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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 10, 1995
THE NORTH CAROLINA RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation)
0-15768 56-6003280
(Commission File Number) (IRS Employer Identification No.)
234 Fayetteville Street Mall, Suite 600
P. O. Box 2248
Raleigh, North Carolina 27602
(Address of principal executive offices) (Zip Code)
(919) 829-7355
(Registrant's telephone number, including area code)
This document contains 32 pages.
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Item 5. Other Events
On August 10, 1995, the Board of Directors of the Registrant
approved a Lease Extension Agreement in the form attached as an exhibit
hereto (the "Lease Extension"). The Lease Extension will extend the
terms of (i) the lease dated August 16, 1895 between the Registrant and
Norfolk Southern Railway Company, formerly known as Southern Railway
Company ("NSR"), as amended and supplemented thereafter (the "1895
Lease") and (ii) the lease dated August 30, 1939, as amended and
supplemented thereafter, between Atlantic and North Carolina Railroad
Company (merged into the Registrant in 1989) and Atlantic and East
Carolina Railway Company, a wholly owned subsidiary of NSR ("AECR") (the
"1939 Lease").
The 1895 Lease and the 1939 Lease are collectively referred to
hereinafter as the "Leases". NSR and AECR are hereinafter referred to
as "Norfolk Southern."
It is expected that all required corporate approvals of the Lease
Extension by Norfolk Southern will be obtained before the end of August,
at which time the Lease Extension will be executed and delivered into
escrow. The Lease Extension will not be effective until certain
conditions occur, but upon the occurrence of such conditions
effectiveness shall be retroactive to January 1, 1995. Conditions to
effectiveness include (i) approval or exemption from approval from the
Interstate Commerce Commission and any successor entity, (ii) obtaining
all required governmental and corporate approvals and (iii) the
expiration or termination of any existing court-ordered injunctions (of
which currently there are none). The interim agreement whereby Norfolk
Southern is continuing to operate over the properties of the Registrant
upon expiration of the Leases as of the end of 1994 is expected to
continue until the Lease Extension becomes effective.
The Registrant is required by North Carolina law to obtain
approval of (i) the shareholders of the Registrant and (ii) the Governor
and the Council of State of the State of North Carolina, before the
Lease Extension can be effective. The Registrant intends to hold a
meeting of its shareholders as soon as practicable to consider approval
of the Lease Extension. The timing of that meeting will depend upon the
time it requires for the Registrant to comply with applicable proxy
solicitation rules, but the Registrant believes a shareholders' meeting
can be held near the end of the fourth quarter of this year.
Four shareholder derivative legal actions were filed following
public announcement during November of 1994 of tentative agreement by
the Registrant and Norfolk Southern on several terms of the Lease
Extension. These legal actions seek to enjoin the Lease Extension. In
addition, one or more shareholders of the Registrant have indicated
their intention to organize a boycott of the shareholders' meeting to be
called to approve the Lease Extension.
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The bylaws of the Registrant provide that, in order to constitute
a quorum for a shareholders' meeting, the presence at the meeting,
either in person or by proxy, of the holders of a majority of the
shares of stock of the Registrant is required, excluding for this
calculation shares of stock of the Registrant owned by the State
of North Carolina. If the threatened boycott results in fewer
than a majority of the shares other than the State attending the
meeting, no vote can be taken to approve the Lease Extension.
Consequently, there can be no assurance that the Lease Extension
will ever become effective.
Set forth below is a summary of some of the material terms of the
Lease Extension, which summary should be read in conjunction with the
complete terms of the Lease Extension, a copy of which is included as an
exhibit hereto and is incorporated herein in its entirety.
(1) The base annual rental under the Lease Extension is eight
million dollars ($8,000,000) for the period from January 1,
1995 through December 31, 1995. Following effectiveness of
the Lease Extension Norfolk Southern will pay the Registrant
the amount by which (i) annual accrued rental payments ($8
million during 1995), plus interest at the 90-day U. S.
Treasury bill rate for the period commencing January 1, 1995
and ending on the date Norfolk Southern pays, exceeds (ii)
the amounts paid to the Registrant by Norfolk Southern for
use of the Registrant's property for the period between
December 31, 1994 and the effective date of the Lease
Extension.
(2) Annual base rent for 1996 and each year thereafter will be
adjusted each year to account for inflation during the
preceding calendar year according to the implicit price
deflator for the gross domestic product (IPD-GDP); however,
in no event, shall the base annual rental for any calendar
year be less than eight million dollars ($8,000,000) and the
base rent adjustment in any year cannot exceed the sum of:
(i) four (4%) percent of the base rent for the preceding
year, plus (ii) seventy-five (75%) percent of the inflation
factor in excess of four (4%) percent.
(3) The Leases are extended for an additional term of thirty
(30) years, through December 31, 2024 and are extendable for
an additional twenty (20) years at the option of Norfolk
Southern. Exercise of the twenty-year extension option
requires that Norfolk Southern pay an option fee equal the
lesser of (i) twenty-five (25%) percent of the base rent in
effect during the year prior to Norfolk Southern giving
notice to exercise its extension option or (ii) $5 million.
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(4) Norfolk Southern will make a one-time payment to the
Registrant of five million dollars ($5,000,000) in exchange
for the Registrant's release of Norfolk Southern from its
obligation to return to the Registrant certain personal
property upon expiration of the Leases.
(5) Approximately 317 miles of railroad property (including the
uniform railroad right of way and certain improvements, yard
areas, and other structures situated adjacent to, under or
along the lines) located between Morehead City and
Charlotte, North Carolina, are covered by the Lease
Extension. The Registrant has the right, however, to have
certain properties outside the uniform right-of-way not used
in operating a railroad released from the Leases. Norfolk
Southern's rental payments will not be reduced if the
Registrant exercises this right. This right will continue
for a period of two years after the effective date of the
Lease Extension. The Registrant intends to exercise its
right to have released from the Leases those properties it
determines have income-generating potential in excess of
projected expenses. The Registrant estimates that such
properties are producing less than $100,000 of lease income
annually.
(6) Norfolk Southern is required to pay to the Registrant
seventy-five (75%) of any revenues (in excess of de minimus
amounts) obtained by Norfolk Southern for longitudinal
leases and licenses granted by Norfolk Southern to third
parties for certain fiber optic or other uses.
(7) The Lease Extension contains extensive provisions governing
the rights and obligations of the parties for various
environmental liabilities and expenses.
(8) Norfolk Southern continues to have the obligation to
maintain the leased railroad lines and facilities, to
fulfill all railroad common carrier duties pertaining to the
leased railroad lines and to pay for all expenditures
related to the operation of the leased properties.
Except as modified or supplemented by the Lease Extension, the
terms of the Leases continue in force and effect. The Lease Extension
does not affect the lease dated December 31, 1968 (the "1968 Charlotte
Lease") between the Registrant and Norfolk Southern, which will continue
without change until its December 31, 2067 expiration date. The 1968
Charlotte Lease covers three parcels of land in Charlotte, North
Carolina, for which the Registrant receives $81,319 in rental payments
annually.
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Norfolk Southern beneficially owns 113,855 shares of the stock of
the Registrant, which represents an ownership interest of 2.7% of the
Registrant. Further, the Registrant owns approximately 9.6% of the
outstanding common stock of the State University Railroad Company, the
majority of which is owned by Norfolk Southern.
On August 10, 1995 the Board of Directors of the Registrant also
voted to cause the Registrant to elect Real Estate Investment Trust
("REIT") status for income tax purposes. The REIT provisions of the
Internal Revenue Code generally allow a REIT to deduct distributions
paid to its stockholders. This deduction for distributions paid to
stockholders substantially eliminates the federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
stockholder level when distributed) that usually results from investment
in a corporation. The Registrant has received an opinion of counsel
that the Registrant will qualify as a REIT although the timing of the
REIT election may be affected by the receipt of the $5 million payment
under the Lease Extension. The Registrant will apply for a ruling from
the Internal Revenue Service that the receipt of the $5 million payment
under the Lease Extension will not prevent the Registrant from
qualifying as a REIT effective as of January 1 of the year of receipt of
such payment. If the ruling is not granted and the payment is received
in 1995, then the Registrant expects to qualify as a REIT effective as
of January 1, 1996. If the ruling is not granted and the payment is not
received in 1995, then the Registrant expects to qualify as a REIT
effective as of January 1 of the tax year following the year of receipt
of the payment.
