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):
May 1, 2003
KANSAS CITY SOUTHERN
(Exact name of company as specified in its charter)
DELAWARE 1-4717 44-0663509
---------------------------- ------------------------- -----------------------
(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation) Identification Number)
427 West 12th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code:
(816) 983 - 1303
Not Applicable
(Former name or former address if changed since last report)
Item 9. Regulation FD Disclosure
Kansas City Southern ("KCS" or "Company") is furnishing under Item 9 of this
Current Report on Form 8-K the information set forth below which was included in
a private placement offering memorandum under Rule 144A. The securities offered
in such private placement 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. The
information furnished under this Item 9 does not constitute an offer to sell, or
the solicitation of an offer to buy, any security. The information included in
this Current Report on Form 8-K is furnished pursuant to Item 9 and shall not be
deemed to be "filed" for the purposes of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that Section.
PROPOSED ACQUISITIONS
On April 21, 2003, KCS and Grupo TMM announced a series of agreements
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. Grupo TFM holds an 80%
interest in TFM, which holds a 100% interest in Mexrail. Mexrail wholly-owns
Tex-Mex.
Under an Acquisition Agreement, dated April 20, 2003 (the "Acquisition
Agreement"), upon the terms and subject to the conditions of the Acquisition
Agreement, KCS would acquire all of the interest of TMM Multimodal in Grupo TFM
for $200 million (up to $80 million of which may be paid with KCS equity) and 18
million shares of Class A Common Stock of KCS (the "Acquisition"). See
"Description of the Acquisitions--The Acquisition Agreement." Subject to
receiving shareholder approval, KCS would change its name to "NAFTA Rail."
Consummation of the Acquisition is subject to certain regulatory and other
consents, approvals and filings. The obligations of KCS and Grupo TMM to
complete the Acquisition are subject to a number of conditions. In the event the
Acquisition Agreement is terminated under specific circumstances, a termination
fee of $18 million will be paid by KCS to Grupo TMM, or by Grupo TMM to KCS,
depending upon such circumstances. Provided the Acquisition has occurred, KCS
may be required to make additional payments to Grupo TMM based on a resolution
of certain contingencies. A number of ancillary agreements will be entered into
prior to the closing of the Acquisition to carry out certain objectives of the
Acquisition Agreement and the Acquisition. Upon the terms and subject to the
conditions of a Stock Purchase Agreement, dated as of April 20, 2003 (the "Stock
Purchase Agreement"), KCS will purchase from TFM 51% of the outstanding shares
of Mexrail, a wholly-owned subsidiary of TFM, for $32,680,000. In addition, KCS
has an exclusive option through December 31, 2005 to purchase the remaining
outstanding shares of Mexrail as of the date of the exercise of the option. KCS
will deposit the initial purchased shares of Mexrail into an irrevocable voting
trust pending obtaining approval by the Surface Transportation Board ("STB") of
KCS's request to acquire control of Tex-Mex. TFM has repurchase rights for a
two-year period with respect to the Mexrail shares purchased by KCS. The
obligations of KCS and TFM to consummate the transaction under the Stock
Purchase Agreement are subject to a number of conditions.
For a more detailed description of these matters, see "Description of
the Acquisitions."
* * *
DESCRIPTION OF THE ACQUISITIONS
KCS and Grupo TMM have announced a series of agreements which have been
approved by both 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. Grupo TFM holds an 80%
interest in TFM, which holds a 100% interest in Mexrail. Mexrail wholly-owns
Tex-Mex.
The Acquisition Agreement
Upon the terms and subject to the conditions of the Acquisition
Agreement, dated April 20, 2003, by and among KCS, KARA Sub, Grupo TMM, TMM
Holdings and TMM Multimodal, KCS would acquire all of the interest of TMM
Multimodal in Grupo TFM for consideration to TMM Multimodal of $200 million and
18 million shares of KCS Class A Common Stock. The Acquisition (defined below)
will be accomplished in three steps, the "Stock Purchase," the "Subsidiary
Investment" and the "Merger" described below (and together comprising the
"Acquisition"), all occurring sequentially and virtually simultaneously as
follows:
(1) The Stock Purchase. KARA Sub will purchase from TMM Multimodal all Grupo
TFM shares held by TMM Multimodal, consisting of 25,500 shares of Series
"A" fixed capital stock of Grupo TFM and 3,842,901 shares of Series "A"
variable capital stock of Grupo TFM. The purchase price to be paid by KARA
Sub to TMM Multimodal at the closing for the purchase of the Grupo TFM
shares is: (i) $200 million (up to $80 million of which may be paid, at
KCS's option upon 30 days' written notice, in shares of KCS common stock or
KCS Class A Common Stock); and (ii) a subordinated promissory note of KARA
Sub in the principal amount of $25 million. KCS has agreed to provide KARA
Sub with sufficient funds to make all payments required to be made by it
under the Acquisition Agreement.
