Person. Sellers shall notify KCS, providing full information, within twenty-four (24) hours if any TMM Acquisition Proposal is received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated with, TMM, TMMH, MM, GTFM, any of their respective Affiliates, officers, directors, employees, members, or shareholders (for purposes of this Section 7.10, collectively, the "Seller Parties"), or their representatives and agents, including any investment banker, attorney or accountant engaged by any of them. It is understood that any breach of the restrictions set forth in this Section 7.10 by any Seller Party or any investment banker, attorney or other advisor or representative of the Seller Parties shall be deemed to be a breach of this Section 7.10 by Sellers. (b) Sellers shall, and shall cause their respective Affiliates, officers, directors, employees, members, shareholders, representatives and advisors to, immediately cease or cause to be terminated any existing activities, including discussions or negotiations with any Parties, conducted prior to the date hereof with respect to any TMM Acquisition Proposal and, subject to the terms of any existing confidentiality agreements, shall seek to have all materials distributed to Persons in connection therewith by Sellers or any of their respective Affiliates or advisors returned to TMM promptly. Neither Sellers or any of their respective Affiliates, officers, directors, employees, members, shareholders, representatives or agents, including any investment banker, attorney or accountant engaged by any of them, shall amend, modify, waive or terminate, or otherwise release any Person from, any standstill, confidentiality or similar agreement or arrangement currently in effect relating to this Agreement or the transactions contemplated hereby. Sellers shall cause their respective Affiliates, officers, directors, employees, members, shareholders, representatives and agents to comply with the provisions of Sections 7.10(a) and 7.10(b). (c) From the date of this Agreement to the Effective Time, neither KCS, nor any of its respective Affiliates, officers, directors, employees, representatives or agents, including any investment banker, attorney or accountant engaged by any of them shall, directly or indirectly solicit, encourage or facilitate inquiries or proposals, or enter into any agreement, with respect to, or initiate or participate in any negotiations or discussions with any Person concerning, any acquisition or purchase of all or substantially all of the assets of, or a controlling equity interest in, KCS or KCSR or any merger or business combination with KCS or KCSR (each, a "KCS Acquisition Proposal"), or furnish any information regarding a KCS Acquisition Proposal to any such Person. KCS shall notify TMM, providing full information, within twenty-four (24) hours if any KCS Acquisition Proposal is received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated with, KCS, any of its respective Affiliates, officers, directors, employees, (for purposes of this Section 7.10, collectively, the "Buyer Parties"), or their representatives and agents, including any investment banker, attorney or accountant engaged by any of them. It is understood that any breach of the restrictions set forth in this Section 7.10 by any Buyer Party or any investment banker, attorney or other advisor or representative of the Buyer Parties shall be deemed to be a breach of this Section 7.10 by KCS. (d) KCS shall, and shall cause its KCS Affiliates, officers, directors, employees, representatives and advisors to, immediately cease or cause to be terminated any existing -32- activities, including discussions or negotiations with any Parties, conducted prior to the date hereof with respect to any KCS Acquisition Proposal and, subject to the terms of any existing confidentiality agreements, shall seek to have all materials distributed to Persons in connection therewith by KCS or its Affiliates or advisors returned to KCS promptly. Neither KCS or any of its Affiliates, officers, directors, employees, representatives or agents, including any investment banker, attorney or accountant engaged by any of them, shall amend, modify, waive or terminate, or otherwise release any Person from, any standstill, confidentiality or similar agreement or arrangement currently in effect relating to this Agreement or the transactions contemplated hereby. KCS shall cause its Affiliates, officers, directors, employees, representatives and agents to comply with the provisions of Sections 7.10(c) and 7.10(d). (e) Nothing set forth in this Section 7.10 shall preclude the Board of Directors of KCS or TMM from taking any action in good faith if it is advised by counsel that failure to do so would be a breach of duty to its stockholders. Section 7.11 Efforts of Parties to Close. During the period from the date of this Agreement through the Closing Date, each party hereto shall use its commercially reasonable efforts to fulfill or obtain the fulfillment of the conditions precedent to the consummation of the transactions contemplated hereby, including the execution and delivery of any documents, certificates, instruments or other papers that are reasonably required for the consummation of the transactions contemplated hereby. During the period from the date of this Agreement and continuing through the Closing, except as required by Applicable Law, no party to this Agreement shall knowingly take any action which, or knowingly fail to take any action the failure of which to be taken, could reasonably be expected to: (i) result in any of the representations and warranties set forth in this Agreement on the part of the party taking or failing to take such action being or becoming untrue in any material respect; (ii) result in any conditions to the Closing set forth in Article 8 not being satisfied; or (iii) result in a violation of any provision of this Agreement or the Ancillary Agreements. Section 7.12 Expenses. Except as expressly provided otherwise in this Agreement, the Parties shall each bear their respective direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and the consummation of the Merger and the other transactions contemplated hereby. Section 7.13 VAT Contingency Payment. Provided the Acquisition has occurred and that neither KCS nor any Subsidiary of KCS has purchased the TFM "Class III" shares referred to in clause (i) of this Section 7.13 upon exercise of the Put, as compensation for TMM's services in obtaining Final Resolution of the VAT Claim, KCS shall make or shall cause TFM to make a cash payment (the "VAT Contingency Payment") to TMM, as set forth below, following the date of Final Resolution of the VAT Claim, and the receipt by TFM or its designee of the VAT Payment, so long as the VAT Payment consists of at least (i) all of the TFM "Class III" shares (representing 20% of the capital stock of TFM) currently held by the Mexican Government or (ii) a cash payment or other property acceptable to the Parties which has a fair value equal to or greater than the Put Purchase Price as calculated on the date the VAT Payment is received (or a combination thereof). In such event, KCS shall, at its option, pay or cause TFM to pay to TMM (iii) $100,000,000 within 90 days thereafter or (iv) $50,000,000 within 90 days thereafter and an additional $55,000,000 within 365 days thereafter. If the VAT Payment exceeds the Put Purchase Price as calculated on the date that the VAT Payment is received, KCS -33- shall pay or cause TFM to pay to TMM within 90 days after the VAT Payment and Final Resolution of the VAT Claim the first $25,000,000 received above the Put Purchase Price, and 15% of any additional amount received above the Put Purchase Price beyond the first $25,000,000 (but such 15% payment shall not exceed $50,000,000). The calculation of all cash payments and property distributions received by TFM or its designee referred to in this Section 7.13 as a VAT Contingency Payment shall be made after reducing the value of such payments and distributions by the amount of all expenses incurred by or on behalf of TFM in effecting Final Resolution of the VAT Claim and receipt of the VAT Payment, including without limitation legal fees and net of Mexican corporate tax (paid or payable in cash assuming utilization of all available net operating loss carry forwards). As part of the services to be performed under the Consulting Agreement, Consultant shall have the right to, and shall, manage the negotiation, prosecution and settlement of the VAT Claim