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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 [FEE REQUIRED]
For the fiscal year ended December 31,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-21602
LCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3498232
(State or other Jurisdiction of Incorporation or (I.R.S. Employer Identification Number)
Organization)
8180 GREENSBORO DRIVE, SUITE 800 22102
McLEAN, VA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: 1-800-296-0220
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(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 Exchange
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. Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 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 ]
The aggregate market value of the voting stock held by non-affiliates of
LCI International, Inc. was $1,596,251,000 at February 28, 1997.
As of February 28, 1997, there were 77,617,276 shares of LCI International,
Inc. Common Stock (par value $.01 per share) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareowners - Part II
Portions of the Proxy Statement for the 1997 Annual Meeting of Shareowners -
Part III
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LCI INTERNATIONAL, INC.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
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ITEM 1. Business 3
ITEM 2. Properties 8
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
EXECUTIVE OFFICERS OF THE COMPANY 10
PART II
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ITEM 5. Market for the Company's Common Equity and Related Shareowner Matters 11
ITEM 6. Selected Financial Data 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
ITEM 8. Financial Statements and Supplementary Data 11
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 11
PART III
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ITEM 10. Directors and Executive Officers of the Company 12
ITEM 11. Executive Compensation 12
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 12
ITEM 13. Certain Relationships and Related Transactions 12
PART IV
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ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13
INDEX TO EXHIBITS E-1
SIGNATURES S-1
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PART I
ITEM 1. BUSINESS
LCI International, Inc., together with its subsidiaries, (LCI or the
Company), is a facilities-based, long-distance telecommunications carrier that
provides a broad range of domestic and international telecommunications service
offerings in all market segments: commercial, wholesale and residential/small
business. The Company serves its customers through leased and owned digital
fiber-optic facilities spanning the U.S. and more than 200 countries (the
Network). LCI's Network includes eleven switches in Atlanta, Baltimore,
Chicago, Cleveland, Columbus, Charlotte, Detroit, Delta, Jersey City, Los
Angeles, and Memphis - connecting LCI to metropolitan areas that account for
95% of U.S. call volume.
LCI International, Inc., a Delaware corporation, was incorporated in 1988
and is a holding company. The Company's operations are conducted through LCI's
direct wholly owned subsidiaries, LCI International Management Services, Inc.
(LCI Management Services), LCI SPC I, Inc. and LCI International SC, Inc., as
well as, its indirect wholly owned subsidiaries, LCI International Telecom
Corp. (LCIT) and LCI International of Virginia, Inc.
INDUSTRY BACKGROUND
Historically, the Company has operated in the $80 billion long-distance
telecommunications industry. The long-distance industry is highly competitive
and is currently dominated by the three largest interexchange carriers: AT&T
Corporation (AT&T), MCI Communications Corporation (MCI) and Sprint Corporation
(Sprint). In 1996, fewer than ten publicly traded long-distance carriers,
including the Company, had annual revenues exceeding $1 billion. The balance of
the long-distance industry comprises several hundred smaller interexchange
carriers, resellers, and agents. Recent legislative and regulatory activity is
designed to create one telecommunications industry to encompass both
long-distance and local telecommunication services. The local
telecommunications industry is approximately $95 billion and is dominated by
the seven Regional Bell Operating Companies (RBOCs) and GTE Communications
Corporation (GTE). The RBOCs have been granted the authority to provide
long-distance service between Local Access Transport Areas (interLATA) outside
their respective regions. The nature of competition in this combined industry
is expected to change significantly as legislative and regulatory activities
progress. The Company intends to provide combined local and long-distance
services to compete in what is expected to be a $150 billion combined market.
The present long-distance telecommunications marketplace was shaped by the
1984 court-ordered divestiture by AT&T of its 22 Bell Operating Companies,
known as "BOCs." As part of the AT&T Divestiture Consent Decree, the United
States was divided into geographic areas known as Local Access Transport Areas
(LATAs). The local exchange carriers (LECs), which include the Bell Operating
Companies and independent local exchange carriers, provide local telephone
service, local access services and short-haul toll service. Interexchange
carriers (IXCs) including the Company and certain independent local exchange
carriers, provide interLATA long-distance service and long-distance service
within LATAs.
The Company's ability to compete and grow is subject to changing industry
conditions. Recent legislation and the resulting judicial and regulatory action
have had a significant impact on the current industry environment. These
changes will alter the nature and degree of competition in both the local and
long-distance segments of the industry.
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TELECOMMUNICATIONS SERVICES
The Company provides a broad array of long-distance telecommunications
services to its customers, which include residential/small business,
medium-sized and large businesses, national accounts, other interexchange
carriers, government agencies and academic institutions. The Company's
switched services include basic long-distance or measured toll service (MTS),
accessible via "l plus" dialing or dialing a five digit access code (10xxx).
The Company also provides a variety of wide area telecommunications services
(WATS) available through switched or dedicated lines. Due to the almost
universal use of high quality digital transmission facilities, the Company
believes that quality of transmission is no longer a substantial competitive
advantage.
The Company has developed a marketing strategy that focuses on
differentiating LCI through "simple, fair and inexpensive" domestic and
international telecommunications service offerings in all market segments. The
Company provides low, easy to understand rates, that vary primarily based on
the time a call is placed (i.e., during or after business hours) and not by the
distance of an interstate call. Calls are billed primarily based on an initial
charge, with additional increments of six seconds, as opposed to full minute
intervals charged by many of the Company's competitors for residential service.
This service offers discounted evening rates beginning at 6 p.m. and does not
require waiting until later hours for discounts. The Company does not attach
any complex conditions to the simple, fair and inexpensive service, such as
minimum monthly usage or term requirements, or requiring customers to sign up
other customers to earn full discounts. For commercial customers, LCI also
focuses on offering a full complement of high quality, competitively priced
services to small, medium-sized and large customers including calling card
services, toll-free services, audioconferencing, frame relay data service,
Internet access, and specialized high-volume data transmission services.
Although the Company provides long-distance services to a wide range of market
segments, the Company does not seek to compete with every service offered by
the Company's competitors. The Company's strategy for competitive flexibility
includes a balance across all market segments with selective service offerings.
The Company's strategic direction is supported by growth through geographic
expansion of sales presence and Network operating facilities, as well as
expansion in sales channels, targeted service offerings to each market segment,
and selective acquisitions. This approach is dependent on maintaining
efficient, low cost operations in order to preserve pricing flexibility and
operating margins. The Company has historically managed its selling, general
and administrative expenses at a percentage of revenue which is lower than its
three largest competitors.
COMPETITION
The long-distance telecommunications market is highly competitive. The
principal competitive factors affecting the success of the Company's strategy
are the industry environment as described above, pricing, efficient low-cost
operations, customer service and diversity of services and features. The
Company's pricing approach is to offer a simple, flat-rate pricing structure
with rates generally below those of AT&T, MCI and Sprint. This pricing strategy
is supported by a continuous focus on lowering the unit cost of the Company's
cost of service, which enables the Company to competitively price its services.
Recently, certain long-distance carriers have introduced a variety of pricing
programs that have increased competitive pricing pressures. LCI continues to
believe that its simple, fair and inexpensive marketing and service pricing
approach is very competitive in retaining existing customers, as well as in
obtaining new customers. The Company's ability to compete effectively will
depend on maintaining high-quality, market-driven services at prices generally
equal to or below those charged by its major competitors.
As a result of the passage of the Telecommunications Act of 1996 and the
effect of other regulatory matters discussed below (see Legislation and
Regulatory Matters), the structure of the industry is expected to change by
initially allowing local service to be provided by carriers other than LECs,
while eventually permitting RBOCs to provide interLATA long-distance service
within their service territories. Consequently, the Company expects competition
within the industry to increase in both the long-distance and local markets
over time.
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TARGETED SERVICE OFFERINGS
Residential/small business customers and medium-sized businesses primarily
purchase switched services, while carriers and large commercial customers
typically purchase both switched and dedicated access services. Switched
services, charged on a usage-sensitive basis, are telecommunication services
provided to each customer through switching and transmission facilities.
Private line services, a type of dedicated access service, are charged on a
fixed price basis for which transmission capacity is reserved for that
customer's traffic.
The Company uses a variety of channels to market its services. In addition
to its internal sales force, the Company uses a combination of advertising,
telemarketing and third-party sales agents. During 1997, the Company continued
to expand its sales presence across the country through all of these channels.
With respect to third-party sales agents, compensation for sales is paid to
agents in the form of an ongoing commission based upon collected revenue
attributable to customers identified by the agents. Responsibility for the
customer relationship, including billing and customer service, is maintained by
the Company. American Communications Network, Inc. (ACN), a nationwide network
of third-party sales agents, continued to be the most successful of the
Company's sales agents and accounted for a significant portion of the Company's
residential/small business sales growth. ACN is authorized to sell certain
defined services that currently exist; new services may or may not be
authorized in the future.