(2) The Subsidiary Investment. Immediately following the Stock Purchase, TMM
Multimodal will purchase from KARA Sub 100 shares of KARA Sub common stock,
representing 10% of the issued and outstanding shares of KARA Sub common
stock, in consideration for delivery by TMM Multimodal to KARA Sub of the
KARA Sub subordinated promissory note.
(3) The Merger. KARA Sub will then be merged into KCS in accordance with the
General Corporation Law of the State of Delaware ("DGCL"). The Merger will
be consummated by filing a certificate of merger with the Delaware
Secretary of State in accordance with the DGCL. At such time, the shares of
KARA Sub held by TMM Multimodal will be converted into and exchanged for 18
million shares of KCS Class A Common Stock. As a result of the Merger, the
separate corporate existence of KARA Sub will cease and KCS will continue
as the surviving corporation. Subject to approval by KCS stockholders, upon
the date and time of the filing of the Certificate of Merger, KCS will
change its name to "NAFTA Rail" or such other name as shall be determined
by KCS and the capital stock of KCS (including the KCS common stock, the
$25 par value preferred stock and the preferred stock offered hereby) will
continue to be issued and outstanding as the capital stock of NAFTA Rail
without further action by any holder thereof. Subject to listing approval
by the New York Stock Exchange ("NYSE"), the NAFTA Rail common stock and
the $25 par value preferred stock will trade on the NYSE.
KCS's restated certificate of incorporation and Bylaws would be amended
appropriately. The closing of the Acquisition is dependent upon the closing of
each of the Stock Purchase, the Subsidiary Investment and the Merger.
Conditions to Obligations to Complete the Acquisition
The obligations of KCS and Grupo TMM to complete the Acquisition are
subject to a number of conditions, including, among others:
o KCS must have obtained approval of KCS stockholders of the amendments to
KCS's restated certificate of incorporation and the issuance of Class A
Common Stock;
o All consents, waivers, authorizations and approvals required from all
governmental authorities to consummate the Acquisition must have been
obtained and remain effective as of the closing date of the Acquisition
Agreement;
o The securities to be issued pursuant to the Merger, and any securities
issued as payment of a portion of the purchase price for the Grupo TFM
shares purchased by KARA Sub, must have been approved for listing by the
NYSE;
o Each of the Ancillary Agreements (as described below) must have been duly
executed and delivered by or on behalf of KCS and each of Grupo TMM, TMM
Holdings and TMM Multimodal, as the case may be;
o Grupo TMM must have received consents from the holders of its outstanding
Notes due 2003 and Notes due 2006; and
o There must not be any insolvency or bankruptcy proceeding pending against
TMM Multimodal, TMM Holdings or TFM that has been pending for more than 60
days, and certain material adverse effects shall not have occurred.
Termination
The Acquisition Agreement may be terminated prior to the closing of the
Acquisition as follows:
o By written consent of KCS and Grupo TMM;
o By KCS or Grupo TMM if any order of any governmental authority permanently
prohibiting the consummation of the Acquisition has become final and
non-appealable or if any of the approvals of any governmental authority to
perform the transactions contemplated by the Acquisition Agreement imposes
any condition or requirement, the satisfaction of which is reasonably
likely to have a material adverse effect on either KCS or Grupo TMM;
o By KCS if any conditions to the obligations of KCS under the Acquisition
Agreement becomes incapable of fulfillment through no fault of KCS and is
not waived by KCS;
o By Grupo TMM if any condition to the obligations of Grupo TMM, TMM
Multimodal and TMM Holdings (collectively, the "Sellers") under the
Acquisition Agreement becomes incapable of fulfillment through no fault of
Sellers and is not waived by Grupo TMM;
o By KCS if Grupo TMM has experienced a change of control, or by Grupo TMM if
KCS has experienced a change of control; and
o By KCS or Grupo TMM if the closing of the Acquisition does not occur on or
prior to December 31, 2004 (the "Termination Date"); provided, however,
that the Termination Date may be extended by KCS and Grupo TMM by written
agreement.
A termination fee of $18 million is payable in the event of termination of
the Acquisition Agreement due to (i) a change of control of either KCS or Grupo
TMM, in which case the party experiencing the change of control shall pay the
termination fee to the other party, and (ii) the failure of the stockholders of
KCS or of Grupo 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 Grupo
TMM, in the case of the Grupo TMM stockholders' meeting, has failed to recommend
or has withdrawn and not reinstated its recommendation of the Acquisition, then
the party whose stockholders have not approved the Acquisition shall pay the
termination fee to the other party.
