<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
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 No. 34-0-17570
AMERICAN FREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 74-2391754
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2200 Forward Drive, Harrison, Arkansas 72601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 741-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulations S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by nonaffiliates of the
registrant at February 18, 1999: $476,391,345.
Number of shares of common stock outstanding at February 18, 1999:
31,759,423.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1998 is incorporated by reference into Parts II
and IV.
The Proxy Statement for Registrant's April 15, 1999 Annual Meeting
is incorporated by reference into Parts III and IV.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. and 2. Business and Properties 1
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security Holders 3
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 4
6. Selected Financial Data 5
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
7A. Quantitative and Qualitative Disclosures
About Market Risk 7
8. Financial Statements and Supplementary Data 7
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 7
PART III
10. Directors and Executive Officers of Registrant 8
11. Executive Compensation 8
12. Security Ownership of Certain Beneficial
Owners and Management 8
13. Certain Relationships and Transactions 8
Part IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
Signatures 13
List of Financial Statements and
Financial Statement Schedules 14
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
American Freightways Corporation (the "Company") is a
scheduled, for-hire carrier of less-than-truckload (LTL) shipments
of general commodities, presently serving all points in 28 mid-
Atlantic, midwestern, southeastern, and southwestern states.
American Freightways also provides service to the ten
provinces of Canada through an exclusive alliance with Day & Ross,
a Canadian LTL carrier headquartered in Hartland, New Brunswick,
Canada; to 92% of the Mexican market through an alliance with
Autolineas Mexicanas, S.A. DE C.V. of Monterrey, Mexico; and to
Puerto Rico through an exclusive marketing partnership with X-PRESS
Freight Forwarders, Inc. headquartered in Carolina, Puerto Rico.
On April 6, 1998, the Company expanded its coverage to include
the state of Alaska through an exclusive marketing partnership with
Pacific Alaska Forwarders, Inc., Alaska's largest freight
forwarder. Also on April 6, 1998, the Company expanded its coverage
to include all of the Hawaiian Islands and Guam through an
exclusive marketing partnership with Honolulu Freight Service,
Inc., a freight forwarder which has served the Hawaiian Islands for
over 50 years.
RECENT EVENTS
On November 1, 1998, the Company instituted a general rate
increase ranging from 5.5% to 5.9%. This rate increase initially
affected approximately 50% of the Company's revenues. Rates for
other customers are covered by contracts and guarantees and are
negotiated throughout the year.
EXPANSION
The history of American Freightways has been growth. In 1982,
the Company began serving all points in one state, Arkansas. Today
the Company's all-points service coverage extends to 28 states.
Perhaps the most distinguishing feature of the Company's operations
is this all-points coverage. Management knows of no other LTL
carrier that duplicates this coverage.
The Company has expanded geographically each year since its
inception, some years adding only a few customer centers to its
most aggressive expansion undertaken in 1995 of adding seven
states. The Company opened one state, New Mexico, in 1997 and on
May 1, 1997 opened service to and from Puerto Rico through an
exclusive marketing partnership with X-PRESS Freight Forwarders,
Inc.
On January 1, 1998, the Company opened all-points service to
Michigan. On April 6, 1998, the Company expanded its coverage to
include the states of Alaska through an exclusive marketing
partnership with Pacific Alaska Forwarders, Inc. Also on April 6,
1998, the Company expanded its coverage to include all of the
Hawaiian Islands and Guam through an exclusive marketing
partnership with Honolulu Freight Service, Inc. The Company has
announced it plans to provide its direct all-points coverage to New
Jersey and Pennsylvania on April, 19, 1999.
<PAGE>
FLEET
The Company's policy is to purchase equipment having uniform
specifications that are, to the greatest possible extent,
compatible with design improvements and resale values. This
standardization enables the Company to simplify mechanic and driver
training, to control the cost of spare parts and tire inventory,
and in general to provide for a more efficient vehicle maintenance
program. American Freightways utilizes twin trailers for movement
of almost 100% of the freight among its customer centers to gain
greater flexibility. The use of twin trailers (which can be
operated singly or in tandem) provides more options for the
achievement of the Company's service standards. At December 31,
1998, the Company utilized 14,941 van trailers, 12,719 of which
were twin trailers, and 5,648 tractors. The average ages of the
tractors and trailers were 3.57 and 4.34 years, respectively, at
December 31, 1998.
ASSOCIATES
At December 31, 1998, the Company utilized 13,200 associates.
All drivers of American Freightways are selected in accordance with
specific Company guidelines relating primarily to safety records
and driving experience. All associates are required to pass drug
tests upon employment, randomly and for cause. State and federal
regulations require drug testing of drivers and require drivers to
comply with commercial driver's licensing requirements. Management
believes that the Company is substantially in compliance with these
regulations.
The Company has not experienced a shortage of qualified drivers
in the past, and management does not expect a significant shortage
in the near future.
None of the Company's personnel are currently represented by a
collective bargaining unit. From time to time, associates of a
particular customer center or facility may vote on representation
by a collective bargaining unit. Management of the Company cannot
predict the outcome of future elections. However, it believes any
outcome will not have a material adverse affect on the Company's
competitive position, operations or financial condition. In the
opinion of management, the Company's relationship with its drivers,
other associates and independent contractors is excellent. The
Company's policy is to share its success with its associates
through increased wages and benefits.
TECHNOLOGY
American Freightways is a leader in the use of advanced
technology to increase the value of service to its customers and to
lower the cost of providing this service. The Company uses
computer and electronic technology to compress time in the
performance of operating and other processes and to compress the
number of levels within the organization necessary to complete
tasks. From the customer's call for a pickup to delivery of the
freight at its destination, the Company's information technology
captures information on the status of each shipment. In most cases
the accumulation of the data is achieved automatically as the
freight is moved.
See "Year 2000 Issues" included in Management's Discussion and
Analysis of Financial Condition and Results of Operations regarding
the effect of Year 2000 issues upon the Company.
<PAGE>
FACILITIES
At the end of 1996, American Freightways changed the name of its
terminal facilities to customer centers. This name change reflects
AF's commitment to its customers. Associates at the local level
are empowered to make decisions that are in the best interest of
customers' service issues.
The Company owns its general office located in Harrison, Arkansas
and 104 customer center facilities in 23 states. At December 31,
1998, 119 of the Company's customer centers were leased. The terms
of the leases on the facilities range from month-to-month to
fifteen years. The availability of suitable facilities determines
whether the Company leases or constructs a Company-owned facility.
One of the principal features distinguishing American Freightways
from its competitors is its extensive customer center network,
placing customer centers nearer to the customer. During 1998, the
Company completed construction of a 60 door facility in Knoxville,
TN; a 52 door facility in Mauston, WI; a 40 door facility in
Mobile, AL; and an 82 door facility in Tulsa, OK. In addition, the
Company added capacity through the purchase of existing facilities
or additions to existing customer centers in several strategic
locations such as Chicago, IL; Des Moines, IA; Detroit, MI; Laredo,
TX; Lincoln, NE; Louisville, KY; Lubbock, TX; Sheboygan, WI;
Springfield, MO; and Tupelo, MS. The Company has plans to either
expand or construct several additional customer centers in 1999.
At December 31, 1998, the Company's customer center network
consisted of 223 customer centers. Of these customer centers, 219
were managed by Company associates and 4 were operated and managed
by independent contractors. Company-operated customer centers
involve costs such as operating taxes, salaries and wages and
depreciation, whereas costs of independent contractor-operated
customer centers generally are variable as a flat percentage of
revenue. It is American Freightways' intent to primarily utilize
Company-operated customer centers in future expansions.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injuries and
property damage incurred in the transportation of freight. The
Company believes adverse results in one or more of these cases
would not have a material adverse effect on its competitive
position, financial position or its results of operations. The
Company maintains insurance in an amount which management believes
is currently sufficient to cover its risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
American Freightways Corporation's common stock is traded under
the symbol "AFWY" on the National Market System of the National
Association of Securities Dealers Automated Quotation System
(NASDAQ). The following table sets forth, for the periods
indicated, the range of high and low prices for the Company's
common stock as reported by NASDAQ through February 18, 1999. The
latest price for the Company's common stock on February 18, 1999,
as reported by the NASDAQ was $15.00 per share. At February 18,
1999, there were approximately 3,609 holders of record of the
Company's common stock.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
-----------------------------------------------------
<S> <C> <C>
FISCAL YEAR 1997:
First Quarter $14.250 $10.875
Second Quarter 16.250 10.500
Third Quarter 19.500 14.000
Fourth Quarter 20.000 7.875
FISCAL YEAR 1998:
First Quarter $11.688 $ 9.000
Second Quarter 13.125 9.625
Third Quarter 11.500 7.188
Fourth Quarter 11.688 6.000
FISCAL YEAR 1999:
First Quarter (through February $15.500 $ 9.250
18, 1999)
</TABLE>
The Company has not paid cash dividends in the past and does not
intend to pay cash dividends in the foreseeable future. Under
certain of the Company's loan agreements, the Company is subject to
certain restrictions on its ability to pay dividends. See Note 3
to the Consolidated Financial Statements incorporated by reference
herein.
<PAGE>
Item 6. Selected Financial Data
The following selected financial data is derived from
consolidated financial statements of the Company. The data should
be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the
Consolidated Financial Statements, related notes and other
financial information included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
--------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
(In thousands, except per share data)
Operating revenue $465,588 $572,100 $729,042 $870,319 $986,286
Operating expenses and costs:
Salaries, wages and benefits 247,049 335,167 444,041 528,695 601,813
Operating supplies and expenses 30,710 38,667 59,640 75,085 79,219
Operating taxes and licenses 19,251 24,434 31,827 35,339 41,687
Insurance 15,360 21,595 27,113 26,327 31,964
Communications and utilities 9,117 11,040 13,822 14,907 17,361
Depreciation and amortization 27,888 37,560 46,918 52,596 55,712
Rents and purchased
transportation 45,633 46,405 44,844 55,215 58,093
Other 20,880 26,469 33,728 36,899 40,227
--------------------------------------------
Total operating expenses 415,888 541,337 701,933 825,063 926,076
--------------------------------------------
Operating income 49,700 30,763 27,109 45,256 60,210
Interest expense (6,832) (10,198) (14,708) (16,256) (15,530)
Other income, net 442 415 303 330 424
Gain (loss) on disposal
of assets 292 329 90 (52) 1,203
--------------------------------------------
Income before income taxes and
extraordinary charge 43,602 21,309 12,794 29,278 46,307
Income taxes 16,571 8,226 4,938 11,477 18,806
--------------------------------------------
Income before extraordinary
charge 27,031 13,083 7,856 17,801 27,501
Extraordinary charge for
early retirement of debt,
net of tax benefit of $205 (335) - - - -
--------------------------------------------
Net income $ 26,696 $ 13,083 $ 7,856 $ 17,801 $ 27,501
============================================
Per share:
Income before
extraordinary charge:
Basic $ 0.92 $ 0.43 $ 0.25 $ 0.57 $ 0.87
Diluted $ 0.89 $ 0.42 $ 0.25 $ 0.56 $ 0.87
Extraordinary charge
(basic and diluted) $ (0.01)$ - $ - $ - $ -
--------------------------------------------
Net income:
Basic $ 0.91 $ 0.43 $ 0.25 $ 0.57 $ 0.87
Diluted $ 0.88 $ 0.42 $ 0.25 $ 0.56 $ 0.87
============================================
Average shares outstanding:
Basic 29,485 30,750 31,070 31,372 31,624
Diluted 30,357 31,334 31,266 31,672 31,689
</TABLE>
The per share amounts prior to 1997 have been restated as
required by Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Also, certain amounts prior to 1998 have been
reclassified to conform with the 1998 presentation. See Note 1 to
Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 1996 1997 1998
------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(Dollars in thousands)
Current assets $ 54,247 $ 77,213 $ 91,954 $105,315 $135,047
Current liabilities 44,378 52,514 66,166 78,521 107,254
Total assets 355,348 477,762 549,875 575,573 642,061
Long-term debt (including
current portion) 111,181 197,631 238,239 221,908 225,794
Shareholders' equity 177,180 195,434 206,298 227,416 256,014
Working capital $ 9,869 $ 24,699 $ 25,788 $ 26,794 $ 27,793
Debt to equity ratio 0.63 1.01 1.15 0.98 0.88
Return on average
shareholders' equity 18.6% 7.0% 3.9% 8.2% 11.4%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEY OPERATING STATISTICS:
Operating ratio 89.3% 94.6% 96.3% 94.8% 93.9%
Total tractors 3,344 4,521 4,985 5,143 5,648
Customer centers 144 186 203 210 223
Number of associates 6,506 8,867 9,947 12,201 13,200
Gross tonnage hauled (000's) 2,759 3,380 4,149 4,635 5,062
Shipments (000's) 4,267 5,486 7,016 8,044 8,729
Average length of haul 567 588 595 587 596
Line haul load factor (tons) 10.96 10.91 10.40 9.94 10.55
Revenue per hundred weight $ 8.46 $ 8.48 $ 8.80 $ 9.40 $ 9.74
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Item is incorporated by this reference to Registrant's
Annual Report to Shareholders for the year ended December 31, 1998,
pages 26 through 29.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk on page 29 of the Annual Report to Shareholders for
the year ended December 31, 1998, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial
statements included on pages 30 through 39 of the Annual Report to
Shareholders for the year ended December 31, 1998, are incorporated
herein by reference.
Quarterly Results of Operations on page 38 of the Annual Report
to Shareholders for the year ended December 31, 1998, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of American Freightways as
of February 18, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
F. S. (Sheridan) Garrison 64 Chairman of the Board of Directors and
Chief Executive Officer
Tom Garrison 38 President, Chief Operating Officer and
Director
Will Garrison 35 Corporate Vice President,
Secretary/Treasurer and Director
Frank Conner 49 Executive Vice President-Accounting &
Finance, Chief Financial Officer and
Director
Ben A. Garrison 67 Director
John Paul Hammerschmidt 76 Director
T. J. Jones 62 Director
Ken Reeves 51 Director
Doyle Z. Williams 59 Director
Dennis Beal 50 Executive Vice President-Physical Assets
John Berry 45 Vice President-Risk Management
Terry Higginbotham 52 Executive Vice President-Marketing
Pat Reed 40 Executive Vice President-Operations
Terry Stambaugh 45 Executive Vice President-Human Resources
The remainder of this Item 10, Directors and Executive Officers
of the Registrant, is incorporated by this reference to
Registrant's Notice and Proxy Statement for its 1999 Annual Meeting
of Shareholders to be held on Thursday, April 15, 1999.
ITEM 11. EXECUTIVE COMPENSATION
This Item is incorporated by this reference to applicable
portions of the Registrant's Notice and Proxy Statement for its
1999 Annual Meeting of Shareholders to be held on Thursday, April
15, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This Item is incorporated by this reference to applicable
portions of the Registrant's Notice and Proxy Statement for its
1999 Annual Meeting of Shareholders to be held on Thursday, April
15, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
This Item is incorporated by this reference to applicable
portions of the Registrant's Notice and Proxy Statement for its
1999 Annual Meeting of Shareholders to be held on Thursday, April
15, 1999.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (l) and (2) The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) The exhibits as listed in the Exhibit Index, are
submitted as a separate section of this report.
(b) Current Reports on Form 8-K:
None.
(c) See Item 14(a)(3) above.
(d) The response to this portion of Item 14 is submitted as a
separate section of this report.
<PAGE>
INDEX TO EXHIBITS
3(a) Amended and Restated Articles of Incorporation incorporated by
reference to Registrant's Form 10-Q for the quarterly period
ending March 31, 1995.
3(b) Amended and Restated Bylaws of American Freightways
Corporation incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
10(a) Amended and Restated 1993 Stock Option Plan for Key
Employees as amended January 23, 1996, incorporated by
reference to Registrant's Form 10-K for the fiscal year ended
December 31, 1995.
10(b) Amendment to Amended and Restated 1993 Stock Option Plan
for Key Employees dated January 20, 1999.
10(c) Amended and Restated Elected Non-Employee Director Stock
Option Plan, incorporated by reference to Registrant's Form 10-Q
for the quarterly period ended June 30, 1998.
10(d) Amendment to Amended and Restated Elected Non-Employee
Director Stock Option Plan dated January 20, 1999.
10(e) Amended and Restated Appointed Non-Employee Director
Stock Option Plan, incorporated by reference to Registrant's
Form 10-Q for the quarterly period ended June 30, 1998.
10(f) Amendment to Amended and Restated Appointed Non-Employee
Director Stock Option Plan dated January 20, 1999.
10(g) Amended and Restated Stock Purchase Plan for Certain
Employees of Registrant and subsidiaries as amended January 9,
1997, incorporated by reference to Registrant's Form 10-Q for
the quarterly period ended September 31, 1997.
10(h) Amended and Restated American Freightways Corporation
Excess Benefit Plan as amended January 23, 1996, incorporated
by reference to Registrant's Form 10-K for the fiscal year
ended December 31, 1995.
10(i) $50,000,000 Master Shelf Agreement ($10,000,000 Note
attached) with The Prudential Insurance Company of America
dated September 3, 1993, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended
September 30, 1993.
10(j) $10,000,000 Note dated February 2, 1994, issued under the
$50,000,000 Master Shelf Agreement with The Prudential
Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-K for the
fiscal year ended December 31, 1993.
10(k) $10,000,000 Note dated April 13, 1994, issued under the
$50,000,000 Master Shelf Agreement with The Prudential
Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended June 30, 1994.
10(l) $15,000,000 Note dated January 30, 1995, issued under the
$90,000,000 Master Shelf Agreement with the Prudential
Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended March 31, 1995.
<PAGE>
10(m) $20,000,000 Note dated June 15, 1995, issued under the
$90,000,000 Master Shelf Agreement with the Prudential
Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended June 30, 1995.
10(n) $25,000,000 Note dated May 1, 1996, issued under the
$90,000,000 Master Shelf Agreement with the Prudential
Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended June 30, 1996.
10(o) $50,000,000 Note dated April 18, 1997, issued under the
$140,000,000 Master Shelf Agreement with The Prudential
Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended March 31, 1997.
10(p) Letter Amendment No. 1 to Master Shelf Agreement with The
Prudential Insurance Company of America dated October 19,
1994, incorporated by reference to Registrant's Form 10-K for
the fiscal year ended December 31, 1994.
10(q) Letter Amendment No. 2 to Master Shelf Agreement with The
Prudential Insurance Company of America dated December 14,
1994, incorporated by reference to Registrant's Form 10-K for
the fiscal year ended December 31, 1994.
10(r) Letter Amendment No. 3 to Master Shelf Agreement with The
Prudential Insurance Company of America dated March 29, 1996,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended March 31, 1996.
10(s) Letter Amendment No. 4 to Master Shelf Agreement with The
Prudential Insurance Company of America dated April 18, 1997,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended March 31, 1997.
10(t) Note Agreement among Prudential Capital Corporation, the
Registrant and certain subsidiaries dated December 5, 1991,
incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10(u) Letter Amendment No. 1 to Note Agreement with The
Prudential Insurance Company of America dated January 15,
1992, incorporated by reference to Registrant's Form 10-Q for
the quarterly period ended June 30, 1992.
10(v) Letter Amendment No. 3 to Note Agreement with The
Prudential Insurance Company of America dated October 19,
1994, incorporated by reference to Registrant's Form 10-K for
the fiscal year ended December 31, 1994.
10(w) Letter Amendment No. 4 to Note Agreement with The
Prudential Insurance Company of America dated March 29, 1996,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended March 31, 1996.
10(x) Letter Amendment No. 5 to Note Agreement with The
Prudential Insurance Company of America dated April 18, 1997,
incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended March 31, 1997.
10(y) Amended and Restated Credit Agreement among NationsBank
of Texas, N.A., as Agent, the Registrant and certain
subsidiaries dated October 20, 1994, incorporated by reference
to Registrant's Form 10-K for the fiscal year ended December 31, 1994.
<PAGE>
10(z) First Amendment to Amended and Restated Credit Agreement
among NationsBank of Texas, N.A., as agent, the Registrant and
its Subsidiary dated May 31, 1995, incorporated by reference
to Registrant's Form 10-Q for the quarterly period ended June
30, 1995.
10(aa)Second Amendment to Amended and Restated Credit Agreement
among NationsBank of Texas, N.A., as Agent, the Registrant and
its Subsidiary dated March 26, 1996, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended March 31, 1996.
10(bb)Third Amendment to Amended and Restated Credit Agreement
among NationsBank of Texas, N.A., as agent, the Registrant and
its subsidiary dated May 31, 1996, incorporated by reference
to Registrant's Form 10-Q for the quarterly period ended June 30, 1996.
10(cc)Fourth Amendment to Amended and Restated Credit Agreement
among NationsBank of Texas, N.A., as Agent, the Registrant and
its Subsidiary dated March 31,1997, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended March 31, 1997.
10(dd)Fifth Amendment to Amended and Restated Credit Agreement
among NationsBank of Texas, N.A., as Agent, the Registrant and
its Subsidiary dated May 15, 1998, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended June 30, 1998.
10(ee)Sixth Amendment to Amended and Restated Credit Agreement
among NationsBank of Texas, N.A., as Agent, the Registrant and
its Subsidiary dated October 16, 1998.
10(ff)Lease Agreement among VT Finance, Inc., the Registrant and
its Subsidiary dated January 5, 1996, incorporated by
reference to Registrant's Form 10-K for the fiscal year ended
December 31, 1995.
10(gg)Master Lease Agreement with Volvo Truck Finance North
America, Inc. dated August 18, 1997, incorporated by reference
to Registrant's Form 10-Q for the quarterly period ended
September 31, 1997.
10(hh)Master Lease Agreement with BancBoston Leasing dated March
23, 1998, incorporated by reference to Registrant's Form 10-Q
for the quarterly period ended March 31, 1998.
10(ii)Master Lease Agreement with Wachovia Capital Investments,
Inc., dated December 29, 1998.
10(jj)Shareholder Rights Agreement and exhibits dated August 26,
1998, incorporated by reference to Registrant's Form 10-Q for
the quarterly period ended September 30, 1998.
13 Annual Report to Stockholders for the fiscal year ended
December 31, 1998
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 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. Dated this 18th day of February, 1999.
American Freightways Corporation
By: /s/Frank Conner
----------------------------------
Frank Conner
Chief Financial Officer; Director
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/F. S. Garrison February 18, 1999
- ------------------------------ -----------------
F. S. Garrison Date
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
/s/Frank Conner February 18, 1999
- ------------------------------ -----------------
Frank Conner Date
Chief Financial Officer and Director
(Principal Accounting Officer)
/s/Tom Garrison February 18, 1999
- ------------------------------ -----------------
Tom Garrison Date
Director
/s/Will Garrison February 18, 1999
- ------------------------------ -----------------
Will Garrison Date
Director
/s/Ben A. Garrison February 18, 1999
- ------------------------------ -----------------
Ben A. Garrison Date
Director
/s/John Paul Hammerschmidt February 18, 1999
- ------------------------------ -----------------
John Paul Hammerschmidt Date
Director
/s/T. J. Jones February 18, 1999
- ------------------------------ -----------------
T. J. Jones Date
Director
/s/Ken Reeves February 18, 1999
- ------------------------------ -----------------
Ken Reeves Date
Director
/s/Doyle Z. Williams February 18, 1999
- ------------------------------ -----------------
Doyle Z. Williams Date
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(A)(1) AND (2), (C) AND (D)
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of American
Freightways Corporation and subsidiaries included in the
Registrant's Annual Report to Shareholders for the year ended
December 31, 1998 are incorporated by reference in Item 8:
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements--December 31, 1998.
The following consolidated financial statement schedule of
American Freightways Corporation and subsidiaries is included in
Item 14(d):
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
Consolidated Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
AMERICAN FREIGHTWAYS CORPORATION
</TABLE>
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-----------------------------------------------------------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Account Deductions at End
Description of Period Expenses -Describe -Describe of Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for
Doubtful Accounts $ 844,531 $1,720,873 $ 225,618(1) $1,413,063(2) $1,377,959
===========================================================
Year ended December 31, 1997:
Allowance for
Doubtful Accounts $1,377,959 $1,633,070 $ 371,577(1) $1,608,564(2) $1,774,042
===========================================================
Year ended December 31, 1998:
Allowance for
Doubtful Accounts $1,774,042 $2,142,032 $ 475,071(1) $2,454,548(2) $1,936,597
===========================================================
</TABLE>
(1) - Recoveries of amounts previously written off.
(2) - Uncollectible accounts written off.
<PAGE>
EXHIBIT 10(B)
AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK
OPTION PLAN OF AMERICAN FREIGHTWAYS CORPORATION
THIS AMENDMENT, made by the Board of Directors of American
Freightways Corporation (the "Company") is effective as of the date
indicated below.
W-I-T-N-E-S-S-E-T-H:
WHEREAS, the Company sponsors the Amended and Restated 1993
Stock Option Plan of American Freightways Corporation (the "Plan"); and
WHEREAS, Article XIX of the Plan authorizes the Board of
Directors of the Company to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Plan's participants and
beneficiaries and the Company's shareholders to amend Article II of
the Plan to limit the number of shares any participant may receive
through the grant of options and stock appreciation rights in any
one year.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective January 20, 1999, Article II of the Plan is
amended by adding a new last paragraph to Article II to read as
follows:
No one person participating in the Plan
may receive Options, Stock Appreciation
Rights or any combination thereof for more
than 100,000 shares of Company stock in
any one year.
<PAGE>
EXHIBIT 10(D)
AMENDMENT TO THE AMENDED AND RESTATED ELECTED NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN OF AMERICAN FREIGHTWAYS CORPORATION
THIS AMENDMENT, made by the Board of Directors of American
Freightways Corporation (the "Company") is effective as of the date
indicated below.
W-I-T-N-E-S-S-E-T-H:
WHEREAS, the Company sponsors the Amended and Restated Elected
Non-Employee Director Stock Option Plan of American Freightways
Corporation (the "Plan"); and
WHEREAS, Section 5 of the Plan authorizes the Board of
Directors of the Company to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Plan's participants and
beneficiaries and the Company's shareholders to amend Section 3 of
the Plan to move the automatic grant date under the Plan from the
first day of February of each year to the first day of January of
each year, unless otherwise specified by the Board.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective December 30, 1998, Section 3 of the Plan is
amended by deleting the first paragraph thereof and adding in its
place the following:
3. ELIGIBILITY. Each person who shall
have been elected a director of the
Company at its annual meeting of
stockholders shall automatically be
granted options to purchase 6,000 shares
of the Company's common stock (subject to
further adjustment as provided herein) on
the date such person is initially elected
to the Board (but not on subsequent
election dates) and on each succeeding
first day in January (or such other time
during the year as the Board may
determine), beginning January 1, 2000,
provided, that such automatic option
grants shall be made only if the recipient
director (i) is not otherwise an employee
of the Company or any subsidiary on the
date of grant, (ii) is a member of the
Board of Directors on the date such option
is granted.
<PAGE>
EXHIBIT 10(F)
AMENDMENT TO THE AMENDED AND RESTATED APPOINTED NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN OF AMERICAN FREIGHTWAYS CORPORATION
THIS AMENDMENT, made by the Board of Directors of American
Freightways Corporation (the "Company") is effective as of the date
indicated below.
W-I-T-N-E-S-S-E-T-H:
WHEREAS, the Company sponsors the Amended and Restated
Appointed Non-Employee Director Stock Option Plan of American
Freightways Corporation (the "Plan"); and
WHEREAS, Section 5 of the Plan authorizes the Board of
Directors of the Company to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Plan's participants and
beneficiaries and the Company's shareholders to amend Section 3 of
the Plan to move the automatic grant date under the Plan from the
first day of February of each year to the first day of January of
each year, unless otherwise specified by the Board.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective December 30, 1998, Section 3 of the Plan is
amended by deleting the first paragraph thereof and adding in its
place the following:
3. ELIGIBILITY. Each person who shall
have been appointed by the Board to fill
an then-existing vacancy shall
automatically be granted options to
purchase 6,000 shares of the Company's
common stock (subject to further
adjustment as provided herein) as of the
date of such appointment and on each
succeeding first day in January (or such
other time during the year as the Board
may determine), beginning January 1, 2000,
provided, that such automatic option
grants shall be made only if the recipient
director (i) is not otherwise an employee
of the Company or any subsidiary on the
date of grant, (ii) is a member of the
Board of Directors on the date such option
is granted.
<PAGE>
Exhibit 10(EE)
SIXTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Sixth Amendment"), dated as of October 16, 1998, is entered
into among AMERICAN FREIGHTWAYS CORPORATION, an Arkansas
corporation ("AFC"), AMERICAN FREIGHTWAYS, INC., an Arkansas
corporation ("AFI"; AFC and AFI are referred to collectively as the
"Companies" and individually as a "Company"), the banks listed on
the signature pages hereof (the "Lenders"), NATIONSBANK, N.A.
(successor by merger to NationsBank of Texas, N.A.), in its
capacity as agent (in said capacity, the "Agent").
BACKGROUND
----------
A. Companies, Lenders and Agent are parties to that certain
Amended and Restated Credit Agreement, dated as of October 20,
1994, as amended by that certain First Amendment to Amended and
Restated Credit Agreement, dated as of May 31, 1995, that certain
Second Amendment to Amended and Restated Credit Agreement, dated as
of March 26, 1996, that certain Third Amendment to Amended and
Restated Credit Agreement, dated as of May 31, 1996, that Fourth
Amendment to Amended and Restated Credit Agreement, dated as of
March 31, 1997, and that certain Fifth Amendment to Amended and
Restated Credit Agreement, dated as of May 15, 1998 (said Credit
Agreement, as amended, the "Credit Agreement"; the terms defined in
the Credit Agreement and not otherwise defined herein shall be used
herein as defined in the Credit Agreement).
B. Companies, Lenders and Agent desire to amend the Credit
Agreement to increase the Net Earnings Available For Restricted
Payments for the fiscal year ending December 31, 1998.
NOW, THEREFORE, in consideration of the covenants, conditions
and agreements hereafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby
acknowledged, Companies, Lenders and Agent covenant and agree as
follows:
1. AMENDMENT. The definition of "Net Earnings Available For
Restricted Payments" set forth in Article 1 of the Credit Agreement
is hereby amended to read as follows:
"'Net Earnings Available For Restricted Payments' means with
respect to the Companies and their Subsidiaries on a consolidated
basis (a) for the fiscal year ending December 31, 1998, an amount
equal to the lesser of (i) 125% of Net Earnings and
(ii) $25,000,000 and (b) for each other fiscal year, an amount
equal to 75% of Net Earnings. If the preceding calculation results
in a number less than zero, such amount shall be considered to be
zero."
<PAGE>
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By
its execution and delivery hereof, each Company represents and
warrants that, as of the date hereof and after giving effect to the
amendment contemplated by the foregoing Section 1:
(a) the representations and warranties contained in the
Credit Agreement are true and correct on and as of the date hereof
as made on and as of such date;
(b) no event has occurred and is continuing which constitutes
a Default or an Event of Default;
(c) each Company has full power and authority to execute and
deliver this Sixth Amendment, and this Sixth Amendment and the
Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of such Company, enforceable in
accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as
rights to indemnity may be limited by federal or state
securities laws; and
(d) no authorization, approval, consent, or other action by,
notice to, or filing with, any governmental authority or other
Person (including, but not limited to, with respect to the
Prudential Debt and the respective Boards of Directors of the
Companies) is required for the execution, delivery or
performance by each Company of this Sixth Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Sixth Amendment shall be
effective as of October 16, 1998, subject to the following:
(a) Agent shall have received counterparts of this Sixth
Amendment executed by each Lender;
(b) Agent shall have received counterparts of this Sixth
Amendment executed by each Company;
(c) the representations and warranties set forth in Section 2
of this Sixth Amendment shall be true and correct;
(d) Agent shall have received an amendment to the Prudential
Debt with respect to Restricted Payments in substance
substantially similar to this Sixth Amendment and acceptable
to the Agent; and
(e) Agent shall have received, in form and substance
satisfactory to Agent and its counsel, such other documents,
certificates and instruments as Agent shall require.
4. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Sixth Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder",
or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended hereby.
(b) The Credit Agreement, as amended by the amendment
referred to above, shall remain in full force and effect and
is hereby ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. The Companies, jointly and
severally, agree to pay on demand all costs and expenses of Agent
in connection with the preparation, reproduction, execution and
delivery of this Sixth Amendment and the other instruments and
documents to be delivered hereunder (including the reasonable fees
and out-of-pocket expenses of counsel for Agent with respect
thereto and with respect to advising Agent as to its rights and
responsibilities under the Credit Agreement, as hereby amended).
6. EXECUTION IN COUNTERPARTS. This Sixth Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which when
taken together shall constitute but one and the same instrument.
7. GOVERNING LAW: BINDING EFFECT. This Sixth Amendment shall be
governed by and construed in accordance with the laws of the State
of Texas and shall be binding upon each Company and each Lender and
their respective successors and assigns.
8. HEADINGS. Section headings in this Sixth Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Sixth Amendment for any other purpose.
9. JOINT AND SEVERAL OBLIGATIONS. The Companies acknowledge and
agree that their obligations and duties under the Credit Agreement
and the other Loan Papers are joint and several in all instances.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS
SIXTH AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS
BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Sixth Amendment as the date first above written.
AMERICAN FREIGHTWAYS CORPORATION
By: /s/Frank Conner
-------------------------------
Name: Frank Conner
-------------------------------
Title: EVP-Accounting & Finance
-------------------------------
AMERICAN FREIGHTWAYS, INC.
By: /s/Frank Conner
-------------------------------
Name: Frank Conner
-------------------------------
Title: EVP-Accounting & Finance
-------------------------------
NATIONSBANK, N.A.
as Agent and as a Lender
By: /s/Dan Killian
-------------------------------
Name: Dan Killian
-------------------------------
Title: Vice President
-------------------------------
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/John P. Dean
-------------------------------
Name: John P. Dean
-------------------------------
Title: Sr. Vice President
-------------------------------
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/Kenneth Washington
-------------------------------
Name: Kenneth Washington
-------------------------------
Title: Vice President
-------------------------------
ABN-AMRO BANK N.V.
By: /s/Larry K. Kelly
-------------------------------
Name: Larry K. Kelly
-------------------------------
Title: Group Vice President
-------------------------------
By: /s/Robert A. Budnek
-------------------------------
Name: Robert A. Budnek
-------------------------------
Title: Vice President
-------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/Michael J. Johnson
-------------------------------
Name: Michael J. Johnson
-------------------------------
Title: Vice President
-------------------------------
<PAGE>
EXHIBIT 10(ii)
MASTER LEASE AGREEMENT
Dated as of December 29, 1998
Between
WACHOVIA CAPITAL INVESTMENTS, INC.,
as the Lessor,
and
AMERICAN FREIGHTWAYS, INC.,
as the Lessee
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Certain Defined Terms and Accounting
Matters 1
Section 2. Lease of Facilities 2
Section 3. Payments 4
(a) Interim Rent 4
(b) Basic Rent 5
(c) Final Rent Payment or Completion
Costs Payment 6
(d) Supplemental Rent 6
(e) Computations 7
(f) No Offsets 7
(g) Taxes 8
(h) Payments to the Lessor 11
(i) Default Rate 11
Section 4. Commitment 11
(a) Advances 11
(b) Fundings of Advances 12
(c) Changes of Commitment 12
(d) Fees 12
(e) Funding Office 13
Section 5. Agency Agreement 13
Section 6. Title to Remain in the Lessor 13
Section 7. Maintenance of the Facilities; Operations 13
Section 8. Modifications 15
Section 9. Further Assurances 16
Section 10. Compliance with Governmental Requirements
and Insurance Requirements: Related
Contracts 16
Section 11. Condition and Use of Facilities; Quiet Enjoyment17
Section 12. Liens 19
Section 13. Permitted Contests 19
Section 14. Insurance, etc Regarding the Facilities 20
<PAGE>
Section 15. Termination; Cancellation; Purchase
Option 22
Section 16. Transfer of Title on Removal of Facilities;
Expenses of Transfer 27
Section 17. Events of Default and Remedies 29
Section 18. Reserved 35
Section 19. Inspection; Right to Enter Premises of
the Lessee 35
Section 20. Right to Perform the Lessee's Covenants 35
Section 21. Participation by Co-Lessees or Sublessees;
Participations by Lessor 36
Section 22. Notices 37
Section 23. Amendments and Waivers 38
Section 24. Severability 38
Section 25. Federal Income Tax Considerations 38
Section 26. Other Provisions 38
(a) Change in Location of Collateral
or the Lessee 40
(b) Sale, Disposition or Encumbrance of
Collateral 40
(c) Proceeds of Collateral 40
(d) Further Assurances 41
(e) Collateral Attached to Other Property 41
(f) Secured Amount 41
(g) Mortgage Remedies 41
Section 27. Yield Protection and Illegality 41
(a) Basis for Determining Rent Inadequate
or Unfair 41
(b) Illegality 42
(c) Increased Cost and Reduced Return 43
(d) Payments and Computations 45
(e) Compensation 45
(f) Base Rate Substituted for Adjusted
LIBO Rate 46
Section 28. Conditions Precedent 46
(a) Closing; Conditions Precedent to
Effectiveness of this Lease 46
(b) Conditions to Commencement of Lease
for each Facility 47
<PAGE>
(c) Conditions to Initial and Subsequent
Advances 49
Section 29. The Lessee's Representations and
Warranties 50
(a) Corporate Existence and Power 50
(b) Corporate and Governmental Authorization 50
(c) Binding Effect 51
(d) Financial Information 51
(e) No Litigation 51
(f) ERISA 51
(g) Compliance with Laws; Payment of Taxes 52
(h) Investment Company Act 52
(i) Public Utility Holding Company Act 52
(j) Ownership of Property 52
(k) No Default 52
(l) Full Disclosure 53
(m) Environmental Matters 53
(n) Use of Proceeds; Margin Stock 55
(o) Insolvency 56
(p) Subsidiaries 56
(q) Year 2000 Compliance 56
(r) Facility Plan 57
Section 30. Covenants 57
(a) Company Debt 57
(b) Subsidiary Debt 57
(c) Fixed Charge Ratio 58
(d) Current Ratio 58
(e) Dividend Limitation 58
(f) Merger and Sales of Assets 59
(g) Capital Expenditures 59
(h) Financial Statements 59
(i) Maintenance and Inspection of Property,
Books and Records 62
(j) Use of Proceeds 62
(k) Compliance with Laws, Etc. 63
(l) Maintenance of Property 63
(m) Environmental Notices 63
(n) Environmental Matters 63
(o) Environmental Release 63
(p) Further Assurances 63
(q) Encroachments 64
(r) Liens, Etc. on the Facilities 64
(s) Hart-Scott-Rodino Act Compliance 64
(t) Year 2000 Compliance 64
Section 31. Miscellaneous 64
(a) Entire Agreement 64
(b) Interpretation 64
<PAGE>
(c) Governing Law; Submission to
Jurisdiction 65
(d) No Third Party Beneficiaries 65
(e) Counterparts 65
(f) Waiver of Jury Trial 65
(g) Invalidity 65
(h) Usury 65
(i) Time of the Essence 67
(j) Indemnification 67
(k) Confidentiality 71
(l) No Waiver; Remedies 72
(m) Right of Set-Off 72
(n) References 72
(o) Successors; Survivals 72
(p) Captions 72
(q) Characterization 73
Schedule 1(a) Defined Terms 76
Schedule 1(b) Pricing Schedule 104
Schedule 14 Insurance Requirements 106
Schedule 29(m) Environmental Matters 110
Schedule 29(q) Subsidiaries 111
Schedule 30(b) Subsidiary Debt 112
EXHIBIT A ACQUISITION, AGENCY, INDEMNITY AND
SUPPORT AGREEMENT 113
EXHIBIT B LEASE SUPPLEMENT 133
EXHIBIT C-1 FORM OF LEGAL OPINION OF COUNSEL
TO THE LESSEE AND THE GUARANTOR 141
EXHIBIT C-2 FORM OF LEGAL OPINION OF LOCAL COUNSEL
TO THE LESSEE 145
EXHIBIT D OFFICER'S CERTIFICATE - FINANCIAL 148
EXHIBIT E GUARANTY 151
EXHIBIT F ADVANCE NOTICE 157
<PAGE>
MASTER LEASE AGREEMENT
This Master Lease Agreement dated as of December 29, 1998, (as
the same may be amended, modified or supplemented from time to
time, this "Lease") is between WACHOVIA CAPITAL INVESTMENTS, INC.,
a Georgia corporation (together with its successors and permitted
assigns, the "Lessor"), and AMERICAN FREIGHTWAYS, INC., an Arkansas
corporation (together with its successors and permitted assigns,
the "Lessee").