and any extensions or other modifications of the obligations under the Put. Section 7.14 Financing for the Acquisition. In connection with the financing for the Acquisition (including any amounts due under Section 7.13), KCS shall not, and shall cause its Subsidiaries and Affiliates not to, enter into any financing arrangements that materially (i) restrict the ability of KCS and its subsidiaries and affiliates to make any payments required to be made by this Agreement or (ii) deny or restrict in any material way any rights granted to TMM, its Subsidiaries and Affiliates under this Agreement or the Ancillary Agreements. Section 7.15 Release. At the Closing, KCS shall deliver to TMM a release, effective as of the Closing, of each Person, not identified in Exhibit D as a continuing officer or director, who served at the request of any Seller as a director or officer of GTFM or any of its Subsidiaries at any time prior to Closing, from any and all claims of KCS and its Subsidiaries for any actions taken or omitted by such Person in such capacity, except for any action or omission which was in violation of law or the bylaws of GTFM or any of its Subsidiaries, or constituted fraud, willful misconduct, gross negligence or a breach of this Agreement or any of the Ancillary Agreements. ARTICLE 8 CONDITIONS Section 8.1 Mutual Conditions. The obligations of each party to this Agreement to consummate the Acquisition shall be subject to the satisfaction of each of the following conditions, unless any such condition is waived by KCS and TMM: (a) No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Acquisition shall be in effect. No proceeding initiated by any Governmental Authority seeking an injunction to restrain or prohibit the consummation of the Acquisition shall be pending. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Authority which prohibits, restricts in any material manner or makes illegal consummation of the Acquisition; (b) All consents, waivers, authorizations and approvals required from all Governmental Authorities to consummate the Acquisition, without the imposition of conditions or requirements, in the aggregate, the satisfaction of which by KCS or its Subsidiaries or TMM or -34- its Subsidiaries is reasonably likely to result in either a KCS Material Adverse Effect, a GTFM Material Adverse Effect or a Seller Material Adverse Effect, shall have been obtained and shall remain in full force and effect as of the Closing Date; (c) A general moratorium on commercial banking activities in New York or Mexico shall not have been declared by either Federal or state authorities and be continuing nor shall there occur and be continuing any calamity or crisis in the U.S. or Mexican financial markets; and (d) The securities to be issued pursuant to the Merger and, if KCS so elects pursuant to Section 1.2, in payment of a portion of the cash consideration, shall have been be approved for listing by the NYSE. Section 8.2 Conditions to the Obligations of KCS. The obligations of KCS to consummate the Acquisition shall be subject to the satisfaction of each of the following conditions, any of which may be waived in writing by KCS: (a) For purposes of this Section 8.2(a), the accuracy of the representations and warranties of Sellers set forth in this Agreement shall be assessed as of the date of this Agreement and shall be assessed as of the Closing Date with the same effect as though all such representations and warranties had been made again on and as of the Closing Date (provided, however, that the representations and warranties that speak as of a specific date other than the date of this Agreement shall speak only as of such date) and such representations and warranties shall be true and correct in all material respects; (b) Sellers shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by them at or prior to the Closing Date; (c) TMM, TMMH and MM shall have delivered to KCS a certificate, dated as of the Closing Date, signed on their behalves by their respective Presidents and Chief Financial Officers confirming their satisfaction of the conditions applicable to them contained in Sections 8.2(a) and 8.2(b); (d) Each of the Ancillary Agreements shall have been duly executed and delivered by or on behalf of each of Sellers as the case may be; (e) KCS shall have received an opinion dated the Closing Date of Milbank, Tweed, Hadley & McCloy LLP, U.S. counsel to Sellers and Haynes & Boone, S.C., Mexican counsel to Sellers, in the form and as to the matters set forth on Exhibit G-1 and G-2, respectively, with such exceptions and qualifications as are reasonably acceptable to KCS; (f) KCS shall have received from the Holders of the requisite number of outstanding shares of KCS Common Stock and KCS Preferred Stock the affirmative vote referred to in Section 6.3(a); (g) Since December 31, 2002, there shall not have been any GTFM Material Adverse Effect or any development or combination of developments that, individually or in the aggregate, -35- has had or is reasonably likely to have a GTFM Material Adverse Effect, of which KCS did not have Knowledge prior to the date of this Agreement; (h) KCS shall have received copies of all other consents, approvals, authorizations, qualifications and orders of all Governmental Authorities and all other Persons party to Contracts with any member of the GTFM Group that are required in respect of the transactions to be consummated at the Closing, other than those that if not obtained would not individually or in the aggregate reasonably be expected to have a GTFM Material Adverse Effect or a KCS Material Adverse Effect and such consents and other items shall remain in full force and effect as of the Closing Date; and (i) KCS shall have received the officers' and directors' resignations referred to in Section 4.2(j). (j) There shall not be pending any insolvency or bankruptcy proceeding against MM, TMMH or TFM, provided that if any such proceeding is pending MM, TMMH or TFM shall have had at least 60 days to obtain dismissal of any such proceeding. Section 8.3 Conditions to the Obligations of Sellers. The obligation of Sellers to consummate the Acquisition shall be subject to satisfaction of each of the following conditions, which may be waived in writing by TMM: (a) For purposes of this Section 8.3(a), the accuracy of the representations and warranties of KCS and KARA Sub set forth in this Agreement shall be assessed as of the date of this Agreement and shall be assessed as of the Closing Date with the same effect as though all such representations and warranties had been made again on and as of the Closing Date (provided, however, that the representations and warranties that speak as of a specific date other than the date of this Agreement shall speak only as of such date) and such representations and warranties shall be true and correct in all material respects; (b) Each of KCS and KARA Sub shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date; (c) Each of KCS and KARA Sub shall have delivered to TMM a certificate, dated as of the Closing Date, signed on behalf of KCS or KARA Sub, as the case may be, by its Chief Executive Officer and Chief Financial Officer confirming the satisfaction of the conditions contained in Sections 8.3(a) and 8.3(b); (d) Each of the Ancillary Agreements shall have been duly executed and delivered by or on behalf of KCS, and Sellers shall have no reasonable basis for belief that any of such agreements shall not become effective at the Effective Time; (e) TMM shall have received an opinion dated the Closing Date of Sonnenschein Nath & Rosenthal, counsel to KCS, and Jay Nadlman, Associate General Counsel to KCS, in the form and as to the matters set forth on Exhibit H-1 and H-2, respectively, with such exceptions and qualifications as are reasonably acceptable to TMM; -36- (f) There shall not exist any event or combination of events that, individually or in the aggregate, will (or would reasonably be expected to) prevent KCS from performing any of its post-Closing obligations under this Agreement or any Ancillary Agreement at or after the Effective Time; (g) Since December 31, 2002, there has not been any KCS Material Adverse Effect or any development or combination of developments that, individually or in the aggregate, has had or is reasonably likely to have a KCS Material Adverse Effect of which TMM did not have knowledge prior to the date of this Agreement; (h) TMM shall have received copies of all other consents, approvals, authorizations, qualifications and orders