Form 8-K KANSAS CITY SOUTHERN For: Mar 06
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 6, 2018
KANSAS CITY SOUTHERN
(Exact name of registrant as specified in its charter)
DELAWARE | 1-4717 | 44-0663509 |
(State or other jurisdiction | (Commission | (IRS Employer |
of incorporation) | file number) | Identification Number) |
427 West 12th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(816) 983 - 1303
Not Applicable
(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Short and Long Term Incentive Programs
On March 6, 2018, the Committee approved the Company's 2018 Long-Term Incentive Program (the "2018 LTI Program") and the 2018 Annual Incentive Plan (the "2018 AIP"), in which the Company's officers participate.
2018 LTI Program
The 2018 LTI Program consists of performance share awards (50%), non-qualified stock options (25%) and restricted stock (25%). All awards under the 2018 LTI Program were granted on March 6, 2018, and are governed by the Company's 2017 Equity Incentive Plan.
The performance period for the performance shares is the three year period 2018 through 2020. Participants may earn between 0% and 200% of the performance shares awarded under the 2018 LTI Program by meeting or exceeding the Return on Invested Capital (“ROIC”) and Operating Ratio (“OR”) performance criteria set for the 2018 LTI Program. The Committee set three-year performance goals for the 2018 LTI Program on March 6, 2018.
The payout percentage based on the ROIC and OR performance metrics is then subject to adjustment up or down based on a comparison of the average of the Company’s annual revenue growth during the performance period against the average of the annual growth rate of the other North American Class 1 railroads. For purposes of determining revenue growth for the Company and for all other North American Class I railroads, revenue includes (a) total revenue for the most recently reported twelve-month period, including fuel surcharge revenue, (b) adjustments for foreign exchange impacts as disclosed in publicly available information, and (c) adjustments for business combinations, acquisitions or dispositions as disclosed in publicly available information.
Performance shares earned under the 2018 LTI Program become vested and will be paid out on the later of (i) February 26, 2021, or (ii) the date the Compensation Committee certifies the performance results.
The performance metrics for the performance shares awarded under the 2018 LTI Program are ROIC and consolidated OR, weighted 75% and 25%, respectively. ROIC is defined as the quotient of the Company's net operating profit after taxes ("NOPAT") for the applicable performance period divided by the Company's invested capital where (i) NOPAT is the sum of the Company's net income, interest expense and interest on the present value of the Company's operating leases (all preceding items tax effected), with further adjustments to eliminate the after-tax effects of (a) adjustments included in Adjusted Diluted Earnings Per Share as reported by the Company, (b) fluctuations in the value of the Mexican peso against the U.S. dollar from the average exchange rates assumed in the Company’s 2018 long range plan, (c) impacts to fuel surcharge revenue, fuel expense and Mexican fuel excise tax credit for changes in fuel-related indices from the indices assumed in the Company’s 2018 long range plan, (d) changes in statutory income tax rates and laws enacted after January 1, 2018 on the Company’s income tax expense (e) business combinations or acquisitions, (f) changes in accounting principles, and (g) as approved by the Compensation Committee, other transactions or events that were not contemplated at the time performance targets were established by the Compensation Committee; and (ii) invested capital is the sum of the Company's average equity balance, average debt balance (reduced by the average cash balance) and the present value of the Company's operating leases, with further adjustments to eliminate the average invested capital impacts of (a) changes in accounting principles, (b) business combinations or acquisitions, and (c) as approved by the Compensation Committee, other transactions or events that were not contemplated at the time performance targets were established by the Compensation Committee.
Under the 2018 LTI Program, OR is defined as the Company's Adjusted Operating Ratio as reported in the Company’s earnings releases, with any necessary adjustments to eliminate the effects of (a) fluctuations in the value of the Mexican peso against the U.S. dollar from the average exchange rates assumed in the Company’s 2018 long range plan, (b) impacts to fuel surcharge revenue, fuel expense and Mexican fuel excise tax credit for changes in fuel-related indices from the indices assumed in the Company’s 2018 long range plan, (c) business combinations or acquisitions, (d) changes in accounting principles, and (e) as approved by the Compensation Committee, other transactions or events that were not contemplated at the time performance targets were established by the Compensation Committee.
The shares of restricted stock awarded under the 2018 LTI Program vest on February 26, 2021.
The non-qualified stock options become vested and exercisable in equal installments on March 6, 2019, March 6, 2020 and March 6, 2021, respectively. The stock options must be exercised in all events no later than ten years from the date of grant. The exercise price of the stock options is equal to the fair market value of the Company's common stock on the date of grant.
The above description is qualified in its entirety by the form of 2018 LTI Program award agreements attached to this Current Report on Form 8-K as Exhibits 10.1 (for awards of options, restricted stock and performance shares) and 10.2 (for awards of restricted stock).
2018 AIP
The Committee amended and restated the Kansas City Southern Annual Incentive Plan, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.3.
The 2018 AIP is payable in cash following certification by the Committee that the 2018 annual performance target is met. The performance target for the 2018 AIP is based on achieving an OR and operating cash flow ("OCF") within a specified range. OR and OCF are weighted equally in the 2018 AIP. The definition of OR for purposes of the 2018 AIP is identical to the definition of OR in the 2018 LTI Program. OCF is defined as the Company's Adjusted Operating Income before depreciation and amortization and after accrued capital expenditures (all preceding items as reported in the Company’s earnings releases and related materials), with any necessary adjustments to eliminate the effects of (a) fluctuations in the value of the Mexican peso against the U.S. dollar from the average exchange rates assumed in the Company’s 2018 long range plan, (b) impacts to fuel surcharge revenue, fuel expense and Mexican fuel excise tax credit for changes in fuel-related indices from the indices assumed in the Company’s 2018 long range plan, (c) business combinations or acquisitions, (d) changes in accounting principles, and (e) as approved by the Compensation Committee, other transactions or events that were not contemplated at the time performance targets were established by the Compensation Committee. The payout is then subject to adjustment based on the Company’s revenue growth compared to the other North American Class I railroads. The calculation of revenue for the 2018 AIP and 2018 LTI Program are the same.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit No. | Description | |
10.1 | Form of Non-Qualified Stock Option, Restricted Share and Performance Share Award Agreement under the Kansas City Southern 2017 Equity Incentive Plan for the 2018 Long-Term Incentive Program | |
10.2 | Form of Restricted Share Award Agreement (Standard Form) under the Kansas City Southern 2017 Equity Incentive Plan | |
10.3 | Kansas City Southern Annual Incentive Plan, as amended and restated March 6, 2018 | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Kansas City Southern
Date: March 12, 2018
By: | /s/ Adam J. Godderz |
Name: Adam J. Godderz | |
Title: Vice President & Corporate Secretary | |
Exhibit Index
Exhibit No. | Description | |
10.1 | ||
10.2 | ||
10.3 | ||
Exhibit 10.1
KANSAS CITY SOUTHERN
2017 EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION, RESTRICTED SHARE AND PERFORMANCE SHARE
AWARD AGREEMENT
By this Agreement, Kansas City Southern, a Delaware corporation (the “Company”), grants to you,
«Employee», an employee of the Company or an Affiliate, (“you”), (i) a non-qualified stock Option to purchase the number of shares of the Company’s Common Stock set forth below, (ii) the number of Restricted Shares set forth below, and (iii) the number of Performance Shares set forth below, which Performance Shares represent a conditional right to receive a number of Shares determined by the satisfaction of performance goals for the applicable Performance Period; all subject to the terms and conditions set forth below and in the attached Exhibit A and in the Kansas City Southern 2017 Equity Incentive Plan (including Committee rules, regulations, policies and procedures established thereunder), as may from time to time be amended (the “Plan”), all of which are an integral part of this Agreement.