RECITALS
--------
WHEREAS, the Lessor has agreed to acquire fee simple title to
or a ground lease of certain Real Property to be described in Lease
Supplements (each parcel of Real Property at a particular location
described in a Lease Supplement being an "Applicable Site"),
together with existing improvements thereon, and all appurtenances
thereto and pursuant to the Agency Agreement has agreed to renovate
and improve existing Improvements and/or to construct certain
Improvements on each Applicable Site in accordance with the
Facility Plan pertaining to such Applicable Site in order to create
a Facility on each such Applicable Site; and
WHEREAS, subject to the terms and conditions of this Lease,
the Lessee desires to lease from the Lessor each Facility on each
Applicable Site, consisting of such Applicable Site and such
enhancements and Improvements thereon, beginning on the Lease
Commencement Date for such Facility, for the purpose of occupying
and using such Facility in accordance with the terms and conditions
set forth in this Lease; and
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Lessor and the Lessee agree as
follows:
Section 1. Certain Defined Terms and Accounting Matters.
(a) In this lease, the terms "Lease," "Lessee," and
"Lessor," shall have the meanings indicated above.
(b) As used in this Lease, all other capitalized terms
shall have the meanings assigned such terms in Schedule 1(a)
attached hereto and by reference made a part hereof.
(c) Accounting Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character
used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with
<PAGE>
GAAP, applied on a basis consistent (except for changes concurred in by
the Guarantor's independent public accountants or otherwise
required by a change in GAAP) with the most recent audited
consolidated financial statements of the Guarantor and its
Consolidated Subsidiaries delivered to the Lessor unless with
respect to any such change concurred in by the Guarantor's
independent public accountants or required by GAAP, in determining
compliance with any of the provisions of this Lease or any of the
other Operative Documents: (a) the Guarantor shall have objected to
determining such compliance on such basis at the time of delivery
of such financial statements, or (b) the Lessor shall so object in
writing within 30 days after the delivery of such financial
statements, in either of which events such calculations shall be
made on a basis consistent with those used in the preparation of
the latest financial statements as to which such objection shall
not have been made (which, if objection is made in respect of the
first financial statements delivered under Section 30(h) of the
Lease, shall mean the financial statements referred to in Section
29(d)).
Section 2. Lease of Facilities.
(a) During the term of and subject to the terms and
conditions of this Lease, the Lessor hereby leases to the Lessee,
and the Lessee hereby leases from the Lessor, each Facility for the
Lease Term for such Facility to be used (i) to cause Completion to
occur for each Facility and otherwise used as provided in the
Agency Agreement until the Facility Completion Date for such
Facility and (ii) for and only for a Permitted Use with respect to
the portion of the Lease Term surviving the Facility Completion
Date for such Facility.
(b) Unless earlier terminated in accordance with the other
provisions hereof, including without limitation, Sections 15 and
17, this Lease shall terminate as to each Facility on the Scheduled
Lease Termination Date for such Facility. The Lessee, on any day
that is not less than 3 months and no more than 6 months prior to
the then current Scheduled Lease Termination Date may request in
writing to the Lessor the extension of the Scheduled Lease
Termination Date for any Facility for up to an additional 5 years
expiring on or before the 5th year anniversary of the original
Scheduled Lease Termination Date for such Facility. If the Lessor
shall consent in its sole discretion (and such consent may be
conditioned on such additional terms and conditions as the Lessor,
acting in its sole discretion, may require (which terms may
include, without limitation, a modification of the rate used for
calculation of Basic Rent), provided that no such documentation or
additional terms shall impose any additional liability on the
Lessor) to such extension in writing, the then current Scheduled
Lease Termination Date for any Facility shall be extended to the
date requested by the Lessor which date shall be on or prior to (as
requested by the
<PAGE>
Lessee) the 5 year anniversary of the original
Scheduled Lease Termination Date for such Facility. The failure of
the Lessor to consent to such extension on or before 90 days prior
to the then Scheduled Lease Termination Date for any Facility shall
be deemed to constitute the refusal of the Lessor to consent to any
such extension. Any such extension shall be effective upon the
execution of documentation evidencing the same (which the Lessor
agrees to execute promptly upon request of the Lessee if the
Lessor's consent to such extension is to be given pursuant hereto),
and containing such additional terms and conditions as the Lessor
has required.
(c) In the event it is determined at any time that the term of
this Lease will not be extended beyond the original Scheduled Lease
Termination Date for any Facility, or if a Non-Completion Event
occurs with respect to any Facility, the Lessee shall give to the
Lessor written notice as provided below specifying its election as
to which of the options under Section 15(a)(ii) of this Lease the
Lessee intends to exercise upon the applicable Scheduled Lease
Termination Date for such Facility:
(i) if the Scheduled Lease Termination Date for any
Facility is not to be extended because of a refusal to extend
the Scheduled Lease Termination Date pursuant to the
foregoing, then the Lessee shall give the Lessor notice of
such election within 30 days of the earlier to occur of (A)
the date the Lessee receives written notice of refusal or (B)
the date of such deemed refusal pursuant to the foregoing;
(ii) if the Scheduled Lease Termination Date is not to be
extended because the Lessee chooses not to request such
extension, the Lessee shall give the Lessor notice of such
election on any date that is not less than 3 months and no
more than 6 months prior to the then current Scheduled Lease
Termination Date; and
(iii) if the Lessor declares a Non-Completion Event, the
Lessee shall give the Lessor notice of such election within 5
Business Days of the date the Lessee receives written notice
of the Lessor's declaration of a Non-Completion Event.
(d) In the event the Lessee fails to give timely written
notice of such election for any Facility to the Lessor on or before
the dates herein provided, the Lessee shall be deemed to have
elected to purchase such Facility on the Scheduled Lease
Termination Date for the Purchase Price for such Facility. Such
election will be consummated upon the Scheduled Lease Termination
Date for such Facility unless the Lessee thereafter elects to
exercise its option under Section 15(c) of this Lease or a
Cancellation Event occurs.
<PAGE>
(e) If a Cancellation Event occurs, the Lessee shall give to
the Lessor written notice within 2 Business Days which of the
options under Section 15(b)(ii) of this Lease the Lessee intends to
exercise, which option must be exercised for all, and not less than
all, of the Facilities, upon the Lease Termination Date. In the
event the Lessee fails to give timely written notice to the Lessor
on or before the date herein provided, the Lessee shall be deemed
to have elected to purchase all Facilities on the Lease Termination
Date for the Purchase Price for all Facilities.
Section 3. Payments.
(a) Interim Rent. For each Facility, during the period
commencing on the Facility Commencement Date and ending on the
Facility Completion Date for such Facility, Interim Rent with
respect to such Facility shall accrue in an amount equal to the sum
of (i) the outstanding Facility Cost during each Interim Rental
Period times a rate per annum equal to the sum of the Adjusted LIBO
Rate prevailing on the first day of such Interim Rental Period plus
the Applicable Margin and (ii) during the Construction Period, a
fee (the component of Interim Rent computed pursuant to this clause
(ii) being the "Commitment Fee") on the amount of the unused
Commitment at a rate equal to the Commitment Fee Rate determined by
reference to the Pricing Schedule, times the amount of the unused
Commitment; provided, that (x) if the Lessee notifies the Lessor at
least 3 Business Days prior to the commencement of any Interim
Rental Period that it desires for Interim Rent during such Interim
Rental Period to accrue based on the Base Rate, then for such
Interim Rental Period, Interim Rent shall instead be determined on
the basis of the Base Rate plus the Applicable Margin, and (y) if
there is less than one month remaining after the end of any Interim
Rental Period until the Facility Completion Date for such Facility,
Interim Rent for the final Interim Rental Period shall instead be
determined on the basis of the Base Rate plus the Applicable
Margin. As provided in Section 27(e), in the event any Facility
Cost on which Rent accrued based on the Adjusted LIBO Rate is
prepaid other than on the last day of the Interim Rental Period
with respect thereto (including by reason of the occurrence of a
Lease Termination Date for any reason), the Lessee shall compensate
the Lessor for any funding losses incurred by it as a result of
such prepayment. On the Facility Completion Date for each Facility,
all Soft Costs incurred and Interim Rent accrued during the period
from the Facility Commencement Date through the Facility Completion
Date for such Facility shall be capitalized and added to Facility
Cost for such Facility; provided, that in no event shall the
aggregate Facility Cost for all Facilities (including all
Capitalized Expenses) exceed the Commitment, and to the extent any
such capitalization of Soft Costs or Interim Rent would cause the
aggregate Facility Cost for all Facilities to exceed the
Commitment, the amount of the excess shall be
<PAGE>
payable to the Lessor on the Facility Completion Date on which
such excess occurs.
(b) Basic Rent.
(i) Floating Rate Payment Without Election;
Election and Election Period. For each Facility, if the
Lessee has not made an Election within the Election Period
pursuant to the provisions and requirements of this Section
3(b)(i), after the Facility Completion Date for each Facility,
the Lessee's Basic Rent during the Lease Term for such
Facility shall be payable for each Rental Period in arrears on
the Rent Payment Date for such Rental Period in an amount
equal to an amount accruing on the Unrecovered Facility Cost
as to such Facility at the Floating Rate for such Rental
Period (the "Floating Rate Payment"). As provided in Section
27(e), in the event any amount of Facility Cost based on the
Adjusted LIBO Rate is prepaid other than on the last day of
the Rental Period with respect thereto (including by reason of
the occurrence of a Lease Termination Date for any reason),
the Lessee shall compensate the Lessor for any funding losses
incurred by it as a result of such prepayment. Annex "C" to
each Lease Supplement sets forth the Estimated Residual as to
the Facility to which such Lease Supplement relates, as of the
end of each Rental Period, based upon an Approved Appraisal
pursuant to the Agency Agreement, and the Non-Recourse Amount
for such Facility. With respect to any Facility as to which
the aggregate Facility Cost is at least $2,000,000 (or such
lesser amount to which the Lessor may agree), the Lessee shall
have the option to convert the Basic Rent for such Facility
within the Election Period from a Floating Rate Payment basis
to a Fixed Rate Payment basis (any exercise of such option
pursuant to the provisions and requirements of this Section
3(b)(i) for any Facility being an "Election" for such
Facility). The "Election Period" with respect to each Facility
shall commence on the Facility Commencement Date for such
Facility and terminate on the Facility Completion Date
therefor. Each Election shall be made by written notice
received not less than 7 days prior to the effective date of
such Election (and not less than 7 days prior to the end of
the relevant Election Period).
(ii) Fixed Rate Payment With Election. For each
Facility, if the Lessee has made an Election within the Election
Period pursuant to the provisions and requirements of Section
3(b)(i), after the Facility Completion Date for each Facility, the
Lessee's Basic Rent during the Lease Term for such Facility shall
be payable for each Rental Period in arrears on the Rent Payment
Date for such Rental Period in an amount equal to the sum of (A)
the Scheduled Payment as to such Facility for such Rental Period
plus (B) an amount
<PAGE>
accruing on the Unrecovered Facility Cost as to
such Facility at the Fixed Rate for such Rental Period (the "Fixed
Rate Payment").
(c) Final Rent Payment or Completion Costs Payment. In
addition to Interim Rent Basic Rent and Supplemental Rent, on the
Lease Termination Date for each Facility (whether on the Scheduled
Lease Termination Date or due to the occurrence of a Cancellation
Event or a Termination Event or otherwise), the Lessee shall pay to
Lessor the Final Rent Payment or, if a Non-Completion Event has
occurred, the Completion Costs Payment, for such Facility, as
provided in Section 15.
(d) Supplemental Rent. In addition to Interim Rent, Basic
Rent and the Final Rent Payment (if applicable), the Lessee will
also pay to the Lessor, from time to time, on a monthly basis or
more frequently upon demand by the Lessor, as additional rent
("Supplemental Rent"), the following (but without duplication of
any amounts included in the calculation of Rent):
(i) all out-of-pocket costs and expenses reasonably
incurred by the Lessor in connection with the preparation,
negotiation, execution, delivery, performance and
administration of this Lease and the other Operative
Documents, including, but not limited to, the following: (A)
fees and expenses of the Lessor, including, without
limitation, reasonable attorneys' fees and expenses and the
fees and expenses for the Approved Appraisal, the Related
Contracts, the Survey, the Environmental Assessment, the Soil
Test Reports, and the title policy referred to in Section
28(b)(ix) for each Facility; (B) all other amounts, including,
without limitation, fees, indemnities, expenses, compensation
in respect of increased costs of any kind or description
payable under this Lease or any other Operative Document; (C)
all yield maintenance, capital adequacy and other costs
contemplated under Section 27 of this Lease and any Make Whole
Adjustment; and (D) all out-of-pocket costs and expenses
reasonably incurred by the Lessor after the date of this Lease
(including, without limitation, reasonable attorneys' fees and
expenses and other expenses and disbursements reasonably
incurred) associated with (1) negotiating and entering into,
or the giving or withholding of, any future amendments,
supplements, waivers or consents with respect to this Lease,
(2) any Loss Event, Casualty Occurrence or termination of this
Lease and (3) any Default or Event of Default and the
enforcement and preservation of the rights or remedies of the
Lessor under this Lease and the other Operative Documents; and
(ii) all other amounts that the Lessee agrees herein to pay
other than Interim Rent, Basic Rent, the Final
<PAGE>
Rent Payment, the
Completion Costs Payment and amounts described in clause (i) above.
(e) Computations. All computations of Interim Rent, Basic
Rent and fees shall be made by the Lessor on the basis of a year of
360 days (or, in the case of computations based on the Prime Rate,
365/366 days), in each case for the actual number of days
(including the first day but excluding the last day) occurring in
the Interim Rental Period or Rental Period or other period for
which such Interim Rent, Basic Rent or fee payments are payable.
Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of Interim Rent,
Basic Rent or fees; provided, however, that if such extension would
cause payment of Interim Rent, Basic Rent or fees to be made in the
next following calendar month, such payment shall be made on the
next preceding Business Day.
(f) No Offsets. This Lease is an absolute net lease, and
Rent and all other sums payable by the Lessee hereunder shall be
paid without notice except as otherwise expressly provided herein,
and the Lessee shall not be entitled to any abatement, reduction,
setoff, counterclaim, defense or deduction with respect to any Rent
or other sums payable hereunder. The obligations of the Lessee to
pay Rent and all other sums payable hereunder shall not be affected
by reason of: (i) any damage to, or destruction of, any Facility or
any part thereof by any cause whatsoever (including, without
limitation, fire, casualty or act of God or enemy or any other
force majeure event); (ii) any condemnation, including, without
limitation, a temporary condemnation of such Facility or any
portion thereof; (iii) any prohibition, limitation, restriction or
prevention of the Lessee's use, occupancy or enjoyment of such
Facility or any part thereof by any Person (other than by the
Lessor in violation of this Lease); (iv) any matter affecting title
to such Facility or any portion thereof; (v) any loss of possession
by the Lessee of such Facility or any portion thereof, by reason of
title paramount or otherwise (other than by the Lessor in violation
of this Lease); (vi) any default by the Lessor hereunder or under
any other Operative Document; (vii) the invalidity or
unenforceability of any provision hereof or the impossibility or
illegality of performance by the Lessor or the Lessee or both;
(viii) any action of any Governmental Authority; or (ix) any other
Loss Event, Casualty Occurrence or other cause or occurrence
whatsoever, whether similar or dissimilar to the foregoing. The
Lessee shall remain obliged under this Lease in accordance with its
terms and shall not take any action to terminate, rescind or avoid
this Lease, except as expressly provided in this Lease,
notwithstanding any bankruptcy, insolvency, reorganization,
liquidation, dissolution or other proceeding affecting the Lessee
or any action with respect to
<PAGE>
this Lease which may be taken by any trustee, receiver or liquidator
or by any court. Except as expressly provided in this Lease, the
Lessee waives all rights to terminate or surrender this Lease, or to
any abatement or deferment of Rent or other sums payable hereunder.
Except as expressly provided in this Lease, the Lessee hereby waives any
and all rights now or hereafter conferred by law or otherwise to modify
or to avoid strict compliance with its obligations under this Lease. All
payments made to the Lessor hereunder as required hereby shall be
final and irrevocable, and the Lessee shall not seek to recover any
such payment or any part thereof for any reason whatsoever, absent
manifest error.
(g) Taxes. Subject to the Lessee's contest rights under
Section 13, and subject to the limitations contained in Section
21(b), all payments of Rent, yield and all other amounts to be paid
by the Lessee hereunder to the Lessor shall be made without
deduction for, and free from, any taxes, imposts, levies, duties,
deductions or withholdings of any nature now or at any time
hereafter imposed by any Governmental Authority or by any taxing
authority thereof or therein imposed or levied upon, assessed
against or measured by any Rent or other sums payable hereunder
excluding taxes imposed on or measured by the net income of the
Lessor or any Participant, and franchise taxes imposed on the
Lessor or any Participant, by the jurisdiction under the laws of
which the Lessor or such Participant is organized or any political
subdivision thereof, and taxes imposed on or measured by its
income, and franchise taxes imposed on it, by the jurisdiction of
the Lessor's or such Participant's Applicable Funding Office or any
political subdivision thereof and other than any tax arising by
reason of a connection between the Lessor or such Participant or
the jurisdiction of the lessor or any Participant or the Lessor's
or such Participant's Applicable Funding Office and the
jurisdiction imposing such tax other than the making and
performance by the Lessor of this Lease (all such non-excluded
taxes, imposts, levies, duties, deductions or withholdings of any
nature being "Withholding Taxes"). In the event that the Lessee is
required by applicable law to make any such withholding or
deduction of Withholding Taxes with respect to any Rent or other
amount, the Lessee shall pay such deduction or withholding to the
applicable taxing authority, shall promptly furnish to the Lessor
or any Participant in respect of which such deduction or
withholding is made all receipts and other documents evidencing
such payment and shall pay to the Lessor or such Participant
additional amounts as may be necessary in order that the amount
received by the Lessor or such Participant after the required
deduction or withholding shall equal the amount the Lessor or such
Participant would have received had no such deduction or
withholding been made. In addition, the Lessee agrees that it will
promptly pay all other Impositions imposed upon or levied or
assessed against such Facility or any portion thereof, or against
the Lessor or any Participant in connection
<PAGE>
with the transactions contemplated by this Lease and the other Operative
Documents, or any sums levied in connection with the execution, delivery
or recording of the Operative Documents, and will furnish to the
Lessor or any Participant upon request copies of official receipts
or other proof evidencing such payment; provided, however, that the
Lessee shall not be obligated to pay (i) any Impositions that are
excluded from the definition of Withholding Taxes; (ii) any
Impositions attributable to the gross negligence or willful
misconduct of the Lessor or any Participant; or (iii) resulting
solely from a breach by the Lessor of its obligations under this
Lease or the other Operative Documents. The Lessee further agrees
that, subject to its contest rights under Section 13, it will, at
its expense, do all things required to be done by the Lessor or any
Participant in connection with the levy, assessment, billing or
payment of any Impositions that it is required to pay pursuant to
the preceding sentence, and is hereby authorized by the Lessor and
each Participant to act for and on behalf of the Lessor and the
Participants in any and all such respects and to prepare and file,
on behalf of the Lessor and the Participants, all tax returns and
reports required to be filed by the Lessor (other than federal
income tax returns and documents related thereto, subject to
Section 25) concerning such Facility. The Lessee's payment
obligations under this Section 3(g) shall survive the termination
of this Lease.
Each Participant which is not chartered and organized
under the laws of the United States of America or a state thereof
(each a "Non-U.S. Domestic Participant") shall (by the execution of
the participation agreement with the Lessor) agree, as soon as
practicable after receipt by it of a request by the Lessee to do
so, to file all appropriate forms and take other appropriate action
to obtain a certificate or other appropriate document from the
appropriate Governmental Authority in the jurisdiction imposing the
relevant Withholding Taxes, establishing that it is entitled to
receive payments of Rent, yield and all other amounts under this
Lease without deduction and free from withholding of any
Withholding Taxes imposed by such jurisdiction; provided, that, if
it is unable, by virtue of any applicable law, rule or regulation,
to establish such exemption or to file such forms and, in any
event, during such period of time as such request for exemption is
pending, the Non-U.S. Domestic Participant shall nonetheless remain
obligated under the terms of the immediately preceding paragraph.
Without limiting the foregoing, each Non-U.S. Domestic Participant
agrees to deliver to the Lessee, promptly upon any request therefor
from time to time, such forms, documents and other information as
may be required by applicable law from time to time to establish
that payment to such Non-U.S. Domestic Participant hereunder or any
Operative Documents are exempt from Withholding Taxes. Without
limiting the generality of the foregoing, each Non-U.S. Domestic
Participant agrees, on the date of its execution of the
participation agreement with the
<PAGE>
Lessor, to deliver to the Lessee, two accurate and duly completed and
executed Internal Revenue Service Form 4224 or 1001 (as applicable),
together with Internal Revenue Service Forms W-8 or W-9, as appropriate,
establishing that such Non-U.S. Domestic Participant is entitled to a
complete exemption from all Withholding Taxes imposed by the federal
government of the United States by way of withholding, including
without limitation, all backup withholding ("U.S. Withholding
Taxes"). Thereafter, from time to time (a) upon any change by a
Non-U.S. Domestic Participant of its Applicable Funding Office, (b)
before or promptly after any event occurs (including, without
limitation, the passing of time) requiring a change in or update of
the most recent Form 4224 or 1001 previously delivered by such Non-
U.S. Domestic Participant, or (c) upon the reasonable request of
the Lessee, from time to time, deliver to the Lessee, two accurate
and duly completed and executed Forms 4224 or 1001 (as applicable)
(together with Forms W-8 or W-9, as aforesaid) in replacement of
the forms previously delivered by such Non-U.S. Domestic
Participant, establishing that such Non-U.S. Domestic Participant
is entitled to an exemption in whole or in part from all U.S.
Withholding Taxes except to the extent that a change in law has
rendered all such forms inapplicable to such Non-U.S. Domestic
Participant.
If any such Non-U.S. Domestic Participant shall fail to
timely deliver any such forms, documents or other information
required to be delivered by it pursuant to the foregoing provisions
for 30 days after request therefor, the Lessee, may make deductions
or withholdings of Withholding Taxes and shall not be obligated to
pay any additional amounts in respect thereof to such Non-U.S.
Domestic Participant which would not have been payable had such
forms, documents or other information been delivered.
If the Internal Revenue Service or any other taxation
authority in the United States or in any other jurisdiction
successfully asserts a claim that such Non-U.S. Domestic
Participant, the Lessor or the Lessee, did not properly withhold
tax from amounts paid to or for the account of any Non-U.S.
Domestic Participant or its participant (because the appropriate
form was not properly executed, or because such Non-U.S. Domestic
Participant failed to notify the Lessee of a change in
circumstances which rendered the exemption from (or reduction in)
U.S. Withholding Taxes ineffective), such Non-U.S. Domestic
Participant shall indemnify the Lessee fully for all amounts paid,
directly or indirectly, by the Lessee, as tax or otherwise,
including, without limitation, penalties and interest.
In the event the Lessor or any Participant receives a
refund from the authority to which such Withholding Taxes were paid
of any Withholding Taxes paid by the Lessee pursuant to this
Section 4(g), it will pay to the Lessee the amount of such refund
<PAGE>
promptly upon receipt thereof; provided, however, if at any time
thereafter it is required to return such refund, the Lessee shall
promptly repay to it the amount of such refund.
Nothing in this Section shall require the Lessor or any
Participant to disclose any information about its tax affairs or
interfere with, limit or abridge the right of the Lessor or any
Participant to arrange its tax affairs in any manner in which it
desires.
Without prejudice to the survival of any other agreement
of the Lessor and the Lessee hereunder, the agreements and
obligations of the Lessor, the Participants and the Lessee
contained in this Section 4 shall be applicable with respect to any
Participant or other transferee, and any calculations required by
such provisions (i) shall be made based upon the circumstances of
such Participant or other transferee (subject to Section 21(d), and
(ii) constitute a continuing agreement and shall survive for a
period of 3 years after the termination of this Lease as to all
Facilities and the payment in full of all Rent and other payments
hereunder and under the other Operative Documents as to all
Facilities.
(h) Payments to the Lessor. All payments by the Lessee
pursuant to this Lease shall be made by the Lessee to the Lessor.
All such payments required to be made to the Lessor shall be made
not later than 12:00 noon, Atlanta, Georgia time, on the date due,
in immediately available funds, to such account with the Lessor as
it shall specify from time to time by notice to the Lessee.
Whenever any payment to be made shall otherwise be due on a day
which is not a Business Day, except as otherwise expressly provided
herein, such payment shall be made on the next succeeding Business
Day and such extension shall be included in computing Rent and
fees, if any, in connection with such payment.
(i) Default Rate. The Lessee shall pay on demand to the
Lessor interest at the Default Rate on all amounts payable by the
Lessee to the Lessor hereunder or any of the other Operative
Documents, from the due date thereof until paid in full.
Section 4. Commitment.
(a) Advances. The Lessor agrees, on the terms and
conditions of this Lease, to make Advances to the Lessee for each Facility
during the period from and including the Facility Commencement Date
for such Facility up to and including the Facility Completion Date
for such Facility, in an aggregate principal amount at any one time
outstanding for all Facilities (including all Capitalized
Expenses) up to but not exceeding the amount of the Commitment;
provided, however, that the aggregate principal amount of all
Advances by the Lessor under this Section 4(a) at any one time
outstanding shall not exceed the lesser of
<PAGE>
(y) 100% of the Facility Cost as incurred or invoiced or (z) the Commitment.
All Advances shall be utilized only for items of Facility Cost, which
utilization shall be evidenced to the Lessor's satisfaction
simultaneously with and as a condition to each Advance.
(b) Fundings of Advances.
(i) The Lessee, as Acquisition/Construction Agent for the
Lessor, from time to time as the Lessee may determine in accordance
with this Lease and the Agency Agreement, shall give the Lessor
notice of a requested funding of Advances by the Lessor (an
"Advance Notice"), which shall be substantially in the form of
Exhibit F, which may be given by telecopy or telephone (and if by
telephone, with a copy to follow by telecopy), to be received by
the Lessor not later than 12:00 noon, Atlanta, Georgia time, on the
3rd Business Day before the requested date of such Advances, which
Advance Notice shall be irrevocable and effective only upon receipt
by the Lessor and shall specify the aggregate amount and the date
of the Advances to be funded and specify in reasonable detail the
purpose and Facility for which such Advance is requested. Once
given, an Advance Notice may be revoked only upon payment of any
amounts due to the Lessor under Section 27(e). The amounts so
requested shall be made available to the Acquisition/Construction
Agent by depositing the same, in immediately available funds, in an
account of the Acquisition/Construction Agent designated by it and
maintained with the Lessor at its principal office, not later than
4:30 p.m. on the date of requested Advance. There shall be no more
than one Advance for all Facilities per calendar month.
(ii) All Advances under Section 4(b)(i) shall be in amounts of
at least $500,000 or in integral multiples of $100,000 in excess
thereof, or the remaining balance of the Commitment, if less.
(c) Changes of Commitment. The Lessee shall have the right
to terminate or to reduce the amount of, or, prior to utilization
thereof, terminate, the Commitment at any time or from time to time
upon not less than 3 Business Days' prior written notice to the
Lessor of each such termination or reduction, which notice shall
specify the effective date thereof and the amount of any such
reduction (which shall not be less than $1,000,000 or any multiple
of $1,000,000 in excess thereof) and shall be irrevocable and
effective only upon receipt by the Lessor. The Commitment once
terminated or reduced may not be reinstated. In no event shall the
Commitment be reduced below the outstanding principal amount of
Advances.
(d) Fees. The Lessee shall pay or cause to be paid to the
Lessor, from the proceeds of Advances on the Closing Date, the
<PAGE>
fees specified in the engagement letter dated October 13,1998 between
the Lessor and the Lessee.
(e) Funding Office. The Advances made by the Lessor shall be
made and maintained at the Lessor's Applicable Funding Office
therefor.
Section 5. Agency Agreement. The Lessee is entering into
the Agency Agreement with the Lessor pursuant to which the Lessee
will act as the Acquisition/Construction Agent for the Lessor in
causing the completion of certain enhancements and improvements to,
and the purchase, manufacture, construction, improvement,
renovation, assembly and installation of each Facility and the
performance of all of the Lessor's obligations to acquire each
Facility, including negotiation and performance of all Related
Contracts, obtaining all Applicable Permits and complying with all
Governmental Requirements (including all Environmental
Requirements) relating to such Facility. Upon funding, title to
all components of a Facility purchased with such funding shall be
and remain in the Lessor and shall be subject to the terms and
conditions of this Lease. The Facility and all components thereof
shall be purchased, manufactured, constructed, improved, renovated,
assembled or installed, as applicable, in accordance with Related
Contracts entered into by the Lessee pursuant to the Agency
Agreement.
Section 6. Title to Remain in the Lessor. The Lessor
shall own 100% of the legal and beneficial interest in each
Facility. All accessories, equipment, parts and devices necessary
to achieve Completion for any Facility, and all fixtures now or
hereafter included in or attached to the Applicable Site thereof,
the building and all modifications, alterations, renovations or
improvements to such Facility made by the Lessee shall be and
become part of such Facility for all purposes of this Lease and
shall be Property of the Lessor and subject to the terms of this
Lease; excluding; however: any office equipment or other equipment
which may be located on such Applicable Site but which (x) is not
necessary to achieve Completion of such Facility and (y) does not
constitute fixtures; provided that the Lessor's interest in any
part of any Facility that is replaced by the Lessee pursuant to and
as permitted by the terms of this Lease shall be deemed released
from this Lease and thereupon become the Property of the Lessee
automatically, without further action by the Lessor, and the Lessor
shall perform all acts and execute all documents that the Lessee
reasonably requests to give effect to the foregoing at the expense
of the Lessee, including the execution and delivery of bills of
sale and other documents of transfer. This Lease shall not give or
grant to the Lessee any right, title or interest in or to any
Facility, except the rights expressly conferred by this Lease.
Section 7. Maintenance of the Facilities; Operations.
<PAGE>
(a) The Lessee shall, and it shall require and cause any and
all employees, contractors, subcontractors, agents,
representatives, affiliates, consultants and occupants at the
Lessee's own cost and expense to: (i) cause each Facility to be
maintained in all material respects in good operating order, repair
and condition, in accordance with prudent industry practice and any
applicable manufacturer's or supplier's manuals or warranties,
subject to normal wear and tear, and take all action, and make all
changes and repairs, structural and non-structural, foreseen and
unforeseen, ordinary and extraordinary, which are required pursuant
to any Governmental Requirement or Insurance Requirement at any
time in effect to assure full compliance therewith in all material
respects; and (ii) do all things necessary to prevent the
incurrence of any Environmental Damages or Environmental
Liabilities relating to any Applicable Site or any business
conducted in or relating to any Applicable Site, and cause each
Facility to continue to have at all times, in all material
respects, and in compliance with all applicable Governmental
Requirements and Insurance Requirements, the capacity and
functional ability to perform, on a continuing basis (subject to
normal interruption in the ordinary course of business for
maintenance, inspection, service, repair and testing) and in
commercial operation, the functions for which it was designed as
specified in the Facility Plan and to be utilized commercially for
the Permitted Use.
(b) The Lessee shall, and it shall require and cause any and
all employees, contractors, subcontractors, agents,
representatives, affiliates, consultants and occupants at the
Lessee's own cost and expense to, promptly replace, or cause to be
replaced, any part of any Facility which may from time to time be
incorporated or installed in or attached to such Facility and which
may from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair, obsolete or permanently
rendered unfit for use for any reason whatsoever. All accessions
and replacement parts shall be free and clear of all Liens other
than Permitted Liens, and, except for temporary replacement parts
utilized pending installation of permanent replacement parts, shall
be of a type customarily used in the industry at such time for such
purpose, shall be in as good operating condition as, and shall have
a utility and useful life at least equal to, the parts replaced
(assuming such replaced parts were in the condition and repair
required to be maintained by the terms hereof) and shall have a
value at least equal to the parts replaced (assuming such replaced
parts were in the condition and repair required to be maintained by
the terms hereof).
(c) Notwithstanding the provisions of Section 8 and the
foregoing provisions of this Section 7, the Lessee shall not
(except as may be required by any Governmental Requirement) remove,
replace or alter any portion of any Facility or affix or place any
accessory, equipment, part or device on any portion of the
<PAGE>
Equipment if such removal, replacement, alteration or addition
would impair the originally intended function or use of the
Facility so as to materially reduce the value of such Facility
taken as a whole, or materially decrease the estimated useful life
of such Facility.
(d) The Lessor shall not be required in any way to maintain,
repair or rebuild any Facility or any portion thereof and the
Lessee waives any right it may now or hereafter have to make any
repairs at the expense of the Lessor pursuant to any Governmental
Requirement at any time in effect or otherwise.
(e) The Lessee shall, and it shall require and cause any and
all employees, contractors, subcontractors, agents,
representatives, affiliates, consultants and occupants at the
Lessee's own cost and expense to: (i) comply with all applicable
Environmental Requirements with regard to each Facility and all
parts thereof; and (ii) use, employ, process, emit, generate,
store, handle, transport, dispose of and/or arrange for the
disposal of, any and all Hazardous Materials in, on or, directly or
indirectly, related to or in connection with each Facility or any
part thereof in a manner consistent with prudent practice and in
material compliance with any applicable Environmental Requirement.
The Lessor and the Lessee hereby acknowledge and agree that the
Lessee's obligations hereunder with respect to Environmental
Requirements are intended to bind the Lessee with respect to
matters and conditions involving each Facility or any part thereof.
Section 8. Modifications.
(a) The Lessee shall make no modifications, alterations,
renovations or improvements to any Facility without the prior
written consent of the Lessor, provided however, that subject to
the terms of Section 8(b), the Lessee shall have the right to make
modifications, alterations, renovations or improvements to any
Facility so long as such modifications, alterations, renovations or
improvements do not (except as may be required by any Governmental
Requirement) (i) materially reduce the value of the Facility as a
whole; (ii) materially and adversely affect the capacity and
performance of the Facility on a continuing basis in commercial
operation of the function for which the Facility was designed as
specified in the Facility Plan; (iii) materially deviate from the
Facility Plan; or (iv) materially and adversely affect the
estimated useful life of the Facility.
(b) If the Lessee determines that any part of any Facility
is no longer necessary for the performance of such Facility on a
continuing basis in commercial operation of the function for which
such Facility was designed as specified in the Facility Plan, then
the Lessee (except when such action or removal may be required by
any applicable Governmental Requirement, in which event, the Lessee
shall promptly give the Lessor notice of
<PAGE>
such action or removal) shall give the Lessor at least 30 days' notice
prior to taking any action as the result of such determination and shall
not remove any such portion unless and until the Lessor has determined that
(i) such portion is no longer necessary for the performance of the
Facility on a continuing basis in commercial operation of the
function for which such Facility was designed in all material
respects as specified in the Facility Plan, (ii) removal of such
portion does not materially reduce the value of the Facility as a
whole, and (iii) removal of such portion does not materially
decrease the estimated useful life of the Facility. This Section
8(b) shall not apply to worn out or obsolete equipment or damaged
equipment (to the extent such damage does not constitute a Casualty
Occurrence or Loss Event) removed and replaced by the Lessee in
accordance with Section 7(b).
Section 9. Further Assurances. The Lessee, at its
expense, shall execute, acknowledge and deliver from time to time
such further counterparts of this Lease or such affidavits,
certificates, certificates of title, bills of sale, financing and
continuation statements, consents and other instruments as may be
required by applicable law or reasonably requested by the Lessor in
order to evidence the Lessor's title to each Facility and the
Lessor's interests in this Lease, and shall, at the Lessee's
expense, cause such documents to be recorded, filed or registered
in such places as the Lessor may reasonably request and to be
re-recorded, refiled or re-registered in such places as may be
required by applicable law or at such times as may be required by
applicable law in order to maintain and continue in effect the
recordation, filing or registration thereof. The Lessor shall not
grant or create any Lien on any Facility to any Person except
Permitted Liens, Liens in favor of the Lessor and Liens pursuant to
this Lease and the other Operative Documents.