of all Governmental Authorities and all other Persons party to contracts with KCS or any of its Subsidiaries that are required in respect of the transactions to be consummated at Closing, other than those that, if not obtained, would not, individually or in the aggregate, reasonably be expected to have a KCS Material Adverse Effect and such consents and other items shall remain in full force and effect as of the Closing Date; (i) TMM shall have received the consents of the holders of the 2003 Notes and of the 2006 Notes referred to in Section 5.5, provided that TMM shall have used its commercially reasonable efforts to obtain such consents; and. (j) TMM shall have received the release referred to in Section 7.15. ARTICLE 9 TERMINATION Section 9.1 Termination. (a) This Agreement may be terminated prior to the Closing as follows: (i) by written consent of KCS and TMM; (ii) by KCS or TMM if any order of any Governmental Authority permanently restraining, enjoining or otherwise prohibiting the consummation of the Acquisition shall have become final and non-appealable or if any of the approvals of any Governmental Authority to perform the transactions herein, imposes any condition or requirement, the satisfaction of which is reasonably likely to result in either a KCS Material Adverse Effect or a GTFM Material Adverse Effect; (iii) by KCS if any condition to the obligations of KCS hereunder becomes incapable of fulfillment through no fault of KCS and is not waived by KCS; (iv) by TMM if any condition to the obligations of Sellers hereunder becomes incapable of fulfillment through no fault of Sellers and is not waived by TMM; (v) by KCS if TMM shall have experienced a Change of Control, or by TMM if KCS shall have experienced a Change of Control; and -37- (vi) by KCS or TMM if the Closing does not occur by the close of business on or prior to December 31, 2004 (the "Termination Date"); provided, however, that the Termination Date may be extended by KCS and TMM by written agreement. (b) The termination of this Agreement shall be effectuated by the delivery by the party terminating this Agreement to the other Parties of a written notice of such termination. If this Agreement so terminates, it shall become null and void and have no further force or effect, except as provided in Section 9.2. Section 9.2 Survival after Termination. If this Agreement is terminated in accordance with Section 9.1 hereof and the transactions contemplated hereby are not consummated, this Agreement and each Ancillary Agreement shall become void and of no further force and effect, without any liability on the part of any party hereto, except for the provisions of Sections 7.12, 12.5 and 12.11 and this Article 9. Notwithstanding the foregoing, nothing in this Section 9.2 shall relieve any party to this Agreement of liability for a breach of any provision of this Agreement or any agreement made as of the date hereof or subsequent thereto pursuant to this Agreement. ARTICLE 10 INDEMNIFICATION Section 10.1 Survival of Representations, Warranties and Covenants; Exclusive Monetary Remedies. (a) All representations and warranties in this Agreement or in any instrument executed and delivered in fulfillment of the requirements of this Agreement shall survive the Closing for the following periods of time following the Closing Date (in each case, the "Expiration Date"). The representations and warranties of the Sellers set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5, and 5.17 shall survive until the fifth anniversary of the Closing. The representations and warranties of the Sellers set forth in Section 5.11 shall survive for the applicable statute of limitations. All other representations and warranties of the Sellers shall survive until the third anniversary of the Closing, provided, if the Spin-off Merger referred to in the Stockholders' Agreement that is part of the Ancillary Agreements shall have occurred, such representations and warranties shall survive only until the second anniversary of the Closing. The representations and warranties of KCS set forth in Sections 6.1, 6.2, 6.3, 6.4 and 6.7 shall survive until the fifth anniversary of the Closing. The representations and warranties of KCS set forth in Section 6.15 shall survive for the applicable statute of limitations. All other representations and warranties of KCS shall survive until the second anniversary of the Closing. All covenants or other agreements in this Agreement shall terminate at the Effective Time, except the covenants in Sections 7.6, 7.9 and 7.13 which shall survive the Closing indefinitely or for the period of the respective statutes of limitation relating thereto. (b) Notwithstanding anything in this Agreement to the Contrary, the sole and exclusive basis on which any party may recover monetary damages for any breach of this Agreement by any other party, whether based upon breach of representations and warranties, breach of any covenant, or otherwise, shall be in accordance with the indemnification provisions set forth in this Article 10, and subject to the limitations and exclusions set forth in this Article 10, provided -38- however, that such exclusive remedies for monetary damages shall not preclude any party from pursuing the remedies of specific performance, injunctive relief, declaratory judgment or any other non-monetary equitable remedies available to such party under Applicable Law. (c) All Losses (as defined below) for which any party may seek indemnification hereunder shall be net of (i) any insurance recoveries received by such party or to which such party is entitled and (ii) any amounts which such party has received or is entitled to receive from any third party under any indemnification or other similar agreement. Section 10.2 Indemnification by Sellers. Subject to the limitations contained in this Article 10, Sellers, jointly and severally, shall indemnify and hold KCS, the Surviving Company and each of their Subsidiaries, and each of their respective officers, directors, employees, members, stockholders, agents and representatives ("KCS Indemnitees") harmless from and against all losses, damages, liabilities, claims, demands, obligations, deficiencies, payments, judgments, settlements, costs and expenses of any nature whatsoever (including the costs and expenses of any and all investigations, actions, suits, proceedings, demands, assessments, judgments, orders, settlements and compromises relating thereto, and reasonable attorneys', accountants', experts' and other fees and expenses in connection therewith) ("Losses") resulting from, arising out of, or due to, directly or indirectly, any of the following: (a) Any inaccuracy or misrepresentation in, or breach of, any representation or warranty of Sellers contained in Article 5, in any schedule or exhibit delivered hereunder by any of Sellers or in any certificates delivered by any of Sellers pursuant to this Agreement, or any breach or nonfulfillment of any covenant or agreement of any of Sellers contained in this Agreement, in any schedule or exhibit delivered hereunder by any of Sellers or in any certificates delivered by any of Sellers pursuant to this Agreement, or any claims, causes of actions, rights asserted or demands made by any third parties (including any Governmental Authority) arising from or relating to any of the foregoing (it being agreed that for purposes of such right to indemnification, the representations and warranties made by Sellers shall be deemed not qualified by any references therein to materiality or whether or not any breach could result or could reasonably be expected to result in a GTFM Material Adverse Effect); and (b) Sellers' indemnification obligations under this Article 10 for any inaccuracy or misrepresentation in, or breach of any representation or warranty regarding Grupo TFM or its Subsidiaries shall be limited to 51% of Losses and then only to the extent such 51% of Losses amount to, in the aggregate, $5 million or more; provided, that for the purpose of computing this limitation on Sellers' indemnification obligations, Losses shall be calculated without regard to whether such Losses involved a GTFM Material Adverse Effect. The limitation in this Section 10.2(b) shall not be applicable to any Losses arising out of or resulting from any action or omission on the part of any Seller or its Affiliate that involved a crime, fraud, willful misconduct or gross negligence. Section 10.3 Indemnification by KCS. (a) Subject to the limitations contained in this Article 10, KCS shall indemnify