In June 1996, the Company extended its contract with ACN through April
2011. In consideration for the contract extension, as well as ACN's exclusivity
and non-compete provisions, the Company committed to make two payments on
designated dates which will be amortized over the life of the contract. A
portion of these payments is contingent on future performance by ACN. The
agreement also contains a provision whereby ACN will receive a payment if there
is a change in the control of the Company. In consideration for this change in
control payment, the Company will receive a 31% reduction in the ongoing
commission rates paid to ACN. The change in control payment is calculated based
on a multiple of three times the average monthly collected revenue generated by
customers identified by ACN. The monthly collected revenue average is
calculated over a 24-month performance period subsequent to the change in
control. The amount of this payment is therefore dependent upon ACN's level of
performance during the entire performance period, and cannot be reasonably
estimated at this time.
BUSINESS SERVICES. In 1996, 1995 and 1994 business long-distance
customers, including wholesale customers, accounted for approximately 70%, 80%
and 90% of the Company's revenues, respectively. The Company has expanded its
marketing to include a full range of large and small businesses throughout the
United States. In response to the fast-growing market of small and home-based
businesses, the Company delivered services specially tailored to the needs of
these customers. Unlike other plans for businesses, the Company offers plans
that do not require term commitments, contracts, subscription fees or
penalties. The Company's popular commercial services, Simply Guaranteed(R),
Integrity(R) and Simply Business(R), have continued to be successful and have
been extended to the small and medium-sized business customer. The Company's
simple, fair and inexpensive philosophy also includes pricing for international
calls, with rates based on the countries involved.
The Company also offers private line telecommunications services to its
business and wholesale customers. Point to point services are interexchange
facilities dedicated exclusively for a single customer's use, connected to
customer locations on both ends with dedicated access facilities. Revenues
from point to point services, included in business revenues above, were
approximately 10% of total revenues for each of 1996, 1995 and 1994.
Historically gross margins on sales of these services have been higher than the
Company's overall average due to fixed transmission facilities in place to
handle these services.
Another important source of revenue for the Company is the sale of
transmission capacity and services to other long-distance wholesalers and to
resellers of long-distance service. Although gross margins on sales to such
customers are generally lower than the Company's overall average, the service
expenses associated with this segment are also lower, resulting in an operating
margin in line with the Company's overall average.
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RESIDENTIAL SERVICES. Within the past three years the Company has
implemented marketing and service development efforts intended to expand its
share of the U.S. residential long-distance market. As a result, the Company's
residential revenue grew in excess of 100% in each of the past three years and
represented approximately 30% of the Company's revenues by the end of 1996.
This is compared with approximately 20% and 10% of the Company's revenues at
the end of 1995 and 1994, respectively.
The Company has experienced an increase in selling, general and
administrative expenses as a result of the growth in the residential/small
business service line. Residential service revenues are primarily billed
through LECs, resulting in higher billing service expenses for this service
line. In addition, increased commission expense, and higher sales allowance and
bad debt expense are incurred with this shift in customer mix. The
residential/small business segment incurs higher proportional selling, general
and administrative costs, but also provides a higher gross margin than other
segments.
The significant residential services growth rates were accomplished
primarily through the Company's simple, fair and inexpensive service offerings
that charge customers based on time of day, not distance. The Company offers
residential customers simplified rates, direct dialing for nationwide and
international calls, 24-hour customer service, combined billing from the local
exchange carrier, six-second incremental billing and optional special features
such as World Card Plus(R), a calling card option, and personal 800-numbers.
LOCAL SERVICES. The Company is involved in state regulatory proceedings in
various states to secure approval to offer local service, which would enable
the Company to provide combined local and long-distance services to existing
and prospective customers. The Company has received approval to resell local
service in 21 states (Alabama, California, Colorado, Connecticut, Florida,
Georgia, Illinois, Indiana, Iowa, Maryland, Michigan, Minnesota, Mississippi,
Nevada, New York, Pennsylvania, South Carolina, Tennessee, Texas, Washington
and Wisconsin) and the District of Columbia, and has applications for local
service authority pending in another seven states. As of January 1997, the
Company was offering local telecommunications service in California, Illinois
and New York. Additionally, as of March 1997, the Company had signed agreements
with Bell South and Ameritech to provide local service in the respective
nine-state region and five-state region serviced by each LEC.
The Company has extended its simple, fair and inexpensive marketing
strategy to its local service offerings. Through the Company's Simply Direct(R)
service offering, LCI's local service customers will receive simplified rates,
direct dialing for local and long distance service, 24-hour customer service,
combined billing for local and long distance service and six-second incremental
billing.
FACILITIES EXPANSION
The Company's Network utilizes transmission equipment consisting of digital
fiber optic transmission circuits to complete long-distance calls. Within the
central Midwest region of the United States, the Company provides services
primarily through the operation of its 1,400 route-mile network, which includes
digital fiber-optic transmission facilities owned by the Company. Nationwide,
the Company provides long-distance telecommunications services primarily
through its entire Network, which includes both owned and leased digital fiber
optic transmission facilities spanning the continental United States. In
February 1997, the Company entered into an agreement to extend the Company's
owned Network by over 3,100 route miles. Delivery and acceptance of these
facilities is expected to occur in the second half of 1997. The Company expects
that its cost for leased facilities will be reduced as a result of the Network
expansion. These cost reductions will occur over several years as Network
optimization is achieved. The Company will continue to evaluate the best
options to expand its network capacity through leased or owned facilities.
The Company expanded operating offices to South Carolina, Michigan and
Tennessee as well as sales offices in the mid-west and southern regions of the
United States through recent acquisitions. During 1996, the Company opened a
second national customer service center in Greenville, South Carolina and added
several sales offices during the year.
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ACQUISITIONS
In June 1996, the Company purchased the long-distance business of
Pennsylvania Alternative Communications, Inc. (PACE). The results of operations
for PACE were included in the Company's consolidated statement of operations
from June 1, 1996. In January 1996, the Company purchased the long-distance
businesses of Teledial America, Inc. (Teledial America), which did business as
U.S. Signal Corporation, and an affiliated company, ATS Network
Communications, Inc. (ATS). The results of operations for Teledial America and
ATS were included in the Company's consolidated statement of operations from
January 1, 1996. In September 1995, the Company acquired Corporate
Telemanagement Corp. (CTG), a Greenville, South Carolina-based provider of
long-distance services to commercial customers throughout the U.S. The
Company's consolidated results of operations for 1995 included CTG from
September 1, 1995.
LEGISLATION
Telecommunications Act of 1996. In February 1996, the Telecommunications
Act of 1996 (the Act) was passed by the United States Congress and signed into
law by President Clinton. This comprehensive telecommunications legislation
was designed to increase competition in the long-distance and local
telecommunications industries. The legislation will allow the RBOCs to provide
long-distance service in exchange for opening their local networks to
competition. Under the legislation, the RBOCs can immediately provide interLATA
service outside of their local-service territories, while GTE and other
independent LECs can immediately provide long-distance service inside their
respective local-service territories. However, an RBOC must apply to the
Federal Communications Commission (FCC) to provide long-distance services
within any of the states in which the RBOC currently operates. The RBOCs must
satisfy several pro-competitive criteria before the FCC will approve an RBOC's
request to provide in-region interLATA long-distance services. During 1997,
several RBOCs are expected to apply to the FCC for authority to provide
in-region interLATA services. The Company is unable to determine how the FCC
will rule on any such applications. The legislation provides a framework for
the Company and other long-distance carriers to compete with incumbent LECs by
reselling service of local telephone companies and interconnecting with LEC
network facilities at various points in the network (i.e. unbundled network
services), or building new local-service facilities. The Company has signed
agreements with some LECs, and is currently in formal negotiations with other
LECs to reach local-service agreements. LCI intends to vigorously compete in
the local-service market. Initially, the Company will provide local service to
customers on a resale basis. In the future, the Company may decide to buy and
resell unbundled network services, which could also be used as a platform to
provide total access services, or decide to build local-service facilities. The
Company's decision on the method to provide local service is dependent on the
economic viability of the options and favorable regulation, which will likely
be different state-by-state.
REGULATORY MATTERS
LOCAL INTERCONNECTION AND RESALE. In August 1996, the FCC adopted a
comprehensive regulatory framework to implement policies, rules, and procedures
regarding local service competition as required under the Act (Interconnection
Order). The Interconnection Order establishes a minimum national framework for
interconnection, the purchase of unbundled local network elements, resale
discounts, and procedures by which agreements for the provision of local
service through LECs are to be arbitrated. Under the Interconnection Order,
the states will have an important role implementing and applying local
interconnection policies, rules and procedures.