Item 7. Financial Statements and Exhibits.
(c) (1) Lease Extension Agreement to be effective as of January
1, 1995, between the Registrant, Norfolk Southern Railway
Company and Atlantic and East Carolina Railway Company.
(2) Lease dated August 16, 1895 between the Registrant and
Southern Railway Company filed as Exhibit 3 (a) to the
Registrant's Form 10 filed with the Securities and
Exchange Commission on April 27, 1987, which is
incorporated by reference herein.
(3) Lease dated August 30, 1939 between the Atlantic and
North Carolina Railroad and Atlantic East Carolina
Railway Company filed as Exhibit 28 (h) to the
Registrant's Form S-4 filed with the Securities and
Exchange Commission on July 20, 1989, which is
incorporated by reference herein.
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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 hereunto duly authorized.
THE NORTH CAROLINA RAILROAD COMPANY
Date: August 18, 1995 By: /s/ J. Melville Broughton Jr.
Vice President and Director
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EXHIBIT INDEX
Exhibit No. Description
(c) (1) Lease Extension Agreement to be effective
as of January 1, 1995 between North Carolina
Railroad Company, Norfolk Southern Railway
Company and Atlantic and East Carolina
Railway Company.
(c) (2) Lease dated August 16, 1895 between the Registrant
and Southern Railway Company filed as Exhibit 3 (a)
to the Registrant's Form 10 filed with the
Securities and Exchange Commission on April 27,
1987, which is incorporated by reference herein.
(c) (3) Lease dated August 30, 1939 between the Atlantic and
North Carolina Railroad and Atlantic East
Carolina Railway Company filed as Exhibit 28 (h)
to the Registrant's Form S-4 filed with the
Securities and Exchange Commission on July 20,
1989, which is incorporated by reference herein.
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--Exhibit (c)(1)--
LEASE EXTENSION AGREEMENT
THIS LEASE EXTENSION AGREEMENT (hereinafter "Extension"), dated
the 1st day of January, 1995, by and among NORTH CAROLINA RAILROAD
COMPANY (hereinafter "Lessor"), a North Carolina corporation, NORFOLK
SOUTHERN RAILWAY COMPANY (hereinafter "NSR"), a Virginia corporation,
and ATLANTIC AND EAST CAROLINA RAILWAY COMPANY (hereinafter "A&EC"), a
North Carolina corporation (NSR and A&EC being sometimes referred to
collectively hereinafter as "Lessees").
WHEREAS, Lessor and Southern Railway Company (hereinafter
"Southern") entered into that lease dated August 16, 1895, a true copy
of which is attached hereto as Exhibit A and incorporated by reference
herein;
WHEREAS, Lessor and Southern entered into certain supplements or
amendments to the aforesaid 1895 lease agreement (the aforesaid 1895
lease agreement, as heretofore supplemented or amended, is referred to
hereinafter as "1895 Lease");
WHEREAS, Atlantic and North Carolina Railroad Company (hereinafter
"ANC"), as lessor, a North Carolina corporation, and A&EC, a wholly
owned subsidiary of NSR, as lessee, entered into that Lease and
Indenture dated August 30, 1939, a true copy of which is attached hereto
as Exhibit B and incorporated by reference herein;
WHEREAS, ANC and A&EC entered into certain supplements or
amendments to the aforesaid 1939 Lease and Indenture, the last of which
supplements provided A&EC the option to continue the aforesaid 1939
Lease and Indenture through the end of 1994, and that option was
properly exercised by registered mail notice, dated July 5, 1963,
received August 1, 1963 (the aforesaid 1939 Lease and Indenture, as
heretofore supplemented or amended, is referred to hereinafter as "1939
Lease");
WHEREAS, effective September 29, 1989, ANC was merged into Lessor;
WHEREAS, effective December 31, 1990, Southern changed its name to
Norfolk Southern Railway Company; and
WHEREAS, the Lessor, NSR and A&EC wish to provide herein for the
extension of the 1895 Lease and the extension of the 1939 Lease, upon
and subject to the terms, conditions and provisions hereinafter recited;
NOW THEREFORE, in consideration of the commitments and
undertakings recited below, the parties hereto do hereby covenant and
agree as follows:
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FIRST: TERM (LENGTH) OF EXTENSION AND RENEWAL. The aforesaid 1895
Lease, as herein supplemented, and the aforesaid 1939 Lease, as herein
supplemented, are each hereby extended for a further term of thirty (30)
years, through December 31, 2024. NSR and A&EC may extend for an
additional twenty (20) years the term of the 1895 Lease, as herein
supplemented, and the term of the 1939 Lease, as herein supplemented,
through December 31, 2044, by paying Lessor the lesser of (a) one fourth
of the Base Rental (as hereinafter defined) for the calendar year
preceding the notice, and (b) FIVE MILLION DOLLARS ($5,000,000) as
additional rent and serving written notice of such renewal upon Lessor,
said payment and written notice to be delivered to Lessor at least
twenty-four (24) months prior to January 1, 2025.
NSR and A&EC may exercise the above-stated options to renew only
if both NSR and A&EC exercise their respective options to renew.
As used in this Extension, "Leased Properties" shall mean the
properties which are: (i) included within the leaseholds as of December
31, 1994, under the 1895 Lease or under the 1939 Lease; or (ii) which
then or thereafter are or become additions to the properties leased
under the 1895 Lease, as herein supplemented, or under the 1939 Lease,
as herein supplemented; or (iii) which during any period of continued
use by NSR or A&EC of the premises leased from Lessor to the Lessees
following termination of the Extension and any renewal are the
properties or become additions to the properties which were leased under
the 1895 Lease, as herein supplemented, or are the properties or become
additions to the properties which were leased under the 1939 Lease, as
herein supplemented.
SECOND: BASE RENTAL. The total amount of the base annual rental
payable to Lessor under both of the leases herein extended (hereinafter
"Base Rental") for the period January 1, 1995 through December 31, 1995,
shall be EIGHT MILLION DOLLARS ($8,000,000). For each calendar year
thereafter, the Base Rental shall be adjusted as described in the
following formula, except that in no event shall the Base Rental be less
than EIGHT MILLION DOLLARS ($8,000,000), and in no event will any
increase or decrease in the Base Rental for any year exceed the sum of
(i) an amount equal to four percent (4%) of the Base Rental applicable
for the immediately preceding year as determined under the following
formula, and (ii) seventy-five percent (75%) of that amount of any
increase or decrease in Base Rental determined under said formula which
is in excess of the aforesaid four percent (4%) amount described in (i)
above:
Subject to the restrictions on increases in and
decreases of Base Rental set forth above in this
Article SECOND, for 1996 and subsequent calendar years
the Base Rental shall be an amount
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calculated by multiplying the prior year's Base Rental
by the "Factor", obtained by dividing the Implicit
Price Deflator for Gross Domestic Product ("IPD-GDP")
for the calendar year preceding the prior calendar
year by the IPD-GDP for the calendar year preceding
that calendar year. For any given calendar year, the
denominator of the fraction used to calculate the
Factor will be the same as the numerator of the
fraction used to calculate the immediately prior
year's Factor. The calculations of the Factor to be
applied to the immediately prior year's Base Rental
shall be carried out to five places to the right of
the decimal with the sixth place to the right of the
decimal rounded up if five or a higher number and
rounded down if four or a lower number. Presently,
IPD-GDP is developed by the United States Department
of Commerce, Bureau of Economic Analysis and is
reported in the publication Economic Indicators
prepared for the Joint Economic Committee by the
Council of Economic Advisors. The denominator of the
initial Factor will utilize the IPD-GDP for 1993, as
published in the July 1994 issue of Economic
Indicators, and the numerator of the initial Factor
will be the IPD-GDP for 1994, as published in the July
1995 issue of Economic Indicators.
If during the term of this Extension, including any renewal period, the
IPD-GDP is no longer published, the Lessor, NSR and A&EC will attempt in
good faith to agree upon a replacement index. If Lessor, NSR and A&EC
are unable to agree upon such replacement index, either party may apply
to any North Carolina Superior Court for the designation of a
replacement index.