Section 10. Compliance with Governmental Requirements and
Insurance Requirements: Related Contracts. The Lessee, at its
expense, will comply with all Governmental Requirements applicable
to the Facility or any portion thereof or the ownership,
installation, operation, mortgaging, possession, use, non-use or
condition of the Facility or any portion thereof, all Insurance
Requirements, and all instruments, contracts or agreements
affecting title to ownership of the Facility or any portion
thereof. In addition, the Lessee, so long as no Event of Default
has occurred and is continuing, is hereby authorized by the Lessor
to, and shall, fully and promptly keep, observe, perform and
satisfy on behalf of the Lessor any and all obligations,
conditions, covenants and restrictions of or on the Lessor or the
Lessee under any and all Related Contracts so that there will be no
default thereunder and so that the other parties thereunder shall
be, and remain at all times, obliged to perform their obligations
thereunder, and the Lessee, to the extent within its control, shall
not permit to exist any condition, event or fact that could allow
or serve as a basis or justification for any such Person to avoid
<PAGE>
such performance. The Lessor agrees to execute such documents and
take all other actions as shall be reasonably necessary, and
otherwise to cooperate with the Lessee in connection with the
matters described above, provided that all reasonable out-of-pocket
costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by the Lessor in connection
therewith shall be borne by the Lessee, and the Lessor shall not be
required to execute any document that would, in the opinion of the
Lessor, materially and adversely affect the value or use of any
Facility or any portion thereof for the Permitted Use or otherwise
materially and adversely affect the transactions contemplated by
the Operative Documents or the interests of the Lessor in any
Facility or under the Operative Documents or otherwise.
Section 11. Condition and Use of Facilities; Quiet
Enjoyment.
(a) Each Facility is leased and the Lessee accepts and takes
possession of each Facility as is, where is, and with all faults
and in the condition thereof and subject to rights of any parties
in possession thereof, the state of the title thereto, the rights
of ownership therein, and subject to all Governmental Requirements
now in effect or hereafter adopted, in each case as in existence
when the same first becomes subject to this Lease, without
representations and warranties of any kind as to title by the
Lessor or any Person acting on behalf of it. The Lessee
acknowledges and agrees that none of the Facilities has been
selected by the Lessor, that the Lessor has not supplied any
specifications with respect to any Facility and that the Lessor (i)
is not a Vendor of, or merchant or supplier with respect to, any of
the Property comprising any Facility or any Property of such kind,
(ii) has not made any recommendation, given any advice or taken any
other action with respect to the choice of any manufacturer,
supplier or transporter of, or any vendor of or other contractor,
including, without limitation, with respect to ANY OF THE Property
comprising the Facility, (iii) has not at any time had physical
possession of any such Property, (iv) has not made or is not making
any warranty, express or implied, relating to any Facility,
including without limitation, with respect to title,
merchantability, fitness for a particular purpose or otherwise, the
design, condition, quality of material or workmanship, conformity
to specifications, freedom from patent or trademark infringement,
absence of any latent or other defects, whether or not
discoverable, whether arising pursuant to the UCC or any other
present or future law or otherwise, or compliance with Applicable
Permits or other Governmental Requirements, or (v) shall not be
liable for incidental or consequential damages (including liability
in tort, strict or otherwise). In the event of any defect or
deficiency of any nature in any Facility or any Property or other
item constituting a part thereof, whether patent or latent, the
Lessor shall not have any responsibility or liability with respect
thereto. The provisions of this Section 11 have been negotiated
and are intended to be a complete exclusion and negation of any and
all warranties, express or implied, by the Lessor with respect to
such Facility or any Property or other item constituting a part
thereof, whether arising pursuant to the UCC or any other law now
or hereafter in effect.
<PAGE>
(b) The Lessor hereby assigns to the Lessee, until the
occurrence of an Event of Default, any other Cancellation Event or
a Termination Event hereunder, the benefits in respect of any
Vendor's warranties or undertakings, express or implied, relating
to the Facilities (including any labor, Facilities or parts
supplied therewith), and, to the extent assignment of the same is
prohibited or precludes enforcement of any such warranty or
undertaking, the Lessor hereby subrogates the Lessee to its rights
in respect thereof. The Lessor hereby authorizes the Lessee, at
the Lessee's expense, to assert any and all claims and to prosecute
any and all suits, actions and proceedings, in its own name or in
the name of the Lessor, in respect of any such warranty or
undertaking and, except during the continuance of any Event of
Default or after the occurrence of any other Cancellation Event or
any Termination Event hereunder, to retain the proceeds received,
and after the termination of this Lease or after the occurrence and
during the continuation of an Event of Default, or after the
occurrence of any other Cancellation Event or any Termination
Event, to pay the same in the form received (with any necessary
endorsement) to the Lessor. The Lessor agrees to execute such
documents and take all other actions as shall be reasonably
necessary, and otherwise to cooperate with the Lessee in connection
with the matters described above, provided that all reasonable
out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by the Lessor in
connection therewith shall be borne by the Lessee, and the Lessor
shall not be required to execute any document that would, in the
opinion of the Lessor, materially and adversely affect the value or
use of any Facility or any portion thereof for the Permitted Use or
otherwise materially and adversely affect the transactions
contemplated by the Operative Documents or the interests of the
Lessor in any Facility or under the Operative Documents or
otherwise.
(c) The Lessee may use any Facility for the Permitted Use.
During the term of this Lease, the Lessor covenants that unless an
Event of Default has occurred and is continuing, or any other
Cancellation Event or any Termination Event has occurred, except as
may arise under a Permitted Lien or as may otherwise be
contemplated under the Operative Documents, the Lessor will not,
and will not permit any party claiming by, through or under the
Lessor to, interfere with the peaceful and quiet possession and
enjoyment of such Facility by the Lessee; provided, however, that
the Lessor and its successors, assigns, representatives and agents
may, upon reasonable notice to the Lessee, enter upon and examine
the Facilities or any part thereof at reasonable times, subject to
the provisions of Section 19; and provided further, however, that
the Lessor is not hereby warranting the state or quality of the
title to any part of the Facilities. Any failure by the Lessor to
comply with the foregoing provisions of this Section 11(c) shall
not give the Lessee any right to cancel or terminate this Lease, or
to abate, reduce or make reduction from or offset against any Rent
<PAGE>
or other sum payable under this Lease or any other Operative
Document, or to fail to perform or observe any other covenant,
agreement or obligation hereunder or thereunder. The Lessee will
not do, or fail to do, or permit or suffer to exist any act or
thing, which action or thing or failure might impair the value, use
or usefulness of any Facility for the Permitted Use in accordance
with the design of the Facility, ordinary wear and tear excepted.
Section 12. Liens.
(a) Except for Permitted Liens, the Lessor's interest in the
Facilities is not subject to any construction, materialman's or
mechanics' lien for any improvements to any Facility or the
Applicable Site thereof undertaken by the Lessee or by agents of
the Lessee, whether or not such improvements are made with the
consent of the Lessor.
(b) The Lessee will not directly or indirectly create, or
permit to be created or to remain, and at the Lessee's expense will
discharge within 10 days of notice of the filing or assertion
thereof, by bond, deposit or otherwise, any Lien upon the Lease or
any of the Facilities except (i) any Lien being contested as
permitted by and in accordance with Section 13, or (ii) Permitted
Liens. The Lessor agrees that the Lessee shall have during the
term of this Lease the exclusive right (so long as no Default has
occurred and is continuing) to grant, create or suffer to exist
Permitted Liens in the ordinary course of business and in
accordance with prudent industry practices. The Lessor agrees to
execute such documents and take all other actions as shall be
reasonably necessary, and otherwise to cooperate with the Lessee in
connection with the matters described above, provided that all
reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred by
the Lessor in connection therewith shall be borne by the Lessee,
and the Lessor shall not be required to execute any document that
would, in the opinion of the Lessor, materially and adversely
affect the value or use of any Facility or any portion thereof for
the Permitted Use or otherwise materially and adversely affect the
transactions contemplated by the Operative Documents or the
interests of the Lessor in any Facility or under the Operative
Documents or otherwise.
(c) The Lessor will not directly or indirectly sell, transfer
or otherwise dispose of, or create, or permit to be created or to
remain, and will discharge, any Lien of any nature whatsoever on,
in or with respect to, its interest in the Facilities arising by or
through it or its actions, except Permitted Liens.
Section 13. Permitted Contests. Notwithstanding any other
provision of this Lease to the contrary, after prior written notice
to the Lessor and provided there is no material risk of sale,
<PAGE>
forfeiture or loss of any Facility or any material part thereof,
the Lessee may at its expense contest any Imposition which it is
required to pay hereunder, by appropriate proceedings conducted in
good faith and with due diligence; provided, however, that the
actions of the Lessee, as authorized by this Section 13, shall be
subject to the express written consent of the Lessor if such
actions would subject the Lessor or any Facility or any portion
thereof to any liability or loss not indemnified in full by the
Lessee hereunder or any sanction, criminal or otherwise, for
failure to pay any such Imposition. The Lessee will pay, and save
the Lessor and the Participants harmless against, all losses,
Judgments and reasonable costs, including reasonable attorneys'
fees and expenses, in connection with any such contest and will,
promptly after the final determination of such contest, pay and
discharge the amounts which shall be imposed or determined to be
payable therein, together with all penalties, costs and expenses
incurred in connection therewith. The Lessee shall prevent any
foreclosure, judicial sale, taking, loss or forfeiture of any
Facility or any portion thereof, or any interference with or
deductions from any Rent or any other sum required to be paid by
the Lessee hereunder by reason of such nonpayment or nondischarge
of an Imposition. The Lessor shall cooperate with the Lessee in
any contest and shall allow the Lessee to conduct such contest (in
the name of the Lessor, if necessary) at the Lessee's sole cost and
expense. The Lessee shall notify the Lessor of each such
proceeding within ten (10) days after the commencement thereof,
which notice shall describe such proceeding in reasonable detail.
Section 14. Insurance, etc Regarding the Facilities.
(a) The Lessee will, at its own expense, purchase and
maintain, or cause to be purchased and maintained, throughout the
term of this Lease insurance with respect to its business and the
Facilities in accordance with the requirements of Schedule 14.
(b) The Lessee shall bear all risk of loss (including any
Loss Event or Casualty Occurrence) with respect to each Facility,
whether by casualty, theft, taking, confiscation or otherwise, with
respect to each Facility or any portion thereof, at all times
during the term of this Lease until possession of the Facilities
has been accepted by the Lessor pursuant to Section 17.
(c) So long as no Event of Default shall have occurred
and be continuing, and no other Cancellation Event or Termination Event
shall have occurred and be continuing and any payments, whether
constituting insurance proceeds, amounts paid by any Governmental
Authority or otherwise, received by the Lessee or the Lessor upon
the occurrence of any loss with respect to each Facility or portion
thereof (other than a Casualty Occurrence), whether as a result of
casualty, theft, taking or other confiscation, shall be applied in
payment for necessary repairs and replacement to the Facility in
accordance with Section 7 or, to
<PAGE>
the extent the costs of such repairs and replacement shall have been paid
by the Lessee, to reimburse the Lessee. The Lessee shall be entitled to
retain any excess funds remaining after necessary repairs and replacements
have been completed and all costs therefor paid in full. Upon the
occurrence and during the continuance of any Event of Default, or
the occurrence of any other Cancellation Event or Termination
Event, the Lessor shall be entitled to receive and retain any such
payments for application to the obligations of the Lessee
hereunder.
(d) Upon a Casualty Occurrence with respect to any Facility,
the Lessee shall give prompt notice thereof to the Lessor and shall
within 30 days of the date of such Casualty Occurrence either (i)
offer to purchase the whole of the Facility for the Purchase Price
for such Facility as provided in Section 15(c) or (ii) provide the
Lessor with a replacement plan acceptable to the Lessor setting
forth how the Lessee shall replace, or cause to be replaced, at the
Lessee's own cost and expense, within 6 months (but (x) in no event
later than the Scheduled Lease Termination Date for such Facility,
and (y) if the Casualty Occurrence occurs during the Construction
Period, in no event later than the last day of the Construction
Period) after the date of such Casualty Occurrence, such portion of
the Facility that is the subject of a Casualty Occurrence in
accordance with this Section 14(d) and Section 7. If the Lessee
chooses the option set forth in clause (ii) of the preceding
sentence, within the later to occur of (x) 60 days after the date
of the Casualty Occurrence and (y) satisfaction of all applicable
Governmental Requirements, and obtaining all authorizations of
Governmental Authorities, required therefor (but in no event later
than 90 days after the date of the Casualty Occurrence), the Lessee
shall have commenced repairs or replacements as specified in the
replacement plan. After completion of the repairs and
replacements, the Lessee shall demonstrate to the reasonable
satisfaction of the Lessor that operations, capacity and production
of the Facility have been restored to the standards required for
Completion.
(e) All replacement Property of any Facility (other than
temporary replacement parts and equipment installed pending
installation of permanent replacement Property) installed pursuant
to Section 14(d) shall be free and clear of all Liens except
Permitted Liens, and shall be in as good operating condition as,
and shall have a value and utility at least equal to, the Property
replaced immediately prior to the Casualty Occurrence to which such
Property was subject. For purposes of this Lease (including
without limitation Section 14(d) and Section 7), the Funded Amount
and Book Value of the replacement Property shall be deemed to equal
the Funded Amount and Book Value of the part(s) replaced thereby.
All Property for any Facility at any time removed from this Lease
pursuant to Section 14(d) and Section 7 shall remain the property
of the Lessor, no matter where located, until such time as
insurance proceeds have been received by the Lessor at least equal
<PAGE>
to the Book Value of such portion of such Facility or such portion
shall be replaced by suitable items that have been incorporated or
installed on or attached to the Facility and that meet the
requirements specified above. Immediately upon any permanent
replacement Property becoming incorporated or installed on or
attached to any Facility as provided above, without further act,
such permanent replacements shall become subject to this Lease and
be deemed part of the Facility for all purposes hereof to the same
extent as any other parts of the Facility. All amounts of
insurance proceeds for losses and all other proceeds (whether
resulting from damage or destruction or from condemnation,
confiscation or seizure) relating to any Facility shall be
deposited into the Restoration Account for such Facility and held
and released, together with accrued interest thereon, as
hereinafter provided. So long as an Event of Default shall not
have occurred and be continuing and no other Cancellation Event or
Termination Event shall have occurred, and provided that the Lessor
shall have received a written application of the Lessee accompanied
by a certificate of an Authorized Officer of the Lessee showing in
reasonable detail the nature of any necessary repair, rebuilding
and restoration, the actual cash expenditures necessary for such
repair, rebuilding and restoration, the expected total expenditures
required to complete such work and evidence that sufficient funds
are or will be available to complete such work on a timely basis
(such certificate to be acceptable to the Lessor in all respects),
then the amounts available in the Restoration Account, together
with accrued interest thereon, shall be released by the Lessor
immediately upon receipt of such certification or, if applicable,
from time to time on the last Business Day of each month during the
period of repair, rebuilding and restoration in payment therefor
against presentation to the Lessor of a certificate executed by an
Authorized Officer of the Lessee to the effect that expenditures
have been made, or costs incurred, by or for the account of the
Lessee or are reasonably anticipated to be made during the
immediately following one month period in a specified amount for
the purposes of making repairs, rebuilding and restoration in the
amounts specified, that no Event of Default, other Cancellation
Event or Termination Event exists and all conditions precedent
herein provided relating to such withdrawal and payment have been
satisfied. Upon the occurrence of any Event of Default, any other
Cancellation Event or any Termination Event, the Lessor shall be
entitled to retain all amounts in the Restoration Account for each
Facility for application to the obligations of the Lessee
hereunder.
(f) If any Loss Event or Casualty Occurrence shall occur, the
Lessee shall promptly notify the Lessor of such event in writing.
Section 15. Termination; Cancellation; Purchase Option.
<PAGE>
(a) (i) The termination of this Lease (A) in accordance
with Section 2(b) (whether upon the scheduled expiration hereof or by
the refusal of the Lessor to agree to extend the then current
Scheduled Lease Termination Date), or (B) as a result of a Non-
Completion Event, shall be a "Termination Event," the effect of
which shall be to cause this Lease to terminate, and cause the
Lease Termination Date to occur, as to all Facilities.
(ii) If a Termination Event occurs, the Lessee, on
the Lease Termination Date, shall, in accordance with the terms of
Section 2(b) or (c), as applicable, without further notice or
demand to the Lessee, either
(A) purchase all Facilities from the Lessor
for the aggregae Purchase Price therefor; or
(B) so long as no Cancellation Event has
occurred:
(1) pay to the Lessor the Final Rent Payment
for all Facilities or, if the Termination Event is a Non-
Completion Event for any Facility, the Completion Costs
Payment for such Facility, and provide to the Lessor a
satisfactory update of the Environmental Assessment for
each Facility; and
(2) attempt to sell (until such time as the
Lessor shall have terminated, in accordance with the Agency
Agreement, the Lessee's obligation to so attempt to sell the
Facilities) subject to the Lessor's prior written approval,
all of the Facilities, as agent for the Lessor, without
recourse or warranty by the Lessor, and upon any such sale,
pay the net cash proceeds of each such sale to the Lessor;
provided, that so long as Lessee has paid the Final Rent
Payment or Completion Costs Payment, as applicable, for all
Facilities pursuant to Section 15(a)(ii)(B)(1), then if the
aggregate net cash proceeds of such sales of all Facilities
are (x) less than the aggregate Non-Recourse Amount for all
Facilities, the Lessee shall not be liable for any deficiency,
or (y) greater than the aggregate Non-Recourse Amount for all
Facilities, the Lessor shall remit the excess to the Lessee.
The Lessor shall also have the right (but not the obligation)
to sell any Facility and/or solicit bids, each in its sole
and absolute discretion.
(b) (i) Each of the following events shall be a
"Cancellation Event", the effect of which shall be to cause this
<PAGE>
Lease to be terminated in accordance with the following provisions
on the "Cancellation Date" specified:
(A) for all Facilities, the occurrence of (1)
an Event of Default (other than an Event of Default under Section
17(a)(vi)) and the delivery by the Lessor to the Lessee of a
notice stating that the Lessor elects to terminate this Lease by
reason of the existence of such Event of Default, in which case
the Cancellation Date for all Facilities will be the 5th Business
Day after the date of delivery of said notice to the Lessee, or
(2) an Event of Default under Section 17(a)(vi), in which case the
Cancellation Date for all Facilities shall occur immediately upon
the occurrence of such Event of Default; or
(B) for all Facilities, the occurrence of a
Loss Event with respect to any Facility, in which case the
Cancellation Date for all Facility shall be the 5th Business Day
after such event occurs; or
(C) for all Facilities, the occurrence of a
Casualty Occurrence in respect of any Facility and the failure of
the Lessee to purchase all Facilities or to replace or repair the
relevant Facility or such portion thereof in accordance with, and
within the time required by, Section 14 and the delivery by the
Lessor to the Lessee of a notice after the expiration of such time
stating that the Lessor elects to terminate this Lease for all
Facilities by reason of the existence of such Casualty Occurrence,
in which case the Cancellation Date for all Facilities shall be
the 5th Business Day after the date of delivery of said notice.
(ii) If a Cancellation Event occurs, the Lessee, on
the Cancellation Date, shall, without further notice or demand
to the Lessee, either (A) purchase all Facilities from the
Lessor for the aggregate Purchase Price for all Facilities, or
(B) pay to the Lessor the aggregate Termination Value for all
Facilities.
(c) The Lessee may, from time to time and at any time
(regardless of whether an Event of Default has occurred, subject to
the exercise by the Lessor of any remedies under Section 26 prior
to the delivery to the Lessor of receipt of notice pursuant hereto)
deliver to the Lessor notice of its intent to terminate this Lease
as to all, but not less than all, Facilities, in which case the
Lessee shall purchase all Facilities from the Lessor for the
aggregate Termination Value for all Facilities on any Business Day
that is not less than 30 nor more than 60 days after such notice
(the "Option Date"). Upon payment in full of the aggregate
Termination Value for all Facilities, this Lease shall terminate.
<PAGE>
(d) This Lease as to all Facilities shall cease and terminate
on the Lease Termination Date for any Facility, and payment of all
amounts payable by the Lessee on such date, except with respect to
(i) obligations and liabilities of the Lessee, actual or
contingent, which arose under this Lease, or by reason of events or
circumstances occurring or existing, on or prior to its
termination, and which have not been satisfied (which obligations
shall continue until satisfied and which include, but are not
limited to, obligations for Rent and the Termination Value, the
Purchase Price and amounts owing pursuant to Section 16 for all
Facilities), and (ii) obligations of the Lessee which by the terms
of this Lease expressly survive termination. Promptly after either
the Lessee or the Lessor shall learn of the happening of any
Termination Event or Cancellation Event as to any Facility, such
party shall give notice thereof to the other party hereto.
(e) In the event the Lessee elects to purchase the
Facilities upon the occurrence of a Termination Event (other than the
expiration of this Lease on a Scheduled Lease Termination Date for
such Facility) or a Cancellation Event for any Facility, Lessor in
its sole discretion in order to ensure the orderly conveyance of
any Facility may postpone the closing date for such conveyance
(whether or not extended, the "Purchase Closing Date") to a
reasonable date within 60 days following the Lease Termination Date
or Cancellation Date, as applicable. Any further payment of Basic
Rent shall be abated, and the Lessee shall be deemed to have been
granted a temporary license by Lessor entitling the Lessee to
retain possession of the relevant Facility through the Purchase
Closing Date provided that the Lessee complies with all obligations
of the Lessee under this Lease with respect thereto as though this
Lease were still in full force and effect (including without
limitation, compliance with permitted use, maintenance and
insurance coverage requirements). In the event of an extension of
the Purchase Closing Date as herein contemplated, the Purchase will
be calculated as of such extended Purchase Closing Date. This
Section 15(e) shall survive the termination of this Lease as to any
such Facility.
(f) Upon (i) a Cancellation Event, or (ii) a Termination
Event with respect to any Facility (and the Lessee elects to
exercise its option to purchase all Facilities for the aggregate
Purchase Price therefor), or (iii) the Lessee otherwise electing to
acquire all Facilities for the aggregate Purchase Price therefor,
all monies received by the Lessor in connection with this Lease or
any other Operative Document will be applied in the following order
with respect to all Facilities:
(1) first, to pay or reimburse all costs, expenses and
liabilities, including, without limitation, those in
connection with Indemnified Risks, increased costs,
Supplemental Rent, Withholding Taxes or
<PAGE>
Other Taxes and other Impositions, then due and owing to
the Lessor under the Operative Documents (collectively,
the "OTHER TRANSACTION EXPENSES");
(2) second, to pay all accrued, unpaid Basic Rent for
all Facilities; and
(3) third, to pay the outstanding Unrecovered Facility
Cost and Completion Costs, if applicable, for all
Facilities.
Any monies remaining after payment in full of the
foregoing amounts will be distributed to the Lessee.
(g) If (i) a Termination Event or a Non-Completion Event has
occurred with respect to any Facility, (ii) a Cancellation Event
does not exist and (iii) the Lessee has not elected to exercise its
option to purchase all Facilities for the aggregate Purchase Price
and has paid the Final Rent Payment for all Facilities or
Completion Costs Payment with respect to any Facility as to which a
Non-Completion Event has occurred, and the Lessor has been
furnished a satisfactory update of the Environmental Assessment
initially furnished with respect to each Facility, then:
(A) the aggregate Final Rent Payment and any Completion
Costs Payment, as applicable, will be applied as
follows:
(1) first, to pay or reimburse Other Transaction
Expenses;
(2) second, to pay all accrued, unpaid Interim Rent
and Basic Rent for all Facilities;
(3) third, to pay the outstanding principal balance
of the Unrecovered Facility Cost, up to the
Recourse Amount, and all Completion Costs, if
applicable, for all Facilities;
(4) fourth, the balance, if any, to be applied as
provided in clause (C) below; and
(B) all other monies received by the Lessor in
connection with the Lease or any other Operative
Document or as proceeds of disposition of the
Facility will be applied as follows:
(1) first, to pay the aggregate Unrecovered
Facility Cost for all Facilities;
(2) second, to reimburse the
Acquisition/Construction Agent for Support
<PAGE>
Expenses incurred by it under the Agency
Agreement; and
(C) any monies remaining after payment in full of the
foregoing amounts and all other amounts owing by the
Company under the Operative Documents will be
distributed to the Lessee.
Section 16. Transfer of Title on Removal of Facilities;
Expenses of Transfer.
(a) Upon any sale or purchase of any Facility permitted by
Section 15, the Lessor will transfer to the Lessee or the
appropriate Third Party all of its title to and legal and
beneficial ownership interest in such Facility to be transferred
(i) free and clear of any Lien created by, through or under the
Lessor other than Permitted Liens or Liens created at the request
of or as a result of the actions of the Lessee or anyone acting by,
through or under the Lessee, or a result of the failure of the
Lessee to carry out any of its obligations under this Lease or the
other Operative Documents, and (ii) without recourse,
representation or warranty of any nature whatsoever (except as to
the absence of such Liens as aforesaid).
(b) Whenever the Lessee has the right to purchase or
transfer to itself any Facility pursuant to any provision of this Lease,
the Lessee may cause such purchase to be effected by, or such transfer
to be effected to, any other Person specified by the Lessee, but in
no event shall the Lessee be relieved from any of its obligations
hereunder as a result thereof.
(c) Upon any sale or transfer of any Facility pursuant
to any provision of this Lease, the Lessee shall pay the reasonable
expenses of the Lessor, including, without limitation, reasonable
attorneys' fees and expenses, in connection with such sale or
transfer.
(d) If, with respect to any Facility (or all Facilities, if
applicable) on the Lease Termination Date therefor, the Lessee or
any of its Affiliates has not elected to acquire the relevant
Facility, the Lessee shall surrender the relevant Facility to the
Lessor free from all Liens except Permitted Liens (other than those
described in clause (ii)(b) of the definition of Permitted Liens),
in the same operating condition (except for ordinary wear and tear)
with the remaining original estimated useful life contemplated in
the Facility Plan intact and having the same capacity and
efficiency as such Facility had on the Lease Commencement Date with
respect thereto, and in compliance in all material respects with
all Governmental Requirements and Insurance Requirements. To
evidence the foregoing and accomplish the surrender of such
Facility, the Lessee shall provide the following items (x) in the
event of a Termination Event under Section 15(a)(i)(A) within 3
<PAGE>
months prior to the then current Lease Termination Date for such
Facility, if the Lessee has not requested an extension of the
Scheduled Lease Termination Date under Section 2(b), with final
confirmation of the same at least 30 days but not more than 60 days
prior thereto, and (y) in the event of a Termination Event under
Section 15(a)(i)(A) if an extension of the Scheduled Lease
Termination Date has been refused by the Lessor under Section 2(b)
or in the event of a Termination Event under Section 15(a)(i)(B),
as soon as practicable but in any event at least 3 Business Days
prior to the Lease Termination Date for such Facility:
(i) evidence satisfactory to the Lessor that all
Applicable Permits, Related Contracts, patents, trademarks and
copyrights, and all other rights and services reasonably required
to operate the Facility have been, or on or prior to the Lease
Termination Date therefor shall be, transferred to the Lessor (or
the Lessor has been, or on or prior to such Lease Termination Date,
given the right to use each such item) and can be transferred to
(or used by) any successor or assignee of the Lessor without
further consent or approval by any Person (subject only to normal
Governmental Requirements);
(ii) conveyancing, assignment, transfer,
termination and other documents that, in the sole discretion of the
Lessor, are sufficient to (A) vest in the Lessor good and marketable
title to the Facility, free and clear of all Liens except Permitted
Liens (other than those described in clause (ii)(b) of the definition
of Permitted Liens) and (B) terminate the rights of the Lessee and all
other Persons in and to the Facility;
(iii) evidence satisfactory to the Lessor, in its
sole discretion, that no default exists under the Agency Agreement, ;
(iv) an Environmental Assessment; and
(v) such other documents, instruments,
assessments, investigations, legal opinions, surveys and other items
as the Lessor may reasonably request to evidence to the satisfaction
of the Lessor, in its sole discretion) that (A) the Lessor has all
Property, services, Permits, assets and rights necessary to own,
operate and maintain the Facility from and after the Lease
Termination Date or Cancellation Date therefor, as applicable, and
(B) no Default, Loss Event or Casualty Occurrence then exists.
To the extent any Facility is not in the condition required by
this Section 16(d), the Lessee will pay to the Lessor such
additional amounts as are reasonably required to place it in
compliance. The Lessee shall also pay all costs and expenses
relating to the surrender and clean-up in connection with the
<PAGE>
surrender of the Facility as may be required by Governmental
Requirements or Insurance Requirements or which are otherwise
necessary to prevent or remedy any Environmental Damages or
Environmental Liabilities or to consummate the delivery of
possession of the Facility to the Lessor hereunder.
Section 17. Events of Default and Remedies.
(a) Each of the following acts or occurrences shall
constitute an "Event of Default" hereunder:
(i) default in the payment of the Purchase Price
for any Facility on the relevant Option Date, or in the payment of the
Termination Value or Purchase Price for any Facility on the
relevant Cancellation Date or Purchase Closing Date, as applicable,
or in the payment of the Purchase Price or the Final Rent Payment
or the Completion Costs Payment, as applicable, for any Facility on
the relevant Lease Termination Date or Purchase Closing Date, as
applicable or in the payment when due of any Interim Rent or Basic
Rent for any Facility; or the default in the payment when due of
any Supplemental Rent for any Facility, or the amount of any
Indemnified Risk or of any other amount due hereunder or under any
other Operative Document and the continuance of such default for
the earlier of (x) 5 days after the date due or (y) 2 Business Days
after notice (which may be oral) by the Lessor to the Companies; or
(ii) subject to Section 17(i), if applicable, either of
the Companies shall fail to observe or perform any covenant contained
in Sections 30(a) through (l), inclusive, 30(h)(v) or
(vi), 30(i)(ii), and 30(j); or
(iii) either of the Companies shall fail to observe
or perform any covenant or agreement contained or incorporated by
reference in this Lease (other than those covered by any other
paragraph of this Section 17(a)) and such failure shall not have
been cured within 30 days after the earlier to occur of (i) written
notice thereof has been given to the Companies by the Lessor or
(ii) any officer of either of the Companies otherwise obtains
actual knowledge of any such failure; or
(iv) any representation or warranty made or deemed
made by the Lessee herein, in any other Operative Document by the
Lessee or otherwise in writing in connection with or pursuant to this
Lease or any other Operative Document, shall be false or misleading
in any material respect on the date made or deemed made; or
(v) an Event of Default under the Agency Agreement; or
<PAGE>
(vi) (A) either of the Companies shall (1)
generally not pay its debts as such debts become due; or (2) admit in
writing its inability to pay its debts generally; or (3) make a
general assignment for the benefit of creditors; or (B) any case or
proceeding shall be instituted or consented to by either of the
Companies seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property; or (C)
any such case or proceeding shall have been instituted against
either of the Companies and either such case or proceeding shall
not be stayed or dismissed for 60 consecutive days or any of the
actions sought in such case or proceeding (including, without
limitation, the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar
official for it or any substantial part of its property) shall
occur; or (D) either of the Companies shall take any corporate
action to authorize any of the actions set forth above in this
Section 17(a)(vi); or
(vii) a Company or any Subsidiary defaults (whether
as primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other obligation for money borrowed
(or any Capitalized Lease Obligation, any obligation under a
conditional sale or other title retention agreement, any obligation
issued or assumed as full or partial payment for property whether
or not secured by a purchase money mortgage or any obligation under
notes payable or drafts accepted representing extensions of credit)
beyond any period of grace provided with respect thereto, or a
Company or any Subsidiary fails to perform or observe any other
agreement, term or condition contained in any agreement under which
any such obligation is created (or if any other event thereunder or
under any such agreement shall occur and be continuing) and the
effect of such failure or other event is to cause, or to permit the
holder or holders of such obligation (or a trustee on behalf of
such holder or holders) to cause, such obligation to become due (or
to be repurchased by a Company or any Subsidiary) prior to any
stated maturity, provided that the aggregate principal amount of
all obligations as to which such a payment default shall occur and
be continuing or such a failure or other event causing or
permitting acceleration (or causing or permitting rescission to a
Company or any Subsidiary) shall occur and be continuing exceeds
$500,000; or
(viii) (a) a Company or any other Person who is a
member of the Companies' "control group" (as such term is defined under
ERISA) fails to make all or any portion of a
<PAGE>
required installment payment under 29 U.S.C. 1082(e) with respect to
any Plan, (b) the aggregate unpaid balance of such installment together
with the unpaid balance of all prior installments and other payments
due under 20 U.S.C. 1082 (including any accrued interest on such
amounts) exceeds $1,000,000, and (c) such amounts remain unpaid for
more than 30 days after the due date of the installment referred to
in clause (a); or
(ix) a Company or any of their Affiliates as
employer under a Multiemployer Plan shall have made a complete or
partial withdrawal from such Multiemployer Plan and the plan sponsor of
such Multiemployer Plan shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability in
an annual amount exceeding $1,000,000; or
(x) any final judgment or order, or series of
judgments or orders, for the payment of money in an aggregate amount
in excess of $1,000,000 is rendered against a Company or any
Subsidiary and either (a) enforcement proceedings have been
commenced by any creditor upon such judgment or order, (b) within
60 days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or (c) within 60 days
after the expiration of any such stay, such judgment is not
discharged; or
(xi) any of the Operative Documents shall cease,
for any reason, to be in full force and effect or either of the
Companies shall so assert; or
(xii) the Lessee shall abandon any Facility.
(b) Subject to the provisions of Section 17(i), upon the
occurrence and during the continuance of any Event of Default, in
accordance with the determination of the Lessor, the Lessor may do
any one or more of the following (without prejudice to the
obligations of the Lessee under Section 15(b)(ii)):
(i) proceed by appropriate judicial proceedings,
either at law, in equity or in bankruptcy, to enforce performance or
observance by the Lessee of the applicable provisions of this
Lease, or to recover damages for the breach of any such provisions,
or any other equitable or legal remedy, all as the Lessor shall
deem necessary or advisable; and/or
(ii) by notice to the Lessee, either (x) terminate
this Lease for all Facilities in accordance with Section 15, whereupon
the Lessee's interest and all rights of the Lessee to the use of
any Facility shall forthwith terminate subject to the Lessee's
rights under such Section 15 to acquire such
<PAGE>
Facility on the Purchase Closing Date as provided herein, but the
Lessee shall remain liable with respect to its obligations and
liabilities hereunder; or (y) terminate the Lessee's right to
possession of the Facility or any portion thereof; and/or
(iii) exercise any and all other remedies available
under applicable law or at equity.
(c) Subject to the provisions of Section 17(i), after the
occurrence and during the continuance of a Cancellation Event or
Termination Event, in the event the Lessor elects not to terminate
this Lease and the Lessee has not exercised its option under
Section 15(c), this Lease shall continue in effect and the Lessor
may enforce all of the Lessor's rights and remedies under this
Lease, including, without limitation, the right to recover the
Interim Rent, the Basic Rent and the Supplemental Rent for each
Facility, and all other yield protection payments and other amounts
with respect thereto, as it becomes due under this Lease. For the
purposes hereof, the following do not constitute a cancellation or
termination of this Lease as to any Facility: (i) acts of
maintenance or preservation of such Facility or any portion
thereof, (ii) efforts by the Lessor to relet such Facility or any
portion thereof, including, without limitation, termination of any
sublease of such Facility and removal of any tenant from the
Applicable Site thereof, (iii) or the appointment of a receiver
upon the initiative of the Lessor to protect the Lessor's interest
under this Lease.
(d) Subject to the provisions of Section 17(i), if (i)
on the Lease Termination Date for any Facility, such Facility is not
acquired by the Lessee or its designee by payment of the Purchase
Price therefor or (ii) on the Cancellation Date or Option Date for
any Facility, the Lessee or its designee has defaulted in its
obligation to acquire the Facility and pay the Purchase Price for
such Facility in accordance with the Lessee's election under
Section 15(b)(ii), then the Lessor shall have the immediate right
of possession of all Facilities and the right to enter onto any
Applicable Sites, and the Lessor may thenceforth hold, possess and
enjoy such Facility, free from any rights of the Lessee and any
Person claiming by, through or under the Lessee. The Lessor shall
be under no liability by reason of any such repossession or entry
onto the premises of the Lessee.
(e) Subject to the provisions of Section 17(i), should the
Lessor elect to repossess any Facility or any portion thereof upon
cancellation or termination of this Lease as to such Facility or
otherwise in the exercise of the Lessor's remedies, the Lessee
shall peaceably quit and surrender the Facility or any such
portion thereof to the Lessor and either (i) deliver possession of
such Facility to the Lessor or (ii) allow Lessor or its agents or
assigns to enter onto the Applicable Site thereof to remove any and
all of such Facility at the expense of the Lessee, and neither the
<PAGE>
Lessee nor any Person claiming through or under the Lessee shall
thereafter be entitled to possession or to remain in possession of
such Facility or any portion thereof but shall forthwith peaceably
quit and surrender such Facility to the Lessor.
(f) Subject to the provisions of Section 17(i), at any time
after the repossession of any Facility or any portion thereof,
whether or not this Lease shall have been canceled or terminated as
to such Facility, the Lessor may (but shall be under no obligation
to) relet such Facility or the applicable portion thereof without
notice to the Lessee, for such term or terms and on such conditions
and for such usage as the Lessor in its sole and absolute
discretion may determine. The Lessor may collect and receive any
rents payable by reason of such reletting, and the Lessor shall not
be liable for any failure to relet the Facility or for any failure
to collect any rent due upon any such reletting.
(g) Subject to the provisions of Section 17(i), the remedies
herein provided in case of an Event of Default are in addition to,
and without prejudice to, the Lessee's continuing obligations under
Section 15(b)(ii), and shall not be deemed to be exclusive, but
shall be cumulative and shall be in addition to all other remedies
existing at law, in equity or in bankruptcy. The Lessor may
exercise any remedy without waiving its right to exercise any other
remedy hereunder or existing at law, in equity or in bankruptcy.
(h) No waiver by the Lessor hereunder of any Default or Event
of Default shall constitute a waiver of any other or subsequent
Default or Event of Default. To the extent permitted by applicable
law, the Lessee waives any right it may have at any time to require
the Lessor to mitigate the Lessor's damages upon the occurrence of
a Default or Event of Default by taking any action or exercising
any remedy that may be available to the Lessor, the exercise of
remedies hereunder being at the discretion of the Lessor.