and hold harmless Sellers, each of their Subsidiaries and each of their respective officers, directors, employees, members, stockholders, agents and representatives ("Seller Indemnitees") from and against all Losses resulting from, arising out of, or due to, directly or indirectly, any inaccuracy or misrepresentation in, or breach of, any representation or warranty of KCS contained in Article 6, in any schedule or exhibit delivered hereunder by KCS -39- or in any certificates delivered by KCS pursuant to this Agreement, or any breach or nonfulfillment of any covenant of KCS contained in this Agreement, in any schedule or exhibit delivered hereunder by KCS or in any certificates delivered by KCS pursuant to this Agreement, or any claims, causes of actions, rights asserted or demands made by any third parties (including any Governmental Authority) arising from or relating to any of the foregoing. (b) KCS's indemnification obligations under this Article 10 shall be limited to Losses which amount to, in the aggregate, $10 million or more, provided that for the purpose of computing this limitation or KCS's indemnification obligations, Losses shall be calculated without regard to whether such Losses involved a KCS Material Adverse Effect. The limitation in this Section 10.3(b) shall not be applicable to any Losses arising out of or resulting from any action or omission on the part of KCS or its Affiliate that involved a crime, fraud, willful misconduct or gross negligence. Section 10.4 Procedures for Third-Party Claims. (a) In order for a Person (the "Indemnified Party") to be entitled to any indemnification provided for under Section 10.2 or 10.3 hereof in respect of, arising out of or involving a claim made by any Person (other than another Party or its Affiliate) against the Indemnified Party (a "Third-Party Claim"), such Indemnified Party must notify the indemnifying party in writing of the Third-Party Claim promptly following receipt by such Indemnified Party of written notice of the Third-Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually materially prejudiced as a result of such failure. Thereafter, the Indemnified Party shall deliver to the indemnifying party, as promptly as practicable following the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third-Party Claim that are not separately addressed to the indemnifying party. (b) If a Third-Party Claim is made against an Indemnified Party, the indemnifying party shall be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the indemnifying party; provided, however, that such counsel is not reasonably objected to by the Indemnified Party. Should the indemnifying party so elect to assume the defense of a Third-Party Claim, the indemnifying party shall not be liable to the Indemnified Party for any reasonable legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof. If the indemnifying party assumes such defense, the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense; provided, however, that the indemnifying party shall bear the reasonable fees and expenses of such separate counsel (i) if the Parties to any such action or proceeding (including impleaded parties) include other Parties and representation of both Parties would, in the reasonable opinion of counsel for the Indemnified Party, be inappropriate due to a conflict of interest or (ii) if the indemnifying party shall not have employed counsel (other than counsel that is reasonably objected to by the Indemnified Party) within a reasonable time after the Indemnified Party has given notice of the institution of a Third-Party Claim in compliance with Section 10.4(a) hereof. The indemnifying party shall be liable for the reasonable fees and expenses of counsel employed by the Indemnified Party for any period during which the indemnifying party has not assumed the -40- defense thereof, provided, however, that such counsel is not reasonably objected to by the indemnifying party. If the indemnifying party chooses to defend or prosecute a Third-Party Claim, all the Indemnified Parties shall cooperate in the defense or prosecution thereof at the indemnifying party's expense. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information that are reasonably relevant to such Third-Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. If the indemnifying party assumes the defense of a Third-Party Claim, the Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the indemnifying party's prior written consent (which consent shall not be unreasonably withheld). If the indemnifying party assumes the defense of a Third-Party Claim, the Indemnified Party shall agree to any settlement, compromise or discharge of a Third-Party Claim that the indemnifying party may recommend and that by its terms obligates the indemnifying party to pay the full amount of the liability in connection with such Third-Party Claim, which releases the Indemnified Party completely in connection with such Third-Party Claim and that would not otherwise materially adversely affect the Indemnified Party. Section 10.5 Tax Indemnification. (a) Sellers shall indemnify and hold each of the KCS Indemnitees harmless from and against all Taxes of GTFM, and the GTFM Subsidiaries, the payment of which would result in a breach of any representation or warranty set forth in Section 5.11 or an agreement set forth in Sections 7.1(e) or 7.6 (it being agreed that for purposes of such right to indemnification, the representations and warranties set forth in Section 5.11 or a breach of any agreement set forth in Section 7.1(e) or 7.6 shall be deemed not qualified by any references therein to materiality or whether or not any breach could result or could reasonably be expected to result in a GTFM Material Adverse Effect). (b) KCS shall, and shall cause the Surviving Company and its Subsidiaries, to indemnify and hold Sellers harmless from and against all Taxes of the Surviving Company and its Subsidiaries the payment of which would not result in a breach described in Section 10.5(a) ARTICLE 11 DEFINITIONS Section 11.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" shall mean any Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with the Person specified. "Agreement" shall have the meaning set forth in the preamble to this Agreement. "Ancillary Agreements" shall mean the following agreements entered into as of the date of this Acquisition Agreement or to be entered into as of the Closing: (i) Stockholders' Agreement by and among KCS, TMM, TMMH and MM; (ii) Registration Rights Agreement -41- among KCS, TMM, TMMH and MM; (iii) Stock Purchase Agreement among KCS, TMM, TMMH and MM; (iv) the Consulting Agreement; (v) the Marketing and Services Agreement; and (vi) the Put Agreement. "Applicable Law" shall mean any Law applicable to KCS, TMM, TMMH, MM or any of their respective Affiliates, properties, assets, officers, directors, employees or agents, as the case may be. "Business Day" shall mean any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the United States or Mexico. "Certificate of Merger" shall have the meaning set forth in Section 3.1 of this Agreement. "Change of Control" shall mean, with respect to such Person, the occurrence of any of the following prior to the Closing Date: (a) any Person or Group, other than a subsidiary or any employee benefit plan (or any related trust) of such Person or a subsidiary of such Person, becomes the beneficial owner of Voting Securities representing 20.0% or more of the combined Total Voting Power of all Voting Securities of such Person, or (b) the individuals who, as of the date of this Agreement, constitute the board of directors of such Person (the "Incumbent Directors") cease for any reason to constitute at least 75.0% of the members of such board of directors unless, at least 75.0% of the individuals then constituting such board of directors were nominated upon the recommendation of at least 75.0% of the Incumbent Directors or other directors so nominated; or (c) approval by the stockholders of such Person of any of the following: (1) a merger, reorganization or consolidation ("Acquisition") with respect to which the individuals and entities who were the respective beneficial owners of the stock and Voting Securities of the Person immediately before such Acquisition do not, after such Acquisition, beneficially own, directly or indirectly, more than 80.0% of the combined voting power of the Voting Securities of the Person resulting from such Acquisition in substantially the same proportion as their ownership immediately before such Acquisition, (2) a liquidation or dissolution of such Person, or (3) the sale or other disposition of all or substantially all of the assets of such Person. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Concession" shall mean the concession title from the Mexican government held by TFM to provide freight transportation services over its rail lines in Mexico. "Confidentiality Agreements" shall mean the Confidentiality Agreements dated as of November 9, 2002 by and between KCS and TMM and all amendments thereto. "Consultant" shall mean the Company owned by Jose Serrano Segovia that has entered into the Consulting Agreement with KCS. "Consulting Agreement" shall mean that agreement between Consultant and the Surviving Company dated as of the Effective Time. "Contracts" shall mean all written or oral contracts, agreements, evidences of indebtedness, guarantees, leases and executory commitments to which any member of the GTFM -42- Group is a party (jointly or severally, in whole or in part, with others or solely) or by which any of the GTFM Assets are bound, or otherwise related to the GTFM Business. "Control" shall mean the ability whether directly or indirectly to direct the affairs of another by means of ownership of assets or voting securities, or by contract. "Encumbrance" shall mean any lien, pledge, mortgage, security interest, claim, charge, easement, limitation, commitment, encroachment, restriction (other than a restriction on transferability imposed by federal or state securities laws) or other encumbrance of any kind or nature whatsoever (whether absolute or contingent). "Environmental Laws" shall mean any and all U.S. and Mexican federal, state and local statutes, laws, regulations, ordinances or rules in existence on or prior to the Closing Date relating to the protection of the environment or natural resources, occupational safety and health; the effect of the environment or Hazardous Materials on human health; or emissions, discharges or releases of Hazardous Materials into the environment, including, without limitation, ambient air, surface water, groundwater or land; or otherwise relating to the handling of Hazardous Materials or the investigation, clean-up or other remediation or analysis thereof. "Environmental Permit" shall mean any permit, approval, identification number, license and other authorization required under any applicable Environmental Law, including any administratively complete application that is sufficient to serve as an authorization for an activity regulated under Environmental Law. "ERISA Affiliate" shall mean any Person who is in the same controlled group of corporations or who is under common control with KCS (within the meaning of Section 414 of the Code). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder. "Final Resolution of the VAT Claim" shall mean the final settlement or resolution of the VAT Claim, whether by a voluntary settlement or judgment, that is not subject to any form or manner of appeal, collateral claim under the January 31, 1997 Stock Purchase Agreement for the acquisition of Ferrocarril del Noreste, S.A. de C.V. or otherwise or offset or reclaim by any Governmental entity or any other Person in any manner whatsoever, provided, that if KCS shall have received the TFM Class III shares referred to in 7.13(i) in settlement of all or a portion of the VAT Claim or if KCS shall have received the payment referred to in 7.13(ii) along with the written agreement (in form reasonably satisfactory to KCS) of TMM to defend and indemnify KCS against any claim, collateral claim, offset, reclaim, appeal or challenge of any kind whatsoever which seeks to rescind , set aside, revoke or diminish the amount of such payment or the VAT Claim, then a "Final Resolution of the VAT Claim" shall be deemed to have occurred for the purpose of the VAT Payment. "GAAP" shall mean generally accepted accounting principles, consistently applied, as used in the United States of America as in effect at the time any applicable financial statements were or are prepared or any act requiring the application of GAAP was or is performed. -43- "Governmental Authority" shall mean any United States, Mexican or foreign government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the SEC or any other United States, Mexican or foreign government authority, agency, department, board, commission or instrumentality of the United States, any state of the United States or any political subdivision thereof or any foreign jurisdiction, and any court, tribunal or arbitrator(s) of competent jurisdiction, and any United States, Mexican or foreign governmental or non-governmental self-regulatory organization, agency or authority (including the NYSE). "GTFM Assets" shall mean the properties, assets, Contracts and rights of any kind, whether tangible or intangible, real or personal, of the GTFM Group necessary to enable GTFM and the GTFM Subsidiaries to conduct the GTFM Business as presently conducted. "GTFM Business" shall mean the business and operations of the GTFM Group in the manner in which the same have been conducted prior to the date hereof, are currently being conducted and are currently proposed by the GTFM Group to be conducted, whether conducted by GTFM or any of its Subsidiaries. "GTFM Financial Statements" shall mean those financial statements referred to in Section 5.6. "GTFM Form 20-F" shall mean the Annual Report on Form 20-F for the year ended December 31, 2001 filed by GTFM with the SEC. "GTFM Group" shall mean GTFM and all of its Subsidiaries, collectively. "GTFM Material Adverse Effect" shall mean a change, event or occurrence that has had, or is reasonably likely to have, a material adverse effect on the business, assets, properties, liabilities, financial condition or results of operations of the GTFM Group taken as a whole other than any change, event or occurrence resulting from (i) changes in the railroad industry in Mexico or the United States generally, (ii) changes in general economic conditions in the United States or Mexico or the securities markets in general, (iii) terrorist activities or the commencement or escalation of any war or armed hostilities, which do not disproportionately affect the GTFM Group, or (iv) performance of this Agreement in accordance with its terms. "GTFM Subsidiaries" shall mean all of the Subsidiaries of GTFM except Mexrail, Inc. and its Subsidiaries. "GTFM Trademarks" shall mean all trademarks of GTFM and its Subsidiaries. "Hazardous Materials" shall mean (i) any petroleum, petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical, material or other substance defined or regulated as toxic or hazardous or as a pollutant or contaminant or waste under any applicable Environmental Law. "HSR Act" means Section 7A of the Clayton Act (Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules and regulations promulgated thereunder. -44- "IAS" shall mean International Accounting Standards, consistently applied as used in the UMS as in effect at the time any applicable financial statements were or are prepared or any act requiring compliance with IAS was or is performed. "Income Taxes" shall mean all Taxes, charges, fees, levies or other assessments imposed by any Taxing Authority and based on or measured solely with respect to income or profits including any interest, penalties or additions attributable or imposed with respect thereto. "Intellectual Property" shall mean all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions copyrights and copyright rights, processes, formulae, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of patents, trademarks, service marks and copyrights. "Investment Advisers Act" shall mean the Investment Advisers Act of 1940, as amended, and the rules and regulations of the SEC thereunder. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder. "KCS Assets" shall mean the properties, assets, Contracts and rights of any kind, whether tangible or intangible, real or personal, necessary to enable KCS (prior to the Closing) and the Surviving Company (after the Closing) to conduct the KCS Business as presently conducted. "KCS Business" shall mean the consolidated business and operations of KCS and its Subsidiaries in the manner in which the same have been conducted prior to the date hereof, are currently being conducted and are currently proposed by KCS and its Subsidiaries to be conducted, whether conducted by KCS or any of its Subsidiaries. "KCS Disclosure Schedule" shall have the meaning set forth in the introduction to Article 6 of this Agreement. "KCS Material Adverse Effect" shall mean a change, event or occurrence that has had, or is reasonably likely to have, a material adverse effect on the business, assets, properties, liabilities, financial condition or results of operations of KCS and its Subsidiaries, taken as a whole other than any change, event or occurrence resulting from (i) changes in the railroad industry in the United States generally, (ii) changes in general economic conditions in the United States or the securities markets in general, (iii) terrorist activities or the commencement or escalation of any war or armed hostilities, which do not disproportionately affect KCS or its Subsidiaries, or (iv) performance of this Agreement in accordance with its terms. "KCS Stock Option Plan" shall mean the 1991 Amended and Restated Stock Option and Performance Award Plan, as amended and restated effective November 7, 2002. "Knowledge" of (a) KCS shall mean actual knowledge after reasonable inquiry of any executive officer of KCS, (b) TMM, TMMH or MM shall mean actual knowledge -45- after reasonable inquiry by any executive officer of TMM, TMMH or MM, and (c) Sellers shall mean actual knowledge after reasonable inquiry by any executive officer of Sellers. "Law" shall mean any U.S., Mexican or foreign federal, state or local statute, law (whether statutory or common law), ordinance, rule, administrative interpretation, regulation, order, writ, injunction, directive, judgment, decree, policy, guideline or other requirement or arbitration award or finding (including, without limitation, those of the NYSE or any other applicable self-regulatory organization). "Losses" shall have the meaning set forth in Section 10.2 of this Agreement. "MM Subsidiaries" shall mean GTFM and GTFM Subsidiaries. "NYSE" shall mean the New York Stock Exchange, Inc. "Permitted Encumbrance" shall mean (i) liens reflected in the GTFM Financial Statements; (ii) liens imposed by operation of law and not for borrowed money, such as materialmen's, mechanics', workers', repairmen's, employees', carriers', vendors' warehousemen's and other like liens that are insignificant, individually and in the aggregate, to the operation of the GTFM Business and (iii) liens incurred in the ordinary course of business and not for borrowed money that are insignificant, individually and in the aggregate, to the operation of the GTFM Business. "Person" shall mean any individual, firm, corporation, partnership (limited or general), limited liability company, joint venture, association, trust or other entity. "Put Agreement" shall mean the Agreement between the Federal Government of the United Mexican States, GTFM, TMM and KCS, dated June 9, 1997. "Put" shall mean the right of the Federal Government of the United Mexican States under the Put Agreement to compel purchase of the Shares of TFM held by it. "Put Purchase Price" shall mean the purchase price for the 20% of TFM stock held by the Federal Government of the United Mexican States, as defined in the Put Agreement and calculated under the Twenty-Sixth Clause of the Stock Purchase Agreement. "SEC" shall mean the Securities and Exchange Commission, and any successor thereto. "Securities" shall mean any securities as defined in the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder. "Securities Laws" shall mean the Securities Act, the Exchange Act, the Investment Company Act, the Investment Advisers Act, all applicable state "blue sky" laws, all applicable Mexican and foreign securities laws, and the rules and regulations promulgated thereunder. "Seller Material Adverse Effect" shall mean a change, event or occurrence that has had, or is reasonably likely to have, a material adverse effect on the business, assets, properties, -46- liabilities, financial condition or results of operations of Sellers and their Subsidiaries, taken as a whole other than any change, event or occurrence resulting from (i) changes in the railroad industry in the United States generally, (ii) changes in general economic conditions in the United States or the securities markets in general, (iii) terrorist activities or the commencement or escalation of any war or armed hostilities, which do not disproportionately affect a Seller or any of its Subsidiaries, or (iv) performance of this Agreement in accordance with its terms. "Strategic Investor" shall mean a U.S. Class 1 railroad, or its Affiliate, which purchases or commits to purchase from KCS equity or debt securities of KCS within one year from the date of this Agreement. "Subsidiary" of a Person shall mean any other Person more than 50% of the voting stock (or of any other form of other voting or controlling equity interest in the case of a Person that is not a corporation) of which is beneficially owned by the Person directly or indirectly through one or more other Persons. "Tax" shall mean all U.S. and Mexican federal, provincial, territorial, state, municipal, local, foreign or other taxes, imposts, rates, levies, assessments, contributions and other similar charges (and all interest and penalties thereon and additions thereto imposed by any Governmental Authority), including, without limitation, all income, excise, franchise, gains, capital, real property, goods and services, transfer, value added, gross receipts, windfall profits, severance, ad valorem, personal property, production, sales, use, license, stamp, documentary stamp, mortgage recording, employment, payroll, social security (IMSS), housing, unemployment, disability, estimated or withholding taxes, housing fund (Infonavit), retirement fund contributions (SAR) and all customs and import duties. "Tax Return" shall mean any and all returns, reports, declarations, information statements, schedules or other documents required to be provided by GTFM or any of its Subsidiaries with respect to Taxes to any Governmental Authority or Tax authority or agency, whether U.S., Mexican or foreign. "Taxing Authority" shall mean any government authority, U.S., Mexican or other, having jurisdiction over the assessment, determination, collection, or other imposition of Taxes. "TFM" shall mean TFM, S.A. de C.V. "U.S." means the United States of America. "VAT" means the Mexican value added tax. "VAT Claim" means TFM's claim against the Mexican Treasury for the refund of a value added tax payment in the original principal amount of 2,111,111,790 pesos. "VAT Payment" means the shares or cash compensation received by TFM or its designee from the Mexican Government on the VAT Claim. -47- ARTICLE 12 MISCELLANEOUS Section 12.1 Amendments; Waiver. This Agreement may not be amended, altered or modified except by written instrument executed by KCS and TMM. KCS and TMM may amend this Agreement without notice to or the consent of any other party and any third party. Any agreement on the part of KCS and TMM to waive (i) any inaccuracies in any representation and warranty contained herein or in any document, certificate or writing delivered pursuant hereto, or (ii) compliance with any of the agreements, covenants or conditions contained herein, shall be valid only if set forth in an instrument in writing signed on behalf of the party against whom the waiver is to be effective. No such waiver shall constitute a waiver of, or estoppel with respect to, any subsequent or other inaccuracy, breach or failure to strictly comply with the provisions of this Agreement. Any delay or omission on the part of KCS or TMM to exercise any right hereunder shall not in any manner impair the exercise of any right accruing to it hereafter. Section 12.2 Entire Agreement. This Agreement (including the Seller Disclosure Schedule, the KCS Disclosure Schedule, any other exhibits, schedules, certificates, lists and documents referred to herein, and any documents executed by the Parties simultaneously herewith or pursuant thereto), the Ancillary Agreements, the Consulting Agreement and the Confidentiality Agreements constitute the entire agreement of the Parties, except as provided herein, and supersede all prior agreements and understandings, written and oral, among the Parties with respect to the subject matter hereof and thereof, including without limitation, the Letter of Intent, dated August 28, 1995, between TMM and KCS; the Joint Venture Implementation Agreement, dated September 7, 1995, between TMM and KCS; the Joint Venture Agreement, dated December 1, 1995, between TMM and KCS; the undated Letter of Understanding between TMM and KCS; the Shareholders Agreement dated as of May 1997, by and among KCS, Caymex Transportacion, Grupo Servia, S.A. de C.V., TMM and MM; Management Services Agreements between KCS and TFM, dated May 9, 1997, and between TMM and TFM, dated May 9, 1997 (as such agreements have been amended and extended from time to time); the Stock Purchase Agreement dated as of February 27, 2002, by and among MM, TMM, KCS, The Kansas City Southern Railway Company and TFM; and the Omnibus Agreement by and among TMM, MM, TFM, Mexrail, Inc., The Kansas City Southern Railway Company, NAFTA Rail, S.A. de C.V. and KCS, dated March 8, 2002; provided that, if the Closing shall not have occurred prior to the Termination Date, or if this Agreement shall have been terminated pursuant to the terms set forth in Article 9, then this Section 12.2 shall be null and void retroactively to the date first set forth above and the prior agreements and understandings referred to herein shall be and remain effective as if this Agreement had never been effective. Section 12.3 Interpretation. (a) The Recitals, Exhibits and Schedules to this Agreement are incorporated by reference into, and are deemed to be part of, this Agreement. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or an Exhibit or a Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or -48- "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." (b) Each of the Seller Disclosure Schedule and the KCS Disclosure Schedule shall set forth items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of such party's representations or warranties or one or more of its covenants contained in this Agreement, in each case making reference to the particular subsection of this Agreement requiring such disclosure or to which such exception is being taken. (c) This Agreement is in the English language. The Parties waive any rights they may have under Applicable Law to have this Agreement or any of the Ancillary Agreements made in any language other than English; provided to the extent that any such waiver shall not be valid under Applicable Law, the Parties agree that in case of any ambiguity or contradiction between the English language version of this Agreement and any translation into any other language, that the English language version shall control. Section 12.4 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Section 12.5 Notices. Unless otherwise provided herein, all notices and other communications hereunder shall be in writing and shall be deemed given if (a) delivered in person, (b) transmitted by facsimile (with written confirmation), (c) mailed by certified or registered mail (return receipt requested) (in which case such notice shall be deemed given on the third day after such mailing) or (d) delivered by an express courier (with written confirmation) to the Parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Sellers: Grupo TMM, S.A. Avenida de la Cuspide, No. 4755 Colonia Parques del Pedregal 14010 Mexico, D.F. CT Corporation 1209 Orange Street Wilmington, Delaware 19801 With a copy (which shall not constitute notice) to: Milbank, Tweed, Hadley & McCloy LLP 601 South Figueroa Street, 30th Floor -49- Los Angeles, CA 90017 Attention: Thomas C. Janson, Esq. If to KCS or the Surviving Company: Kansas City Southern P.O. Box 219335 427 West 12th Street Kansas City, MO 64121-9335 With a copy (which shall not constitute notice) to: Sonnenschein Nath & Rosenthal 4520 Main Street, Suite 1100 Kansas City, MO 64111 Attention: John F. Marvin, Esq. Any party hereto may from time to time change its address for notices under this Section 12.5 by giving at least 10 days' notice of such changed address to the other Parties hereto. Section 12.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions of this Agreement. Section 12.7 Binding Effect; Persons Benefiting; No Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and assigns. No provision of this Agreement is intended or shall be construed to confer upon any entity or Person other than the Parties and their respective successors and permitted assigns any right, remedy or claim under or by reason of this Agreement or any part hereof. This Agreement may not be assigned by any of the Parties without the prior written consent of the other Parties. Section 12.8 No Third Party Beneficiaries. This Agreement is intended for the benefit of the Parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision of this Agreement be enforced by, any other Person. Section 12.9 Counterparts. This Agreement may be executed in two or more counterparts, each original or facsimile of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement, it being understood that all of the Parties need not sign the same counterpart. Section 12.10 Specific Enforcement. The Parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that each of the Parties hereto shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement by the other and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they may be entitled by law or equity. -50- Section 12.11 Governing Law; Dispute Resolution. (a) Resolution of any and all disputes between KCS and one or more of Sellers (each of KCS, on the one hand, and one or more of the Sellers, on the other hand, a "Dispute Party" and together, the "Dispute Parties') arising from or in connection with this Agreement, the Ancillary Agreements or any transactions contemplated by this Agreement or the Ancillary Agreements, whether based on contract, tort, common law, equity, statute, regulation, order or otherwise, ("Disputes") including Disputes arising in connection with claims by third persons, shall be exclusively governed by and settled in accordance with the provisions of this Section 12.11; provided, that the foregoing shall not preclude equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending resolution of Disputes hereunder. (b) THIS AGREEMENT, THE LEGAL RELATIONS BETWEEN THE PARTIES HERETO AND THE ADJUDICATION AND ENFORCEMENT THEREOF, SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO APPLICABLE CHOICE OF LAW PROVISIONS THEREOF. (c) As to any Dispute which is not resolved in the ordinary course of business, the Dispute Parties shall first attempt in good faith to promptly resolve any Dispute by negotiations between executives. Either of the Dispute Parties may initiate this procedure by delivery of written notice of the Dispute (the "Dispute Notice") to the other. Not later than 20 days after delivery of the Dispute Notice, one executive of one of the Dispute Parties with authority to settle the Dispute shall meet with the one executive of the other Dispute Party with authority to settle the Dispute at a reasonably acceptable time and place, and thereafter as such executives shall deem reasonably necessary. The executives shall exchange relevant information and endeavor to resolve the Dispute. Prior to any such meeting, each Dispute Party's executive shall advise the other as to any individuals who will attend such meeting with the executive. All negotiations pursuant to this Section 12.11(c) shall be confidential and shall be treated as compromise negotiations for purposes of Rule 408 of the Federal Rules of Evidence and similarly under other local or foreign rules of evidence. (d) Each Dispute Party hereby agrees to submit all Disputes not resolved pursuant to Section 12.11(c) hereof to final and binding arbitration in New York, New York. Either Dispute Party may initiate such arbitration by delivery of a demand therefor (the "Arbitration Demand") to the other Dispute Party not sooner than 60 days after the date of delivery of the Dispute Notice but promptly thereafter; provided, that if a Dispute Party rejects participation in the procedures provided under Section 12.11(c), the other Dispute Party may initiate arbitration at such earlier time as such rejection shall become reasonably apparent, and, whenever arbitration is initiated, may seek recovery of any damages or expenses arising from such rejection, including attorney's fees and expenses, Arbitration Costs (as defined below) in connection with arbitration hereunder. (i) Three Arbitrators shall be appointed (the "Arbitrators"), one of whom shall be appointed by KCS, one by TMM, and the third of whom, who shall act as the chairman of the arbitral tribunal, shall be appointed by the first two Arbitrators within 10 business days of the first two Arbitrators confirmation by the American Arbitration Association. Each Party agrees that Sellers shall be -51- considered jointly as one side for the purposes of constitution of the arbitration tribunal hereunder. If