Base Rental will be paid by NSR and/or A&EC to Lessor, without
set-off or reduction, in monthly installments not later than the 15th
day of each month. In the event of any late payment of a monthly
installment of Base Rental, NSR and/or A&EC will pay an additional
rental equal to an amount determined by: (i) multiplying the monthly
rental installment by 10%; (ii) dividing the result of that
multiplication by 365; and (iii) multiplying the result obtained in (ii)
by the number of days such monthly installment of Base Rental is
overdue. Further, if in any calendar year the Lessees (a) have failed
to pay timely a single monthly installment of Base Rental for that
calendar year within twenty (20) days of receipt of written notice from
Lessor that payment thereof is overdue; or (b) have failed for a second
time to pay timely a monthly installment of Base Rental for that
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calendar year and that overdue monthly installment is not paid within
ten (10) days of receipt of written notice from Lessor that payment
thereof is overdue; or (c) have failed for a third time or more times to
pay timely a monthly installment of Base Rental for that calendar year,
then, they will pay to Lessor, as additional rent, three (3) percent of
the amount of that overdue monthly installment of Base Rental.
Notwithstanding the preceding terms and provisions of this Article
SECOND, payment of any installment payment(s) of Base Rental hereunder
will be deferred until five (5) business days after: (i) all requisite
governmental and corporate approvals for this Extension have become
effective or have been satisfied; (ii) this Extension has been fully
executed and delivered; and (iii) any court orders enjoining the
implementation of this Extension have expired or are no longer in
effect. Base Rental payable from the period beginning January 1, 1995
shall be due five (5) business days after all corporate and governmental
approvals necessary for this Extension have become effective or have
been satisfied, and shall include, as additional rent, interest on each
monthly installment of Base Rental from the date it would have been due
had the obligation to commence payment of monthly installments of Base
Rental commenced January 1, 1995, to the date payment thereof is made,
with the interest rate for such initial payment of Base Rental being the
same as the interest rate set forth in Article THIRD hereof. Nothing in
this Article SECOND pertaining to or calling for the payment of interest
or additional rent for an overdue monthly payment of Base Rental shall
be construed to be a waiver or an acceptance by Lessor for such payment
to be overdue, and Lessor retains all rights it has for nonpayment or
late payment of rent.
THIRD: $5,000,000.00 PAYMENT. NSR, on its behalf and on behalf
of A&EC and for the consideration set forth hereinafter in this Article
THIRD, hereby promises to pay Lessor the sum of FIVE MILLION DOLLARS
($5,000,000), plus interest at the ninety (90) day U.S. Treasury bill
rate as of January 1, 1995. Said interest shall accrue from January 1,
1995 until the said FIVE MILLION DOLLARS ($5,000,000.00) is paid. Said
FIVE MILLION DOLLARS ($5,000,000.00) and the aforesaid interest thereon
shall be due within five (5) business days from the date: (i) all
requisite corporate and governmental approvals for this Extension have
become effective or have been satisfied; (ii) this Extension has been
fully executed and delivered; and (iii) any court orders enjoining the
implementation of this Extension have expired or are no longer in
effect. In consideration of said payment Lessor hereby agrees that each
and every obligation NSR or A&EC may have under the 1895 Lease or the
1939 Lease with respect to or in any manner connected with the use,
depreciation, maintenance, repair, renewal, replacement or return to
Lessor of locomotives, railroad cars, and those other items of personal
property which are not customarily located or used on the Leased
Properties during any part of at least ten months of any consecutive
twelve month
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period during the ten years preceding termination of this
Extension and any renewal is hereby deleted from the 1895 Lease
and from the 1939 Lease and will be of no further force or effect.
FOURTH: CONFIDENTIALITY AGREEMENT. Except as may be otherwise
agreed between Lessor and Lessees, all documents and records (the
"information") shared between the parties pursuant to this Extension
shall not be disclosed to third parties without first obtaining the
written consent of the party providing the information to another party
hereto. However, Lessor or Lessees may disclose the information to
third parties if the information is publicly available or if disclosure
is recommended or required under applicable laws, rules, or regulations,
including, without limitation, securities laws.
FIFTH: LESSOR NON-OPERATING PROPERTIES. Lessor, NSR and A&EC
hereby agree that the term "Current NCRR Non-Operating Properties" as
used herein means those properties owned by Lessor and described on
Exhibit C attached hereto and incorporated herein by reference. The
Current NCRR Non-Operating Properties may, at Lessor's option (to be
exercised by written notice to the Lessees within 24 months of the date:
(i) all requisite corporate and governmental approvals necessary for
this Extension have become effective or have been satisfied; (ii) this
Extension has been fully executed and delivered; and (iii) any court
orders enjoining the implementation of this Extension have expired or
are no longer in effect), be deleted from the leaseholds described in
the 1895 Lease, as herein supplemented, and from the 1939 Lease, as
herein supplemented, and to the extent that option is exercised, such
Current NCRR Non-Operating Properties at such time shall be released or
returned by the lessee to Lessor free and clear of the encumbrance of
these leases and any other interest of NSR, A&EC or any of their
affiliates, along with all rents received by NSR or A&EC for such
properties from January 1, 1995, after subtracting any property taxes
and normal maintenance paid or to be paid by NSR and/or A&EC applicable
to any period from and after January 1, 1995. Said Current NCRR Non-
Operating Properties shall be returned and/or released to Lessor free of
any railroad common carrier obligations. If after this Extension is
executed any additional non-operating outparcels (parcels not within the
railroad right-of-way or existing railroad yards) are identified which
are not used by the lessee thereof and said lessee of such outparcels
does not reasonably anticipate future use thereof for railroad purposes
by it or by a rail-served customer, then, upon written request of
Lessor, the lessee thereof will release such outparcels to Lessor in
accordance with the terms of this Article FIFTH. Also excluded from the
1895 Lease, as herein supplemented, is that property subject to an
agreement between NCRR and the Chatham Rail Road Company dated November
25, 1862 consisting of up to 100 feet in width of Lessor's right of way
between Boylan and Fetner, North Carolina.
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If CSX Transportation, Inc., or any of its affiliates, assignees,
or successors (referred to collectively herein as "CSX"), is permitted
use of tracks or railroad right-of-way between Boylan and Fetner, North
Carolina included in the Leased Properties, whether by sublease,
trackage rights, or other agreement or arrangement during the term of
this Extension and any renewal, NSR shall pay Lessor, as additional
annual rental (in addition to the Base Rental to be paid Lessor under
Article SECOND hereof) at the rate per annum of TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000.00) if such use occurs in 1995, and an amount
adjusted in accordance with the provisions in Article SECOND hereof for
any such use by CSX during any subsequent year, using TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000.00) as the base for such adjustment. Such
additional annual rental shall be payable by NSR, pro rata, 30 days
prior to any such use by CSX, if such use begins on a date other than on
January 1 of any year, and such annual rental shall be paid by NSR to
Lessor in monthly installments, in addition to and together with the
installments of Base Rental to be paid under Article SECOND hereof.
SIXTH: RIGHT TO POSSESSION. Subject to Lessor's rights of
inspection set forth in I(l) of Article FIFTEENTH hereof and
incorporated in II(g) of Article FIFTEENTH hereof and the inspection
provisions of Article EIGHTEENTH hereof, during the extensions provided
for hereinabove and any renewals thereof, NSR and A&EC shall each have
complete possession of and control over railroad operations over the
properties and lines of railroad leased to it by Lessor to the extent of
Lessor's interest therein, except as explicitly limited herein. During
the term of the Extension and any renewal thereof, NSR and A&EC shall
promptly and completely fulfill all railroad common carrier duties
pertaining to the leased lines, including any railroad common carrier
duties Lessor may have with respect to the leased lines.
SEVENTH: SUBLEASE AND DISCONTINUANCE. Subject to obtaining any
requisite governmental approvals or authorizations, from and after
January 1, 2003, NSR and A&EC may from time to time sublease (but may
not assign) to another railroad all or any part or parts of the leased
railroad lines lying easterly of the westerly corporate limits of
Raleigh, North Carolina, subject to the following restrictions:
1. Before effecting any such sublease, the holder of the
leasehold under the pertinent lease (NSR or A&EC) will
provide Lessor with at least 18 months' advance written
notice of its intent to effect a sublease;
2. Every such sublease will be made expressly subject to all
lease obligations of the lessee under the pertinent lease
which cover the segment so subleased;
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3. NSR and A&EC shall remain primarily liable to Lessor and
shall not in any respect be released from any obligation by
such sublease; and
4. The terms of any such sublease must not adversely affect the
Lessor's status as a real estate investment trust under
Sections 856 to 859 of the Internal Revenue Code of 1986, as
amended (or the corresponding provision of any future United
States Internal Revenue law), and related Treasury
Regulations and Rulings or similar provisions regarding real
estate investment trusts under state law (all of such
provisions being hereinafter referred to as the "REIT
Provisions").
