______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 1-8544
AMERICAN PRESIDENT COMPANIES, LTD.
(Exact name of registrant as specified in its charter)
Delaware 94-2911022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Broadway
Oakland, California 94607
(Address of principal executive offices)
Registrant's telephone number: (510) 272-8000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 29, 1994
____________________________ ____________________________
Common Stock, $.01 par value 27,253,125
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
<TABLE>
AMERICAN PRESIDENT COMPANIES, LTD.
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page
_____________________
Item 1. Consolidated Financial Statements
<S> <C>
Statement of Income 3
Balance Sheet 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 13-21
Part II. OTHER INFORMATION
_________________
Item 1. Legal Proceedings 22-23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
</TABLE>
The consolidated financial statements presented herein include the
accounts of American President Companies, Ltd. and its wholly-owned
subsidiaries (the "company") and have been prepared by the company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The company believes that the disclosures are adequate to make
the information presented not misleading, although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, the consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the company's results of operations, financial position and
cash flows. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 1-8544).
<PAGE>
American President Companies, Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<CAPTION>
________________________________________________________________________________________________
(In thousands, except Quarter Ended 26 Weeks Ended
per share amounts) July 1 June 25 July 1 June 25
1994 1993 1994 1993
________________________________________________________________________________________________
<S> <C> <C> <C> <C>
REVENUES $ 653,528 $ 583,940 $ 1,356,656 $ 1,214,832
________________________________________________________________________________________________
EXPENSES
Operating, Net of Operating-
Differential Subsidy 576,994 517,770 1,213,058 1,081,555
General and Administrative 19,666 12,969 39,035 27,022
Depreciation and Amortization 24,395 25,304 52,835 54,701
________________________________________________________________________________________________
Total Expenses 621,055 556,043 1,304,928 1,163,278
________________________________________________________________________________________________
OPERATING INCOME 32,473 27,897 51,728 51,554
OTHER INCOME (EXPENSE)
Interest Income 2,792 1,139 6,061 2,198
Interest Expense (6,534) (4,274) (13,745) (9,734)
Gain on Sale of Investment 8,934 8,934
________________________________________________________________________________________________
Income Before Taxes 28,731 33,696 44,044 52,952
Federal, State and
Foreign Tax Expense 9,742 12,467 14,887 19,592
________________________________________________________________________________________________
NET INCOME $ 18,989 $ 21,229 $ 29,157 $ 33,360
________________________________________________________________________________________________
Less Dividends on Preferred Stock 1,687 1,687 3,375 3,375
NET INCOME APPLICABLE TO
COMMON STOCK $ 17,302 $ 19,542 $ 25,782 $ 29,985
________________________________________________________________________________________________
________________________________________________________________________________________________
EARNINGS PER COMMON SHARE
________________________________________________________________________________________________
Primary Earnings Per Common Share $ 0.62 $ 0.71 $ 0.91 $ 1.09
________________________________________________________________________________________________
Fully Diluted Earnings Per
Common Share $ 0.60 $ 0.67 $ 0.90 $ 1.06
________________________________________________________________________________________________
DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.075 $ 0.20 $ 0.15
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
American President Companies, Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED BALANCE SHEET (Unaudited)
<CAPTION>
________________________________________________________________________________________________
(In thousands, except share amounts) July 1 December 31
1994 1993
________________________________________________________________________________________________
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 25,006 $ 84,053
Short-Term Investments 189,474
Trade and Other Receivables 304,677 271,053
Fuel and Operating Supplies 38,885 35,354
Prepaid Expenses and Other 50,622 48,378
________________________________________________________________________________________________
Total Current Assets 608,664 438,838
________________________________________________________________________________________________
PROPERTY AND EQUIPMENT
Ships 677,372 676,854
Containers, Chassis and Rail Cars 763,228 750,557
Leasehold Improvements and Other 255,750 249,636
Construction in Progress 82,421 74,138
________________________________________________________________________________________________
1,778,771 1,751,185
Accumulated Depreciation and Amortization (862,925) (825,003)
________________________________________________________________________________________________
Property and Equipment, Net 915,846 926,182
________________________________________________________________________________________________
INVESTMENTS AND OTHER ASSETS 87,003 89,357
________________________________________________________________________________________________
Total Assets $ 1,611,513 $ 1,454,377
________________________________________________________________________________________________
________________________________________________________________________________________________
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt
and Capital Leases $ 4,630 $ 4,395
Accounts Payable and Accrued Liabilities 372,687 383,029
________________________________________________________________________________________________
Total Current Liabilities 377,317 387,424
________________________________________________________________________________________________
DEFERRED INCOME TAXES 133,936 130,228
________________________________________________________________________________________________
OTHER LIABILITIES 124,588 118,966
________________________________________________________________________________________________
LONG-TERM DEBT 385,283 250,610
CAPITAL LEASE OBLIGATIONS 14,803 16,696
________________________________________________________________________________________________
Total Long-Term Debt and Capital Lease Obligations 400,086 267,306
________________________________________________________________________________________________
COMMITMENTS AND CONTINGENCIES
________________________________________________________________________________________________
REDEEMABLE PREFERRED STOCK, $.01 Par Value,
Stated at $50.00, Authorized-2,000,000
Shares Series C, Shares Issued and Outstanding-
1,500,000 in 1994 and 1993 75,000 75,000
________________________________________________________________________________________________
STOCKHOLDERS' EQUITY
Common Stock $.01 Par Value, Stated at $1.00
Authorized-60,000,000 Shares
Shares Issued and Outstanding-
27,253,000 in 1994 and 26,837,000 in 1993 27,253 26,837
Additional Paid-In Capital 66,204 61,656
Retained Earnings 407,129 386,960
________________________________________________________________________________________________
Total Stockholders' Equity 500,586 475,453
________________________________________________________________________________________________
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $ 1,611,513 $ 1,454,377
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
American President Companies, Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<CAPTION>
________________________________________________________________________________________________
(In thousands) 26 Weeks Ended
July 1 June 25
1994 1993
________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 29,157 $ 33,360
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 52,835 54,701
Deferred Income Taxes 4,011 3,673
Change in Receivables (26,154) (25,460)
Issuance of Notes Receivable on Sales of Real Estate (7,470) (3,015)
Change in Fuel and Operating Supplies (3,531) (2,094)
Change in Prepaid Expenses and Other Current Assets (2,547) 9,076
Gain on Sale of Assets (948) (10,038)
Change in Accounts Payable and Accrued Liabilities (6,438) 14,476
Other 7,437 5,132
________________________________________________________________________________________________
Net Cash Provided by Operating Activities 46,352 79,811
________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (48,185) (101,705)
Proceeds from Sales of Property and Equipment 2,513 1,822
Proceeds from Sale of Long-Term Investment 11,310
Purchase of Short-Term Investments (209,381)
Proceeds from Sales of Short-Term Investments 19,907 38,846
Transfers from Capital Construction Fund 7,178
Deposit to Capital Construction Fund (4,475)
Other 761 2,492
________________________________________________________________________________________________
Net Cash Used in Investing Activities (234,385) (44,532)
________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Debt 147,348 350,650
Repayments of Debt (12,692) (362,536)
Repayments of Capital Lease Obligations (1,726) (111,498)
Dividends Paid (8,815) (7,337)
Other 4,791 7,535
________________________________________________________________________________________________
Net Cash Provided by (Used in)
Financing Activities 128,906 (123,186)
________________________________________________________________________________________________
Effect of Exchange Rate Changes on Cash 80 (921)
________________________________________________________________________________________________
NET DECREASE IN CASH AND CASH EQUIVALENTS (59,047) (88,828)
________________________________________________________________________________________________
Cash and Cash Equivalents at Beginning of Period 84,053 92,835
________________________________________________________________________________________________
Cash and Cash Equivalents at End of Period $ 25,006 $ 4,007
________________________________________________________________________________________________
________________________________________________________________________________________________
SUPPLEMENTAL DATA:
________________________________________________________________________________________________
CASH PAID FOR:
Interest $ 8,659 $ 17,814
Income Taxes, Net of Refunds $ 9,756 $ 5,241
________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Significant Accounting Policies
Capitalized Interest
For the second quarter and the 26-week period ending July 1, 1994, the
company capitalized interest of $1.3 million and $2.9 million, respectively,
related to cash expenditures for the construction of the C11-class and K10-
class vessels. No interest costs were capitalized in the second quarter and
the 26-week period ending June 25, 1993.
Income Taxes
The provision for income taxes has been calculated using the effective
tax rate estimated for the respective years. The tax rates were 34% and 37%
for the 26-week periods ending July 1, 1994 and June 25, 1993, respectively.
The 1994 estimated effective tax rate includes the effect of revisions of
prior years' estimated tax liabilities.
Reclassifications
Certain 1993 amounts have been reclassified to conform with the 1994
presentation.
Note 2. Operating-Differential Subsidy Agreement
The company and the United States Maritime Administration ("MarAd")
are parties to an Operating-Differential Subsidy ("ODS") agreement expiring
December 31, 1997, which provides for payment by the U.S. government to
partially compensate the company for the relatively greater expense of vessel
operation under United States registry. For the quarters ending July 1, 1994
and June 25, 1993, subsidy was $13.6 million and $13.9 million, respectively,
and for the 26-week periods ending July 1, 1994 and June 25, 1993, subsidy was
$30.0 million and $30.6 million, respectively, and has been included as a
reduction of operating expenses. The ODS agreement also requires the company
to replace the capacity of its existing vessels as they reach the end of their
statutory lives if a construction differential subsidy, provided by the U.S.
government, is made available. This subsidy has not been made available since
1981.
The Clinton Administration and Congress are actively reviewing U.S.
maritime policy. On March 10, 1994, the Clinton Administration sent its
maritime proposal, "The Maritime Security Program", to Congress, which was
introduced in the U.S. House of Representatives as H.R. 4003 and in the Senate
as S. 1945. On August 2, 1994, the House approved H.R. 4003, which would
provide $1.3 billion in subsidies for approximately 52 U.S.-flag vessels over
the next ten years, or an annual subsidy of $2.1 million per vessel for
vessels enrolled in the program, and would provide subsidies to U.S. ship
builders. The bill now goes to the Senate. The company is not able to
predict whether maritime reform legislation will be enacted or whether enacted
legislation, if any, will have terms similar to H.R. 4003/S. 1945.
While the company continues to support efforts to enact new maritime
support legislation, prospects for passage of a program acceptable to the
company are unclear. Accordingly, on July 16, 1993, the company filed
applications with MarAd to operate under foreign flag its six C11-class
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. Operating-Differential Subsidy Agreement (continued)
containerships, which are under construction, and to transfer to foreign flag
seven of the 15 U.S.-flag containerships in its trans-Pacific fleet.
Enactment of maritime reform legislation, if any, may influence the company's
decision whether to operate these ships under foreign flag, should its
applications be approved. Management of the company believes that, in the
absence of ODS or an equivalent government support program, it is generally no
longer commercially viable to own or operate containerships in foreign trade
under the U.S. flag because of the higher labor costs and the more restrictive
design, maintenance and operating standards applicable to U.S.-flag liner
carriers. The company continues to evaluate its strategic alternatives in
light of the expiration of its ODS agreement and the uncertainties as to
whether a new U.S. government maritime support program acceptable to the
company will be enacted, whether sufficient labor efficiencies can be achieved
through the collective bargaining process, and whether the company's
applications to flag its vessels under foreign registry will be approved.
While no assurances can be given, management of the company believes that it
will be able to structure its operations to enable it to continue to operate
on a competitive basis without direct U.S. government support.
Note 3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at July 1, 1994 and December
31, 1993, were as follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________________
(In thousands) July 1 December 31
1994 1993
________________________________________________________________________________________________
<S> <C> <C>
Accounts Payable $ 45,541 $ 39,101
Accrued Liabilities 254,327 268,342
Current Portion of Accrued Claims 10,000 11,500
Accrued Restructuring Charge 1,075 3,135
Income Taxes Payable 2,671 1,551
Unearned Revenue 59,073 59,400
________________________________________________________________________________________________
Total Accounts Payable and Accrued Liabilities $ 372,687 $ 383,029
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt
Long-Term Debt at July 1, 1994 and December 31, 1993 consisted of the
following:
<TABLE>
<CAPTION>
________________________________________________________________________________________________
(In thousands) July 1 December 31
1994 1993
________________________________________________________________________________________________
8% Senior Debentures $150 million Face Amount
<S> <C> <C>
Due on January 15, 2024 (1) $ 147,132
7 1/8% Senior Notes $150 million Face Amount
Due on November 15, 2003 (1) 147,989 $ 147,915
Series I 8% Vessel Mortgage Bonds
Due Through 1997(2) 69,088 81,000
8% Refunding Revenue Bonds Due on November 1, 2009 12,000 12,000
Refunding Revenue Bonds, at Various Rates Not to
Exceed 12%, Due on November 1, 2009 6,495 6,495
Note Payable at 9% Due Through 1997 2,841 3,577
Notes Payable at Prime plus 1% 572 616
Note Payable at 10% Due Through 1998 227
________________________________________________________________________________________________
Total Debt 386,344 251,603
Current Portion (1,061) (993)
________________________________________________________________________________________________
Long-Term Debt $ 385,283 $ 250,610
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) In November 1993, the company filed a shelf registration statement
covering the issuance from time to time of up to $400 million of debt
securities of varying terms and amounts. Pursuant to this registration
statement, in November 1993, the company issued 7 1/8% Senior Notes with
a face amount of $150 million. The unamortized discount was $2.0
million and $2.1 million at July 1, 1994 and December 31, 1993,
respectively. The effective interest rate of this debt is 7.325%, and
interest payments are due semiannually. Also pursuant to this
registration statement, in January 1994, the company issued 8% Senior
Debentures with a face amount of $150 million. These senior debentures
have an unamortized discount of $2.9 million at July 1, 1994. The
effective interest rate on this debt is 8.172%, and interest payments
are due semiannually.
(2) Principal payments are due in equal semiannual installments. The
company has the option to issue Series II Bonds due sequentially in
semiannual payments at the end of the term of the Series I Bonds in lieu
of up to five cash payments, which it has not exercised. Principal
payments are classified as long-term debt on the basis that the company
issues Series II Bonds totaling $23.8 million per year in lieu of the
next five semiannual cash payments.
On March 25, 1994, the company entered into a credit agreement with a
group of banks that provides for an aggregate commitment of up to $200 million
for a five-year period. The credit agreement contains various financial
covenants that require the company to meet certain levels of interest
coverage, leverage and net worth. The borrowings bear interest at rates based
upon various indices as elected by the company. The annual commitment fee is
a maximum of one-half of one percent of the available amount. Any outstanding
borrowings under this agreement would be classified as long-term. There have
been no borrowings under this agreement.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt (continued)
As an alternative to borrowing under its credit agreement, the company
has an option under that agreement to sell up to $150 million of certain
accounts receivable to the banks. This alternative is subject to less
restrictive financial covenants than the borrowing option.
Note 5. Stockholders' Equity
Earnings Per Common Share
For the periods presented, primary earnings per share were computed by
dividing net income, reduced by the amount of the preferred stock dividends,
by the weighted average number of common shares and common equivalent shares
outstanding. Fully diluted earnings per share were computed based on the
assumption that the Series C Preferred Stock was converted. The number of
shares used in these computations were as follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________________
Weighted Average Number of Common Shares
________________________________________________________________________________________________
(In millions) Quarter Ended 26 Weeks Ended
July 1 June 25 July 1 June 25
1994 1993 1994 1993
________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Primary 27.8 27.7 28.4 27.4
Fully Diluted 31.8 31.7 32.4 31.6
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
Cash Dividends
On July 29, 1994, the Board of Directors declared a quarterly cash
dividend of $0.10 per share of common stock, payable on August 31, 1994 to
common stockholders of record on August 15, 1994. The Board of Directors also
declared a cash dividend of $1.125 on the 9% Series C Cumulative Convertible
Preferred Stock, payable on September 15, 1994 to preferred stockholders of
record on September 1, 1994.
Stock Incentive Plans
At the 1994 Annual Meeting of Stockholders on April 28, 1994, the
company received stockholder approval to increase the number of shares of
common stock reserved for issuance under the 1989 Stock Incentive Plan by
2,000,000 shares. Pursuant to the 1989 Stock Incentive Plan, the company
granted options to acquire 1,238,908 shares to 380 key employees of the
company on April 28, 1994. These options have an exercise price of $22.38,
vest between 1995 and 2002 based upon the achievement of stock price
appreciation targets. The percentage of the options that vest during
specified time periods will depend on the amount of stock price appreciation
in those time periods. After five years, the options will vest as to 60% of
the covered shares if not otherwise vested, and after nine years, the options
will vest as to the remaining 40% if not otherwise vested. These options
expire in July 2003.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. Stockholders' Equity (continued)
Stock Incentive Plans (continued)
In addition, pursuant to the 1992 Directors Stock Option Plan, the
company granted options to acquire 32,000 shares to eight non-employee
directors of the company on April 29, 1994. These options have an exercise
price of $20.625 and become exercisable in three equal installments on the
anniversaries of the date of grant, and expire in April 2004.
Note 6. Commitments and Contingencies
Commitments
In May 1993, the company entered into contracts for the construction
and purchase of six new C11-class containerships from Howaldtswerke-Deutsche
Werft AG, of Germany ("HDW") (three ships) and Daewoo Shipbuilding and Heavy
Machinery, Ltd., of Korea ("Daewoo") (three ships). The total estimated
project cost for the construction of these vessels is $537 million. A $52
million progress payment was made in 1993 upon contract effectiveness,
approximately half of which was paid to HDW and half to Daewoo, and a progress
payment of $4 million was made to HDW during the first 26-weeks of 1994. The
remaining progress payments are due in installments of $27 million and $20
million in 1994 and 1995, respectively, and the final 80% is due upon delivery
of the vessels. In March 1994, the company entered into a loan agreement with
European banks to finance approximately $400 million of the purchase price of
the six C11-class vessels. Principal payments on any draw-downs would be due
in semiannual installments over a 12-year period commencing six months after
the delivery of each vessel. Interest rates would be based upon various
margins over LIBOR or the banks' cost of funds as elected by the company. The
remaining costs of these vessels are expected to be financed with a portion of
the net proceeds from the company's November 1993 and January 1994 public debt
offerings and cash from operations.
In connection with the construction and purchase of the ships from
HDW, the company entered into foreign currency contracts to buy Deutsche marks
in the future to lock in the U.S. dollar cost of the Deutsche-mark denominated
price of the vessels. Any gains or losses on these contracts will be deferred
and recognized as an adjustment to the cost basis of the ships when the
related payments are made. At July 1, 1994, the company had contracts to
purchase $236.9 million in Deutsche marks.
In December 1993, the company entered into contracts with Daewoo for
the construction and purchase of three diesel-powered K10-class containerships
to be delivered in 1996. The total estimated project cost for construction of
these vessels is $195 million. A progress payment of $18 million was made to
Daewoo in 1993. The remaining progress payments are due in two $18 million
installments in 1995 and 70% upon delivery of the vessels. The remaining
costs of these vessels are expected to be financed with a portion of the net
proceeds from the company's November 1993 and January 1994 public debt
offerings and cash from operations.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
At July 1, 1994, the company had outstanding purchase commitments to
acquire facilities, equipment and services totaling $79 million. In addition,
the company has commitments to purchase terminal services for its major Asian
operations. These commitments range from one to ten years, and the amounts of
the commitments under these contracts are based upon the actual services
performed. At July 1, 1994, the company had outstanding letters of credit
totaling $10.5 million, which guarantee the company's performance under
certain of its commitments.
In 1993, the company entered into a 30-year lease with the Port of Los
Angeles for a new terminal facility. In connection with that lease, the
company has agreed to provide at least six gantry cranes and certain
intermodal handling equipment by the inception of the lease in 1997, the
estimated minimum cost of which, if purchased, is approximately $70 million.
On June 1, 1994 the company and the Port of Seattle signed a lease
amendment for the improvement and expansion of its existing terminal facility.
Under the amended lease, the facility would be expanded from 83 acres to
approximately 160 acres. The expansion is expected to be completed during
1997, and the lease term would be 30 years from completion. In addition, the
company has the option to expand the terminal by an additional 30 acres. The
annual rent payment for the company's existing facility was approximately $6.3
million in 1993. The minimum annual rent payment, for the first full year
after completion, under the amended lease is estimated to be $12.4 million,
depending upon the final scope of development and consumer price index
increases. The minimum annual rent payment increases in five year increments
over the term of the lease, to approximately $37.7 million in the 29th and
30th years, also depending upon the final scope of development and consumer
price index increases.
The company and Orient Overseas Container Line, a Hong Kong shipping
company ("OOCL"), have been parties to agreements enabling them to exchange
vessel space and coordinate vessel sailings through 2005. Currently, each
party is guaranteed vessel space and buys extra space as needed. Beginning in
December 1993, the company is required to purchase additional vessel space
from OOCL and will compensate OOCL for this space at a rate currently
calculated at $6.6 million per year, accrued ratably over each year. This
commitment reduces as the company increases the capacity it can exchange with
OOCL, which is expected to begin with the delivery of the company's C11-class
vessels in 1995.
On April 26, 1994, the company and Transportacion Maritima Mexicana
("TMM"), a Mexican transportation company, entered into an agreement enabling
them to reciprocally charter vessel space for a period of three years. Under
the agreement, cargo will be transported between major Asian ports and certain
ports on the Pacific Coast of the U.S. and Mexico. Each party is committed to
purchase a minimum amount of vessel space at contract rates and may buy
available extra space as needed. The company's minimum space purchase
commitment exceeds that of TMM by approximately $5.3 million per year.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
The company has entered into employment agreements with certain of its
executive officers. The agreements provide for certain payments to each
officer upon termination of employment, other than as a result of death,
disability in most cases, or justified cause, as defined. The aggregate
estimated commitment under these agreements was $15.9 million at July 1, 1994.
Contingencies
The company is a party to various legal proceedings, claims and
assessments arising in the course of its business activities. Based upon
information presently available, and in light of legal and other defenses
and insurance coverage and other potential sources of payment available to
the company, management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a material adverse
impact on the company's consolidated financial position or operations.
<TABLE>
Note 7. Business Segment Information
<CAPTION>
_________________________________________________________________________________________________
(In millions) Quarter Ended 26 Weeks Ended
July 1 June 25 July 1 June 25
1994 1993 1994 1993
_________________________________________________________________________________________________
Revenues
<S> <C> <C> <C> <C>
Transportation $ 642.3 $ 578.0 $ 1,340.5 $ 1,208.5
Real Estate 11.3 5.9 16.2 6.4
_________________________________________________________________________________________________
Total Revenues $ 653.6 $ 583.9 $ 1,356.7 $1,214.9
_________________________________________________________________________________________________
Operating Income
Transportation $ 26.1 $ 24.3 $ 42.7 $ 48.0
Real Estate 6.4 3.6 9.0 3.6
_________________________________________________________________________________________________
Total Operating Income $ 32.5 $ 27.9 $ 51.7 $ 51.6
_________________________________________________________________________________________________
</TABLE>
<PAGE>
American President Companies, Ltd. and Subsidiaries
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Second Quarter Year to Date
(In millions) 1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
REVENUES
________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
International Transportation $ 462 $ 429 8% $ 970 $ 904 7%
North America Transportation 181 149 21% 371 304 22%
Real Estate 11 6 90% 16 7 153%
________________________________________________________________________________________________
OPERATING INCOME
Transportation $ 27 $ 24 7% $ 43 $ 48 (11%)
Real Estate 6 4 81% 9 4 153%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
Transportation operating income for the second quarter and first half
of 1994 was $26 million and $34 million, respectively, compared with $22
million and $46 million in the second quarter and first half of 1993,
excluding the impact of collecting Desert Storm detention charges of $1
million and $9 million in the second quarter and first half of 1994,
respectively, and $2 million in the second quarter and first half of 1993.