either Dispute Party fails to appoint an Arbitrator within 10 business days of a request in writing by the other Dispute Party to do so or if the first two Arbitrators cannot agree on the appointment of the third Arbitrator within 10 business days of their confirmation by the American Arbitration Association, then such Arbitrator shall be appointed by the American Arbitration Association in accordance with its Commercial Arbitration Rules. As soon as the arbitration tribunal has been convened, a hearing date shall be set within 15 days thereafter; provided, that the Arbitrators may extend the date of the hearing upon request of any Dispute Party to the extent necessary to insure that such Dispute Party is given a reasonable period of time to prepare for the hearing. Written submittals in the English language shall be presented and exchanged by both Dispute Parties five business days before the hearing date. At such time the Dispute Parties shall also exchange copies of all documentary evidence upon which they will rely at the arbitration hearing and a list of the witnesses whom they intend to call to testify at the hearing. The Arbitrators shall make their determination as promptly as practicable after conclusion of the hearing. (ii) The arbitration shall be conducted in the English language pursuant to the Commercial Arbitration Rules of American Arbitration Association. Notwithstanding the foregoing, (A) each Dispute Party shall have the right to audit the books and records of the other Dispute Party that are reasonably related to the Dispute; (B) each Dispute Party shall provide to the other, reasonably in advance of any hearing, copies of all documents which a Dispute Party intends to present in such hearing; (C) all hearings shall be conducted on an expedited schedule; and (D) all proceedings shall be confidential, except that either Dispute Party may at its expense make a stenographic record thereof. (iii) The Arbitrators shall endeavor to complete all hearings not later than 120 days after their tribunal has been convened, and shall make a final award as promptly as practicable thereafter. Such award shall be communicated, in writing, by the Arbitrators to the Dispute Parties, and shall contain specific findings of fact and conclusions of law in accordance with the governing law set forth in Section 12.11(c) of this Agreement. Any award of such Arbitrators shall be final and binding upon the Parties to this Agreement and shall not be attacked by any of the Parties to this Agreement in any court of law and may be enforced in any court having jurisdiction, including expressly the courts of the State of Delaware, United States of America, and the courts of the Federal District of Mexico. The Arbitrators shall apportion all costs and expenses of the arbitration, including the Arbitrators' fees and expenses, fees and expenses of experts and fees and expenses of translators ("Arbitration Costs") between the prevailing and non-prevailing Dispute Party as the Arbitrators shall deem fair and reasonable. In circumstances where (A) a Dispute has been asserted or defended against on grounds that the Arbitrators deem manifestly unreasonable, or (B) the non-prevailing Dispute Party has rejected participation in procedures under Section 12.11(c), the Arbitrators may assess all Arbitration Costs against the non-prevailing Dispute Party and may include in the award the prevailing Dispute -52- Party's attorney's fees and expenses in connection with any and all proceedings under this Section 12.11. Notwithstanding the foregoing, in no event may the arbitrator award multiple or punitive damages. (e) Pursuant to an agreement of the Parties hereto or a judicial determination that a Dispute is not subject to final and binding arbitration as set forth in Section 12.11, KCS and each of Sellers irrevocably agrees that any legal action or proceeding against it with respect to this Agreement and any transaction contemplated by this Agreement shall be brought only in the courts of the State of Delaware, or of Federal courts of the United States of America sitting in Delaware, and by execution and delivery of this Agreement, KCS and each of Sellers irrevocably submits to the venue and jurisdiction of each such court and irrevocably waives any objection or defense such party may have to venue or personal jurisdiction in any such court for the purpose of resolving any claim, dispute, cause of action arising out of or related to this Agreement (including any claim that the suit or action has been brought in an inconvenient forum and any right to which it may become entitled on account of place of residence or domicile), the alleged breach of this Agreement, the enforcement of the terms of this Agreement, the Acquisition, the Ancillary Agreements and the other terms contemplated hereby and thereby. A final judgment in any suit, action or proceeding shall be conclusive and may be enforced in any court where jurisdiction over the Parties may be had or in which the Parties are subject to service of process. (f) Each of the parties hereto irrevocably appoints CT Corporation (the "Process Agent"), at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801 (302-658-7581), respectively as its agent and true and lawful attorney-in-fact in its name, place and stead to accept on behalf of each of the parties and their respective properties and revenues, service of copies of the summons and complaint and any other process which may be served in any such suit, action or proceeding brought in the State of Delaware, and each of the parties hereto agrees that failure of the Process Agent to give any notice of any such service of process to any of the parties hereto shall not impair or affect the validity of such service or the enforcement of any judgment based thereon. Section 12.12 Announcements. KCS and TMM shall consult with each other before issuing, and provide each other the opportunity to review, comment on and concur with, any press release or other public statement with respect to this Agreement, the Acquisition, the Ancillary Agreements and the other transactions contemplated hereby and thereby, except as either party may determine is otherwise required by Applicable Law, judicial or administrative action or any requirement of the NYSE or any other applicable self-regulatory organization. Section 12.13 Termination Fee. In the event of (i) a termination pursuant to Section 9.1(a)(v), the Party experiencing the Change of Control shall promptly after a demand therefor remit to the Party terminating in immediately available funds the sum of $18 million and (ii) a termination pursuant to Section 9.1(a)(iii) or 9.1(a)(iv) as a result of the failure of the stockholders of KCS or of TMM to approve the Acquisition if at or prior to the meeting of such stockholders to approve the Acquisition, the Board of Directors of KCS, in the case of the KCS Stockholders' meeting, or the Board of Directors of TMM, in the case of the TMM Stockholders' meeting, shall have failed to recommend or shall have withdrawn and not reinstated its recommendation of, the Acquisition, then the Party whose stockholders shall not have approved the Acquisition shall remit to the other Party, promptly after a demand therefor, in immediately available funds, the sum of $18 million. The receipt of any sums pursuant to this -53- Section 12.13 shall not preclude or diminish any other rights a Party may have under this Agreement. [Rest of page intentionally left blank] -54- IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written. KANSAS CITY SOUTHERN By: /s/ M.R. Haverty --------------------------------------- Name: Michael R. Haverty Title: Chairman, President & CEO KARA Sub, Inc. By: /s/ M.R. Haverty --------------------------------------- Name: Michael R. Haverty Title: Chairman, President & CEO GRUPO TMM, S.A. By: /s/ Jose Serrano --------------------------------------- Name: Jose Serrano Title: Chairman By: /s/ Javier Segovia --------------------------------------- Name: Javier Segovia Title: President TMM HOLDINGS, S.A. de C.V. By: /s/ Jose Serrano --------------------------------------- Name: Jose Serrano Title: Chairman By: /s/ Javier Segovia --------------------------------------- Name: Javier Segovia Title: President -55- TMM MULTIMODAL, S.A. de C.V. By: /s/ Jose Serrano --------------------------------------- Name: Jose Serrano Title: Chairman By: /s/ Javier Segovia --------------------------------------- Name: Javier Segovia Title: President -56- -----END PRIVACY-ENHANCED MESSAGE-----