After January 1, 2003, the rights of NSR and/or A&EC to effect a
discontinuance of service over any segments of the Raleigh-Morehead City
portion of the leased lines of railroad (between Mile Post 80.9 at
Boylan and Mile Post EC 94.25 at Morehead City) are subject to good-
faith negotiations among the parties hereto in the event material
development of rail-served industry fails to occur on the line segment
or segments over which service is proposed to be discontinued. It is
understood and agreed that any proposal for discontinuance of service
and/or any discontinuance of service by NSR or A&EC which will result in
a break in the continuity of the leased lines of railroad or in the
reversion to Lessor of any railroad common carrier obligation may be
unilaterally rejected by Lessor. Such segment proposed to be
discontinued must begin at the easterly terminus of the leased lines of
railroad, and the westerly terminus thereof must be at New Bern,
Goldsboro, Selma, Raleigh, or such other interchange point that connects
with another railroad. However, Lessor agrees to cooperate (at no cost
to Lessor) with NSR and/or A&EC by also seeking a discontinuance of
Lessor's common carrier obligations to provide railroad service over any
line segment over which NSR and/or A&EC wish to discontinue common
carrier railroad service, unless Lessor wishes to provide or contract
for the provision of common carrier railroad services over that line
segment. For the purposes of applying this provision, the phrase
"material development" shall mean the location of rail-served industries
along said Raleigh-Morehead City line affording NSR and A&EC a total of
not less than a net increase of 5,000 originating or terminating rail
carloads per year above the total number of originating or terminating
carloads on such line for calendar year 1993 on said line. In the event
of any discontinuance of service, it is understood and agreed that there
shall not be any abatement of rent and that upon request of Lessor, any
such segment shall be released, delivered, conveyed and/or returned by
Lessee to Lessor free from the terms of this Extension, the 1895 Lease,
as herein supplemented, and the 1939 Lease, as herein supplemented, and
of any other interests therein of NSR, A&EC or any of their affiliates.
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EIGHTH: LESSEE NON-OPERATING PROPERTIES. NSR shall have the
right to acquire, own and dispose of any non-operating properties, or
any rights or interests therein, which are located adjacent to or nearby
any of the properties included in the 1895 Lease, as herein
supplemented, free and clear of any claims or rights of Lessor, or of
any parties claiming under Lessor, under the 1895 Lease, as herein
supplemented. Likewise, A&EC shall have the right to acquire, own and
dispose of any non-operating properties, or any rights or interests
therein, located adjacent to or nearby any of the properties included in
the 1939 Lease, as herein supplemented, free and clear of any claims or
rights of the Lessor, or of any parties claiming under Lessor, under the
1939 Lease, as herein supplemented.
NINTH: CHARLOTTE SEGMENT. That portion of the "R" Line in
Charlotte, North Carolina which lies between the point of connection
between said "R" Line and CSX Transportation, Inc. near 12th Street and
the easterly line of Second Street (included as part of the leasehold of
the 1895 Lease, as herein supplemented) will be leased to NSR only until
such time as Lessor notifies NSR in writing that this leased line
segment is to be returned to Lessor; whereupon, NSR and Lessor will seek
discontinuance of any common carrier obligations imposed by federal and
state laws regulating the operation of a railroad (including, without
limitation, any Lessor residual common carrier obligation), and NSR will
thereupon execute and deliver to Lessor a release of its leasehold
interest in said leased line segment.
TENTH: OPERATING AND TRACKAGE RIGHTS AGREEMENTS. To the best
knowledge of NSR and A&EC after a diligent examination of their joint
facility records, all operating and trackage rights agreements with
other railroads affecting any of the leasehold properties included in
either of the leases hereby extended are listed in NSR's Schedule of
Operating and Trackage Rights, dated January 1, 1995, a copy of which
has been furnished to Lessor and is hereby made a part hereof by
reference. Upon request by Lessor, such agreements shall be made
available to Lessor at NSR's Archives in Atlanta, Georgia for review and
copying. Also, any leasehold or other interests in the leased lines
granted by NSR or A&EC based upon the leaseholds hereby extended are
subordinate to the rights of Lessor under the 1895 Lease as herein
supplemented, and the 1939 Lease, as herein supplemented, except to the
extent agreed to in writing by Lessor. NSR and A&EC shall promptly
notify Lessor of any future operating and trackage rights agreements
with other railroads which have or are expected to have a duration of
one (1) year or more affecting any of the leasehold properties and upon
request of Lessor such agreement(s) shall be made available to Lessor at
NSR's Archives in Atlanta, Georgia for review and copying. Upon
termination of this Extension and any renewal, NSR and A&EC will deliver
to NCRR a copy of all of their revenue division arrangements with other
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railroad common carriers pertaining to traffic originating or
terminating on the leased lines.
ELEVENTH: REIT COOPERATION. NSR and A&EC will cooperate fully
with Lessor in any application or effort of Lessor (1) to secure from
any lender or lenders a financing secured by the leases herein extended,
(2) to qualify Lessor as a real estate investment trust, or (3) to
qualify the leaseholds hereby extended as qualified real estate assets
or the income therefrom as qualifying rents for a real estate investment
trust as defined under the REIT provisions, provided, however, neither
NSR nor A&EC will be required to (1) subordinate any of its leasehold
rights to the rights of any such lender or lenders or to any such real
estate investment trust, or (2) agree to any modification of any of the
provisions of this Extension which in the reasonable opinion of the
Lessee affects a significant right or obligation of Lessee. NSR and/or
A&EC will upon request of Lessor execute an estoppel certificate
certifying, if true, that the Extension is in full force, that no
default by Lessor exists and the date through which rent has been paid.
TWELFTH: MAINTENANCE STANDARDS. NSR and A&EC each agrees to
maintain, repair and renew the railroad lines and railroad facilities
within their respective leaseholds under the 1895 Lease, as herein
supplemented, and under the 1939 Lease, as herein supplemented, in
accordance with the following standards:
1. Any lines over which regularly scheduled Amtrak passenger
trains are operating shall be maintained, repaired and
renewed so that said lines conform with any applicable
federal requirements and any governing contractual
provisions.
2. The balance of the lines within the scope of that leasehold
shall be maintained, repaired and renewed consistent with
Lessee's maintenance standards for similar lines, but not
less than current standards for: (a) Class 4 track standards
of the Federal Railroad Administration (hereinafter "FRA")
for the tracks between Mile Post 375.31 at Charlotte, North
Carolina (at the beginning of the freight main tracks
approximately ten (10) feet easterly of East 30th Street)
and Mile Post H-80.9 at Boylan Avenue in Raleigh, North
Carolina; (b) Class 3 track standards of the FRA for tracks
between Mile Post H-80.9 at Boylan Avenue in Raleigh, North
Carolina and Mile Post H-130.0 at Goldsboro, North Carolina;
and (c) Class 2 track standards of the FRA for tracks
between Mile Post EC-0.86 (Mile Post EC-0.86 = Mile Post H-
130.0) at Goldsboro, North Carolina and Mile Post EC- 94.25
at Morehead City, North Carolina.
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All other railroad facilities within their respective leaseholds
shall be maintained in a manner at least consistent with the current
maintenance standards for comparable facilities of NSR throughout its
system of railroad properties.
THIRTEENTH: RIGHT TO USE AND LICENSE OTHERS. NSR and A&EC may
each use the properties included in their respective leaseholds herein
extended for any lawful purpose, and subject to the provisions of
Article SEVENTH, each of them may also lease or license the same for any
lawful purpose for a term not to extend beyond the period the property
to be leased or licensed remains leased under this Extension and any
renewal thereof. NSR or A&EC, as the case may be, may retain all income
derived from any such leases or licenses, subject to the following
exceptions:
From annual or prepaid (lump sum) rentals paid to NSR or
A&EC (or any affiliate) under those longitudinal fiber optic
leases or licenses for a distance of five hundred (500) feet
or longer or which provide for an annual rental of FIVE
THOUSAND DOLLARS ($5,000) or more (or its equivalent one
time consideration), the holder of the affected leasehold
(NSR or A&EC) will be entitled to twenty-five percent (25%)
of such rentals received by the lessee, and the Lessor will
be entitled to seventy-five percent (75%) of such rentals
received by the lessee. All rentals paid to NSR or A&EC for
all other longitudinal leases or licenses having an annual
rental of FIVE THOUSAND DOLLARS ($5,000) or more (or its
equivalent one time consideration) will also be shared in
the same proportions set forth in this subparagraph.