Several states, companies, associations, and other entities appealed the
Interconnection Order. In September, 1996, the United States Court of Appeals
for the Eighth Circuit (the Eighth Circuit Court) issued a temporary stay of
the Interconnection Order, preventing the order from taking effect on September
30, 1996 while it heard oral arguments. On October 15, 1996, the Eighth Circuit
Court issued a stay on the implementation of various aspects of the
Interconnection Order, including the proxy pricing provisions for unbundled
network elements, resale discounts, and the "pick and choose" rule which allows
carriers to choose the best rates and terms for components of a phone network
from any previous agreements between the incumbent LEC and other carriers. The
FCC and other parties petitioned the U.S. Supreme Court to reverse the Eighth
Circuit Court's decision and implement the Interconnection Order. On October
31, 1996, U.S. Supreme Court denied the petitions to overturn the stay.
Because of the uncertainty regarding whether the Eighth Circuit Court will
overturn the Interconnection Order, the Company is unable to predict what
impact the pending judicial proceedings will have on local service competition
or on RBOC provision of in-region interLATA services.
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Regulation of RBOC Out-of-Region Long Distance. The Act granted the RBOCs
the authority to provide out-of-region long-distance services. In response, the
FCC granted the ability for an RBOC that provides interstate interexchange
services through an affiliate to obtain non-dominant (i.e., less burdensome)
regulatory treatment on an interim basis, if the affiliate complies with
certain safeguards. The safeguards require that the affiliate: maintain
separate accounting, not jointly own transmission or switching facilities with
the RBOC, and obtain any tariffed services from the affiliated RBOC at tariffed
rates and conditions. The Company is unable to predict what impact, if any, the
implementation of these requirements will have on long-distance competition
from RBOCs.
RBOC Mergers. In early 1996, RBOCs SBC Communications Inc. and Pacific
Telesis Group announced plans to merge, as did RBOCs Bell Atlantic Corp. and
NYNEX Corp. The mergers are subject to review and approval by various state and
federal agencies. The Company is unable to predict what impact, if any, these
potential mergers, if approved, might have on competition in the
telecommunications industry or on the Company.
Universal Service and Access Charge Reform. In 1996, the FCC began two
additional proceedings that will significantly impact the telecommunications
industry: Universal Service and Access Charge Reform. The first proceeding will
consider modifications to existing industry subsidies in order to ensure that
telephone service remains affordable to all U.S. consumers and to meet the
special telecommunications needs of educational and health care institutions.
This proceeding could result in all telecommunications carriers being required
to incur additional costs for universal service funding. In the Access Charge
Reform proceeding, the FCC will consider changes to the access charges levied
by LECs on long distance companies for connection to the local networks. These
charges currently represent approximately one-third of the long distance
industry revenues. The FCC has recognized that the current access charge
arrangements are inefficient and inconsistent with competition, and has stated
its intention to begin to move these charges toward actual economic costs. It
is widely expected that material changes to current industry access charge cost
structures could result from these proceedings. In light of the uncertainty
regarding the FCC's ultimate actions in these proceedings, the Company is
unable to predict what impact these proceedings will have on the company's cost
structure, revenues or competitive position.
Detariffing. In October 1996, the FCC issued an order that non-dominant
interexchange carriers will no longer be permitted to file tariffs for
interstate domestic long-distance services. Detariffing will be mandatory after
a nine-month transition period. Interexchange carriers will still be required
to retain and make available information as to the rates and terms of the
services they offer. These rules requiring mandatory detariffing were appealed
by several parties and, in February 1997 the U.S. Court of Appeals for the
District of Columbia Circuit, issued a stay preventing the rules from taking
effect pending judicial review. The Company is currently unable to predict what
impact the FCC's order will have on LCI or the telecommunications industry, if
the mandatory detariffing rules take effect.
EMPLOYEES
At December 31, 1996, the Company had 2,348 full-time employees, none of
whom were subject to any collective bargaining agreement. The Company believes
it has good relations with its employees.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in McLean, Virginia, where
it leases space for general and administrative functions as well as a sales
office under a lease expiring in March 2004 at an annual base rent of
approximately $1.6 million. In addition, the Company leases office space in
Dublin, Ohio, a suburb of Columbus, for the principal executive, administrative
and marketing offices of LCI Management Services. Office space is leased in two
buildings: one under a capitalized lease expiring in 2005 for which annual lease
payments, including interest, amounted to approximately $2.5 million in 1996;
and an other lease, which expires in 2001, with an annual base rent of
approximately $0.4 million. The Company leases approximately 80 properties for
its offices, switching and other facilities. Properties leased by the Company
for general office space are generally available at fair market rentals in all
of the locations in which the Company operates. The Company's growth and
ability to operate have not been constrained by a lack of suitable office space.
During 1996, the Company entered into an operating lease
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agreement for the rental of a new corporate headquarters being developed in
suburban Virginia, and a capitalized lease for an additional headquarters
facility for its operating subsidiaries, in Dublin, Ohio.
To construct and operate the Company-owned portion of the Network, the
Company has obtained a variety of franchises, licenses, leases, easements and
encroachment permits (collectively, "Rights of Way") from various public and
quasi-public authorities and private parties. Aggregate annual payments for
the Rights of Way amounted to approximately $2.0 million in 1996. Most Rights
of Way are for 20 to 30 year time periods with renewal options.
The Company has entered into alternative compensation agreements with
several providers of Rights of Way pursuant to which the Rights of Way have
been obtained in exchange for reduced rents plus the provision of service on
the Network. By using this compensation strategy, the Company believes that it
is able to preserve cash and give providers of Rights of Way additional
incentive to ensure the security of the fiber optic cable and other facilities
maintained along their Rights of Way.
ITEM 3. LEGAL PROCEEDINGS
In 1991, Thomas J. Byrnes and Richard C. Otto v. LCI Communications
Holdings Co. et al. was filed by two former members of the Company's management
in Common Pleas Court, Franklin County, Ohio. The suit alleged age
discrimination by the Company. In 1993, a jury returned a verdict in favor of
the Plaintiffs and the Common Pleas Court awarded approximately $8.1 million in
damages and attorney's fees.
Both the Plaintiffs and the Company appealed the matter to the Court of
Appeals in Ohio, which, in a two-to-one decision, overruled each of the
Company's assignments of error and two of the Plaintiffs' claims, and sustained
the Plaintiffs' request for approximately $0.1 million in pre-judgment interest
in addition to the previous award. The Company appealed the matter to the
Supreme Court of Ohio (the Court). On December 11, 1996, the Court reversed the
Court of Appeals, finding that, as a matter of law, there was insufficient
evidence to sustain the verdict for Plaintiffs. In December 1996, the
Plaintiffs filed with the Court a Motion for Reconsideration, which was denied
by the Court in January 1997. The Company is unable to determine whether the
Plaintiffs will file a petition asking the United States Supreme Court to
consider the case.
The Company has been named as a defendant in various other litigation
matters. Management intends to vigorously defend these outstanding claims. The
Company believes it has adequate accrued loss contingencies and that current or
threatened litigation matters will not have a material adverse impact on the
Company's results of operations or financial condition.
Vanus James v. LCI International, Inc. et al. and American Communications
Network, Inc. was commenced in late May 1995 in the Supreme Court, Kings
County, New York. The plaintiff purports to bring a class action lawsuit
against the Company, certain of its affiliates, and American Communications
Network, Inc. (ACN), one of the Company's sales agents. The lawsuit alleges
that, in an effort to induce prospective customers to sign up for the Company's
long-distance services, the Company and ACN violated various laws by
disseminating false and misleading statements concerning the Company's rates
for calls to certain foreign countries. The lawsuit seeks, among other things,
compensatory damages of $10 million dollars and punitive damages of $30 million
dollars. Based upon its overall assessment of the matter, management is of the
opinion that the final resolution of these proceedings will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the executive officers of LCI as of March 1,
1997:
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Name Age Position
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H. Brian Thompson 58 Chairman of the Board of Directors and Chief Executive Officer
Thomas J. Wynne 57 President and Chief Operating Officer
Joseph A. Lawrence 47 Senior Vice President - Finance and Development and Chief Financial Officer
Marshall Hanno 51 Senior Vice President - Commerical Segment
Lawrence Bouman 50 Senior Vice President - Engineering, Operations and Technology
Roy N. Gamse 51 Senior Vice President - Business Marketing
Anne K. Bingaman 53 Senior Vice President - Local Telecommunications Division
</TABLE>
Mr. Thompson has been Chairman of the Board of Directors and Chief
Executive Officer of LCI and its subsidiaries since July 1991. Mr. Thompson
previously served as Executive Vice President of MCI Communications Corporation
and its affiliates (collectively referred to as "MCI") where he was responsible
for all eight of MCI's operating divisions and various other senior management
capacities from 1981 to 1991. Mr. Thompson is a director of Microdyne
Corporation, Golden Books Family Entertainment, Inc. and Comcast UK Cable
Partners Limited. Mr. Thompson also serves as Chairman of the Competitive
Telecommunications Association and is a member of the Listed Company Advisory
Committee to the NYSE Board of Directors.