The increase in transportation operating income in the second quarter of 1994
from last year's second quarter is the result of volume increases in the North
American stacktrain and international markets, partially offset by a decline
in rates in the company's U.S. export market, a higher proportion of lower-
rated cargo in the company's U.S. import market and an increase of $7 million
in expenditures on corporate initiatives to improve the company's financial
and order cycle processes. The decrease in operating income in the first half
of 1994 from last year's first half is attributable to depressed rates in the
company's U.S. export market, particularly in the first quarter of 1994, a
decline in the proportion of higher-margin import cargo and an increase of $13
million in expenditures on corporate initiatives, which were partially offset
by increased North American stacktrain volumes.
Real estate sales contributed $6 million and $9 million to operating
income in the second quarter and first half of 1994, respectively, compared
with $4 million in the second quarter and first half of 1993. The company
completed the sales of its remaining real estate holdings in the second
quarter of 1994.
<TABLE>
INTERNATIONAL TRANSPORTATION (1)
(Volumes in thousands of FEUs)
<CAPTION>
Second Quarter Year to Date
1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Import
<S> <C> <C> <C> <C> <C> <C>
Volumes 52.4 47.0 11% 102.2 99.2 3%
Average Revenue per FEU $ 4,129 $ 4,151 (1%) $ 4,089 $ 4,092 0%
________________________________________________________________________________________________
Export
Volumes 36.6 34.0 8% 79.1 72.4 9%
Average Revenue per FEU $ 3,128 $ 3,196 (2%) $ 3,107 $ 3,326 (7%)
________________________________________________________________________________________________
Intra-Asia
Volumes 43.3 40.1 8% 93.4 82.0 14%
Average Revenue per FEU $ 1,868 $ 1,851 1% $ 1,898 $ 1,878 1%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) Volumes and revenue per forty-foot equivalent unit ("FEU") data are based
upon shipments originating during the period, which differs from the
percentage-of-completion method which is used for financial reporting
purposes.
<PAGE>
The company's U.S. import volumes increased in the second quarter of
1994 compared with the second quarter of 1993 due to seasonal cargo from Hong
Kong moving earlier than last year, service enhancements in the People's
Republic of China and a competitor's labor strike. U.S. import volumes in the
first half of 1994 increased compared with the same period last year, although
increases realized during the second quarter of 1994 were partially offset by
a weak import market and strong competition during the first quarter of 1994.
Volumes of U.S. export cargo increased in the second quarter and first half of
1994 compared with the second quarter and first half of 1993, primarily due to
an increase in shipments of commercial and military refrigerated cargo and the
impact of a competitor's labor strike. The company's position as preferred
carrier for U.S. military cargo from June 1, 1993 to May 31, 1994 also
contributed to increased export volumes for the second quarter and first half
of 1994 compared with the same periods in 1993. The company's intra-Asia
volumes increased in the second quarter and first half of 1994 compared with
the same periods last year as a result of the company's expanded service to
and from China and the growing economies in Southeast and West Asia, and the
Middle East since 1993.
Average revenue per FEU for the company's U.S. import shipments
declined in the second quarter compared with the second quarter 1993 due to a
higher proportion of lower-rated cargo in 1994. Average revenue per FEU in
the company's U.S. export market decreased in the second quarter and first
half of 1994 from last year's second quarter and first half as weak market
conditions and increased competition have resulted in reduced rates in this
market. Average revenue per FEU in the company's intra-Asia market increased
slightly in the second quarter and first half of 1994 compared with the second
quarter and first half of 1993, primarily attributable to an increase in
higher-rated commercial refrigerated cargo.
Utilization of the company's containership capacity in the first half
of 1994 was 84% and 96% for import and export shipments, respectively,
compared with 84% and 89%, respectively, in the first half of 1993. Import
capacity in the first half of 1994 was increased by additional vessel space
purchased from Orient Overseas Container Line ("OOCL") since December 1993.
The increase in vessel utilization in the company's U.S. export market in the
first half of 1994 resulted primarily from additional volumes of export cargo
carried by the company in the first half of 1994 compared with the first half
of 1993.
For the remainder of 1994, the company expects modest seasonal
improvements in cargo mix in each of its international markets. Competitive
pressures on the company's international rates are expected to continue for
the balance of the year. Beginning June 1, 1994, the company no longer is the
preferred carrier for military dry cargo as it had been since June 1, 1993,
but the company retained its position as preferred carrier for military
refrigerated cargo for the 12-month period beginning June 1, 1994. The
company expects to be able to substantially replace the military cargo it will
no longer carry with commercial cargo, although at lower margins, but no
assurances can be given to that effect. In the first half of 1994, military
dry cargo represented 12% of export volumes, compared with 9% in the first
half of 1993, when the company was not the preferred carrier of such cargo
until the last month of that period.
All Desert Storm detention claims have been settled and final payments
totaling $1 million are expected to be received during the remainder of 1994.
The company and OOCL, a Hong Kong shipping company, are parties to
agreements enabling them to exchange vessel space and coordinate vessel
sailings through 2005. The agreements permit both companies to offer faster
transit times, more frequent sailings between key markets in Asia and the
<PAGE>
U.S. West Coast, and to share terminals and several feeder operations within
Asia. Under the slot-sharing agreement, the company and OOCL have designated
a combined total of approximately 7,000 FEUs per week in the eastbound
direction and 5,400 FEUs per week in the westbound direction to be allocated
to each company based upon proportions specified in the agreement.
Additionally, beginning in December 1993, the company is required to purchase
additional vessel space from OOCL and will compensate OOCL approximately $7
million annually for this space, accrued ratably over each year. This
commitment reduces as the company increases the capacity it can exchange with
OOCL, which is expected to begin with the delivery of the company's C11-class
vessels in 1995.
On April 26, 1994, the company and Transportacion Maritima Mexicana
("TMM"), a Mexican transportation company, entered into an agreement enabling
them to reciprocally charter vessel space for a period of three years. Under
the agreement, cargo will be transported between major Asian ports and certain
ports on the Pacific Coast of the U.S. and Mexico. The company will charter
from TMM between 200 and 240 FEUs per week in the eastbound direction, and 115
FEUs per week in the westbound direction. Each party is committed to purchase
a minimum amount of vessel space at contract rates and may buy available extra
space as needed. The company's minimum space purchase commitment exceeds that
of TMM by approximately $5 million per year.
The company has entered into non-binding letters of understanding to
pursue negotiations with Mitsui OSK Lines, Ltd. ("MOL"), Nedlloyd Lijnen B.V.
("NLL") and OOCL to form an alliance for ocean transportation services in the
Asia-Europe and Asia-North America trade lanes. Additionally, the carriers
are discussing the possibility of a joint all-water service via the Panama
Canal from Asia to the U.S. East Coast, which would utilize vessels of the
company's alliance partners. In the trans-Pacific trade, the company and OOCL
are negotiating to include MOL in the agreement under which the company and
OOCL presently exchange vessel space, coordinate sailings and share terminals.
The company is also negotiating to enter the Asia-Europe market by using a
small amount of vessel space provided by the other carriers in the alliance,
including NLL's current partners in the trade, and presently intends to grow
in that market by adding vessel capacity only when demand and expected returns
warrant. No assurances can be given as to whether any of these negotiations
will be successful, and certain of the principal agreements reached would be
subject to government approvals.
The company is party to an Operating-Differential Subsidy ("ODS")
agreement with the U.S. government, expiring on December 31, 1997, which
provides for payment by the U.S. government to partially compensate the
company for the relatively greater expense of vessel operation under U.S.
registry. ODS payments to the company were approximately $30 million and $31
million in the first half of 1994 and 1993, respectively, and totaled $65
million in 1993.
The Clinton Administration and Congress are actively reviewing U.S.
maritime policy. On March 10, 1994, the Clinton Administration sent its
maritime proposal, "The Maritime Security Program", to Congress, which was
introduced in the U.S. House of Representatives as H.R. 4003 and in the Senate
as S. 1945. On August 2, 1994, the House approved H.R. 4003, which would
provide $1.3 billion in subsidies for approximately 52 U.S.-flag vessels over
the next ten years, or an annual subsidy of $2.1 million per vessel for
vessels enrolled in the program, and would provide subsidies to U.S. ship
builders. The bill now goes to the Senate. The company is not able to
predict whether maritime reform legislation will be enacted or whether enacted
legislation, if any, will have terms similar to H.R. 4003/S. 1945.
<PAGE>
While the company continues to support efforts to enact new maritime
support legislation, prospects for passage of a program acceptable to the
company are unclear. Accordingly, on July 16, 1993, the company filed
applications with the United States Maritime Administration to operate under
foreign flag its six C11-class containerships, which are under construction,
and to transfer to foreign flag seven of the 15 U.S.-flag containerships in
its trans-Pacific fleet. Enactment of maritime reform legislation, if any,
may influence the company's decision whether to operate these ships under
foreign flag, should its applications be approved. Management of the company
believes that, in the absence of ODS or an equivalent government support
program, it is generally no longer commercially viable to own or operate
containerships in foreign trade under the U.S. flag because of the higher
labor costs and the more restrictive design, maintenance and operating
standards applicable to U.S.-flag liner carriers. The company continues to
evaluate its strategic alternatives in light of the expiration of its ODS
agreement and the uncertainties as to whether a new U.S. government maritime
support program acceptable to the company will be enacted, whether sufficient
labor efficiencies can be achieved through the collective bargaining process,
and whether the company's applications to flag its vessels under foreign
registry will be approved. While no assurances can be given, management of
the company believes that it will be able to structure its operations to
enable it to continue to operate on a competitive basis without direct U.S.
government support.
<TABLE>
NORTH AMERICA TRANSPORTATION (1)
(Volumes in thousands of FEUs)
<CAPTION>
Second Quarter Year to Date
1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Revenues (2) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Stacktrain $ 127 $ 102 24% $ 260 $ 208 25%
Non-Stacktrain 54 47 12% 111 96 15%
________________________________________________________________________________________________
Stacktrain Volumes
North America 94.0 77.2 22% 193.7 157.6 23%
International 46.2 43.4 6% 94.6 91.6 3%
________________________________________________________________________________________________
Stacktrain Average
Revenue per FEU (2) $ 1,352 $ 1,324 2% $ 1,344 $ 1,322 2%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) Volumes and revenue per FEU data are based upon shipments originating
during the period, which differs from the percentage-of-completion method
which is used for financial reporting purposes.
(2) In addition to domestic third party business, the transportation of
containers for the company's international customers is a significant
component of the company's stacktrain operations. The effect of these
shipments on domestic operations is eliminated in consolidation and
therefore excluded above in Revenues and Stacktrain Average Revenue per
FEU.
Revenues from the company's North American transportation operations
increased in the second quarter and first half of 1994 compared with second
quarter and first half of 1993, primarily as the result of higher North
America stacktrain volumes. The increase in stacktrain volumes in the 1994
periods was due to the improvement in the U.S. economy, increases in Mexican
and Canadian shipments, particularly automotive shipments between the U.S. and
Mexico and competitor equipment shortages. The company added 1,000 containers
to its fleet during the first quarter of 1994, which enabled it to meet
<PAGE>
increasing demand. Stacktrain average revenue per FEU increased in
the second quarter and first half of 1994 compared with the second quarter and
first half of 1993 due to an improvement in cargo mix and increased rates in
certain stacktrain markets in the second quarter of 1994. The company's non-
stacktrain revenues also improved in the second quarter and first half of 1994
compared with the same period in 1993, primarily due to increased volumes.
During the remainder of 1994, the company intends to continue to add
to its fleet of containers, chassis and rail cars via short- and long-term
operating leases and purchases in anticipation of growth in demand in the
North American stacktrain market. There can be no assurances, however, that
such demand will materialize.
<TABLE>
TRANSPORTATION OPERATING EXPENSES
<CAPTION>
(In millions, except Second Quarter Year to Date
Operating Cost per FEU) 1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Land Transportation $ 239 $ 207 16% $ 496 $ 432 15%
Cargo Handling 126 119 7% 265 245 8%
Vessel, Net 76 67 13% 162 142 14%
Transportation Equipment 46 41 13% 98 88 11%
Information Systems 11 11 2% 25 23 8%
Other 74 71 3% 160 149 8%
________________________________________________________________________________________________
Total $ 572 $ 516 11% $ 1,206 $ 1,079 12%
________________________________________________________________________________________________
Operating Cost per FEU $ 2,528 $ 2,599 (3)% $ 2,575 $ 2,624 (2)%
Percentage of Transportation
Revenues 89% 89% 90% 89%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
Transportation operating expenses per FEU declined in the second
quarter and first half of 1994 compared with the same periods in 1993 despite
the weakness of the U.S. dollar relative to certain Asian currencies. During
the second quarter of 1994, one of the company's C9-class vessels, the
President Washington, which is deployed in trans-Pacific service, was involved
in a collision in Korea. Substantial damage to the vessel and its cargo and
cargo containers was sustained in the collision and subsequent fire. The
causes and responsibility for the collision and fire are under investigation.
Costs related to the collision will be largely covered by insurance. Costs
not covered by insurance, which include the cost of the replacement vessel,
and additional cargo handling and trucking costs, totaled approximately $2
million in the second quarter of 1994. On July 30, 1994, the President
Washington returned to service.
Land transportation expenses increased in the second quarter and first
half of 1994 from the second quarter and first half of 1993, primarily due to
the increase in North American stacktrain volumes and higher rail and truck
costs in Asia. The increase in cargo handling expenses in the second quarter
and first half of 1994 compared with 1993 is attributable to an increase in
stevedoring volumes, including increased relays of China and West Asia cargo
and increased stevedoring services to third parties. Additionally, 1994 cargo
handling expenses were impacted by labor contract rate increases at ports in
Asia and the U.S. Vessel expenses increased in the second quarter and first
half of 1994 compared with last year's second quarter and first half due to
increased charter hire activity resulting from expanded service to China and
the Philippines, costs related to the vessel that replaced the President
Washington, an increase in Latin American activity and additional vessel space
purchased from OOCL and TMM. These factors were partially offset by a
decrease in fuel cost. Transportation equipment costs increased in the second
quarter and first half of 1994 compared with the second quarter and first half
of 1993 due to increased
<PAGE>
repair and maintenance costs, increased lease costs, including the addition of
1,000 leased containers during the first quarter of 1994 for use in North
American stacktrain operations. The increase in information systems costs for
the first half of 1994 was due to software purchases in the first quarter of
1994. Other operating expenses increased in the second quarter and first half
of 1994 compared with the second quarter and first half of 1993 primarily due
to higher employee costs, particularly in Asia.
Certain of the company's collective bargaining agreements covering
shipboard and shoreside employees in the U.S. expired in June 1994.
Negotiations with all but one of the respective unions have resulted in new
agreements expiring in June 1995 or December 1997, subject to ratification by
the respective union memberships. Negotiations with the remaining union have
resulted in a framework agreement, which, if concluded, would expire in June
1998. It is anticipated that negotiation of the remaining provisions of this
agreement will be concluded by October 31, 1994, although no assurances can be
given to that effect. The union has agreed that there will be no strikes or
stoppages of work prior to that date.
General and administrative expenses increased 52% and 44% in the
second quarter and first half of 1994 compared with the second quarter and
first half of 1993, respectively, primarily due to an increase in expenditures
of approximately $7 million and $13 million in the second quarter and first
half of 1994, respectively, on corporate initiatives to improve the company's
financial and order cycle processes. Total spending on corporate initiatives
is expected to be approximately $30 million in 1994. Expenditures on
corporate initiatives are expected to continue in 1995 and 1996. Depreciation
and amortization expense decreased 4% and 3% in the second quarter and first
half of 1994 compared with the second quarter and first half of 1993,
respectively, primarily due to certain equipment reaching the end of its
depreciable life during 1993. Net interest expense increased from $3 million
in the second quarter of 1993 to $4 million in the second quarter of 1994.
Interest income increased in 1994 due to higher cash balances and slightly
higher interest rates, which partially offset the increase in interest expense
from the Senior Notes and Debentures issued in the fourth quarter of 1993 and
the first quarter of 1994, respectively. Net interest expense for the first
half of 1994 was relatively unchanged from the first half of 1993, as the
increase in interest income in 1994 offset the increase in interest expense.
The company's estimated income tax rate for 1994 is 34%, compared with
37% in 1993. The 1994 income tax rate includes the effect of revisions of
prior years' estimated tax liabilities.
<PAGE>
<TABLE>
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
___________________________________________________________________________________________
July 1 December 31
As of: 1994 1993
___________________________________________________________________________________________
Cash, Cash Equivalents and
<S> <C> <C>
Short-term Investments $ 214 $ 84
Working Capital 231 51
Total Assets 1,612 1,454
Long-Term Debt and Capital
Lease Obligations (1) 405 272
___________________________________________________________________________________________
July 1 June 25
For the quarter ending: 1994 1993
___________________________________________________________________________________________
Cash Provided by Operations $ 46 $ 80
___________________________________________________________________________________________
NET CAPITAL EXPENDITURES
Ships $ 8 $ 75
Containers, Chassis and Rail Cars 20 18
Leasehold Improvements and Other 20 9
___________________________________________________________________________________________
Total $ 48 $ 102
___________________________________________________________________________________________
INVESTING ACTIVITIES
Proceeds from Sale of Long-term
Investment $ 11
___________________________________________________________________________________________
FINANCING ACTIVITIES
Borrowings $ 147 $ 351
Repayment of Debt and Capital Leases (14) (474)
Dividend Payments (9) (7)
___________________________________________________________________________________________
___________________________________________________________________________________________
</TABLE>
(1) Includes current and long-term portions.
In January 1994, the company issued $150 million 30-year Senior
Debentures at an effective interest rate of 8.2%, the net proceeds from which
were $147 million. The net proceeds from the issuance of this debt, combined
with a portion of the net proceeds from the 10-year Senior Note offering of
$150 million in November 1993, will be used to finance vessel purchases, other
capital expenditures and for general corporate purposes.
In the first quarter of 1993, the company used $131 million cash and
borrowings under its previous revolving credit agreement to purchase leased
ships, repay the related capital lease obligations and to retire $95 million
of 11% public notes. Also in the first half of 1993, the company sold its
investment in Amtech Corporation, the proceeds from which were $11 million,
and resulted in a pretax contribution of $9 million.
In 1993, the company began a fleet modernization program pursuant to
which it has placed orders for the construction of six new C11-class
containerships ("C11") and three new Kl0-class containerships ("K10") for an
aggregate cost of approximately $732 million. OOCL has placed orders to
purchase six vessels similar in size and speed to the company's C11s. The
company and OOCL have agreed to deploy the company's C11s and OOCL's similar
vessels upon their delivery in 1995 and 1996, respectively, in their
coordinated trans-Pacific service under their slot-sharing agreement, which
deployment will require U.S. government approval. The deployment of the 12
new C11-type vessels by the company and OOCL, replacing 16 older vessels, will
increase the combined trans-Pacific capacity of the company and OOCL by
approximately 15%. The company expects growth in demand in the trans-Pacific
market and believes that the increase in combined capacity will be sufficient
to permit the company and OOCL to maintain their combined relative market
share in that market. However, no assurances can be given with respect to
anticipated growth in demand, the utilization or impact of the increased
<PAGE>
capacity or whether the necessary U.S. government approval of the agreed
deployment of the vessels will be granted.
The company's K10s, in combination with capacity from its six C11s,
are expected to replace four L9-class vessels chartered by the company and
used in its West Asia/Middle East service. Delivery of the K10s is scheduled
for 1996, which is when the charters of the L9s will expire. Any alliance
agreement with MOL, NLL and OOCL may impact the deployment and/or the ultimate
ownership of the K10s. Deployment of the company's K10s may be subject to
U.S. government approval.
The C11 vessels are being constructed by Howaldtswerke-Deutsche Werft
AG, of Germany ("HDW") (three ships) and Daewoo Shipbuilding and Heavy
Machinery, Ltd., of Korea ("Daewoo") (three ships). The total estimated
project cost for the construction of these vessels is $537 million. A $52
million progress payment was made in 1993 upon contract effectiveness,
approximately half of which was paid to HDW and half to Daewoo, and a progress
payment of $4 million was made to HDW in the first 26-weeks of 1994. The
remaining progress payments are due in installments of $27 million and $20
million in 1994 and 1995, respectively, and the final 80% is due upon delivery
of the vessels. In March 1994, the company entered into a loan agreement with
European banks to finance approximately $400 million of the purchase price of
the six C11-class vessels. Principal payments on any draw-downs would be due
in semiannual installments over a 12 year period commencing six months after
the delivery of each vessel. Interest rates would be based upon various
margins over LIBOR or the banks' cost of funds as elected by the company. The
remaining costs of these vessels are expected to be financed with a portion of
the net proceeds from the company's November 1993 and January 1994 public debt
offerings and cash from operations.
The K10s are being constructed by Daewoo. The total estimated project
cost for construction of these vessels is $195 million. A progress payment of
$18 million was made to Daewoo in 1993. The remaining progress payments are
due in two $18 million installments in 1995 and 70% upon delivery of the
vessels. The costs of these vessels are expected to be financed with a
portion of the net proceeds from the company's November 1993 and January 1994
public debt offerings and cash from operations.
Other than vessel progress payments, the company's capital
expenditures in the second quarter and first half of 1994 were primarily for
purchases of containers, chassis, leasehold improvements and an office in
Mexico. In the second quarter and first half of 1993, capital expenditures
were for the buy-out of certain vessel capital leases and purchases of
refrigerated containers.
Capital expenditures in 1994 are expected to total approximately $200
million, including $31 million for vessel progress payments. The remaining
planned 1994 capital expenditures are for purchases of refrigerated
containers, chassis, terminal improvements in North America and Asia, and
computer systems, and will be financed with the net proceeds from the
company's November 1993 and January 1994 public debt offerings, cash from
operations and financing arrangements. At July 1, 1994, the company had
outstanding purchase commitments to acquire facilities, equipment and services
totaling $79 million.
In 1993, the company entered into a 30-year lease with the Port of Los
Angeles for a new terminal facility. In connection with that lease, the
company has agreed to provide at least six gantry cranes and certain
intermodal handling equipment by the inception of the lease in 1997, the
estimated minimum cost of which, if purchased, is approximately $70 million.
<PAGE>
On June 1, 1994 the company and the Port of Seattle signed a lease
amendment for the improvement and expansion of its existing terminal facility.
Under the amended lease, the facility would be expanded from 83 acres to
approximately 160 acres. The expansion is expected to be completed during
1997, and the lease term would be 30 years from completion. In addition, the
company has the option to expand the terminal by an additional 30 acres. The
annual rent payment for the company's existing facility was approximately $6
million in 1993. The minimum annual rent payment, for the first full year
after completion, under the amended lease is estimated to be $12 million,
depending upon the final scope of development and consumer price index
increases. The minimum annual rent payment increases in five year increments
over the term of the lease, to approximately $38 million in the 29th and 30th
years, also depending upon the final scope of development and consumer price
index increases.