Required Regulatory and Other Consents, Approvals and Filings
Certain regulatory approvals and filings and other consents are
required in connection with the closing of the Acquisition. These include, among
others:
o Prior approval of the Mexican Foreign Investments Commission of
control of Grupo TFM by a non-Mexican entity;
o Clearance by the Mexican Antitrust Commission of anti-competitive
concerns;
o Notice to the Mexican Ministry of Communications and Transportation;
o Filing with NYSE for listing of common stock issuable upon conversion
of Class A Common Stock;
o SEC clearance of proxy materials;
o Grupo TMM noteholder consents;
o Hart-Scott-Rodino Act filing and clearance of investment by TMM
Multimodal in KCS; and
o KCS stockholder approval of amendments to restated certificate of
incorporation and issuance of KCS equity.
KCS has obtained an amendment to the New Credit Agreement. The bank group,
led by JPMorgan Chase Bank as Agent, specifically approved amendments allowing:
o KCS (NAFTA Rail) investment in further equity interests of Grupo
TFM;
o KCS (NAFTA Rail) investment in equity interests representing 51%
of Mexrail's issued and outstanding capital stock;
o Use of KCS cash to acquire Mexrail.
VAT Payments
Provided the Acquisition has occurred and neither KCS nor any of its
subsidiaries has purchased the TFM "Class III" shares (representing 20% of the
capital stock of TFM) currently held by the Mexican government upon exercise by
the Mexican government of its right to compel purchase of the shares of TFM held
by it (the "Put"), as compensation for Grupo TMM's services in obtaining the
final settlement or resolution of TFM's claim against the Mexican Treasury for
the refund of a value added tax ("VAT")
payment in the original principal amount of 2,111,111,790 pesos ("VAT Claim"),
KCS will make or cause TFM to make a cash payment (the "VAT Contingency
Payment") to Grupo TMM as set forth below, following the date of final
resolution of the VAT Claim, and the receipt by TFM or its designee of shares or
cash compensation received by TFM or its designee from the Mexican government on
the VAT Claim (the "VAT Payment"). The VAT Payment must consist of at least (i)
all of the TFM "Class III" shares 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. In such event, KCS will, at its option, pay or
cause TFM to pay to Grupo TMM (iii) $100 million within 90 days thereafter or
(iv) $50 million within 90 days thereafter and an additional $55 million within
365 days thereafter. If the VAT Payment exceeds the Put purchase price as
calculated on the date the VAT Payment is received, KCS will pay or cause TFM to
pay to Grupo TMM within 90 days after the VAT Payment and final resolution of
the VAT Claim the first $25 million received above the Put purchase price, and
15% of any additional amount received above the Put purchase price beyond the
first $25 million, not to exceed $50 million. The VAT Contingency Payment shall
be made after reducing the value of VAT Payment 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.
Third Party Matters
Until the filing of the Certificate of Merger for the Merger, neither KCS
nor Sellers can seek or entertain other offers with respect to acquisitions,
mergers or business combinations of KCS or KCSR, and TMM Holdings, TMM
Multimodal, Grupo TFM or any of their respective subsidiaries, respectively. In
addition, Grupo TMM will not enter into any agreement concerning any acquisition
or purchase of a controlling equity interest in Grupo TMM by any competitor.
These limitations are subject to the fiduciary duties of the respective board of
directors of KCS and Grupo TMM.
Indemnification
The representations and warranties of the Sellers and KCS survive for three
to five years. The Sellers have jointly and severally agreed to indemnify KCS,
the surviving corporation and each of their subsidiaries, and their respective
officers, directors, employees, members, stockholders, agents and
representatives harmless from and against all losses, damages, liabilities,
claims, demands, obligations, deficiencies, payments, judgments, settlements,
costs and expenses of any nature whatsoever ("Losses") resulting from or arising
out of any inaccuracy or misrepresentation in, or breach of, any representation
or warranty of Sellers in connection with the Acquisition Agreement, or any
breach or nonfulfillment of any covenant or agreement of any of the Sellers in
connection with the Acquisition Agreement, or any claims, causes of actions,
rights asserted or demands made by any third parties arising from or relating to
any of the foregoing. The Sellers' indemnification obligations for any
inaccuracy or misrepresentation in, or breach of any representation or warranty
regarding Grupo TFM or its subsidiaries is limited to 51% of Losses aggregating
$5 million or more. This limitation is not 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.