Mr. Wynne has been President and Chief Operating Officer of the Company's
subsidiaries since July 1991 and President and Chief Operating Officer of the
Company since April 1993. From 1977 to 1991, Mr. Wynne held several executive
positions with MCI, including President of the West Division, Vice President of
Sales and Marketing for the Mid-Atlantic Division, and Vice President in the
Midwest Division. Mr. Wynne has been a Director of the Company since December
1991.
Mr. Lawrence has been Senior Vice President - Finance and Development and
Chief Financial Officer of LCI and its subsidiaries since October 1993. From
January 1985 through October 1993, Mr. Lawrence held several executive
positions at MCI, including Senior Vice President-Finance and Vice President
Finance and Administration for the Consumer Division and Vice President Finance
for the Mid-Atlantic Division.
Mr. Hanno was Senior Vice President - Sales of LCI since June 1993 and was
Vice President of Sales of LCI Management Services since July 1991. In January
1997, after an internal reorganization, Mr Hanno was appointed Senior Vice
President - Commercial Segment. From 1987 to July 1991, Mr. Hanno was Vice
President of Sales of MCI and prior thereto was Vice President of Sales and
Marketing with Allnet Communications.
Mr. Bouman has been Senior Vice President - Engineering, Operations and
Technology of LCI and its subsidiaries since October 1995. From October 1990
through October 1995, Mr. Bowman held several executive positions at MCI,
including Senior Vice President of Network Operations, Senior Vice President of
Network Engineering and Senior Vice President of Planning and Program
Management.
Mr. Gamse has been Senior Vice President - Business Marketing of LCI since
March 1996. From 1982 to 1993, Mr. Gamse held several positions at MCI,
including Senior Vice President of Marketing for Consumer Markets and Senior
Vice President of Customer Service. In addition, Mr. Gamse was previously a
policy advisor at the U.S. Environmental Protection Agency.
Ms. Bingaman was appointed Senior Vice President - Local Telecommunications
Division in January 1997. From 1993 to 1996, Ms. Bingaman was assistant
attorney general of the antitrust division at the U.S. Department of Justice.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS
From the initial public offering of its Common Stock on May 12, 1993 to
December 29, 1994, LCI's Common Stock had traded on the Nasdaq National Market
under the symbol "LCII." On December 30, 1994, LCI's Common Stock began
trading on the New York Stock Exchange under the symbol "LCI". The following
table sets forth, on a per share basis, the range of the high and low closing
sale price information of shares of the Common Stock as reported by the Nasdaq
National Market and New York Stock Exchange.
<TABLE>
<CAPTION>
Market Price Per Share
1996 1995 *
------------------------------------------- -------------------------------------------
End of End of
High Low Period High Low Period
---------- ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $26 1/8 $21 1/8 $24 3/4 $ 13 1/4 $ 10 3/16 $12 7/16
Second Quarter 32 1/2 23 31 3/8 16 5/8 12 3/16 15 5/16
Third Quarter 36 3/4 27 31 3/4 20 11/16 15 7/16 19 5/8
Fourth Quarter 35 1/8 19 1/8 21 5/8 20 1/2 16 3/8 20 1/2
</TABLE>
* Adjusted to reflect the 2-for-1 stock split effective in the form of a
stock dividend in September 1995.
At February 28, 1997, there were 77,617,276 shares of Common Stock
outstanding held by 1,725 shareowners of record.
LCI has not declared or paid any cash dividends on its Common Stock since
its inception and does not currently anticipate paying any cash dividends on
its Common Stock in the foreseeable future. LCI is a holding company which
conducts substantially all of its operations through its subsidiaries. The
Company is restricted from paying dividends under the terms of certain of its
financing agreements.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from the information under the caption "Selected
Financial Data" in the Company's 1996 Annual Report to Shareowners.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from the information under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1996 Annual Report to Shareowners.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the information under the captions
"Consolidated Statements of Operations","Consolidated Balance Sheets",
"Consolidated Statements of Shareowners' Equity", "Consolidated Statements of
Cash Flows", "Notes to Consolidated Financial Statements" together with the
report thereon of Arthur Andersen LLP dated February 6, 1997, under the caption
"Report of Independent Public Accountants", all in the Company's 1996 Annual
Report to Shareowners.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
Information with respect to executive officers of the Company is set forth
in Part I of this Annual Report on Form 10-K.
Information with respect to directors of the Company is incorporated by
reference from the information under the caption "Information As to Nominees For
Election As Directors" and "Information As to Directors Continuing In Office" in
LCI's Proxy Statement for its 1997 Annual Meeting of Shareowners (the "1997
Proxy Statement"). Information with respect to compliance with Section16(a) of
the Securities Exchange Act of 1934 is incorporated by reference to the
information under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance in the 1996 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the captions "Board of Directors' Meetings
Committees and Fees" and "Executive Compensation and Related Information"
including "Summary Compensation Table," "Option Grants in 1996," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Employment Contracts and Termination of Employment and Change-In-Control
Arrangements," and "Compensation Committee Interlocks and Insider Participation"
but not including "Compensation Committee Report on Executive Compensation" and
"Performance Graph" in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT
Incorporated by reference from "Security Ownership of Management and
Others" in the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from information under the caption "Certain
Relationships and Related Transactions" in the 1997 Proxy Statement.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
Pages in 1996
Annual Report
--------------
Report of Independent Public Accountants 24
Consolidated Statements of Operations 25
Consolidated Balance Sheets 26 - 27
Consolidated Statements of Shareowners' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30 - 43
(2) Financial Statement Schedules
All supporting schedules other than those listed below have
been omitted because they are not required or the information
to be set forth therein is included in the financial statements
or in the notes thereto. The following additional financial
data should be read in conjunction with the financial
statements incorporated by reference herein.
Report of Independent Public Accountants on Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits.
The exhibits filed or incorporated by reference as part of
this report are set forth in the Index of Exhibits on page E-1
of this Annual Report.
(b) Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the three months ended December 31, 1996.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.1 - Agreement of purchase of sale of assets dated December 17, 1995 by and between LCI International Telecom Corp. and
Teledial America, Inc. (d/b/a U.S. Signal Corporation) (16)
3(i)(a) - Amended and Restated Certificate of Incorporation. (19)
3(i)(b) - Certificate of Designation of 5% Cumulative Convertible Exchangeable Preferred Stock.(2)
3(ii) - Amended and Restated By-laws
4(a)(i) - Specimen Preferred Stock Certificate. (2)
4(a)(ii) - Specimen Common Stock Certificate. (1)
4(b) - Registration Rights Agreement, effective as of November 15, 1988, among LCI Communications Holdings Co., LCI
Communications, Inc., Warburg, Pincus Capital Company, L.P., Primus Capital Fund and Primus Capital Fund II, L.P.(1)
4(c) - Credit Agreement, dated as of December 30, 1993, by and among LCI International, Inc., First Union National Bank of
North Carolina and Nationsbank of Texas, N.A.(5)
4(c)(i) - First Amendment and Confirmation, dated as of March 3, 1994, by and among LCI International, Inc., LCI International
Management Services, Inc., LCI International of New Hampshire, Inc., 1056974 Ontario Inc., First Union National Bank
of North Carolina and Nationsbank of Texas, N.A. (5)
4(c)(ii) - Unconditional Guaranty Agreement, dated as of January 19, 1994, by and between LCI International Management Services,
Inc. and First Union National Bank of North Carolina. (5)
4(c)(iii) - Unconditional Guaranty Agreement, dated as of January 19, 1994, by and between LCI International of New Hampshire,
Inc. and First Union National Bank of North Carolina.(5)
4(c)(iv) - Unconditional Guaranty Agreement, dated as of January 19, 1994, by and between 1056974 Ontario Inc. and First Union
National Bank of North Carolina.(5)
4(c)(v) - Pledge Agreement, dated as of December 30, 1993, by and between LCI International, Inc. and First Union National Bank
of North Carolina.(5)
4(c)(vi) - Pledge Agreement, dated as of January 19, 1994, by and between LCI International Management Services, Inc. and First
Union National Bank of North Carolina.(5)
4(c)(vii) - Pledge Agreement, dated as of January 19, 1994, by and between LCI International, Inc. and First Union National Bank
of North Carolina.(5)
4(c)(viii) - Second Amendment, dated April 7, 1994, to the Credit Agreement, dated December 30, 1993 by and among LCI