Prepaid (lump sum) rentals in any such longitudinal leases
or licenses providing for a rental of FIVE THOUSAND DOLLARS
($5,000) or more per annum (or its equivalent one time
consideration) covering any of the last three years prior to
January 1, 1995 shall also be apportioned on the same basis,
pro rata, and paid as additional rent on or before the due
date of the initial Base Rental payment as set forth in
Article SECOND. However, in applying the terms and
provisions of the foregoing exceptions during any renewal of
the Extension, the FIVE THOUSAND DOLLARS ($5,000) amounts
will, in each instance, be increased at the beginning of
such renewal period by the same percentage Base Rental for
the first year of such renewal period exceeds the amount of
Base Rental for 1995.
The terms of any such sublease must not adversely affect the
Lessor's status as a real estate investment trust under Sections 856 to
859 of the Internal Revenue Code of 1986, as amended (or the
corresponding provision of any future United States Internal Revenue
law), and related Treasury Regulations and Rulings or
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similar provisions regarding real estate investment trusts under
state law.
NSR and A&EC will provide Lessor with a copy of all agreements
which become effective at any time from and after January 1, 1995, which
affect any of the Leased Properties and provide for: (i) State or local
government highway construction; (ii) leases and licenses having a
rental in excess of $5,000 per annum, except that said $5,000 amount
will be increased at the beginning of the 20 year renewal period
hereunder by the same percentage Base Rental for the first year of the
renewal period exceeds the amount of Base Rental for the first year of
the renewal period exceeds the amount of Base Rental applicable for
1995; (iii) industry siding construction agreements for railroad
construction costing in excess of $100,000; and (iv) leases and licenses
providing for rentals or charges which the lessee is to share with
Lessor as provided hereinabove in this Article THIRTEENTH (regardless of
effective date).
NSR and A&EC shall submit to Lessor by February 28, 1996 and by
February 28 of each year thereafter during the term and continuance of
the leases hereby extended, including any renewal thereof, a written
statement showing the amount and computation of all receipts from those
longitudinal leases or licenses generating rentals in which the Lessor
is to participate as provided in this Article THIRTEENTH. Such written
statement shall be transmitted by letter certifying that such statement
is correct and includes all such receipts in which the Lessor is to
share as aforesaid. Accompanying such statement will be payment to
Lessor, as additional rent, of its entire share of all such receipts
reported in that statement.
Anything in this Extension to the contrary notwithstanding, it is
agreed that Lessor shall in no event be deemed to be a partner or
engaged in a joint venture with, or an associate of NSR or A&EC, or of
any party associated with NSR or A&EC in the conduct of its business or
otherwise; nor shall Lessor be liable for any debts incurred by NSR or
A&EC in the conduct of its business. The relationship of Lessor to NSR
and of Lessor to A&EC, as established and ratified by this Extension, is
that of lessor and lessee only.
FOURTEENTH: AIR RIGHTS. Those air rights which were not released
from the 1895 Lease by Lease Agreement of December 31, 1968, between
Lessor and Southern, or which are not needed for railroad operations or
railroad structures and subsurface mineral rights are expressly reserved
to the Lessor, subject to the requirements of the holders of these
leaseholds for horizontal and vertical clearances needed for railroad
operations, for support for railroad facilities, and for avoidance of
any interference with railroad operations.
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Lessor agrees that any use, lease, license, disposition or
development of such air rights or mineral interests will be in
conformity with and shall not interfere with the railroad operations
conducted upon the premises included within the leaseholds hereby
extended. Also, Lessor will not enter into any use, lease, license,
disposition or development of any such air rights or mineral interests
without first obtaining the written consent of the holder of the
affected leasehold (NSR or A&EC) which said consent shall not be
unreasonably withheld.
FIFTEENTH: MODIFICATIONS TO EXISTING LEASES. I. Effective
January 1, 1995, the following modifications are hereby made in the
aforesaid lease agreement of August 16, 1895:
(a) Lines six through seventeen and "1995" on line eighteen on
page 4 are superseded by Article SECOND of this Extension.
(b) All provisions pertaining to the obligations to pay taxes of
any nature or type whatsoever are superseded by the terms
and provisions of Article TWENTY-FIRST hereof.
(c) As to the provisions of the last two lines on page 4, all
lines except the last three lines on page 5, and the words
"shall become due and payable:" on the thirty-second line on
page 5, the requirement that the party of the second part
keep moneys, bonds or securities on deposit are deleted.
Further, notices given by the Lessor to Lessee shall be
given according to the provisions of Article TWENTY-FIFTH of
this Extension.
(d) The word "Semi-annual" on the last two lines of page 5 are
hereby deleted.
(e) The last seven lines on page 5-1/2 and the words "And for" in
the twenty-seventh line on page 5-1/2 are hereby deleted.
(f) The words "engines, cars" are hereby deleted from: (i) the
tenth line on page 2-3, (ii) the first and second lines on
page 4, and (iii) the seventh, fourteenth and fifteenth
lines on page 5-1/2.
(g) After the word "lease" on the thirteenth line of page 5-1/2
insert the words "as extended."
(h) The words "; such notice to be given to the station agent of
the party of the second part at either of the following
named places, to wit: Raleigh, Greensboro or Charlotte or
Burlington, all in the State of North
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Carolina" are hereby deleted from the eighth, ninth,
tenth and eleventh lines of page 6. Such notice said
to be given pursuant to Article TWENTY-FIFTH of this
Extension.
(i) All the words set forth in the twelfth through eighteenth
lines on page 6, all the words in the first and second lines
on page 7, and the words "date last above named" in the
third line on page 7 are hereby deleted.
(j) The word "semi-annually" on line twenty-six of page 7 is
hereby deleted.
(k) The words "or if they" on line thirty-one, all of lines
thirty-two and thirty-three and the words "North Carolina
Railroad Company to do" on line thirty-four of page 7 are
hereby deleted.
(l) Lines one through eleven and the words "to be chosen as
aforesaid; and " on line twelve of the first full paragraph
on page 9 are hereby deleted and the following language is
hereby substituted therefor:
It is agreed by and between said parties that they will
jointly conduct an annual inspection of the properties leased
hereunder beginning in June of each year. An inventory of the
Leased Properties (as used in this paragraph are the properties
defined as Leased Properties in the Lease Extension Agreement,
dated as of January 1, 1995, excepting those properties released
and/or returned to the Lessor pursuant to the terms of Article
FIFTH thereof and less those properties and interests in
properties which are exempted from the obligation to release
and/or convey properties and interests in properties to the Lessor
under the terms of Article TWENTY-SIXTH thereof) shall be made and
taken twenty-four (24) months prior to the termination of this
lease and any renewal thereof. Also, by April 30 of each year,
NSR and AEC will furnish to Lessor the following records or
documents; (i) a set of valuation or similar maps showing the
properties currently leased hereunder and operating properties
acquired by the lessee, including intersection points with other
lines; (ii) a list of buildings and facilities used for rail
operations on the Leased Properties; (iii) a current list of
railroad bridges on the Leased Properties; (iv) rail program
maintenance improvements made on the Leased Properties since the
last report including, without limitation, the number of new ties
installed, miles surfaced, and length of new or used rail
installed, by line segment (Charlotte-Greensboro, Greensboro-
Raleigh, Raleigh-Morehead City); (v) condensed track profiles;
(vi) railroad traffic data or records as
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furnished to the Interstate Commerce Commission or its
successor (annual one percent carload waybill sample), or
its equivalent; (vii) scheduled program maintenance for the
then current calendar year; (viii) operating and trackage
rights agreements as they relate to the Leased Properties
with other railroads entered into since the last report;
(ix) copies of the latest available annual reports filed
with the North Carolina Utilities Commission and the
Interstate Commerce Commission ("ICC") or its successor
(currently designated as Form R-1 for the ICC); and (x)
account balances for ICC (if required to be filed with the
ICC or its successor) reporting purposes relating to the
Leased Properties. At times other than in connection with
an annual inspection as set forth above, Lessor shall have
the right to enter upon the Leased Properties to make
reasonable inspections provided (i) Lessor gives the lessee
ten (10) days prior written notice of such entry, (ii) no
entry shall occur in an area closer than fifteen (15) feet
from any railroad track unless Lessor is accompanied by the
lessee's representative, and (iii) Lessor complies with all
safeguards and instructions of the lessee's representative
in order to avoid harm to Lessor's personnel and hazard to
the lessee's rail operations.