«Employee», an employee of the Company or an Affiliate, (“you”), (i) a non-qualified stock Option to purchase the number of shares of the Company’s Common Stock set forth below, (ii) the number of Restricted Shares set forth below, and (iii) the number of Performance Shares set forth below, which Performance Shares represent a conditional right to receive a number of Shares determined by the satisfaction of performance goals for the applicable Performance Period; all subject to the terms and conditions set forth below and in the attached Exhibit A and in the Kansas City Southern 2017 Equity Incentive Plan (including Committee rules, regulations, policies and procedures established thereunder), as may from time to time be amended (the “Plan”), all of which are an integral part of this Agreement.
NON-QUALIFIED STOCK OPTION
Grant Date: | March 6, 2018 |
Number of Options: | «Options_Granted» |
Option Price: | $[###.##] |
This Option shall become exercisable in accordance with the schedule below, provided you remain continuously employed by the Company or an Affiliate from the Grant Date to such date. The term of the Option shall be ten (10) years from the Grant Date unless terminated earlier as provided in Exhibit A or in the Plan.
Number of Options Exercisable | Date Exercisable |
«Options1» | March 6, 2019 |
«Options2» | March 6, 2020 |
«Options3» | March 6, 2021 |
RESTRICTED SHARES
Grant Date: | March 6, 2018 |
Number of Restricted Shares: | «Restricted_Shares_Granted» |
Period of Restriction/Vesting Date: | February 26, 2021 |
PERFORMANCE SHARES
Grant Date: | March 6, 2018 |
Number of Performance Shares (at Target): | «Performance_Shares_Granted» |
3-Year Performance Period | FY 2018-20 |
Period of Restriction / Vesting Date: | Later of: (i) February 26, 2021, or (ii) the date the Committee certifies that the Performance Goals for the FY 2018-20 Performance Period are (or are not) satisfied. |
The Award evidenced by this Agreement shall not be effective unless you have indicated your acceptance of this Agreement by signing electronically as provided below promptly after your receipt of this Agreement. You should print and retain one copy of this Agreement for your records.
Kansas City Southern
By: /s/ ADAM J. GODDERZ
Adam J. Godderz
Vice President & Corporate Secretary
ACCEPTED AND AGREED*:
[Name]
[Participant ID]
* Acceptance of your award shall be indicated through the online process provided by Schwab. By clicking the “Accept” button, you are signing and dating this agreement electronically. Your electronic signature constitutes a legal signature confirming that you acknowledge and agree to the terms and conditions of this award agreement.
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EXHIBIT A
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NON-QUALIFIED STOCK OPTION, RESTRICTED SHARE AWARD, AND
PERFORMANCE SHARE AWARD AGREEMENT
You received three Awards under this Agreement: an Award of Non-Qualified Stock Options, an Award of Restricted Shares and an Award of Performance Shares. This Exhibit A consists of three sections. The first section applies to your Award of Non-Qualified Stock Options. The second section applies to your Award of Restricted Shares. The third section applies to your Award of Performance Shares. The fourth section contains provisions that apply to all your three types of Awards.
Non-Qualified Stock Option Award
1. Manner of Exercise. This Option shall be exercised by delivering to the Company (or its authorized agent), during the period in which such Option is exercisable, (i) a notice, which may be electronic, of your intent to purchase a specific number of Shares pursuant to this Option (a “Notice of Exercise”), and (ii) full payment of the Option Price for such specific number of Shares. Payment may be made by any one or more of the following means:
(a) cash, personal check, or wire transfer;
(b) if approved and permitted by the Committee, Shares owned by you with a Fair Market Value on the date of exercise equal to the Option Price, which such Shares must be fully paid, non-assessable, and free and clear from all liens and encumbrances;
(c) if approved and permitted by the Committee, through the sale of the Shares acquired on exercise of this Option through a broker to whom you have submitted irrevocable instructions to deliver promptly to the Company an amount sufficient to pay for such Shares, together with, if required by the Company, the minimum statutory amount of federal, state, local or foreign withholding taxes payable by reason of such exercise. A copy of such delivery instructions must also be delivered to the Company by you with the Notice of Exercise;
(d) if approved and permitted by the Committee, with Restricted Shares owned by you with a Fair Market Value on the date of exercise equal to the Option Price, in which case an equal number of Shares delivered on exercise of the Option will carry the same restrictions as the Restricted Shares tendered to pay the exercise price; or
The exercise of the Option shall become effective at the time such a Notice of Exercise has been received by the Company, which must be before the tenth (10th) anniversary of the Grant Date (the “Expiration Date”), unless an earlier date is provided herein. You shall not have any rights as a stockholder of the Company with respect to the Shares deliverable upon exercise of this Option until ownership of such Shares is recorded in your name on the books of the Company
If the Option is exercised as permitted herein by any person or persons other than you, such Notice of Exercise shall be accompanied by such documentation as Company may reasonably require, including without limitation, evidence of the authority of such person or persons to exercise the Option and evidence satisfactory to Company (if required by the Company) that any death taxes payable with respect to such Shares have been paid or provided for.
2. Exercisability. This Option shall become exercisable upon the date(s) specified in this Award Agreement, provided you remain continuously employed by the Company or an Affiliate from the Grant Date to such date(s) the Option becomes exercisable. This Option shall also become fully exercisable upon your Termination of Employment on account of: (a) Retirement, (b) death or (c) Disability. For purpose of your Option, Retirement means "Retirement" as defined in the Plan (Termination of Employment after having both attained age 55 and completed 10 years of service or after having attained age 65).
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3. Change of Control. This Option shall become fully exercisable upon a Change of Control, provided you have not had a Termination of Employment prior to such Change of Control.