(i) Certain covenants contained in the Revolving Credit
Agreement as of the Closing Date, identified below, are the
"Specified Revolver Covenants" (which term shall include any
amendments thereto, regardless of whether the Lease Counterpart
Covenants referred to below are likewise amended). The Lease
contains covenants identified below (such covenants are the "Lease
Counterpart Covenants"), which are the counterparts of, and are
intended as of the Closing Date to be the same as, the Specified
Revolver Covenants (except for references which are specific to
this Lease). The Specified Revolver Covenants and the Lease
Counterpart Covenants to which they correspond are as set forth
below (references to sections of the Revolving Credit Agreement and
the Lease are to the Revolving Credit Agreement and the Lease as
either may be amended or supplemented from time to time):
<PAGE>
<TABLE>
<CAPTION>
Specified Revolver Lease Counterpart
Covenants Covenants
<S> <C>
5.01 30(a)
5.02 30(b)
5.03 30(c)
5.04 30(d)
5.05 30(e)
5.06 30(f)
5.07 30(g)
</TABLE>
Notwithstanding any provision of Section 17 to the contrary, so
long as:
(i) the Revolving Credit Agreement is in effect and still
contains a Specified Revolver Covenant which addresses the
same subject as (but, as a result of amendments, may and need
not be necessarily exactly the same as) the Lease Counterpart
Covenant which gives rise to the Lease Counterpart Covenant
Default; and
(ii) an Event of Default arises solely by virtue of the
occurrence of a breach of any of the Lease Counterpart
Covenants (any such Event of Default being a "Lease
Counterpart Covenant Default", and any event of default under
the Revolving Credit Agreement arising solely by virtue of the
occurrence of a breach of any of the Specified Revolver
Covenants being a "Specified Revolver Covenant Default"); and
(iii) no other Event of Default (other than such Lease
Counterpart Covenant Default) is in existence at such time;
then, so long as each of the foregoing 3 conditions remains
satisfied, the Lessor shall, without waiving any Lease Counterpart
Covenant Default, forbear from the exercise of any rights or
remedies under Sections 17(b) through (g), inclusive, of this
Lease, until the date (the "Forbearance Termination Date") which is
the earlier of (x) 90 days after the occurrence of such Lease
Counterpart Covenant Default and (y) in the event of a Specified
Revolver Covenant Default, the date on which lenders under the
Revolving Credit Agreement have commenced the taking of any action
under the Revolving Credit Agreement to accelerate the indebtedness
thereunder, terminate the commitments thereunder, exercise any
right of setoff with respect to the indebtedness thereunder,
exercise any other right or remedy thereunder, or obtain collateral
for the indebtedness thereunder; provided, however, that:
(1) nothing in the foregoing shall limit or restrict the
right of the Lessor to exercise any rights and remedies under
Sections 17(b) through (g), inclusive, after the Forbearance
Termination Date or upon either (A) the occurrence and during
the existence of any Event of Default other than such Lease
Counterpart Covenant Default, (B) the non-satisfaction of any
<PAGE>
of the foregoing 3 conditions, in either case during such 90
day period or otherwise; and
(2) the provisions of this Section 17(i) shall not be
invoked more than once in any period of 12 consecutive months.
Section 18. Reserved.
Section 19. Inspection; Right to Enter Premises of the
Lessee. The Lessee shall permit, and cause each of its
Subsidiaries to permit, the Lessor or its authorized
representatives (but without any obligation to do so) to (i) enter
upon any Applicable Site or any premises of the Lessee at
reasonable times upon reasonable advance notice in order to inspect
the Property located thereon (subject to compliance with applicable
safety requirements of the Lessee and applicable Governmental
Requirements) and to inspect, audit and make copies of all
documents and instruments in the possession of the Lessee
(including without limitation records relating to Facility Cost and
Book Value of any of the Facilities) relating to any Facility that
are reasonably necessary or appropriate for the Lessor or such
authorized representatives to determine the truth and accuracy of
any schedule, annex, exhibit or representation delivered or made
hereunder or under any other Operative Document, or compliance by
the Lessee with any of the agreements contained herein or in any
other Operative Document, and (ii) discuss the condition,
compliance with Governmental Requirements, and performance of the
Facility and the business of the Lessee and the respective affairs,
finances and accounts of the Lessee and its Subsidiaries with their
respective officers, employees and independent accountants. The
Lessee agrees to coordinate and assist in such visits and
inspections, in each case at such reasonable times and as often as
may be reasonably be desired.
Section 20. Right to Perform the Lessee's Covenants.
Subject to Section 13, if the Lessee shall fail to make any payment
or perform any act required to be made or performed by it
hereunder, the Lessor, upon notice to or demand upon the Lessee but
without waiving or releasing any obligation or Default or Event of
Default, may (but shall be under no obligation to) at any time
thereafter make such payment or perform such act for the account
and at the expense of the Lessee as, at the Lessor's sole
discretion, may be necessary or appropriate therefor and, upon the
occurrence and during the continuance of a Cancellation Event or
Termination Event with respect to any Facility, may enter upon the
Applicable Site for such purpose and take all such action thereon
as, at the Lessor's sole discretion, may be necessary or
appropriate therefor. No such entry shall be deemed an eviction of
the Lessee or a repossession by the Lessor. All sums so paid by
the Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses so incurred)
<PAGE>
shall be paid by the Lessee to the Lessor on demand as Supplemental
Rent.
Section 21. Participation by Co-Lessees or Sublessees;
Participations by Lessor.
(a) Except as otherwise permitted in this Section 21, the
Lessee may not assign its rights or obligations under this Lease
without the prior consent of the Lessor.
(b) The Lessee may, so long as no Default, Event of
Default, other Cancellation Event or Termination Event shall have occurred
and be continuing, enter into documentation assigning all or any
part of this Lease and, as necessary, the other Operative
Documents, to another Person, so long as (i) such documentation
evidences the undertaking of such Person (a "Co-Lessee") to be
responsible for all or certain obligations of the Lessee, (ii) such
documentation expressly states that such assignment is subject and
subordinate to the terms of this Lease and the Liens created hereby
and (iii) the Lessee shall remain primarily liable for all
obligations of the tenant of all of the Facilities under this
Lease. The Lessee will furnish promptly to the Lessor copies of
all such documentation entered into by the Lessee from time to
time. Any assignment made otherwise than as expressly permitted by
this Section 21(b) shall be null and void and of no force and
effect.
(c) The Lessee may, from time to time, so long as no
Default, Event of Default, other Cancellation Event or Termination Event
shall have occurred and be continuing, enter into a sublease as to
any Facility and such other documentation as may be necessary with
one or more Persons (each a "Sublessee"). In any event, any
documentation executed by the Lessee in connection with the
subletting of any of the Facilities (i) shall expressly state that
such sublease is subject and subordinate to the terms of this Lease
and the Liens created hereby and (ii) shall not provide for a
sublease term ending after the then current Scheduled Lease
Termination Date for such Facility. The Lessee will furnish
promptly to the Lessor copies of all subleases and related
documentation entered into by the Lessee from time to time. No
sublease permitted by the terms hereof will reduce in any respect
the obligations of the Lessee hereunder, it being the intent of the
Lessee and the Lessor that the Lessee be and remain directly and
primarily liable as a principal for its obligations hereunder. Any
sublease made otherwise than as expressly permitted by this Section
21(c) shall be null and void and of no force or effect.
(d) The Lessor may from time to time, without consent of or
notice to the Lessee, sell participations in the interests of the
Lessor in this Lease and the other Operative Documents to one or
more banks or other financial institutions or affiliates thereof
(each a "Participant") upon such terms and conditions as it shall
<PAGE>
determine; provided, that: (i) no Participant shall be entitled to
receive any greater payment under Section 3(g) or Section 27(c)
than the Lessor would have been entitled to receive with respect to
the rights transferred, unless such transfer is made with the
Lessee's prior written consent or by reason of the provisions of
Section 27(b) or (c) requiring the Lessor to designate a different
Lending Office under certain circumstances or at a time when the
circumstances giving rise to such greater payment did not exist;
(ii) the Lessor shall include in the participation agreement with
each Participant the covenant of each Participant (x) if it is not
chartered or organized under the laws of the Unites States of
America or a state thereof, to comply with the provisions of
Section 3(g) regarding Non-U.S. Domestic Participants, and (y) to
take no position in conflict with the statements of the intent of
the Lessor and the Lessee in Section 25 of this Lease or otherwise
in conflict with the provisions thereof; and (iii) the Lessor shall
not become obligated to the Participant to take or refrain from
taking any action hereunder except that the Lessor may agree that
it will not (except as provided below), without the consent of the
Participant, agree to (i) the change of any date fixed for the
payment of Interim Rent or Basic Rent, (ii) the change of the
amount of any Interim Rent or Basic Rent or fees due on any date
fixed for the payment thereof, (iii) the change of the amount of
Unrecovered Facility Cost, (iv) any change in the rate at which
either Interim Rent or Basic Rent is computed or (if the
Participant is entitled to any part thereof) any fee is payable
hereunder from the rate at which the Participant is entitled to
receive Interim Rent, Basic Rent or fee (as the case may be) in
respect of such participation, (v) the release or substitution of
all or any substantial part of the Collateral, or (vi) the release
of the Guaranty.
Section 22. Notices. Except as otherwise provided herein,
all notices, requests and other communications provided for
hereunder shall be in writing (including telecopier and other
readable communication) and mailed by certified mail, return
receipt requested, telecopied or otherwise transmitted or
delivered, if to the Lessee, at 2200 Forward Drive, Harrison,
Arkansas 72601, Attention: Chief Financial Officer, Telecopier: 870-
741-5240; if to the Lessor, at 191 Peachtree Street, N.E., Atlanta,
Georgia 30303-1757, Attention: Kenneth Washington, Telecopier: 404-
332-5016; or, as to either party, at such other address as shall be
designated by such party in a written notice to the other party.
Each such notice, request or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to
the telecopier number specified in this Section and the
confirmation is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any
other means, when delivered at the address specified in this
Section; provided that notices to the Lessor under Sections 3 and
28 shall not be effective until received. A notice received by the
<PAGE>
Lessor by telephone shall be effective if the Lessor believes in
good faith that it was given by an authorized representative of the
Lessee and acts pursuant thereto, notwithstanding the absence of
written confirmation or any contradictory provision thereof.
Section 23. Amendments and Waivers. The provisions of this
Lease may from time to time be amended, modified or waived only if
such amendment, modification or waiver is in writing and consented
to by the Lessee and the Lessor and, if applicable, in accordance
with Section 22.
Section 24. Severability. Any provision of this Lease
which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
Section 25. Federal Income Tax Considerations. It is the
understanding of the parties that for income tax purposes this
transaction will be treated as a financing and the Lessee will be
treated as the owner of all of the Facilities and the Lessee and
the Lessor agree not to take any action inconsistent with such
treatment, subject to the following sentence. Notwithstanding
anything in this Section to the contrary, the Lessor retains the
right to assert that it is the owner of the Facilities subject to
this Lease for income tax purposes in the event that there is a
determination (within the meaning of Section 1313 of the Internal
Revenue Code of 1986, as amended, or with respect to state or local
income tax, a comparable determination under state or local law)
that the Lessee is not to be treated as the owner of the
Facilities.
Section 26. Other Provisions. In order to protect the
rights and remedies of the Lessor and the Lessee both during the
term of this Lease and following a Default, an Event of Default,
any other Cancellation Event or a Termination Event, and for the
purposes of Federal, state and local income taxes and ad valorem
taxes, state and local sales taxes, documentary stamp and
intangible taxes and other taxes relating to or assessable as a
result of the execution, delivery or recording of any of the
Operative Documents and for purposes of Title 11 of the United
States Code (or any other applicable Federal, state or local
insolvency, reorganization, moratorium, fraudulent conveyance or
similar law now or hereafter in effect for the relief of debtors),
the parties hereto intend that (A) this Lease be treated as the
repayment and security provisions of a loan by the Lessor to the
Lessee in the aggregate amount of the Facility Cost for all
Facilities, (B) all payments of Rent and the Purchase Price or
Termination Value for any Facility be treated as payments of
principal, interest and other amounts owing with respect to such
<PAGE>
loan, respectively, (C) the Lessee should be treated as entitled to
all benefits of ownership of the Facilities or any part thereof,
and (D) this Lease be treated as (i) for each Facility, a mortgage,
deed to secure debt or deed of trust, as applicable in the
jurisdiction in which the Applicable Site for such Facility is
located and as a security agreement or other similar
instrument(this Lease, as so treated, is the "Mortgage") from the
Lessee, as mortgagor or grantor, to the Lessor, as mortgagee or
grantee, conveying a Lien on or passing title to (as applicable in
the jurisdiction in which the Applicable Site for such Facility is
located), that part of each Facility constituting real property and
the memorandum of lease for such Facility shall include such
granting, conveyancing, title warranty and other provisions as is
customary for a mortgage, deed to secure debt, deed of trust or
other similar instrument pertaining to real estate in the
jurisdiction in which the Applicable Site for such Facility is
located; and (ii) as a security agreement from the Lessee, as
debtor, to the Lessor, as secured party, encumbering any Facility
and all personal property comprising any Facility, and that the
Lessee, as debtor, hereby grants to the Lessor, as secured party (
the "Secured Party") a first and prior Lien on and security
interest in the equipment, fixtures, and any and all other personal
property of any kind or character comprising any Facility and all
proceeds therefrom, in each case being effective as of the date of
this Lease. In such event, the Lessor shall have, and the
memorandum of lease for such Facility shall provide, all of the
rights, powers and remedies of a mortgagee or grantee and secured
party available under applicable law, including, without
limitation, judicial or nonjudicial foreclosure or power of sale,
as and to the extent available under applicable law, and the
amounts secured by the Liens and security interests shall be the
collective amount of the aggregate unpaid Advances, together with
unpaid interest thereon, plus any other amounts owing to the Lessor
under the Operative Documents (including, without limitation,
Supplemental Rent) (collectively, the "Secured Amount"). The
filing of a memorandum of this Lease as to any Facility shall be
deemed to constitute the filing of a mortgage, deed to secure debt
or deed of trust, as applicable, in the jurisdiction in which such
Facility is located and the filing of any financing statement in
connection with this Lease shall be deemed to constitute the filing
of a financing statement to perfect the mortgage lien, deed to
secure debt security title or deed of trust security title, as
applicable, and security interests in the Facility as aforesaid to
secure the payment of all amounts due from time to time from the
Lessee to the Lessor under this Lease and the other Operative
Documents. If this transaction is treated as a financing, the
obligation arising hereunder shall be with full recourse to the
Lessee and shall not be treated as recourse only to the Facilities.
This Mortgage secures and shall be security for any and
all future advances made by Secured Party to the Lessee. Nothing
<PAGE>
contained herein shall be deemed an obligation on the part of the
Secured Party to make any further advances.
In order to preserve the security interest and lien
and/or security title provided for herein, the Lessor and the
Lessee agree to abide by the following provisions with regard to
the Facility (for purposes of this Section 26, hereinafter referred
to as "Collateral"):
(a) Change in Location of Collateral or the Lessee. The
Lessee (i) will notify the Secured Party on or before the date of
any change in (A) the location of the Collateral (B) the location
of Lessee's chief executive office or address, (C) the name of the
Lessee and (D) the corporate structure of the Lessee (but only if
such change is such that any financing statement filed pursuant to
Section 26 or Section 28 hereof becomes seriously misleading), and
(ii) will, on or before the date of any such change, prepare and
file new or amended financing statements as necessary so that the
Secured Party shall continue to have a first and prior perfected
Lien (subject only to Permitted Liens) in the Collateral after any
such change.
(b) Sale, Disposition or Encumbrance of Collateral. Except
for Permitted Liens, as permitted by any of the Operative Documents
or with the Secured Party's prior written consent, the Lessee will
not in any way encumber any of the Collateral (or permit or suffer
any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the
Collateral to or in favor of any Person other than the Secured
Party.
(c) Proceeds of Collateral. Except as permitted by any of
the Operative Documents, the Lessee will deliver to the Secured
Party promptly upon receipt all proceeds delivered to the Lessee
from the sale or disposition of any Collateral. After the
occurrence and during the continuance of a Cancellation Event or
Termination Event, in the event the Lessee has not purchased the
relevant Facility or Facilities pursuant to Section 15(a)(ii)(A) or
paid the Final Rent Payment and made available to the Lessor a
satisfactory update of the Environmental Assessment pursuant to
Section 15(a)(ii)(B), all such proceeds and all proceeds received
by the Lessor from the sale or disposition of any Collateral
pursuant to this Section 26 shall first be applied (i) first to the
expenses of sale, (ii) secondly, to the portion of Unrecovered
Facility Cost constituting the Non-Recourse Amount, (ii) thirdly,
to pay all accrued and unpaid Supplemental Rent, (iv) fourthly, to
pay all accrued and unpaid Interim Rent and Basic Rent; (v) and
fifthly, to pay the portion of Unrecovered Facility Cost
constituting the Recourse Amount, and (vi) the balance to the
Lessee. This Section shall not be construed to permit sales or
dispositions of the Collateral except as may be elsewhere expressly
permitted by this Lease or the other Operative Documents.
<PAGE>
(d) Further Assurances. Upon the request of the Secured
Party, the Lessee shall (at the Lessee's expense) execute and
deliver all such assignments, certificates, financing statements or
other documents and give further assurances and do all other acts
and things as the Secured Party may reasonably request to perfect
the Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect the Secured Party's rights and remedies
hereunder, all in form and substance reasonably satisfactory to the
Secured Party.
(e) Collateral Attached to Other Property. In the event that
any of the Collateral is removed from any Facility and is to be
attached or affixed to any Real Property, the Lessee hereby agrees
that a financing statement which is a fixture filing may be filed
for record in any appropriate real estate records. If the Lessee
is not the record owner of such Real Property, it will provide the
Lessor with any additional security documents or financing
statements necessary for the perfection of the Secured Party's Lien
in the Collateral, as reasonably requested by the Secured Party.
(f) Secured Amount. Should the Secured Amount be paid
according to the tenor and effect thereof when the same becomes due
and payable hereunder, and should the Lessee perform all covenants
contained in the Operative Documents in a timely manner, then the
Mortgage shall be cancelled and surrendered.
(g) Mortgage Remedies. With respect to each Facility, the
memorandum of lease with respect thereto shall include mortgage
remedies which are reasonable and customary in the jurisdiction in
which the Applicable Site is located, which shall include, without
limitation, the right of the Lessor to sell the part of the
Facility constituting real property (the "Real Property") or any
part of the Real Property, pursuant to a private power of sale,
authorized in such jurisdiction, or in a judicial foreclosure.
Section 27. Yield Protection and Illegality
(a) Basis for Determining Rent Inadequate or Unfair.
If on or prior to the first day of any Rental Period or Interim
Rental Period with respect to any Basic Rent or Interim Rent which
is determined on the basis of the Adjusted LIBO Rate:
(i) the Lessor determines that deposits in
Dollars (in the applicable amounts), are not being offered in the
relevant market for such Rental Period or Interim Rental Period, or
(ii) the Lessor determines and gives notice to
the Lessee that, as a result of conditions in or generally
<PAGE>
affecting the London interbank eurodollar market, the rates or yield
for Basic Rent or Interim Rent, as applicable, determined on the basis
of the LIBO Rate for any Rental Period or Interim Rental Period will not
adequately and fairly reflect the cost to the Lessor of making,
funding or maintaining the Facility Cost giving rise to such Basic
Rent or Interim Rent for any Facility for such Rental Period or
Interim Rental Period, the Lessor shall forthwith so notify the
Lessee, whereupon,
(A) the Basic Rent or Interim Rent, as
applicable, for such Facility for such Rental Period or
Interim Rental Period shall be determined on the basis of
the Base Rate,
(B) the obligation of the Lessor to fund any
Facility Cost having Basic Rent or Interim Rent, as
applicable, or to continue to accrue Basic Rent or
Interim Rent, as applicable, based on the Adjusted LIBO
Rate shall be suspended until the Lessor shall notify the
Lessee that the circumstances causing such suspension no
longer exist, and
(C) unless the Lessee notifies the Lessor at
least 2 Business Days before the date of funding of any
Facility Cost for which notice has previously been given
that it elects not to cause the related Facility to be
purchased on such date, Basic Rent or Interim Rent, as
applicable, relating to such Facility Cost shall be
determined at a rate of interest equal to the Base Rate.
Upon the written request of the Lessee, the Lessor shall
negotiate with the Lessee for a reasonable period of
time, as determined in the Lessor's discretion, to
develop a substitute interest rate basis hereunder;
provided, however, (x) the Lessor and the Lessee make no
representation, warranty or covenant that any such
agreement will be made, and (y) any relevant Basic Rent
or Interim Rent shall continue to be determined based on
the Base Rate during the continuance of any such
negotiations and thereafter should no alternate interest
rate be agreed to by the necessary parties.
(b) Illegality. If, after the date hereof, the adoption
of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof (any such agency
being referred to as a "Banking Authority" and any such event being
referred to as a "Change of Law"), or compliance by the Lessor (or
its Applicable Funding Office) with any request or directive
(whether or not having the force of law) of any Banking Authority
shall make it unlawful or impossible for the Lessor (or
<PAGE>
its Applicable Funding Office) to determine Basic Rent or Interim Rent
for the making, maintaining or funding of the Facility Cost for any
Facility based on the Adjusted LIBO Rate, the Lessor shall
forthwith give notice thereof to the Lessee, whereupon until the
Lessor notifies the Lessee that the circumstances giving rise to
such suspension no longer exist, the obligation of the Lessor to
determine Basic Rent or Interim Rent for the making, maintaining or
funding of the Facility Cost for any Facility based on Adjusted
LIBO Rate shall be suspended. Before giving any notice to the
Lessee pursuant to this Section, the Lessor shall designate a
different Applicable Funding Office if such designation will avoid
the need for giving such notice and will not, in the judgment of
the Lessor, be otherwise disadvantageous to the Lessor. If the
Lessor shall determine that it may not lawfully continue to
determine Basic Rent or Interim Rent for the making, maintaining or
funding of any Facility Cost for any Facility based on the Adjusted
LIBO Rate to the end of the Rental Period or Interim Rental Period
and shall so specify in such notice, the Basic Rent or Interim Rent
for such Rental Period or Interim Rental Period shall immediately
be converted to and be determined based on the Base Rate, and the
Lessee shall immediately pay to the Lessor any amounts payable
pursuant to Section 27(c).
(c) Increased Cost and Reduced Return.
(i) If after the date hereof, a Change of Law or
compliance by the Lessor (or its Applicable Funding Office) with
any request or directive (whether or not having the force of law)
of any Banking Authority:
(A) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement
(including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement included in an
applicable Euro-Dollar Reserve Percentage, against assets
of, deposits with or for the account of, or credit
extended by, the Lessor (or its Applicable Funding
Office); or
(B) shall impose on the Lessor (or its
Applicable Funding Office) or on the relevant interbank
market any other condition affecting the Basic Rent or
Interim Rent, to the extent it is determined based on the
Adjusted LIBO Rate;
and the result of any of the foregoing is to increase the cost
to the Lessor (or its Applicable Funding Office) of
determining Basic Rent or Interim Rent based on the Adjusted
LIBO Rate, or to reduce the amount of any sum received or
receivable by the Lessor (or its Applicable Funding Office)
under this Lease or under any other Operative Document with
<PAGE>
respect thereto, by an amount deemed by the Lessor to be
material, then, within 15 days after demand by the Lessor, the
Lessee shall pay to the Lessor such additional amount or
amounts as will compensate the Lessor for such increased cost
or reduction; provided, however, that the Lessee shall not be
responsible to the Lessor for any increased cost or reduced
return, under either this Section 27(c)(i) or the immediately
succeeding Section 27(c)(ii), which accrued at any time before
that date which is 90 calendar days prior to the date upon
which the Lessee is notified of same.
(ii) If the Lessor shall have determined that after
the date hereof the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof, or compliance by the
Lessor (or its Applicable Funding Office) with any request or
directive regarding capital adequacy (whether or not having the
force of law) of any Banking Authority, has or would have the
effect of reducing the rate of return on the Lessor's capital as a
consequence of its obligations hereunder to a level below that
which the Lessor could have achieved but for such adoption, change
or compliance (taking into consideration the Lessor's policies with
respect to capital adequacy) by an amount deemed by the Lessor to
be material, then from time to time, within 15 days after demand by
the Lessor, the Lessee shall pay to the Lessor such additional
amount or amounts as will compensate the Lessor for such reduction,
subject to the proviso at the end of Section 27(c)(i).
(iii) The Lessor will promptly notify the Lessee
of any event of which it has knowledge, occurring after the date
hereof, which will entitle the Lessor to compensation pursuant to and
subject to the limitations contained in this Section 27(c) and will
designate a different Applicable Funding Office if such designation
will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of the Lessor be otherwise
disadvantageous to the Lessor. A certificate of the Lessor
claiming compensation under this Section 27(c) and setting forth
the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error; provided, that upon
request of the Lessee, the Lessor shall furnish to the Lessee the
calculations with respect thereto in order for the Lessee to verify
the accuracy thereof. In determining such amount, the Lessor may
use any reasonable averaging and attribution methods. Nothing in
this Section 27(c) shall require the Lessor to disclose any
information about its tax affairs or interfere with, limit or
abridge the right of the Lessor to arrange its tax affairs in any
manner in which it desires.
<PAGE>
(iv) The provisions of this Section 27(c) shall
(i) subject to the provisions of Section 21(d)(i), be applicable with
respect to any Participant, assignee or other transferee, and any
calculations required by such provisions shall be made based upon
the circumstances of such Participant, assignee or other transferee
and (ii) constitute a continuing agreement and shall survive for a
period of one year after the termination of this Agreement and the
payment in full all Rent.
(d) Payments and Computations. Each determination by the
Lessor of an interest rate or yield with respect to Basic Rent or
Interim Rent, or an increased cost or increased capital or of
illegality hereunder shall be conclusive and binding for all
purposes (absent manifest error) if made reasonably and in good
faith; provided, that upon request of the Lessee, the Lessor shall
furnish to the Lessee the calculations with respect thereto in
order for the Lessee to verify the accuracy thereof.
(e) Compensation. Upon the request of the Lessor, delivered
to the Lessee, the Lessee shall pay to the Lessor such amount or
amounts as shall compensate the Lessor for any loss, cost or
expense (but not loss of margin or profit) incurred by the Lessor
as a result of:
(i) any payment or prepayment (whether due to a
voluntary prepayment or the occurrence of the Lease Termination
Date for any reason) of Facility Cost on which Rent accrued based
on the Adjusted LIBO Rate is prepaid on a date other than the last
day of the Rental Period or Interim Rental Period therefor, or any
failure to prepay a Basic Rent or other Facility Cost on the date
specified for such prepayment by the Lessee in a notice to the
Lessor; or
(ii) any failure by the Lessee to cause the
funding of the purchase of any component of any Facility pursuant to
the Agency Agreement to occur on the date for such funding as specified
in the applicable notice delivered pursuant to the Agency Agreement
(other than by reason of a default by the Lessor);
such compensation to be: an amount equal to the excess, if any, of
(x) the amount of Basic Rent or Interim Rent which would have
accrued on the amount so paid or prepaid or not prepaid or with
respect to which such funding did not occur for the period from the
date of such payment, prepayment or failure to prepay or fund to
the last day of the then current Rental Period or Interim Rental
Period for such payment of Basic Rent or Interim Rent, in the case
of a failure to prepay or cause such funding, the Rental Period or
Interim Rental Period for such Basic Rent or Interim Rent which
would have commenced on the date of such failure to prepay or cause
such funding) determined based on the applicable rate for Basic
<PAGE>
Rent or Interim Rent provided for herein over (y) the rate relating
to such Basic Rent or Interim Rent (as reasonably determined by the
Lessor), the Lessor would have paid on deposits in Dollars of
comparable amounts having terms comparable to such period placed
with it by leading banks in the London interbank market; provided,
that (i) the Lessee shall be responsible to the Lessor only for its
actual costs incurred in connection with same (i.e. not for any
lost profits which were expected over the course of such Rental
Period or Interim Rental Period), (ii) the Lessor shall take
reasonable efforts to mitigate its damages in connection with same,
and (iii) the Lessee shall not be responsible to the Lessor for
such losses in excess of those amounts as the Lessor would have
incurred had it funded or maintained the related Facility Cost in
the London interbank market.
(f) Base Rate Substituted for Adjusted LIBO Rate. If (i)
the obligation of the Lessor to make an Advance of any Facility Cost
having Interim Rent or Basic Rent, or to continue to accrue Interim
Rent or Basic Rent based on the Adjusted LIBO Rate has been
suspended pursuant to Section 27(b) or (ii) the Lessor has demanded
compensation under Section 27(c), and the Lessee shall, by at least
5 Business Days' prior notice to the Lessor, have elected that the
provisions of this Section 27(f) shall apply to the Lessor, then,
unless and until the Lessor notifies the Lessee that the
circumstances giving rise to such suspension or demand for
compensation no longer apply, after the Interim Rent or Basic Rent
made or maintained based upon the Adjusted LIBO Rate has been
repaid, all Advances of any Facility Cost, or accrual of Interim
Rent or Basic Rent, that would otherwise be made or maintained by
the Lessor based upon the Adjusted LIBO Rate shall be made or, from
the beginning of the next Interim Rental Period or Rental Period be
maintained instead based upon the Base Rate, plus the Applicable
Margin.
Section 28. Conditions Precedent
(a) Closing; Conditions Precedent to Effectiveness of this
Lease. On the Closing Date, at such place as the parties hereto
shall agree, this Lease, the Agency Agreement and each of the other
Operative Documents to which the Lessee is a party shall be duly
executed and delivered by the parties to such documents. This
Lease shall become effective when (i) it shall have been executed
by the Lessor and the Lessee, and (ii) the Lessor shall, on or
before December 31, 1998 have received the following, each being in
form and substance reasonably satisfactory to the Lessor:
(i) Certificates of the Companies. A Certificate
of the Secretary or Assistant Secretary of each the Lessee and the
Guarantor setting forth (i) resolutions of its board of directors
authorizing the execution, delivery and performance of the
obligations contained in this Lease, the Agency Agreement or the
Guaranty, as applicable, and the other
<PAGE>
Operative Documents to which it is a party, (ii) the officers of the
Lessee and the Guarantor, respectively, specified in such Secretary's
Certificates that are authorized to sign this Lease, the Agency
Agreement or the Guaranty, as applicable, and the other Operative
Documents to which it is a party, and, until replaced by another
officer or officers duly authorized for that purpose, to act as its
respective representative for the purposes of signing documents and
giving notices and other communications in connection with this Lease,
the Agency Agreement or the Guaranty, as applicable, and the other
Operative Documents to which it is a party, and (iii) true and
correct copies of all amendments since December 31, 1992 of the
articles or certificate of incorporation and the bylaws of the
Lessee and the Guarantor (such articles and bylaws and amendments
as of December 31, 1992 having been furnished to the Lessee as a
lender under the Revolving Credit Agreement). The Lessor may
conclusively rely on such certificate until the Lessor receives
notice in writing from the Lessee or the Guarantor to the contrary.
(ii) Opinion of the Companies' Counsel. A favorable
opinion or opinions of counsel to the Lessee and the Guarantor, in
substantially the form of Exhibit C-1, and as to such other matters
as the Lessor may reasonably request.
(iii) Execution and Delivery of the Guaranty and
the other Operative Documents. The Guaranty and each of the other
Operative Documents.
(iv) Financial Statements. The Lessor shall have
received the financial statements described in Section 29(d).
(v) Structuring Fees. Payment of a structuring fee
payable to Wachovia Capital Investments, Inc. in an amount
equal to 0.50% of the amount of the Commitment in effect on
the Closing Date.
(vi) Other. Such other documents as the Lessor or
special counsel to the Lessor may reasonably request.
(b) Conditions to Commencement of Lease for each Facility.
The commencement of this Lease as to each Facility (the "Facility
Commencement Date") is subject to the satisfaction of the
conditions set forth in Section 28(c), the acquisition of the
Applicable Site for such Facility, there being no more than 5
Facilities under the Lease after giving effect to such acquisition,
and the satisfaction of each of the following conditions as to such
Facility:
(i) Lease Supplement and Ground Lease, if
Applicable. The Lessor shall have received a duly completed Lease
Supplement for such Facility describing the Applicable
<PAGE>
Site (which shall be true and correct), and, if the Lessee is the
owner of the Applicable Site, a ground lease for the Applicable Site
in favor of the Lessor and satisfactory to it in all respects, in each
case which shall be duly and properly executed and completed by the
Lessee.
(ii) Recordation of Memorandum of Lease and
Financing Statements. A memorandum of this Lease (which shall include
the appropriate mortgage remedies pursuant to Section 26(g)), and all
related financing statements and other requisite filing documents,
shall have been duly filed in the appropriate offices and, to the
fullest extent allowed by applicable law, all costs and taxes
associated with such filing shall have been paid or provided for by
the Lessee.
(iii) Insurance Certification. The Lessor shall
have received a report by a firm of independent insurance brokers or
consultants chosen by the Lessee setting forth the insurance
obtained, and to be obtained pursuant to this Lease, with respect
to such Facility and the Lessee's operations with respect thereto.
(iv) Receipt of Facility Plan. The Lessor shall
have received a copy of the Facility Plan for such Facility.
(v) Environmental Matters. The Lessor shall have
received the Environmental Assessment of the Applicable Site for
such Facility.
(vi) Soil Tests. The Lessor shall have received
the Soil Test Reports for such Facility.
(vii) Survey. The Lessor shall have received the
Survey of the Applicable Site for such Facility.
(viii) Appraisal. The Lessor shall have received an
Approved Appraisal of such Facility.
(ix) Title Insurance. A title insurance company
acceptable to the Lessor in its reasonable discretion shall have
issued, or provided the Lessor with evidence satisfactory to the
Lessor that such title insurance company is irrevocably obligated
to issue immediately after closing of the acquisition of the
Applicable Site by the Lessor, an owner's title policy issued to
the Lessor insuring the Lessor as fee simple owner or holder of a
ground lease of the Applicable Site and, in the event that the
Lease is ever deemed to be a mortgage, as mortgagee of such
Facility under this Lease.
(x) Opinion of the Local Counsel for Lessee. A
favorable opinion or opinions of counsel to the Lessee located in
the state in which the Applicable Site is located, in
<PAGE>
substantially the form of Exhibit C-2, and as to such other matters
as the Lessor may reasonably request.
(c) Conditions to Initial and Subsequent Advances. The
obligation of the Lessor to make the initial Advance and each
subsequent Advance pursuant to this Lease is subject to the
following further conditions precedent; provided, however, that
with respect to any Advance on the Closing Date for structuring
fees payable to Wachovia Bank, N.A. and for payment of Lessor's
estimated attorneys fees and expenses, (1) the conditions set forth
below in clauses (iii) through (vi), inclusive, and (viii) shall
not be applicable, (2) the 3 Business Day notice requirement of
Section 4(b)(i) shall not be applicable, and (3) the minimum amount
for Advances set forth in Section 4(b)(ii) shall not be applicable:
(i) Receipt of Advance Notice. The Lessor shall
have received an Advance Notice with regard to each Advance, containing
the information required by Section 4(b)(i), which shall be true
and correct and shall be duly and properly executed and completed
by the Lessee as Acquisition/Construction Agent for the Lessor.
(ii) No Default. The fact that immediately before
and after the acquisition of the Applicable Site, no Default or Event
of Default shall have occurred and be continuing.
(iii) Accuracy of Representations, etc. The
representations and warranties of the Lessee contained in this
Lease and the other Operative Documents to which it is a party, are
true and correct in all material respects on and as of the
acquisition of the Applicable Site for such Facility (except for
any representations which were correct on the date of this Lease
but are not correct on such date because of a change permitted by
the terms of this Lease or the Operative Documents).
(iv) Title. The Lessor shall have good and
marketable title to the Facility; and the Lessor shall have received
executed copies of all Related Contracts requested by it.
(v) Receipt of Applicable Permits. All Permits
that are or will become Applicable Permits shall have been obtained,
except Applicable Permits customarily obtained or which are permitted
by Governmental Requirements to be obtained after the date of the
requested Advance (in which case the Lessee, having completed all
appropriate due diligence in connection therewith, shall have no
reason to believe that such Permits will not be granted in the
usual course of business prior to the date that such Permits are
required by Governmental Requirements). All such obtained Permits
shall be in proper form, in full force and effect and
<PAGE>
not subject to any appeal or other unsatisfied contest that may allow
modification or revocation thereof.
(vi) Casualties. Neither such Facility nor the
Applicable Site thereof shall have suffered (A) a Loss Event or (B)
a Casualty Occurrence other than a Casualty Occurrence for which a
plan acceptable to the Lessor for replacing, or causing to be
replaced, the portions of Equipment that are the subject of such
Casualty Occurrence has been provided to the Lessor.
(vii) No Material Adverse Change or Effect. No
material adverse change shall have occurred in the financial condition
of the Lessee and its Subsidiaries on a consolidated basis since the
date of the most recent Fiscal Quarter for which a financial
statement of the Lessee was delivered to the Lessor and no event,
act, condition or occurrence shall exist or have occurred that has
had, or would reasonably be expected to have, a Material Adverse
Effect.
(viii) Taxes, Filings, Recordings. All filings or
recordings considered necessary or desirable by the Lessor have been
completed and all taxes and fees in connection therewith, and all
Impositions with respect to the Facility that are then due and payable,
shall have been paid by the Lessee.
Each presentation of a Lease Supplement hereunder shall be deemed
to be a representation and warranty by the Lessee on the Facility
Completion Date relating thereto as to the facts specified in
paragraphs (ii), (iii), (iv), (v), (vi) and (vii) of this
Section 28(b).
Section 29. The Lessee's Representations and Warranties
The Lessee represents and warrants to the Lessor, and, by execution
and delivery of the Guaranty, the Guarantor represents and warrants
to the Lessor, as set forth below for each of them:
(a) Corporate Existence and Power. The Lessee and the
Guarantor are each corporations duly incorporated, validly existing
and in good standing under the laws of the State of Arkansas. The
Lessee is duly qualified to transact business in every jurisdiction
where, by the nature of its business, such qualification is
necessary, except for any failure to comply with the foregoing
which does not have a Material Adverse Effect, and has all
corporate powers and all government authorizations, licenses,
consents and approvals required to engage in its business and
operations as now conducted, except for any failure to comply with
the foregoing which does not have a Material Adverse Effect.