KCS has agreed to indemnify the Sellers, each of their subsidiaries and
each of their respective officers, directors, employees, members, stockholders,
agents and representatives from and against all Losses resulting from or arising
out of any inaccuracy or misrepresentation in, or breach of, any representation
or warranty of KCS in connection with the Acquisition Agreement, or any breach
or nonfulfillment of any covenant of KCS in connection with the Acquisition
Agreement, or any claims, causes of actions, rights asserted or demands made by
any third parties arising from or relating to any of the foregoing. KCS's
indemnification obligations are limited to Losses aggregating $10 million or
more. This limitation is not 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.
The Ancillary Agreements
A number of ancillary agreements have been, or will prior to the closing of
the Acquisition be, entered into to carry out certain objectives of the
Acquisition Agreement and the Acquisition. These ancillary agreements include:
o The Stock Purchase Agreement discussed below;
o The Stockholders' Agreement to be entered into by KCS, Grupo TMM,
TMM Holdings, TMM Multimodal and certain principal stockholders
of Grupo TMM (the "Grupo TMM Principal Stockholders"), which
contains standstill provisions, restrictions on transfer
provisions and pre-emptive rights provisions with respect to
Grupo TMM, TMM Holdings, TMM Multimodal, the Grupo TMM Principal
Stockholders and their respective affiliates (collectively, the
"TMM Holders"). The Stockholders' Agreement also contains
corporate governance provisions involving KCS, including
provisions regarding the selection of directors of KCS which,
among other things, give TMM Holders the right to elect up to two
directors of KCS based upon their level of ownership of Class A
Common Stock. The Stockholders' Agreement also contains voting
agreement provisions pursuant to which the TMM Holders will vote
their shares of KCS voting securities in favor of the KCS Board's
slate of director nominees and against any proposal to remove any
director. Subject to specific termination provisions contained in
the Stockholders' Agreement, the entire Agreement (with a few
exceptions) terminates when the TMM Holders ownership falls below
40% of the Voting Securities initially acquired pursuant to the
Merger, or the Class A nominees are not elected to the KCS Board
(except for good cause).
o The Registration Rights Agreement to be entered into by KCS,
Grupo TMM, TMM Holdings, TMM Multimodal and the Grupo TMM
Principal Stockholders, will provide Grupo TMM, TMM Holdings, TMM
Multimodal, the Grupo TMM Principal Stockholders and any
Permitted Transferee (as defined in the Registration Rights
Agreement) (collectively, the "Holders") with certain
registration rights with respect to the shares of KCS common
stock (i) issuable upon conversion of the KCS Class A Common
Stock, (ii) issued in lieu of cash at closing, (iii) issued
pursuant to the Consulting Agreement and (iv) acquired on
pre-emptive exercises. Beginning on the 180th day following the
consummation of the Acquisition, the Holders shall have the right
to request, and KCS shall use commercially reasonable efforts to
effect, six demand registrations (with one additional shelf
registration if KCS issues equity in lieu of cash at Closing).
KCS can delay filing registrations under certain events described
in the Registration Rights Agreement.
o The Consulting Agreement to be entered into by KCS and the
consulting firm of Jose Serrano Segovia (the "Consulting Firm")
provides for the Consulting Firm to provide certain consulting
services to the KCS board of directors and Chief Executive
Officer relating to the Mexican portion of KCS's rail network
operations, including its customers and suppliers, regulatory
matters and regarding the Mexican railroad industry in general.
The Consulting Agreement has an initial term of three years
beginning on the closing date of the Acquisition Agreement,
unless earlier terminated under the provisions of the Consulting
Agreement, and may be extended by KCS for an additional year upon
notice to the Consulting Firm. Under the Consulting Agreement,
KCS will pay to the Consulting Firm an annual fee of $600,000. In
addition, KCS will grant to the Consulting Firm 2,100,000 shares
of KCS restricted common stock, subject to certain vesting
provisions contained in the Consulting Agreement. If KCS extends
the initial term of the Consulting Agreement, KCS will grant to
Consulting Firm an additional 525,000 shares of KCS restricted
common stock. The Consulting
Agreement contains certain restrictions on transfer of the shares
of KCS restricted common stock received under the Agreement.
o The Marketing and Services Agreement to be entered into by Grupo
TMM, TFM and KCS, provides for the parties to enter into various
most favored nations provisions, requiring, among other things,
(i) KCS to provide certain services to Grupo TMM on terms which
are no less favorable than the terms provided to third or forth
party logistics companies; (ii) that Grupo TMM shall have the
right to be the exclusive provider of Road-Railer freight
services over TFM's rail system within Mexico; (iii) Grupo TMM
shall have the right, but not the obligation, to operate KCS's
intermodal terminals to the extent that KCS determines to utilize
a third party to operate such within Mexico, the terms of such
operations subject to mutual agreement of Grupo TMM and KCS; and
(iv) that Grupo TMM shall have the right to make a bid for the
provision of certain transportation related services, if TFM
determines to have such services provided by any unaffiliated
third party in Mexico or the United States. The initial term of
the Marketing and Services Agreement is five years from the
Effective Date (as defined in the Acquisition Agreement), subject
to automatic renewal for periods of one year unless terminated by
Grupo TMM or KCS.