4. Exercise After Termination of Employment. This Option may be exercised only while you are employed by the Company or an Affiliate, except that this Option may also be exercised after the date on which you have a Termination of Employment (“Termination Date”) as follows:
(i) if you have a Termination of Employment by reason of your Retirement, you may exercise this Option at any time prior to the Expiration Date;
(ii) if you have a Termination of Employment by reason of your Disability, you may exercise this Option at any time during the first twelve (12) months after your Termination Date;
(iii) if you have a Termination of Employment by reason of your death, the executor or administrator of your estate, your heirs or legatees, or beneficiary designated in accordance with the Plan, as applicable, may exercise this Option at any time during the first twelve (12) months after your Termination Date; and
(iv) if you have a Termination of Employment for any reason other than as described in subparagraph (i), (ii) or (iii) above, or as provided in paragraph 5, you may exercise this Option at any time during the first three (3) months after your Termination Date;
provided, however, that (x) except as otherwise provided in paragraphs 2 or 3 of this Non-Qualified Stock Option Award section, this Option may be exercised after your Termination Date only to the extent it is exercisable on the Termination Date, and (y) under no circumstances may this Option be exercised on or after the Expiration Date. For purposes of this paragraph 4, if you are employed by an Affiliate of the Company, you will be deemed to have had a Termination of Employment as of the first day on which such corporation ceases to be an Affiliate of the Company.
5. Affiliation with Competitor/Dismissal for Cause. Notwithstanding anything to the contrary contained herein, if you have a Termination of Employment due to a dismissal for Cause, or if you, without Company’s consent, become associated with, employed by, render service to, or own any interest in (other than any non-substantial interest, as the Committee from time to time determines) any business that is in competition with (i) the Company or (ii) any Related Company (as defined below), this Option shall terminate and cease to be exercisable immediately upon such event. For purposes of this paragraph, Related Company means (i) any individual or entity that directly, or through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company, and (ii) any entity in which the Company owns, directly or indirectly, twenty percent (20%) or more of the combined value of all equity interests.
6. Limited Transferability of Option. Except as provided in the immediately following sentence, this Option is exercisable during your lifetime only by you or your guardian or legal representative, and this Option is not transferable except by will or the laws of descent and distribution. To the extent and in the manner permitted by the Committee, and subject to such terms, conditions, restrictions or limitations as may be prescribed by the Committee, you may transfer this Option to (i) your spouse, sibling, parent, child (including an adopted child) or grandchild (any of which an “Immediate Family Member”); (ii) a trust, the primary beneficiaries of which consist exclusively of you or your Immediate Family Members; or (iii) a corporation, partnership or similar entity, the owners of which consist exclusively of you or your Immediate Family Members.
7. Fractional or De Minimis Shares. The Option shall not be exercisable with respect to a fractional share or with respect to fewer that ten (10) Shares, unless the remaining Shares are fewer than ten (10).
8. Nonstatutory Option. This Option has been designated by the Committee as a Nonstatutory Option; it does not qualify as an Incentive Stock Option.
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Restricted Shares Award
1. Payment. The Restricted Shares are awarded to you without requirement of payment.
2. Transfer Restrictions. Until the restrictions lapse, the Restricted Shares may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by you, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable; provided that the designation of a beneficiary pursuant to the Plan shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. Certificates will be transferred to you only as provided in paragraph 3 of this Restricted Shares Award section.
3. Record of Ownership. The number of your Restricted Shares with respect to which the restrictions have lapsed will be released from restrictions on the books of the Company. Delivery may be effected on an uncertificated basis, to the extent not prohibited by applicable law or the rules of the New York Stock Exchange. To the extent the Shares are delivered in uncertificated form, those Shares shall be deposited directly with Charles Schwab Trust Company, or such other agent designated by the Company, and the Company may utilize electronic or automated methods to transfer the Shares. Until the restrictions lapse, your Restricted Shares either will be evidenced by certificates held by or on behalf of the Company (in which case you will sign and deliver to the Company a stock power relating to the Restricted Shares so that the Company may cancel the Restricted Shares in the event of forfeiture), or the Restricted Shares will be reflected in a book-entry form or other account maintained by the Company, as determined by the Company.
4. Rights as Stockholder. During the Period of Restriction you will have all of the rights of a stockholder of the Company with respect to the Restricted Shares, except that (i) you will be subject to the provisions of paragraph 2 of this Restricted Shares Award section and (ii) any cash dividends or stock dividends paid with respect to any Restricted Shares which are subject to forfeiture under paragraph 8 of this Restricted Shares Award section will be retained by the Company for your benefit. The cash dividends or stock dividends so retained by the Company and attributable to your Restricted Shares subject to forfeiture under paragraph 8 of this Restricted Shares Award section will be distributed to you, without adjustment for earnings, in cash or in Shares (depending on the nature of the underlying dividend) when the Restricted Shares are no longer subject to forfeiture under paragraph 8 of this Restricted Shares Award section (whether or not the Restricted Shares remain subject to the provisions of paragraph 2 of this Restricted Shares Award section). You will not be entitled to any retained dividends attributable to any Restricted Shares which are forfeited pursuant to paragraph 8 of this Restricted Shares Award section.
5. Lapse of Restrictions Other than Upon Retirement. The Restricted Shares will vest and no longer be subject to restrictions upon the first of the following events to occur:
(a) The end of the Period of Restriction, provided your Termination of Employment does not occur prior to that date; or
(b) Your Termination of Employment by reason of your death;
(c) Your Termination of Employment by reason of your Disability; or
(d) A Change of Control.
6. Nonforfeitability of Shares Upon Retirement. Notwithstanding any provision in this Agreement to the contrary, if you satisfy the conditions for Retirement prior to the expiration of the Period of Restriction, then your Restricted Shares will become non-forfeitable in accordance with (a), (b) or (c) below, as applicable:
(a) If you first satisfy the conditions for Retirement on or before February 22, 2019, then (i) one-third (1/3) of your Restricted Shares will become non-forfeitable on February 22, 2019 provided you have not incurred a Termination of Employment before such date; (ii) an additional one-third (1/3) of your Restricted Shares will become non-forfeitable on February 28, 2020 provided you have not incurred a Termination of
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Employment before such date; and (iii) the final one-third (1/3) of your Restricted Shares will become non-forfeitable on February 26, 2021 provided you have not incurred a Termination of Employment before such date.
(b) If you first satisfy the conditions for Retirement after February 22, 2019 but on or before February 28, 2020, then (i) one-third (1/3) of your Restricted Shares will become non-forfeitable on the last day of the month during which you first satisfy the conditions for Retirement provided you have not incurred a Termination of Employment before such date; (ii) an additional one-third (1/3) of your Restricted Shares will become non-forfeitable on February 28, 2020 provided you have not incurred a Termination of Employment before such date; and (iii) the final one-third (1/3) of your Restricted Shares will become non-forfeitable on February 26, 2021 provided you have not incurred a Termination of Employment before such date; and
(c) If you first satisfy the conditions for Retirement after February 28, 2020 but on or before February 26, 2021, then (i) two-thirds (2/3) of your Restricted Shares will become non-forfeitable on the last day of the month during which you first satisfy the conditions for Retirement provided you have not incurred a Termination of Employment before such date; and (ii) the final one-third (1/3) of your Restricted Shares will become non-forfeitable on February 26, 2021 provided you have not incurred a Termination of Employment before such date.