II. Effective January 1, 1995, the following modifications are
hereby made in the aforesaid Lease and Indenture of August 30, 1939:
(a) The words ", engines, cars and railroad equipment" are
hereby deleted from the last line on page 2.
(b) The provisions of Paragraph 5 that relate to the amount of
minimum annual rental, additional rent, and interest on past
due rent, are superseded by the terms of this Extension.
(c) All provisions pertaining to the obligations to pay taxes of
any nature or type whatsoever are superseded by the terms
and provisions of Article TWENTY-FIRST hereof.
(d) Articles 7 and 9 and the second paragraph of article 8 are
hereby deleted.
(e) The words "engines, cars" are hereby deleted from the third
line of article 10.
(f) The first sentence of article 11 is hereby deleted.
(g) Article 14 is amended by adding the inspection, inventory
and records submission provisions of I(L) of Article
FIFTEENTH hereof.
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(h) The words "its rolling stock" are hereby deleted from the
second line of article 15.
(i) Article 18 on pages 11 and 12 is hereby deleted.
(j) The words "or any part of the said properties" in the third
and fourth lines of article 19 are hereby deleted.
(k) Article 21 on page 13 is hereby deleted.
III. Effective January 1, 1995, the following modifications are
hereby made in certain supplements constituting a part of the 1939
Lease:
(a) Lines one through thirty-two and the word "lease" in line
thirty-three and lines thirty-nine through forty-three of
article I of the supplement dated July 1, 1943 are deleted.
(b) Articles 2, 3, 5, and 6 of the supplement dated July 1, 1943
are deleted.
(c) The words "engines, cars" are hereby deleted from the eighth
and ninth lines of article 8 of the supplement dated July 1,
1943.
(d) The provisions of the supplement dated January 1, 1951
relating to rent are superseded and replaced by Article
SECOND of this Extension.
(e) The words "engines, cars," are hereby deleted from the
eleventh line of article (1) of the supplement dated August
19, 1954.
(f) Article (2) of the supplement dated August 19, 1954 is
hereby deleted.
SIXTEENTH: CONFLICTING TERMS. If any of the express terms,
conditions and provisions of this Extension conflict with any of the
terms, conditions and provisions of either the 1895 Lease or the 1939
Lease, the express terms, conditions and provisions of this Extension
will be controlling.
SEVENTEENTH: DUTY TO DEVELOP RAIL BUSINESS. NSR and A&EC covenant
to use their best efforts to develop and locate rail-served industries
along the railroad lines included in the leaseholds hereby extended.
EIGHTEENTH: ENVIRONMENTAL PROVISIONS. In addition to whatever
rights Lessor has under the 1895 Lease or the 1939 Lease, the Lessees
hereby agree to indemnify, defend, and hold
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harmless Lessor, and its respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from
all fines, suits, procedures, claims, liabilities, damages and
actions of every kind, and all reasonable costs and expenses
associated therewith (including attorneys' and consultants' fees
if Lessor is a named or charged party) arising from: (i) any
violation of applicable federal, state or local environmental
laws, regulations, administrative orders or judicial decrees, as
they apply to any part of the Leased Properties, that occurred or
occurs during the term of its lease thereof or during the use
thereof by either of the Lessees or any of their tenants; (ii) any
noise, vibration or the deposit, spill, discharge, or other
release of a Contaminating Substance (defined as oil, petroleum or
any substance declared to be hazardous or toxic or treated as a
pollutant or contaminant under any law or regulation now or
hereafter enacted or promulgated by any governmental authority)
that occurred or occurs on any part of the Leased Properties at
any time during the term of its lease thereof or during the use
thereof by either of the Lessees or any of its tenants; (iii) any
failure of either of the Lessees to provide information, make all
appropriate submissions, and fulfill all legal obligations of the
owner and/or operator of the Leased Properties during the term of
its lease thereof or during the use thereof by either of the
Lessees or any of its tenants (including but not limited to
remediation of a deposit, spill, discharge or other release of a
Contaminating Substance); or (iv) any damages (including, but not
limited to, diminution in value) to any of the properties
adjoining or nearby any of the Leased Properties or any injury to
any individuals while they are upon any of those adjoining or
nearby properties because of any deposit, spill, discharge or
other release of a Contaminating Substance on any part of the
Leased Properties at any time during the term of its lease thereof
or during the use thereof by either of the Lessees or by any of
its tenants. In addition to the language of this Article
EIGHTEENTH, Lessor shall retain all rights and causes of action it
has under the 1895 Lease and the 1939 Lease, and Lessor shall
retain all statutory and common law rights and causes of action
against Lessees, including but not limited to any right to recover
losses and diminution in property value.
Lessees shall be primarily responsible for responding to notices,
claims, lawsuits, orders pertaining to environmental issues, and
complying with and performing all environmental obligations of the owner
or operator of the Leased Properties during the term of its lease
thereof or during the use of the Leased Properties by either of the
Lessees or by any of its tenants. Lessor shall be responsible for
notifying Lessees of all notices, claims, lawsuits, orders and
environmental obligations of which Lessor is notified by any third party
pertaining to the Leased Properties. Lessees shall not dispose of any
wastes of any kind, whether hazardous or not, on the Leased Properties.
For purposes of the preceding sentence only,
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the agreement of the Lessees not to dispose of any wastes on the
Leased Properties shall not apply to the temporary storage of
wastes in accordance with all applicable environmental laws and
regulations. Lessees shall conduct and bear the expense of any
environmental investigation or remedial action which may be
required under applicable environmental laws, rules, regulations,
ordinances or judgments. Should Lessees inadequately perform any
action required under the applicable environmental laws, rules,
regulations, ordinances or judgments, Lessor or its representative
will have the right to enter the Leased Properties and to take
whatever corrective action Lessor deems necessary to eliminate the
violation, at the sole expense of Lessees.
To the extent permitted by applicable laws and regulations, the
following will be provided to Lessor within 30 days of the receipt or
submission thereof by either of the Lessees:
(i) Any administrative or judicial investigation, complaint or
demand filed, served on or delivered to either of the
Lessees by any governmental agency because of or arising
from the deposit, spill, discharge or other release of a
Contaminating Substance occurring on any part of the Leased
Properties at any time during the term of its lease thereof
or during the use of the Leased Properties by either of the
Lessees or by any of its tenants;
(ii) Notice of the filing of any claims or action against the
Lessor or either of the Lessees for injunctive relief or
recovery of losses sustained because of or arising from the
deposit, spill, discharge or other release of a
Contaminating Substance occurring on any part of the Leased
Properties at any time during the term of its lease thereof
or during the use of the Leased Properties by either of the
Lessees or by any of its tenants;
(iii) A copy of any analytical results, correspondence or report
pertaining to underground storage tanks, above-ground
storage tanks, wetlands or any environmental investigation
of any part of the Leased Properties, which is submitted to
either of the Lessees by any third party (excluding Lessee's
contractors and consultants, but including governmental
agencies) or submitted by either of the Lessees to any
governmental agency at any time during the term of its lease
thereof or during the use of the Leased Properties by either
of the Lessees or by any of its tenants;
(iv) A copy of the results of environmental tests performed by or
on behalf of a governmental agency because of or related to
any deposit, spill, discharge or other
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release of a Contaminating Substance occurring on any
part of the Leased Properties at any time during the
term of its lease thereof or during the use of the
Leased Properties by either of the Lessees or by any
of its tenants; and
(v) A copy of all environmental reports, notices and
correspondence required to be submitted by either of its
Lessees to any governmental agency after the effective date
of this Extension pursuant to any applicable federal, state,
or local law, ordinance or regulation pertaining to any part
of the Leased Properties at any time during the term of its
lease thereof or during the use of the Leased Properties by
Lessees or their tenants.