International, Inc., First Union National Bank of North Carolina and Nationsbank of Texas, N.A.(6)
4(c)(ix) - Third Amendment, dated September 28, 1994, to the Credit Agreement, dated December 30, 1993 by and among LCI
International, Inc., First Union Bank of North Carolina and Nationsbank of Texas, N.A.(8)
4(c)(x) - Unconditional Guaranty Agreement, dated as of September 1, 1994, by and between LCI Telecom South, Inc. and First
Union National Bank of North Carolina.(8)
4(c)(xi) - Unconditional Guaranty Agreement, dated as of September 1, 1994, by and between LCI International Telecom Corp., and
First Union National Bank of North Carolina.(8)
4(c)(xii) - Fourth Amendment, dated October 21, 1994, to the Credit Agreement, dated December 30, 1993 by and among LCI
International, Inc., First Union Bank of North Carolina and Nationsbank of Texas, N.A.(11)
4(c)(xiii) - Amended and Restated Credit Agreement, dated as of June 6, 1995, by and among LCI International, Inc., First Union
National Bank of North Carolina, and Nationsbank of Texas, N.A.(13)
</TABLE>
E - 1
<PAGE> 15
<TABLE>
<S> <C>
4(c)(xiv) - Second Amended and Restated Credit Agreement, dated as of February 14, 1996, by and among LCI International, Inc.,
First Union National Bank of North Carolina, and Nationsbank of Texas, N.A. (18)
4(d) - Registration Rights Agreement, dated as of November 15, 1988, by and among LCI Communications Holdings Co., Warburg,
Pincus Capital Company, L.P., APT Holdings Corporation and Creditanstalt-Bankverein.(1)
4(e) - Registration Rights Agreement, dated as of December 30, 1988, by and among LCI Communications Holdings Co., Warburg,
Pincus Capital Company, L.P., PNC Venture Corp. and PNC Venture Group I, L.P.(1)
4(f) - Registration Rights Agreement, dated as of January 16, 1989, by and among LCI Communications Holdings Co., Warburg,
Pincus Capital Company, L.P., and Trustees of General Electric Pension Trust.(1)
4(g) - $64,262,707 Subordinated Term Note, dated June 17, 1993, issued by LiTel Communications, Inc.(2)
10(a)(i) - License Agreement, dated November 19, 1984, between the Ohio Turnpike Commission and Litel Telecommunications
Corporation.(1)
10(a)(ii) - Right-of-Way Agreement, dated October 31, 1984, among Grand Trunk Western Railroad Company and Litel
Telecommunications Corporation.(1)
10(a)(iii) - Right-of-Way Agreement, dated May 14, 1985, between Indiana Department of Highways Toll Road Division and Litel
Telecommunications Corporation.(1)
10(b) - Lease Agreement, dated September 27, 1984, by and between Terminal Management Inc. and LiTel, Inc.(1)
10(c) - Indenture of Lease and License Agreement, dated November 1985, by and between Drytraub of Illinois, Inc., Drytraub
Office Management, Inc. and Litel Telecommunications Corporation, as amended.(1)
10(d) - Lease Agreement, dated March 3, 1989, by and between The Equitable Life Assurance Society (successor in interest to
180 East Broad Partnership) and Litel Telecommunications Corporation, as amended.(1)
10(e) - Lease Agreement, dated August 14, 1989, by and between Duke Associates No. 70 Limited Partnership and LCI Management
Services, Inc., as amended.(1)
10(f) - Agreement Regarding Additional Space, dated August 14, 1989, among Duke Associates No. 70 Limited Partnership and LCI
Management Services, Inc., as amended.(1)
10(g) - Lease Agreement, dated as of October 11, 1993, by and between Eighty-One Eighty Greensboro Associates Limited
Partnership and LCI International, Inc.(4)
10(g)(i) - Lease, dated May 19, 1986, by and between 13th and L Associates and Long-Distance Services of Washington, Inc.(2)
10(g)(ii) - Amendment No. 1 to Lease, dated December 20, 1988, by and between 13th and L Associates and Long Distance Service of
Washington, Inc.(4)
10(g)(iii) - Second Amendment to Retail Lease, dated June 6, 1991, by and between 13th and L Associates and Long Distance Service
of Washington, Inc.(4)
10(h) - Master License and Services Agreement, dated as of March 1, 1993, among LiTel Communications, Inc. and the
Subsidiaries named in Schedule I thereto.(1)
10(h)(i) - First Amendment to Master License and Services Agreement, dated as of April 29, 1993, among LiTel Communications,
Inc., Litel Telecommunications Corporation, Afford-A-Call Corp. and LDS Telecommunications Corp. f/k/a New Cable
Inc.(1)
10(h)(ii) - Management Services Agreement dated as of April 1, 1993, between LCI International, Inc. and LiTel Communications,
Inc.(1)
10(i) - Agreement for Purchase of Assets between LiTel Communications, Inc. and Long Distance Service of Washington, Inc. and
Richard J. Rice, dated February 1, 1993.(1)
</TABLE>
E - 2
<PAGE> 16
<TABLE>
<S> <C>
10(j)(i) - Interim Loan Agreement, dated as of October 15, 1993, between LCI International, Inc. and STN Incorporated.(3)
10(j)(ii) - Secured Demand Note, dated as of October 15, 1993, between LCI International, Inc. and STN Incorporated.(3)
10(j)(iii) - Note Pledge Agreement, dated as of October 15, 1993, between LCI International, Inc. and STN Incorporated.(3)
10(j)(iv) - Debenture Purchase Agreement, dated as of October 15, 1993, between LCI International, Inc. and STN Incorporated.(3)
10(j)(viii) - TransPrairie Option Agreement, dated as of October 15, 1993, by and among LCI International, Inc., TransPrairie Energy
Management Partnership and certain persons named on the signature pages thereof.(3)
10(j)(ix) - Services Agreement and License, dated as of October 26, 1993, between LCI International Management Services, Inc. and
STN Incorporated.(3)
10(j)(x) - Traffic Exchange Agreement, dated as of October 26, 1993, between LCI International Telecom Corp. and STN
Incorporated.(3)
10(j)(xii) - Promissary note dated April 29, 1994 between LCI International Telecom Corp. and STN Incorporated.(6)
10(j)(xiii)- Promissary Note dated May 12, 1994 between LCI International Telecom Corp. and STN Incorporated.(6)
10(j)(xiv) - Debenture Purchase Agreement Amendment, dated as of June 1, 1994, between LCI International, Inc., and STN
Incorporated.(7)
10(j)(xv) - Loan Agreement, dated June 1, 1994, between STN Incorporated and LCI International, Inc.(7)
10(j)(xix) - Form of Share Option Agreement, dated May 31, 1994, between LCI International, Inc. and Robey Company Limited, Vanier
Company Limited and Yarker Company Limited.(7)
10(j)(xx) - Debenture Purchase Agreement Second Amendment, dated July 7, 1994, between LCI International, Inc. and STN
Incorporated.(7)
10(j)(xxi) - Debenture Purchase Agreement Third Amendment, dated July 22, 1994, between LCI International, Inc. and STN
Incorporated.(7)
10(j)(xxii) - Loan Agreement Amendment, dated July 7, 1994, between LCI International, Inc. and STN Incorporated.(7)
10(j)(xxiii)- Loan Agreement Second Amendment, dated July 22, 1994, between LCI International, Inc. and STN Incorporated.(7)
10(j)(xxvi) - Promissory Note dated June 30, 1994 between LCI International, Inc. and STN Incorporated.(7)
10(j)(xxvii)- Agreement of Purchase and Sale of Assets dated as of March 31, 1994 by and among LCI International Management
Services, Inc., T.M. Sepulveda, Inc. and Gene Elmore.(10)
10(j)(xxviii)-Agreement of Purchase and Sale of Assets dated as of March 31, 1994 by and among LCI International Management
Services, Inc., Premium Access, Inc. and Gene Elmore.(10)
10(j)(xxvix)- Amendment No. 1 dated July 11, 1994 to Agreement of Purchase and Sale of Assets of Glendale Gene, Inc. (formerly known
as T.M. Sepulveda, Inc.).(10)
10(j)(xxx) - Amendment No. 1 dated July 11, 1994 to Agreement of Purchase and Sale of Assets of Glendale Access International,
Inc. (formerly known as Premium Access, Inc.).(10)
10(j)(xxxi) - Assignment of T.M. Sepulveda, Inc. Agreement of Purchase and Sale of Assets from LCI International Management
Services, Inc. to LCI International Telecom Corp. dated April 4, 1994.(10)
10(j)(xxxii)- Assignment of Premium Access, Inc. Agreement of Purchase and Sale of Assets from LCI International Management
Services, Inc. to LCI International Telecom Corp. dated April 4, 1994.(10)
10(j)(xxxiii)-Promissory Note of STN Incorporated, dated as of December 21, 1994, for Cnd. $6,951,500.(11)
</TABLE>
E - 3
<PAGE> 17
<TABLE>
<S> <C>
10(j)(xxxiv)- General Security Agreement, dated as of December 21, 1994, between STN Incorporated and LCI International, Inc.
relating to the Promissory Note.(11)
10(j)(xxxv) - Form of Acknowledgment and Promise to Pay, by STN Incorporated, to be dated as of December 21, 1994, evidencing
amount owed to LCI International Management Services, Inc. for certain services rendered prior to October 1, 1994.(11)
10(j)(xxxvi)- Form of General Security Agreement, dated as of December 21, 1994, relating to Acknowledgment and Promise to
Pay.(11)
10(j)(xxxvii)-Indemnification Agreement, dated as of January 6, 1995, between STN Incorporated and LCI International, Inc.(11)
10(j)(xxxviii)General Security Agreement, dated as of January 6, 1995 between STN Incorporated and LCI International, Inc.,
relating to the Indemnification Agreement.(11)
10(j)(xxxix)- Agreement and Plan Of Merger dated July 10, 1995 among LCI International Inc., LCI Telemanagement Corp., Corporate
Telemanagement Group, Inc. and the Warrant Holders listed on the signature pages thereto.(15)
10(k)(i) - Letter Agreement, dated February 9, 1993, between H. Brian Thompson and Warburg, Pincus Capital Company, L.P.(1)*
10(k)(ii) - Letter Agreement, dated February 9, 1993, between Thomas J. Wynne and Warburg, Pincus Capital Company, L.P.(1)*
10(k)(iii) - Letter Agreement, dated February 9, 1993, between Marshall W. Hanno and Warburg, Pincus Capital Company, L.P.(1)*
10(l)(v) - Employment Agreement, dated as of October 18, 1993, between LCI International Management Services, Inc. and Joseph A.