<PAGE>
(b) Corporate and Governmental Authorization. The
execution, delivery and performance by the Lessee of this Lease and the
other Operative Documents to which it is a party, and by the Guarantor of
the Guaranty (i) are within its corporate powers, (ii) have been
duly authorized by all necessary corporate action, (iii) require no
action by or respect of or filing with, any governmental body,
agency or official, (iv) do not contravene or constitute a default
under, any material provision of applicable law or regulation or of
the certificate of incorporation or by-laws of the Lessee or, to
the best of the Lessee's knowledge, any material agreement relating
to Debt, judgment, injunction, order, decree or other instrument
relating to Debt binding upon the Companies or any of their
Subsidiaries of either of them and (v) do not result in the
creation or imposition of any Lien on any asset of the Companies or
either of them or on any of the Facilities, except in favor of the
Lessor pursuant to the Operative Documents.
(c) Binding Effect. This Lease and the Operative Documents
to which it is a party constitutes a valid and binding agreement of
the Lessee, and the Guaranty constitutes a valid and binding
agreement of the Guarantor, in each case enforceable in accordance
with their respective terms, provided that the enforceability
hereof and thereof is subject in each case to general principles of
equity and to bankruptcy, insolvency and similar laws affecting the
enforcement of creditor's rights generally.
(d) Financial Information. (i) The consolidated balance
sheet of the Guarantor and its Consolidated Subsidiaries as of
December 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the Fiscal Year
then ended, reported on by Ernst & Young LLP, and the unaudited
consolidated financial statements of the Guarantor for the interim
period ended June 30, 1998, copies of which have been delivered to
the Lessor, fairly present, in conformity with GAAP, the
consolidated financial position of the Guarantor and its
Consolidated Subsidiaries as of such dates and their consolidated
results of operations and cash flows for such periods stated.
(ii) Since December 31, 1997, there has been no
event, act, condition or occurrence having a Material Adverse
Effect.
(e) No Litigation. There is no action, suit or proceeding
pending, or to the knowledge of the Lessee and the Guarantor,
threatened, against or affecting the Companies or any Subsidiary of
the Lessee before any court or arbitrator or any governmental body,
agency or official which could have a Material Adverse Effect or
which in any manner draws into question the validity of or could
impair in any material respect the ability of the Lessee or the
Guarantor to perform its obligations under this
<PAGE>
Agreement or any of the Operative Documents executed by the Lessee or
the Guarantor.
(f) ERISA. No accumulated funding deficiency (as defined
in section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any Plan (other than a Multiemployer
Plan). No liability to the Pension Benefit Guaranty Corporation
has been or is expected by the Companies to be incurred with
respect to any Plan by the Companies or any of their Subsidiaries
which would have a Material Adverse Effect. Neither Company nor
any of their Subsidiaries has incurred or presently expects to
incur any withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan which would have a Material Adverse
Effect. No Plan providing welfare benefits to retired former
employees of the Companies or any of their Subsidiaries has been
established or is maintained for which the present value of future
benefits payable, in excess of irrevocably designated funds for
such purpose, would have a Material Adverse Effect.
(g) Compliance with Laws; Payment of Taxes. The Companies
and each Subsidiary is in compliance with all applicable laws,
regulations and similar requirements of Governmental Authorities
(including, as to Properties owned by the Companies and their
Subsidiaries, all Environmental Requirements), except where such
compliance is being contested in good faith through appropriate
proceedings or does not have a Material Adverse Effect. There have
been filed on behalf of Lessee, the Guarantor and each Subsidiary,
all Federal, state and material local income, excise, property and
other tax returns which are required to be filed by them and all
taxes due pursuant to such returns or pursuant to any assessment
received by or on behalf of the Companies, or any Subsidiary, have
been paid or are being contested in good faith or, if unpaid and
uncontested, are in immaterial amounts. The charges, accruals and
reserves on the books of the Companies and each Subsidiary, in
respect of taxes or other governmental charges are, in the opinion
of the Lessee, adequate. United States income tax returns of the
Companies and each Subsidiary which is a U.S. Person have been
examined and closed through the Fiscal Year ended 19 .
(h) Investment Company Act. Neither the Companies nor
any of their Subsidiaries is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(i) Public Utility Holding Company Act. Neither the
Companies nor any of their Subsidiaries is a "holding company", or
a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
<PAGE>
(j) Ownership of Property. Each of the Lessee and the
Guarantor has title to or leasehold or other interests in its
material properties sufficient for the conduct of its business.
(k) No Default. Neither the Companies nor any of their
Subsidiaries is in default under or with respect to any agreement,
instrument or undertaking to which it is a party or by which it or
any of its property is bound which could have or cause a Material
Adverse Effect. No Default or Event of Default has occurred and is
continuing.
(l) Full Disclosure. To the best of the Lessee's
knowledge, all written information heretofore furnished by the Lessee,
for itself and as agent for the Lessor, to the Lessor for purposes of
or in connection with this Lease, any of the Operative Documents,
or any transaction contemplated hereby or thereby is, and all such
information hereafter furnished by the Lessee, for itself and as
agent for the Lessor, to the Lessor will be, true, accurate and
complete in every material respect or based on reasonable estimates
on the date as of which such information is stated or certified.
(m) Environmental Matters.
(i) Neither the Companies nor any Subsidiary is
subject to any Environmental Liability which could have or cause a
Material Adverse Effect and neither the Companies nor any Subsidiary
has been designated as a potentially responsible party under CERCLA or
under any state statute similar to CERCLA. None of the Applicable
Sites has been identified on any current or proposed (i) National
Priorities List under 40 C.F.R. 300, (ii) CERCLIS list or (iii)
any list arising from a state statute similar to CERCLA.
(ii) No Hazardous Materials have been or are being
used, produced, manufactured, processed, treated, recycled, generated,
stored, disposed of, managed or otherwise handled at, or shipped or
transported to or from any Facility or any Applicable Site or are
otherwise present at, on, in or under any Applicable Site, or at or
from any adjacent site or facility, except for Hazardous Materials,
such as cleaning solvents, pesticides and other materials used,
produced, manufactured, processed, treated, recycled, generated,
stored, disposed of, managed, or otherwise handled in the ordinary
course of business in material compliance with all applicable
Environmental Requirements.
(iii) The Companies and each of their Subsidiaries
is in compliance in all material respects with all Environmental
Requirements in connection with the operation of the Facilities and
each Applicable Site.
<PAGE>
(iv) Except to the extent specified on Schedule
29(m), to the best knowledge of the Companies (1) there are no
Hazardous Materials on any of the Facilities or any Applicable Site,
other than cleaning solvents, pesticides and other similar materials
used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed, managed, or otherwise handled in the
ordinary course of business or in management or maintenance of the
Facilities and the Applicable Sites in material compliance with
Environmental Requirements, (2) no Hazardous Material has migrated
from any of the Facilities or any Applicable Site to, upon, about
or beneath other properties, (3) no Hazardous Material has migrated
or threatened to migrate from other properties to, upon, about or
beneath any of the Facilities or any Applicable Site, and (4) all
Hazardous Materials or solid wastes generated by the Facilities or
at any Applicable Site have at all times been transported, treated
and disposed of in material compliance with Environmental
Requirements.
(v) Except to the extent specified on Schedule
29(m), to the best knowledge of the Companies, (1) there is not, nor
has there been, constructed, placed, deposited, stored, disposed of or
located on any of the Facilities or any Applicable Site any
asbestos in any form, (2) no underground improvements, including
treatment or storage tanks, pumps, or water wells, are or have been
located on any Applicable Site, (3) there are no polychlorinated
biphenyls (PCBs) or transformers, capacitors, ballasts, machinery,
fixtures or other equipment which contain PCBs constructed, placed,
deposited, stored, disposed of or located on any of the Facilities
or any Applicable Site, (4) the uses and activities of, on or
relating to the Facilities and each Applicable Site have at all
times complied in all material respects with all Environmental
Requirements, and the use which the Companies and their Affiliates,
Subsidiaries and/or Sublessees make of the Facilities and the
Applicable Sites will not result in the disposal or other
Environmental Release of any Hazardous Material, (5) the Lessee has
obtained all permits necessary under applicable Environmental
Requirements, and (6) no Applicable Site has been, and is not now,
listed on CERCLIS, the Environmental Protection Agency's list of
violating facilities established pursuant to the Clean Water Act or
the National Priorities List established pursuant to CERCLA.
(vi) Except to the extent specified on Schedule
29(m), to the best knowledge of the Companies (1) there exists no
judgment, decree, order, writ or injunction outstanding, or
litigation, action, suit, claim (including citation or directive)
or proceeding pending or, to the knowledge of the Lessee or any of
its Affiliates, Subsidiaries and/or Sublessees, threatened,
relating to the ownership, use, maintenance or operation of the
Facilities and the Applicable
<PAGE>
Sites by any person or entity, or arising from any alleged violation
of Environmental Requirements, or any alleged liability for
Environmental Damages, (2) there are no existing facts or conditions
that could give rise to any such violation or liabilities, (3) there
have been no written or, to the knowledge of the Lessee or any of
its Affiliates, Subsidiaries and/or Sublessees, oral reports of
environmental investigations, audits, studies, tests, reviews or other
analyses conducted by or which have been presented to or are in the
possession of the Lessee or any of its Affiliates, Subsidiaries and/or
Sublessees, relating to any of the Facilities or any Applicable Site
which have not been delivered to the Lessor and (4) neither the
Companies nor, to the knowledge of the Lessee or any of its Affiliates,
Subsidiaries and/or Sublessees, any other person or entity has received
any notice or other communication concerning any alleged violation of
Environmental Requirements, whether or not corrected to the
satisfaction of the appropriate authority, or any notice or other
communication concerning alleged liability for Environmental
Damages in connection with any of the Facilities or any Applicable
Site.
(vii) to the best knowledge of the Companies, there
has been no actual or threatened Environmental Release of a Hazardous
Material on or from any Facilities or any Applicable Site caused by
the Companies or any of their Affiliates, Subsidiaries and/or
Sublessees.
(viii) Except to the extent specified on Schedule 29(m),
to the best knowledge of the Companies, the Lessee (a) has obtained
all permits, licenses, and other authorizations which are required
under Environmental Requirements in association with the Facilities
and the Applicable Sites; and (b) will in full compliance with all
terms and conditions of such required permits, licenses, and other
authorizations associated with the Facilities and the Applicable
Sites.
(ix) No permits or licenses are required to be
obtained or maintained in connection with the use, operation, or
ownership of any of the Facilities or any Applicable Site arising from
any portion of any Applicable Site which constitute (i) "wetlands"
under any Environmental Requirement, or (ii) habitat for species
which is deemed to be endangered under any Environmental
Requirement, nor are there any ongoing or continuing obligations
regarding any portion of any Applicable Site which constitute
wetlands. To the best knowledge of the Companies, there are no
species of plants or animals located on any portion of any
Applicable Site which are classified as threatened or endangered
under any Environmental Requirement. There have been no written
or, to the best knowledge of the Lessee or any of its Affiliates,
Subsidiaries and/or Sublessees, oral wetlands delineations
<PAGE>
conducted by or which have been presented to or are in the
possession of the Lessee or any of it Affiliates, Subsidiaries
and/or Sublessees relating to the Facilities for any Facility or
any Applicable Site which have not been delivered to the Lessor.
(n) Use of Proceeds; Margin Stock. The proceeds of
fundings of the Facility Cost by the Lessor are being used to finance the
acquisition of the Facilities by the Lessor pursuant to the Agency
Agreement, including the Improvements to be made thereto and the
design, renovation, construction and installation thereof. The
Lessee is not engaged principally, or as one of its important
activities, in the business of purchasing or carrying any Margin
Stock, and no part of the proceeds of fundings of the Facility Cost
will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any
Margin Stock, or be used for any purpose which violates, or which
is inconsistent with, the provisions of Regulations T, U or X.
(o) Insolvency. After giving effect to the execution and
delivery of this Lease, the Lessee will not be "insolvent," within
the meaning of such term as defined in 101 of Title 11 of the
United States Code, as amended from time to time, or be unable to
pay its debts generally as such debts become due, or have an
unreasonably small capital to engage in any business or
transaction, whether current or contemplated.
(p) Subsidiaries. Each of the Lessee's and Guarantor's
Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to transact business in every
jurisdiction where, by the nature of its business, such
qualification is necessary, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted. Neither the
Lessee nor the Guarantor has any Subsidiaries except for those
Subsidiaries listed on Schedule 29(q), which accurately sets forth
each such Subsidiary's complete name and jurisdiction of
incorporation.
(q) Year 2000 Compliance. The Guarantor has (i)
initiated areview and assessment of all areas within its and each of its
Subsidiaries' business and operations (including those affected by
suppliers and vendors) that could be adversely affected by the
"Year 2000 Problem" (that is, the risk that computer applications
used by the Guarantor or any of its Subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to
date, implemented that plan in accordance with that timetable. The
Guarantor reasonably believes that all computer
<PAGE>
applications of the
Companies and their Subsidiaries that are material to its or any of
its Subsidiaries' business and operations will on a timely basis be
able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not
reasonably be expected to have Material Adverse Effect. The
Guarantor is not actually aware that any computer applications of
its vendors and suppliers will not Year 2000 compliant, except to
the extent that a failure to do so could not reasonably be expected
to have Material Adverse Effect.
(r) Facility Plan. The representations contained in this
Section 29(r) are made as of the time of presentation of each
Facility Plan to the Lessor pursuant hereto, with respect to each
such Facility Plan. The Facility Plan has been prepared in good
faith on the basis of assumptions deemed reasonable by the Lessee
and accurately reflects in all respects all material costs
currently anticipated to be incurred in connection with achieving
Completion. The Facility Plan sets forth the Lessee's good faith
estimation of the schedule for achieving Completion. All material
agreements and instruments comprising the Facility Plan are in full
force and effect and the Lessee is not in default of its
obligations thereunder in any respect that would reasonably be
expected to have a Material Adverse Effect. To the best knowledge
of the Lessee, there are no agreements, instruments, licenses or
other rights necessary to own, operate, lease or use the Facility
the failure to obtain which would reasonably be expected to result
in a Material Adverse Effect, other than the Applicable Permits,
the documents and instruments comprising the Facility Plan, and the
Operative Documents; and renovation, construction, ownership,
operation, leasing or use of the Facility by the Lessee (and after
the expiration or termination of the Lease, the renovation,
construction, ownership, operation, leasing or use of the Facility
by the Lessor or its successors or assigns) does not and will not
infringe on, or otherwise violate, any patents, patent
applications, trademarks (whether registered or not), trademark
applications, trade names, proprietary computer software, or
copyrights of any Person in any manner that would reasonably be
expected to have a Material Adverse Effect.
Section 30. Covenants
The Lessee and, by execution and delivery of the Guaranty, the
Guarantor, each covenant and agree with the Lessor to comply with
the following covenants until either (i) all Facilities have been
purchased by the Lessee (or one of its Affiliates) for the Purchase
Price therefor, or (ii) this Lease has been terminated, all
Facilities have been returned to the Lessor and the Termination
Value, the Purchase Price, the Final Rent Payment or the Completion
Costs Payment, as the case may be, and all other amounts payable
under this Lease and the other Operative Documents upon such
occurrence have been paid in full:
<PAGE>
(a) Company Debt. The Companies will not permit at any
time the Leverage Ratio to be greater than (a) 0. 65 to 1. 00,
during the period from the date of this Agreement to and including
December 31, 1997, and (b) 0.60 to 1.00, thereafter.
(b) Subsidiary Debt. The Companies will not permit any
Subsidiary to directly or indirectly create, incur, assume,
guarantee or otherwise become or remain directly or indirectly
liable with respect to any Debt other than (a) the existing Debt of
their Subsidiaries outstanding on the date hereof and set forth on
Schedule 30(b), which debt may be extended or renewed beyond its
existing maturity provided that there is no increase in the
outstanding principal amount of such Debt and (b) Debt of
Subsidiaries which, together with the aggregate principal amount of
Debt secured by Liens permitted by clauses (iii), (iv), (v) and
(vi) of the Revolving Credit Agreement(Debt of Subsidiaries and
such Debt secured by such Liens, collectively, "Priority Debt"),
does not exceed an amount equal to 10% of Net Worth; provided,
further, that the aggregate outstanding principal amount of the
Arkansas Development Finance Authority Economic Development Revenue
Bonds (Arkansas Freightways Corporation Project) Series 1989 issued
in the original, aggregate principal amount of $8,670,000 shall not
be deemed to be Priority Debt.
(c) Fixed Charge Ratio. The Companies will not permit
at any time the ratio of Income Available for Fixed Charges (based on the
four fiscal quarters immediately prior to the date of
determination) to Fixed Charges (based on the four fiscal quarters
immediately prior to the date of determination) to be less than
2.00 to 1.00.
(d) Current Ratio. The Companies will not permit at any
time the ratio of Current Assets to Current Liabilities to be less than
1.00 to 1.00.
(e) Dividend Limitation. The Companies covenant that they
will not (a) pay or declare any dividend on any class of their
stock; (b) make any other distribution on account of any class of
their stock, or redeem, purchase or otherwise acquire, directly or
indirectly, any shares of their stock; (c) make or permit to remain
outstanding any loan or advance to, or guarantee, endorse or
otherwise be or become contingently liable, directly or indirectly,
for any obligation of any Affiliate or stockholder (excluding the
Guarantor as a stockholder of The Lessee); or (d) make any
unscheduled payments of principal of, or retire, redeem, defease,
purchase or otherwise acquire, any Subordinate Debt (all of the
foregoing being herein called "Restricted Payments") unless (i) the
sum of such Restricted Payment and all other Restricted Payments
made in the current fiscal year does not exceed Net Earnings
Available For Restricted Payments for such year, and (ii) no
Default or Event of Default has occurred and is continuing or would
exist after giving effect to such Restricted Payment. There shall
<PAGE>
not be included in Restricted Payments (w) any payments under
clause (d) above which are made solely out of the net proceeds of a
concurrent sale of capital stock of the Guarantor or which are paid
solely in shares of capital stock of the Guarantor; (x) dividends
paid, or distributions made, in capital stock of the Guarantor; (y)
exchange of capital stock of one or more classes of the Guarantor
for capital stock of the Guarantor or for capital stock of the
Guarantor of the same class, except to the extent that cash or
other value is involved in such exchange; or (z) the payment of
dividends or distributions by the Lessee to the Guarantor. The
term "capital stock" as used in this Section 30(e) shall include
warrants, options or rights to purchase or subscribe for capital
stock.
(f) Merger and Sales of Assets. The Companies will
not, and will not permit any Subsidiary to, merge or consolidate with or
into any other Person or convey, lease, transfer or otherwise
dispose of all or a substantial part (i.e. assets which constitute
more than 10% of the Total Tangible Assets of the Companies and
their Subsidiaries) of its assets to any Person, or acquire all or
substantially all of the assets of any Person except that
(i) any Subsidiary may merge with a Company
(provided that a Company shall be the continuing or surviving
corporation) or with any one or more other Wholly-Owned Subsidiaries
(provided that a Wholly-Owned Subsidiary shall be the continuing or
surviving corporation);
(ii) any Subsidiary may sell, lease, transfer or
other-wise dispose of any of its assets to a Company or a Wholly-Owned
Subsidiary;
(iii) the Guarantor may merge with any other
corporation, provided that the Guarantor shall be the continuing or
surviving corporation;
(iv) the Companies and any Subsidiary may sell or
otherwise dispose of inventory in the ordinary course of business;
and
(v) the Companies and any Subsidiary may sell a
substantial part of their assets (as herein defined) if the
proceeds of such sale are either (i) reinvested within 12 months of
the date of such sale in either (A) Rolling, Stock of the Companies
or (B) assets similar to those assets sold and, prior to
reinvestment, such proceeds shall be reinvested in instruments that
satisfy the requirements of Section 45.07(iv) of the Revolving
Credit Agreement), or (ii) used at the time of such sale to repay
Senior Debt of the Companies pro rata based on the amount of Senior
Debt that is owed to each payee thereof at such time bears to the
aggregate amount of Senior Debt outstanding at such time.
<PAGE>
(g) Capital Expenditures. The Companies will not, and will
not permit any Subsidiary to, make or commit to make any capital
expenditure (as determined in accordance with GAAP) unless,
immediately after the making of any such expenditure, the Companies
will be in compliance with Sections 30(a) through 30(c).
(h) Financial Statements. The Companies will deliver
to each Lender:
(i) as soon as practicable and in any event no
later than 45 days after the end of each quarterly period (other than
the last quarterly period) in each fiscal year, comparative
consolidated statements of income and statements of cash flows of
the Guarantor and its Subsidiaries for the period from the
beginning of the current fiscal year to the end of such quarterly
period, and comparative consolidated balance sheets of the
Guarantor and its Subsidiaries as at the end of such quarterly
period, setting forth in each case in comparative form figures for
the corresponding period in the preceding fiscal year, all in
reasonable detail and satisfactory in form to the Lessor and
certified by an authorized financial officer of each Company,
subject to changes resulting from year-end adjustments; provided,
however, that delivery pursuant to clause (iii) below of copies of
the Quarterly Report on Form 10-Q of the Guarantor for such
quarterly period as filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this
clause (i);
(ii) as soon as practicable and in any event no
later than 90 days after the end of each fiscal year, consolidated
statements of income and statements of cash flows of the Guarantor
and its Subsidiaries for such year, and consolidated balance sheets
of the Guarantor and its Subsidiaries as at the end of such year,
setting forth in each case in comparative form corresponding
consolidated figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Lessor (it being
understood that no special audit procedures or form of report,
other than those required by generally accepted auditing standards,
shall be required) and reported on by independent public
accountants of recognized national standing selected by the
Guarantor whose report shall be without Limitation as to the scope
of the audit and satisfactory in substance to the Lessor; provided,
however, that delivery pursuant to clause (iii) below of copies of
the Annual Report on Form 10-K of the Guarantor for such fiscal
year filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (ii);
<PAGE>
(iii) promptly upon transmission thereof, copies
of all such financial statements, proxy statements, notices and
reports as they shall send to their public stockholders and copies
of all registration statements (without exhibits) and all reports
which they file with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of any
report or notice received by a Company or any Subsidiary from
independent accountants that describes any event or condition which
could reasonably be expected to cast doubt on the scope of any audit
or materially impair the ability of such accountants to deliver an
unqualified opinion or report with respect to any audit;
(v) as soon as practicable and in any event within
five days after any officer of any Company obtaining knowledge (a) of
any Default or Event of Default hereunder; (b) of any condition or
event which, in the opinion of management of such Company, would
have a material adverse effect on the business, condition
(financial or other), assets, properties, operations or prospects
of the Companies and their Subsidiaries; (c) that any Person has
given any notice to the Companies or any of their Subsidiaries or
taken any other action with respect to a claimed default or event
or condition of the type referred to in Section 17(a)(iv); (d) of
the institution of any Litigation involving, claims against the
Companies or any of their Subsidiaries equal to or greater than
$1,500,000 with respect to any single cause of action or of any
adverse determination in any court proceeding in any Litigation
involving a potential liability to the Companies or any of their
Subsidiaries equal to or greater than $1,500,000 with respect to
any single cause of action, which determination makes the
likelihood of a final adverse determination in such litigation
against such Company or such Subsidiary substantially more
probable; or (e) of any regulatory proceeding which could
reasonably be expected to have a material adverse effect on the
Companies or any of their Subsidiaries; an Officer's Certificate of
such Company specifying the nature and period of existence of any
such Default or Event of Default, condition or event, or specifying
the notice given or action taken by such Person and the nature of
any such claimed default, event or condition, or specifying the
details of such proceeding, litigation or dispute and what action
the Companies or any of their Subsidiaries has taken, is taking or
proposes to take with respect thereto;
(vi) promptly upon becoming aware of the occurrence
of either a Loss Event or a Casualty Occurrence, or any other event or
condition requiring notice under either Section 7 or Section 8 of
this Lease, the Lessee shall give the Lessor
<PAGE>
written notice thereof, which notice shall specify the damage or loss
to any Facility or any part thereof in reasonable detail;
(vii) from time to time such additional information
regarding the financial position or business of the Guarantor and
its Subsidiaries as the Lessor may reasonably request.
Together with each delivery of financial statements required
by clauses (i) and (ii) above, each Company will deliver to each
Lender an Officer's Certificate-Financial (in substantially the
form of Exhibit D attached hereto demonstrating (with computations
in reasonable detail) compliance by the Companies and their
Subsidiaries with the provisions of Sections 30(a) through 30(e)
and stating that there exists no Event of Default or Default, or,
if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Companies
propose to take with respect thereto. Together with each delivery
of financial statements required by clause (ii) above, the
Companies will deliver to each Lender a certificate of such
accountants stating that, in making the audit necessary for their
report on such financial statements, they have obtained no
knowledge of any Event of Default or Default, or, if they have
obtained knowledge of any Event of Default or Default, specifying
the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure
to obtain knowledge of any Event of Default or Default which would
not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards. The Companies also
covenant that forthwith upon the chief executive officer, chief
operating officer, principal financial officer or principal
accounting officer of either Company obtaining knowledge of an
Event of Default or Default, it will deliver to each Lender an
Officer's Certificate specifying the nature and period of existence
thereof and what action such Company proposes to take with respect
thereto.
(i) Maintenance and Inspection of Property, Books and
Records. The Lessee will keep books of record and account
regarding this Lease and shall maintain, on a current basis, books
of proper record and account in conformity with GAAP, consistently
applied (to the extent applicable), which books shall include
copies of all Related Contracts and any amendments thereto and the
Facility Cost of each Facility and of each material item of
Property comprising or included in each Facility, and shall provide
copies of the foregoing to the Lessor from time to time on request
at the Lessee's expense. The Lessee will (i) keep proper books of
record and account in which full, true and correct entries in
conformity with GAAP shall be made of all dealings and transactions
in relation to its business and activities; and (ii) permit
representatives of the Lessor (x) at the Lessor's expense and upon
reasonable notice prior to the occurrence of a Default and (y) at
<PAGE>
the Lessee's expense after the occurrence of a Default, to visit
and inspect the Facilities for any Facility and any Applicable Site
and any of its properties, to examine and make abstracts from any
of its books and records and to discuss its affairs, finances and
accounts with its officers, employees and independent public
accountants. The Lessee agrees to cooperate and assist in such
visits and inspections, in each case at such reasonable times and
as often as may reasonably be desired.
(j) Use of Proceeds. The proceeds of fundings of the
Facility Cost by the Lessor will be used to finance the acquisition
of the Facilities by the Lessor pursuant to the Agency Agreement,
including the enhancements and improvements to be made thereto and
the design, renovation, construction and installation thereof.
(k) Compliance with Laws, Etc.. The Companies will comply,
and cause each of their Subsidiaries to comply, in all material
respects with all applicable laws, rules, regulations and orders
the noncompliance with which could result in a material adverse
effect on the Companies or any of their Subsidiaries, such
compliance to include, without limitation, complying with all
applicable Environmental Requirements and paying before the same
become delinquent all Taxes imposed upon it or upon its property,
except to the extent such taxes, charges or assessments contested
in good faith.
(l) Maintenance of Property. The Lessee shall maintain and
preserve the Facilities in accordance with the requirements of this
Lease and in accordance with prudent industry practices its rights
in and to the Applicable Permits used in the ordinary course of
business that are necessary for and material to the operation and
maintenance of the Facilities.
(m) Environmental Notices. The Lessee shall furnish to the
Lessor written notice, promptly upon its becoming actually aware
thereof, of all Environmental Liabilities, pending or threatened
Environmental Proceedings, Environmental Notices, Environmental
Judgments and Orders, and Environmental Releases at, on, in, under
or in any way affecting any of the Facilities or Applicable Sites,
or any adjacent property, and all facts, events, or conditions
actually known to the Lessee that could reasonably be expected to
lead to any of the foregoing.
(n) Environmental Matters. The Lessee shall, and shall not
knowingly permit any Third Party to, use, produce, manufacture,
process, treat, recycle, generate, store, dispose of, manage at, or
otherwise handle, or ship or transport to or from any of the
Facilities or Applicable Sites any Hazardous Materials in material
compliance with all applicable Environmental Requirements.
(o) Environmental Release. The Lessor agrees that upon the
occurrence of an Environmental Release at or on any Facility or
<PAGE>
any Applicable Site, it will act immediately to determine the extent
of, and to take appropriate remedial action to eliminate, any such
Environmental Release, whether or not ordered or otherwise directed
to do so by any Environmental Authority.
(p) Further Assurances. The Lessee will cure promptly any
defects in the due execution and delivery by it of the Operative
Documents, including this Lease. The Lessee at its expense will
promptly execute and deliver to the Lessor upon request all such
other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements
of the Lessee in the Operative Documents, including this Lease, or
to further evidence and more fully describe the Facilities or any
part thereof, or to correct any item that the Lessee and the Lessor
agree constitutes an omission or error in the Operative Documents,
or more fully to state the existing security obligations set out
herein or in any of the Operative Documents, or to perfect, protect
or preserve any Liens created pursuant to any of the Operative
Documents, or to make any recordings, to file any notices, or
obtain any consents, required by the terms of the Operative
Documents, all as may be necessary or appropriate in connection
therewith.
(q) Encroachments. Except as otherwise approved in writing
by the Lessor, each Facility, when completed, shall be situated
wholly within the boundary lines of the Applicable Site therefor
and shall not encroach upon any contiguous or adjoining Property
(other than those portions of such Applicable Site for which the
Lessee has the right to locate and operate such portions pursuant
to use or operating agreements) and each Facility shall not violate
any other easements, rights-of-way, licenses or other agreements
affecting the Applicable Site therefor.
(r) Liens, Etc. on the Facilities. The Lessee covenants and
agrees that it shall not create, assume or suffer to exist, any
Liens upon any Facility, other than Permitted Liens.
(s) Hart-Scott-Rodino Act Compliance. The Companies shall
make all necessary filings and notifications under the HSR Act, if
any, and fully comply with the terms of the HSR Act (including any
applicable interpretations thereunder) in connection with any
purchase or sale of any of the Facilities.
(t) Year 2000 Compliance. The Guarantor will promptly
notify the Agent in the event the Guarantor discovers or determines
that any computer application (including those of its suppliers and
vendors) that is material to its or any of its Subsidiaries'
business and operations will not be Year 2000 compliant on a timely
basis, except to the extent that such failure could not reasonable
be expected to have a Material Adverse Effect.
Section 31. Miscellaneous.
<PAGE>
(a) Entire Agreement. This Lease and the other Operative
Documents embody the entire agreement and understanding between the
Lessee and the Lessor and supersede all other agreements and
understandings between such parties relating to the subject matter
hereof. This Lease and the other Operative Documents represent the
final agreement between the parties and may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the
parties.
(b) Interpretation. Captions and section headings
appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any provision
of this Agreement.
(c) Governing Law; Submission to Jurisdiction. (i) THIS
LEASE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO RELATING
TO THE FACILITIES SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, BUT EXCLUDING ALL
CONFLICT-OF-LAWS RULES; EXCEPT THAT, AS TO ANY FACILITY, TO THE
EXTENT REQUIRED BY THE LAWS OF THE STATE IN WHICH THE APPLICABLE
SITE FOR SUCH FACILITY IS LOCATED, THE LAWS OF THE STATE OF IN
WHICH SUCH APPLICABLE SITE IS LOCATED SHALL GOVERN (i) THE CREATION
AND EXISTENCE OF THIS LEASE IN RESPECT OF SUCH FACILITY, (II)
SECTION 26 OF THIS LEASE IN RESPECT OF SUCH FACILITY, AND (III) THE
ENFORCEMENT OF THE RIGHTS OF LESSOR TO REPOSSESS SUCH FACILITY FROM
THE LESSEE AFTER THE EARLIER OF THE TERMINATION OF THIS LEASE AS TO
SUCH FACILITY OR THE TERMINATION OF THE LESSEE'S RIGHT TO
POSSESSION OF SUCH FACILITY.
(d) No Third Party Beneficiaries. Nothing in this Lease,
express or implied, shall give to any Person, other than the
parties hereto and the Participants and their respective successors
and permitted assigns, any benefit or any legal or equitable right,
remedy or claim under this Lease including, without limitation,
under any provision of this Lease regarding the priority or
application of any amounts payable hereunder.
(e) Counterparts. This Lease may be executed in any number
of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute
this Agreement by signing any such counterpart.
(f) Waiver of Jury Trial. EACH OF THE PARTIES HERETO WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR TO DEFEND
ANY RIGHTS UNDER THIS LEASE OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
RELATIONSHIP EXISTING IN CONNECTION WITH THIS LEASE, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY.
<PAGE>
(g) Invalidity. In the event that any one or more of the
provisions contained in this Lease shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision
of the Lease.
(h) Usury. Notwithstanding anything to the contrary
contained in this Lease or any of the Operative Documents, the
amounts which the Lessee is obliged to pay pursuant to this Lease
and the other Operative Documents, and the amounts which the Lessor
is entitled to receive pursuant to this Lease and the other
Operative Documents, are subject to the following limitations. It
is the intention of the parties hereto that the Lessor shall
conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to the
Lessor under laws applicable to it (including the laws of the
United States of America and the state where its main office is
located or any other jurisdiction whose laws may be mandatorily
applicable to the Lessor notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to
the contrary in this Lease or in any other Operative Document, it
is agreed as follows: (i) the aggregate of all consideration which
constitutes interest under law applicable to the Lessor that is
contracted for, taken, reserved, charged or received by the Lessor
under this Lease or under any of the other aforesaid Operative
Documents or other agreements or otherwise in connection with this
Lease shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be canceled
automatically and if theretofore paid shall be credited by the
Lessor on the amounts paid by the Lessee, to the extent that the
obligations with respect thereto shall have been or would thereby
be paid in full, refunded by the Lessor to the Lessee and (ii) in
the event that any amounts hereunder become due and payable prior
to the regularly scheduled maturity, whether by reason of the
occurrence of a Cancellation Event or a Termination Event or
otherwise, or in the event of any required or permitted prepayment,
then such consideration that constitutes interest under law
applicable to the Lessor may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any,
provided for in this Lease or otherwise shall be canceled auto
matically by the Lessor as of the date of such prepayment and, if
theretofore paid, shall be credited by the Lessor on the amounts
payable hereunder (or, to the extent that the amounts payable
hereunder shall have been or would thereby be paid in full,
refunded by the Lessor to the Lessee). All sums paid or agreed to
be paid to the Lessor for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to
the Lessor, be amortized, prorated, allocated and spread in equal
parts throughout the full term of this Lease until payment in full
so that the rate or amount of interest on account of any amounts
payable hereunder does not exceed the maximum amount allowed by
<PAGE>
such applicable law. If at any time and from time to time (i) the
amount of Rent, interest or yield payable to the Lessor on any date
shall be computed at the Highest Lawful Rate applicable to the
Lessor pursuant to this Section 31(i) and (ii) in respect of any
subsequent Rent, interest or yield computation period the amount of
interest or yield otherwise payable to the Lessor would be less
than the amount of Rent, interest or yield payable to the Lessor
computed at the Highest Lawful Rate applicable to the Lessor, then
the amount of Rent, interest or yield payable to the Lessor in
respect of such subsequent Rent, interest or yield computation
period shall continue to be computed at the Highest Lawful Rate
applicable to the Lessor until the total amount of Rent, interest
or yield payable to Lessor shall equal the total amount of Rent,
interest or yield which would have been payable to the Lessor if
the total amount of Rent, interest or yield had been computed
without giving effect to this Section.
(i) Time of the Essence. Time is of the essence in
connection with the payment of Rent and all other amounts payable
hereunder and the performance of the Lessee's other obligations
hereunder.
(j) Indemnification. The Lessee agrees:
in addition to any other indemnity obligations set forth
in any Operative Document, to indemnify and save harmless, the Lessor,
each Participant, each of their respective successors and assigns,
and their respective officers, directors, incorporators,
shareholders, employees, agents, partners, attorneys, affiliates
and servants (individually an "Indemnified Party" and collectively
the "Indemnified Parties") from and against all liabilities, Liens,
Withholding Taxes, Other Taxes, losses, obligations, claims,
damages (including, without limitation, penalties, fines, court
costs and administrative service fees), penalties, demands, causes
of action, suits, proceedings (including any investigations,
litigation or inquiries), judgments, orders, sums paid in
settlement of claims, and costs and expenses of any kind or nature
whatsoever, including, without limitation, reasonable attorneys'
fees and expenses and all other expenses incurred in connection
with investigating, defending or preparing to defend any cause of
action, suit or proceeding (including any investigations,
litigation or inquiries) or claim which may be incurred by or
asserted against or involve any of them (whether or not any of them
is named as a party thereto) as a result of, arising directly or
indirectly out of or in any way related to (A) any actual or
proposed use by the Lessee of the amounts funded as Facility Cost,
(B) any other aspect of this Lease and the other Operative
Documents, (C) the operations of the business of the Lessee, (D)
the failure of the Lessee to comply with any Governmental
Requirement in connection with the purchase,
<PAGE>
design, construction, manufacture, engineering, assembly, installation,
use, operation or ownership of the Facilities or any portion thereof,
(E) the breach of any representation or warranty set forth herein
regarding Environmental Laws, (F) the failure of the Lessee as agent
for the Lessor under the Agency Agreement to pay any amount required
to be paid hereunder, (G) the failure of the Lessee to perform any
obligation herein required to be performed pursuant to
Environmental Laws, or any act or omission which occurred or will
occur at any prior or subsequent time, or any condition or state of
facts in existence at any prior or subsequent time relating in any
way to any of the Facilities or any Applicable Site the failure of
which gives rise to any liability or obligation under any
Environmental Requirement or gives rise to any Environmental
Damages, (H) the Lessee's ownership and leasing of the Facilities
pursuant to this Lease, (I) the sale of any portion of the
Facilities either to the Lessee or any other Person pursuant to the
provisions of this Lease, (J) all acts or omissions of the Lessee
or any Sublessee, (K) any Imposition, Lien, judgment, order, tax,
or other payment owing in respect of any of the Facilities or which
the Lessee is obligated to discharge or pay to any Person, (L) any
action or omission of the Lessee pursuant to the Agency Agreement,
(M) any injury to, or death of, any Person, or damage to or loss of
Property to the extent not reimbursed by insurance prior to the
Indemnified Party having to make any payment in respect thereof, or
any other thing occurring on or resulting from activities involving
any of the Facilities or on any Applicable Site or any portion
thereof, (N) the renovation, construction, leasing, subleasing,
operation, occupancy, possession, use or non-use by the Lessee
(whether in its individual capacity or as agent for the Lessor) of
any of the Facilities or any Applicable Site or any portion
thereof, or the condition of the Facilities or any portion thereof,
(O) any Default or Event of Default under this Lease, (P) any act
or omission of the Lessee or its agents, contractors, licensees,
Sublessees, invitees, representatives or any other Person on or
relating to, or in connection with, the ownership, renovation,
construction, leasing, subleasing, operation, management,
maintenance, occupancy, possession, use, non-use or condition of
any of the Facilities or any Applicable Site or any portion
thereof, (Q) performance of any labor or services or furnishing of
any materials or other Property in respect of any of the Facilities
or any Applicable Site or any portion thereof, (R) any permitted
contest referred to in Section 13 hereof, (S) any claims for
patent, trademark, trade name or copyright infringement or (T) any
violation by the Lessee of any Operative Document or any Related
Contracts or any other contract or agreement to which the Lessee is
a party, or of any Insurance Requirement, in each case affecting
any Indemnified Party, any of the Facilities or any Applicable Site
or any portion thereof or
<PAGE>
the ownership, operation, occupancy, possession, use, non-use or
condition thereof, in each case regardless of the acts, omissions or
negligence of any Indemnified Party, it being the intent of the Lessee
to indemnify the Indemnified Parties for their own negligent acts or
omissions (other than gross negligence or wilful misconduct) in
connection with any of the foregoing (collectively, the "Indemnified
Risks"); provided, however, that no Indemnified Party shall be entitled
to indemnity (or any other payment or reimbursement) for any
Indemnified Risks to the extent such Indemnified Risks result from
or arise out of one or more of the following: (1) any
representation or warranty by such Indemnified Party in the
Operative Documents being incorrect; (2) the willful misconduct or
gross negligence of such Indemnified Party; (3) any claim for
economic losses based upon the rate of return under this Lease; and
(4) caused solely by the breach by the Indemnified Party of its
obligations under the Operative Documents.