On March 25, 1994, the company entered into a credit agreement with a
group of banks that provides for an aggregate commitment of up to $200 million
for a five-year period. The credit agreement contains various financial
covenants that require the company to meet certain levels of interest
coverage, leverage and net worth. The borrowings bear interest at rates based
upon various indices as elected by the company. The annual commitment fee is
a maximum of one-half of one percent of the available amount. Any outstanding
borrowings under this agreement would be classified as long-term. There have
been no borrowings under this agreement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The company is a party to various pending legal proceedings, claims
and assessments arising in the course of its business activities, including
actions relating to trade practices, personal injury or property damage,
alleged breaches of contracts, torts, labor matters, employment practices, tax
matters and miscellaneous other matters. Some of these proceedings involve
claims for punitive damages, in addition to other specific relief.
Among these actions are approximately 1,140 cases pending against the
company, together with numerous other ship owners and equipment manufacturers,
involving injuries or illnesses allegedly caused by exposure to asbestos or
other toxic substances on ships. In one case, Miller, Administrator of Estate
of Moline vs. American Mail Line, et. al., U.S. District Court, Northern
District of Ohio, C86-821, a judgment was entered in May 1991 awarding
punitive damages of $50,000 per named defendant, along with compensatory
damages aggregating $166,000. In March 1993, the U.S. Court of Appeals for
the Sixth Circuit vacated the punitive damages award, holding that punitive
damages are not available in a general maritime unseaworthiness action for
wrongful death of a seaman, remanded the case for consideration of defendants'
claims for indemnity and contribution, and otherwise affirmed the judgment of
the District Court. The plaintiff filed a petition for certiorari with the
U.S. Supreme Court in August 1993. The court refused review of the case
without comment on October 12, 1993.
The company insures its potential liability for bodily injury to
seamen through mutual insurance associations. Industry-wide resolution of
asbestos-related claims at significantly higher than expected amounts could
result in additional contributions to those associations.
In December 1989, the government of Guam filed a complaint with the
Federal Maritime Commission ("FMC") alleging that American President Lines,
Ltd. and an unrelated company charged excessive rates for carrying cargo
between the U.S. and Guam, in violation of the Shipping Act, 1916 and the
Intercoastal Shipping Act of 1933, and seeking an undetermined amount of
reparations. Three private shippers are also complainants in this proceeding.
Evidentiary hearings are continuing and a decision by the FMC is not expected
until 1995.
In March 1992, in connection with the same matter, the government of
Guam and four private shippers filed a class action complaint in the United
States District Court, District of Columbia, based on the same allegations,
seeking an undetermined amount of damages on behalf of all shippers of cargo
to and from Guam on the company's vessels and the vessels of the other named
defendant. In January 1993, the class action complaint was dismissed. In
July 1994, the decision of dismissal was affirmed by the U.S. Court of Appeals
for the Circuit of the District of Columbia.
On April 28, 1994, a lawsuit, Hockert Pressman & Flohr Money Purchase
Plan, et. al. vs. American President Companies, Ltd., et. al., was filed
against the company and certain of its officers in United States District
Court for the Northern District of California. The suit alleges that the
company and certain officers made false and misleading statements about the
company's operating and financial performance in violation of federal
securities laws, and seeks unspecified damages on behalf of a purported class
of stockholders who purchased shares of the company's common stock during the
period October 7, 1993 through March 30, 1994. The company believes that it
has meritorious defenses and intends to defend itself vigorously against this
lawsuit.
<PAGE>
Based upon information presently available, and in light of legal and
other defenses and insurance coverage and other potential sources of payment
available to the company, management does not expect the legal proceedings
described, individually or in the aggregate, to have a material adverse impact
on the company's consolidated financial position or operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on April 28, 1994 in
Oakland, California. Two proposals, in addition to the election of directors,
were submitted to the stockholders as described in the company's Proxy
Statement dated March 28, 1994 and were voted upon and approved by the
stockholders at the meeting. The following table describes the results of the
stockholder votes:
<TABLE>
<CAPTION>
Votes Votes Withheld Non
For Against /Abstain Votes
____________________________________________________________________________________________
Election of Directors:
Class I Nominees:
<S> <C> <C> <C> <C>
Tully M. Friedman 27,928,484 428,826
G. Craig Sullivan 27,921,341 435,969
Class II Nominees:
Charles S. Arledge 27,930,311 426,999
F. Warren Hellman 27,928,691 428,619
Timothy J. Rhein 27,927,831 429,479
Forrest N. Shumway 27,928,482 428,828
Barry L. Williams 27,918,874 438,436
Amendment of 1989 Stock
Incentive Plan 17,274,594 9,302,099 99,841 1,680,776
Election of Auditors 27,686,511 343,567 327,232
</TABLE>
The voting included 24,395,810 shares of Common Stock (each of which is
entitled to one vote), representing 89.7% of the outstanding shares of Common
Stock on the record date of March 1, 1994 and 1,500,000 shares of Preferred
Stock (each of which is entitled to approximately 2.641 votes), representing
100% of the outstanding shares of Preferred Stock.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following documents are exhibits to this Form 10-Q:
Exhibit
No. Description of Document
_______ _______________________
10.1 Amendment No. 6 to the Lease Agreement between Port of Seattle and
American President Lines, Ltd. at Terminal 5, and assignment of the
lease from American President Lines, Ltd. to Eagle Marine Services,
Ltd. dated June 1, 1994, excluding exhibits and other related
agreements.
10.2 Amendment No. 1 to the amended and restated Excess-Benefit Plan of the
company, effective May 31, 1994.
(b) Reports on Form 8-K
No current report on Form 8-K was filed during the quarter for which
this report on Form 10-Q is filed.
<PAGE>
American President Companies, Ltd. and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN PRESIDENT COMPANIES, LTD.
Dated: August 12, 1994 By /s/ William J. Stuebgen
______________________ ________________________________
William J. Stuebgen
Vice President,
Controller and
Chief Accounting Officer
SIXTH AMENDMENT TO LEASE
BETWEEN
PORT OF SEATTLE AND AMERICAN PRESIDENT LINES, LTD.
TERMINAL 5
AND ASSIGNMENT OF LEASE FROM AMERICAN PRESIDENT LINES, LTD.
TO EAGLE MARINE SERVICES, LTD.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
R E C I T A L S 1
Section 1. DEFINITIONS. 2
A. Actual Cost or Actual Costs 2
B. Affiliate or Affiliated 2
C. APL Controlled Train 3
D. Beneficial Use or Beneficially Usable 3
E. Basic Land and Improvements Rent 3
F. Business Day 3
G. Container Shift 3
H. Conservative Schedule 3
I. Contiguous Property or Contiguous Properties 3
J. Double Track 3
K. Drayage Move 4
L. Expansion Premises 4
M. Facility Component 4
N. Facility Component Completion 4
O. Fourth Berth 5
P. Intermodal Lift 5
Q. Intermodal Lift Fee 5
R. Intermodal Loading Yard 5
S. Intermodal Storage Yard 5
T. Intermodal Yard 5
U. Intermodal Yard (IY) Cranes 5
V. Intermodal Yard (IY) Facility Charge 5
W. IY Facilities 6
X. Lease 6
Y. Lockheed Storage Area 6
Z. New Container Yard 6
AA. Off-Premises Temporary Container Yard 6
BB. Option Premises 6
CC. Original Land and Improvements Rent 6
DD. Original Premises 6
EE. Overpass 6
FF. Preferred Schedule 6
GG. Premises 7
HH. Radio Towers 7
II. Rail Bridge 7
JJ. Railroad Storage Yard 7
KK. Salmon Terminals Storage Area 7
LL. Special Improvement or Special Improvements 7
MM. Special Improvements Rent 7
NN. Total Facility Completion 7
Section 2. Amendments to Paragraph 1, Subparagraph (e)
of the Basic Lease 8
(e)(i) Acquisition 8
(e)(ii) Development 8
(A) Facility Design 8
(B) New Container Yard 8
(1) Maintenance and Repair Facility 8
(2) Container Freight Station ("CFS") 9
(a) CFS Up to 80,000 Sq. Feet 9
(b) CFS Options 9
(c) Amortization 10
(3) Gatehouse/Entry 10
(C) Intermodal Loading Yard 11
(D) Off-Premises Improvements 11
(1) Intermodal Storage Yard("ISY") 11
(2) Railroad Storage Yard ("RSY") 11
(3) Off-Premises Temporary Container Yard 11
(4) Overpass 12
(5) Double Track 12
(6) Rail Bridge 12
(E) Original Premises 12
(F) Fill Alternative 12
(e)(iii) Equipment 12
(A) IY Cranes 13
(B) Container Cranes 17
(1) General
(a) Acquisition and Rent 17
(b) Lessee Option to Purchase 17
(c) Lessee Election 18
(d) Mechanism to Establish Fair
Market Value 18
(e) Enhancements 18
(f) Maintenance and Repair;
Secondary Use Rights 19
(2) Crane Raising 19
(e)(iv) Special Improvements - Cap on Costs 20
(e)(v) Approval of Plans and Specifications; Changes 20
(A) Definitions 20
(B) Period up to Completion of Conceptual Design 21
(C) Approval of Conceptual Design of Any Facility
Component 21
(D) Period After Completion of Conceptual
Design up to Final Design 23
(E) Approval of Final Design of Any
Facility Component 24
(F) Period after final Design up to Facility
Component Completion of any Facility
Component 24
(G) Schedule Impacts 25
(H) Payments as a Result of a Change;
Savings Pool 26
(1) Payments 26
(2) Savings Pool 26
(e)(vi) Extension of Time for Total Facility Completion 27
Section 3. Amendments to Paragraph 1 to Add New
Subparagraphs (h)-(m) to Basic Lease 28
(h) Off-Premises Temporary Container Yard Leasehold 28
(i) Options To Expand 29
(i) Options 30
(A) Option Premises Exclusive of Fourth Berth 30
(B) Option Premises Inclusive of
Fourth Berth 30
(ii) Conditions 30
(j) Notification, Right of First Refusal and
Option Regarding Contiguous Properties 32
(i) Right of First Refusal .32
(ii) Characterization of Option Premises .32
(iii) Lessee Option for Contiguous Properties 32
(iv) CEM Property 33
(k) Liquidated Damages and Port Guarantee Regarding
Expansion Premises 33
(i) General 33
(ii) IY Facilities 34
(A) IYF Liquidated Damages 34
(B) IYF Liquidated Damages Adjustment 34
(C) TFC Liquidated Damages 35
(iii) Duration of IYF Liquidated Damages and/or
TFC Liquidated Damages; Other Remedies 35
(A) Duration of Liquidated Damages 35
(B) Rights After Expiration of Liquidated
Damages Period 35
(C) Right to Sublease after Expiration of
Liquidated Damages Period 36
(iv) The Fourth Berth 38
(l) Equipment Training 38
(m) Rail Access and Related Issues 38
(i) Continuous Rail Access 39
(ii) Rail Bridge Reinforcement 39
(iii) Double Track 39
(iv) Switching 39
(v) Rail Access Charge 40
(vi) Rail Service Standards Liquidated Damages 41
(vii) Prohibition on Amendment or
Assignment of Exhibit I and Lessee's
Agreement to be Bound 42
Section 4. Amendment to Paragraph 2 (Term) to Add New
Subparagraph (e) to Basic Lease 42
Section 5. Amendment to Paragraph 3(d) to Basic Lease 43
Section 6. Amendment to Paragraph 3 (Rent) to Add New
Subparagraph (i) to Basic Lease 43
(i) Rent Under Sixth Amendment .43
(a) Original Premises .43
(b) Expansion Premises .43
(c) IY Facility Charge .44
(d) Intermodal Lift Fee .46
Section 7. New Paragraph 41 (Environmental) 47
Section 8. Amendment to Paragraph 28 (Arbitration) 49
Section 9. Amendment to Paragraph 3 (Rent) to replace
subparagraph(h) 50
Section 10. Exhibits 50
Section 11. Amendment to Paragraph 4 (Bond or Other Security)
to Add New Subparagraph (e) to Basic Lease 50
Section 12. Amendment to Paragraph 8 to add new subparagraph (d) 51
Section 13. Amendment to Paragraph 20 to add new
subparagraph (b)(3) 51
Section 14. Miscellaneous 51
</TABLE>
SIXTH AMENDMENT TO LEASE
BETWEEN
PORT OF SEATTLE AND AMERICAN PRESIDENT LINES, LTD.
TERMINAL 5
AND ASSIGNMENT OF LEASE FROM AMERICAN PRESIDENT LINES, LTD.
TO EAGLE MARINE SERVICES, LTD.
THIS SIXTH AMENDMENT TO LEASE (hereinafter, along with any exhibits and
attachments, referred to as the "Amendment") is entered into as of June 1,
1994 by and between the PORT OF SEATTLE, a Washington municipal corporation as
Lessor, hereinafter referred to as the "Port" and EAGLE MARINE SERVICES,
LTD., a Delaware corporation (and a wholly owned subsidiary of American
President Lines, Ltd.), hereinafter referred to as "Lessee", as assignee of
that certain Lease dated September 26, 1985, originally entered into by the
Port and American President Lines, Ltd., a Delaware corporation (hereinafter
"APL") of Premises at the Port's Terminal 5 (Federal Maritime Commission
Agreement No. T-224-01839), hereinafter referred to as "the Basic Lease").
R E C I T A L S :
A. WHEREAS, the Basic Lease dated September 26, 1985 (FMC Agreement No. T-224-
01839) superseded the Port's prior leases to APL of Terminal 46 Premises dated
April 14, 1981 (FMC Agreement T-3968), and of Terminal 25 Premises dated May
12, 1981 (FMC Agreement T-3968A) by providing for new Premises for APL at
Terminal 5 to be reconstructed by the Port with major improvements to APL's
specifications; and
B. WHEREAS, by First Amendment dated March 25, 1986, (FMC Agreement No. 224-
010839-001) the parties provided for an extension of APL's occupancy at
Terminal 46 until October 1986, and provided for certain construction
modifications; and
C. WHEREAS, by Second Amendment dated August 11, 1987, (FMC Agreement No. 224-
010839-002) the parties acknowledged that the Port provided a fifth Container
Crane for APL's use in accordance with lease requirements and stated a minimum
rental for use thereof; and
D. WHEREAS, by Third Amendment dated February 14, 1989, (FMC Agreement No.
224-010839-003) the parties enlarged the leased Premises by approximately six
acres and provided for adjustment and subsequent modification of the Premises
description, rental provisions and lease exhibits; and
E. WHEREAS, by Fourth Amendment dated August 8, 1989, (FMC Agreement No. 224-
10839-004) the parties provided for substitution of three crane spreader beams
and repayment of the costs to the Port by amortization by APL; and
F. WHEREAS, by Fifth Amendment dated August 11, 1992, (FMC Agreement No. 224-
010839-005) the parties provided for APL to repay to the Port by amortizing
the Port's $455,325 cost for three container crane manlifts and to acknowledge
APL's intent to move and install on the Premises a sixth container crane; and
G. WHEREAS, the parties now wish to amend the Basic Lease to increase the
leased area by approximately seventy five (75) acres which shall include,
among other things, an on-dock intermodal rail facility, with a corresponding
increase in rental and extend the term in accordance with the terms of this
Amendment; add an option to further increase the leased area by approximately
thirty (30) additional acres, with a further corresponding increase in rent;
grant Lessee a first right of refusal to all Contiguous Property (including
any development alternatives which may involve in-water fills) as per the
terms of this Amendment; document certain improvements, with amortization
based rental payments added to the rental schedule; and other provisions; and
H. WHEREAS, the Port has agreed to undertake the development of the Premises
as described herein, subject to the conditions and restrictions of the
applicable environmental and land use laws and regulations, including review
of all appropriate alternatives, their impacts and mitigation possibilities;
and
I. WHEREAS, APL has assigned its interest under this Lease to Lessee
concurrently with the execution of this Amendment and by an Assignment which
is attached hereto.
Now therefore, the parties hereby agree as follows:
SECTION 1. DEFINITIONS. The following definitions are added to the text of
the Basic Lease, as amended, before paragraph 1 thereof:
A. Actual Cost or Actual Costs: All costs for construction, outside
services, management, and overhead relating to any Facility Component
with respect to the completed construction project contemplated by
this Amendment. These costs are more fully described as follows:
(1) Construction costs shall consist of amounts paid pursuant
to construction contracts and change orders, taxes payable by
the Port in connection with this project, and permit
acquisition costs.
(2) Outside services, which shall consist of design services
relating to the construction project.
(3) Management and overhead costs shall consist of Port
engineering (prorated overhead), construction management, and
project management.
Costs of outside services, management, and overhead described in A(2)
and A(3) above shall be fixed at 15% of the construction costs
specified in item (A)(1) of this definition, above.
B. Affiliate or Affiliated: Any entity directly or indirectly
controlling, controlled by, or under common control with, Lessee.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of such entity, whether through the direct ownership of voting
securities or indirect control of any such voting securities by
contract or otherwise.
C. APL Controlled Train: A train or that portion of a train accessing
the Premises which contains containers for which APL (or its
Affiliates) prepares or submits shipping orders and pays for
transportation services for its own behalf or on behalf of others with
any such rail carrier which directs the movement of any such container
or containers.
D. Beneficial Use or Beneficially Usable: shall mean (i) when a
particular Facility Component can be used or operated for its intended
purpose at the Premises, or has been built to plans and specifications
agreed to by the parties hereto (except for any minor items contained
on a punch list which is mutually agreed to by both parties hereto);
and (ii) there is adequate access with minimal disruption to overall
operations to such Facility Component and such Facility Component can
be operated in such a fashion that does not require additional labor,
overtime or equipment beyond what would otherwise normally be
required.
E. Basic Land and Improvements Rent: The rent for the Expansion
Premises which is specified in Part I of Exhibit F. This rent does
not include Special Improvements Rent or rent related to equipment.
F. Business Day: Any day other than a Saturday, Sunday or other day
which is a Federal or Washington State holiday.
G. Container Shift: The re-routing of rail intermodal containers to
the Port at the sole discretion of APL which would, prior to
completion of the Intermodal Yard and New Container Yard, typically be
routed through other West Coast ports.
H. Conservative Schedule: Accomplishment by the Port of (i)
Facility Component Completion of the IY Facilities by December 29,
1997; and (ii) Total Facility Completion (exclusive of the Fourth
Berth) by February 28, 1999, and (iii) accomplishment by the Port of
Facility Component Completion of the Fourth Berth by November 13,
1999, provided Lessee gives the Port written notice exercising its
option inclusive of the Fourth Berth by March 1, 1995 pursuant to
Section 3, subparagraph (i)(i)(B) of this Amendment.
I. Contiguous Property or Contiguous Properties: Each a property and
collectively any properties owned by the Port now or in the future (i)
abutting the Premises; or (ii) abutting the Railroad Storage Yard; or
(iii) which shall also include the remaining CEM Property described on
Exhibit A-6 hereto. Contiguous Properties shall not include:
(1)Land which is or may be under lease to third parties as a
condition of Port property acquisition from such parties
relating to development of the Premises; or
(2)Pier 2 (as described on Exhibit A-6 hereto); or
(3)Land west of Harbor Avenue SW, land south of Spokane Street
and land southeast of SW Hinds Street, all as depicted on
Exhibit A-6.
J. Double Track: The Double Track shall collectively mean and be
comprised of the following three (3) components: the "East Double
Track", the "West Double Track" and the "Receiving and Departure
Track". The completed Double Track is intended to minimize
interference between rail traffic to and from Harbor Island and to and
from the Premises area, to facilitate adequate access and switching
west of the Rail Bridge and to facilitate arrival and/or departure of
linehaul trains with road power such that an entire linehaul train can
either arrive or depart as a single, complete unit west of the Rail
Bridge. The East Double Track shall mean the railroad tracks to be
constructed by the Port (or caused to be constructed by the Port)
across Harbor Island, between the vicinity of East Marginal Way South
and the vicinity of the east end of the Burlington Northern Rail
Bridge at the southwest side of Harbor Island, parallel to the
existing railroad tracks. The West Double Track shall mean the
railroad tracks to be constructed by the Port (or caused to be
constructed by the Port) between the Intermodal Yard and the vicinity
of the west end of the Rail Bridge and parallel to the existing
railroad tracks. The Receiving and Departure Track shall mean the
railroad tracks to be constructed by the Port (or caused to be
constructed by the Port) which shall extend from the vicinity of the
west end of the Rail Bridge to the northwest end of the Elevator Yard
and, including tail track, shall be of sufficient length to
accommodate a twenty-eight (28) car doublestack train with road power
up to nine thousand (9000) feet long. A portion of the 9000 foot
length identified for the Receiving and Departure Track shall include
a track which is laid to create the West Double Track.
K. Drayage Move: An empty container which is loaded to or discharged
from vessels calling at the Premises and transported from or to the
Off-Premises Temporary Container Yard.
L. Expansion Premises: The real property which is to be added to the
Original Premises and which will thereafter become part of the
Premises and consisting of both the New Container Yard and the
Intermodal Loading Yard. The current apron area will be extended as
part of the Expansion Premises approximately 400 feet to the north, to
the vicinity of the southern boundary of the Option Premises by the
Port at no cost to Lessee; provided however, Lessee shall pay Basic
Land and Improvements Rent on this 400 foot apron extension. The
Expansion Premises are approximately 75 acres and are depicted on
Exhibit A-6.
M. Facility Component: Any individual facility or improvement
required to be constructed in accordance with this Amendment (as same
may be amended), with supporting plans, specifications, and other
supporting documents.
N. Facility Component Completion: The point in time when any
individual Facility Component contemplated by this Amendment and
Exhibit H is determined by Lessee to be Beneficially Usable and in
compliance with all plans and specifications required by or arising
out of this Amendment (except for any minor items contained on a punch
list which is mutually agreed to by both parties hereto) after written
notice is received by Lessee from the Port to that effect. Within six
(6) Business Days after receipt by Lessee of any such written notice
by the Port, Lessee shall inspect any such Facility Component and
notify the Port in writing should it disagree that Facility Component
Completion has been achieved and supply its reasons therefore. In
that event, either party may resolve this issue pursuant to Section 7,
paragraph 28(b) of this Amendment. Notwithstanding the foregoing,
upon written instruction from Lessee to the Port, the Port shall
immediately take steps to remedy Lessee's objections (which shall be
in accordance with any directions Lessee may include in such notice)
whether or not an arbitration is pending. Should the Port not receive
Lessee's list of written objections within such six Business Day
period, Facility Component Completion will be deemed to have occurred
with respect to such Facility Component; provided however,
notwithstanding the foregoing, should an event occur during the
construction period which, subsequent to Facility Component Completion
and prior to Total Facility Completion causes Lessee to lose
Beneficial Use of any Facility Component, it shall promptly notify the
Port in writing with details of the problem and the Port shall
thereafter rectify same within 5 Business Days. Should the situation
not be resolved within said 5 Business Days, the Facility Component
shall not be deemed to have achieved Facility Component Completion for
that period of time commencing with the date of Lessee's written
notice to the Port and liquidated damages as per Section 3, paragraph
(k) of this Amendment shall commence until Beneficial Use to Lessee is
restored. Any disputes arising out of this provision shall be
resolved pursuant to Section 7, paragraph 28(b) of this Amendment.
O. Fourth Berth: The berth and marine building (equivalent to the
marine building currently situated on the southernmost existing berth)
to be constructed along the west edge of the West Waterway and within
the eastern boundary of the Option Premises, and to the north of the
400 foot apron extension, consisting of approximately 1,000 linear
feet of apron space suitable for berthing APL's container ships. The
location of the Fourth Berth is depicted on Exhibit A-6.
P. Intermodal Lift: The loading or unloading of a single container
to or from a rail car at the Intermodal Loading Yard.
Q. Intermodal Lift Fee: The charge for a single Intermodal Lift,
levied by Lessee on third party shipping lines or ship operators for
the loading or unloading at the Intermodal Loading Yard of containers
not owned or leased by APL (or any Affiliate of APL).