Although certain of your Restricted Shares may become non-forfeitable as set forth above prior to the expiration of the Period of Restriction, such Shares shall remain subject to the restrictions on transfer set forth in paragraph 2 of this Restricted Shares Award section until the earlier of your Termination of Employment or the expiration of the Period of Restriction. For purposes of the foregoing, you will satisfy the conditions for "Retirement" only if you have attained age 55 and completed 10 years of service, or you have attained age 65, prior to your Termination of Employment.
7. Acceleration of Vesting. The Committee may at any time or times in its discretion accelerate the vesting of some or all of your Restricted Shares by specifying a date, other than what is provided in this Agreement, on which the Period of Restriction ends and such Shares will no longer be subject to restrictions. Any such Shares that become vested under this paragraph 7 will not be forfeited under paragraph 8 of this Restricted Shares Award section.
8. Forfeiture. If you have a Termination of Employment prior to any of the events specified in paragraphs 5 or 6 of this Restricted Shares Award section, then you will forfeit your Restricted Shares that are not vested upon such Termination of Employment. All of your rights to and interest in any Restricted Shares that are forfeited under this paragraph 8 will terminate upon forfeiture.
Performance Shares Award
1. Payment. The Performance Shares are awarded to you without requirement of payment by you.
2. Transfer Restrictions. The Performance Shares are rights that may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by you, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable; provided that the designation of a beneficiary pursuant to Article 14 of the Plan shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
3. Number of Shares Earned. Your Award of Performance Shares specifies a number of Performance Shares awarded with respect to the FY 2018-20 Performance Period. The number of Performance Shares designated for the FY 2018-20 Performance Period represents a target number of Shares to be earned if the Company performance goals (the “Performance Goals”) are met for the FY 2018-20 Performance Period. As of the last day of the FY 2018-20 Performance Period, the Committee will determine, in accordance with the Schedule of Performance Goals below (the "Performance Schedule"), the number of Shares, if any, earned by you. The earned Shares will be paid as provided
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in paragraph 7 of this Performance Shares Award section subject to satisfaction of the vesting requirements and forfeiture provisions of paragraph 4 and paragraph 10 of this Performance Shares Award section.
4. Vesting. The number of Shares earned as determined under the Performance Schedule will be paid to you only if you become vested in the Shares. You will become vested in the Shares on the Vesting Date provided you do not have a Termination of Employment prior to the Vesting Date except as otherwise provided in paragraph 5 and paragraph 6 of this Performance Shares Award section, and subject to any other forfeiture of Shares under paragraph 10 of this Performance Shares Award section. If you have a Termination of Employment prior to the Vesting Date, then except as provided in paragraph 5 and paragraph 6 of this Performance Shares Award section, you will forfeit all Performance Shares, and will have no right to earn or receive payment of any Shares under this Agreement.
5. Termination of Employment Due to Retirement. If you have a Termination of Employment prior to the Vesting Date due to Retirement, a portion of your Performance Shares will be forfeited and you will have no right to earn or receive payment of any Shares with respect to such forfeited portion. The forfeited portion shall be equal to your Performance Shares times a fraction, the numerator of which is the total number of remaining whole months in the FY 2018-20 Performance Period and the denominator of which is 36 months. The portion of your Performance Shares not forfeited pursuant to the foregoing shall be earned based on the applicable performance percentage determined in accordance with the Performance Schedule and shall be paid as provided in paragraph 7 of this Performance Shares Award. For purposes of your Performance Share Award, Retirement means "Retirement" as defined in the Plan (Termination of Employment after either having attained age 65 or having both attained age 55 and completed 10 years of service).
6. Termination of Employment Due to Change in Control, Death or Disability. If you have a Termination of Employment prior to the Vesting Date due to a Change in Control or due to your death or Disability, then upon such Termination of Employment, you will be deemed to have earned a number of Shares determined under the Performance Schedule as if the Performance Goals were at Target.
7. Payment of Shares. Except as provided in the following sentence, the Shares, if any, earned by you under this Agreement, and not forfeited under this Agreement, will be delivered to you, or your beneficiary if you are deceased, for the number of Shares earned as soon as practicable after the latest to occur of (a) the Vesting Date, or (b) the determination of the number of all Shares, if any, earned by you under this Agreement with respect to the FY 2018-20 Performance Period. Notwithstanding the preceding sentence, in the event of vesting prior to the Vesting Date under the provisions of paragraph 6 of this Performance Shares Award section, then the Shares, if any, earned by you will be delivered to you or your beneficiary as soon as practicable after your Termination of Employment. Delivery of Shares may be effected on an uncertificated basis, to the extent not prohibited by applicable law or the rules of the New York Stock Exchange. To the extent the Shares are delivered in uncertificated form, your Shares shall be deposited directly with Charles Schwab Trust Company, or such other agent designated by the Company, and the Company may utilize electronic or automated methods to transfer the Shares.
8. Rights as Stockholder. Prior to the time you receive a payment of Shares under this Agreement, you will have no rights of a stockholder of the Company with respect to your Performance Shares or any Shares which may be or have been earned by you. Accordingly, with respect to the Performance Shares or any unearned or earned but unpaid Shares, in addition to the restrictions under paragraph 2 of this Performance Shares Award section, you will not have the right to vote, you will not receive or be entitled to receive cash or non-cash dividends, and you will not have any other beneficial rights as a shareholder of the Company.
9. Acceleration of Vesting Date. The Committee may at any time or times in its discretion waive your obligation to remain employed through the Vesting Date in order to receive any Shares. In the event of such a waiver, you will receive a payment of those Shares, if any, which would have been paid to you had you remained employed through the Vesting Date based upon the level of goal achievement under the Performance Schedule. Waiver of a continued employment condition under this paragraph 9 will not result in an earlier payment of any Shares.
10. Additional Forfeiture Provision and Repayment Obligation. Notwithstanding any provisions of this Agreement to the contrary, if the Committee determines that you have engaged in Gross Misconduct as defined in this
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paragraph 10, then: (a) you will immediately forfeit all Performance Shares awarded to you, and all earned or unearned Shares, for the FY 2018-20 Performance Period under this Agreement, and you will have no right to receive payment of any Shares under this Agreement and (b) you will repay to the Company a number of Shares, or a dollar amount equal to the current Fair Market Value of a number of Shares, equal to the number of Shares previously paid to you under this Agreement. For purposes of this paragraph 10, Gross Misconduct means intentional conduct in disregard of the Company’s expectations of someone in your position with the Company that has caused significant financial harm to the Company, whether occurring before or after your Termination of Employment.