(ii) If any cause of action, suit, proceeding or
claim arising from any of the foregoing is brought against any
Indemnified Party, whether such action, proceeding, suit or claim
shall be actual or threatened, or in preparation therefor, the
Lessee will have the right, at its expense, to assume the
resistance and defense of such cause of action, suit, proceeding or
claim or cause the same to be resisted and defended; provided that
such Indemnified Party shall be entitled (but not obligated) to
participate jointly in such defense, in which case such Indemnified
Party will be responsible for its own legal fees or other expenses,
if any, related to such defense incurred subsequent to the joint
participation by such party in such defense. Notwithstanding the
foregoing, if any Indemnified Party shall have been advised by
counsel chosen by it that there may be one or more legal defenses
available to such Indemnified Party that are different from or
additional to those available to the Lessee, the Indemnified Party
may assume the defense of such action and the Lessee agrees to
reimburse such Indemnified Party for the reasonable fees and
expenses of any counsel retained by the Indemnified Party. the
Lessee may settle any action which it defends hereunder on such
terms as it may deem advisable in its sole discretion, subject to
its ability promptly to perform in full the terms of such
settlement. No Indemnified Party may seek indemnification or other
reimbursement or payment, including attorneys' fees or expenses,
from the Lessee for any cause of action, suit, proceeding or claim
settled, compromised or in any way disposed of by the Indemnified
Party without the Lessor's prior written consent, which will not be
unreasonably withheld.
(iii) The obligations of the Lessee under this
Section 31(j) shall survive the expiration or any termination
<PAGE>
of this Lease (whether by operation of law or otherwise) and the
payment of amounts owed by the Lessee under this Lease and the
other Operative Documents.
(iv) Upon demand for payment by any Indemnified
Party of any Indemnified Risks incurred by it for which indemnification
is sought, the Lessee shall pay when due and payable the full amount
of such Indemnified Risks to the appropriate party, unless and only
so long as: (A) the Lessee shall have assumed the defense of such
action and is diligently prosecuting the same; (B) the Lessee is
financially able to pay all its obligations outstanding and
asserted against the Lessee at that time, including the full amount
of the Indemnified Risks; and (C) the Lessee has taken all action
as may be reasonably necessary to prevent (1) the collection of
such Indemnified Risks from the Indemnified Party; (2) the sale,
forfeiture or loss of the Facilities or any portion thereof during
such defense of such action; and (3) the imposition of any civil or
criminal liability for failure to pay such Indemnified Risks when
due and payable.
(v) The Lessee acknowledges and agrees that its
obligations under this Section 31(j) are intended to include and
extend to any and all liabilities, Liens, Withholding Taxes, Other
Taxes, losses, obligations, claims, damages (including, without
limitation, penalties, fines, court costs and administrative
service fees), penalties, demands, causes of action, suits,
proceedings (including any investigations, litigation or
inquiries), judgments, orders, sums paid in settlement of claims,
costs and expenses (including, without limitation, response and
remediation costs, stabilization costs, encapsulation costs, and
treatment, storage or disposal costs), imposed upon or incurred by
or asserted at any time against any Indemnified Party (whether or
not indemnified against by any other party) as a result of, arising
directly or indirectly out of or in any way related to (1) the
treatment, storage, disposal, generation, use, transport, movement,
presence, release, threatened release, spill, installation, sale,
emission, injection, leaching, dumping, escaping or seeping of any
hazardous substance or material containing or alleged to contain
hazardous substance at or from any of the Facilities or any
Applicable Site or any part thereof; (2) the violation or alleged
violation of any Environmental Laws relating to or in connection
with any of the Facilities or any Applicable Site or any part
thereof or any acts or omissions thereon or relating thereto;
(3) all other federal, state and local laws designed to protect the
environment or persons or property therein, whether now existing or
hereinafter enacted, promulgated or issued by any Governmental
Authority relating to or in connection with any of the Facilities
or any Applicable Site or any part thereof or any acts or omissions
thereon or relating thereto; (4) the
<PAGE>
Lessee's failure to comply
with its obligations under Section 7; and (5) any abandonment of
any of the Facilities or any Applicable Sites by the Lessee;
provided, however that no Indemnified Party shall be entitled to
indemnity or any other payment or reimbursement for any of the
types of claims enumerated in this Section 31(j) to the extent such
claims result from or arise out of the willful misconduct or gross
negligence of such Indemnified Party; and (ii) the indemnification
provided for under this Section 31(j)(v) shall be governed by the
procedures set forth in Sections 31(j)(ii)-(iv) above.
(vi) Without limiting the generality of the
foregoing provisions of this Section 31(j), the Lessee agrees to pay or
reimburse, promptly upon demand, and protect, indemnify and save
harmless, the Lessor, following the occurrence of a Termination
Event or Cancellation Event, from any action by any Sublessee or
other owner of an interest in the Facilities (other than a Co-
Lessee) which causes the Lessor any delay in exercising its
remedies, or results in the reduction of the Lessor's remedies
hereunder.
(vii) In case any action shall be brought against
any Indemnified Party in respect of which indemnity may be sought
against the Lessee, such Indemnified Party shall promptly notify
the Lessee in writing, but the failure to give such prompt notice
shall not relieve the Lessee from liability hereunder.
(k) Confidentiality. The Lessor agrees to exercise
commercially reasonable efforts to keep any information delivered
or made available by the Lessee to it which is clearly indicated or
stated to be confidential information (or when the circumstances
under which such information is delivered or when the content
thereof would cause a reasonable person to believe that such
information is confidential), confidential from anyone other than
Persons employed or retained by such Party who are or are expected
to become engaged in evaluating, approving, structuring or
administering the Advances or the Operative Documents (such Persons
to likewise be under similar obligations of confidentiality with
respect to such information); provided, however, that nothing
herein shall prevent the Lessor from disclosing such information
(i) upon the order of any court or administrative agency, (ii) upon
the request or demand of any regulatory agency or authority having
jurisdiction over the Lessor, (iii) which has been publicly
disclosed, (iv) to the extent reasonably required in connection
with any litigation to which the Lessor or its affiliates may be a
party, (v) to the extent reasonably required in connection with the
exercise of any remedy hereunder, (vi) to the Lessor's legal
counsel and independent auditors, (vii) to any actual or proposed
assignee or participant in all or part of its rights hereunder
which has agreed in writing to be bound by the provisions of this
<PAGE>
Section 31(k); provided that should disclosure of any such
confidential information be required by virtue of clause (i), (iii)
or (v), the Lessor shall, to the extent permitted by law, promptly
notify the Lessee of same so as to allow the Lessee to seek a
protective order or to take any other appropriate action; provided,
further, that the Lessor shall not be required to delay compliance
with any directive to disclose beyond the last date such delay is
legally permissible any such information so as to allow the Lessee
to effect any such action.
(l) No Waiver; Remedies. No failure on the part of the
Lessor to exercise, and no delay in exercising, any right hereunder
or under any other Operative Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right
hereunder or under any other Operative Document preclude any other
or further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
(m) Right of Set-Off. After the occurrence and during the
continuance of a Cancellation Event or Termination Event, in the
event the Lessee has not purchased the Facility pursuant to Section
15(a)(ii)(A) or paid the Final Rent Payment or Completion Costs
Payment, as applicable, pursuant to Section 15(a)(ii)(B), the
Lessor is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by
the Lessor to or for the credit or the account of the Lessee
against any and all of the obligations of the Lessee now or
hereafter existing under this Lease or any other Operative
Document, irrespective of whether or not the Lessor shall have made
any demand under this Lease or any other Operative Document and
although such obligations may be unmatured. The Lessor agrees
promptly to notify the Lessee after any such set-off and
application made by the Lessor; provided that the failure to give
such notice shall not affect the validity of such set-off and
application. The rights of the Lessor under this Section 31(m) are
in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Lessor may have.
(n) References. The words "herein," "hereof," "hereunder"
and other words of similar import when used in this Lease refer to
this Lease as a whole, and not to any particular article, section
or subsection. Any reference herein to an Article or Section shall
be deemed to refer to the applicable Article or Section of this
Lease unless otherwise stated herein. Any reference herein to an
exhibit or schedule shall be deemed to refer to the applicable
exhibit or schedule attached hereto unless otherwise stated herein.
<PAGE>
(o) Successors; Survivals. This Lease shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The obligations of the Lessee
under Section 4(g), Section 27, and Section 31(j) shall survive the
repayment of the Rent and all other obligations of the Lessee to
the Lessor under this Lease and the other Operative Documents and
the termination of the Commitments.
(p) Captions. Captions and section headings appearing
herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this
Lease.
(q) Characterization.
(i) In order to protect the rights and remedies
of the Lessor following a Default, an Event of Default, any other
Cancellation Event or a Termination Event, and for the purposes of
Federal, state and local income and ad valorem taxes, Title 15,
Section 18A of the United States Code (Hart-Scott-Rodino Act) and
Title 11 of the United States Code (or any other applicable
Federal, state or local insolvency, reorganization, moratorium,
fraudulent conveyance or similar law now or hereafter in effect for
the relief of debtors), the parties hereto intend that (i) this
Lease be treated as the repayment and security provisions of a loan
by the Lessor to the Lessee in the amount of the Facility Cost,
(ii) all payments of Interim Rent, Basic Rent, Supplemental Rent,
the Final Rent Payment, the Completion Costs Payment, the
Termination Value and the Purchase Price be treated as payments of
principal, interest and other amounts owing with respect to such
loan and (iii) the Lessee be treated as entitled to all benefits of
ownership of the Facilities or any part thereof. In addition, the
parties acknowledge that after payment in full of the Rent and all
other obligations of the Lessee to the Lessor under this Lease and
the Operative Documents, any remaining proceeds of the Facilities
shall be distributed to the Lessee.
(ii) The Lessee agrees that neither it nor any
of its Affiliates (whether or not consolidated or combined returns are
filed for any such Affiliate and the Lessee for federal, state or
local income tax purposes) will at any time take any action,
directly or indirectly, or file any return or other document
inconsistent with the intended income tax treatment set forth in
the preceding sentence, and the Lessee agrees that the Lessee and
any such Affiliates will file such returns, maintain such records,
take such action and execute such documents (as reasonably
requested by the Lessor from time to time) as may be appropriate to
facilitate the realization of such intended income tax treatment.
The Lessor agrees that neither it nor any affiliate (whether or not
<PAGE>
consolidated or combined returns are filed for such affiliate and
the Lessor for federal, state or local income tax purposes) will at
any time take any action, directly or indirectly, or file any
return or other document claiming, or asserting that it is entitled
to, the income tax benefits, deductions and/or credits which,
pursuant to the intended income tax treatment set forth herein,
would otherwise be claimed or claimable by the Lessee or the
Guarantor, and that it and any such affiliates will file such
returns, maintain such records, take such actions, and execute such
documents (as reasonably requested by the Lessee or the Guarantor
from time to time) as may be appropriate to facilitate the
realization of, and as shall be consistent with, such intended
income tax treatment, and if any such filing, maintenance, action
or execution requested by the Lessee or the Guarantor would result
in any additional income tax liability payable by it or any
affiliate, or could reasonably be expected to result in liability
payable by it or any affiliate, unrelated to the intended income
tax treatment set forth herein, then the Lessee and the Guarantor
will provide an indemnity against such unrelated income tax
liability satisfactory to the Lessor, in its sole opinion.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to
be executed by their respective officers thereunto duly authorized
as of the date first above written.
LESSOR:
WACHOVIA CAPITAL INVESTMENTS, INC.
By:/s/Joseph J. Thomas
----------------------------
Title: Senior Vice President
----------------------------
LESSEE:
AMERICAN FREIGHTWAYS, INC.
By:/s/Frank Conner
---------------------------
Title: Exec Vice President
And Chief Financial Officer
---------------------------
<PAGE>
Schedule 1(a)
Defined Terms
The following terms shall have the following meanings when used in
the Lease, the Agency Agreement and all other Operative Documents
(all terms defined in the singular to have the same meanings when
used in the plural and vice versa):
"Acquisition/Construction Agent": Lessee, in its
capacity as Acquisition/Construction Agent for the Lessor under the
Agency Agreement.
"Adjusted LIBO Rate": with respect to any Interim Rental
Period or Rental Period, a rate per annum equal to the quotient
obtained (rounded upwards, if necessary, to the next higher 1/16th
of 1%) by dividing (i) the applicable LIBO Rate for such Interim
Rental Period or Rental Period by (ii) 1.00 minus the Eurodollar
Reserve Percentage.
"Advance Notice": as defined in Section 4(b) of the
Lease.
"Advances": collectively, all Advances of Facility Cost
made by the Lessor pursuant to Section 4(a) of the Lease in an
aggregate principal amount not to exceed the Commitment; and
individually, any such Advance made by any of them, as the context
shall require.
"Affiliate": with respect to the Lessor or the
Guarantor, as the case may be, (i) any Person that, directly or
indirectly, through one or more intermediaries, controls the Lessor
(a "Controlling Person"), (ii) any Person (other than the Lessor or
a Subsidiary) which is controlled by or is under common control
with a Controlling Person, or (iii) any Person (other than a
Subsidiary) of which the Lessor or the Guarantor owns, directly or
indirectly, 20% or more of the common stock or equivalent equity
interests. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or
otherwise.
"Agency Agreement": the Acquisition, Agency, Indemnity
and Support Agreement, of even date with the Lease, between the
Lessor and the Lessee, as Acquisition/Construction Agent,
substantially in the form of Exhibit A to the Lease, as amended,
supplemented or otherwise modified from time to time.
"Aggregate Construction Costs": the aggregate amount of
all Facility Costs for any Facility, including all acquisition
<PAGE>
costs for such Facility and Capitalized Expenses, excluding,
however, the cost of the acquisition of the Applicable Site (or a
ground lease thereof) for such Facility; provided, however, that
only for purposes of this definition and the calculation of the
Completion Costs Payment Limitation, "Aggregate Construction Costs"
shall include individual items included in Capitalized Expenses
only to the extent such items are required to be capitalized in
accordance with GAAP.
"Applicable Funding Office": (i) for the Lessor, 191
Peachtree Street, N.E., Atlanta, Georgia 30303, and (ii) for any
Participant, the funding office of such Participant (or an
affiliate of such Participant) designated for any interest of
Lessor or such Participant in Interim Rent or Basic Rent in the
participation agreement with the Lessor or such other offices of
such Participant (or of an affiliate of such Participant) as such
Participant may from time to time specify to the Lessor as the
office by which its interest in Interim Rent and Basic Rent, as
applicable, are to be made and maintained.
"Applicable Margin": the applicable rate per annum
determined in accordance with the Pricing Schedule.
"Applicable Permit": for each Facility, any Permit that
is or may be necessary to own, renovate, construct, install,
start-up, test, maintain, modify, expand, remove, operate, lease or
use all or any part of the Facility or any portion thereof in
accordance with the Operative Documents, and the failure to obtain
or maintain which would have a Material Adverse Effect.
"Applicable Site": with respect to any Facility, the
Real Property on which the Facility subject to this Lease is to be
located, as identified in the Lease Supplements pertaining to such
Facility.
"Approved Appraisal": as to each Facility, any
appraisal, ordered by the Lessor, but at the Lessee's cost, from an
appraiser or appraisers selected by the Lessee but reasonably
acceptable to the Lessor, which: (i) complies with Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended, 12 U.S.C. 3331, et seq., and The Regulations and
Statements of General Policy on Appraisals promulgated by the
Federal Deposit Insurance Corporation, 12 C.F.R. Part 32, as
amended, (ii) is performed by a state-certified real estate
appraiser certified under the laws of any State, (iii) reflects the
Market Value of the Facility on an "as completed" basis, and (iv)
forecasts the Estimated Residual of each Facility as of the end of
each Rental Period for such Facility and (iv) has been approved in
all material respects by the Lessor.
"Authorized Officers": relative to the Lessee or the
Guarantor, the officers whose signatures and incumbency shall have
<PAGE>
been certified to the Lessor in a certificate certified by its
Secretary or an Assistant Secretary of the Lessee or the Guarantor,
as applicable, in form and substance satisfactory to the Lessor
that are authorized to sign the Lease and the other Operative
Documents to which the Lessee or the Guarantor, as applicable is a
party and, until replaced by another Authorized Officer duly
authorized for that purpose, to act as its respective
representative for the purposes of signing documents and giving
notices and other communications in connection with the Lease and
the Operative Documents to which it is a party.
"Banking Authority": as defined in Section 27(b) of the
Lease.
"Base Rate": for any day, the rate per annum equal to
the higher as of such day of (i) the Prime Rate, and (ii) one-half
of one percent above the Federal Funds Rate. For purposes of
determining the Base Rate for any day, changes in the Prime Rate
shall be effective on the date of each such change.
"Basic Rent": for each Facility, with respect to any
Rental Period, the amounts payable for such Facility as Basic Rent
for such Rental Period pursuant to Section 3(b) of the Lease,
consisting of the sum of the Scheduled Payment and either the
Floating Rate Payment or, if the Election has been made, the Fixed
Rate Payment.
"Book Value": for each Facility, as at any date of
determination with respect to such Facility or any Property
comprising or included in such Facility, the aggregate Funded
Amount through such date of determination to purchase, manufacture,
construct, assemble or install such Facility or any portion
thereof.
"Business Day": (a) for all purposes other than as
covered by clause (b) below, any day except Saturday, Sunday or
other day on which commercial banks in Atlanta, Georgia are
authorized or required by law or other government action to close,
and (b) with respect to all notices and determinations in
connection with Interim Rental Periods and Rental Periods, and
payments of Interim Rent or Basic Rent, any day that is a Business
Day described in clause (a) above and that is also a day for
trading by and between banks in the London interbank eurodollar
market.
"Cancellation Date": as defined in Section 15(b) of the
Lease.
"Cancellation Event": as defined in Section 15(b) of the
Lease, and shall include a Loss Event.
<PAGE>
"Capitalized Expenses": with respect to any Facility, all
acquisition, design and construction costs and all legal,
architectural, engineering and other professional fees and
expenses, brokerage fees, appraisal fees, environmental assessment
fees, title insurance, survey expenses, mortgage and financing
statement recording fees and taxes, intangibles taxes, and other
Soft Costs and all Interim Rent, commitment and other fees accrued
prior to the Facility Completion Date for such Facility.
"Capitalized Lease Obligation": any rental of property
which, under GAAP, is or will be required to be capitalized on the
books of the Companies or any Subsidiary, taken at the amount
thereof accounted as indebtedness (net of interest expense) in
accordance with "Cash Equivalents" means investments (directly or
through a money market fund) in (a) certificates of deposit,
repurchase agreements, and other interest bearing deposits or
accounts with United States commercial banks having a combined
capital and surplus of at least $100,000,000, or with insurance
companies whose debt obligations have one of the three highest
ratings obtainable from Standard & Poor's Corporation or Moody's
Investors Services, Inc. which certificates, repurchase agreements,
deposits, and accounts mature within one year from the date of
investment, (b) obligations issued or unconditionally guaranteed by
the United States government, or issued by an agency thereof and
backed by the full faith and credit of the United States
government, which obligations mature within one year from the date
of investment, (c) direct obligations issued by any state or
political subdivision of the United States, which mature within one
year from the date of investment and have the highest rating
obtainable from Standard & Poor's Corporation or Moody's Investors
Services, Inc. on the date of investment, and (d) commercial paper
which has one of the three highest ratings obtainable from Standard
& Poor's Corporation or Moody's Investors Services, Inc.
"Capital Stock": any nonredeemable capital stock of the
Lessee, the Guarantor or any Consolidated Subsidiary (to the extent
issued to a Person other than the Lessee) whether common or
preferred.
"Casualty Occurrence": for each Facility, any of the
following events in respect of such Facility (i) any material loss
of such Facility or material loss of use thereof which does not
constitute a Loss Event, or (ii) the condemnation, confiscation,
condemnation or seizure of, or requisition of title to or use of,
any material part of such Facility which action does not constitute
a Loss Event.
"CERCLA": the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. 9601 et. seq. and its
implementing regulations and amendments.
<PAGE>
"CERCLIS": the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to
CERCLA.
"Change of Law": as defined in Section 27(b) of the
Lease.
"Closing Date": December 29, 1998.
"Code": the Internal Revenue Code of 1986, as amended,
and any successor Federal tax code.
"Collateral": as defined in Section 26 of the Lease.
"Co-Lessee": as defined in Section 21(b) of the Lease.
"Commitment": an amount for all Facilities equal to
$17,500,000 (or set forth in an assignment executed by the Lessor
pursuant to Section 21(d) of the Lease), as it may be (i) reduced
at the request of the Lessee in accordance with Section 4(c) of the
Lease or (ii) increased by the Lessor, in its sole and absolute
discretion, at the request of the Lessee, in order to permit the
addition of one or more Facilities the Facility Cost of which,
together with the Facility Cost of existing Facilities, would
exceed the then existing Commitment.
"Commitment Fee": as defined in Section 3(a) of the
Lease.
"Companies": the Lessee and the Guarantor, individually
or collectively, as the context shall require.
"Commitment Fee Rate": as defined in the Pricing
Schedule.
"Completion": for each Facility, the occurrence and
satisfaction of all of the events and conditions described in the
Completion Certificate on a single date to the reasonable
satisfaction of the Lessor.
"Completion Costs": at any time the sum of (x) the
Aggregate Construction Costs (including acquisition costs, except
with respect to the Applicable Site, and soft costs) expended or
incurred as of the time of a Non-Completion Event and which it will
be necessary thereafter to expend in order to achieve Completion,
plus (y) all Impositions thereon.
"Completion Costs Payment": an amount, which is payable
upon the occurrence of a Non-Completion Event, equal to the sum of
(i) the aggregate amount of the Completion Costs, up to but not in
excess of the Completion Costs Payment Limitation, and (iii) all
Supplemental Rent and other amounts owing by the Company under the
<PAGE>
Operative Documents (other than any Completion Costs in excess of
the Completion Costs Payment Limitation).
"Completion Costs Payment Limitation" means an amount
equal to 89% of the Aggregate Construction Costs as of the date of
the Non-Completion Event.
"Completion Certificate": for each Facility, a
certificate of the Acquisition/Construction Agent in substantially
the form of Exhibit A to the Agency Agreement, certifying that
Completion of such Facility has occurred.
"Consolidated Subsidiary": a Subsidiary, the accounts of
which are customarily consolidated with those of the Guarantor for
the purpose of reporting to stockholders of the Guarantor or, in
the case of a recently acquired Subsidiary, the accounts of which
would, in accordance with the Guarantor's regular practice, be so
consolidated for that purpose.
"Construction Period": a period commencing on the
Closing Date and ending 24 months after the Closing Date.
"Controlled Group": all members of a controlled group of
corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the
Companies, are treated as a single employer under Section 414 of
the Code.
"Current Debt": any obligation for borrowed money (and
any notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed money)
payable on demand or within a period o one year from the date of
the creation thereof and any guaranty with respect thereto;
provided that any obligation shall be treated as Funded Debt,
regardless of its term, if such obligation is renewable pursuant to
the terms thereof or of a revolving credit or similar agreement
effective for more than one year after the date of the creation of
such obligation, or may be payable out of the proceeds of a similar
obligation pursuant to the terms of such obligation or of any such
agreement.
"Current Liabilities": with respect to the Companies and
their Subsidiaries on a consolidated basis as at any date of
determination the total Liabilities which may properly be
classified as current Liabilities in accordance with GAAP, after
eliminating all intercompany transactions but excluding as current
liabilities any portion of the Funded Debt of the Companies and
their Subsidiaries outstanding-at the date of determination which
by its terms or the terms of any instrument or agreement relating
thereto matures within one year from such date of determination.
<PAGE>
"Debt": Funded Debt and/or Current Debt, as the case may
be. Any obligation secured by a Lien on, or payable out of the
proceeds of production from, property of the Companies or any
Subsidiary shall be deemed to be Funded or Current Debt, as the
case may be, of such Company or such Subsidiary even though such
obligation shall not be assumed by such Company or such Subsidiary.
"Default": any condition or event that constitutes an
Event of Default or that with the giving of notice or the lapse of
time or both would, unless cured or waived, become an Event of
Default.
"Default Rate": with respect to any amount payable under
the Lease or under any of the other Operative Documents on any day,
the sum of 2% plus the greater of (i) the then highest rate (for
determining Interim Rent, or the Floating Rate or the Fixed Rate,
as applicable) that may be applicable to the amount payable or (ii)
if no such rate exists, the Prime Rate in effect from time to time.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"EBDITA": means with respect to the Companies and their
Subsidiaries on a consolidated basis the sum of (a) Net Earnings
for the applicable period and (b) to the extent the following were
deducted in determining such Net Earnings, the sum of (i)
depreciation, depletion, obsolescence and amortization of property
as well as any other noncash charges to Net Earnings (excluding
ordinary expense accruals), (ii) interest expense, (iii) the
interest portion of capitalized lease expense and (M tax expense,
each for the applicable period and determined in accordance with
GAAP.
"Election": for each Facility, as defined in Section
3(b)(i) of the Lease.
"Election Period": for each Facility, as defined in
Section 3(b)(i) of the Lease.
"Environmental Assessment": collectively, a Phase 1
investigation conducted by an independent engineering firm
reasonably acceptable to the Lessor in scope and substance
satisfactory to the Lessor and in any event satisfying the minimum
standards set forth in ASTME 1527-94, and, if recommended in or
indicated by the Phase I environmental report, a Phase 2,
environmental soil test or other environmental report or reports,
reflecting compliance of the subject Facility in all material
respects with all applicable Environmental Requirements.
"Environmental Authority": any foreign, federal, state,
local or regional Governmental Authority that exercises any form of
jurisdiction or authority under any Environmental Requirement.
<PAGE>
"Environmental Authorizations": all licenses, permits,
orders, approvals, notices, registrations or other legal
prerequisites for conducting the business of the Lessee or any
Subsidiary, or for the uses and activities of, on or relating to
any Facility, required by any Environmental Requirement.
"Environmental Damages": any and all claims, losses,
costs, damages, penalties and expenses which are incurred at any
prior or subsequent time as a result of the existence or release of
Hazardous Materials upon, about or beneath any Facility or any
Applicable Site or migrating or threatening to migrate to or from
any Facility or any Applicable Site or the existence of a violation
of Environmental Requirements pertaining to any Facility or any
Applicable Site, regardless of whether the existence of such
Hazardous Materials or the violation of Environmental Requirements
arose prior to the present ownership or operation of any Facility
or any Applicable Site.
"Environmental Judgments and Orders": all Judgments,
arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent or written
agreements with an Environmental Authority or other entity arising
from or in any way associated with any Environmental Requirement,
whether or not incorporated in a Judgment.
"Environmental Liabilities": any liabilities or Liens,
whether accrued, contingent or otherwise, arising from and in any
way associated with any Environmental Requirements.
"Environmental Notices": notice from any Environmental
Authority or by any other Person, of possible or alleged
noncompliance with or liability under any Environmental
Requirement, including without limitation any complaints,
citations, demands or requests from any Environmental Authority or
from any other person or entity for correction of any violation of
any Environmental Requirement or any investigations concerning any
violation of any Environmental Requirement.
"Environmental Proceedings": any judicial or
administrative proceedings arising from or in any way associated
with any Environmental Requirement.
"Environmental Release": any actual or threatened
release defined in CERCLA or under any state or local environmental
law or regulation.
"Environmental Requirements": any statue, rule,
regulation, ordinance, permit, license administration or judicial
decision or order (whether by consent or otherwise) or the
requirement of law with respect to: (i) the protection of human
health and/or the environment; (ii) the existence, handling, use,
generation, treatment, storage, packaging, labeling, removal or
<PAGE>
Environmental Release of Hazardous Materials on, under, about
and/or from any Real Property, including any Applicable Site; and
(iii) the effects on the environment of any activity now,
previously, or hereinafter conducted on any Real Property,
including any Applicable Site. The Environmental Requirements
shall include, but not be limited to, the following: CERCLA; the
Superfund Amendments and Reauthorization Act, Public Law 99-499,
100 Stat. 1613; the Resource Conservation and Recovery Act, 42
U.S.C. 6901, et seq.; the Toxic Substances Control Act, 15
U.S.C. 2601, et seq.; the Federal Water Pollution Control Act,
33 U.S.C. 1251, et seq.; the Clean Air Act, 42 U.S.C. 7401,
et seq.; the Occupational Safety and Health Act, 29 U.S.C. 651,
et seq.; the Emergency Planning and Community Right-To-Know Act of
1986, 42 U.S.C. 11001, et seq.; the state and local analogies
thereto, all as amended or superseded from time to time; and any
common-law doctrine, including but not limited to, negligence,
nuisance, strict liability, trespass, personal injury, or property
damage related to or arising out of the presence, Environmental
Release or exposure to a Hazardous Material; and all federal, state
and local ordinances, regulations, orders, writs and decrees.
"ERISA": the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law and the
regulations promulgated and rulings issued from time to time
thereunder. Any reference to any provision of ERISA shall also be
deemed to be a reference to any successor provision or provisions
thereof.
"Estimated Residual": the estimated fair market value of
each Facility as of the end of each Rental Period for such
Facility, as set forth on Annex "C" to the Lease Supplement for
such Facility, as it may be modified pursuant to Section 3(b) of
the Lease as a result of an Approved Appraisal.
"Eurocurrency Liabilities": as defined in Regulation D
of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Reserve Percentage": for any day the
percentage (expressed as a decimal) that is in effect on such day,
as prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve
requirement for a member bank of the Federal Reserve System in
respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to
which the interest rate on loans made at the LIBO Rate is
determined or any category of extensions of credit or other assets
which includes loans by a non-United States office of any
Participant to United States residents). The Adjusted LIBO Rate
shall be adjusted automatically on and as of the effective date of
any change in the Eurodollar Reserve Percentage.
<PAGE>
"Event of Default": as defined in Section 17 of the
Lease.
"Facility": the collective reference to (i) the Lessor's
fee simple estate in or ground lease of the Applicable Site
described in a particular Lease Supplement referring to a specific
Facility by location of the Applicable Site, (ii) the Improvements,
and (iii) all plans, specifications, warranties and related rights
and operating, maintenance and repair manuals related thereto and
all replacements of any of the above, and/or any and all equipment
or other Property that is to be acquired and installed pursuant and
subject to this Lease and located at such Applicable Site. The
term "Facility" includes all Lease Supplements relating thereto.
"Facility Commencement Date": as defined in Section 28(b)
of the Lease.
"Facility Completion Date": with respect to each
Facility, the earlier to occur of (i) Completion of such Facility,
(ii) the date which is 12 months after the Facility Commencement
Date for such Facility, and (iii) the last day of the Construction
Period.
"Facility Cost": with respect to each Facility, an
aggregate amount equal to the sum of (i) all costs associated with
the Lessor's acquisition of title to such Facility, (ii) all of the
Soft Costs incurred in connection with such Facility and (iii) all
Interim Rent accrued prior to the Facility Completion Date for such
Facility.
"Facility Plan": with respect to each Facility, the
architectural plans and specifications for such Facility and list
of Facility Plan documents designated as Annex "D" to the Lease
Supplement in the form furnished to the Lessor, as the same may be
amended, supplemented or otherwise modified from time to time with
the consent of the Lessor.
"Federal Funds Rate": for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%)
equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the day for which such
rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the
next preceding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be
the average rate charged to the Lessor on such day on such
transactions, as determined by the Lessor.
"Final Rent Payment": for each Facility, an amount
determined as of the date payment thereof is required equal to the
<PAGE>
sum of (i) the Recourse Amount for such Facility, plus or less, as
the case may be, (ii) any Make Whole Adjustment, plus (iii) all
other amounts owing by the Lessee under the Transaction Documents
(including in any event all unpaid Impositions accrued, arising or
payable in connection with such Facility or otherwise pursuant to
the Lease through or as at the end of the Lease Term, and all
unpaid Supplemental Rent (other than any Make Whole Adjustment
included in clause (ii)), but excluding in any event the Non-
Recourse Amount).
"Fiscal Quarter": any fiscal quarter of the Companies.
"Fiscal Year": any fiscal year of the Companies.
"Fixed Charges": with respect to the Companies and their
Subsidiaries on a consolidated basis the sum of (i) interest
expense, (ii) scheduled principal payments (including mandatory
reduction in any fully-funded revolving credit facility), (iii)
operating lease expense, (iv) rental expense and (v) capital lease
payments (including both interest and principal components), each
for the applicable period and determined in accordance with GAAP.
"Fixed Rate": with respect to Basic Rent for each
Schedule, if the Election has been made for such Schedule, for each
Rental Period, a rate per annum equal to the fixed rate offered by
the Lessor as the Fixed Rate within 1 Business Day of the Lessor's
receipt of the Lessee's request for a quote of the Fixed Rate,
provided, that the Lessee has made the Election with respect to
such quoted fixed rate within 1 hour of its receipt of such quote
(but if the Lessee declines to make the Election within such period
as to such quoted fixed rate, it shall be entitled to request and
make an Election with respect to a different quoted fixed rate, so
long as such Election is made within the Election Period).
"Fixed Rate Payment": for each Facility, as defined in
Section 3(b)(ii) of the Lease.
"Floating Rate": with respect to Basic Rent for each
Facility, if the Election has not been made or become effective for
such Facility, for each Rental Period, a rate per annum equal to
the sum of (i) the Adjusted LIBO Rate prevailing on the first day
of such Rental Period, plus (ii) the Applicable Margin; provided,
that (i) if the Lessee notifies the Lessor at least 3 Business Days
prior to the commencement of any Rental Period that it desires for
Basic Rent during such Rental Period to accrue based on the Base
Rate, then for such Rental Period, Basic Rent shall instead be
determined on the basis of the Base Rate plus the Applicable
Margin..
"Floating Rate Payment": for each Facility, as defined
in Section 3(b)(i) of the Lease.
<PAGE>
"Forbearance Termination Date: as defined in Section
17(i) of the Lease.
"Funded Amount": for each Facility, the aggregate amount
of Facility Cost for such Facility, accrued and unpaid Rent for
such Facility and all other amounts owed by the Lessee to the
Lessor with respect to such Facility pursuant to this Lease or any
other Operative Document.
"Funded Debt":
(i) any obligation payable more than one year from the
date of creation thereof, which under GAAP is shown on the
balance sheet as a liability (including Capitalized Lease
Obligations but excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not
constitute an obligation),
(ii) indebtedness payable more than one year from the
date of creation thereof which is secured by any Lien on
property owned by either Company or any Subsidiary, whether or
not the indebtedness secured thereby shall have been assumed
by such Company or such Subsidiary,
(iii) guarantees, endorsements (other than endorsements
of negotiable instruments for collection in the ordinary
course of business) and other contingent Liabilities (whether
direct or indirect) in connection with the obligations, stock
or dividends of any Person,
(iv) obligations under any contract providing for the
making of loans, advances or capital contributions to any
Person, or for the purchase of any property from any Person,
in each case in order to enable such Person primarily to
maintain working capital, net worth or any other balance sheet
condition or to pay debts, dividends or expenses,
(v) obligations under any contract for the purchase of
materials, supplies or other property or services if such
contract (or any related document) requires that payment for
such materials, supplies or other property or services shall
be made regardless of whether or not delivery of such
materials, supplies or other property or services is ever made
or tendered,
(vi) obligations under any contract to rent or lease
(as lessee) any real or personal property if such contract (or
any related document) provides that the obligation to make
payments thereunder is absolute and unconditional under
conditions not customarily found in commercial leases then in
<PAGE>
general use or requires that the lessee purchase or otherwise
acquire securities or obligations of the lessor,
(vii) obligations under any contract for the sale or use
of materials, supplies or other property or services if such
contract (or any related document) requires that payment for
such materials, supplies or other property or services, or the
use thereof, shall be subordinated to any indebtedness (of the
purchaser or user of such materials, supplies or other
property or the Person entitled to the benefit of such
services) owed or to be owed to any Person,
(viii) obligations under any other contract which, in
economic effect, is substantially equivalent to a guarantee,
and
(ix) liabilities in respect of unfunded vested benefits
under plans covered by Title IV of ERISA,
all as determined in accordance with GAAP.
"GAAP": generally accepted accounting principles in the
United States of America; provided that for purposes of determining
compliance with the terms of the Lease, the Lessee, and the Lessor
agree that in the event of any change in GAAP from that in effect
on the date of the financial statements referred to in Section
30(a) of the Lease which has the effect of weakening the protection
afforded the Lessor by the Lessee's and Guarantor's covenants in
the Lease, the Lessee and the Lessor shall amend the Lease and such
covenants in order to provide the Lessor an equivalent level of
protection, in a manner satisfactory to the Lessor.
"Governmental Authority": to include the country, state,
county, city and political subdivisions in which any Person or any
such Person's property is located or that exercises valid
jurisdiction over any such Person or any such Person's property,
and any court, agency, department, commission, board, bureau or
instrumentality of any of them including monetary authorities that
exercise valid jurisdiction over any such Person or any such
Person's property. Unless otherwise specified, all references to
Governmental Authority herein shall mean a Governmental Authority
having jurisdiction over, where applicable, the Lessee, any
Applicable Site, any Facility, the Lessee, any Participant, any
Applicable Funding Office or any Operative Document.