Lawrence.(11)*
10(l)(vi) - Form of LCI International, Inc. 1994 Executive Perquisite Program. (5) *
10(l)(vii) - LCI International, Inc. 1992 Stock Option Plan.(1)*
10(l)(viii) - LiTel Communications, Inc. 1993 Stock Option Plan.(1)*
10(l)(ix) - LCI International, Inc. 1994/1995 Stock Option Plan.(5)*
10(l)(x) - LiTel Communications, Inc. Stock Purchase Plan.(1)*
10(l)(xi) - LCI International, Inc. and Subsidiaries Nonqualified Stock Option Plan for Directors.(2)*
10(l)(xii) - LCI International, Inc. 1995/1996 Stock Option.(9)*
10(l)(xiii) - LCI International, Inc. Amended and Restated Employee Stock Purchase Plan.(9)*
10(l)(xiv) - Employment Agreement, dated as of March 20, 1994, between LCI International, Inc. and H. Brian Thompson.(11) *
10(l)(xv) - Employment Agreement, dated as of March 20, 1994, between LCI International, Inc. and Thomas J. Wynne.(11)*
10(l)(xvi) - Form of Employment Agreement, dated as of March 20, 1994, between LCI International, Inc. and Marshall W. Hanno.(11) *
10(l)(xvii) - LCI International Management Services, Inc. Supplemental Executive Retirement Plan.(12)*
10(l)(xviii)- Employment Agreement, dated as of October 1, 1995 between LCI International Management Services, Inc., and Larry
Bouman.(18) *
10(l)(xix) - Employement Agreement, dated as of September 18, 1995 between LCI Telemanagement Corp. and Charles S. Houser.(18) *
10(l)(xx) - Employement Agreement, dated as of March 19, 1996 between LCI Management Services, Inc. and Roy Gamse.(19) *
10(l)(xxi) - 1997/1998 LCI International, Inc. Stock Option Plan.
10(l)(xxii) - LCI International, Inc. and Subsidiaries Executive Incentive Compensation Plan
10(m) - Lease Agreement dated as of July 1, 1994 by and between LCI International Management Services, Inc. and Bank Building
Limited Partnership.(6)
10(n) - Lease Agreement dated April 14, 1994 by and between LCI International Management Services, Inc.
and RFG Co., LTD.(6)
</TABLE>
E - 4
<PAGE> 18
<TABLE>
<S> <C>
10(o) - Forth Amendment to Lease and Consent to Assignment dated as of June 28, 1994 by and between LCI International Telecom
Corp. and One Wilshire Arcade Imperial, LTD.(8)
10(p) - Network Services Agreement dated December 22, 1994 between MCI Telecommunications Corporation and LCI International
Telecom Corp.(11),(22)
10(q)(i) - Contractor Agreement dated January 18, 1993 by and between LCI International Telecom Corp. and American Communications
Network, Inc. (14),(22)
10(q)(ii) - Addendum to Contractor Agreement by and between American Communications Network, Inc. and LCI International Telecom
Corp. dated January 18, 1993.(14)
10(q)(iii) - Amendment No.1 to Contractor Agreement by and between LCI International Telecom Corp. and American Communications
Network, Inc. dated _______, 1994. (14),(22)
10(q)(iiii) - Contractor Agreement dated May 1, 1996 between LCI International Telecom Corp. and American Communications Network,
Inc. (21), (22)
10(r)(i) - Transfer and Administrative Agreement among Enterprise Funding Corporation, LCI SPC I, Inc., LCI International Telecom
Corp., NationsBank, N.A. and certain other parties thereto, dated August 29, 1996. (20)
10(r)(ii) - Receivables Purchase Agreement dated August 29, 1996, among LCI International Telecom Corp. LCI SPC I, Inc. (20)
10(r)(iii) - Subordinated Intercompany Revolving Note, date August 29, 1996, issued to LCI International Telecom Corp. by LCI SPC
I, Inc. (20)
10(r)(iv) - Support Agreement, dated August 29, 1996, by LCI International, Inc. in favor of LCI SPC I, Inc. (28)
10(s)(i) - Participation Agreement dated as of November, 1996 among LCI International, Inc., as the Construction Agent and as the
Lessee, First Security Bank, National Association, as the Owner Trustee under the Stuart Park Trust, the various banks
and lending institutions which are parties thereto from time to time as the Holders, the various banks and lending
institutions which are parties thereto from time to time, as the Lenders and NationsBank of Texas, N.A., as the Agent
for the Lenders.
10(s)(ii) - Unconditional Guaranty Agreement dated as of November 15, 1996 made by LCI International, Inc., as Guarantor in favor
of NationsBank of Texas, N.A., as Agent for the ratable benefit of the Tranche A Lenders
10(s)(iii) - Agency Agreement between LCI Internationl, Inc., as the Construction Agent and First Security Bank, National
Association, as the Owner Trustee under the Stuart Park Trust as the Lessor dated as of November 15, 1996
10(s)(iv) - Deed of lease Agreement dated as of November 15, 1996 between First National Bank, National Association as the Owner
Trsutee under the Stuart Park Trust, as Lessor and LCI International, Inc. as Lessee
11 - Statement re computation of per share earnings
13 - LCI International, Inc. 1996 Annual Report to Shareowners
21 - Subsidiaries of LCI International, Inc.
23 - Consent of Arthur Andersen LLP
27 - Financial Data Schedule
(1) Incorporated by reference to the Company's Registration Statement No. 33-60558.
(2) Incorporated by reference to the Company's Registration Statement No. 33-67368.
(3) Incorporated by reference to the Company's Form 8-K dated October 17, 1993.
(4) Incorporated by reference to the Company's Registration Statement No. 33-71500.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
</TABLE>
E - 5
<PAGE> 19
<TABLE>
<S> <C>
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(9) Incorporated by reference to the Company's Proxy Statement for the 1995 Annual Meeting of Shareowners.
(10) Incorporated by reference to the Company's Form 8-K dated July 11, 1994.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
(15) Incorporated by reference to the Company's Form 8-K dated July 10, 1995.
(16) Incorporated by reference to the Company's Form 8-K dated December 17, 1995.
(17) Incorporated by reference to the Company's Registration Statement No. 33-96186.
(18) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(20) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
(21) Incorporated by reference to the Company's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1996.
(22) Confidential treatment has been requested for portions of this exhibit.
* Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.
</TABLE>
E - 7
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LCI International, Inc.
By: /s/ H. BRIAN THOMPSON
----------------------------------
H. Brian Thompson
Chairman of the Board and Chief
Executive Officer
Date: March 17, 1997
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.
<TABLE>
<CAPTION>
Name Title
---- -----
<S><C> <C> <C>
/s/ H. BRIAN THOMPSON Chairman of the Board, Chief March 17, 1997
- ------------------------------------------- Executive Officer and Director
H. BRIAN THOMPSON (principal executive officer)
/s/ JOSEPH A. LAWRENCE Senior Vice President - March 17, 1997
- ------------------------------------------- Finance and Development
JOSEPH A. LAWRENCE and Chief Financial Officer
(principal financial and
accounting officer)
/s/ WILLIAM F. CONNELL Director March 17, 1997
- -------------------------------------------
WILLIAM F. CONNELL
/s/ JULIUS W. ERVING, II Director March 17, 1997
- -------------------------------------------
JULIUS W. ERVING, II
/s/ DOUGLAS M. KARP Director March 17, 1997
- -------------------------------------------
DOUGLAS M. KARP
/s/ GEORGE M. PERRIN Director March 17, 1997
- -------------------------------------------
GEORGE M. PERRIN
Director
- -------------------------------------------
JOHN L. VOGELSTEIN
/s/ THOMAS J. WYNNE President, Chief Operating Officer March 17, 1997
- ------------------------------------------- and Director
THOMAS J. WYNNE
</TABLE>
S - 1
<PAGE> 21
Report of Independent Public Accountants
To the Board of Directors and Shareowners of LCI International, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in LCI International, Inc.'s annual
report to shareowners incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 6, 1997. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 6, 1997
<PAGE> 22
LCI INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------
(1) (2)
Balance at Charged to Charged to Deductions - Balance at
Description Beginning of Costs and Other Accounts Describe End of
Period Expenses - Describe (b) Period
(a)(c)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reflected as reductions to the
related assets:
Allowance for doubtful accounts
(deductions from trade
accounts receivable)
Year ended December 31, 1994 6,020 5,791 9,610 (14,966) 6,455
Year ended December 31, 1995 6,455 8,173 37,235 (42,108) 9,755
Year ended December 31, 1996 9,755 15,760 67,380 (69,477) 23,418
</TABLE>
(a) Represents reduction of revenue for accrued credits, recoveries of amounts
previously written off and balances recorded from acquisitions.