R. Intermodal Loading Yard: The area occupied by railroad tracks
located on the Expansion Premises and used for the loading and
unloading of containers to and from rail cars, the location of which
is depicted on Exhibit A-6.
S. Intermodal Storage Yard: The area occupied by railroad tracks
which are for the storage of loaded and empty rail cars in connection
with Lessee's (and Lessee's Affiliates) operations on a preferential
basis, and which are for other activities related thereto. Said area
is located outside the Expansion Premises, the location of which is
depicted on Exhibit A-6, on land owned by the Port and not under lease
to Lessee and shall be operated pursuant to Section 3, paragraph (m)
of this Amendment.
T. Intermodal Yard: The combined area of the Intermodal Storage Yard
and the Intermodal Loading Yard.
U. Intermodal Yard (IY) Cranes : Any cranes owned by the Port to be
used on and in conjunction with the operation of the Intermodal
Loading Yard.
V. Intermodal Yard (IY) Facility Charge: The charge, hereafter
called IY Facility Charge, per Intermodal Lift assessed against the
railroad companies utilizing the Intermodal Loading Yard.
W. IY Facilities: Collectively, all of the following Facility
Components: the Intermodal Yard, the Rail Bridge, the Double Track,
the Overpass; and the IY Cranes after the IY Cranes are acquired,
installed on the Premises and are operational if provided by the Port;
and the rail access agreement between the Burlington Northern Railroad
("BN") and the Union Pacific Railroad ("UP") attached as an exhibit to
Exhibit I has been executed by those two railroads and that said rail
access agreement is in full force and unconditional effect and that
such agreement complies with the requirements specified in Section
3(m) of this Amendment.
X. Lease: The Basic Lease, as amended (inclusive of this Amendment).
Y. Lockheed Storage Area: The area partially within both the Option
Premises and the Expansion Premises which is currently leased to
Lessee, and is depicted on Exhibit A-6.
Z. New Container Yard: The area within the Expansion Premises which
is not part of the Intermodal Loading Yard, the location of which is
depicted on Exhibit A-6.
AA.Off-Premises Temporary Container Yard: The Terminal 105 real
property which is available to Lessee pursuant to this Amendment for
the handling and storage of empty containers. The location and
configuration of Terminal 105 is depicted on Exhibit G, including the
schedule for availability of Terminal 105 with improvements as
mutually agreed.
BB.Option Premises: The real property which is available to Lessee
for future expansion, which includes the Fourth Berth pursuant to the
terms of this Amendment, and the location of which is depicted on
Exhibit A-6. Lessee's option on the Option Premises shall expire ten
years after Total Facility Completion but in no event later than
December 31, 2009.
CC.Original Land and Improvements Rent: Rent for the Original
Premises. This rent does not include Special Improvements Rent.
DD.Original Premises: The real property as described in the Basic
Lease and Amendments One through Five, and as depicted on Exhibit A-6.
This area consists of approximately 83 acres.
EE.Overpass: The elevated roadway to be constructed in the vicinity
of the southeast portion of the Premises and the approaches to the
Spokane Street low level bridge, the location of which is depicted on
Exhibit A-6.
FF.Preferred Schedule: Accomplishment by the Port of (i) Facility
Component Completion of the IY Facilities by October 1, 1996; and (ii)
Total Facility Completion (exclusive of the Fourth Berth) by December
5, 1997, and (iii) accomplishment by the Port of Facility Component
Completion of the Fourth Berth by October 3, 1998 provided Lessee
gives the Port written notice exercising its option inclusive of the
Fourth Berth by March 1, 1995 pursuant to Section 3, subparagraph
(i)(i)(B) of this Amendment; provided however, should Lessee give the
Port written notice exercising its option inclusive of the Fourth
Berth by March 1, 1995, then the Preferred Schedule for Facility
Component Completion of the Fourth Berth shall be October 3, 1998.
GG.Premises: The Original Premises and all or portions of the
Expansion Premises and/or the Option Premises as they become part of
the leasehold at later dates.
HH.Radio Towers: The three radio towers operated by KJR and KBLE, the
appurtenances thereto and the building housing KJR radio station
currently surrounded by the Original Premises to be removed by the
Port.
II.Rail Bridge: The existing Burlington Northern dedicated railroad
bridge across the Duwamish Waterway between Harbor Island and West
Seattle.
JJ. Railroad Storage Yard: The area outside the Expansion Premises
occupied by railroad tracks located to the west of the Intermodal
Storage Yard, the location of which is depicted on Exhibit A-6. The
Railroad Storage Yard is to be constructed for and used by Burlington
Northern Railroad to compensate for the portion of the existing
Burlington Northern railroad yard to be displaced by development of
the Expansion Premises and Intermodal Storage Yard.
KK. Salmon Terminals Storage Area: The area partially within both
the Expansion Premises and Option Premises which is currently leased
to Lessee, including that adjacent portion of Southwest Florida Street
currently occupied by Lessee under City of Seattle Street Use permit.
Such area is depicted on Exhibit A-6.
LL.Special Improvement or Special Improvements: Those Facility
Components specified in Exhibit F, Part II to this Amendment.
MM.Special Improvements Rent: Rent on the Special Improvements which
shall not exceed Lessee's Maximum or Monthly amounts described in
Exhibit F, Part II, and is distinct from Basic Land and Improvements
Rent as described on Exhibit F, Part I. Such Special Improvements
Rent is calculated on the basis of an amortization schedule designed
to pay back to the Port, Lessee's Percentage Share of the Actual Cost
of a Special Improvement specified on Exhibit F following Facility
Component Completion. The amount of Special Improvements Rent to be
paid by Lessee with respect to any Special Improvement shall be
Lessee's Percentage Share specified on Part II of Exhibit F of the
Actual Cost associated with such Special Improvement and which in any
event shall not exceed the amount specified as Lessee's Maximum Share
in Part II of Exhibit F regardless of the Actual Costs incurred by the
Port, subject to any Changes as provided in Section 2, paragraph
(e)(v) of this Amendment. At the time of Facility Component
Completion for any Special Improvement, the Port shall supply Lessee
with a statement indicating the applicable Actual Cost and the Special
Improvements Rent and such documents relating to Actual Costs that
Lessee may reasonably request. Any disputes relating to Actual Cost
or Special Improvements Rent shall be resolved by arbitration pursuant
to Section 7, paragraph 28(b) of this Amendment.
NN. Total Facility Completion: When all Facility Components have
achieved Facility Component Completion (including a survey to
accurately determine the precise acreage of the Expansion Premises)
and written notice has been received by Lessee from the Port which
confirms Facility Component Completion of all Facility Components
contemplated by this Amendment and Exhibit H and certifies full
compliance with all plans and specifications required by or arising
out of this Amendment, including the Option Premises exclusive of the
Fourth Berth (provided Lessee exercises its option to expand in
accordance with Section 3, subparagraph (i)(i)(A) of this Amendment on
or prior to June 1, 1995), or the Option Premises inclusive of the
Fourth Berth (provided Lessee notifies Port to include this
improvement in the Option Premises and exercises it option to expand
in accordance with Section 3, paragraph (i)(i)(B) of this Amendment on
or prior to December 1, 1994). Lessee shall have six (6) Business
Days after delivery of any such written notice from the Port to
inspect any Facility Component to determine, in its sole opinion,
whether Total Facility Completion has not occurred and provide the
Port with written notice to that effect which specifies the incomplete
items. In that event, either party may resolve the issue pursuant to
Section 7, paragraph 28(b) of this Amendment. Notwithstanding the
foregoing, upon written instruction from Lessee to the Port, the Port
shall immediately take steps to remedy Lessee's objections (which
shall be in accordance with any directions Lessee may include in such
notice) whether or not an arbitration is pending. Within a reasonable
time following Total Facility Completion, the Port shall supply Lessee
with a single rental schedule which specifies all Special Improvements
and the Special Improvements Rent due from Lessee.
SECTION 2. Amended Basic Lease paragraph 1 (LEASED PREMISES AND
EQUIPMENT), subparagraph (e) is deleted in its entirety and replaced with the
following in its place and stead:
(e)(i) ACQUISITION. The Port will acquire land for the Expansion Premises
and Option Premises for development of the facilities described herein.
(e)(ii) DEVELOPMENT.
(A)FACILITY DESIGN. The conceptual plan for the project contemplated
by this Amendment is outlined in Attachment 2 to Exhibit H hereto and
the construction phasing is as per Attachment 3 to Exhibit H.
(B)NEW CONTAINER YARD. The Port will design and develop the New
Container Yard. The development will include the following new
facilities:
(1) MAINTENANCE AND REPAIR FACILITY.
A Maintenance and Repair facility of up to 42,000 square feet
of shop and 5,200 square feet of office with building
specifications relating to the quality of construction
equivalent to those at the Terminal 46 maintenance and repair
facility as of the date of this Amendment and as per Exhibit H.
Lessee shall pay its percentage of the Actual Costs as Special
Improvements Rent associated with the Maintenance and Repair
facility amortized at 9.25% per year over thirty (30) years,
provided however, notwithstanding the foregoing, the Special
Improvements Rent Lessee is obligated to pay for this Special
Improvement shall in no event exceed Lessee's Maximum Share
specified in Part II of Exhibit F on a total or monthly basis.
Lessee's obligations for the undepreciated book value and for
the unamortized balance owing on the existing maintenance and
repair facility shall expire once such existing facility is
vacated by Lessee. Lessee's obligation to begin payment of the
Special Improvements Rent for this Facility Component shall
begin to accrue immediately following Facility Component
Completion of this Facility Component and shall be payable by
Lessee at the beginning of each month thereafter.
(2) CONTAINER FREIGHT STATION ("CFS").
Approximately One Hundred Twenty Thousand (120,000) square feet
with building specifications relating to the quality of
construction equivalent to those at the existing Terminal 5
container freight station as of the date of this Amendment and
as per Exhibit H.
(a) CFS UP TO 80,000 SQ. FEET.
The Port shall construct and pay for up to an 80,000
square foot CFS at no cost to Lessee other than twenty
percent (20%) of the Actual Cost of demolition of the
existing container freight station facility as Special
Improvements Rent, amortized at 9.25% per year over
thirty (30) years, provided however, notwithstanding
the foregoing, the Special Improvements Rent Lessee is
obligated to pay for such demolition shall in no event
exceed Lessee's Maximum Share specified on Part II of
Exhibit F on a total or monthly basis. Lessee's
obligation to begin payment of the Special Improvements
Rent for this Facility Component shall begin to accrue
immediately following Facility Component Completion of
this Facility Component and shall be payable by Lessee
at the beginning of each month thereafter.
(b) CFS OPTIONS.
(1) Upon issuance of written notice to the
Port, Lessee shall have a single option, at any
time during the term of this Lease, to require
the Port to expand the CFS after its Facility
Component Completion. No expansion of the CFS
shall include any other structure which may be
attached or adjacent to the CFS (such as the
Transit Shed) unless mutually agreed in writing
by the parties. If the CFS as built prior to
expansion is less than 80,000 square feet and
Lessee requests an expansion of up to 80,000
square feet, the Port shall pay for the costs of
said expansion up to the following amount: the
total square footage of the requested expansion
multiplied by the per square foot Actual Cost of
the CFS as built prior to expansion, compounded
annually by 4.5% for each year for the period
from Facility Component Completion of the CFS as
built prior to expansion, until receipt of
Lessee's written request for said expansion.
Any Actual Costs of expansion over this amount
shall be paid by Lessee in the form of Special
Improvements Rent based on a 9.25% per year
amortization schedule over the lesser of thirty
(30) years or the remaining term of this Lease.
(2) If the CFS as built prior to expansion is
less than 80,000 square feet and Lessee requests
in writing an expansion of the CFS that will
bring the total area of the CFS to over 80,000
square feet, Actual Cost of the expansion will
be pro rated on a per square foot basis between
that portion of the Actual Cost of the expansion
that will bring the total area of the CFS to
80,000 square feet and that portion of the
Actual Cost of expansion that will bring the
total area of the CFS to over 80,000 square
feet. That portion of the Actual Cost of
expansion that will bring the total area of the
CFS to 80,000 square feet will be handled as
specified in the preceding paragraph. That
portion of the Actual Cost of the expansion that
will bring the total area of the CFS to over
80,000 square feet shall be paid by Lessee in
the form of Special Improvements Rent based on a
9.25% per year amortization schedule over the
lesser of thirty (30) years or the remaining
term of this Lease.
(3) If the CFS as built prior to expansion is
80,000 square feet or greater, Actual Cost of
expansion shall be paid by Lessee in the form of
Special Improvements Rent based on a 9.25% per
year amortization schedule over the lesser of
thirty (30) years or the remaining term of this
Lease.
(4)Lessee's obligation to begin payment of the
Special Improvements Rent for any expansion to
this Facility Component shall begin to accrue
immediately following Facility Component
Completion of any expansion to this Facility
Component and shall be payable by Lessee at the
beginning of each month thereafter.
(c)AMORTIZATION.
The existing container freight station will be
demolished as part of the New Container Yard
development. Lessee shall continue to pay for the cost
of the existing container freight station under the
terms of the amortization schedule previously
established under the Basic Lease, as previously
amended.
(3)GATEHOUSE/ENTRY.
The Port shall construct and pay for a Gatehouse up to 16,000
square feet in a two-story building and 15 lanes with building
specifications relating to the quality of construction
equivalent to those at the existing Terminal 5 gatehouse as of
the date of this Amendment and as per Exhibit H. As part of
the development of the new Gatehouse, the existing gatehouse
will be demolished. Lessee shall pay the undepreciated value
at time of demolition and demolition cost for the old
gatehouse, and other improvements directly related thereto as
Special Improvements Rent amortized at 9.25% per year over
thirty (30) years. Lessee's obligation to begin payment of the
Special Improvements Rent shall begin to accrue immediately
following the demolition of the existing gatehouse and Facility
Component Completion of the Gatehouse and shall be payable by
Lessee at the beginning of each month thereafter. Provided
however notwithstanding the foregoing, Lessee shall not pay any
costs associated with the construction of the new Gatehouse
subject to any Changes pursuant to Section 2, paragraph (e)(v)
this Amendment. In addition to the development of a new
Gatehouse, the Port agrees to participate in gate enhancements
which incorporate new, advanced technology to the extent such
enhancements are applicable, useful, and also add value to Port
facilities other than Terminal 5.
(C)INTERMODAL LOADING YARD.
The Port will design the Intermodal Loading Yard ("ILY") consistent
with Exhibit H. The Port shall pay all costs associated with that
portion of the ILY related to standards acceptable for normal
container yard activities, which includes drainage, paving, lighting,
fencing, striping, grading, pile foundation installation beneath
runways to support rubber tire gantry cranes (except for pile
foundations relating to the fifth and sixth runways which shall be
paid for as Special Improvements Rent as per Part II of Exhibit F),
and protection reinforcement (if necessary) for the Renton Effluent
Transfer System sewage pipeline ("RETS") owned by the Municipality of
Metropolitan Seattle. These container yard development costs will be
included as part of the Basic Land and Improvements Rent. Lessee
shall pay its percentage share of the Actual Cost specified in
Exhibit F, Part II, as Special Improvements Rent, amortized at 9.25%
per year for thirty (30) years, for all other development costs of the
ILY which are consistent with Exhibit H and are in excess of the above
referenced standards for normal container yard activities for the ILY.
Lessee's obligation to begin payment of the Special Improvements Rent
for this Facility Component shall begin to accrue immediately
following Facility Component Completion of the IY Facilities and shall
be payable by Lessee at the beginning of each month thereafter.
(D)OFF-PREMISES IMPROVEMENTS. The Port will construct the following
improvements in locations outside the Expansion Premises:
(1)INTERMODAL STORAGE YARD ("ISY"). The Port will design and
construct the ISY consistent with Exhibit H and the Port shall
pay for such design and construction costs. The Port shall
maintain and repair the ISY or cause same to be maintained and
repaired during the term of this Lease and the Port shall pay
for such maintenance and repair costs.
(2)RAILROAD STORAGE YARD ("RSY"). The Port shall design and
construct the RSY which shall be paid for by the Port. The RSY
will be constructed with the approval of Burlington Northern
Railroad ("BN"). The Port and Lessee shall make their good
faith efforts to encourage BN to make efficient use of existing
and future trackage and thereby allow the Port to minimize the
scale of the RSY.
(3)OFF-PREMISES TEMPORARY CONTAINER YARD. Development of T-105
is not considered a Special Improvement.
(4)OVERPASS. The Overpass is a Special Improvement which the
Port shall design and construct consistent with Exhibit H and
which the Port shall maintain and repair or cause same to be
maintained and repaired during the term of this Lease. The
Port shall pay for such maintenance and repair costs. Actual
Costs for the design and construction of the Overpass are
considered as part of the Special Improvements Rent. Lessee
shall pay its percentage shares of the Actual Costs specified
on Exhibit F as Special Improvements Rent, each amortized at
9.25% per year for thirty (30) years, provided however,
notwithstanding the foregoing, the Special Improvements Rent
Lessee is obligated to pay for this Special Improvement shall
in no event exceed the total of both components of Lessee's
Maximum Share specified in Part II of Exhibit F on a total or
monthly basis. In the event the Port obtains Federal, State,
or local funding for construction of the Overpass, said funds
shall be applied solely to the Port's share and shall not
reduce the amount of or in any way affect Lessee's payment
obligations under Special Improvements Rent unless any such
funding exceeds the Port's share of this Special Improvement.
In that event, the amount in excess of the Port's share shall
first be applied to the Port's administrative costs solely and
directly related to acquiring any such funds and secondly shall
be applied to reduce Lessee's Special Improvements Rent.
Lessee's obligation to begin payment of the Special
Improvements Rent for this improvement shall begin to accrue
immediately following Facility Component Completion of all of
the following: the Overpass, the Entry (i.e. queuing lanes),
and Gatehouse and shall be payable by Lessee at the beginning
of each month thereafter. To promote public safety, the Port
shall use good faith efforts (including reasonable attempts to
modify any applicable ordinances) during the term of this Lease
(as extended), to restrict traffic flow on the Overpass to
commercial traffic required by Lessee's (and its Affiliates')
business and commercial traffic required by such other tenants
of the Port or other uses on private property whose proximity
to said Overpass requires their use of the Overpass during
times when access to/from West Marginal Way and Spokane Street
is impeded due to train blockages.
(5)DOUBLE TRACK. The Port shall design and construct or cause
to be designed and constructed the Double Track, consistent
with Exhibit H and which the Port shall cause same to be
maintained and repaired during the term of this Lease. The
Port shall pay for such design and construction, and shall
ensure maintenance and repair is accomplished at no cost to
Lessee.
(6)RAIL BRIDGE. The Port shall cause the Rail Bridge to be
modified in compliance with all Federal, State and local laws,
regulations, ordinances and rules, to accept railroad
locomotive power ("Road Power") sufficient to service the rail
for the on dock rail capacity contemplated by this Amendment
and to accept high cube containers as known in the industry as
of the date hereof, all in accordance with Exhibit H, at no
cost to Lessee and which the Port shall cause to be maintained
and repaired at no cost to Lessee during the term of this Lease
to the standards described in Exhibit I. In the event the Rail
Bridge suffers damage rendering it a constructive total loss
or a total loss or is otherwise unusable, the Port shall work
to a level of industry standard to return the Rail Bridge to
service in an expeditious manner whether or not such damage is
caused by a force majeure event to the standards described in
Exhibit I.
(E)ORIGINAL PREMISES.
The Port will reinforce those surface areas of the Original Premises
as approximately depicted on Exhibit A-6 on a mutually agreeable
schedule. The reinforcement will be done to a level equivalent to
that on pavement areas on the Original Premises which were reinforced
in 1985 and which shall meet the criteria described in Exhibit H. The
Port will pay for the cost of such reinforcement, provided, however,
Lessee's rental obligations under the Basic Lease, as amended, for the
areas being reinforced shall not be abated during the reinforcement
work. Such reinforcement shall be done in four approximately equal
sections to minimize disruption to Lessee's operations.
(F)FILL ALTERNATIVE.
With respect to the possibility of a fill alternative, the parties
recognize that the Port is in the midst of an environmental impact
review process which is analyzing a number of remedial action and
redevelopment alternatives, involving the possibility for fill on the
submerged lands to the north. Lessee acknowledges that such fill is
only an alternative at this point and is currently subject to a full
review of its impacts, mitigation possibilities, and approval from
local, state, federal, and tribal authorities.
(e)(iii) EQUIPMENT.
(A)IY Cranes.
(1) Both parties acknowledge that decisions have not been made
regarding the type and number of cranes to be initially used in
the Intermodal Yard. Lessee shall select and the Port shall
purchase, on a schedule to meet operational start up of the
Intermodal Yard, any IY Cranes contemplated by this Amendment,
having a cost charged by manufacturer plus the direct
administrative and engineering costs, permitting and
certification costs of the Port and sales tax, of up to $20
million in 1992 dollars which amount shall be escalated at 4.5%
per year, commencing December 31, 1992. The Port shall own
such IY Cranes. Lessee shall pay rent on any such IY Cranes
utilizing said $20 million (or any portion thereof) equal to
50% of any such IY Crane's cost charged by manufacturer plus
the direct administrative and engineering costs, permitting and
certification costs of the Port and sales tax, amortized at
9.25% per year over 14 years commencing upon Facility
Component Completion of the IY Facilities. Lessee shall
request the Port to acquire the initial IY Cranes no later than
thirty (30) months prior to the expiration of the Preferred
Schedule for the IY Facilities (as same may be extended), so as
to deliver and install the initial IY Cranes on the Premises in
a timely manner. If Lessee does not make such request within
the stated time period, then the acquisition, installation and
operation of the initial IY Cranes on the Premises shall not be
considered a requirement of Facility Component Completion of
the initial IY Facilities, as that concept is used in this
Amendment. IY Crane rent related to any IY Crane, shall cease
after the end of any amortization period.
(2)The parties agree the IY Cranes shall be replaced,
refurbished, or modified by the Port, or additional IY Cranes
shall be acquired by the Port (all as Lessee may direct), at
any time upon written notice by Lessee to Port. In addition to
the aforementioned $20 million, as escalated, the Port shall
make available at any time during the term of this Lease, only
after the aforesaid $20 million as escalated has been expended,
up to an additional $5 million, which amount shall be escalated
at 4.5% per year commencing December 31, 1992, and which amount
shall be available at Lessee's option upon written request of
Lessee, for any IY Crane contemplated in this Amendment.
Lessee shall amortize 100% of any portion of this $5 million
(as escalated) which Lessee may utilize, at 9.25% per year over
the lesser of 14 years or the remaining term of this Lease.
Said amortization shall be considered rent and that portion
relating to any IY Crane utilizing said funds shall begin to
accrue immediately following any such IY Crane's acquisition,
installation on the Premises and after it is operational or
after any modification or refurbishment, as applicable. Said
rent shall be payable at the beginning of each month after its
accrual. IY Crane rent related to any IY Crane, shall cease
after the end of any amortization period.
(3)The parties agree the IY Cranes shall be replaced,
refurbished, or modified by the Port, (all as Lessee may
direct), at any time Lessee may direct upon written notice by
Lessee to the Port. Upon issuance of Lessee's written notice,
the Port shall make available up to an additional $10 million
(which amount shall escalate at 4.5% per year commencing
December 31, 1992), which along with any remaining portion of
the initial $20 million as escalated and any remaining portion
of the $5 million as escalated, shall be available at Lessee's
option, for any such replacement, refurbishment, modification
of any IY Crane provided however, no portion of this $10
million as escalated shall be available for acquisition of any
IY Cranes which is not used to replace an existing IY Crane.