If there is a noise, vibration, or a deposit, spill, discharge or
other release of a Contaminating Substance occurring on any part of the
Leased Properties which the Lessor has a reasonable good faith belief
may constitute a risk of liability, expense or criminal exposure to
Lessor, Lessor shall be given full access to and opportunity to copy any
relevant environmental reports, studies or data pertaining to such
noise, vibration, deposit, spill, discharge or other release in the
possession of Lessees (excepting privileged communications with counsel
for NSR or A&EC), upon 30 days prior written notice to Lessees. In
addition, in any sublease of the Leased Properties by either of the
Lessees, the sublease should contain language requiring that the
sublessee provide Lessor with a copy of all such documents and written
notifications provided to either of the Lessees. In the event that any
such sublease does not contain the language described in the preceding
sentence, the Lessees shall provide Lessor with a copy of all such
documents and written notifications provided to either of the Lessees by
such sublessee or its agents.
During the term of this Extension, any renewal and any holdover
period, whichever is later, and for a period of seven (7) years
thereafter, Lessees agree to waive and agree not to assert as a defense
to their indemnification commitments in this Article EIGHTEENTH any
statute of limitations, statute of repose, laches, or other time related
defense. The provisions of this Article EIGHTEENTH, including but not
limited to the indemnification provisions, shall survive the termination
of this Extension and any renewal.
Lessor shall have the right to enter upon the Leased Properties to
make reasonable inspections for any purpose, including but not limited
to environmental inspections, provided that (i) Lessor gives the Lessee
ten (10) tens day prior written notice of such entry, (ii) no entry
shall occur in an area closer than fifteen (15) feet from any railroad
track unless Lessor is
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accompanied by the Lessees' representative, and (iii) Lessor
complies with all reasonable safeguards and safety instructions of
the Lessees' representative in order to avoid harm to Lessors'
personnel and hazard to the Lessees' rail operations. However,
the provisos of the preceding sentence shall not be applicable to
the extent it is not practical to comply with such provisos and
access onto the property is required to respond to or comply with
a notice, order or other legal requirements or there is an
emergency situation or imminent hazard so long as Lessor provides
reasonable prior notice of its activities under the circumstances
and Lessor works cooperatively with Lessees. During Lessor's
inspections of the property, its representatives shall have the
right to conduct sampling and testing, including but not limited
to soil borings and groundwater testing, provided all such testing
is conducted in accordance with NSR's standard procedures for such
testing (the specifications for such procedures will be reasonable
and will be furnished from time to time by NSR to Lessor) and
provided Lessor will not unreasonably interfere with Lessee's use
of the Leased Properties. Nothing in this paragraph shall
preclude Lessor or its representatives from performing visual
inspections of the Leased Properties at any time from portions of
the Leased Properties that are accessible to the general public.
NINETEENTH: ENVIRONMENTAL INFORMATION FOR NON-OPERATING
PROPERTIES. With respect to the non-operating properties to be returned
to Lessor free of lease under Article FIFTH hereof, NSR and A&EC will
each identify any contamination of which it has knowledge and provide to
Lessor all information and reports pertaining thereto, and Lessor will
have the right to inspect such non-operating properties before their
return to Lessor. Such right of inspection shall include the right to
perform an environmental site assessment.
TWENTIETH: OPERATING AND OTHER COSTS. NSR and A&EC will be
responsible for expenditures relating to the operation of the Leased
Properties, including without limitation, maintenance, liability, any
hazard insurance (to the extent the Lessees are not self insured) and
taxes (other than Excluded Taxes as defined in Article TWENTY-FIRST
hereof) imposed on Lessor as a result of NSR and A&EC's use, lease,
possession or operation of the Leased Properties, and except as
specifically amended by this Extension all provisions of the 1895 Lease
and 1939 Lease relating to such obligations will continue in full force
and effect.
TWENTY-FIRST: TAX PROVISIONS. (a) During the period of the lease
extensions provided for herein and any renewal thereof, NSR and A&EC
shall pay when due, as additional rent, all taxes, assessments, fees,
and penalties other than Excluded Taxes (as hereinafter defined),
however denominated, together with any interest, penalties, additions to
tax or additional amounts that may become payable in respect thereof,
imposed by any federal,
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state, local or other taxing authority on Lessor, based upon the
Leased Properties or arising out of the use, lease, possession or
operation of the Leased Properties during that period, under the
leases being extended herein, which taxes shall, by way of
illustration, include ad valorem taxes, real and personal property
taxes, assessments, fees, and penalties and other obligations of
the same or of a similar nature imposed on the ownership,
possession or use of the Leased Properties. For purposes of this
paragraph (a), Excluded Taxes shall mean: (i) all taxes based, in
whole or in part, on net income or gross income (including,
without limitation, any minimum tax) of the Lessor or which are in
substitution for, or relieve Lessor from, any tax based upon or
measured by Lessor's net income or gross income, together with any
interest, penalties, additions to tax or additional amounts that
may become payable in respect thereof; (ii) business and
occupation taxes, and gross receipts taxes of the Lessor and taxes
based upon Lessor's capital stock imposed by the United States or
any state or political subdivision; (iii) interest, fines and
penalties to the extent due to the acts or omissions of Lessor;
and (iv) ad valorem taxes and any other taxes assessed upon the
air rights or mineral rights hereinbefore reserved unto Lessor or
resulting from the development, use, or occupation thereof or the
location of structures under any such rights. Neither NSR nor
A&EC shall be required to pay any tax it is obligated to pay under
the provisions of this Article TWENTY-FIRST during the time it
shall reasonably and in good faith and by appropriate legal or
administrative proceedings contest the validity or amount thereof.
(b) Lessor shall have the right and obligation, at its own
expense, to prepare and file all tax returns required to be filed by
Lessor under applicable laws and regulations. Prior to Lessor's filing
of any tax returns for taxes required to be paid by either of the
Lessees under paragraph (a) of this Article TWENTY-FIRST, Lessor shall
provide such returns to the Lessees for their review and approval, which
said approval will not be unreasonably withheld.
(c) NSR, A&EC and their respective assignees and designees
shall have the right to control at their expense any audit or
examination by any taxing authority, or any judicial proceeding,
relating to any taxes required to be paid by either of them under
paragraph (a) of this Article TWENTY-FIRST.
(d) During the period of the lease extensions provided for
herein and any renewal thereof, NSR, A&EC and any of their respective
designees, are entitled to claim federal, state and local tax benefits
(including, without limitation, deductions and credits) arising out of
the Lessee's expenditures in the use, lease, possession or operation of
the Leased Properties by NSR, A&EC, or any of their respective assignees
or designees, and the improvements thereto, that NSR, A&EC or any of
their respective
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designees is entitled to claim under federal, state and local laws
and regulations. These tax benefits include but are not limited
to: (i) deductions for depreciation or amortization attributable
to property (both tangible and intangible) owned by NSR, A&EC or
any of their respective assignees or designees, including
improvements made to any of the Leased Properties by any of them,
as well as expenditures made by any of them that are required to
be capitalized under sections 263 or 263A or some other section of
the United States Internal Revenue Code (hereinafter "Code"); (ii)
deductions for expenditures made by NSR, A&EC or any of their
respective assignees or designees, deductible as ordinary and
necessary business expenses under section 162 of the Code; (iii)
deductions for the value of its share of any charitable
contributions of any of the Leased Properties made by NSR, A&EC or
any of their respective assignees or designees, deductible under
section 170 of the Code; (iv) deductions for losses attributable
to property (both tangible and intangible) owned by NSR, A&EC or
any of their respective assignees or designees, deductible under
section 165 of the Code; and (v) any federal, state or local tax
credits applicable to the use, lease, possession or operation of
the Leased Properties by NSR, A&EC or any of their respective
assignees or designees, and improvements thereto. Lessor is
entitled to deductions for taxes of Lessor paid by Lessee under
paragraph (a) of this Article TWENTY-FIRST and treated as rent
paid by the lessees under the leases herein extended and taxable
income received by Lessor under section 1.162-11(a) of the Income
Tax Regulations.