o According to the terms of an Agreement, dated June 9, 1997, by
and among the Federal Government of the Mexican States, Grupo
TFM, Grupo TMM and KCS (the "Put Agreement"), the Mexican
government has the right to sell its 20% interest in TFM through
a public offering on October 31, 2003 (or prior to October 31,
2003, with the consent of Grupo TFM). If, on October 31, 2003,
the Mexican government has not sold all of its capital stock in
TFM, Grupo TFM is obligated to purchase the capital stock. In the
event that Grupo TFM does not purchase the Mexican government's
20% interest in TFM, Grupo TMM and KCS, will be jointly and
severally obligated to purchase the Mexican government's
remaining interest in TFM. Pursuant to an Agreement of Assignment
and Assumption of Rights, Duties and Obligations, to be entered
into by and among Grupo TMM, KCS, and Grupo TFM, Grupo TMM will
assign and transfer to KCS, and KCS will accept and assume, all
of Grupo TMM's rights, duties and obligations with respect to the
purchase of the put shares under the Put Agreement.
The Stock Purchase Agreement
Upon the terms and subject to the conditions of the Stock Purchase
Agreement, dated as of April 20, 2003, by and among KCS, Grupo TMM and TFM, KCS
will purchase from TFM 51% of the outstanding shares of Mexrail, a wholly-owned
subsidiary of TFM, for $32,680,000. In addition, KCS 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. KCS will deposit 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. Tex-Mex is a
wholly-owned subsidiary of Mexrail.
Conditions to Closing Obligations
The obligations of KCS and Grupo TFM to consummate the transaction
contemplated by the Stock Purchase Agreement are subject to a number of
conditions, including, among others:
o All governmental approvals, including the approval by the STB of
KCS's acquisition of control of Tex-Mex, required to consummate
the transaction contemplated by this Agreement shall have been
obtained.
o 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 the Stock
Purchase Agreement.
o KCS shall have received the resignations of each director of
Mexrail and Tex-Mex.
o The boards of directors of each of Grupo TMM, Grupo TFM and KCS
must have approved the execution of the Stock Purchase Agreement
and authorized the consummation of the transaction contemplated
thereby.
o TFM shall have received a fairness opinion complying with the
requirements of the agreements listed in the disclosure schedule
to the Stock Purchase Agreement.
Repurchase Right
TFM has a right to repurchase all of the shares of Mexrail capital stock
acquired by KCS at any time for the purchase price paid by KCS, subject to any
STB orders or directions. Upon any such repurchase, the Stock Purchase Agreement
automatically terminates. If not exercised within two years of the date of the
Stock Purchase Agreement, TFM's repurchase right expires.
Termination
The Stock Purchase Agreement may be terminated as follows:
o By mutual written consent of all of the parties at any time prior
to the closing of the initial purchase of 51% of Mexrail (the
"Initial Closing");
o KCS may terminate the Stock Purchase Agreement by written notice
to Grupo TMM and TFM at any time prior to the Initial Closing in
the event Grupo TMM or TFM has breached any material
representation, warranty or covenant contain in the Stock
Purchase Agreement in any material way and has continued without
cure for a period of 30 days after notice of the breach; and
o Grupo TMM and TFM may terminate the Stockholders Agreement by
written notice to KCS at any time prior to the Initial Closing in
the event KCS has breached any material representation, warranty
or covenant contain in the Stock Purchase Agreement in any
material way and has continued without cure for a period of 30
days after notice of the breach.
Indemnification
Grupo TMM and TFM have jointly and severally agreed to indemnify KCS
from and against 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 ("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 applicable survival period) resulting from, arising out of, or caused by
the breach by either Grupo TMM or TFM of any of its representations, warranties
or covenants. The obligation of Grupo TMM and TFM to indemnify KCS 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 aggregating $2 million or more. This limitation is not applicable
to any Adverse Consequences arising out of or resulting from any action or
omission on the part of Grupo TMM or TFM or any of their respective affiliates
that involve a crime, fraud, willful misconduct or gross negligence.
KCS has agreed to indemnify Grupo TMM or TFM from and against the entirety
of any Adverse Consequences that Grupo TMM or TFM may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
Grupo TMM 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.