Provisions Applicable to Your Non-Qualified Stock Option Award, Restricted Shares Award and Performance Share Award
1. Plan Governs. The Non-Qualified Stock Option Award, Restricted Shares Award and Performance Share Award and this Agreement are subject to the terms and conditions of the Plan. The Plan is incorporated in this Agreement by this reference. All capitalized terms used in this Agreement have the meaning set forth in the Plan unless otherwise defined in this Agreement. By executing this Agreement, you acknowledge receipt of a copy of the Plan and the prospectus covering the Plan and you acknowledge that the Award is subject to all the terms and provisions of the Plan. You further agree to accept as binding, conclusive and final all decisions and interpretations by the Plan Committee with respect to any questions arising under the Plan. By signing this Agreement with respect to your Non-Qualified Stock Option Award, you are not obligated to exercise all or any part of this Option or any other Option.
2. Tax Withholding. As of any date that a required tax withholding liability (“Required Withholding”) occurs, you must remit all amounts necessary to satisfy the Required Withholding. The Company will not deliver Shares to you or release the restrictions on Shares under this Agreement unless you remit (or in appropriate cases agree to remit) or otherwise provide for the Required Withholding as allowed under the Plan, as amended.
3. No Right to Employment. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or an Affiliate to terminate your employment or service at any time, nor confer upon you the right to continue in the employ of the Company or an Affiliate.
4. Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to you shall be addressed to you at the address listed in the Company’s records. By written notice referencing this paragraph of this Agreement, either party may designate a different address for notices. Any notice under this Agreement to the Company shall become effective upon receipt by the Company. Any notice under this Agreement to you will be deemed to have been delivered to you when delivered in person or when deposited in the United States mail, addressed to you at your address on the shareholder records of the Company, or such other address as you have designated under this paragraph.
5. Tax Consultation. Your signature on this Agreement means that you understand that you may incur tax consequences as of any date that a number (which may be all or part) of your Restricted Shares or Performance Shares would no longer be forfeited if you were to have a Termination of Employment on such date, and that special tax rules apply with respect to your Non-Qualified Stock Option. You agree to consult with any tax consultants you think advisable in connection with tax issues regarding your Non-Qualified Stock Option Award, Restricted Shares Award and Performance Share Award and you acknowledge that you are not relying, and will not rely, on the Company or any Affiliate for any tax advice. Please see Section 17.2 of the Plan regarding Code Section 83(b) elections with respect to your Restricted Shares.
6. Amendment. The Company reserves the right to amend the Plan at any time. The Committee reserves the right to amend this Agreement at any time.
7. Severability. If any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any part of this Agreement not declared to be unlawful or invalid. Any part so declared unlawful or invalid shall, if possible, be construed in a manner which gives effect to the terms of such part to the fullest extent possible while remaining lawful and valid.
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8. Applicable Law. This Agreement shall be governed by the laws of the State of Delaware other than its laws respecting choice of law.
9. Headings. Headings are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
10. No Waiver. The failure of Company in any instance to exercise any of its rights granted under this Agreement or the Plan shall not constitute a waiver of any other rights that may arise under this Agreement.
11. Right of Recovery. Notwithstanding any provisions of this Agreement to the contrary, the Company may recover from you any amount paid or payable to you (or the current Fair Market Value of any Shares paid or payable to you) pursuant to this Agreement which is required to be recovered under the rules of any exchange on which the Company's Shares are registered or any amount the Committee determines is appropriate under the Company's policies in effect from time to time regarding the recovery of incentive compensation, including any such policies adopted after the Grant Date of this Agreement.
12. Data Privacy. By accepting the Award, you agree that any data, including your personal data, may be exchanged among the Company and its Affiliates to the extent the Company determines necessary or advisable to administer the Plan and the Award, as well as with any third-party engaged by the Company to administer the Plan and the Awards granted under the Plan.
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Schedule of Performance Goals for Performance Shares
FY 2018-20 Performance Level | Return on Invested Capital (ROIC)1 (75% Weighting) | Operating Ratio (OR)2 (25% Weighting) | Earned Percentage of Incentive Target |
2018 | |||
Threshold | _____% | _____% | 0% |
Target | ____% - ___% | ____% - ___% | 100% |
Maximum | ___% | ___% | 200% |
2019* | |||
Threshold | _____% | _____% | 0% |
Target | ____% - ___% | ____% - ___% | 100% |
Maximum | ___% | ___% | 200% |
2020* | |||
Threshold | _____% | _____% | 0% |
Target | ____% - ___% | ____% - ___% | 100% |
Maximum | ___% | ___% | 200% |
* 2019 and 2020 performance goals are based on the preceding year’s actual results.
The number of Shares earned for the FY 2018-20 Performance Period will be equal to the product of:
The average of the earned percentage for each fiscal year
X
Revenue Growth Multiplier
X
The number of Performance Shares subject to this Award Agreement
In no event, however, shall the number of Performance Shares earned for the FY 2018-20 Performance Period exceed 200% of target.
To determine the “earned percentage” for a fiscal year, the Committee will compare the Company’s actual performance for the fiscal year to the Performance Goals for such fiscal year as set forth in the above schedule. If the calculated percentage is between Threshold and Maximum for any fiscal year, then the earned percentage will be prorated. If the calculated percentage is below Threshold, then the earned percentage for the fiscal year will be 0%. If the calculated percentage is above Maximum, then the earned percentage will be 200%. For purposes of the foregoing, any fractional Share earned with respect to the FY 2018-20 Performance Period shall be rounded down to the nearest whole Share.
The “Revenue Growth Multiplier” is determined based on the average of the Company’s annual revenue growth during the 3-year Performance Period relative to the average of the annual revenue growth of all other Class 1 railroads over the same time frame. The average of the annual revenue growth for each Class 1 railroad shall be determined by first calculating the change in revenue for each applicable year and then computing the 3-year average. Each Class 1 railroad will then be ranked in order of the highest to lowest average annual revenue growth rate for the 3-year Performance Period. For purposes of determining revenue growth for the Company and for all other North American Class I railroads, revenue includes (a) total revenue for the most recently reported twelve-month period, including fuel surcharge revenue, (b) adjustments for foreign exchange impacts as disclosed in publicly available information, and (c) adjustments for
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business combinations, acquisitions or dispositions as disclosed in publicly available information. The Revenue Growth Multiplier for purpose of this Award will be based on the following results:
If the Company’s average annual revenue growth ranking is . . . | Then the Revenue Growth Multiplier will be . . . |
1st place | 125% |
2nd place | 115% |
2nd to last place | 90% |
Last place | 80% |
Any other ranking | 100% |
1 ROIC is defined as [TBD].
2 OR is defined as [TBD].
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Exhibit 10.2
KANSAS CITY SOUTHERN
2017 EQUITY INCENTIVE PLAN
RESTRICTED SHARES AWARD AGREEMENT
By this Agreement, Kansas City Southern, a Delaware corporation (the "Company"), awards to you, [Name], an employee of the Company or an Affiliate, as Grantee, that number of shares ("Restricted Shares") of the Company's Common Stock, $.01 par value, set forth below, subject to the terms and conditions set forth below and in the attached Exhibit A hereto and in the Kansas City Southern 2017 Equity Incentive Plan (including Committee rules, regulations, policies and procedures established thereunder), as may from time to time be amended (the "Plan"), all of which are an integral part of this Agreement.