Lessee shall amortize 100% of any such portion of this $10
million as escalated which may be utilized, at 9.25% per year
over the lesser of 14 years or the remaining term of this
Lease. Rent shall begin to accrue immediately following any
such IY Crane's acquisition, installation on the Premises and
after same is operational or after any modification or
refurbishment, as applicable. Such rent shall be payable at
the beginning of each month thereafter. IY Crane rent related
to any IY Crane, shall cease after the end of any amortization
period.
(4)For the portion of any replacement, refurbishment or
modification, or additional acquisition costs which exceed all
amounts specified in subparagraphs (A)(1)-(3) above (as
escalated), payment of such excess amounts shall be for the
account of Lessee or as otherwise mutually agreed to by the
parties. Lessee shall continue to pay for the full
amortization period(s) regardless of whether the applicable IY
Cranes are sold or otherwise removed from service. Provided
however:
(i) no IY Crane shall be removed from the Premises
without Lessee's prior written consent; and
(ii) if any IY Crane is sold or leased by the Port,
the net proceeds will be shared as follows:
(a) the net proceeds from the sale or lease of
any IY Cranes, or portions thereof, that were
purchased, replaced, refurbished, or modified
with all or a portion of the first $20 million
(as escalated) specified in subparagraph (A)(1)
above, shall be shared equally by the Port and
Lessee;
(b) the net proceeds of any sale or lease of
any IY Cranes, or portions thereof, that were
purchased, replaced, refurbished, or modified
with all or part of the funds specified in
subparagraphs (A)(2) or (A)(3) above, or any
funds Lessee contributes pursuant to this
subparagraph (A)(4), shall be paid to Lessee;
and
(c) solely with respect to funds which may be
jointly invested by the Port and Lessee upon
their mutual agreement pursuant to this
subparagraph (A)(4), the net proceeds of any
sale or lease of the IY Cranes, or portions
thereof, that were purchased, replaced,
refurbished, or modified with any such funds
shall be paid to Lessee and the Port in the same
proportion as the payments made by each party.
(d) For purposes of illustration, the following
example is given: An IY Crane is purchased with
$1.5 million in 1997 dollars from the first $20
million described in subparagraph (A)(1) and
refurbished in 2002 dollars with $500,000 from
funds described in subparagraphs (A)(2) or
(A)(3) above. If the IY Crane is sold, the
proceeds will be shared in the proportions of
37.5% to the Port and 62.5% to Lessee,
calculated as follows: the total investment
equals $2,000,000 (i.e. $1,500,000 plus
$500,000); and the Port's share equals 37.5%
(i.e. [0.5 multiplied times $1,500,000], divided
by $2,000,000 equals 0.375).
(iii) any sale or lease of any IY Crane by the Port to
a third party shall be at fair market value unless
otherwise agreed to in writing by the parties hereto;
and
(iv) Lessee shall have first right of refusal to
purchase or lease any IY Crane; and
(v) on or after the issuance of a notice by Lessee
to the Port to replace one or more IY Cranes, Lessee
shall have the option to purchase any such existing IY
Crane to be replaced. Lessee may exercise such option
by issuing written notice promptly to the Port that it
is exercising its option. The price shall be mutually
agreed to by the parties. In the event the parties
cannot reach an agreement on price within 60 calendar
days after the date of such written notice, then fair
market value shall be determined by the procedures
described in subparagraph (A)(5) below.
(5)MECHANISM TO ESTABLISH FAIR MARKET VALUE.
Should the parties hereto fail to reach agreement on the fair
market value within any time specified for such agreement,
Lessee and the Port agree to jointly appoint an independent
appraiser to determine such fair market value or values within
fifteen (15) calendar days thereafter. Failing this joint
action to appoint a single appraiser within such 15 calendar
day period, the parties hereto shall each designate an
independent appraiser within 15 calendar days after the
expiration of the period to appoint a single joint appraiser.
Both appraisers shall jointly appoint a third appraiser within
an additional 15 calendar days. The failure of one party to
appoint an appraiser within the prescribed time period shall be
deemed a waiver of its right to appoint an appraiser and shall
be deemed a joint appointment of the appraiser appointed by the
other. The appraisal of the jointly appointed appraiser or a
majority of the panel of appraisers, as appropriate, shall be
binding and conclusive on both Lessee and the Port; provided
however, if a majority of such a panel cannot reach
concurrence, the appraisal which is neither the highest nor the
lowest shall be binding and conclusive on both parties hereto.
Appraiser(s) shall be required to issue their decision thirty
(30) calendar days after the appointment of the last appraiser
or as soon thereafter as is practicable. The parties shall
share any expenses of the appraisers equally.
(6)Lessee shall be responsible for maintenance and repair of
the IY Cranes to the original manufacturer's specifications.
Any dispute under this Section 2, paragraph (e)(iii), except
for those pertaining to establishment of Fair Market Value
(which shall be decided as provide in subparagraph (A)(5)
above) shall be resolved by arbitration pursuant to Section 7,
paragraph 28(b) of this Amendment.
(7)Unless Lessee agrees to buy and the Port agrees to sell any
IY Crane to Lessee, then at the expiration of the term of this
Lease (as same may be extended), Lessee shall be entitled to
receive an amount from the Port , with respect to any IY Crane
not sold to Lessee, equal to any amounts due Lessee had any IY
Crane utilizing funds specified in subparagraphs (A)(1) through
(A)(3) been sold as per subparagraphs (A)(4)(ii)(a) and (ii)(b)
above at Fair Market Value determined either by mutual
agreement or pursuant to (A)(5) above in the absence of mutual
agreement. In the event the Port does not elect to keep any or
all of the IY Cranes at the end of the term of this Lease (as
it may be extended), Lessee shall have an option to purchase
any IY Crane the Port does not keep, at a mutually agreed price
upon issuance of written notice. If the parties cannot reach
an agreement on price within 60 calendar days after the date of
such written notice by Lessee, then fair market value shall be
determined by the procedures contained in subparagraph (A)(5)
above. The proceeds shall be distributed as per subparagraph
(A)(4)(ii) above.
(B)CONTAINER CRANES.
(1) GENERAL
(a) ACQUISITION AND RENT.
Upon Lessee's written request, at any time during the
first twenty (20) years of this Amendment following
Total Facility Completion, the Port shall purchase up
to two container cranes of Lessee's choice capable of
efficiently working APL's current and future vessels.
Such container cranes shall not have crane rail load
requirements that exceed the load capabilities of the
existing apron as of the date of this Amendment;
provided however, notwithstanding the foregoing, this
crane rail load limitation shall not apply to any
container crane acquired at Lessee's request for
purposes of operating on the Fourth Berth and the
northernmost 400 feet of berth specified in the
definition of Expansion Premises (such areas to have
crane rail load limitations as per Exhibit H). Lessee
shall pay rent to the Port for the container crane(s)
based on the cost charged by the manufacturer plus the
direct administrative and engineering costs of the Port
and permitting, certification costs and sales tax,
amortized at a 9.25% per year, over 30 years
commencing upon (i) the acquisition and installation of
any such container crane and after any such container
crane is operational; and (ii) only with respect to any
such container crane which Lessee designates in writing
shall be used for the Fourth Berth, then the earlier of
Facility Component Completion of the Fourth Berth or
Lessee's use of any such container crane. Such rent
due from Lessee shall cease (whether fully amortized or
not), upon the earlier of (i) termination of this Lease
(and any extensions thereto); or (ii) after any such
container crane has been fully amortized unless
otherwise mutually agreed in writing by the parties.
After any such container crane has been fully
amortized, the parties hereto shall renegotiate the
rent due on any such container crane at the then
prevailing fair market value, or in the absence of such
mutual agreement, the rent shall be decided pursuant to
the arbitration procedure in Section 7, subparagraph
28(b) of this Amendment.
(b) LESSEE OPTION TO PURCHASE.
Lessee, upon the issuance of written notice to the Port
at any time during the term of this Lease (or any
extensions thereto) following fourteen (14) years after
commencement of rent on any container crane
contemplated in subparagraph (B)(1)(a) above, shall
have the option to purchase any such container crane
specified in subparagraph (B)(1)(a) above from the Port
at the fair market value; provided however, the
determination of fair market value of any such
container crane shall not include any value added to
any container crane by any future enhancements to the
extent such enhancements were directly paid or
amortized as rent by Lessee. Should the parties be
unable to agree upon the fair market value within 60
calendar days after the date of any such written notice
then the fair market value of any such container crane
shall be determined in accordance with the appraisal
procedure set forth in subparagraph (B)(1)(d) below and
such sum shall be due within thirty (30) calendar days
of such appraisal determination.
(c) LESSEE ELECTION.
Lessee may elect to supply one or more container cranes
for the Premises instead of, or in addition to, any
container cranes specified in subparagraph (B)(1)(a)
above.
(d) MECHANISM TO ESTABLISH FAIR MARKET VALUE.
Should the parties hereto fail to reach agreement on
the fair market value within any time specified for
such agreement, Lessee and the Port agree to jointly
appoint an independent appraiser to determine such fair
market value or values within fifteen (15) calendar
days thereafter. Failing this joint action to appoint
a single appraiser within such 15 calendar day period,
the parties hereto shall each designate an independent
appraiser within 15 calendar days after the expiration
of the period to appoint a single joint appraiser.
Both appraisers shall jointly appoint a third appraiser
within an additional 15 calendar days. The failure of
one party to appoint an appraiser within the prescribed
time period shall be deemed a waiver of its right to
appoint an appraiser and shall be deemed a joint
appointment of the appraiser appointed by the other.
The appraisal of the jointly appointed appraiser or a
majority of the panel of appraisers, as appropriate,
shall be binding and conclusive on both Lessee and the
Port; provided however, if a majority of such a panel
cannot reach concurrence, the appraisal which is
neither the highest nor the lowest shall be binding and
conclusive on both parties hereto. Appraiser(s) shall
be required to issue their decision thirty (30)
calendar days after the appointment of the last
appraiser or as soon thereafter as is practicable. The
parties shall share any expenses of the appraisers
equally.
(e) ENHANCEMENTS.
Upon Lessee's written request, future enhancements
(except as provided in Section 2, paragraph
(e)(iii)(B)(2) below pertaining to container crane
raising) to any Port owned container crane shall be
paid for by the Port, and Lessee shall pay rent on any
such enhancements based on an amortization schedule of
the enhancement costs (including the Port's direct
administrative and engineering costs and permitting,
certification costs and sales tax) with a rate of
return equal to 9.25% per year applied over the
remaining term of the Lease (as it may be extended)
regardless of any sale. Lessee shall also have the
right to make any such enhancements at its own cost and
expense upon the written consent of the Port which
shall not be unreasonably withheld.
(f) MAINTENANCE AND REPAIR; SECONDARY USE RIGHTS.
Lessee shall be responsible for maintenance and repair
to the original manufacturer's specifications and
fueling of the container cranes. If the Port
constructs the Fourth Berth, and the Fourth Berth is
not part of the Premises, Lessee shall have secondary
use rights for the Fourth Berth and to any container
cranes installed for use on the Fourth Berth. In that
event, Lessee shall pay the Port's tariff rate for use
of such cranes and for all other charges connected to
use of the Fourth Berth.
(2)CRANE RAISING.
Within 24 months of Lessee's written request, the Port will
have completed increasing the height of the first of up to five
existing Port-owned container cranes and the remainder of them
in an expeditious manner by up to 20 feet in order to allow
these container cranes to accommodate higher container stacks
on container vessels which will dock at the Premises, subject
to conformance with acceptable engineering standards and the
following conditions:
(a) Cranes 61, 62 and/or 63 will be raised first upon
Lessee's written request. The Port shall pay
permitting, engineering, design, construction,
certification, sales tax and the Port's direct
administrative costs for raising of these cranes, and
such costs shall be repaid to the Port by Lessee as
rent based on a 9.25% amortization schedule over 30
years, or the remaining term of this Lease , whichever
is less.
(b) Lessee shall have the following crane raising
options with respect to container cranes 64 and/or 68:
(1) Cranes 64 and/or 68 will be raised
following the raising of cranes 61, 62 and 63
upon Lessee's written request. The Port will
pay for raising cranes 64 and/or 68. From the
time crane 64 and/or 68 is raised, the total
minimum annual guarantee for that particular
crane (now at 625 hours) will be established as
follows: 0-30 months 625 hours; 31-60 months
937 hours; 61 months to end of Lease term 1,250
hours; or
(2) Cranes 64 and/or 68 will be raised
following the raising of cranes 61, 62 and 63
upon Lessee's written request. The Port shall
pay permitting, engineering, design,
construction, certification, sales tax and the
Port's direct administrative costs for raising
cranes 64 and/or 68 and such costs shall be
repaid to the Port by Lessee as rent based on an
amortization of 9.25% per year for the lesser of
30 years or the remaining term of this Lease; or
(3) Lessee may pay to raise either or both of
Cranes 64 and 68 at its own cost and expense.
(e)(iv) SPECIAL IMPROVEMENTS - CAP ON COSTS.
(A)Exhibit F contains a list of Special Improvements to be
constructed by the Port for which Special Improvements Rent shall be
paid. The Actual Cost Caps are described in Exhibit F, Part II, and
such Actual Cost Caps shall apply regardless of the Actual Costs of
any Special Improvement, subject to any Changes pursuant to paragraph
(e)(v) of this Section 2. Lessee's Maximum Share regardless of Actual
Cost for each of the Special Improvements listed in Exhibit F, shall
be capped and not exceed the amount derived by multiplying the
percentage assigned in Exhibit F as Lessee's percentage share for each
of the Special Improvement's Actual Cost, times the amount in the
Actual Cost Cap column in Exhibit F for such improvements. Provided,
however, if Lessee issues a written notice to the Port specifically
requesting that construction of a Special Improvement be delayed
beyond December 31, 1996, Lessee's Actual Cost Cap specified in
Exhibit F would increase at a 4.5% annual compounded inflation factor
between December 31, 1996 and the last month of the requested delay.
(B)If Actual Costs for any Special Improvement are less than the
Actual Cost Cap contained on Exhibit F for such improvement, the
actual lesser amount will be used as the basis for calculating
Lessee's Special Improvement Rent payments.
(e)(v) APPROVAL OF PLANS AND SPECIFICATIONS; CHANGES.
The following provisions govern Changes and/or other modifications. This
entire provision (including without limitation Lessee's right to challenge the
Port's estimates) shall be subject to the arbitration procedure in Section 7,
subparagraph 28(b) of this Amendment.
(A) DEFINITIONS.
For purposes of this Section 2, paragraph (e)(v), the following
definitions shall apply:
(1)Total Facility--The collective sum of all Facility
Components, which, when Total Facility Completion is achieved,
provides Lessee with all of the physical elements of the
facility required by this Amendment.
(2)Conceptual Design--The drawings, plans, specifications, and
other materials which represent a level of detail equivalent to
approximately fifteen percent (15%) completion of the design
necessary to construct or otherwise improve a Facility
Component in a good workmanlike manner and shall include an
estimated Actual Cost based on Exhibit H. The materials used
to describe the Conceptual Design shall, at a minimum, identify
and describe all major elements of the Facility Component.
(3)Final Design--The contract documents, including drawings and
specifications, which represent a level of detail equivalent to
one hundred percent (100%) completion of the design necessary
to construct or otherwise improve the Facility Component in a
good workmanlike manner and which includes a cost estimate.
(4)Change--Any modification requested in writing by Lessee to
the scope or specifications of a Facility Component required by
this Amendment (as amended, including supporting documents),
which by mutual agreement or arbitration does affect the
estimated Actual Cost at the time of the request and/or impacts
the Actual Schedule as per subparagraph (G) below, for Facility
Component Completion of the IY Facilities, Total Facility
Completion, and/or Facility Component Completion of the Fourth
Berth (if exercised by Lessee) as described under (G)(1) below.
(5)Actual Schedule--Detailed current schedule for expected
Facility Component Completion of all Facility Components. Such
schedule shall be made available to both parties and shall
include a critical path for each of the following items:
Facility Component Completion of the IY Facilities, Total
Facility Completion, and Facility Component Completion of the
Fourth Berth (if exercised by Lessee).
(6)Completion--For purposes of this paragraph (e)(v), the
conclusion of any stage contemplated herein which is acceptable
by either mutual agreement or by resolution pursuant to the
arbitration procedure.
(B)PERIOD UP TO COMPLETION OF CONCEPTUAL DESIGN.
(1) Promptly after execution of this Amendment, the Port and
Lessee shall each designate in writing Project Leaders to
respond to issues arising herein. Each party shall also
designate, in writing, Program Supervisors to oversee the
Project Leaders.
(2)All issues regarding the Conceptual Design shall be reviewed
pursuant to the following documents and information, in
descending order of priority and importance:
(a) The Lease, as amended, including Exhibit H as
amended.
(b) Facility Component equivalence to existing
corresponding improvements at Terminal 5.
(c) Data and criteria developed and agreed to by the
Port and Lessee during the period up to mutual approval
of Conceptual Design.
(3)The Port shall develop a Conceptual Design for the Total
Facility in accordance with the provisions of (B)(2) above.
(4)The Port's and Lessee's respective Project Leaders shall
attempt to resolve any disagreement on Conceptual Design or on
whether a proposed modification is a Change which arises during
this period.
(5)Disagreements which cannot be resolved by the Project
Leaders shall be referred to the two Program Supervisors who
shall attempt to resolve the issue in accordance with the
provisions of (B)(2) above.
(C)APPROVAL OF CONCEPTUAL DESIGN OF ANY FACILITY COMPONENT.
(1)The proposed Conceptual Design shall be submitted to Lessee
for its approval (provided, however, no such approval shall
relieve the Port of its obligation to comply with all
applicable laws, regulations, ordinances, and other similar
requirements). Lessee shall review the proposed Conceptual
Design solely on the basis of whether or not the proposed
Conceptual Design is consistent with the documents and
information as described in subparagraph (B)(2) above. Within
four (4) Business Days after receipt, Lessee shall, in writing,
either approve the proposed Conceptual Design in whole or in
part with details in writing of any objections or reject the
proposed Conceptual Design in whole or in part with written
detailed explanation thereof. If all or part of the proposed
Conceptual Design is rejected, the Port shall resubmit same
after responding to said objection(s) which shall then be
subject to the same procedure. If the parties cannot agree as
to whether the proposed Conceptual Design conforms with the
scope and intent of the improvements as contemplated by this
Amendment or whether any such aspect constitutes a Change after
resubmission of the proposed Conceptual Design, then either
party may call for the dispute to be resolved in accordance
with the following procedures:
(a) The parties' Project Leaders shall immediately
begin good faith negotiations to resolve any
disagreement regarding the acceptability of the
proposed Conceptual Design. Such negotiations shall
not exceed four (4) Business Days.
(b) If the parties' Project Leaders cannot resolve
such disagreements after the expiration of the
preceding period, the dispute shall be immediately
referred to the parties' Program Supervisors, who shall
thereafter attempt to resolve the dispute within five
(5) Business Days.
(c) If the parties' Program Supervisors cannot
resolve the dispute after the expiration of the
preceding five Business Day period above, then the
dispute may be referred by either party for arbitration
pursuant to Section 7, subparagraph 28(b) of this
Amendment. All correspondence, materials, drawings,
and cost information relating to the modification will
be available to the arbitrator for his or her review.
Lessee may direct the Port in writing to proceed in
accordance with Lessee's instructions regardless of the
pendency of any dispute and the Port shall so comply.
(2)The Port shall be allowed to make revisions to the agreed
Conceptual Design or the Final Design (and shall notify Lessee
of any such revisions to the extent practicable) only if such
proposed revisions:
(a) allow the Port to reduce Actual Cost or time by
implementing more efficient building components,
systems, and construction practices; and
(b) provide Facility Components which are functionally
equivalent to the improvements as designed; and
(c) maintain the same quality level as specified in
the applicable documents; and
(d) do not have an impact on the Actual Schedule
completion dates and do not substantially increase the
estimated Actual Costs.
The Port may implement such revisions for a Facility Component
prior to Facility Component Completion. Port-proposed
revisions which do not meet the above criteria may only be
undertaken after Lessee gives its written permission. Disputes
which arise with respect to this matter shall be subject to the
resolution procedures in this subparagraph C.
(D)PERIOD AFTER COMPLETION OF CONCEPTUAL DESIGN UP TO FINAL DESIGN.
Proposed modifications to the agreed-upon Conceptual Design, up to
approval of the Final Design, shall be handled as follows:
(1)A proposed modification will be reviewed by the Port Project
Leader for impacts on labor, materials, equipment, cost, Actual
Schedule, and other direct impacts. Such impacts on estimated
Actual Cost and Actual Schedule shall be quantified by the
Port. The Port shall reply in writing to Lessee's Project
Leader within four (4) Business Days from the date of receipt
of the requested modification regarding the impacts on
estimated Actual Cost and Actual Schedule and the Port's
judgment as to whether or not the modification constitutes a
Change.
(2)Lessee's Project Leader shall respond within four (4)
Business Days after receipt of the above-referenced written
communication to the Port with a decision to proceed with,
modify, or reject the proposed modification.
(3)Lessee may direct the Port in writing to proceed with a
proposed modification at any time and the Port shall do so;
provided, however, if Lessee does not give such direction in
writing at the time it initially proposes the modification to
the Port, the period from the time such proposal is initially
made until Lessee gives the Port notice to proceed in writing
shall be included in the consideration of the impact on the
Actual Schedule. The Port will isolate the cost and Actual
Schedule impacts of such modification.
(4)The parties' project Leaders shall immediately begin good
faith negotiations to resolve any disagreements regarding
estimated Actual Cost and Actual Schedule impacts and/or
whether such modification constitutes a Change. Such
negotiations shall not exceed four (4) Business Days.
(5)If the parties' Project Leaders cannot resolve such
disagreements after the expiration of the preceding period, the
dispute shall be immediately referred to the parties' Program
Supervisors, who shall thereafter attempt to resolve the
dispute within five (5) additional Business Days.
(6)If the parties' Project Supervisors cannot resolve the
dispute after the expiration of the preceding five Business Day
period above, then the dispute may be referred by either party
for arbitration pursuant to the Section 7, subparagraph 28(b)
of this Amendment. All correspondence, materials, drawings,
and cost information relating to the modification will be
available to the arbitrator for his or her review.
(7)Lessee may direct the Port in writing to proceed in
accordance with Lessee's instructions regardless of the
pendency of any dispute and the Port shall so comply.
(E)APPROVAL OF FINAL DESIGN OF ANY FACILITY COMPONENT. The proposed
Final Design of any Facility Component shall be submitted to Lessee
for approval by Lessee (provided, however, no such approval shall
relieve the Port of its obligation to comply with all applicable laws,
regulations, ordinances, and other similar requirements). Lessee
shall review the proposed Final Design on the basis of whether or not
the proposed final design is consistent with the Conceptual Design,
the documents and information specified in subparagraph B(2) above of
this paragraph (e)(v), and other agreed to modifications or Changes
made during the time leading up to submission of the Final Design for
approval. Within ten (10) Business Days after receipt, Lessee shall,
in writing, either approve the proposed Final Design in whole or in
part with details in writing of any objections or reject the proposed
Final Design in whole or in part with written detailed explanation
thereof. If all or part of any proposed Final Design is rejected, the
Port shall resubmit same after responding to said objection(s) which
shall then be subject to the same procedure. If the parties cannot
agree as to whether the proposed Final Design conforms with the scope
and intent of the improvements as contemplated by this Amendment or
whether any such aspect may constitute a Change (as asserted by either
party) after resubmission of the proposed Final Design, then either
party may call for the dispute to be resolved in accordance with the
same procedures provided in subparagraph C above.