* * *
DESCRIPTION OF THE CLASS A COMMON STOCK
Shares of Class A Common Stock are to be issued pursuant to the Acquisition
Agreement and the transactions contemplated thereby. Additional shares of Class
A Common Stock may be issued pursuant to the Consulting Agreement. The Class A
Common Stock and the shares of common stock issuable upon conversion of the
Class A Common Stock will be subject to the rights and obligations contained in
the amended and restated certificate of incorporation, to be filed upon
occurrence of the Merger, and the Stockholders' Agreement.
All capitalized terms used in this "Description of the Class A Common
Stock" section and not otherwise defined shall have the meanings set forth in
the Stockholders' Agreement and form of the amended and restated certificate of
incorporation attached as Exhibit A to the Acquisition Agreement.
Dividend Rights
When and as dividends or other distributions are declared, whether payable
in cash, in property or in shares of stock of the Company, the holders of the
Class A Common Stock and common stock shall be entitled to share equally, share
for share, in such dividends or other distributions as if all such shares were
of a single class.
Terms of Conversion
The Class A Common Stock will be convertible into an equal number of shares
of common stock at any time, upon the option of holders, and mandatorily, upon
the occurrence of certain conditions. Shares of Class A Common Stock shall be
converted automatically, without any action on the part of any Person, into an
equal number of shares of common stock upon the occurrence of the following
events: (i) a Transfer by any TMM Holder of any shares of Class A Common Stock
to a Person other than Grupo TMM, TMM Holdings, TMM Multimodal, or the
stockholders of Grupo TMM who will have executed the Stockholders' Agreement
("Grupo TMM Principal Stockholders") (collectively, the "TMM Holders"), or an
entity which is an Affiliate of any of the TMM Holders; (ii) on the first day on
which the TMM Holders, in the aggregate, cease to beneficially own, in the
aggregate, at least 40% of the Voting Securities initially acquired by TMM
Multimodal pursuant to the Merger contemplated by the Acquisition Agreement;
(iii) a Change of Control of the Company; or (iv) a Change of Control of such
TMM Holder, if after such Change of Control a Competitor has Beneficial
Ownership of more than a majority of the Total Voting Power of such TMM Holder.
In order to facilitate optional conversions and transfers of Class A Common
Stock (and, except for Transfers to Affiliates in accordance with the
Stockholders' Agreement, the conversion of such shares into common stock), any
TMM Holder shall, at its option, deliver written notice of the proposed
conversion or transfer, together with the certificate or certificates
representing such shares to be converted and/or transferred, to Conversion
Agent. Following any automatic conversion, the share or shares of Class A Common
Stock so converted shall cease to be outstanding (notwithstanding the fact that
the holder or holders may not have surrendered the certificate or certificates
representing such Class A Common Stock for conversion), and such certificate or
certificates shall thereafter represent solely the
right to receive a certificate or certificates for common stock issuable upon
conversion of the Class A Common Stock so converted, upon surrender of such
certificate or certificates to the Conversion Agent.
Voting Rights
Each holder of Class A Common Stock shall be entitled to one vote for each
share of such stock held by such holder. Each outstanding share of Class A
Common Stock shall be entitled to vote on each matter on which the stockholders
of the Company shall be entitled to vote. However, with respect to the election
of directors other than the Class A Directors (described below), the Class A
Common Stock shall be voted in favor of nominees recommended by the board of
directors who were nominated in compliance with Article V of the Stockholders'
Agreement.
Voting separately as a class, the holders of the Class A Common Stock shall
have the right to elect Class A Director(s) as follows: (i) from and after the
effectiveness of the amended and restated certificate of incorporation until
such time as the TMM Holders cease to beneficially own in the aggregate at least
75% of the Voting Securities initially acquired by MM pursuant to the Merger
contemplated by the Acquisition Agreement (80% if a Change of Control of TMM or
any TMM Holder shall have occurred), two members of the board of directors will
be elected by the holders of the Class A Common Stock voting as a separate
class; (ii) at such time as the TMM Holders cease to beneficially own in the
aggregate at least 75% of the Voting Securities initially acquired by MM
pursuant to the Merger contemplated by the Acquisition Agreement (80% if a
Change of Control of TMM or any TMM Holder shall have occurred) and provided
that such TMM Holders continue to beneficially own in the aggregate at least 40%
of the Voting Securities initially acquired by MM pursuant to the Merger
contemplated by the Acquisition Agreement, the number of directors which the
holders of Class A Common Stock have the right to elect voting as a separate
class will be decreased from two to one; and (iii) at such time as the TMM
Holders cease to beneficially own in the aggregate at least 40% of the Voting
Securities initially acquired by MM pursuant to the Merger contemplated by the
Acquisition Agreement, the right of the holders of Class A Common Stock voting
as a separate class to elect any member of the board of directors shall
terminate. Notwithstanding any of the above to the contrary, if a Change of
Control of Grupo TMM or any TMM Holder shall have occurred and the acquiror is a
Competitor, the right of the holders of Class A Common Stock voting as a
separate class to elect any member(s) of the board of directors shall
immediately terminate.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, holders of the Class A Common Stock
and common stock shall be entitled to share ratably according to the number of
shares held by them, in all assets of the Company available for distribution to
its stockholders.