Grant Date March 6, 2018
Period of Restriction | Beginning on the Grant Date and ending on February 26, 2021 |
Number of Restricted Shares [No. of Shares]
The Award evidenced by this Agreement shall not be effective unless you have indicated your acceptance of this Agreement by signing electronically as provided below promptly after your receipt of this Agreement. You should print and retain one copy of this Agreement for your records.
Kansas City Southern
By: /s/ ADAM J. GODDERZ
Adam J. Godderz
Vice President & Corporate Secretary
ACCEPTED AND AGREED*:
[Name]
[Participant ID]
* Acceptance of your award shall be indicated through the online process provided by Schwab. By clicking the “Accept” button, you are signing and dating this agreement electronically. Your electronic signature constitutes a legal signature confirming that you acknowledge and agree to the terms and conditions of this award agreement.
EXHIBIT A
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RESTRICTED SHARES AWARD AGREEMENT
1. Plan Governs. The Award and this Agreement are subject to the terms and conditions of the Plan. The Plan is incorporated in this Agreement by this reference. All capitalized terms used in this Agreement have the meaning set forth in the Plan unless otherwise defined in this Agreement. By executing this Agreement, you acknowledge receipt of a copy of the Plan and the prospectus covering the Plan and you acknowledge that the Award is subject to all the terms and provisions of the Plan. You further agree to accept as binding, conclusive and final all decisions and interpretations by the Plan Committee with respect to any questions arising under the Plan.
2. Payment. The Restricted Shares are awarded to you without requirement of payment.
3. Transfer Restrictions. Until the restrictions lapse, the Restricted Shares may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by you, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable; provided that the designation of a beneficiary pursuant to Article 14 of the Plan shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. Certificates will be transferred to you only as provided in paragraph 4 of this Exhibit A.
4. Record of Ownership. The number of your Restricted Shares with respect to which the restrictions have lapsed will be released from restrictions on the books of the Company. Delivery may be effected on an uncertificated basis, to the extent not prohibited by applicable law or the rules of the New York Stock Exchange. To the extent the Shares are delivered in uncertificated form, those Shares shall be deposited directly with Charles Schwab Trust Company, or such other agent designated by the Company, and the Company may utilize electronic or automated methods to transfer the Shares. Until the restrictions lapse, your Restricted Shares either will be evidenced by certificates held by or on behalf of the Company (in which case you will sign and deliver to the Company a stock power relating to the Restricted Shares so that the Company may cancel the Restricted Shares in the event of forfeiture), or the Restricted Shares will be reflected in a book-entry form or other account maintained by the Company, as determined by the Company.
5. Rights as Stockholder. During the Period of Restriction you will have all of the rights of a stockholder of the Company with respect to the Restricted Shares, except that (i) you will be subject to the provisions of paragraph 3 of this Exhibit A and (ii) any cash dividends or stock dividends paid with respect to any Restricted Shares which are subject to forfeiture under paragraph 9 of this Exhibit A will be retained by the Company for your benefit. The cash dividends or stock dividends so retained by the Company and attributable to your Restricted Shares subject to forfeiture under paragraph 9 of this Exhibit A will be distributed to you, without adjustment for earnings, in cash or in Shares (depending on the nature of the underlying dividend) when the Restricted Shares are no longer subject to forfeiture under paragraph 9 of this Exhibit A (whether or not the Restricted Shares remain subject to the provisions of paragraph 3 of this Exhibit A). You will not be entitled to any retained dividends attributable to any Restricted Shares which are forfeited pursuant to paragraph 9 of this Exhibit A.
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6. Lapse of Restrictions Other than Upon Retirement. The Restricted Shares will no longer be subject to restrictions upon the first of the following events to occur:
(a) The end of the Period of Restriction, provided your Termination of Employment does not occur prior to that date; or
(b) Your Termination of Employment by reason of your death; or
(c) Your Termination of Employment by reason of your Disability; or
(d) A Change of Control.
7. Lapse of Restrictions Upon Retirement. If, prior to the occurrence of any of the events specified in paragraph 6 of this Exhibit A, you satisfy the conditions for Retirement, then your Restricted Shares will become non-forfeitable in accordance with (a), (b) or (c) below, as applicable:
(a) If you first satisfy the conditions for Retirement on or before February 22, 2019, then (i) one-third (1/3) of your Restricted Shares will become non-forfeitable on February 22, 2019, provided you have not incurred a Termination of Employment before such date; (ii) an additional one-third (1/3) of your Restricted Shares will become non-forfeitable on February 28, 2020, provided you have not incurred a Termination of Employment before such date; and (iii) the final one-third (1/3) of your Restricted Shares will become non-forfeitable on February 26, 2021, provided you have not incurred a Termination of Employment before such date.
(b) If you first satisfy the conditions for Retirement after February 22, 2019, but on or before February 28, 2020, then (i) one-third (1/3) of your Restricted Shares will become non-forfeitable on the last day of the month during which you first satisfy the conditions for Retirement provided you have not incurred a Termination of Employment before such date; (ii) an additional one-third (1/3) of your Restricted Shares will become non-forfeitable on February 28, 2020, provided you have not incurred a Termination of Employment before such date; and (iii) the final one-third (1/3) of your Restricted Shares will become non-forfeitable on February 26, 2021, provided you have not incurred a Termination of Employment before such date; and
(c) If you first satisfy the conditions for Retirement after February 28, 2020, but on or before February 26, 2021, then (i) two-thirds (2/3) of your Restricted Shares will become non-forfeitable on the last day of the month during which you first satisfy the conditions for Retirement provided you have not incurred a Termination of Employment before such date; and (ii) the final one-third (1/3) of your Restricted Shares will become non-forfeitable on February 26, 2021, provided you have not incurred a Termination of Employment before such date.
Although certain of your Restricted Shares may become non-forfeitable as set forth above prior to the expiration of the Period of Restriction, such Shares shall remain subject to the restrictions on transfer set forth in paragraph 3 of this Restricted Shares Award section until the earlier of your Termination of Employment or the expiration of the Period of Restriction. For purposes of the
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foregoing, you will satisfy the conditions for "Retirement" only if you have either attained age 65 or age 55 and completed 10 years of service prior to your Termination of Employment.