"Governmental Requirement": any law, statute, code,
ordinance, order, determination, rule, regulation, judgment,
decree, writ, order, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (whether
or not having the force of law), including, without limitation,
Environmental Requirements, and occupational, safety and health
standards or controls, of any Governmental Authority.
<PAGE>
"Guarantor": American Freightways Corporation, an
Arkansas corporation, and its successors.
"Guaranty": the Guaranty, of even date with the Lease,
substantially in the form of Exhibit E to the Lease, from the
Guarantor to the Lessor for the benefit of the Lessor, pursuant to
which the Guarantor, as primary obligor, guarantees and is liable
for all of the Lessee's obligations under the Lease and all other
Operative Documents, as amended, supplemented or otherwise modified
from time to time.
"Hazardous Materials": to include, without limitation,
(i) solid or hazardous waste, as defined in the Resource
Conservation and Recovery Act of 1980, 42 U.S.C. 6901 et seq. and
its implementing regulations and amendments, or in any applicable
state or local law or regulation, (ii) "hazardous substance",
"pollutant", or "contaminant" as defined in CERCLA, or in any
applicable federal, state or local law or regulation, (iii)
gasoline, or any other petroleum product or by-product, including,
crude oil or any fraction thereof, (iv) toxic substances, as
defined in the Toxic Substances Control Act of 1976, or in any
applicable state or local law or regulation, (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide,
Fungicide, and Rodenticide Act of 1975, or in any applicable
federal, state or local law or regulation, as each such Act,
statute or regulation may be amended from time to time, or (v) any
toxic or hazardous materials, wastes, polychlorinated biphenyls
("PCBs"), lead-containing materials, asbestos or asbestos-
containing materials, urea formaldehyde, radioactive materials,
pesticides, the discharge of sewage or effluent, or any other
materials or substances defined as or included in the definition of
"hazardous materials," "hazardous waste," "contaminants" or similar
terms under any Environmental Requirement.
"Highest Lawful Rate": with respect to the Lessor, the
maximum non-usurious Rent, interest rate or yield, as applicable,
if any, that at any time or from time to time may be contracted
for, taken, reserved, charged or received with respect to any
amounts owing hereunder under laws applicable to the Lessor which
are presently in effect or, to the extent allowed by law, under
such applicable laws which may hereafter be in effect and which
allow a higher maximum non-usurious Rent or interest rate than
applicable laws now allow.
<PAGE>
"Impositions": without duplication, as to any Person,
(i) all Withholding Taxes, Other Taxes, assessments, levies, fees,
inspection fees and other authorization fees and all other
governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, of every character
(including all penalties and interest thereon) that, at any time
prior or subsequent to the Closing Date, are imposed or levied upon
or assessed against or may be or constitute a Lien upon such Person
or such Person's Property, or that arise in respect of the
ownership, operation, possession, use, non-use, condition, leasing
or subleasing of such Person's Property; (ii) all charges, levies,
fees, rents or assessments for or in respect of utilities,
communications and other services rendered or used on or about such
Person's Property; (iii) payments required in lieu of any of the
foregoing; but excluding any penalties or fines imposed on the
Lessor for violation by it of any banking laws or securities law;
and (iv) any and all taxes, recording fees and other charges
(including penalties and interest) relating to or arising out of
the execution, delivery or recording of any of the Operative
Documents for the amounts evidenced, secured or referred to be paid
thereby, including without limitation, documentary stamp taxes,
intangible taxes, recording fees and sales and rent taxes.
"Improvements": collectively, the building to be
constructed on an Applicable Site and certain improvements and
enhancements to the foregoing in according with the relevant
Facility Plan, together with all accessions thereto and
replacements thereof, and together with all accessories, equipment,
parts and devices necessary to achieve Completion, and all fixtures
now or hereafter included in or attached to such Applicable Site,
the building and such enhancements and improvements and
modifications; excluding; however: (i) such Applicable Site and
(ii) any office equipment or other equipment which may be located
on such Applicable Site but which (x) is not necessary to achieve
Completion and (y) does not constitute fixtures.
"Income Available for Fixed Charges": with respect to
the Companies and their Subsidiaries on a consolidated basis the
sum of (a) EBDITA for the applicable period and (b) to the extent
the following were deducted in determining the Net Earnings
component of such EBDITA, the sum of (i) operating lease expense
and (ii) rental expense, each for the applicable period and deter-
mined in accordance with GAAP.
"Indemnified Party": as defined in Section 31(k)(i) of
the Lease.
"Indemnified Risks": as defined in Section 31(k)(i) of
the Lease.
<PAGE>
"Insurance Requirements": all terms of any insurance
policy (including, without limitation, casualty and general
liability) covering or applicable to any Facility or any portion
thereof maintained in accordance with Section 14 of the Lease, and
all requirements of the issuer of any such policy.
"Interim Rent": for each Facility, with respect to any
Interim Rental Period, the amounts payable for such Facility as
Interim Rent for such Interim Rental Period pursuant to Section
3(a) of the Lease.
"Interim Rental Period": with respect to Interim Rent
pertaining to any Facility, the period beginning on the Facility
Commencement Date for such Facility and ending on the numerically
corresponding date (or, if applicable, last calendar date) which is
either 1, 2 or 3 months thereafter, as selected by the Lessee upon
at least 3 Business Days notice and, thereafter, each subsequent
period commencing on the last day of the immediately preceding
Interim Rental Period and ending on the numerically corresponding
date (or, if applicable, last calendar date) which is either 1, 2
or 3 months thereafter, as selected by the Lessee upon at least 3
Business Days notice; provided, however, that:
(i) no Interim Rental Period may be selected which
commences before the Facility Completion Date and would
otherwise end after the Facility Completion Date;
(ii) if the last day of such Interim Rental Period would
otherwise occur on a day which is not a Business Day, such
last day shall be extended to the next succeeding Business
Day, except if such extension would cause such last day to
occur in a new calendar month, then such last day shall occur
on the next preceding Business Day.
"Investment": any investment in any Person, whether by
means of purchase or acquisition of obligations or securities of
such Person, capital contribution to such Person, loan or advance
to such Person, making of a time deposit with such Person,
Guarantee or assumption of any obligation of such Person or
otherwise.
"Judgment": any judgement, decree, writ, order,
determination, injunction, rule or other direction or requirement
of any arbitrator or any court, tribunal or other Governmental
Authority.
"Law": any statute, law, ordinance, regulation, rule,
order, writ, injunction, or decree of any Tribunal.
"Lease": the Master Lease Agreement to which this
Schedule 1(a) is attached (as the same may be amended, modified or
supplemented from time to time, between the Lessee and the Lessor.
<PAGE>
"Lease Commencement Date": the Closing Date.
"Lease Counterpart Covenants: as defined in Section
17(i) of the Lease.
"Lease Counterpart Covenant Default: as defined in
Section 17(i) of the Lease.
"Lease Supplement" with respect to each Facility, a
Lease Supplement in substantially the form of Exhibit B to the
Lease, and containing the information required thereby, including
the identification of the Applicable Site for the Facility to which
it relates and stating whether fee simple title to or a ground
lease of such Applicable Site is to be acquired by the Lessor.
"Lease Term": for each Facility, the period of time
commencing on the Facility Commencement Date for such Facility and
ending on the Lease Termination Date for such Facility.
"Lease Termination Date": for each Facility, the earlier
to occur of (i) the Option Date for such Facility, (ii) the
Cancellation Date for such Facility, (iii) the date of termination
for such Facility as a result of a Termination Event and (iv) the
Scheduled Lease Termination Date for such Facility.
"Lessee": American Freightways, Inc., an Arkansas
corporation, together with its successors and permitted assigns.
"Lessor": Wachovia Capital Investments, Inc., a Georgia
corporation, together with its successors and permitted assigns.
"Leverage Ratio": the ratio of the aggregate amount of
Debt of the Companies and their Subsidiaries on a consolidated
basis to Total Capitalization.
"LIBO Rate": with respect to any Interim Rent or Basic
Rent for the applicable Interim Rental Period or Rental Period
therefor, the rate per annum determined on the basis of the offered
rate for deposits in Dollars of amounts equal or comparable to the
amount of such Interim Rent or Basic Rent offered for a term
comparable to such Interim Rental Period or Rental Period, which
rates appear on the Telerate Screen Page 3750 as of 11:00 A.M.,
London time, 2 Business Days prior to the first day of such Interim
Rental Period or Rental Period, provided that (i) if more than one
such offered rate appears on the Telerate Screen Page 3750, the
"LIBO Rate" will be the arithmetic average of such offered rates;
(ii) if no such offered rates appear on such page, the "LIBO Rate"
for such Interim Rental Period or Rental Period will be the
arithmetic average (rounded upward, if necessary, to the next
higher 1/100th of 1%) of rates quoted by not less than 2 major
banks in New York City, selected by the Lessee, at approximately
<PAGE>
10:00 A.M., New York City time, 2 Business Days prior to the first
day of such Interim Rental Period or Rental Period, for deposits in
Dollars offered to leading European banks for a period comparable
to such Interim Rental Period or Rental Period in an amount
comparable to the amount of such Interim Rent or Basic Rent.
"Lien": any mortgage, pledge, security interest,
encumbrance, deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for
the purpose of, or having the effect of, protecting a creditor
against loss or securing with assets the payment or performance of
an obligation; provided that this term does not include any
agreement or obligation to refrain from placing any encumbrance on
any asset.
"Litigation": any proceeding, claim, lawsuit,
arbitration, and/or investigation conducted or threatened by or
before any Tribunal, including without limitation proceedings,
claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair
competition, securities, Tax, or other Law, or under or pursuant to
any contract, agreement, or other instrument.
"Loss" or "Gain": with respect to the Unrecovered
Facility Cost included in the amount of the voluntary prepayment,
Final Rent Payment, or Termination Value payment (including the
amount accelerated following a Cancellation Event), the amount that
the Lessor reasonably determines in good faith to be (i) in the
case of a "Loss", its total losses and costs and (ii) in the case
of a "Gain", its gain, in connection with such voluntary
prepayment, Final Rent Payment or Termination Value payment,
including any loss of bargain, cost of funding or, at the election
of the Lessor but without duplication, loss or costs incurred as a
result of its terminating, liquidating, obtaining or re-
establishing any hedge or related trading position entered into by
the Lessor in respect of this Lease. The Lessor may (but need not)
determine Loss by reference to quotations of relevant rates or
prices from one or more leading dealers in the relevant markets.
"Loss Event": for each Facility, any of the following
events in respect of such Facility: (i) the total loss of such
Facility or the total loss of use thereof due to theft,
disappearance, destruction, damage beyond repair or rendition of
such Facility permanently unfit for normal use for any reason
whatsoever; (ii) any damage to such Facility which results in an
insurance settlement with respect to such Facility on the basis of
a total loss; (iii) the permanent condemnation, confiscation or
seizure of, or requisition of title to or use of, all or
<PAGE>
substantially all of such Facility including, but not limited to, a
permanent taking by eminent domain of such scope that the untaken
portion of such Facility is insufficient to permit the restoration
of such Facility for such Facility for continued use in the
Lessee's business or that causes the remaining portion of such
Facility to be incapable of being restored to a condition that
would permit the remaining portion of such Facility (without the
portion of such Facility taken by eminent domain) to continue to
have the capacity and functional ability to perform on a continuing
basis (subject to normal interruptions in the ordinary course of
business for maintenance, inspection, service, repair and testing)
and in commercial operation, the function for which such Facility
(as a whole) was designed or a temporary taking of such nature for
a period exceeding 180 consecutive days; or (iv) the occurrence of
any event or the discovery of any condition in, on, beneath or
involving such Facility or any portion thereof (including, but not
limited to the presence of hazardous substances or the violation of
any applicable Environmental Requirement) that would have a
material adverse effect on the use, occupancy, possession,
condition, value or operation of such Facility or any portion
thereof, which event or condition requires remediation (A) the cost
of which is anticipated, in the opinion of the Lessor, in
consultation with an independent environmental engineering firm, to
exceed [15%] of the Termination Value, and (B) that could not
reasonably be expected to be completed substantially in its
entirety prior to the Scheduled Lease Termination Date for such
Facility or is not actually completed substantially in its entirety
on or before the Scheduled Lease Termination Date for such
Facility.
"Make Whole Adjustment": for each Facility as to which
Basic Rent is payable based on a Fixed Rate, an amount, determined
by the Lessor in respect of the Unrecovered Facility Cost for such
Facility included in the amount so payable, equal to the "Loss" or
"Gain" (with any Make-Whole Adjustment which is a Loss being added
to the amount otherwise payable to the Lessor, and any Gain being
deducted from the amount otherwise payable to the Lessor), if any,
incurred in connection with (i) any voluntary payment of all or
part of the Basic Rent for such Facility, (ii) the payment of the
Termination Value upon acceleration following a Cancellation Event
for such Facility or on the Option Date for such Facility.
"Margin Stock": "margin stock" as defined in Regulations
U of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Material Adverse Effect": with respect to any event,
act, condition or occurrence of whatever nature (including any
adverse determination in any litigation, arbitration, or
governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related,
<PAGE>
a material adverse change in, or a material adverse effect upon, any
of (a) the financial condition, operations, business, or properties
which are central to the business at such time, of the Companies
and their Consolidated Subsidiaries taken as a whole, (b) the
rights and remedies of the Lessor under the Operative Documents, or
the ability of the Lessee (in its capacity as such or in its
capacity as Acquisition/Construction Agent) to perform its
obligations under the Operative Documents to which it is a party,
(c) the legality, validity or enforceability of any Operative
Document, or (d) the use, possession, condition, value or operation
of the Facilities.
"Multiemployer Plan": any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Net Earnings Available For Restricted Payments": with
respect to the Companies and their Subsidiaries on a consolidated
basis (a) for the Fiscal Year ending December 31, 1998, an amount
equal to the lesser of (i) 125% of Net Earnings and (ii)
$25,000,000 and (b) for each other Fiscal Year, an amount equal to
75% of Net Earnings. If the preceding calculation results in a
number less than zero, such amount shall be considered to be zero.
"Net Earnings": with respect to the Companies and their
Subsidiaries on a consolidated basis an amount equal to gross
revenues and other proper income credits of the Companies and their
Subsidiaries less all operating and non-operating expenses of the
Companies and their Subsidiaries including all charges of a proper
character (including current and deferred taxes on income,
provision for taxes on unremitted foreign earnings which are
included in gross revenues, and current additions to reserves), but
not including in gross revenues any gains (net of expenses and
taxes applicable thereto) in excess of losses resulting from the
sale, conversion or other disposition of capital assets (i.e.,
assets other than current assets), any gains resulting from the
write-up of assets any equity of the Companies or any Subsidiary in
the unremitted earnings of any corporation which is not a
Subsidiary, any earnings of any Person acquired by the Companies or
any Subsidiary through purchase, merger or consolidation or
otherwise for any year prior to the year of acquisition, or any
deferred credit representing the excess of equity in any Subsidiary
at the date of acquisition over the cost of the investment in such
Subsidiary; each for the applicable period and determined in
accordance with GAAP.
"Net Worth": with respect to the Companies and their
Subsidiaries on a consolidated basis as of any date of
determination the excess of (a) the par value (or value stated on
the books of the Companies) of the capital stock (but excluding
treasury stock and capital stock subscribed and unissued) plus (or
minus in the case of a surplus deficit) the amount of the
consolidated surplus (capital surplus and retained earnings) of the
<PAGE>
Companies and the Subsidiaries which would appear on a consolidated
balance sheet of the Guarantor and its Subsidiaries over (b) the
sum, without duplication, of treasury stock, unamortized debt
discount and expense, goodwill, trademarks, trade names, patents.
deferred charges and other intangible assets and any write-up of
the value of assets after December 31, 1993; all determined in
accordance with GAAP, including the making of appropriate
deductions for minority interest (if any) in Subsidiaries.
"Non-Completion Event": as to any Facility, the failure
of Completion to occur on or before the earlier of (i) the date
which is 12 months after the Facility Commencement Date for such
Facility and (ii) the last day of the Construction Period.
"Non-Recourse Amount": for each Facility, means at any
time an amount equal to the percentage of the aggregate original
Facility Cost for such Facility set forth in Annex "C" to the Lease
Supplement for such Facility (which shall be determined separately
for each Faclitity as the minimum percentage permitted under
applicable accounting rules with respect there, but not less than
12% or more than 15%, as such amount may be modified pursuant to
Section 3(b) of the Lease as a result of an Approved Appraisal.
"Non-U.S. Domestic Participant": as defined in Section
3(g) of the Lease.
"Officer's Certificate": a certificate signed in the
name of a Company by its President, one of its Vice Presidents or
its Treasurer.
"Operative Documents": collectively, the Lease, the
Agency Agreement, each Lease Supplement, the Guaranty and any and
all other agreements or instruments now or hereafter executed and
delivered, or required to be executed and delivered, by the Lessor
or the Lessee or the Guarantor in connection with the Lease or the
Agency Agreement or by the Guarantor in connection with the
Guaranty, as such agreements or instruments may be amended,
supplemented, renewed, extended, increased or otherwise modified
from time to time.
"Option Date": as defined in Section 15(c) of the Lease.
"Other Taxes": all taxes (other than Withholding Taxes),
assessments, levies, fees, water and sewer rents and charges,
inspection fees and other authorization fees and all other
governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, of every character
(including all penalties and interest thereon) and all recording
fees and other charges (including penalties and interest) relating
to or arising out of (i) the execution, delivery, recording or
enforcement of any of the Operative Documents, whether for the
amounts evidenced, secured or referred to be paid thereby, or
otherwise, or (ii) to the ownership, use, operation or transfer of
any of the Facilities or any other Property or (iii) any other
<PAGE>
event or circumstance, including without limitation, transfer
taxes, documentary stamp taxes, intangible taxes, recording fees
and sales, use and rent taxes.
"Other Transaction Expenses": as defined in Section
15(f)(i)(1) of the Lease.
"Participant": as defined in Section 21(d) of the Lease,
collectively, as the context shall require, "Participants".
"PBGC": the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permit": any approval, consent, waiver, exemption,
variance, franchise, order, permit, authorization, right or license
of or from any Governmental Authority or other Person.
"Permitted Insurers": insurers with ratings of A or
better and Class VIII or better according to Best's Insurance
Reports, or other insurers acceptable to the Lessor.
"Permitted Liens": with respect to any of the Facilities
or any Property included in or comprising any of the Facilities or
any portion thereof, any of the following:
(a) rights reserved to or vested in any Governmental
Authority by the terms of any right, power, franchise, grant,
license, permit or provision of law affecting the Facilities
to (1) terminate, or take any other action which has the
effect of modifying, such right, power, franchise, grant,
license, permit or provision of law, provided that such
termination or other action, when taken, shall not have
resulted in a Loss Event and shall not have had a material
adverse effect on the usefulness or value of the Facility, or
(2) purchase, condemn, appropriate or recapture, or designate
a purchaser of, the Facilities;
(b) any Liens thereon for Impositions and any Liens of
mechanics, materialmen and laborers for work or services
performed or materials furnished which (1) are not overdue, or
(2) are being contested in good faith in the manner described
in Section 13 of the Lease;
(c) other statutory Liens which do not have a material
adverse effect on the usefulness or value of the Facility;
(d) the rights of Sublessees, subject to the provisions
of Section 21(c);
(e) Liens arising from judgments, provided that they are
discharged of record within 30 days;
<PAGE>
(f) Liens set forth as exceptions in any title insurance
policy or binder therefor which have been expressly approved
by the Lessor;
(g) rights reserved to or vested in any Governmental
Authority to control or regulate the use of such Property or
to use the Facilities in any manner;
(h) encumbrances, easements, and other similar rights
existing on the Closing Date the exercise of which shall not
have had a material adverse effect on the usefulness or value
of the Facility; and
(i) any Liens created under the Operative Documents and
any financing statements filed in connection therewith.
"Permitted Use": with respect to any Facility, the use
of such Facility in connection with its operations on the
Applicable Site for such Facility as a truck terminal, a salvaged
goods retail sales facility, or other use approved by the Lessor,
in compliance with all applicable Governmental Requirements and
Insurance Requirements.
"Person": an individual, a corporation, a limited
liability company, a partnership, an unincorporated association, a
trust or any other entity or organization, including, but not
limited to, a government or political subdivision or other
Governmental Authority.
"Plan": an "employee pension benefit plan" (as defined
in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by a
Company or by any trade or business, whether or not incorporated,
which, together with a Company, is under common control, as
described in section 414(b) or (c) of the Code.
"Pricing Schedule": the Pricing Schedule attached as
Schedule 1(b) to the Lease.
"Prime Rate": that rate of interest so denominated and
set by Wachovia Bank from time to time as an interest rate basis
for borrowings. The Prime Rate is but one of several interest rate
bases used by Wachovia Bank, and is set by Wachovia as a general
reference rate of interest, taking into account such factors as
Wachovia Bank may deem appropriate, it being understood that many
of Wachovia Bank's commercial or other loans are priced in relation
to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that Wachovia may make various
commercial or other loans at rates of interest having no
relationship to such rate.
"Priority Debt": as defined in Section 30(b) of the
Lease.
<PAGE>
"Property": all types of real, personal, tangible,
intangible, or mixed property, whether owned in fee simple or
leased.
"Prudential Debt": the obligations of the Companies
under (a) that certain Note Agreement dated November 30, 1991, and
(b) that certain Master Shelf Agreement dated September 3, 1993,
both of which are among the Companies and The Prudential Insurance
Company of America, together with the promissory notes, mortgages
and security agreements executed in connection therewith, all as
they may be amended from time to time.
"Purchase Closing Date": as defined in Section 15(e) of
the Lease.
"Purchase Price": as to any Facility, at any time of
determination, an amount equal to the Termination Value for such
Facility.
"Real Property": as defined in Section 26 of the Lease.
"Recourse Amount": for each Facility, means at any time
the excess of (i) the Unrecovered Facility Cost for such Facility
over (ii) the Non-Recourse Amount for such Facility.
"Redeemable Preferred Stock": of any Person means any
preferred stock issued by such Person which is required (by the
terms of the governing instruments, by sinking fund or similar
payments or otherwise, or at the option of the holder thereof) to
be mandatorily redeemed for cash at any time prior to the Scheduled
Lease Termination Date for the Facility having the latest Facility
Completion Date during the Construction Period.
"Regulation D": Regulation D of the Board of Governors
of the Federal Reserve System, as in effect from time to time,
together with all official rulings and interpretations issued
thereunder.
"Regulation T": Regulation T of the Board of Governors
of the Federal Reserve System, as in effect from time to time,
together with all official rulings and interpretations issued
thereunder.
"Regulation U": Regulation U of the Board of Governors
of the Federal Reserve System, as in effect from time to time,
together with all official rulings and interpretations issued
thereunder.
"Regulation X": Regulation X of the Board of Governors
of the Federal Reserve System, as in effect from time to time,
together with all official rulings and interpretations issued
thereunder.
<PAGE>
"Related Contract": for each Facility, any agreement,
contract, bill of sale, receipt or Vendor's warranty relating to or
for the purchase, acquisition design, engineering, testing,
manufacture, renovation, assembly, construction or installation of
such Facility or any portion thereof or the provision of
enhancements and improvements to such Facility or any portion
thereof or otherwise in connection with the acquisition, ownership,
use, operation or sale or other disposition of such Facility or any
portion thereof made pursuant to the Agency Agreement by the Lessee
as Acquisition/Construction Agent on behalf of the Lessor, with one
or more Vendors.
"Rent": Basic Rent, Interim Special Rent, Supplemental
Rent and the Final Rent Payment, collectively.
"Rental Period": with respect to Basic Rent pertaining
to any Facility, the period beginning on the Facility Completion
Date for such Facility and ending on the first Rent Payment Date
occurring after the Facility Completion Date and, thereafter, each
subsequent period commencing on each Rent Payment Date and ending
on the next Rent Payment Date or on the Lease Termination Date for
such Facility.
"Rent Payment Date": with respect to Basic Rent
pertaining to any Facility, each March 31st, June 30th, September
30th and December 31st of each year, commencing on the first such
date occurring after the Facility Commencement Date for such
Facility, and the Lease Termination Date for such Facility.
"Restoration Account": for any Facility, the interest
bearing account maintained with the Lessor pursuant to Section
14(e) of the Lease and styled the "Restoration Account" for such
Facility.
"Restricted Payment": as defined in Section 30(e) of the
Lease.
"Revolving Credit Agreement": the Amended and Restated
Credit Agreement dated as of October 20, 1994, as amended or
supplemented from time to time, among the Guarantor, the Lessee,
NationsBank, N.A. (successor by merger to NationsBank of Texas,
N.A.), as Agent, and the Lenders party thereto from time to time.
"Revolving Credit Notes": the "Notes", as that term is
defined in the Revolving Credit Agreement.
"Rolling Stock": road tractors, city tractors and
trailers and freight handling equipment used in the ordinary course
of business.
"Scheduled Lease Termination Date": with respect to each
Facility, the date that is 5 years after the Closing Date, or any
later date to which it may be extended subject and pursuant to
Section 2(b).
<PAGE>
"Scheduled Payment": with respect to each Facility, as
defined in Section 3(b)(i) of the Lease.
"Secured Amount": as defined in Section 26 of the Lease.
"Secured Party": as defined in Section 26 of the Lease.
"Senior Debt": means the Revolving Credit Notes, the
Prudential Debt, and Funded Debt (which is not Subordinate Debt) of
the Companies which is secured by a Lien permitted by the
provisions of Section 5.07 of the Revolving Credit Facility.
"Soft Costs": with respect to each Facility, all of the
capitalized costs and expenses of any kind or character incurred to
design, install, complete and implement such Facility, including,
without limitation, all professional fees and expenses, and other
"soft costs" of a nature ordinarily and reasonably incurred in
connection with the installation, completion and implementation of
such Facility.
"Soil Test Reports": soil test reports as to soil
borings on the subject Applicable Site by a soil testing firm
satisfactory to the Lessor and including (a) the number and
location of such borings shall be in accordance with the
recommendations of the soil testing firm and also satisfactory to
the Lessor and (b) the recommendations of the soil testing firm as
to the preparation of the soil needed to adequately support the
subject Facility.
"Specified Revolver Covenants: as defined in Section
17(i) of the Lease.
"Specified Revolver Covenant Default: as defined in
Section 17(i) of the Lease.
"Sublessee": as defined in Section 21(c) of the Lease.
"Subordinate Debt": Funded Debt of the Companies which
is expressly and validly subordinated to the Revolving Credit Notes
under conditions and pursuant to terms and provisions approved by
the "Majority Lenders" under the Revolving Credit Agreement in
writing and which is payable as to principal and interest only out
of Net Earnings Available For Restricted Payments pursuant to
Section 30(e).
"Subsidiary": any corporation or other entity organized
under the Laws of any state of the United States of America, Canada
or any province of Canada, which conducts the major portion of its
business in and makes the major portion of its sales to Persons
located in the United States of America or Canada, and at least 50%
of the total combined voting power of all classes of Voting Stock
of which shall, at the time as of which any determination is being
made, be owned by a Company either directly or through
Subsidiaries.
<PAGE>
"Supplemental Rent": as defined in Section 3(d) of the
Lease.
"Support Expenses": as defined in Section 3.2(h)(v) of
the Agency Agreement.
"Survey": a current ALTA-ACSM boundary survey of the
subject Applicable Site and any existing improvements from a
registered surveyor in form and substance reasonably satisfactory
to the Lessor, and containing such certifications as the Lessor may
reasonably request.
"Taxes": all, taxes, assessments, imposts, fees, or
other charges at any time imposed by any Laws or Tribunal.
"Termination Event": as defined in Section 15(a) of the
Lease.
"Termination Value": as to any Facility, at any time of
determination, the sum of (i) the Unrecovered Facility Cost for
such Facility plus or less, as the case may be, (ii) any Make Whole
Adjustment, plus (iii) all accrued, unpaid Interim Rent Payments,
Floating Rate Payments and, if applicable, Fixed Rate Payments for
such Facility, all accrued and unpaid Supplemental Rent (other than
any Make Whole Adjustment included in clause (ii)) through the date
of payment of the Termination Value, plus (iv) all unpaid
Impositions through the date of payment of the Termination Value,
plus (v) as to any Facility as to which Completion has not
occurred, the sum of (a) the aggregate amount of costs (including
acquisition costs and Soft Costs) which it will be necessary to
expend in order to achieve Completion for such Facility plus (b)
all Impositions thereon.
"Third Party": any Person other than (i) the Lessor,
(ii) the Lessee or (iii) any Affiliate of either of them.
"Total Capitalization": as of any date of determination,
an amount equal to the sum of (a) aggregate Debt of the Companies
and their Subsidiaries on a consolidated basis plus (b) Net Worth.
"Total Tangible Assets": with respect to the Companies
and their Subsidiaries on a consolidated basis as of any date of
determination their assets less, without duplication, good will,
trademarks, brand names, patents and other intangible assets and
any write-up of the value of any assets after December 31, 1993;
all as determined in accordance with GAAP, including the making of
appropriate deductions for minority interest (if any) in
Subsidiaries.
"Tribunal": means any state, commonwealth, federal,
foreign, territorial, or other court or government body,
subdivision, agency, department, commission, board, bureau, or
instrumentality of a governmental body.
<PAGE>
"Unrecovered Facility Cost": for each Facility, means at
any time the sum of (i) the aggregate original Facility Cost for
such Facility, less (ii) the aggregate amount of any voluntary
prepayments of Facility Cost and, if applicable, of all Scheduled
Payments, for such Facility received by the Lessor.
"UCC": the Uniform Commercial Code as enacted in the
State of Georgia and any other jurisdiction whose laws may be
mandatorily applicable.
"U.S. Withholding Taxes": as defined in Section 3(g) of
the Lease.
"Vendor": any designer, supplier, manufacturer or
installer of, or provider of Property or services with respect to,
any Facility or any Property included therein or any part thereof.
"Voting Stock": with respect to any corporation, any
shares of stock of such corporation whose holders are entitled
under ordinary circumstances to vote for the election of directors
of such corporation (irrespective of whether at the time stock of
any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wachovia Bank": Wachovia Bank, N.A., a national banking
association, in its individual capacity, and its successors.
"Wholly-Owned Subsidiary": any corporation organized
under the laws of any state of the United States of America,
Canada, or any province of Canada, which conducts the major portion
of its business in and makes the major portion of its sales to
Persons located in the United States of America or Canada and all
of the stock of every class of which (except directors' qualifying
shares, if any) shall, at the time of determination, be owned by a
Company either directly or through Wholly-Owned Subsidiaries.
"Year 2000 compliant": as defined in Section 29(q) of
the Lease.
"Year 2000 Problem": as defined in Section 29(q) of the
Lease.
<PAGE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages of operating expenses and other items to operating
revenue:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 61.0% 60.8% 60.9%
Operating supplies and expenses 8.0% 8.6% 8.2%
Operating taxes and licenses 4.2% 4.1% 4.4%
Insurance 3.2% 3.0% 3.7%
Communications and utilities 1.8% 1.7% 1.9%
Depreciation and amortization 5.7% 6.0% 6.4%
Rents and purchased transportation 5.9% 6.4% 6.2%
Other 4.1% 4.2% 4.6%
------------------------
Total operating
expenses and costs 93.9% 94.8% 96.3%
------------------------
Operating income 6.1% 5.2% 3.7%
Interest expense 1.6% 1.9% 2.0%
Other income, net 0.2% 0.1% 0.1%
------------------------
Income before income taxes 4.7% 3.4% 1.8%
Income taxes 1.9% 1.3% 0.7%
------------------------
Net income 2.8% 2.1% 1.1%
========================
</TABLE>
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
- ---------------------
Operating Revenue
- -----------------
Operating revenue for 1998 was $986,286,000, up 13.3%, compared to
$870,319,000 for 1997. The growth in operating revenue was
primarily the result of increased tonnage from new and existing
customers and increased revenue per hundred weight.
Tonnage handled by the Company during 1998 increased 9.2% over
levels handled during 1997. This increase in tonnage was mainly a
result of the following:
- - Effective January 1, 1998, the Company increased its all-points
coverage to 28 states with the addition of the state of Michigan.
- - The Company continued to increase its market penetration into
existing service territories, particularly those geographic areas
added during 1995, 1996 and 1997. During 1995, the Company
expanded its all-points coverage to the states of Colorado,
Florida, Iowa, Nebraska, North Carolina, South Carolina
<PAGE>
and Wisconsin. 1996 expansions included the states of Delaware,
Maryland, Minnesota, Virginia and West Virginia. Effective August
4, 1997, all-points coverage was added to the state of New Mexico.
- - The continued increase in intrastate tonnage following the
deregulation of intrastate commerce effective January 1, 1995.
- - Freight volumes handled with marketing partners in Alaska,
Canada, Guam, Hawaii, Mexico and Puerto Rico continued to increase
at a rapid pace. The initial marketing partnership commenced in
1996 with service to Canada and Mexico. Puerto Rico was added in
1997, with service to Alaska, Guam, and Hawaii added in 1998.
Revenue per hundred weight for 1998 was up 3.6% from levels
experienced in 1997. Factors most impacting revenue per hundred
weight were:
- - General rate increases of approximately 5.5% and 5.5% to 5.9%,
effective January 1, 1998 and November 1, 1998, respectively. The
increases applied to the Company's interstate and intrastate common
carrier freight rates published in its 5000 series tariff. The
Company derives approximately 50% of its revenue from the 5000
tariff. The remaining revenue is derived from contracts and
guarantees, which are negotiated throughout the year.
- - A fuel surcharge, included in revenue, was in effect during
1997, but not in effect for the majority of 1998. The Company
initiated a fuel surcharge, in effect from September 16, 1996 until
January 7, 1998, to help recover the increased costs of fuel. This
surcharge is tied to the Department of Energy's National Diesel
Fuel Index and ranged from 0.7% to 1.6% during the time it was in
effect. The surcharge was designed to suspend at the time this
national index moved below $1.15 per gallon.
Management expects that growth in operating revenue is sustainable
in the near term. The major focus for growth in operating revenue
in the near term will be further penetration of existing markets.
In addition, on April 19, 1999, the Company will increase its
direct, all-points coverage to 30 states with the addition of
Pennsylvania and New Jersey.
Operating Expenses
- ------------------
Operating expenses as a percentage of operating revenue improved to
93.9% in 1998 from 94.8% in 1997. This overall improvement was
primarily attributable to:
- - Operating supplies and expenses as a percentage of operating
revenue improved to 8.0% in 1998 from 8.6% in 1997. This
improvement primarily relates to lower diesel prices, which is
partially offset by increased maintenance costs of equipment and
facilities. Management expects that maintenance costs will
continue to gradually increase as the Company's fleet ages.
- - Depreciation as a percentage of operating revenue improved to
5.7% in 1998 from 6.0% in 1997. This improvement was largely due
to the increased usage of operating lease financing of revenue
equipment. Depreciation expense for 1998 was also reduced by a
gain of approximately $965,000 recognized on revenue equipment
disposals and recorded as a reduction of depreciation expense.
- - Rents and purchased transportation as a percentage of operating
revenue improved to 5.9% in 1998 from 6.4% in 1997. The
improvement was a result of three principal reasons: 1) Short-term
transportation equipment rental declined as compared with 1997.
The August 1997 strike by the International Brotherhood of
Teamsters against United Parcel Service created an increase in
freight volumes resulting in a temporary need for additional
equipment. 2) During the third quarter of 1998 the Company
decreased its utilization of owner operators in its pick up and
delivery operations, and 3) the Company's usage of purchased
transportation in selected line haul lanes has declined in relation
to overall mileage. These improvements were partially offset by
increased usage of operating lease financing. Management expects
rents and purchased transportation as a percentage of operating
revenue to remain at current levels. The amount of rent expense,
will however, be significantly impacted by future decisions as to
the use of operating lease financing. Those decisions will be
dependent upon the overall costs of ownership versus lease
financing available at the time of asset additions.
Improvements in operating expenses as a percentage of operating
revenue were partially offset by an increase in the following area:
<PAGE>
- - Salaries, wages and benefits as a percentage of operating
revenue increased to 61.0% in 1998 from 60.8% in 1997. This
increase was largely the result of significantly increased costs in
the areas of workmen's compensation and health care. The increase
was partially offset by improvements made in salaries and wages
resulting from ongoing educational programs and changes in
operations providing productivity gains in the form of improved
pickup and delivery density, increased line haul load factor and
more direct line haul schedules.
Other
- -----
Interest expense as a percentage of operating revenue decreased to
1.6% in 1998, compared to 1.9% in 1997. This improvement is
primarily the result of lower interest rates during 1998, as well
as 1998 debt levels that were relatively constant as compared with
an increased revenue base.
The effective tax rate of the Company was 40.6% for 1998, up from
39.2% for 1997. This increase was primarily due to higher federal
tax rates applied to the increased level of 1998 taxable income.
The increased federal tax was partially offset by reduced state tax
expenses from state incentives on Company business expansions. Net
income for 1998 was $27,501,000, up 54.5%, from $17,801,000 for
1997.
1997 Compared to 1996
- ---------------------
Operating Revenue
- -----------------
Operating revenue for 1997 was $870,319,000, up 19.4%, compared to
$729,042,000 for 1996. The growth in operating revenue was
primarily the result of increased revenue per hundred weight and
increased tonnage from new and existing customers.
Revenue per hundred weight for 1997 was up 6.8% from levels
experienced in 1996. Factors contributing to the increase in
revenue per hundred weight were:
- - A general rate increase of approximately 5.9% effective January
1, 1997. General rate increases initially affect approximately 45%
of the Company's customers. The remaining customers' rates are
determined by contracts and guarantees and are negotiated
throughout the year.
- - The Company initiated a fuel surcharge beginning September 16,
1996 to help recover the increased costs of fuel. This surcharge
is tied to the Department of Energy's National Diesel Fuel Index
and was 0.7% for LTL shipments as of December 31, 1997. The
surcharge is designed to suspend at the time this national index
moves below $1.15 per gallon. Effective January 7, 1998, the fuel
surcharge was suspended.
- - The percentage of the Company's total revenue that was derived
from truckload shipments (greater than 10,000 pounds) declined to
5.7% during 1997 as compared to 6.7% during 1996.
Tonnage handled by the Company during 1997 increased 11.7% over
levels handled during 1996. This increase in tonnage was mainly a
result of the following:
- - The Company continued to increase its market penetration into
existing service territories, particularly those geographic areas
added during 1995 and 1996. During 1995, the Company expanded its
all-points coverage to the states of Colorado, Florida, Iowa,
Nebraska, North Carolina, South Carolina and Wisconsin. 1996
expansions included the states of Delaware, Maryland, Minnesota,
Virginia and West Virginia.