(b) Represents amounts written off as uncollectible, credits issued and
collection fees.
(c) Consistent with industry practice, the Company reduced revenue for related
costs.
II-1
<PAGE> 1
EXHIBIT 3(ii)
LCI INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AMENDED AND RESTATED BY-LAWS
ARTICLE I - OFFICES
The registered office of the Corporation in Delaware shall be at 1209
Orange Street in the City of Wilmington, County of New Castle, in the State of
Delaware, and The Corporation Trust Company shall be the resident agent of this
Corporation in charge thereof. The Corporation may also have such other
offices at such other places, within or without the State of Delaware, as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II - STOCKHOLDERS
SECTION 1. ANNUAL MEETING
The annual meeting of stockholders for the election of directors and the
transaction of any other business shall be held on such date, in such city and
state and at such time and place as may be designated by the Board of
Directors, and set forth in the notice of such meeting. If said day be a
legal holiday, said meeting shall be held on the next succeeding business day.
At the annual meeting any business may be transacted and any corporate action
may be taken, whether stated in the notice of meeting or not, except as
otherwise expressly provided by statute or the Amended and Restated Certificate
of Incorporation.
SECTION 2. SPECIAL MEETINGS
Special meetings of the stockholders for any purpose may be called at any
time by the Board of Directors, or by the Chief Executive Officer, and shall be
called by the Chief Executive Officer at the request of the holders of a
majority of the outstanding shares of capital stock entitled to vote. Special
meetings shall be held at such place or places within or without the State of
Delaware as shall from time to time be designated by the Board of Directors and
stated in the notice of such meeting. At a special meeting no business shall
be transacted and no corporate action shall be taken other than that stated in
the notice of the meeting.
SECTION 3. NOTICE OF MEETINGS
Written notice of the time and place of any stockholders' meeting, whether
annual or special, shall be given to each stockholder entitled to vote thereat,
by personal delivery or by mailing the same to him at his address as the same
appears upon the records of the Corporation at
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<PAGE> 2
least ten days but not more than sixty days before the day of the meeting.
Notice of any adjourned meeting need not be given except by announcement at the
meeting so adjourned, unless otherwise ordered in connection with such
adjournment. Such further notice, if any, shall be given as may be required by
law.
SECTION 4. QUORUM
Any number of stockholders, together holding at least a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of all business, except
as otherwise provided by law, by the Amended and Restated Certificate of
Incorporation or by these By-laws.
SECTION 5. ADJOURNMENT OF MEETINGS
If less than a quorum shall attend at the time for which a meeting shall
have been called, the meeting may adjourn from time to time by a majority vote
of the stockholders present or represented by proxy and entitled to vote
without notice other than by announcement at the meeting until a quorum shall
attend. Any meeting at which a quorum is present may also be adjourned in like
manner and for such time or upon such call as may be determined by a majority
vote of the stockholders present or represented by proxy and entitled to vote.
At any adjourned meeting at which a quorum shall be present, any business may
be transacted and any corporate action may be taken which might have been
transacted at the meeting as originally called.
SECTION 6. VOTING LIST
The Secretary shall prepare and make, at least ten days before every
election of directors, a complete list of the stockholders entitled to vote,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares of each stockholder. Such list shall be open at the place
where the election is to be held for said ten days, to the examination of any
stockholder, and shall be produced and kept at the time and place of election
during the whole time thereof, and subject to the inspection of any stockholder
who may be present.
SECTION 7. VOTING
Each stockholder entitled to vote at any meeting may vote either in person
or by proxy, but no proxy shall be voted on or after three years from its date,
unless said proxy provides for a longer period. Each stockholder entitled to
vote shall at every meeting of the stockholders be entitled to one vote for
each share of stock registered in such stockholder's name on the record of
stockholders. At all meetings of stockholders all matters, other than the
election of directors and except as otherwise provided by statute, shall be
determined by the affirmative vote of the majority of shares present in person
or by proxy and entitled to vote on the subject matter. Except as otherwise
provided by statute, directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Voting at meetings of
stockholders need not be by written ballot.
2
<PAGE> 3
SECTION 8. RECORD DATE OF STOCKHOLDERS
The Board of Directors is authorized to fix in advance a date not
exceeding sixty days nor less than ten days preceding the date of any meeting
of stockholders, or the date for the payment of any dividend, or the date for
the allotment of rights, or the date when any change or conversion or exchange
of capital stock shall go into effect, or a date in connection with obtaining
the consent of stockholders for any purposes, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and, in such case, such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting, and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, or to give such consent, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation,
after such record date fixed as aforesaid.
SECTION 9. ACTION WITHOUT MEETING
(a) Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The
Board of Directors shall promptly, but in all events within ten (10) days after
the date on which such a request is received, adopt a resolution fixing the
record date. If no record date has been fixed by the Board of Directors within
ten (10) days of the date on which such a request is received, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is
3
<PAGE> 4
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or any officer or agent of the Corporation
having custody of the book in which proceedings of stockholders meeting are
recorded, to the attention of the Secretary of the Corporation. Delivery shall
be by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolutions taking such prior action.
SECTION 10. CONDUCT OF MEETINGS
The Chairman of the Board of Directors or, in his absence, the Chief
Executive Officer, the President or any Vice President designated by the
Chairman of the Board, if any, or in his absence the Chief Executive Officer,
shall preside at all regular or special meetings of stockholders. To the
maximum extent permitted by law, such presiding person shall have the power to
set procedural rules, including but not limited to rules respecting the time
allotted to stockholders to speak, governing all aspects of the conduct of such
meetings.
ARTICLE III - DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS
Except as otherwise provided in the Amended and Restated Certificate of
Incorporation, the board of directors shall consist of such number of directors
as may be fixed from time to time by resolution of the Board. The directors
need not be stockholders.
SECTION 2. ELECTION OF DIRECTORS
The directors shall be elected by the stockholders at the annual meeting
of stockholders.
SECTION 3. DURATION OF OFFICE
The directors chosen at any annual meeting shall, except as hereinafter
provided and except as otherwise provided in the Amended and Restated
Certificate of Incorporation, hold office until the next annual election and
until their successors are duly elected and qualify.
SECTION 4. REMOVAL AND RESIGNATION OF DIRECTORS
Except as otherwise provided in the Amended and Restated Certificate of
Incorporation, any director may be removed from the Board of Directors, with
cause, by the holders of a majority of the shares of capital stock entitled to
vote, either by written consent or consents or at
4
<PAGE> 5
any special meeting of the stockholders called for that purpose, and the office
of such director shall forthwith become vacant.
Any director may resign at any time. Such resignation shall take effect
at the time specified therein, and if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall
not be necessary to make it effective, unless so specified therein.
SECTION 5. FILLING OF VACANCIES
Except as otherwise provided in the Amended and Restated Certificate of
Incorporation, any vacancy among the directors, occurring from any cause
whatsoever, may be filled by a majority of the remaining directors, though less
than a quorum, provided, however, that the stockholders removing any director
may at the same meeting fill the vacancy caused by such removal, and provided,
further, that if the directors fail to fill any such vacancy, the stockholders
may at any special meeting called for that purpose fill such vacancy. In case
of any increase in the number of directors, the additional directors may be
elected by the directors in office before such increase.
Except as otherwise provided in the Amended and Restated Certificate of
Incorporation, any person elected to fill a vacancy shall hold office, subject
to the right of removal as hereinbefore provided, until the next annual
election and until his successor is elected and qualifies.
SECTION 6. REGULAR MEETINGS
The Board of Directors shall hold an annual meeting for the purpose of
organization and the transaction of any business immediately after the annual
meeting of the stockholders, provided a quorum of directors is present. Other
regular meetings may be held at such times as may be determined from time to
time by resolution of the Board of Directors.
SECTION 7. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman
of the Board of Directors or by the Chief Executive Officer.