Preemption Rights
The holders of Class A Common Stock shall have preemptive rights to acquire
additional shares of Class A Common Stock in the event the Company authorizes
the issuance or sale of any shares of common stock or any securities containing
options or rights to acquire any shares of common stock (other than as a
dividend on the outstanding common stock). Notwithstanding the foregoing, the
holders of Class A Common Stock do not have preemptive rights with respect to
issuances of common stock (including for this purpose, options, warrants and
other securities into or exercisable for common stock) issued: (i) to the
Company's employees, directors, consultants, agents, independent contractors or
other service providers in connection with a Plan existing on the date hereof or
a Plan approved by the board of directors and adopted by the Company after the
date hereof; (ii) upon the conversion of Class A Common Stock; (iii) upon the
exercise of any options, warrants, or exchangeable securities which are
outstanding
as of the effective date of the amended and restated certificate of
incorporation hereof; or (iv) in connection with the acquisition (by merger,
consolidation, acquisition of assets or equity interests or otherwise) of the
equity interests or assets of another Person.
The Company shall first notify then-existing TMM Holders of Class A Common
Stock of any proposed transaction triggering preemptive rights of the Class A
Common Stock and offer to sell to each such Person a number of shares of Class A
Common Stock (or, as applicable, options, warrants or other securities into or
exercisable for Class A Common Stock) determined according to the formula
specified in the amended and restated certificate of incorporation. To the
extent that any TMM Holder elects not to participate in such preemptive rights,
each of the other TMM Holders shall have a pro rata right to purchase at the
same price and on the same terms and conditions the Voting Securities which such
non-participating TMM Holder had the right but elected not to purchase.
The preemptive rights of the TMM Holders of Class A Common Stock shall
immediately and irrevocably terminate on the date that the TMM Holders do not
beneficially own in the aggregate at least 40% of the Voting Securities
initially acquired by TMM Multimodal pursuant to the Acquisition Agreement.
Transfer Restrictions
For a period of five years from and after the effectiveness of the amended
and restated certificate of incorporation, the TMM Holders shall not, directly
or indirectly, alone or in concert with others, sell, assign, transfer, pledge,
hypothecate, otherwise subject to any lien, grant any option with respect to or
otherwise dispose of any interest in (or enter into an agreement or
understanding with respect to the foregoing) any Voting Securities (a
"Disposition") to a Competitor. Disposition pursuant to a Public Offering or a
Rule 144 Transaction will not be deemed to violate this prohibition if the
selling TMM Holder(s) follow appropriate and reasonable procedures designed to
prevent the sale of such Voting Securities to any Competitor. After the earliest
of (i) five years following the date of the amended and restated certificate of
incorporation, or (ii) the first date on which the TMM Holders beneficially own
in the aggregate, directly or indirectly and alone or as part of a Group, less
than 15% of the outstanding Voting Securities of the Company, a TMM Holder may
propose to sell Voting Securities to a Competitor; provided the Company shall
have the right (but not the obligation) to purchase, in whole but not in part,
such Voting Securities at a per share cash purchase price equal to the purchase
price in the agreement between the selling TMM Holder and a Competitor. This
purchase right shall be assignable, in whole or in part, by the Company to any
other Person, but no such assignment shall relieve the Company of its obligation
to assure payment of the purchase price for any Voting Securities as to which a
notice of election to exercise the Right of First Refusal is made by the Company
or any such assignee.
For a period of five years from and after the effectiveness of the amended
and restated certificate of incorporation, each of the TMM Holders shall not
effect a Disposition of Voting Securities to any Affiliate of either Grupo TMM,
TMM Holdings or TMM Multimodal or any Affiliate of any Grupo TMM Principal
Stockholders unless such Affiliate agrees in writing to be bound by the terms of
the Stockholders' Agreement. The TMM Holders shall remain responsible, jointly
and severally, for any breaches of the Stockholders' Agreement by such Affiliate
(provided that any TMM Holder which is a Grupo TMM Principal Stockholder shall
be severally responsible only for breaches by an Affiliate of the Grupo TMM
Principal Stockholder to which such Grupo TMM Principal Stockholder effects a
Distribution).