- - The continued increase in intrastate tonnage following the
deregulation of intrastate commerce effective January 1, 1995.
- - Effective August 4, 1997, the Company increased its all-points
coverage to 27 states with the addition of the state of New Mexico.
<PAGE>
Operating Expenses
- ------------------
Operating expenses as a percentage of operating revenue improved to
94.8% in 1997 from 96.3% in 1996. This overall improvement was
primarily attributable to:
- - Salaries, wages and benefits as a percentage of operating
revenue improved to 60.8% in 1997 from 60.9% in 1996. This
improvement was largely the result of the increased usage of
purchased transportation. However, salaries, wages and benefits as
a percentage of operating revenue did not improve during 1997 to
the degree anticipated by management. Improvement in this area was
slower than expected principally due to the following factors: 1)
slower than anticipated productivity gains resulting from
operational changes initiated during 1996 and continued during
1997, 2) labor costs increased disproportionately in relation to
operating revenue during the strike by the International
Brotherhood of Teamsters against United Parcel Service during
August of 1997, and 3) expenses incurred during 1997 to educate the
workforce.
- - Insurance as a percentage of operating revenue decreased to 3.0%
in 1997 from 3.7% in 1996. This improvement was largely due to
improved experience involving vehicle accidents and cargo claims.
- - Depreciation as a percentage of operating revenue improved to
6.0% in 1997 from 6.4% in 1996. This improvement was largely due
to the increased usage of purchased transportation and off-balance
sheet financing of revenue equipment.
- - Other expenses as a percentage of operating revenue improved to
4.2% in 1997 from 4.6% in 1996. This improvement was mostly due to
decreased hotel costs for line haul drivers. The Company
reconfigured its line haul network during the last half of 1996.
The purpose of this reconfiguration was to place renewed emphasis
on serving the regional and intrastate markets and to improve asset
utilization. One of the benefits of this reconfiguration was that
line haul drivers were required to spend less time in hotels.
- - Operating taxes and licenses as a percentage of operating
revenue improved to 4.1% in 1997 from 4.4% in 1996. There were two
primary reasons for this improvement. The first was fuel tax
expense as a percent of operating revenue decreased because of the
increased utilization of purchased transportation. The second
reason was that the line haul reconfiguration, coupled with the
increased usage of purchased transportation, required few additions
to the fleet during 1997. Therefore, licensing expenses declined
as a percentage of operating revenue.
These improvements in operating expenses as a percentage of
operating revenue were partially offset by increases in the
following areas:
- - Operating supplies and expenses as a percentage of operating
revenue increased to 8.6% in 1997 from 8.2% in 1996. This increase
primarily relates to increased maintenance costs of equipment and
facilities. Fuel expenses as a percentage of operating revenue
declined moderately during 1997 as compared to 1996 due to overall
lower diesel prices and the increased use of purchased
transportation during 1997.
- - Rents and purchased transportation as a percentage of operating
revenue increased to 6.4% in 1997 from 6.2% in 1996. This increase
was primarily a result of the utilization of purchased
transportation in selected lanes in order to improve asset
utilization and decrease overall costs of operations.
Other
- ---------
Interest expense as a percentage of operating revenue decreased to
1.9% in 1997, compared to 2.0% in 1996.
The effective tax rate of the Company was 39.2% for 1997, up from
38.6% for 1996. This increase was mostly due to increased federal
tax rates on higher levels of income. Net income for 1997 was
$17,801,000, up 126.6%, from $7,856,000 for 1996.
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements during 1998 consisted of $91,170,000 in
investing activities. The Company invested $94,392,000 in capital
expenditures during 1998 comprised of $26,959,000 in additional
revenue equipment, $43,776,000 in new customer center facilities or
the expansion of existing facilities and $23,657,000 in other
equipment. Management expects capital expenditures for the full
year of 1999 will be $100,000,000, primarily due to anticipated
investments in new and existing customer center facilities.
However, the actual amount of capital expenditures required in 1999
will be dependent on the growth rate
<PAGE>
of the Company, the timing and
size of future expansions of service territory, and progress in
site selection and construction of several customer center
projects. At December 31, 1998, the Company had commitments for
land, customer centers, revenue and other equipment of
approximately $45,149,000.
The Company provided for its capital resource requirements in 1998
with cash from operations and financing activities. Cash from
operations totaled $87,720,000 during 1998 compared to $76,284,000
provided by operations during 1997. Financing activities augmented
cash flow by $4,969,000 in 1998, utilizing two primary sources of
credit financing; the revolving line of credit and the Master Shelf
facility.
- - The Company experiences periodic cash flow fluctuations common
to the industry. Cash outflows are heaviest during the first part
of any given year while cash inflows are normally weighted towards
the last two quarters of the year. To smooth these fluctuations
and to provide flexibility to fund future growth, the Company
utilizes a variable-rate, unsecured revolving line of credit of
$160,000,000 provided by Bank of America (agent), Chase Bank of
Texas, N.A., Wachovia Bank, N.A., ABN-AMRO Bank N.V. and Bank One.
At December 31, 1998, $70,000,000 was outstanding on the revolving
line of credit, leaving $90,000,000 available for borrowing. The
Company also had $3,024,000 available under its short-term,
unsecured revolving $15,000,000 line of credit with Bank of
America. This line of credit is also used to obtain letters of
credit required for its self-insurance program. At December 31,
1998, the Company had borrowings on the line of credit outstanding
of $8,000,000 and had obtained letters of credit totaling
$3,976,000 for this purpose.
- - To assist in financing longer-lived assets, the Company has an
uncommitted Master Shelf Agreement with the Prudential Insurance
Company of America which provides for the issuance of up to
$140,000,000 in medium to long-term unsecured notes at an interest
rate calculated at issuance. At December 31, 1998, the Company had
$125,250,000 outstanding under this facility.
Management expects that the Company's existing working capital and
its available lines of credit are sufficient to meet the Company's
commitments as of December 31, 1998, and to fund current operating
and capital needs. However, if additional financing is required,
management believes it will be available.
The Company uses off-balance sheet financing in the form of
operating leases primarily in the following areas; land and
structures, revenue equipment and other equipment. At December 31,
1998, future rental commitments on operating leases were
$113,359,000 (See Note 6 of the Notes to Consolidated Financial
Statements). The Company prefers to utilize operating leases for
these areas and plans to use them in the future when such financing
is available and suitable.
YEAR 2000 ISSUES
The Company recognizes the Year 2000 problem and has developed a
Board of Director sponsored Project Plan that identifies all date
related issues relating to the Company's Information Technology
(IT) applications, end user supported applications, IT
infrastructure, embedded devices and business partners. At year-
end 1998, all application modifications and infrastructure upgrades
were completed with the exception of modifications required of
certain document scanning systems. Completion of the plan for this
application is expected by September 30, 1999. Final testing and
production implementation of all other applications is expected to
be completed by June 30, 1999. The Company's mission critical
systems, written in-house, are already Year 2000 ready. At
December 31, 1998, Year 2000 ready upgrades were installed for all
purchased software. The costs incurred specifically to address
Year 2000 readiness have not been and are not expected to become
material to the Company because many of the systems did not require
significant modifications to make them Year 2000 ready, were
replaced for other business reasons or were already Year 2000
ready.
The Company has initiated discussions with its significant
customers and suppliers to determine the extent to which the
Company's interface systems would be vulnerable to those third
parties' failure to remediate their own Year 2000 issues. The
Company has not received written assurances from its significant
customers and suppliers that their systems will be timely converted
and would not have an adverse effect on the Company's systems. It
is not possible at this time to quantify the amount of business
that might be lost or the costs that could be incurred by the
Company as a result of the Company's significant customers' and
suppliers' failure to remediate their Year 2000 Issues.
<PAGE>
To date, the Company has not established a contingency plan for
possible Year 2000 issues. The Company will establish, where
needed, contingency plans based on our actual testing experience.
While the Company believes its efforts to address the Year 2000
Issue will be successful in avoiding any material adverse effect on
the Company's operations, it recognizes that failure to resolve
Year 2000 Issues on a timely basis could significantly limit its
ability to process its daily business transactions for a period of
time, especially if such failure is coupled with third party or
infrastructure failures. Similarly, the Company could be
significantly affected by the failure of one or more significant
business partners or components of the infrastructure to conduct
their respective operations after 1999. Adverse effects could
include, but are not limited to, loss of communication links with
customer centers, inability to process transactions, or engage in
similar normal business activities.
The foregoing statements regarding the Company's state of
readiness, costs of conversion, risks and contingency plans for
Year 2000 are based on management's current estimates and
evaluations using available information. There can be no
assurances that management's estimates and evaluations will prove
to be accurate, and actual results could differ materially from
those currently anticipated. Factors which might cause material
changes include, but are not limited to, the availability of Year
2000 personnel, the readiness of third parties and the Company's
ability to respond to unforeseen Year 2000 complications.
MARKET RISK
Market risks relating to the Company's operations result primarily
from changes in interest rates. The Company does not use financial
instruments for trading purposes and is not a party to any
derivatives. The following table provides information about the
Company's financial instruments that are sensitive to changes in
interest rates. The table presents the Company's debt obligations,
principal cash flows, related weighted-average interest rates by
expected maturity dates and fair values.
<PAGE>
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
FAIR
(DOLLARS IN THOUSANDS) THERE- VALUE
1999 2000 2001 2002 2003 AFTER TOTAL 12/31/98
- -------------------------------------------------------------------------------------------
Liabilities
Long-term Debt, Including Current Portion
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $11,679 $12,974 $14,700 $12,666 $12,625 $83,150 $147,794 $161,923
Avg. Interest Rate 7.88% 7.91% 7.92% 7.90% 7.93% 8.09%
Variable Rate $ 8,000 $ - $ - $ - $70,000 $ - $ 78,000 $ 78,000
Avg. Interest Rate 5.68% 5.76% 5.66% 5.68% 5.70%
- -------------------------------------------------------------------------------------------
</TABLE>
ENVIRONMENTAL
At December 31, 1998, the Company had no outstanding inquiries with
any state or federal environmental agency.
INFLATION
Most of the Company's expenses are sensitive to inflation as
increases in inflation generally result in increased costs. The
effect of inflation on the operating results of the Company was
minimal during 1998.
SEASONALITY
In the trucking industry, results of operations show a seasonal
pattern because customers reduce shipments during winter months.
In addition, the Company's operating expenses as a percentage of
operating revenues have historically been higher during the winter.
RECENT EVENTS
On January 11, 1999, the Company announced that on April 19, 1999,
it will increase its direct, all-points coverage to 30 states with
the addition of Pennsylvania and New Jersey. Intrastate, regional
and interregional service will be provided by the opening of eleven
customer centers.
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 10) $ 3,274 $ 1,755
Trade receivables, less allowance for
doubtful accounts (1998--$1,937,
1997--$1,774) 94,464 78,700
Operating supplies and inventories 4,139 2,882
Prepaid expenses 11,318 8,671
Deferred income taxes (Note 4) 19,089 13,306
Income taxes receivable 2,763 1
-------- --------
Total current assets 135,047 105,315
Property and equipment (Notes 3 and 6):
Land and structures 214,061 186,033
Revenue equipment 389,867 374,982
Service, office and other equipment 136,160 114,075
Land improvements 3,600 2,973
Construction in progress 34,017 21,113
Accumulated depreciation
and amortization (272,960) (230,870)
-------- --------
504,745 468,306
Other assets:
Bond funds (Notes 3 and 10) 896 878
Other 1,373 1,074
-------- --------
2,269 1,952
-------- --------
$642,061 $575,573
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 16,766 $ 12,910
Accrued expenses (Note 2) 70,809 54,114
Current portion of long-term debt 19,679 11,497
-------- --------
Total current liabilities 107,254 78,521
Long-term debt, less current portion
(Notes 3 and 10) 206,115 210,411
Deferred income taxes (Note 4) 72,678 59,225
Shareholders' equity (Notes 3, 5, 7 and 8):
Common stock, par value $.01 per share;
authorized 250,000 shares; issued and
outstanding 31,695 shares in 1998 and
31,568 in 1997 317 316
Additional paid-in capital 106,053 104,832
Retained earnings 149,769 122,268
Treasury stock, at cost; 15 shares in
1998 and 0 in 1997 (125) -
-------- --------
256,014 227,416
Commitments (Note 6)
-------- --------
$642,061 $575,573
======== ========
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating revenue $986,286 $870,319 $729,042
Operating expenses and costs:
Salaries, wages and benefits 601,813 528,695 444,041
Operating supplies and expenses 79,219 75,085 59,640
Operating taxes and licenses 41,687 35,339 31,827
Insurance 31,964 26,327 27,113
Communications and utilities 17,361 14,907 13,822
Depreciation and amortization 55,712 52,596 46,918
Rents and purchased transportation 58,093 55,215 44,844
Other 40,227 36,899 33,728
-------- -------- --------
926,076 825,063 701,933
-------- -------- --------
Operating income 60,210 45,256 27,109
Other income (expense):
Interest expense (15,530) (16,256) (14,708)
Interest income 307 247 137 247
Gain (loss) on disposal of assets 1,203 (52) 90
Other, net 117 83 166
-------- -------- --------
(13,903) (15,978) (14,315)
-------- -------- --------
Income before income taxes 46,307 29,278 12,794
Federal and state income
taxes (Note 4):
Current (credit) 11,136 5,310 (3,093)
Deferred 7,670 6,167 8,031
-------- -------- --------
18,806 11,477 4,938
-------- -------- --------
Net income $ 27,501 $ 17,801 $ 7,856
======== ======== ========
Per share (Notes 1 and 8):
Net income-basic $ 0.87 $ 0.57 $ 0.25
Net income-assuming dilution $ 0.87 $ 0.56 $ 0.25
======== ======== ========
Average shares outstanding
(Notes 1 and 8):
Basic 31,624 31,372 31,070
Assuming dilution 31,689 31,672 31,266
======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------
PAR PAID-IN RETAINED TREASURY
SHARES VALUE CAPITAL EARNINGS STOCK TOTAL
-------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 30,931 $309 $ 98,514 $ 96,611 $ - $195,434
Stock option
and purchase plans 311 3 3,005 - - 3,008
Net income - - - 7,856 - 7,856
-------------------------------------------------
Balances at December 31, 1996 31,242 312 101,519 104,467 - 206,298
Stock option and
and purchase plans 326 4 3,313 - - 3,317
Net income - - - 17,801 - 17,801
-------------------------------------------------
Balances at December 31, 1997 31,568 316 104,832 122,268 - 227,416
Stock option
and purchase plans 127 1 1,221 - - 1,222
Purchase of 15 treasury
shares - - - - (125) (125)
Net income - - - 27,501 - 27,501
-------------------------------------------------
Balances at December 31, 1998 31,695 $317 $106,053 $149,769 $(125) $256,014
=================================================
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from customers $968,497 $856,742 $714,932
Cash paid to suppliers and
employees (851,762) (763,134) (641,956)
Interest received 307 247 137
Interest paid (15,438) (15,635) (14,413)
Income taxes (paid) received (13,884) (1,936) 4,552
----------------------------
Net cash provided by operating
activities 87,720 76,284 63,252
INVESTING ACTIVITIES
Proceeds from sales of equipment 3,222 2,483 2,631
Capital expenditures (94,392) (67,880) (107,383)
-----------------------------
Net cash used by investing
activities (91,170) (65,397) (104,752)
FINANCING ACTIVITIES
Proceeds from notes payable and
long-term borrowings 45,657 55,400 78,000
Principal payments on long-term
debt (41,771) (71,731) (37,392)
Proceeds from issuance of common
stock 1,208 2,805 2,644
Purchase of treasury stock (125) - -
----------------------------
Net cash provided (used) by
financing activities 4,969 (13,526) 43,252
----------------------------
Net increase (decrease) in cash
and cash equivalents 1,519 (2,639) 1,752
Cash and cash equivalents at
beginning of year 1,755 4,394 2,642
----------------------------
Cash and cash equivalents at end
of year $ 3,274 $ 1,755 $ 4,394
============================
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $27,501 $17,801 $ 7,856
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 55,654 52,484 46,811
Amortization 58 112 107
Provision for losses on accounts
receivable 2,142 1,633 1,721
Current tax effect of exercise of
stock options 14 27 188
(Gain) loss on sale of equipment (1,203) 52 (90)
Casualty loss on destroyed equipment 280 153 135
Deferred income taxes 7,670 6,167 8,031
Changes in operating assets and
liabilities:
Trade receivables (17,906) (13,660) (14,275)
Operating supplies and inventories (1,257) (389) (357)
Prepaid expenses (2,647) (4,023) 856
Income taxes receivable (2,762) 3,096 1,271
Other assets (375) 259 417
Trade accounts payable 3,856 3,485 (1,107)
Accrued expenses 16,695 8,836 11,688
-------------------------
Total adjustments 60,219 58,483 55,396
-------------------------
Net cash provided by operating
activities $87,720 $76,284 $63,252
=========================
</TABLE>
See accompanying notes.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of
American Freightways Corporation and its subsidiaries
(collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated.
BUSINESS
The Company primarily operates as a regional and an interregional,
scheduled, for hire, less-than-truckload motor carrier, serving all
points in 28 contiguous states from a network of 223 customer
centers. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. Historically,
credit losses have been within management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue and direct shipment costs upon the
delivery of the related freight.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. For financial reporting
purposes, the cost of such property is depreciated principally by
the straight-line method over the estimated useful lives of 3 to 12
years for revenue and service equipment, 15 to 40 years for
structures and improvements and 3 to 10 years for furniture and
office equipment. For tax reporting purposes, accelerated
depreciation or applicable cost recovery methods are used. Gains
and losses are recognized in the year of disposal. Gains or losses
on revenue equipment are recorded as adjustments to depreciation
expense.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE
As of December 31, 1998, the Company was generally self-insured up
to specified limits for workers compensation and cargo loss and
damage claims. In the states of Colorado, Delaware, Iowa,
Maryland, Michigan, Minnesota, Nebraska, New Mexico, Texas and
Wisconsin, however, workers' compensation claims are insured under
a $1,000,000 deductible plan. In the state of North Dakota,
workers' compensation claims are insured under the mandatory state
plan as private plans are not permitted.
General and automobile liability claims are insured with a
retention limit of $1,000,000 per occurrence, with excess coverage
on a fully insured basis providing catastrophic coverage.
INCOME TAXES
Deferred income taxes are accounted for under the liability method.
Deferred income tax assets and liabilities reflect the effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for income
tax purposes.
EARNINGS PER SHARE
The Company calculates earnings per common share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" which was issued by the Financial Accounting
Standards Board in 1997. SFAS No. 128 requires the use and
disclosure of two methods for calculating earnings per share:
Earnings per share-basic is computed based on the weighted
average number of shares outstanding during each year.
Earnings per share-assuming dilution is computed based on the
weighted average number of shares outstanding during each year,
adjusted to include common stock equivalents attributable to
dilutive stock options.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per share amounts for 1996 have been restated to conform
to SFAS No. 128 requirements.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option
grants in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and
accordingly, recognizes no compensation expense for the stock
option grants.
IMPAIRMENT OF ASSETS
The Company accounts for any impairment of its long-lived assets
using SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." Under SFAS
No. 121, impairment losses are recognized when information
indicates the carrying amount of long-lived assets, identifiable
intangibles and goodwill related to those assets will not be
recovered through future operations or sale.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, "Reporting of Comprehensive
Income" in 1998. Because the Company had no other items of
comprehensive income, the impact of adoption was not material.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires public business
enterprises to report financial and descriptive information about
its reportable segments. The Company has one business segment.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use".
Under the SOP, qualifying computer software costs are required to
be capitalized and amortized against income over the software's
estimated useful life. The SOP is effective for fiscal years
beginning after December 15, 1998. The Company does not anticipate
that the adoption of SOP 98-1 will have a material effect on
earnings or the financial position of the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Statement is effective for all quarters of fiscal
years beginning after June 15, 1999 and establishes accounting and
reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability at
its fair value. The Company does not anticipate that the adoption
of SFAS No. 133 will have a material effect on earnings or the
financial position of the Company.
RECLASSIFICATIONS
Certain amounts previously reported in 1997 and 1996 have been
reclassified to conform with the 1998 presentation.
2. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1998 1997
----------------
(In Thousands)
<S> <C> <C>
Accrued salaries, wages and benefits $25,546 $24,476
Taxes other than income 7,098 3,910
Accident liability, cargo loss and
damage, health, and workers' 33,892 23,194
compensation claims reserves
Other 4,273 2,534
------------------
$70,809 $54,114
==================
</TABLE>
<PAGE>
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
------------------
(In Thousands)
<S> <C> <C>
Bonds payable (1) $ 6,360 $ 6,700
Revolving credit agreements (2) 78,000 63,000
Mortgage notes (3) 801 958
Unsecured senior notes (4) 140,250 151,250
Other-computer equipment (5) 383 -
------------------
225,794 221,908
Less current portion (19,679) (11,497)
------------------
$206,115 $210,411
==================
</TABLE>
(1)Represents the Company's liability under a loan agreement with
Arkansas Development Finance Authority, issuer of economic
development revenue bonds to construct customer centers and a
general office facility. The loan agreement provides that the
Company will make payments sufficient to pay the principal and
interest on the bonds. The bonds include a $370,000 term bond
due in 1999 and a $5,990,000 term bond due in 2009. The bonds
bear interest at fixed rates of 8.25% and 8.50%, respectively,
and are collateralized by land and structures with a net book
value of $7,721,000 at December 31, 1998. The loan agreement
requires that certain bond service funds be maintained. As of
December 31, 1998, there was $896,000 in a debt service reserve
fund. Mandatory annual sinking fund redemption payments began
in 1995.
(2)The revolving credit agreements at December 31, 1998, include an
unsecured revolving credit agreement which provides for
available borrowings of $160,000,000. Borrowings under this
revolving credit agreement at December 31, 1998 totaled
$70,000,000. The term of this agreement extends to April 1, 2003
(unless terminated or renewed). Interest is applied to
outstanding borrowings at variable interest rates based on the
London Interbank rate or the prime rate. The weighted average
rate on outstanding borrowings at December 31, 1998 was 6.12%.
The agreement contains covenants which limit, among other
things, indebtedness, loans, investments and dividend payments,
as well as require the Company to meet certain financial tests.
The Company pays an annual commitment fee based on the unused
commitment. At December 31, 1998, the commitment fee was
0.1875%. As of December 31, 1998, the amount available for
additional borrowing under this line of credit was $90,000,000.
<PAGE>
The Company also has $15,000,000 of available borrowings and
letters of credit at December 31, 1998, under a separate
unsecured revolving credit agreement. The terms of this
agreement provide for borrowings up to $15,000,000 at a rate of
interest agreed upon at the time of any borrowings. Borrowings
outstanding at December 31, 1998 totaled $8,000,000 with an
interest rate of 6.63%. This agreement matures March 31, 1999,
unless terminated or renewed. At December 31, 1998, the
Company had utilized this line of credit to obtain letters of
credit totaling $3,976,000.
(3)Mortgage notes are due monthly or annually to November 2003 at
an average interest rate of 8.30%. The notes are collateralized
by land and structures with a net book value of $4,452,000 at
December 31, 1998.
(4)Includes an unsecured senior note for $15,000,000 payable in
equal annual installments of $5,000,000 through November 2001.
The note bears interest at a fixed rate of 8.91% payable semi-
annually.
Also includes seven notes totaling $125,250,000; all issued
under an unsecured and uncommitted $140,000,000 Master Shelf
Agreement with the following characteristics:
<TABLE>
<CAPTION>
OUTSTANDING INTEREST
PRINCIPAL MATURITY DATE RATE
---------------------------------------
<C> <C> <C>
$ 5,250,000 August 2000 6.25%
4,000,000 October 2000 6.00
6,000,000 April 2001 7.55
15,000,000 January 2005 8.85
20,000,000 June 2005 6.92
25,000,000 May 2006 7.51
50,000,000 April 2012 8.11
</TABLE>
All notes have fixed interest rates, payable quarterly. These
note agreements contain covenants which limit, among other
things, loans, indebtedness, investments and dividend payments,
and require the Company to meet certain financial tests.
(5)Represents the Company's liability under a loan agreement with
IBM Credit Corporation. Payments are due monthly until June
2001. The note bears interest at 5.51%
<PAGE>
Annual maturities on long-term debt are $19,679,000 in 1999,
$12,974,000 in 2000, $14,700,000 in 2001, $12,666,000 in 2002,
$82,625,000 in 2003 and $83,150,000 thereafter.
Interest costs of $1,044,000, $831,000 and $1,655,000 in 1998,
1997, and 1996, respectively, were capitalized as part of the
construction cost of certain property and equipment.
4. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1998 and 1997, respectively, are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------------
(In Thousands)
<S> <C> <C>
Noncurrent deferred tax liabilities:
Tax over book depreciation $74,361 $70,983
Alternative minimum tax credit carryover - (10,525)
State loss and credit carryovers (1,683) (1,233)
----------------
Net noncurrent deferred tax liabilities $72,678 $59,225
================
Current deferred tax assets:
Accrued expenses not deductible until paid $18,498 $12,826
Allowance for doubtful accounts 507 437
Revenue recognition differences 1,016 767
----------------
Total current deferred tax assets 20,021 14,030
Current deferred tax liabilities:
Prepaid expenses (932) (724)
----------------
Net current deferred tax assets $19,089 $13,306
================
</TABLE>
<PAGE>
The reconciliation between the effective income tax rate and the
statutory federal income tax rate is presented in the following
table:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------
(In Thousands)
<S> <C> <C> <C>
Income tax at the statutory federal
rate of 35% $16,207 $10,247 $ 4,478
Federal income tax effects of:
State income taxes (666) (552) (280)
Nondeductible expenses 480 405 340
Effects of rates on taxable income
above (below) $15,000,000 882 (150) (400)
Other - (49) -
-----------------------
Federal income taxes 16,903 9,901 4,138
State income taxes 1,903 1,576 800
-----------------------
$18,806 $11,477 $ 4,938
=======================
Effective income tax rate 40.6% 39.2% 38.6%
=======================
</TABLE>
Tax benefits of stock option and purchase plans recorded as paid-in
capital and which did not reduce income tax expense amounted to
$14,000, $512,000 and $364,000 in 1998, 1997 and 1996,
respectively.
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS
STOCK PURCHASE PLAN
The Company maintains a stock purchase plan covering substantially
all employees of the Company. A total of 487,454 shares of common
stock remain reserved for issuance under this plan at December 31,
1998. Each year, an eligible employee can purchase the greater of
200 shares or $1,200 of stock. The price per share is 85% of the
lower of the fair market value at the date of grant or the date of
exercise, which is one year from the date of grant.
<PAGE>
Shares have been issued during 1996, 1997 and 1998 as follows:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
ISSUE DATE SHARES EXERCISE
ISSUED PRICE
- --------------------------------------------------------
<S> <C> <C>
April 30, 1996 90,284 $12.86
October 31, 1996 100,622 8.39
April 30, 1997 71,557 12.01
October 31, 1997 87,397 8.29
April 30, 1998 59,297 10.20
October 31, 1998 70,318 7.23
</TABLE>
During 1998 employees enrolled for options to purchase 224,321
shares under the plan. In accordance with plan provisions, the
shares must be purchased during 1999.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The 1993 Stock Option Plan provides for the issuance of qualified
or nonqualified options to purchase common stock of the Company,
and the awarding of stock appreciation rights payable in shares or
cash. The stock appreciation rights currently outstanding were
issued in 1993 and are payable only in cash. No option or right may
be issued for less than the fair market value of the stock on the
date of grant. The options and rights vest over a five year period
from the date of grant and will expire if not exercised after ten
years from the date of grant. The Company also reserves shares for
issuance under the Chairman Stock Option Plan and the Nonemployee
Director Stock Option Plans.
<PAGE>
Collective activity within the plans is summarized as follows:
<TABLE>
<CAPTION>
STOCK SHARES WEIGHTED
APPRECIATION UNDER AVERAGE
RIGHTS OPTION PRICE RANGE PRICE
---------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996 138,290 1,497,780 $ 3.00 -$22.13 $12.86
Granted - 309,000 10.32 - 10.47 15.69
Exercised (3,660) (140,210) 4.25 - 13.07 6.46
Canceled (11,580) (100,800) 6.32 - 21.38 13.66
---------------------------------------------
Outstanding at December 31, 1996 123,050 1,565,770 3.00 - 22.13 12.93
Granted - 414,200 11.00 - 15.94 11.16
Exercised (20,940) (176,340) 3.00 - 17.88 8.36
Canceled (11,460) (204,460) 6.31 - 21.38 12.92
---------------------------------------------
Outstanding at December 31, 1997 90,650 1,599,170 3.00 - 22.13 13.06
Granted - 515,550 9.69 - 11.31 10.12
Exercised - (13,080) 6.31 - 7.63 7.50
Canceled (3,600) (93,850) 6.31 - 22.13 12.58
---------------------------------------------
Outstanding at December 31, 1998 87,050 2,007,789 $ 3.00 -$22.13 $12.33
=============================================
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINIING AVERAGE AVERAGE
PRICES OUTSTANDING LIFE EXERCISE NUMBER EXERCISE
(YEARS) PRICE EXERCISABLE PRICE
- ----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$3-$5 18,000 0.3 $ 3.00 18,000 $ 3.00
$5-$10 195,280 5.0 8.26 115,280 7.27
$10-$15 1,505,320 6.1 11.54 725,267 12.64
$15-$20 127,410 5.3 17.77 96,477 17.84
Greater than $20 161,780 5.5 21.38 96,060 21.38
------------------ ---------
Total 2,007,790 5.8 1,051,084
================== =========
</TABLE>
<PAGE>
The number of shares of common stock reserved for granting future
options under these plans was 864,870, 1,460,950 and 1,686,770, at
December 31, 1998, 1997, and 1996, respectively. At December 31,
1998, options were exercisable to purchase 1,051,084 shares.
There was no benefit or expense related to the change in value of
stock appreciation rights for 1998, 1997 or 1996.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting for
its stock option plans and, accordingly, does not recognize
compensation expense. If the Company had elected to recognize
compensation expense based on the fair value of options granted at
grant date as prescribed by SFAS No. 123, "Accounting for Stock-
Based Compensation", net income and earnings per share-assuming
dilution would have been reduced to the pro forma amounts indicated
in the table below:
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1998 1997 1996
---------------------------
<S> <C> <C> <C>
Net income - as reported $27,501 $17,801 $ 7,856
Net income - pro forma 26,219 16,951 6,799
Earnings per share-assuming dilution
- as reported 0.87 0.56 0.25
Earnings per share-assuming dilution
- pro forma $ 0.83 $ 0.54 $ 0.22
</TABLE>
The pro forma effect on net income for the years presented is not
representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
The fair value of options was estimated as of the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
Option Purchase Option Purchase Option Purchase
Plans Plans Plans Plans Plans Plans
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected dividend yield 0% 0% 0% 0% 0% 0%
Expected stock price
volatility 33.8% 38.5% 29.8% 34.9% 26.9% 30.6%
Risk-free interest rate 5.62% 4.63% 6.06% 5.69% 5.42% 5.54%
Expected life of options 4.3 years 1 year 4.4 years 1 year 4.4 years 1 year
Weighted average
value per option $3.68 $2.58 $3.87 $3.65 $3.29 $2.84
</TABLE>
<PAGE>
RETIREMENT PLAN
The Company maintains a profit sharing plan for the benefit of all
eligible employees. The plan qualifies under Section 401(k) of the
Internal Revenue Code thereby allowing eligible employees to make
tax deferred contributions to the plan. The plan permits, at the
discretion of the Board of Directors, elective and matching
employer contributions. During 1998, the Company made elective
contributions of 2 1/2% of each eligible participant's compensation,
in addition to a 25% match of the first 6% of compensation
contributed by participants. The Company's contributions to the
plan totaled $12,717,000, $10,786,000 and $8,313,000 for 1998, 1997
and 1996, respectively.
6. LEASES AND COMMITMENTS
Rent expense, exclusive of amounts related to purchased
transportation, totaled approximately $31,324,000 for 1998,
$25,054,000 for 1997 and $26,118,000 for 1996. The future minimum
rental commitments under noncancelable operating leases having
initial or remaining terms in excess of one year as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
REVENUE OTHER
TOTAL STRUCTURES EQUIPMENT EQUIPMENT
---------------------------------------
(In Thousands)
<C> <C> <C> <C> <C>
1999 $ 31,716 $ 5,189 $ 14,316 $ 12,211
2000 29,903 2,887 14,316 12,700
2001 19,148 1,796 13,539 3,813
2002 15,297 1,303 13,787 207
2003 10,117 713 9,404 -
Thereafter 7,178 1,653 5,525 -
---------------------------------------
$113,359 $ 13,541 $ 70,887 $ 28,931
=======================================
</TABLE>
Certain leases have renewal options for periods from one to five
years at the fair rental value of the related property at renewal.
Certain of the lease agreements contain fixed price purchase
options. The lease agreements require the lessee to pay property
taxes, maintenance and operating expenses.
Commitments for land, customer centers and revenue equipment
(including the cost to complete construction in progress)
aggregated approximately $45,149,000 at December 31, 1998.
<PAGE>
7. COMMON STOCK
On August 17, 1998, the Company declared a dividend of one common
share purchase right ("Right") for each outstanding share of common
stock, ("Common Shares") of the Company at August 31, 1998 and
generally to shares issuable after that date. The Rights are not
currently exercisable and will automatically trade with the common
stock. However, if a person or group acquires more than 15% of the
Common Shares or announces a tender or exchange offer for more than
15% of the Common Shares, the Rights will become exercisable and
each right holder (other than the prospective acquiror) may use the
Rights to purchase $25 worth of Common Shares at one half of the
then market price. The Rights will expire on August 17, 2003,
unless extended or earlier redeemed.
8. EARNINGS PER SHARE
Net income for purposes of basic earnings per share and earnings
per share-assuming dilution was $27,501,000, $17,801,000 and
$7,856,000 for the years 1998, 1997 and 1996, respectively. A
reconciliation of average shares outstanding for both computations
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------
(In Thousands)
<S> <C> <C> <C>
Average shares outstanding-basic 31,624 31,372 31,070
Effect of dilutive stock options 65 300 196
----------------------
Average shares outstanding-assuming dilution 31,689 31,672 31,266
======================
</TABLE>
Antidilutive stock options are not included in the earnings per
share calculation. Average antidilutive options were 1,545,000,
489,000 and 921,000 for 1998, 1997 and 1996, respectively.
<PAGE>
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH JUNE SEPTEMBER DECEMBER
31 30 30 31
--------------------------------------
(In Thousands, Except Per Share Data)
1998
<S> <C> <C> <C> <C>
Operating revenue $230,649 $246,402 $254,047 $255,188
Operating expenses and costs 221,344 230,515 236,835 237,382
Net income 3,172 7,658 8,191 8,480
Net income per share:
Basic .10 .24 .26 .27
Assuming dilution $ .10 $ .24 $ .26 $ .27
Average shares outstanding:
Basic 31,568 31,612 31,639 31,679
Assuming dilution 31,625 31,752 31,670 31,710
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH JUNE SEPTEMBER DECEMBER
31 30 30 31
--------------------------------------
(In Thousands, Except Per Share Data)
1997
<S> <C> <C> <C> <C>
Operating revenue $193,051 $219,088 $233,760 $224,419
Operating expenses and costs 186,649 203,516 216,775 218,122
Net income 1,458 6,986 7,895 1,462
Net income per share:
Basic .05 .22 .25 .05
Assuming dilution $ .05 $ .22 $ .25 $ .05
Average shares outstanding:
Basic 31,258 31,301 31,414 31,515
Assuming dilution 31,490 31,597 31,811 31,790
</TABLE>
<PAGE>
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
Cash and cash equivalents - the carrying amount reported in the
consolidated balance sheets for cash and cash equivalents
approximates fair value.
Bond funds - the Company's debt service reserve fund is invested in
money market funds and the carrying amount reported in the
consolidated balance sheets for bond funds approximates fair value.
Long-term debt - the fair values of the Company's long-term debt
are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The carrying amounts and fair values of the Company's financial
instruments at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------------------
1998
<S> <C> <C>
Cash and cash equivalents $ 3,274 $ 3,274
Bond funds 896 896
Long-term debt 225,794 239,923
1997
Cash and cash equivalents $ 1,755 $ 1,755
Bond funds 878 878
Long-term debt 221,908 232,777
</TABLE>
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
American Freightways Corporation
We have audited the accompanying consolidated balance sheets of
American Freightways Corporation and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of American Freightways Corporation and
subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Little Rock, Arkansas
January 20, 1999
<PAGE>
Exhibit 21
Subsidiaries of Registrant
1. American Freightways, Inc., an Arkansas Corporation
2. Tran-Support, Inc., an Arkansas Corporation
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of American Freightways Corporation and Subsidiaries of
our report dated January 20, 1999, included in the 1998 Annual
Report to Shareholders of American Freightways Corporation.
Our audits also included the financial statement schedule of
American Freightways Corporation and Subsidiaries listed in
Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-63674) pertaining to the
American Freightways Corporation Stock Option Plan and in the
Registration Statement (Form S-8 No. 33-76788) pertaining to the
American Freightways Corporation Stock Purchase Plan of our report
dated January 20, 1999, with respect to the consolidated financial
statements incorporated herein by reference, and our report
included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of
American Freightways Corporation and Subsidiaries.
/s/Ernst & Young LLP
Little Rock, Arkansas
March 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 YEAR TO DATE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,274
<SECURITIES> 0
<RECEIVABLES> 96,401
<ALLOWANCES> 1,937
<INVENTORY> 4,139
<CURRENT-ASSETS> 135,047
<PP&E> 777,705
<DEPRECIATION> 272,960
<TOTAL-ASSETS> 642,061
<CURRENT-LIABILITIES> 107,254
<BONDS> 206,115
0
0
<COMMON> 317
<OTHER-SE> 255,697
<TOTAL-LIABILITY-AND-EQUITY> 642,061
<SALES> 0
<TOTAL-REVENUES> 986,286
<CGS> 0
<TOTAL-COSTS> 926,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 15,530
<INCOME-PRETAX> 46,307
<INCOME-TAX> 18,806
<INCOME-CONTINUING> 27,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,501
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS INCLUDED IN COSTS AND EXPENSES APPLICABLE
TO REVENUES.
</FN>
</TABLE>