TWENTY-SECOND: EMINENT DOMAIN. In the event of any sale under
threat of eminent domain or any eminent domain taking of any of the
properties subject to either of the leases extended hereunder, the
proceeds received in connection with such sale or taking will be
apportioned between the Lessor and the lessee of the property so sold or
taken as follows: first, the lessee of that property will be entitled
to that portion of such sales proceeds or such award which is equal to
that amount which is needed to cover the costs of replacing, restoring
and relocating its operating facilities so as to continue to the same
extent the railroad operations conducted prior to such sale or taking,
as nearly as feasible, and the Lessor will be entitled to receive and
retain the balance of such proceeds. The lessee of the property so sold
or taken and the Lessor will cooperate fully with each other in
contesting or settling any such taking or threat of taking.
TWENTY-THIRD: RESERVATION OF CLAIMS. Notwithstanding any of the
terms, provisions and conditions of this Extension, except with respect
to claims released under Article THIRD hereof or under the terms of the
next following paragraph, none of the Lessor's claims under the 1895
Lease or the 1939 Lease which existed and could have been addressed at
the expiration thereof had they not been extended by this Extension are
waived or
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affected by virtue of the execution and delivery of this
Extension. The aforesaid claims so reserved to Lessor are
maintained and continued until the termination of this Extension
and any renewal, whether by expiration or otherwise, and such
claims shall be addressed at such termination as fully as the same
would have been addressed in connection with the expiration of the
1895 Lease and the 1939 Lease had this Extension not been
executed.
As part of the consideration for the commitments of NSR and A&EC
set forth in this Extension, Lessor hereby agrees not to assert the
remedy of forfeiture due to any noncompliance by NSR or A&EC prior to
January 1, 1995, with any one or more of its obligations under the 1895
Lease or the 1939 Lease.
For purposes of clarification, the parties distinctly agree that,
except as expressly superseded by this Extension, the respective lease
terms of the 1895 Lease and the 1939 Lease do not expire at the end of
1994, and the same are extended by this Extension until the termination
of this Extension and any renewal thereof, and that no claim or demand
contemplated by the 1895 Lease and/or the 1939 Lease otherwise to be
determined at the expiration or termination thereof may be made until,
and therefore each of them is postponed to the termination of this
Extension and any renewal. As changed and modified by this Extension,
the terms, provisions and conditions of the 1895 Lease and the 1939
Lease shall continue in full force and effect.
Lessor, NSR and A&EC agree that nothing in this section shall
abridge, estop, compromise, release or waive the claims reserved to the
Lessor under this Article TWENTY-THIRD, and that no defense of waiver,
latches, acquiescence, release, estoppel, or the like arising on or
after December 31, 1994 with respect to such claims existing on that
date may be asserted by reason of Lessor's agreement not to assert or
prosecute such claims at this time. It is the intention of the parties
hereto that these property issues not impede the resolution of other
issues in dispute, not impede the extension of the leases, and that
neither party should be prejudiced by the deferral of such issues.
Further, the Lessor, NSR and A&EC understand and agree that the
Lessor's reserved claims under the terms of the 1895 Lease and/or the
1939 Lease will include not only such reserved claims existing as of the
end of 1994, but that this Extension contemplates the accrual of further
claims under the terms of the 1895 Lease and the 1939 Lease during the
term of this Extension and any renewal thereof.
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The terms of the 1895 Lease and the 1939 Lease create claims or
potential claims that NSR and/or A&EC would owe and be obligated to
deliver to Lessor additional properties and/or rights (hereinafter
"Claims for Additions"). The parties acknowledge that to the extent
Claims for Additions exist, the circumstance that such additional
properties and/or rights may have been acquired or now be held in the
name of a company affiliated with NSR or A&EC will not, of itself,
prejudice the Claims for Additions of Lessor. In consideration of the
Lessor not requiring that any such additional properties and/or rights
be acquired in the name of Lessor, NSR and A&EC agree that they shall
not raise as a defense to Claims for Additions the fact that any such
additional properties and/or rights have been acquired in the name of an
affiliate of either of the Lessees, and such fact will not impair NSR
and A&EC's contractual obligation to deliver such additional properties
to Lessor.
TWENTY-FOURTH: REGULATORY APPROVAL AND EFFECTIVE DATE.
This Extension and any renewal are subject to approval or
exemption from approval by the Interstate Commerce Commission
(hereinafter "ICC") or any successor agency of the undertakings of
NSR and A&EC herein, as may be required or appropriate under 49
U.S.C. (section mark) 11301, et seq., and (section mark) 11343, et
seq., or any successor federal legislation and such approval or
exemption action becoming final.
After (i) all requisite governmental and corporate approvals for
this Extension have become effective or have been satisfied (ii) this
Extension has been fully executed and delivered and (iii) any court
orders enjoining the implementation of this Extension have expired or
are no longer in effect, this Extension shall be effective as of January
1, 1995.
TWENTY-FIFTH: NOTICES. Any notices given hereunder shall be
effective if sent by registered or certified mail (United States Mails)
and addressed as follows:
If to NSR or A&EC:
Vice President-Transportation
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510
If to Lessor:
President
North Carolina Railroad Company
P.0. Box 2248
Raleigh, North Carolina 27602
or to such other official and/or address as any of the parties hereto
may specify in a written notice to the other parties hereto, sent as
stated above.
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TWENTY-SIXTH: RETURN OF PROPERTY AT TERMINATION. Upon
termination of the leaseholds extended hereunder, NSR, A&EC and their
affiliates will release and/or convey to Lessor: (1) all properties and
interests in properties originally leased to NSR and A&EC, less only
such of those properties and interests in properties that have been
released from the 1895 Lease or the 1939 Lease, and such of those
properties and interests in properties which have been acquired by
others by operation of law, eminent domain proceedings, transfers or
conveyances in which the Lessor has participated, and otherwise through
no fault of either of the Lessees, (2) all additions, betterments and
improvements thereof other than properties included in the release of
claims set forth in Article THIRD hereof, and (3) excepting properties
released under Article THIRD hereof, any and all other properties,
franchises, rights, privileges, or interests to which Lessor is entitled
pursuant to the 1895 Lease, the 1939 Lease and this Extension.
TWENTY-SEVENTH: GUARANTY OF PERFORMANCE. The parties are Lessor
and Lessee under two leases (the 1895 Lease and the 1939 Lease) due to
circumstances of history. Lessor is unwilling to extend either Lease
unless both are extended. Therefore in consideration of, and as a
condition to Lessor executing this Extension, the Lessees do hereby
guarantee the performance and money payments by the other lessee and of
any sublessee, immediate or remote, including all duties and obligations
of such other lessee under its respective lease and this Extension.
TWENTY-EIGHTH: BINDING EFFECT. This Lease Extension Agreement
shall be binding upon the parties hereto, their heirs, successors,
licensees, sublessees, assigns, or any other party claiming under said
parties, both immediate and remote.
TWENTY-NINTH: MISCELLANEOUS.
(a) Except to the extent controlled by federal laws and
regulations, this Extension shall in all respects be governed by
the laws of the State of North Carolina.
(b) This Extension, together with its exhibits, contain
all the agreements of the parties hereto and supersede any
previous negotiations. There have been no representations made by
or on behalf of the Lessor or either of the Lessees or
understandings made between or among the parties hereto other than
those set forth in this Extension. This Extension may not be
modified except by a written instrument signed by the parties
hereto.
(c) All obligations of the parties hereunder not fully
performed as of the expiration or earlier termination of the term
of this Extension and any renewal shall survive such
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expiration or earlier termination of the term hereof and any
renewal.
(d) If any clause, phrase, provision or portion of this
Extension or the application thereof to any party or circumstance
shall be invalid or unenforceable under applicable law, such event
shall not affect, impair or render invalid or unenforceable the
remainder of this Extension or any other clause, phrase, provision
or portion hereof, nor shall it affect the application of any
other clause, phrase, provision or portion hereof to other parties
or circumstances.
(e) The Article headings herein are for convenience of
reference and shall in no way define, increase, limit, or describe
the scope or intent of any provision of this Extension.
IN WITNESS WHEREOF, the parties hereto have executed this
Extension as of the day and year first above written.
NORTH CAROLINA RAILROAD
COMPANY
Attest:
By____________________________ By____________________________
NORFOLK SOUTHERN RAILWAY
COMPANY
Attest:
By____________________________ By____________________________
ATLANTIC AND EAST CAROLINA
RAILWAY COMPANY
Attest:
By_____________________________ By____________________________
[ATTACH EXHIBITS]
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