8. Acceleration of Vesting. The Committee may at any time or times in its discretion accelerate the vesting of some or all of your Restricted Shares by specifying a date, other than what is provided in this Agreement, on which such Shares will no longer be subject to restrictions. Any such Shares that are then vested under this paragraph 8 will not be forfeited under paragraph 9 of this Exhibit A.
9. Forfeiture. Any Restricted Shares that pursuant to the provisions of this Award Agreement do not become vested on or before your Termination of Employment will be forfeited upon your Termination of Employment. All of your rights to and interest in any Restricted Shares that are forfeited under this Agreement will terminate upon forfeiture.
10. Tax Withholding. As of any date that a required tax withholding liability (“Required Withholding”) occurs, you must remit all amounts necessary to satisfy the Required Withholding. The Company will not deliver Shares to you or release the restrictions on Shares under this Agreement unless you remit (or in appropriate cases agree to remit) or otherwise provide for the Required Withholding as allowed under the Plan, as amended.
11. No Right to Employment. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or an Affiliate to terminate your employment or service at any time, nor confer upon you the right to continue in the employ of the Company or an Affiliate.
12. Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Corporate Secretary. Any notice to be given to you shall be addressed to you at the address listed in the Company’s records. By written notice referencing this paragraph of this Agreement, either party may designate a different address for notices. Any notice under this Agreement to the Company shall become effective upon receipt by the Company. Any notice under this Agreement to you will be deemed to have been delivered to you when delivered in person or when deposited in the United States mail, addressed to you at your address on the shareholder records of the Company, or such other address as you have designated under this paragraph.
13. Tax Consultation. Your signature on this Agreement means that you understand that you may incur tax consequences as of any date that a number (which may be all or part) of your Restricted Shares would no longer be forfeited if you were to have a Termination of Employment on such date. You agree to consult with any tax consultants you think advisable in connection with the Restricted Shares and you acknowledge that you are not relying, and will not rely, on the Company or any Affiliate for any tax advice. Please see Section 17.2 of the Plan regarding Code Section 83(b) elections.
14. Amendment. The Company reserves the right to amend the Plan at any time. The Committee reserves the right to amend this Agreement at any time.
15. Severability. If any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any part of this Agreement not declared to be unlawful or invalid. Any part so declared unlawful or
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invalid shall, if possible, be construed in a manner which gives effect to the terms of such part to the fullest extent possible while remaining lawful and valid.
16. Applicable Law. This Agreement shall be governed by the laws of the State of Delaware other than its laws respecting choice of law.
17. Data Privacy: By accepting the Award, you agree that any data, including the your personal data, may be exchanged among the Company and its Affiliates to the extent the Company determines necessary or advisable to administer the Plan and the Award, as well as with any third-party engaged by the Company to administer the Plan and the Awards granted under the Plan.
18. Headings. Headings are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
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Exhibit 10.3
KANSAS CITY SOUTHERN ANNUAL INCENTIVE PLAN
(As Amended and Restated Effective March 6, 2018)
1. PURPOSE. The purpose of the Plan is to provide Eligible Employees of the Employer with annual incentive compensation based on the level of achievement of financial and other performance criteria. The Plan is intended to focus the interests of these employees on the key measures of the Company's success and to reward these employees for the Company’s achievement of those key measures of the Company's success.
2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below:
(a) “Award” shall mean the right to receive a cash payment for a Performance Year payable to a Participant on account of his or her participation in the Plan and achievement of the applicable Performance Goal(s).
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, including applicable regulations and rulings thereunder and any successor provisions thereto.
(d) “Committee” shall mean the Compensation and Organization Committee of the Board (or any successor committee).
(e) “Company” shall mean Kansas City Southern, and any successor thereto which adopts the Plan.
(f) “Disability” shall mean a disability as determined under the Employer’s applicable long-term disability program.
(g) “Eligible Earnings” shall include base earnings and certain pay differentials for time worked in an eligible position during the Performance Year.
(h) “Eligible Employee” shall mean an individual who is employed by the Employer who is not represented by a union or other collective bargaining organization.
(i) “Employer” shall mean the Company and any affiliate of the Company that elects to participate and be an Employer under the Plan with the consent of the Company.
(j) "Maximum Award" shall mean an Award amount that may be paid if the maximum level of the Performance Goal(s) is achieved in the Performance Year.
(k) “Participant” shall mean, with respect to any Performance Year, any Eligible Employee who is selected to participate in the Plan in accordance with Section 3 of the Plan.
(l) “Performance Goal” shall mean the pre-established performance goal(s) established under the Plan for each Performance Year as described in Section 4 of the Plan.
(m) “Performance Measures” shall mean any criteria on which Performance Goals may be based as determined by the Committee in its discretion, including but not limited to any of the following:
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(i) Earnings (either in the aggregate or on a per-share basis);
(ii) Net income (before or after taxes);
(iii) Operating income;
(iv) Cash flow;
(v) Return measures (including return on assets, equity, or sales);
(vi) Earnings before or after any, or any combination of, taxes, interest or depreciation and amortization;
(vii) Gross revenues;
(viii) Share price (including growth measures and stockholder return or attainment by the Company's common stock of a specified value for a specified period of time);
(ix) Reductions in expense levels in each case, where applicable, determined either on a Company-wide basis or in respect of any one or more business units;
(x) Net economic value;
(xi) Market share;
(xii) Operating profit;
(xiii) Costs;
(xiv) Operating and maintenance cost management and employee productivity;
(xv) Stockholder returns (including return on assets, investments, equity, or gross sales);
(xvi) Economic value added;
(xvii) Aggregate product unit and pricing targets;
(xviii) Strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market share, market penetration, geographic business expansion goals, objectively identified project milestones, production volume levels, cost targets, and goals relating to acquisitions or divestitures;
(xix) Achievement of business or operational goals such as market share and/or business development;
(xx) Results of customer satisfaction surveys;
(xxi) Safety record;
(xxii) Network and service reliability;
(xxiii) Debt ratings, debt leverage and debt service; and/or
(xxiv) Operating ratio.
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(n) “Performance Year” shall mean the calendar year of the Company.
(o) “Plan” shall mean the Kansas City Southern Annual Incentive Plan, as set forth herein, as from time to time amended.
(p) “Retirement” shall mean an Employee’s separation of employment from the Company with an immediate eligibility to receive a retirement annuity per the provisions of the Railroad Retirement Board.
(q) “Target Award” shall mean the amount eligible to be paid under an Award if the target Performance Goal(s) is achieved in the Performance Year.
(r) “Threshold Award” shall mean the amount eligible to be paid under an Award if the threshold Performance Goal(s) is achieved in the Performance Year.