(F)PERIOD AFTER FINAL DESIGN UP TO FACILITY COMPONENT COMPLETION OF
ANY FACILITY COMPONENT.
Proposed modifications by Lessee to the Final Design of any Facility
Component as approved shall be handled as follows:
(1)A proposed modification will be reviewed by the Port
Project Leader for impacts on labor, materials, equipment,
estimated Actual Cost, Actual Schedule, and other direct
impacts. Such impacts on estimated Actual Cost and Actual
Schedule shall be quantified by the Port. The Port shall reply
to Lessee's Project Leader within four (4) Business Days from
the date of receipt of the requested change regarding the
impacts on estimated Actual Cost and Actual Schedule and the
Port's judgment as to whether or not such modification
constitutes a Change.
(2)Lessee's Project Leader shall respond within four (4)
Business Days to the Port with a decision to proceed with,
modify, or reject the proposed modification.
(3)Lessee may direct the Port in writing to proceed with a
proposed modification at any time and the Port shall do so;
provided, however, if Lessee does not give such direction in
writing at the time it initially proposes the modification to
the Port, the period from the time such proposal is initially
made until Lessee gives the Port notice to proceed in writing
shall be included in the consideration of the impact on the
Actual Schedule. The Port will isolate the estimated cost and
Actual Schedule impacts of such modification.
(4)The parties' Project Leaders shall immediately begin good
faith negotiations to resolve any disagreements regarding
estimated Actual Cost and Actual Schedule impacts and/or
whether such modification constitutes a Change. Such
negotiations shall not exceed four (4) Business Days.
(5)If the parties' Project Leaders cannot resolve such
disagreements, the dispute shall be referred within two (2)
Business Days after conclusion of the negotiations described in
(4) above to the parties' Program Supervisors, who shall
attempt to resolve such disagreements within three (3) Business
Days,
(6)If the parties' Program Supervisors cannot resolve the
dispute after the expiration of the preceding three Business
Day period above, then the dispute may be referred by either
party for arbitration pursuant to Section 7, subparagraph
28(b) of this Amendment. All correspondence, materials,
drawings, and cost information relating to the modification
will be available to the arbitrator for his or her review.
(7)Lessee may direct the Port in writing to proceed in
accordance with Lessee's instructions regardless of the
pendency of any dispute and the Port shall so comply.
(G) SCHEDULE IMPACTS.
(1)With respect to any modification or the cumulative effect of
multiple modifications, the Port will quantify, using critical
path analysis, any impact on the current Actual Schedule for
inclusion in the submittals to Lessee required in this
subparagraph (e)(v).
(a) If such impact does not extend the Actual
Schedule beyond the Preferred Schedule, there will be
no Change for purposes of schedule impacts.
(b) If such impact does extend the Actual Schedule
and that extension (or portion thereof) goes beyond the
Preferred Schedule, the modification will be deemed a
Change based on the impact to the Actual Schedule and
an equal extension of time (to the extent such
extension goes beyond the Preferred Schedule) shall be
applied to the Conservative Schedule for any or all of
the following impacted items: Facility Component
Completion of the IY Facilities; Total Facility
Completion; and Facility Component Completion of the
Fourth Berth (if exercised by Lessee).
(c) If the Conservative Schedule has been extended
under (1)((b)) above, and Lessee subsequently requests
a Change which reduces the Actual Schedule for the IY
Facilities, Total Facility Completion, and/or the
Fourth Berth (if exercised by Lessee), an equal
reduction of time shall be applied to the applicable
Conservative Schedule dates; provided, however, in no
event shall the Conservative Schedule dates be moved
back to dates earlier than those given in Section 1.G.
(2)With respect to all Changes that affect the Actual Schedule,
the Port will use its good faith efforts to prevent or minimize
delays and ensure that the Conservative Schedule for the IY
Facilities, Total Facility Completion, and the Fourth Berth (if
exercised by Lessee) will be met.
(H) PAYMENTS AS A RESULT OF A CHANGE; SAVINGS POOL.
(1) PAYMENTS.
(a) The estimated Actual Cost of a Change or series of
Changes (whether a net increase or a net reduction)
shall be determined based upon one of the following two
applicable estimated Actual Costs: for the period
prior to completion of Conceptual Design, the estimated
Actual Cost of improvements consistent with Exhibit H
at the time of execution of this Amendment (which is
equal to the "Actual Cost Cap" specified in Part II of
Exhibit F for Special Improvements); or, for the period
following completion of Conceptual Design, the
estimated Actual Cost of improvements consistent with
the Conceptual Design as approved.
(b) If a Change for a Special Improvement results in a
net increase in the Port's estimated Actual Cost for
such Special Improvement, and the resultant estimated
Actual Cost of the relevant Special Improvement is
below the "Actual Cost Cap" specified on Part II of
Exhibit F hereto, Lessee's rental payment obligation
for such Change shall be based on Lessee's percentage
share of the estimated Actual Cost of such Change
specified as "Lessee's % Share" in Part II of Exhibit
F. To the extent that such estimated net increase for
a Special Improvement Change exceeds the "Actual Cost
Cap," Lessee shall pay 100% of such amount over the
Actual Cost Cap as rent (amortized over 30 years at
9.25%).
(c) If a Change for a Facility Component which is not
a Special Improvement results in a net increase in the
Port's estimated Actual Cost, Lessee shall pay 100% of
such amount which is attributable to such Change as
rent (amortized over 30 years at 9.25%). Any Change
which results in a net decrease in the Port's estimated
Actual Cost for such Facility Component (which is not a
Special Improvement) shall accrue to the Port's
benefit.
(2) SAVINGS POOL.
In the event Lessee chooses to make a Change which reduces the
scope of work on any Special Improvement, and such Change
results in a reduction of the estimated Actual Cost to complete
said Special Improvement from the applicable estimated Actual
Cost, the savings shall be multiplied by the "Port's % Share"
specified in Part II of Exhibit F hereto. Such product shall
be placed in a pool (the "Savings Pool"). Such Savings Pool
may be used by Lessee in Lessee requested modifications or
Changes which add to the estimated Actual Cost of any Special
Improvement and the estimated Actual Cost for any such Special
Improvement shall be reduced by the amount from the Savings
Pool. Provided however, this shall not affect the Port's right
to claim schedule impact if the Port believes such an impact
will occur; and provided further, any amounts in the Savings
Pool which have not been spent by the time of Total Facility
Completion shall cease being available to Lessee. The parties
agree that Savings Pool amounts which are created as a result
of a deductive Change in the Gatehouse scope requested by
Lessee shall be applied solely to the estimated Actual Costs of
Changes for: an Intermodal Yard tower; CFS rail spur and
associated turnout; CFS truck scale purchase and installation;
a canopy at the Maintenance and Repair facility ("M & R);
"genset" mounting area under the M & R canopy; steam cleaning
area under the M & R canopy; the slab under the M & R canopy;
an intermodal yard maintenance building; and increases in the
estimated Actual Costs to the Gatehouse. Lessee-requested
reductions in the scope of the M & R do not create a savings
pool.
(e)(vi) EXTENSION OF TIME FOR TOTAL FACILITY COMPLETION.
(A)If the Port provides Lessee with a written notice as hereinafter
provided, the Port shall be entitled to an extension to the
Conservative Schedule for delay to the extent (i) there is a specific
cause of delay which the Port can demonstrate will solely and
directly delay Total Facility Completion or Facility Component
Completion and such delay detrimentally affects the critical path of
work; and (ii) such delay is one of the excusable causes set forth in
subparagraph (vi)(B) below; and (iii) the Port demonstrates that it
used its good faith efforts to prevent or minimize the actual delay,
including without limitation performing other or additional work
contemplated by this Amendment; and (iv) but for such cause of delay,
Total Facility Completion or, Facility Component Completion, as
applicable, would have occurred on time. The amount of any such
extension shall be the number of days by which the Port can
demonstrate that Total Facility Completion or Facility Component
Completion, as appropriate will be delayed solely and directly by such
cause of delay. The Port shall at all times have the burden of
proving each of the matters required to be established for excusable
delay; and in the event that it is not possible to determine whether
or to what extent any delay is attributable to causes excused by the
terms hereof, the Port shall not be entitled to any extension for
performance and Lessee shall be entitled to recover liquidated damages
for the entire period of delay.
(B)The Port shall be entitled to an extension as provided in (vi)(A)
above for any delay caused by Lessee (other than those caused by
Lessee in exercising any of its rights or duties in accordance with
this Amendment); by formal action of government prohibiting
construction by war or preparation for war; by acts of God (other than
ordinary storms or inclement weather conditions), earthquake,
hurricanes, lightning, floods, or landslides or other acts of
overwhelming force, explosions, fires, riots, insurrections, sabotage,
blockages, embargoes or epidemics as are the result of causes
reasonably beyond the Port's control, labor strikes or strife
including lockouts. Notwithstanding anything to the contrary in this
Lease, the Port shall not be entitled to excusable delay for (i) any
cause of delay in existence as of the date of this Amendment; or (ii)
for any delay to the extent caused by any environmental matter related
to the Expansion Premises unless the Port demonstrates the delay
caused by the environmental matter is caused by Lessee or other users
of the Premises authorized by Lessee or, if timely exercised, the
Option Premises.
(C)The Port shall deliver to Lessee written notice of a cause of
delay pursuant to this subsection (vi) as soon as practicable but no
later than 14 calendar days after the date which the Port had
knowledge or should have had knowledge of such cause of delay. Within
14 calendar days after such cause of delay shall have ended, the Port
shall deliver to Lessee written notice of the actual or estimated time
of delay resulting from such cause which specifies the cause of the
delay and any detailed documentation as is then available justifying
such extension. Any further documentation thereafter becoming
available shall promptly be provided to Lessee. On the basis of the
Port's documentation, Lessee and the Port shall confer and attempt to
agree upon the number of days of any extension for performance and if
the parties cannot agree, any such extension shall be determined
pursuant to Section 7, paragraph 28(b).
(D)No extension of time shall be granted pursuant to this paragraph
(e)(vi) unless the Port shall have first delivered by fax or U.S. mail
any written notices and other documentation within the time
limitations set forth in this paragraph (e)(vi).
SECTION 3. Subparagraphs (h), (i), (j), (k), (l), and (m) are hereby
added to paragraph 1 (LEASED PREMISES AND EQUIPMENT) of the Basic Lease, as
amended:
(h)OFF-PREMISES TEMPORARY CONTAINER YARD LEASEHOLD.
(i)The Off-Premises Temporary Container Yard ("OPTCY") for
empty containers will be provided at Terminal 105 in the stages
described on Exhibit G beginning with the start of construction
of the Expansion Premises. Lessee shall continue to pay rent
for the Salmon Terminals Storage Area and Lockheed Storage Area
(as now leased pursuant to those certain leases between APL and
the Port dated July 2, 1990 and February 26, 1991, hereinafter
collectively the "Rental Agreements") during the period
construction takes place within the Salmon Terminals Storage
Area. The Rental Agreement for the Salmon Terminals Storage
Area shall terminate upon Facility Component Completion of that
area and Basic Land and Improvements Rent shall commence from
that time. Lessee shall continue to pay rent for the Lockheed
Storage Area and shall continue to use both the OPTCY without
any charge and up to ten (10) acres of usable space on the
Lockheed Storage Area until Total Facility Completion
(excluding Facility Component Completion of the Option
Premises, unless Lessee's option is exercised pursuant to
Section 3, subparagraphs (i)(i)(A) or (i)(i)(B) of this
Amendment). Lessee at its discretion may choose to discontinue
use of both the OPTCY and the Lockheed Storage Area prior to
Total Facility Completion (as limited above), in which event
the Rental Agreement for the Lockheed Storage Area shall
terminate. Should Lessee at its discretion decide to exercise
its option for the Option Premises at a later date than those
specified in Section 3, subparagraphs (i)(i)(A) or (i)(i)(B) of
this Amendment, the Port shall provide as many usable acres in
the Option Premises as feasible during stage construction of
the Option Premises (subject to any lease by the Port with
interim tenants which is in accordance with Section 3,
subparagraph (i)(ii) of this Amendment).
(ii)The parties agree that Lessee need not relocate its off-
premises temporary storage at the OPTCY back to the Premises
until Total Facility Completion (excluding Facility Component
Completion of the Option Premises, unless Lessee's option is
exercised pursuant to Section 3, subparagraphs (i)(i)(A) or
(i)(i)(B) of this Amendment), provided Lessee may decide to
relocate, in its sole discretion, prior to Total Facility
Completion (excluding Facility Component Completion of the
Option Premises, unless Lessee's option is exercised pursuant
to Section 3, subparagraphs (i)(i)(A) or (i)(i)(B) of this
Amendment). After such time, Lessee shall pay at the then
prevailing market rate should Lessee desire to continue to
utilize the OPTCY. Any dispute arising out of this Section 3,
subparagraphs (h)(i) and/or (h)(ii) shall be resolved by
arbitration pursuant to Section 7, paragraph 28(b).
(iii)A share of Lessee's operating costs for using the OPTCY
shall be paid by the Port to Lessee on the basis of the number
of Drayage Moves. The Port's share of this cost shall be equal
to a payment for each Drayage Move made to Lessee equal to 50%
of the average dray cost for a Port truck and driver making at
least two moves between the Premises and the OPTCY per hour.
The Port's payments shall not exceed the cost for 10,000
Drayage Moves in a single year, or prorated at this rate for
periods less than one year. Any such payments made pursuant to
this subparagraph (iii) shall be made on a monthly basis with
such supporting documentation as Lessee or the Port shall
reasonably request and shall commence upon Lessee's startup of
operations at the OPTCY.
(iv)The parties hereto agree that the Port's Terminal 105
tenant, Crowley Marine Services ("CMS") shall have the right of
limited access to , and use of S.W. Idaho Street between West
Marginal Way S.W. and the Duwamish Waterway for moving crawler
cranes and lift trucks between the CMS equipment maintenance
shop and the CMS apron area. Lessee shall be provided with
reasonable prior written notice of the date and time of each
move, and each move shall be scheduled to first accommodate
Lessee's use of S.W. Idaho Street. The parties hereto estimate
CMS activity of S.W. Idaho Street will consist of approximately
five (5) round trips per year with crawler cranes, and two (2)
round trips per month with lift trucks.
(i)OPTIONS TO EXPAND.
Lessee shall have the following options to expand the Premises to
include the Option Premises (or "OP") at Lessee's sole discretion,
subject to the following conditions stated below:
(i)OPTIONS: Lessee shall have the following two options
related to the Option Premises which shall be exercisable by
Lessee for the period from the effective date of this Amendment
and shall continue for a ten year period following Total
Facility Completion but in no event later than December 31,
2009:
(A) OPTION PREMISES EXCLUSIVE OF THE FOURTH BERTH.
Lessee shall have an option to include the Option
Premises (exclusive of the Fourth Berth) in the initial
expansion. Upon issuance of written notice by Lessee
on or before June 1, 1995, then the OP, (exclusive of
the Fourth Berth) shall be included in the schedule for
Total Facility Completion within the Conservative
Schedule. Should Lessee exercise this option, Lessee
shall subsequently have, at any time during the Option
Period, the option to require the Port to construct the
Fourth Berth upon issuance of written notice to that
effect.
(B) OPTION PREMISES INCLUSIVE OF THE FOURTH BERTH.
Lessee shall have an option to include the Option
Premises (inclusive of the Fourth Berth) in the initial
expansion. Upon issuance of written notice by Lessee
on or before March 1, 1995, then the OP (inclusive of
the Fourth Berth) shall be included in the schedule for
Total Facility Completion within the Conservative
Schedule.
(ii)CONDITIONS:
(A)Should the Option Premises be developed, and added
to the Premises, the Lease rental rate will be the same
as the then prevailing Basic Land and Improvements Rent
for the Expansion Premises, as shown in Part I of
Exhibit F, through the end of the Lease term. The Port
reserves approximately 1.5 acres of land abutting the
north side of the Option Premises, as shown on Exhibit
A-6, to be used for access and support of the piers
extending north from the shoreline. If the Port
decides not to utilize the piers by completion of Final
Design for the Option Premises (exclusive of the Fourth
Berth), the Port shall notify Lessee of the
availability of the 1.5 acres and shall include it as
part of the Option Premises.
(B)Lessee's options are subject to any lease with an
interim tenant(s). Until Lessee exercises either of
its options for the OP, the Port retains the sole right
to determine when to develop the Option Premises and to
choose interim tenants (at whatever level of
development). Any lease with an interim tenant(s)
shall not be of a length in excess of 3 years
(inclusive of any options to renew), unless a longer
term is mutually agreed to by the Port and Lessee in
writing and shall not deprive Lessee of its ten (10)
acres of the Lockheed Storage Area prior to Total
Facility Completion as per Section 3, subparagraph (h)
of this Amendment. Lessee's option to exercise its
rights with respect to the OP shall be subject to the
following provisions:
(1) In the event that the Option Premises have
not been developed to the standards of the
improved Salmon Terminals Storage Area, with the
Fourth Berth in place, and an interim tenant is
leasing the Option Premises, the Port shall have
no more than 36 months beyond the expiration of
any lease of any interim tenant (plus any
additional time solely and directly related to
obtaining necessary land use and environmental
permits which the Port undertakes to obtain as
expeditiously as possible) to develop the area
as required for Lessee's operation. (The 36-
plus months will be reduced to the extent that
the remaining period on an interim tenant's
lease can be used to begin the development
process).
(2) In the event that the Option Premises are
not under lease to an interim tenant at the time
of Lessee exercising its option, the Port shall
have no more than 36 months (plus any additional
time required for obtaining necessary land use
and environmental permits) to develop the area
for Lessee's use as contemplated in Exhibit H.
(C) OTHER CONDITIONS
(1) Should the Port lease the Option Premises
to an interim non-container terminal tenant(s),
and choose not to fully develop the area to the
standards of the improved Salmon Terminals
Storage Area, the Port will provide (and Lessee
will cooperate in providing) the interim tenant
with access to the Option Premises along the
north boundary, which may require vehicle right-
of-way and movement across the Intermodal Yard
tail track and other connected areas as needed
for workable interim tenant(s) access. To the
degree feasible, this access will also serve as
the means of access for construction equipment
in the event of development of the Option
Premises at any future date.
(2) During any interim period prior to Lessee
taking over the Option Premises, but subsequent
to the Port developing the Option Premises to
the standards of the improved Salmon Terminals
Storage Area, Lessee will cooperate in providing
for joint gate facilities and common access to
the Option Premises off the Overpass and for
joint use of the Intermodal Yard by any
independent container operator tenant using the
Option Premises, unless mutually agreed
otherwise. Lessee will provide gate
receival/delivery and on-dock rail operational
services on a contract basis (at then prevailing
market rates) to any independent container
operator on interim lease on the Option Premises
utilizing Lessee's gate/entry and the Intermodal
Yard. Any interim container terminal tenants
will berth their vessels at the Fourth Berth and
will be allowed secondary use of the berth and
container cranes south of the Fourth Berth when
available. The Port shall have the right to
charge such interim tenants the Port's tariff
rate for use of the cranes and for all other
charges connected to the secondary use of said
berth, provided however, with respect to
container cranes owned by the Port, Lessee shall
be entitled to charge the secondary user
Lessee's then current tariff relating to
maintenance and fuel not to exceed the Port's
tariff for those items. With respect to any
container cranes owned by Lessee (or any
Affiliate of Lessee), Lessee shall be entitled
to charge and collect for Lessee's own account,
any and all fees relating to use of such
container cranes including without limitation
fees for such container crane's use, fuel, and
maintenance not to exceed the Port's tariff for
all such items.
(j)NOTIFICATION, RIGHT OF FIRST REFUSAL AND OPTION REGARDING
CONTIGUOUS PROPERTIES.
(i) RIGHT OF FIRST REFUSAL.
The Port agrees to notify Lessee in writing 60 calendar days in
advance of the Port's intention to lease to a tenant(s)
identified in such notice any Contiguous Property. Lessee
thereafter has 90 calendar days to notify the Port in writing
of its intention to exercise Lessee's right of first refusal to
lease such Contiguous Property and 90 additional calendar days
to execute a lease amendment on the same terms and conditions
of this Lease with the Port providing for rent at the then
current Basic Land and Improvements Rent to commence once the
subject property has been developed to the standards of the
improved Salmon Terminals Storage Area. If Lessee fails to so
notify the Port, the Port may then lease any such Contiguous
Properties to any party it chooses. Should the Port ultimately
lease any such Contiguous Properties wherein Lessee fails to
exercise its right of first refusal, and should any such lease
expire, then Lessee's right of first refusal shall continue to
be effective as to such Contiguous Properties.
(ii) CHARACTERIZATION OF OPTION PREMISES.
Following the expiration of Lessee's option for the Option
Premises pursuant to Section 3, subparagraph (i) of this
Amendment, the area now encompassed by the Option Premises,
regardless of its stage of development, will be considered
Contiguous Property subject to Lessee's rights. If a fill area
is selected as a development alternative, any such area shall
be considered Contiguous Property (provided Lessee has leased
or given notice to lease the area of the Option Premises).
(iii) LESSEE OPTION FOR CONTIGUOUS PROPERTIES.
Lessee shall have the option to lease any Contiguous Properties
upon written notice to the Port to that effect, for such
Contiguous Properties which are not under lease pursuant to
subparagraph (j)(i) above. The Port shall promptly develop any
such Contiguous Property to the standards of the improved
Salmon Terminals Storage Area, after which Lessee shall begin
paying the then current Basic Land and Improvements Rent
relating to said Contiguous Property.
(iv) CEM PROPERTY.
(A) The CEM Property is part of the Contiguous
Properties. The CEM Property which is available for
development as Contiguous Property will be the area
remaining after property area is deleted or has been
designated for the following purposes:
(1) a strip of land to be developed as a
"buffer" zone between nearby properties and the
Premises, pursuant to state and/or local laws,
ordinances, regulations, or permits; and
(2) property transferred to or otherwise made
available for use by industries and companies
directly affected by the development of the
Expansion Premises.
(B) The parties acknowledge that development of the
CEM Property to the standards of the improved Salmon
Terminals Storage Area may not be technically or
economically reasonable. If, however, Lessee exercises
any of its Contiguous Property rights with respect to
leasing the CEM Property, then the Port agrees to
develop such property to a standard capable of
sustaining the weight of any loaded container (as
presently known in the industry as of the effective
date of this Agreement) on a chassis, or three stacked
empty containers (of any size), whichever is greater.
Lessee shall pay rent for the CEM Property developed to
such standard at 85% of the then current Basic Land and
Improvements Rent. Provided, however, if Lessee and
the Port agree to rental terms for the CEM Property
which makes development economically feasible, the Port
shall develop the CEM Property to normal container yard
standards at Lessee's request. In any event, if the
Port chooses to develop to full container yard
standards, Lessee shall pay rent for the CEM Property
at the then current Basic Lands and Improvements Rent
for those portions so developed.
(k)LIQUIDATED DAMAGES AND PORT GUARANTEE REGARDING EXPANSION
PREMISES.
(i) GENERAL.