Subject to the foregoing transfer restrictions, TMM Holders may sell
any or all Voting Securities beneficially owned by such Person provided that:
(i) no Disposition that in the aggregate represents 5% or more of the
outstanding Voting Securities shall be made to any Person other than a Person
who is eligible to file reports pursuant to Rule 13d-1 under the Exchange Act (a
"13G Filer"), unless such Person would
not be so eligible with respect to the Voting Securities acquired from the
Disposition; and (ii) no Disposition of Voting Securities that in the aggregate
represents 5% or more of the outstanding Voting Securities shall be made to any
13G Filer unless (a) such 13G Filer would continue to be eligible to file
reports pursuant to Section 13G under the Exchange Act with respect to the
Voting Securities after giving effect to the proposed acquisition of such Voting
Securities; and (b) the selling TMM Holder shall have delivered a written notice
to the Company advising the Company of the number of Voting Securities the
seller desires to sell and the terms, including price, of the proposed
transaction and the Company has been provided the right (but not the obligation)
to purchase, in whole or in part, such Voting Securities at a per share cash
purchase price equal to the purchase price in the proposed transaction.
Notwithstanding any provision of the amended and restated certificate of
incorporation to the contrary, no Disposition shall be made to any Person or
Group that would, together with such Person's Affiliates and Associates and
after giving effect to the acquisition of such Voting Securities, beneficially
own or have the right to acquire more than 15% of the Total Voting Power of the
Company.
TMM Holders shall be permitted to make a Disposition, notwithstanding any
contrary provision in the amended and restated certificate of incorporation, in
connection with any tender or exchange offer made by an unaffiliated third party
to acquire KCS common stock so long as certain conditions are satisfied.
The transfer restrictions imposed by the amended and restated certificate
of incorporation (with the exception of the Company's right of first refusal in
the event a TMM Holder intends to sell shares of Class A Common Stock to a
Competitor, which shall survive indefinitely) shall immediately and irrevocably
terminate upon the earlier of the first date the TMM Holders beneficially own in
the aggregate less than 15% of the outstanding Voting Securities of the Company
for at least 30 consecutive days, or the occurrence of a Change of Control of
the Company.
Pledges
Subject to the transfer restrictions contained in the amended and restated
certificate of incorporation, a TMM Holder may pledge or hypothecate as security
for any indebtedness or other obligations any or all Voting Securities
beneficially owned by such Person; provided that such TMM Holder obtains written
consent from the pledgee that upon the occurrence of an event which gives the
pledgee the right to foreclose on the pledged Voting Securities ("Foreclosure
Event") such pledgee shall provide to the Company prompt written notice of such
Foreclosure Event and provide the Company the right to purchase, in whole or in
part, such Voting Securities at a price determined in accordance with such
provision of the amended and restated certificate of incorporation. This
purchase right shall be assignable, in whole or in part, by the Company to any
other Person, but no such assignment shall relieve the Company of its obligation
to assure payment of the purchase price for any Voting Securities as to which
the Company has delivered such a written notice.
In connection with the proposed transaction, Kansas City Southern ("KCS") will
file relevant materials with the Securities and Exchange Commission ("SEC"),
including a proxy statement soliciting shareholder approval of certain actions
in connection with the transaction. Shareholders are urged to read the proxy
statement, as well as any amendments and supplements to the proxy statement (if
and when they become available) and any other relevant documents filed with the
SEC, because they will contain important information about the transaction.
Shareholders and investors may obtain the proxy statement and any other relevant
documents free of charge at the SEC's Internet web site at www.sec.gov.
Shareholders may also obtain free of charge the proxy statement and any other
relevant documents by contacting the office of the Corporate Secretary at
KCS's principal executive offices at (816) 983-1538. Written requests should be
mailed to P.O. Box 219335, Kansas City, Missouri 64121-9335 (or if by federal
express or other form of express delivery to 427 West 12th Street, Kansas City,
Missouri 64105). Such proxy statement is not currently available. KCS and its
directors and executive officers may be deemed to be participants in the
solicitation of proxies from KCS shareholders with respect to approval of
certain actions in connection with the transaction. Information regarding these
directors and executive officers and their beneficial ownership interests in KCS
can be found in KCS's proxy statement on Schedule 14A, filed with the SEC on
April 4, 2003, in connection with the 2003 annual meeting of KCS shareholders.
Investors may obtain additional information regarding the interests of such
participants by reading the proxy statement filed in connection with the
transaction when it becomes available.
SIGNATURE
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
hereunto duly authorized.
Kansas City Southern
Date: May 1, 2003 By:
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Louis G. Van Horn
Vice President and Comptroller
(Principal Accounting Officer)