3. ELIGIBILITY and PARTICIPATION. A Participant must be employed by the Employer on the last business day of the Performance Year in order to be eligible to receive payment under an Award, except in the cases of Retirement, death or Disability.
4. ESTABLISHMENT AND DETERMINATION OF AWARDS.
(a) Establishment of Performance Goal(s). After recommendations from senior management of the Company based on consultation with third party sources, the Committee shall establish objective threshold, target, and maximum Performance Goal(s) for each Award after the beginning of each Performance Year, and shall also establish any other bonus payment amounts at other levels of performance. The Performance Goals may be based upon the performance of the Company, the Employer, or any operating unit level, division or function thereof, and may be applied either alone or relative to the performance of other businesses or individuals (including industry or general market indices), based on one or more of the Performance Measures. All Performance Goals may be expressed as whole dollar amounts, percentages or growth rates.
With respect to any or all Performance Goal(s) applicable to a Participant, the Company shall also establish, subject to the approval of the Committee, the Threshold Award, Target Award, and Maximum Award payable to the Participant if such Performance Goal(s) is achieved. Threshold Awards, Target Awards, and Maximum Awards will be expressed as a percentage of a Participant’s Eligible Earnings and correspond to the Participant’s designated Award level unless otherwise determined by the Committee.
(b) Payment of Awards. Unless otherwise determined by the Committee, the payment of any Award shall be subject to achievement of the applicable Performance Goal(s) and the degree to which each of the Performance Goals have been attained. If a Participant’s Target Award level changes during a Performance Year, the amount of the Participant’s Award will be computed in proportion to his or her Award level that applied to such Participant each day during such Performance Year.
(c) Adjustments to Awards. The Committee may, in its discretion, modify (including by increasing or reducing) the amount of any Award based on such criteria as it shall determine, including, but not limited to, financial results, individual performance, safety performance, business unit and site accomplishments, and other factors tied to the success of the Company or any of its business units. There is no obligation of uniformity of treatment of Participants under the Plan.
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(d) Profit Sharing Adjustment. If, under statutory law, a Participant is entitled to a profit sharing payment from the Employer for a calendar year that coincides with a Performance Year, then the Award amount otherwise payable to the Participant hereunder shall be reduced by an amount equal to such statutory profit sharing amount payable to the Participant. If applicable, for purposes of calculating such reduction, the statutory profit sharing amount shall be converted to U.S. dollars in accordance with procedures established hereunder.
5. PAYMENT OF AWARDS.
(a) Time of Payment. An Award shall be paid to a Participant in cash after the Committee has determined that the Performance Goal(s) for the Performance Year have been achieved but in no event later than the 15th day of the third month following the end of such Performance Year. Notwithstanding the foregoing, an Award with respect to a Performance Year to be paid to a Participant that is not subject to income taxation under the laws of the United States, may be paid later than the 15th day of the third month following the end of such Performance Year, but shall not in any event be paid later than the 30th day of the fourth month following the end of such Performance Year. Awards payable to other Participants who have had a termination of employment on account of Retirement, death, Disability, or other special circumstance determined appropriate by the Committee during the Performance Year shall be payable in accordance with Section 4(b) of the Plan and at the same time other Participants receive Awards under the Plan. If the Participant dies prior to receiving payment of an Award, any Award payable under the Plan to such Participant shall be paid to the Participant’s surviving spouse (if married) or estate (if unmarried).
(b) Withholding. Awards are subject to withholding for applicable federal, state and local taxes.
6. PLAN ADMINISTRATION.
(a) Administration. The Plan shall be administered by the Committee. The Committee shall have full discretionary authority to establish the rules and regulations relating to the Plan, to interpret the Plan and those rules and regulations, to determine the Awards and the Performance Measures applicable to each Award, to approve all Awards, to decide the facts in any case arising under the Plan, and to make all other determinations and to take all other actions necessary or appropriate for the proper administration of the Plan. In making any determinations under or referred to in the Plan, the Committee shall be entitled to rely on opinions, reports or statements of employees of the Company and of counsel, public accountants, and other professional or expert persons. The Committee’s administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final and binding on the Company and its stockholders and all employees, including Participants and their beneficiaries. No member of the Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award.
(b) Delegation. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members, and may delegate all or any part of its responsibilities and powers for administering the Plan to one or more persons as the Committee deems appropriate, and at any time may revoke any such allocation or delegation.
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7. AMENDMENT OR TERMINATION OF PLAN. The Committee may amend (in whole or in part) or terminate the Plan at any time, effective at such date as the Committee may determine. The Company also may amend (in whole or in part) or terminate the Plan at any time effective as of such date as the Company may determine, provided, however, any such amendment of the Plan by the Company is subject to the approval of the Committee.
8. MISCELLANEOUS PROVISIONS.
(a) Awards Not Transferable. A Participant’s right and interest under the Plan may not be assigned or transferred. Any attempted assignment or transfer shall be null and void and shall extinguish, in the Committee’s sole discretion, the Company’s obligation under the Plan to pay Awards with respect to the Participant.
(b) Effect of Awards on Other Compensation.
1) Awards shall not be considered eligible pay under other plans, benefit arrangements or fringe benefit arrangements of the Company, unless otherwise provided under the terms of other plans.
2) To the extent provided in the applicable benefit plan or benefit arrangement of an Employer, amounts payable as Awards will be reduced in accordance with the Participant’s compensation reduction election, if any, in effect under other plans at the time the Award is paid.
(c) No Employment Rights. This Plan is not a contract between the Employer and any employee or Participant. Neither the Plan, nor any action taken hereunder, shall be construed as giving to any Participant the right to be retained in the employ of the Employer. Nothing in the Plan shall limit or affect in any manner or degree the normal and usual powers of management, exercised by the officers and the Board or any committee of the Board, to change the duties or the character of employment of any employee or to remove an individual from the employment of the Employer at any time, all of which rights and powers are expressly reserved.
(d) Unfunded Plan. The Plan shall be unfunded. No Employer shall be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of Awards. Awards shall be paid solely from the general assets of the Participant’s Employer, to the extent the payments are attributable to services for the Employer. To the extent any person acquires a right to receive payments from an Employer under the Plan, the right is no greater than the right of any other unsecured general creditor.
(e) Payment in Shares of Company Common Stock. Notwithstanding any provision in this Plan to the contrary, the Committee may direct that payment of an Award be made in shares of the Company's common stock, in lieu of cash, in accordance with any executive stock ownership guidelines adopted by the Committee. Any such Award paid in shares of the Company's common stock shall be made pursuant to and in accordance with the Kansas City Southern 2017 Equity Incentive Plan (or any successor plan).
(f) Applicable Law. The Plan shall be governed by the laws of the State of Missouri and applicable federal law.
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