The parties acknowledge Lessee and its Affiliates have a need
for timely completion on or prior to expiration of the
Conservative Schedule of (i) Facility Component Completion of
the IY Facilities; and (ii) Total Facility Completion
(exclusive of the Fourth Berth) of the Expansion Premises; and
(iii) Facility Component Completion of the Fourth Berth (if
Lessee's option is timely exercised), (i.e., time is of the
essence). Lessee (and APL) require the ability to shift to
Seattle intermodal cargo which is presently loaded and unloaded
in other West Coast ports and bound for or arriving from other
locations in the United States. Failure to complete IY
Facilities, Expansion Premises or the Fourth Berth, as
applicable, within the Conservative Schedule required by this
Amendment shall cause adverse financial impacts to Lessee (and
APL). These impacts are very difficult, at this time, to
ascertain and quantify as actual damages. The parties
therefore agree to provide for liquidated damages in the
following manner and subject to the following conditions and
the parties have further agreed that the calculations and
assumptions for liquidated damages are fair and reasonable as
of the date of this Amendment. Any such payments shall be made
to Lessee by the Port on a monthly basis. Lessee agrees that,
during the period when liquidated damages can be assessed,
assessment of liquidated damages shall be Lessee's sole remedy.
(ii)IY FACILITIES.
(A) IYF LIQUIDATED DAMAGES.
The Port agrees to pay as liquidated damages Fifteen
Thousand Two Hundred Forty Dollars ($15,240) per day
for each full day beyond the Conservative Schedule
wherein Facility Component Completion of the IY
Facilities has not occurred ("IYF Liquidated Damages")
(B) IYF LIQUIDATED DAMAGES ADJUSTMENT
Provided however, with respect to IYF Liquidated
Damages only, an adjustment shall be made so that
Lessee shall be obligated to repay to the Port or the
Port shall be required to pay Lessee an additional
amount (as applicable), based on the following formula:
the number of rail intermodal containers owned or
leased by APL or its Affiliates which are handled by
Lessee at the Premises for the one year period prior to
Facility Component Completion of the IY Facilities,
subtracted from the number of rail intermodal
containers owned or leased by APL or its Affiliates
handled by Lessee at the Premises for the one year
period beginning ninety days after Facility Component
Completion of the IY Facilities, shall be calculated
and referred to as the "Actual Intermodal Rail Volume
Shifted" for purposes of this calculation of the
adjustment to IYF Liquidated Damages.
(1) Should the Actual Intermodal Rail Volume
Shifted be less than 75,000 containers (i.e.
said 75,000 containers is an assumed Container
Shift volume the parties agree is reasonable for
the calculation of IYF Liquidated Damages above
as of the date of this Amendment), then Lessee
shall owe the Port a sum to be determined as
follows: the Actual Intermodal Rail Volume
Shifted shall first be subtracted from 75,000.
The difference shall be multiplied by $48 (i.e.
said $48 is an assumed amount per Intermodal
Lift that the parties agree is reasonable for
the calculation of IYF Liquidated Damages above
as of the date of this Amendment). The product
shall be divided by 365 days and then multiplied
by the number of days which were subject to IYF
Liquidated Damages. The final amount as
calculated herein shall be the amount Lessee
shall be required to pay to the Port.
(2) Should the Actual Intermodal Rail Volume
Shifted be greater than 75,000 then the Port
shall owe Lessee a sum to be determined as
follows: 75,000 shall be subtracted from the
lesser of (i) the Actual Intermodal Rail Volume
Shifted, or (ii) One Hundred Thousand (100,000).
The difference shall be multiplied by $48 . The
product shall be divided by 365 days and then
multiplied by the number of days which were
subject to IYF Liquidated Damages. The final
amount as calculated herein shall be the amount
the Port shall be required to pay to the Lessee.
(C) TFC LIQUIDATED DAMAGES.
The Port agrees to pay as liquidated damages One
Thousand Five Hundred Dollars ($1,500) per day for each
full day beyond the Conservative Schedule wherein Total
Facility Completion of the Expansion Premises
(exclusive of the Fourth Berth) has not occurred ("TFC
Liquidated Damages"). This is intended to cover
Lessee's assumed damages resulting from increased costs
relating to operating the Premises without the promised
space and/or facilities and covers assumed expenses
such as increased drayage costs, additional labor and
equipment which the parties agree are reasonable as of
the date hereof.
(iii) DURATION OF IYF LIQUIDATED DAMAGES AND/OR TFC LIQUIDATED
DAMAGES; OTHER REMEDIES.
(A) DURATION OF LIQUIDATED DAMAGES.
Once (i) Facility Component Completion of the IY
Facilities occurs; or (ii) Total Facility Completion
(exclusive of the Fourth Berth) of the Expansion
Premises occurs, the assessment of IYF Liquidated
Damages or TFC Liquidated Damages, as applicable, shall
cease. Provided however, notwithstanding the foregoing,
each of these two types of liquidated damages shall
cease to accrue thirty-six (36) months after each of
them first becomes due and payable.
(B) RIGHTS AFTER EXPIRATION OF LIQUIDATED DAMAGES
PERIOD.
Upon the expiration of either 36 month period for
liquidated damages, should either Total Facility
Completion (exclusive of the Fourth Berth) of the
Expansion Premises not have occurred or Facility
Component Completion of the IY Facilities not have
occurred, as applicable, Lessee shall be entitled, at
its sole discretion, to the following rights in
addition to such other rights granted by subparagraph
(k)(iii): (i) to stay at the Original Premises and
accept the portion of the Expansion Premises which can
be made available (subject to the applicable terms of
this Amendment at the appropriate pro rated amount)
provided however the Port shall continue to exercise
good faith efforts to achieve Total Facility Completion
(exclusive of the Fourth Berth) as quickly as possible;
or (ii) to refuse acceptance of the Expansion Premises,
terminate this Amendment, revert to the Basic Lease as
amended prior to this Amendment (including without
limitation, the provision of the Basic Lease relating
to the original term of the Basic Lease) and return to
the Port any part of the Expansion Premises being used,
provided however, notwithstanding the foregoing, to the
extent facilities on the Original Premises have been
demolished or are otherwise not Beneficially Usable,
Lessee shall be entitled to maintain possession of the
equivalent portion of the Expansion Premises, on the
same terms and conditions contained in the Basic Lease
(including, without limitation, rental amounts) or any
applicable amendment to the Basic Lease which was
entered into prior to the date of this Amendment.
(C) RIGHT TO SUBLEASE AFTER EXPIRATION OF LIQUIDATED
DAMAGES PERIOD.
Lessee shall also be entitled to sublease to one or
more prospective tenants (except for any such
prospective tenants which may be otherwise lawfully
restricted by public or Port Commission resolutions and
such resolutions are for general application to all
Port properties and are not proposed solely for
application to the Premises), all or a portion of the
Original Premises and those portions of the Expansion
Premises which are made available to Lessee because the
Original Premises is not Beneficially Usable (pursuant
to subparagraph (k)(iii)(B)(ii) of this Section 3
above), without the prior written consent of the Port
after the expiration of either 36 month period for
liquidated damages specified in subparagraph
(k)(iii)(A) of this Section 3. Provided however, any
such sublease terms shall be consistent with the terms
of the Basic Lease as amended, and the per acre rent on
said sublease shall not be less than the then current
weighted average Basic Land and Improvements Rent per
acre (for the Expansion Premises) and rent per acre for
the Original Premises. Weighted average shall mean the
total acres constituting the Original Premises
multiplied by the then current rent per acre plus the
total acres constituting the Expansion Premises made
available to Lessee pursuant to subparagraph
(k)(iii)(B)(ii) of this Section 3 above, multiplied by
the then current Basic Land and Improvements Rent
(specified in Part I of Exhibit F), divided by total
acres constituting the Premises. And further provided,
Lessee's right to sublease without the Port's consent
is subject to the following provisions:
(1) At any time following the event described
in subparagraph (k)(iii)(C) above, Lessee may
provide the Port with written notice of its
intent to relocate its operations from the Port.
Such notice shall identify the date by which the
Premises will be vacated, which shall be no
earlier than 12 months and no later than 36
months from the delivery of said notice.
(2) If Lessee successfully negotiates the terms
of a sublease with any proposed subtenant,
Lessee shall provide the Port with the terms and
conditions of such sublease at which time the
Port shall have 30 calendar days after which the
Port shall:
(a) Accept the proposed party as a
direct lessee under the terms and
conditions presented and terminate such
portion of Lessee's Basic Lease, as
amended, as relates to any such sublease
presented, with no liability or
obligations by Lessee to the Port for
such portion of the Premises beyond that
which has accrued on or before the date
of termination; or
(b) Reject the terms of the sublease as
presented by Lessee and terminate such
portion of Lessee's Lease obligation
relating to any such sublease, with no
liability or obligations by Lessee to
the Port with respect to that portion of
the Premises beyond that which has
accrued on or before the date of
termination; or
(c) If neither (a) or (b) above is
timely exercised by the Port, the
sublease shall automatically become
effective.
(3) After Lessee issues its notice of intent to
relocate pursuant to subparagraph (k)(iii)(C)(1)
of this Section 3 above, upon at least six (6)
months written notice, the Port may advise
Lessee that it shall terminate the Basic Lease,
as amended, effective concurrently with Lessee's
vacation of the Premises (and subject to any
sublease), after which there shall be no further
liability or obligations accruing to Lessee for
such termination.
(4) In the event the Port elects not to
terminate the Basic Lease as amended pursuant to
(ii) above, nothing shall prevent the Port from
entering into a direct lease with its own tenant
for the Premises ("Direct Lease"), after which
it must give Lessee notice of the commencement
date of the Direct Lease at least 6 months prior
to Lessee's vacation of the Premises or 6 months
prior to the expiration of any sublease then
currently in place. Should Lessee no longer
occupy the Premises and no sublease for the
Premises is in place at the time the Port enters
into a Direct Lease, the Direct Lease may
commence upon notice to Lessee. Should Lessee
occupy the Premises but have less than six
months of occupancy left at the time the Port
enters into the Direct Lease, the required
notice of the commencement date of the Direct
Lease shall be the remaining period of Lessee's
occupancy. Should a sublease on the Premises
be currently in place but less than six months
remain prior to expiration of the term at the
time the Port enters into the Direct Lease, the
required notice of the commencement date of the
Direct Lease shall be the remaining term of the
sublease. The commencement date shall not be
prior to Lessee's vacation of the Premises or
the expiration of any sublease then currently in
place without the written consent of Lessee.
The Basic Lease shall terminate for the portion
of the Premises which is subject to a Direct
Lease on the day prior to the commencement date
of any such Direct Lease.
(5) Should any sublease expire, Lessee's right
to sublease under the terms above shall remain
in place for any remaining term of the Basic
Lease as Amended.
(iv) THE FOURTH BERTH.
If the Port fails to achieve Facility Component Completion of
the Fourth Berth by November 13, 1999 (provided Lessee has
exercised its option pursuant to subparagraph (i)(i)(B) of this
Section 3 above), the Port shall pay liquidated damages to
Lessee of Five Hundred Dollars ($500) per day, which the
parties agree reasonably represents a portion of Lessee's
estimated damages for the unavailability of the Fourth Berth,
for a period of two (2) years from such date. The Port shall
make good faith efforts to pursue Facility Component Completion
of the Fourth Berth during the period when liquidated damages
are being assessed. After the expiration of said two year
period, should Facility Component Completion of the Fourth
Berth not be achieved, Lessee shall be entitled to a reduction
in the Basic Land and Improvements Rent for the Option Premises
in a mutually agreed amount until Facility Component Completion
of the Fourth Berth. If the parties cannot agree on such
rental reduction within sixty (60) calendar days after
expiration of the two year period, either party may submit the
amount of reduction Lessee is entitled to for arbitration
pursuant to Section 7, subparagraph 28(b) of this Amendment.
(l)EQUIPMENT TRAINING.
The Port will participate with Lessee for the training of ILWU
personnel in the use of equipment which may be introduced in the
future for container handling on the Premises and is not in general
use at the Port, providing the Pacific Maritime Association (PMA) will
not perform such training. In such event, the Port's participation
would include the Port's cost to provide training equipment (including
maintenance), training aids (excepting the cost of trainers and the
direct payroll costs of personnel being trained) and input into the
management of the program as deemed necessary.
(m) RAIL ACCESS AND RELATED ISSUES.
The parties recognize Lessee and its Affiliates are engaged in a
highly service oriented, intermodal transportation enterprise, and as
such require the Port to maintain or cause to be maintained certain
standards, conditions and assets, as described below, which are
essential for the successful operation of the Intermodal Yard in
particular, and the Expansion Premises in general.
(i) CONTINUOUS RAIL ACCESS.
Lessee (and its Affiliates) have a need for continuous rail
access by more than one rail carrier to the Premises during the
term of this Lease and any extensions thereto. Burlington
Northern Railroad ("BN") currently holds the rights for rail
access to the Premises. The Port therefore undertakes to have
arranged, effective upon the date of this Amendment, access for
the Union Pacific Railroad to the Premises for the term of this
Lease (and any extensions thereto) by way of the existing Rail
Bridge at rates that are normal and customary within the
industry. The agreement for such access is attached as Exhibit
I. The Port further undertakes to maintain UP rail access
during the term of this Lease (and any extensions thereto).
The Port and Lessee agree to work cooperatively to permit
similar access to the Premises by other railroad carriers. The
Port agrees to work cooperatively with the BN to attempt to
ensure that any access charges negotiated between the BN and
other rail carriers shall not exceed levels that are normal and
customary within the industry. APL shall use good faith
efforts to assist the Port to effect this railroad access
arrangement pursuant to the terms of this subparagraph.
(ii) RAIL BRIDGE REINFORCEMENT.
The Port shall cause the BN to reinforce and modify the
existing Rail Bridge in accordance with Exhibit H and Exhibit
I. In the event BN fails to perform this obligation, the Port
shall pay for the costs of such reinforcement and modification
and shall complete same as part of Total Facility Completion
prior to the expiration of the Conservative Schedule for Total
Facility Completion. The Port further undertakes to arrange
for the maintenance and repair of the Rail Bridge as modified,
at no cost to Lessee, during the term of this Lease and any
extensions thereto to the standards described in Exhibit I
attached hereto. The Port shall make good faith efforts to
evaluate the feasibility of construction of a relocated
replacement for the Rail Bridge over the Duwamish Waterway
serving the West Seattle area.
(iii) DOUBLE TRACK.
To facilitate adequate access and switching to the Premises,
the Port shall design and construct or cause to be designed and
constructed the Double Track consistent with Exhibit H and the
requirements of the BN in coordination with the Union Pacific
Railroad at no direct cost to Lessee and the Port shall either
keep the Double Track in good order and repair or cause same to
be maintained and repaired during the term of this Lease and
any extensions thereof in accordance with Exhibit I.
(iv) SWITCHING.
As the switching of railcars from and to the Intermodal Yard is
critical to Lessee in its ability to provide a high level of
service to its customers, the Port shall ensure adequate
switching service is provided to the Premises during the term
of the Agreement and any extensions thereto in accordance with
Exhibit I hereto. The Port undertakes that charges for such
switching services shall not exceed levels that are normal and
customary within the industry.
(v) RAIL ACCESS CHARGE.
A. ACCESS CHARGE:
UP access to the Tracks (as that term is defined in
Section B of Exhibit I hereto), will be based on an
access charge of $20.50 per container, to or from the
IY Facilities, loaded or empty, assessed by BN to UP
(the "Access Charge") pursuant to an access agreement
between the UP and BN which is appended as Exhibit I-6
to Exhibit I (the "Access Agreement"). The Access
Charge will be divided into two portions: Maintenance
and Operations Fee ("MOF") and Terminal Entrance Fee
("TEF"). The MOF shall be set initially at $4.25 per
container and the TEF shall be initially set at $16.25
per container. Both the MOF and the TEF shall be
adjusted annually thereafter as per the indexing
procedures described in Exhibit I-7 which is appended
to Exhibit I of this Lease. BN shall inform the Port
when any adjustment of the level of TEF and/or MOF is
made and the Port shall promptly inform Lessee in
writing thereafter. The Port and Lessee understand and
agree that the UP is willing to be ultimately
responsible for only a portion of this Access Charge.
Therefore, subject to Subsection B below, the Port
shall pay Lessee, on a monthly basis, an amount equal
to the then current TEF less $16.25 plus $2.625 for
every container subject to this Access Charge.
B. UP's share of the TEF shall ultimately be decreased
by $6 for each container subject to the Access Charge
on an APL Controlled Train carried by the UP once a
volume of seventy-five thousand five hundred (75,500)
of such containers has been achieved. The Port and
Lessee agree to share the $6.00 per container reduction
equally and, in addition to the amounts in subsection A
above, the Port will pay its $3.00 share to the Lessee
for each such container. Payments shall be made on a
monthly basis.
C. REDUCTIONS BY RAILROADS.
(1) UNION PACIFIC REDUCTIONS.
(a)If UP provides to Lessee a reduction
up to $2.625 per container (applied to
all containers subject to the Access
Charge brought to or from the Premises
on UP trains), Lessee shall keep such
reduction. If the reduction exceeds
$2.625 per container, then Lessee shall
pass on such excess reduction amount up
to a total of an additional $2.625 per
container to the Port. Any other
additional reduction amounts beyond this
point shall be kept by Lessee.
(b)If UP provides to Lessee a reduction
up to an additional $3.00 per container
(applied to all containers subject to
the Access Charge brought to or from the
Premises on APL Controlled Trains
carried by UP) after the volume level
described in Section 3, subparagraph
(m)(v)(B) above ("Volume Break") has
been surpassed, Lessee shall keep such
reduction. If such additional reduction
exceeds $3.00 per container after the
Volume Break, then Lessee shall pass on
such excess reduction amount up to a
total of an additional $3.00 per
container to the Port. All reduction
amounts after the Volume Break beyond
this point shall be kept by Lessee.
(2) BURLINGTON NORTHERN REDUCTIONS.
(a) If BN provides to the Port a
reduction up to $2.625 plus the TEF
escalation amount (equal to TEF minus
$16.25) per container (applied to all
containers subject to the Access Charge
brought to or from the Premises on UP
trains), then the Port shall keep such
reduction. If the reduction exceeds
$2.625 per container plus the TEF
escalation amount, then the Port shall
pass on such excess reduction amount to
Lessee up to a total of an additional
$2.625 per container. Any other
additional reduction amounts beyond this
point shall be kept by the Port.
(b) If BN provides to the Port a
reduction up to an additional $3.00 per
container (applied to all containers
subject to the Access Charge brought to
or from the Premises on APL Controlled
Trains carried by UP) after the Volume
Break has been achieved, then the Port
shall keep such reduction. If the
additional reduction exceeds $3.00 per
container after the Volume Break, then
the Port shall pass on such excess
reduction amount up to a total of an
additional $3.00 per container to the
Lessee. Any other additional reduction
amounts after the Volume Break beyond
this point shall be kept by the Port.
(vi) RAIL SERVICE STANDARDS LIQUIDATED DAMAGES.
Lessee shall be entitled to collect, directly from the Port,
the liquidated damages described hereinafter, for failures
relating to the Rail Services Standards (as that term is
described in Exhibit I). To the extent that any such failures
relating to the Rail Services Standards are subsequently
determined pursuant to Exhibit I, to have been caused in whole
or in part by Lessee, then Lessee shall be required to return
the proportionate amount of the Rail Services Liquidated
Damages described hereinafter.
(A) For purposes of this Lease only, measurement of
the required performance shall be for a measurement
period which will encompass the previous fourteen (14)
consecutive calendar days measured from the end of each
Friday and will be calculated on the basis of the total
activities under Rail Services Standards requirements
over each such 14 day period.
(B) The parties agree that in the event that the Rail
Services Standards as measured in subparagraph (A)
above (i) falls below eighty-five percent (85%) on any
Friday; and (ii) the previous Friday performance has
fallen below ninety-five percent (95%), then the Port
shall pay to Lessee the TEF for every container subject
to the TEF for the prior seven days.
(C) In addition to the liquidated damages contained in
subparagraph (B) above, Lessee shall be entitled to an
amount equal to the Port's share of the Facility Charge
for each week that the liquidated damages contemplated
in subparagraph (B) above are due, and Lessee shall be
entitled to withhold the Port's share of the Facility
Charge in satisfaction of this payment.
(D) The 85% performance level referenced in
subparagraph (B) above shall be raised to ninety
percent (90%) five (5) years after the commencement of
operations of the Intermodal Loading Yard.
(E) The parties agree to discuss possible
modifications to the application of required
performance levels and/or the monetary consequences
described above when requested by either party.
(vii) PROHIBITION ON AMENDMENT OR ASSIGNMENT OF EXHIBIT I AND
LESSEE'S AGREEMENT TO BE BOUND.
The Port shall not amend, modify, or permit any assignment of
its rights or the BN's rights of Exhibit I without the prior
written consent of Lessee. Provided, however, this subsection
shall not apply to Section 3, subparagraph (m)(v)(C) above.
Lessee acknowledges and agrees to be bound by the terms of
Sections A(2), C, D, E(1), F, G, H, I(2), J, K, L, N and O of
Exhibit I (and any related exhibits thereto).
SECTION 4. A new subparagraph (e) is hereby added to paragraph 2 (TERM) of
the Lease:
(e) Notwithstanding anything herein to the contrary, upon the
occurrence of Total Facility Completion of the Expansion Premises, the
Lease Term shall be extended so that it shall be 30 years from the
date of Total Facility Completion of the Expansion Premises (exclusive
of completion of the Fourth Berth, whether Lessee has exercised its
option with respect to the Fourth Berth or not). Such 30-year
extension shall apply coterminously to the Original Premises and the
Expansion Premises so that the term for both shall run concurrently
and expire on the same date.
SECTION 5. The following language shall be added to the end of subparagraph
(d) of paragraph 3 of the Basic Lease:
"Lessee shall also give to the Port on a monthly basis (or if not
available monthly, at other reasonable intervals) such other
additional information in a form reasonably acceptable to the Port
related to Lessee's activities at the Intermodal Loading Yard
(including but not limited to rail volumes) which enables the Port to
verify the accuracy of the related obligations imposed on or by the
parties under the terms of this Lease. The Port has the right to
conduct an audit of such data and Lessee shall cooperate and make
available to the Port all reasonable information to assist the Port in
such audit."
SECTION 6. A new subparagraph (i) is added to paragraph 3 (RENT) of the
Lease. Lessee shall pay such rents and charges described herein on a monthly
basis at the Port's address in advance on or before the first day of each
month, in the amounts set forth in Exhibit C to the Fifth Amendment (Rev. 1-3-
92) and in Exhibit F, Part I of this Amendment:
(i) RENT UNDER SIXTH AMENDMENT
(a) ORIGINAL PREMISES.
Unless otherwise modified specifically herein, the rent and
amortizations for the Original Premises as described in the
Basic Lease through the Fifth Amendment shall continue as
described therein. The Original Land and Improvements Rent
shown in Section 3(a) of the Basic Lease, shall be increased by
34.61%, effective January 1, 2016, and be increased by 34.61 %
every 60 months thereafter for the remainder of the term of
this Lease.
(b) EXPANSION PREMISES.
Lessee shall pay the following items pursuant to the terms of
this Sixth Amendment:
(1) Basic Land and Improvements Rent for the Expansion
Premises (per Exhibit F, Part I);
(2) Special Improvements Rent;
(3) IY Crane rental (per Section 2, (e)(iii)(A));
(4) Rent on new container cranes purchased by the Port
(per Section 2, (e)(iii)(B)(1));
(5) Costs for raising container cranes (per Section 2,
(e)(iii)(B)(2));
(6) IY Lift Fee for third parties collected by Lessee
(per Section 5, (i) (d);
(7) Rent for Off-Premises Temporary Container Yard
Area(per Section 3,(f)).
Basic Land and Improvements Rent for the Expansion Premises
shall increase by 34.61% every five years with the first
increase occurring January 1, 1998.
(c)IY FACILITY CHARGE
(1) GENERAL.
Lessee and the Port have agreed that the IY Facility
Charge will be assessed by Lessee and shall be as
described hereinafter. Lessee and the Port will share
equally in the IY Facility Charges received. Any such
IY Facility Charge may become an item in the Port's
Tariff; provided however, it is understood and agreed
this Lease contains all charges that Lessee and any
party using or serving the Premises are obligated to
pay during the term of this Lease and the Port shall
not have the right to unilaterally impose any
additional charges or tariffs of any kind relating to
the Premises, against Lessee, any railroad serving the
Premises or any other party using or serving the
Premises (including, without limitation, Lessee's
customers, agents and Affiliates) without Lessee's
prior written consent. Provided however,
notwithstanding the foregoing, the Port shall have the
ability to assess any fees or charges to the extent
such charges or fees are imposed against the Premises
or Lessee's activities on the Premises pursuant to any
local (non-Port), State, or Federal law, ordinance,
regulation or rule and to the extent such charges or
fees will apply Port-wide to all other similarly
situated premises and activities.
(2) IY FACILITY CHARGE FOR APL CONTROLLED TRAINS.
(i)The IY Facility Charge assessed against
containers on APL Controlled Trains for the
annual periods commencing upon Facility
Component Completion of the IY Facilities
(unless earlier mutually agreed by the parties)
shall be:
Year 1:Nine Dollars ($9) per Intermodal
Lift;
Year 2:Twelve Dollars ($12) per
Intermodal Lift;
Year 3:Eighteen Dollars ($18) per
Intermodal Lift;
Years 4 and beyond: The IY Facility
Charge for the prior year plus an
adjustment factor (hereinafter the
"Adjustment Factor") equal to the lesser
of either: (i) fifty percent (50%) of
the Average Annual Compounded Change
("AACC") percentage, as defined
hereinafter, or (ii) an annual cap as
follows:
Years 4-9: 2.5%
Years 10-14: 3%
Years 15-19: 3.5%
Years 20 and beyond: 4%
The AACC shall be calculated at each
five year interval commencing the
beginning of the fourth year following
commencement of operations of the IY
Facilities and is derived by the
following mathematical formula: AACC =
100 x (( RCAF5/RCAF1) 1/5 - 1), where
"RCAF5" equals the then current RCAF (as
RCAF is defined hereinafter) and "RCAF1"
equals the RCAF in effect for the period
five years prior to RCAF5. "RCAF"
refers to the American Association of
Railroad's unadjusted Rail Cost
Adjustment Factor.
By way of example, assume Facility
Component Completion of the IY
Facilities occurs on January 1, 1996.
Further assume the RCAF as of December
31, 1993 is 100 and the RCAF as of
December 31, 1998 is 132. The first
year's (i.e. 1996) IY Facility Charge
shall be Nine Dollars and shall increase
annually as stated above. At
commencement of year four (i.e. 1/1/99)
the Adjustment Factor must be calculated
by determining 50% of AACC and comparing
it to the cap for the relevant time
period. The AACC for this example is
calculated as follows: 100 x ((
132/100)1/5 -1) = 5.7%. Fifty percent
of the AACC is 2.85% which exceeds the
relevant existing cap of 2.5%, resulting
in an Adjustment Factor of 2.5% for the
years 1999 through the end of 2003; at
which point the Adjustment Factor is
recalculated for the period commencing
January 1, 2004 through the end of 2008
based upon lesser of 50% of the
recalculated AACC and the then relevant
cap of 3%.
(ii) In the event the Port and BN agree to use
an index or indices in Exhibit I-7 to Exhibit I
hereto other than the RCAF index to escalate the
MOF and/or the TEF (as those terms are defined
in Section 3, subparagraph (m)(v) of this
Lease), Lessee, at Lessee's option, may switch
from the RCAF to any such index to apply to the
Facility Charge escalation in accordance with
the terms described herein at any time during
the term of this Lease upon thirty (30) days
prior written notice to the Port.
(3) IY FACILITY CHARGE FOR OTHER THAN APL CONTROLLED
TRAINS.
Lessee and Port agree that it is the intent of the
Lessee to maximize the use of the IY Facilities by
providing on-dock rail intermodal services to all
customers including those not utilizing APL Controlled
Trains. Additionally, the parties agree that the IY
Facility Charge assessed by Lessee against containers
on other than APL Controlled Trains will be set at the
usual and customary level for such charges, but in no
event will that charge be less than that established
under paragraph (2) above unless mutually agreed in
writing by the Port's Managing Director of the Marine
Division and APL's authorized representative.
(4) ANNUAL MINIMUM GUARANTEE VOLUME FOR INTERMODAL
LIFTS
Lessee agrees to guarantee each year a minimum number
of Intermodal Lifts in accordance with the following
conditions:
(i) The annual minimum guarantee volume for the
term of this Lease (and any extensions thereto)
shall be the highest volume of all APL owned or
leased intermodal containers, excluding domestic
intermodal containers, which have passed through
any intermodal rail yard in Seattle during any
twelve (12) consecutive month period following
execution of this Amendment and prior to the
earlier of Facility Component Completion of the
IY Facilities or commencement of operations at
the IY Facilities. For purposes of this
subsection 4(i) only, "domestic intermodal
containers" shall mean all loaded intermodal
containers, the loads of which originate and
reach final destination within the United
States.
(ii) Application of the annual minimum
guarantee volume shall commence on the first day
of the calendar year following the earlier of
Facility Component Completion of the Intermodal
Yard Facilities or commencement of operations at
the IY Facilities. Volumes counted to satisfy
the annual minimum guarantee volume will include
all Intermodal Lifts handled at T-5 during each
such calendar year.
(iii) If such annual minimum guarantee volume
is not achieved in any calendar year, Lessee
shall pay to the Port 50% of the Port's share of
the IY Facility Charge on the difference between
the actual volume of all Intermodal Lifts and
the annual minimum guarantee volume for that
year.
(d) INTERMODAL LIFT FEE.
Lessee shall pay the Port a portion of the Intermodal Lift Fee
as calculated hereinafter, accruing upon Facility Component
Completion of the IY Facilities. The portion of the Intermodal
Lift Fee due to the Port shall be calculated by multiplying the
actual Intermodal Lift Fee charged by Lessee times the "Third
Party Percentage Share" as that term is used hereinafter.
During the first year such amounts are owed, it shall be due
and payable to the Port 30 days following computation of the
initial Third Party Percentage Share. During subsequent years
such amounts owed shall be due and payable on a monthly basis.
"Third Party Percentage Share" shall mean the percentage
calculated by dividing the Port's annual share of IY Crane
costs charged by the manufacturer plus the Port's direct
administrative and engineering costs and permitting,
certification costs and sales tax (which is derived by
amortizing such costs at 9.25% per year for 14 years), by the
total annual cost of loading and unloading containers at the
Intermodal Loading Yard. Such total annual costs include but
are not limited to Lessee's share of all IY Crane costs charged
by the manufacturer plus direct administrative and engineering
costs, and permitting, certification costs and sales tax; and
the Port's share of any IY Crane costs charged by the
manufacturer plus the Port's direct administrative and
engineering costs and permitting, certification costs and sales
tax, as described herein, and maintenance, fuel, labor and
overhead directly related to the Intermodal Lift portion of the
operation of the Intermodal Loading Yard. The initial Third
Party Percentage Share shall be based on actual costs incurred
during the one year period following Facility Component
Completion of the IY Facilities. The resulting initial Third
Party Percentage Share shall apply for activity occurring
during the first three year period following the completion of
the IY Facilities. The Third Party Percentage Share shall be
recalculated every three years following Facility Component
Completion of the IY Facilities thereafter, using actual cost
experience in the third, sixth, ninth, twelfth years etc., for
application beginning during the fourth, seventh, tenth,
thirteenth years, etc., respectively.
SECTION 7. A new paragraph 41 is hereby added:
41. Environmental Standards:
(a) "Law or Regulation" as used herein shall mean any
environmentally related local, state or federal law,
regulation, ordinance or order (including without limitation
any final order of any court of competent jurisdiction), now or
hereafter in effect. "Hazardous Substances" as used herein
shall mean any substance or material defined or designated as a
hazardous waste, toxic substance, or other pollutant or
contaminant, by Law or Regulation.
(b) Lessee shall not allow any Hazardous Substances to migrate
off the Premises, or the release from the Premises of any
Hazardous Substances into adjacent surface waters, soils,
underground waters or air. Lessee shall provide the Port with
Lessee's USEPA Waste Generator Number, Generator Annual
Dangerous Waste Reports (if any), environmentally related
regulatory permits or approvals (including revisions or
renewals) and any correspondence Lessee receives from, or
provides to, any governmental unit or agency in connection with
Lessee's handling of Hazardous Substances or the presence, or
possible presence, of any Hazardous Substance on the Premises.
Notwithstanding anything in this Lease to the contrary, the
parties acknowledge that all or a portion of the Expansion
Premises contains Hazardous Substances and a portion is or will
be classified as a federal Superfund site. Notwithstanding
anything in this Lease to the contrary, the Port shall be
responsible at its cost for the cleanup and removal of all such
Hazardous Substances, and will remain responsible under this
Lease with respect to any and all such Hazardous Substances
remaining after Lessee takes possession of the Expansion
Premises. The Port shall bear the burden of proof to establish
that any such Hazardous Substances were not existing prior to
Lessee's occupancy. The Port shall supply Lessee with all
environmental reports, surveys, audits and other similar data
relating to the Expansion Premises.
(c) If either party causes a release on the Premises, or is in
violation of any Law or Regulation concerning the presence or
use of Hazardous Substances in connection with the Premises,
that party shall promptly take such action as is necessary for
cleanup and restoration of the Premises and to mitigate and
correct the violation. If such party does not commence or
diligently pursue appropriate actions to cleanup and restore
the Premises and mitigate and correct the violation in a manner
consistent with applicable law, then after 5 Business Days'
prior written notice to such party, the other party shall have
the right, but not the obligation, to enter onto the Premises,
and to take such actions as are necessary to cleanup and
restore the Premises and ensure compliance or mitigate the
violation in accordance with applicable law. All reasonable
costs and expenses incurred in connection with any such actions
shall become immediately due and payable by the party
responsible therefore.
(d) The Port shall have access to the Premises to conduct an
annual environmental inspection. In addition, Lessee shall
permit the Port access to the Premises at any time upon
reasonable notice for the purpose of conducting environmental
testing at the Port's expense. Lessee shall not conduct or
permit others to conduct environmental testing on the Premises
without first obtaining the Port's written consent, which
consent shall not be unreasonably withheld. The Port shall
promptly inform Lessee of the existence of any environmental
study, evaluation, investigation or results of any
environmental testing conducted on the Premises, and the Port
shall provide copies to Lessee. Lessee shall promptly inform
the Port of the existence of any environmental study,
evaluation, investigation or results of any environmental
testing conducted on the Premises whenever the same becomes
known to Lessee, and Lessee shall provide copies to the Port.
(e) Prior to vacation of the Premises, in addition to all
other requirements under this Lease, Lessee shall remove any
Hazardous Substances placed on the Premises by Lessee (or its
invitees, agents, contractors, employees or Affiliates) during
the term of this Lease or Lessee's possession of the premises,
and shall effect such removal in accordance with applicable
law. This removal shall be a condition precedent to the Port's
payment of any Lease Security to Lessee upon termination or
expiration of this Lease .
(f) No remedy provided herein shall be deemed exclusive.
(g) In addition to all other indemnities provided in this
Lease, Lessee agrees to defend, indemnify and hold the Port
free and harmless from any and all claims, causes of action,
regulatory demands, liabilities, fines, penalties, losses, and
expenses, including without limitation cleanup or other
remedial costs (and including attorneys' fees, costs and all
other reasonable litigation expenses when incurred and whether
incurred in defense of actual litigation or in reasonable
anticipation of litigation), arising from the release by Lessee
(or its invitees, agents, contractors, employees or Affiliates)
of any Hazardous Substance on the Premises, or the migration of
any Hazardous Substances released by Lessee (or its invitees,
agents, contractors, employees or Affiliates) from the Premises
to other properties or into the surrounding environment,
whether (i) made, commenced or incurred during the term of this
Lease, or (ii) made, commenced or incurred after the expiration
or termination of this Lease if arising out of events occurring
during the term of this Lease.
SECTION 8. Paragraph 28 of the Basic Lease is hereby amended to renumber the
first subparagraph as "(a)" and to add the following new subparagraph "(b)" at
the end thereof:
(b) With respect only to issues arising out of, or relating to the
improvements and facilities required by this Amendment No. 6 to this
Basic Lease, the parties intend to resolve any disputes by the
arbitration procedure specified hereinafter. Said arbitration shall
be binding and shall only apply to those provisions of the Amendment
which specify the use of this arbitration provision; provided,
however, that any party may seek prohibitory injunctive relief without
first submitting a controversy to arbitration. Either party may
request a meeting to be attended by the other parties for the purpose
of resolving any such dispute. Said meeting must be held, either by
telephone or in person, within five Business Days of receipt of
written notice following said meeting. If the matter is not resolved
at such meeting, or the meeting is not held, either party may make a
written demand to resolve such dispute by arbitration. The parties
hereby shall mutually agree to designate a single arbiter (the
"designated arbitrator") within 60 calendar days after signing this
Amendment, as the arbitrator to decide all matters subject to
arbitration under this Section 28(b); provided, however, that if the
parties do not appoint a single arbiter, or if the designated
arbitrator is unable or unwilling to act as arbitrator for the matter
then submitted to arbitration, then the following provisions shall
apply with respect to the selection and decision of substitute
arbitrators:
(1) Within ten (l0) calendar days from the date of receipt of
a written request for arbitration, each party shall select an
arbitrator. If either party fails to select an arbitrator,
then an arbitrator shall be appointed by the Presiding Judge of
the King County Superior Court, King County, Washington, at the
request of either party;
(2) If the parties are unable to agree to a resolution of
their dispute within five (5) calendar days after the last
arbitrator is selected, an additional arbitrator shall be
selected by the designated arbitrators;
(3) If such arbitrators are unable to select such an
arbitrator, such arbitrator shall be appointed by the Presiding
Judge of the King County Superior Court, King County,
Washington, at the request of either party;
(4) The selection and appointment of all arbitrators shall be
in writing and shall be delivered to the other party. The
arbitrators shall have substantial experience in the subject
matter of the arbitration; and
(5) Within ten (l0) days from the appointment of all three
arbitrators, all arbitrators shall meet or otherwise confer as
they deem necessary to resolve the dispute. The arbitrators
shall resolve the dispute and all questions pertaining thereto
as soon as possible and in any event within twenty (20) days
from the date of selection of the third arbitrator. A majority
decision of the arbitrators shall be final and binding upon the
parties. For arbitration matters submitted to a single
designated arbitrator mutually agreed to by the parties as
specified above, the designated arbitrator shall resolve the
dispute and all questions pertaining thereto as soon as
possible, and in any event within twenty (20) days from the
date of the written request for arbitration. A decision by the
designated arbitrator shall be final and binding upon the
parties.
The decision of either the designated arbitrator or panel of three
arbitrators shall be written and signed by the designated arbitrator
or, as applicable, all arbitrators concurring therein and shall be
served on each party in the manner provided in Section 32 of the Basic
Lease. The decision of the designated arbitrator or panel of three
arbitrators may be entered as a judgment in a court of competent
jurisdiction.
All arbitration conducted under this Section shall be in accordance
with the rules of the American Arbitration Association, to the extent
such rules do not conflict with the procedures herein set forth. Each
party shall bear its own expense except that relating to the selection
and services of the additional arbitrator, if necessary (or single
arbitrator when agreed to by the parties), which shall be borne
equally by the parties. The arbitrator or panel of arbitrators may
award costs in its discretion.
SECTION 9. Subparagraph (h) of paragraph 3 (RENT) of the Basic Lease (as
previously stated in the Fifth Amendment) is hereby deleted in its entirety
and replaced with the following:
"3(h)With the addition of the sixth container crane, owned by APL and
placed on the Premises in 1992, and the resulting increased intensity
of use on the apron area, Lessee will be charged a monthly land rent
on the aprons in addition to the rent specified in paragraph 3(a) of
the Basic Lease as amended. Said additional rent shall be $24,619.84
per month over a five-year period, commencing December 1, 1992."
SECTION 10. EXHIBITS.
Exhibit "A-6" (Premises exhibit) is attached hereto and incorporated herein,
superseding Exhibits "A" and "A-3." Exhibits "F", "G", "H" and "I" are
attached hereto and incorporated herein.
SECTION 11. Subparagraph (e) is hereby added to paragraph 4 (BOND OR OTHER
SECURITY) of the Basic Lease, as amended:
(e) For the Expansion Premises, Lessee shall promptly furnish in form
satisfactory to the Port evidence indicating (a) the consent of surety
on Lessee's lease bond to all provisions of this Amendment, plus (b)
an increase of the following surety amounts for the following items:
Basic Land and Improvements Rent on 6 months' Basic Land and
Expansion Premises and Option Premises (if Improvements Rent
exercised) upon Facility Component
Completion
Intermodal Loading Yard 6 months' Special
Improvements Rent
Maintenance and Repair Facility upon 6 months' Special
Improvements Rent
Facility Component Completion
Demolition of existing gatehouse and Outstanding Balance
Facility Component Completion of Gatehouse
and Entry
Overpass upon Facility Component Completion 6 months' Special
Improvements Rent
Intermodal Yard Cranes:
If not Fixed Overhead 50% of Outstanding Balance
System
If Fixed Overhead System To Be Negotiated But in no
event less than 50% of
Outstanding Balance
SECTION 12. A new subparagraph (d) shall be added to the end of paragraph 8
of the Basic Lease as follows: "Lessee shall have the benefit of any and every
warranty or guaranty of performance accruing to the Port (whether directly or
indirectly), which is related to or arises out of the construction of any
Facility Component. The Port shall cooperate with Lessee by promptly
processing any such claims. Lessee shall take no action or conduct itself in
any way which would have the effect of voiding any such warranty, provided,
however, with the consent of the Port, which shall not be unreasonably
withheld, Lessee may take action to repair or restore any Facility Component
which has failed in service to normal condition during the pendency of any
warranty claims.
SECTION 13.
Paragraph 20 of the Basic Lease is hereby amended by adding the following new
subparagraph (b)(3) to the end thereof:
(3) The then principal balance equal to Lessee's remaining
unamortized Special Improvements costs provided for in Exhibit F.
SECTION 14. MISCELLANEOUS.
Except as expressly amended herein, all provisions of the Basic Lease (as
previously amended) shall remain in full force and effect and this Amendment
is incorporated by reference into the Basic Lease, as previously amended. If
there are any conflicts between the Basic Lease and this Amendment, then the
terms of this Amendment shall prevail. The table of contents and titles of
the sections of this Amendment shall not be deemed to be a part of this
Amendment and shall not affect the meaning or construction of this Amendment
or any of its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Sixth Amendment as
of the day and year first above written.
PORT OF SEATTLE
By:/s/ M.R. Diasmore
Executive Director
ATTEST:
By: /s/ Thomas H. Tanaka
Senior Port Counsel
AMERICAN PRESIDENT LINES, LTD.
By:/s/ John G. Burgess
John G. Burgess
Executive Vice President
ATTEST:
By:/s/ Carl D. Rubin
Carl M. Rubin
Assistant Secretary
EAGLE MARINE SERVICES, LTD.
By:/s/ Ronald D. Widdows
Ronald D. Widdows
Executive Vice President and General Manager
Attest:
By:/s/ Carl M. Rubin
Carl M. Rubin
Asst. Secretary
ACKNOWLEDGMENT FOR PORT OF SEATTLE
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that M.R. DINSMORE is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated thst he was authorized to execute the
instrument and acknowledged it as the Executive Director of the Port of
Seattle to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated this 31st day of May, 1994.
/s/Thomas H. Tanaka
Thomas H. Tanaka
Notary Public in and for
the
State of Washington,
residing at Bellevue.
My appointment expires
11/1/96.
(ACKNOWLEDGMENT FOR EAGLE MARINE SERVICES, LTD.)
STATE OF California )
) ss.
COUNTY OF Alameda)
On this 2nd day of May, 1994 before me personally appeared Ronald D.
Widdows, personally known and who proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed same in his authorized capacity as
Executive Vice President and General Manager of Eagle Marine Services, Ltd.,
and that by his signature on the instrument the person or entity upon behalf
of which the person acted, executed this Sixth Amendment to Lease. That said
person executed the within and foregoing instrument, and acknowledged said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ Rita C. Kerwin
(SEAL) Notary Public in and for the
State of California,
residing at Oakland,
California.
My appointment expires
8/27/97.
(ACKNOWLEDGMENT FOR AMERICAN PRESIDENT LINES, LTD.)
STATE OF CALIFORNIA)
)SS.
COUNTY OF ALAMEDA)
On this 31st day of May, 1994 before me, Rita C. Kerwin, personally
appeared John G. Burgess, personally known and who proved to me on the basis
of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed same in his
authorized capacity as Executive Vice President of American President Lines,
Ltd., and that by his signature on the instrument the person or entity upon
behalf of which the person acted, executed this Sixth Amendment to Lease.
That said person executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal the day and year first above written.
(SEAL) /s/ Rita C. Kerwin
Notary Public
--
AMENDMENT NUMBER ONE TO THE EXCESS-BENEFIT PLAN
OF AMERICAN PRESIDENT COMPANIES, LTD.
Pursuant to the power reserved in Section 6 of the Excess-Benefit
Plan of American President Companies, Ltd., as established effective
September 1, 1983 and as most recently amended and restated effective
January 1, 1993 (the "Plan"), the Company hereby amends Section 2 of the
Plan to read as follows effective as of May 31, 1994:
Section 2. Eligibility and Participation
Participation in the Plan shall be limited to the following:
(a) Any Participant in the Thrift Plan prior to June 1,
1994 who participated in this Plan for periods prior to 1989;
(b) Any Participant in the Retirement Plan whose benefits
under the Retirement Plan (determined as if the Participant
terminated employment on May 31, 1994) are affected by the
limitations imposed under section 401(a)(17) or 415 of the Code;
(c) Any Participant in the Retirement Plan whose benefits
under the Retirement Plan (determined as if the Participant
terminated employment on May 31, 1994) are affected by the Code's
requirement that
salaries or bonuses deferred under the Deferred
Compensation Plan cannot be taken into account in computing such
benefits; and
(d) Any Participant in the Retirement Plan (i) whose
benefits under the Retirement Plan, determined at the earlier of
retirement or as if the Participant had terminated employment on
May 31, 1994, are lower than the benefits he or she would have
received, absent the modification of the Retirement Plan's
benefit formula that was adopted effective June 1, 1989, had he
or she terminated employment and (ii) whose "average annual
compensation" under the Retirement Plan equals or exceeds
$125,000 at any time after May 31, 1989. On June 1 of each year,
starting with June 1, 1990, the $125,000 amount set forth in the
preceding sentence shall be adjusted for inflation by multiplying
it by a fraction. The numerator of the fraction shall be the CPI-
W for U.S. Cities on the immediately preceding February 1, and
the denominator of such fraction shall be the CPI-W for U.S.
Cities on February 1, 1989.
To record the amendment of the Plan, the Company has caused its
duly authorized officer to affix the Corporate name hereto.
AMERICAN PRESIDENT
COMPANIES, LTD.
By /s/ Maryellen B. Cattani
Its Sr. Vice President,
General Counsel and
Secretary