SECTION 8. NOTICE AND PLACE OF MEETINGS
Meetings of the Board of Directors may be held at the principal office of
the Corporation, or at such other place as shall be stated in the notice of
such meeting. Notice of any special meeting, and, except as the Board of
Directors may otherwise determine by resolution, notice of any regular meeting
also, shall be mailed to each director addressed to him at his residence or
usual place of business at least two days before the day on which the meeting
is to be held, or if sent to him at such place by telegraph or cable, or
delivered personally or by telephone, not later than the day before the day on
which the meeting is to be held. No notice of the annual meeting
5
<PAGE> 6
of the Board of Directors shall be required if it is held immediately after the
annual meeting of the stockholders and if a quorum is present.
SECTION 9. BUSINESS TRANSACTED AT MEETINGS, ETC.
Any business may be transacted and any corporate action may be taken at
any regular or special meeting of the Board of Directors at which a quorum
shall be present, whether such business or proposed action be stated in the
notice of such meeting or not, unless special notice of such business or
proposed action shall be required by statute.
SECTION 10. QUORUM
A majority of the Board of Directors at any time in office shall
constitute a quorum. At any meeting at which a quorum is present, the vote of
a majority of the members present shall be the act of the Board of Directors
unless the act of a greater number is specifically required by law or by the
Certificate of Incorporation or these By-laws. The members of the Board shall
act only as the Board and the individual members thereof shall not have any
powers as such.
SECTION 11. COMPENSATION
The directors shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed fee and expenses
of attendance may be allowed for attendance at each meeting. Nothing herein
contained shall preclude any director from serving the Corporation in any other
capacity, as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 12. ACTION WITHOUT A MEETING
Any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
SECTION 13. MEETINGS THROUGH USE OF COMMUNICATIONS EQUIPMENT
Members of the Board of Directors, or any committee designated by the
Board of Directors, shall, except as otherwise provided by law, the Amended and
Restated Certificate of Incorporation or these By-laws, have the power to
participate in a meeting of the Board of Directors, or any committee, by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at the meeting.
6
<PAGE> 7
ARTICLE IV - COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate two or more of their number to constitute an Executive
Committee to hold office at the pleasure of the Board, which Committee shall,
during the intervals between meetings of the Board of Directors, have and
exercise all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation, subject only to such restrictions or
limitations as the Board of Directors may from time to time specify, or as
limited by the Delaware Corporation Law, and shall have power to authorize the
seal of the Corporation to be affixed to all papers which may require it.
Any member of the Executive Committee may be removed at any time, with or
without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a director shall ipso facto cease to be a member
of the Executive Committee.
Any vacancy in the Executive Committee occurring from any cause whatsoever
may be filled from among the directors by a resolution of a majority of the
whole Board of Directors.
SECTION 2. OTHER COMMITTEE
Other committees, whose members need not be directors, may be appointed by
the Board of Directors or the Executive Committee, which committees shall hold
office for such time and have such powers and perform such duties as may from
time to time be assigned to them by the Board of Directors or the Executive
Committee.
Any member of such a committee may be removed at any time, with or without
cause, by the Board of Directors or the Executive Committee. Any vacancy in a
committee occurring from any cause whatsoever may be filled by the Board of
Directors or the Executive Committee.
SECTION 3. RESIGNATION
Any member of a committee may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or, if
no time be specified, at the time of its receipt by the President or Secretary.
The acceptance of a resignation shall not be necessary to make it effective
unless so specified therein.
SECTION 4. QUORUM
A majority of the members of a committee shall constitute a quorum. The
act of a majority of the members of a committee present at any meeting at which
a quorum is present
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<PAGE> 8
shall be the act of such committee. The members of a committee shall act only
as a committee, and the individual members thereof shall not have any powers as
such.
SECTION 5. RECORD OF PROCEEDINGS, ETC.
Each committee shall keep a record of its acts and proceedings, and shall
report the same to the Board of Directors when and as required by the Board of
Directors.
SECTION 6. ORGANIZATION, MEETINGS, NOTICES, ETC.
A committee may hold its meetings at the principal office of the
Corporation, or at any other place which a majority of the committee may at any
time agree upon. Each committee may make such rules as it may deem expedient
for the regulation and carrying on of its meetings and proceedings. Unless
otherwise ordered by the Executive Committee, any notice of a meeting of such
committee may be given by the Secretary of the Corporation or by the chairman
of the committee and shall be sufficiently given if mailed to each member at
his residence or usual place of business at least two days before the day on
which the meeting is to be held, or if sent to him at such place by telegraph
or cable, or delivered personally or by telephone not later than 24 hours
before the time at which the meeting is to be held.
SECTION 7. COMPENSATION
The members of any committee shall be entitled to such compensation as may
be allowed them by resolution of the Board of Directors.
ARTICLE V - OFFICERS
SECTION 1. NUMBER
The officers of the Corporation shall be a Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary, a Treasurer and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. The Board of Directors in its discretion may also elect a
Chairman of the Board of Directors.
SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS
The officers, except as provided in Section 3 of this Article V, shall be
chosen annually by the Board of Directors. Each such officer shall, except as
herein otherwise provided, hold office until his successor shall have been
chosen and shall qualify. The Chairman of the Board of Directors, if any, and
the Chief Executive Officer shall be directors of the Corporation, and should
any one of them cease to be a director, he shall ipso facto cease to be such
officer. Except as otherwise provided by law, any number of offices may be
held by the same person.
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SECTION 3. OTHER OFFICERS
Other officers, including one or more additional vice-presidents,
assistant secretaries or assistant treasurers, may from time to time be
appointed by the Board of Directors, which other officers shall have such
powers and perform such duties as may be assigned to them by the Board of
Directors or the officer or committee appointing them.
SECTION 4. REMOVAL OF OFFICERS
Any officer of the Corporation may be removed from office, with or without
cause, by a vote of a majority of the Board of Directors.
SECTION 5. RESIGNATION
Any officer of the Corporation may resign at any time. Such resignation
shall be in writing and shall take effect at the time specified therein, and if
no time be specified, at the time of its receipt by the President or Secretary.
The acceptance of a resignation shall not be necessary in order to make it
effective, unless so specified therein.
SECTION 6. FILLING OF VACANCIES
A vacancy in any office shall be filled by the Board of Directors or by
the authority appointing the predecessor in such office.
SECTION 7. COMPENSATION
The compensation of the officers shall be fixed by the Board of Directors,
or by any committee upon whom power in that regard may be conferred by the
Board of Directors.
SECTION 8. CHAIRMAN OF THE BOARD OF DIRECTORS
The Chairman of the Board of Directors shall be a director and shall
preside at all meetings of the Board of Directors at which he shall be present,
and shall have such power and perform such duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 9. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall, when present, preside at all meetings
of the stockholders, and, in the absence of the Chairman of the Board of
Directors, at meetings of the Board of Directors. He shall have power to call
special meetings of the stockholders or of the Board of Directors or of the
Executive Committee at any time. He shall be the chief executive officer of
the Corporation, and shall have the general direction of the business, affairs
and property of the Corporation, and of its several officers, and shall have
and exercise all such powers and discharge such duties as usually pertain to
the office of President.
9
<PAGE> 10
SECTION 10. PRESIDENT AND VICE PRESIDENTS
The President and the Vice Presidents, or any of them, shall, subject to
the direction of the Board of Directors, at the request of the Chief Executive
Officer or in his absence, or in case of his inability to perform his duties
from any cause, perform the duties of the Chief Executive Officer, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Chief Executive Officer. The President and Vice Presidents shall also
perform such other duties as may be assigned to them by the Board of Directors,
and the Board of Directors may determine the order of priority among them.
SECTION 11. SECRETARY
The Secretary shall perform such duties as are incident to the office of
Secretary, or as may from time to time be assigned to him by the Board of
Directors, or as are prescribed by these By-laws.
SECTION 12. TREASURER
The Treasurer shall perform such duties and have powers as are usually
incident to the office of Treasurer or which may be assigned to him by the
Board of Directors.
ARTICLE VI - CAPITAL STOCK
SECTION 1. ISSUE OF CERTIFICATES OF STOCK
Certificates of capital stock shall be in such form as shall be approved
by the Board of Directors. They shall be numbered in the order of their issue
and shall be signed by the Chairman of the Board of Directors, the Chief
Executive Officer, the President, or one of the Vice Presidents, and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and the seal of the Corporation or a facsimile thereof may be impressed or
affixed or reproduced thereon; provided, however, that where such certificates
are signed by a transfer agent or an assistant transfer agent or by a transfer
clerk acting on behalf of the Corporation and a registrar, the signature of any
such Chairman of the Board of Directors, the Chief Executive Officer,
President, Executive Vice President, Secretary, Assistant Secretary, Treasurer
or Assistant Treasurer may be facsimile. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on any such certificate or certificates shall cease to be such officer or
officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted
by the Corporation and be issued and delivered as though the person or persons
who signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon have not ceased to be such officer or
officers of the Corporation.
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<PAGE> 11
SECTION 2. REGISTRATION AND TRANSFER OF SHARES
The name of each person owning a share of the capital stock of the
Corporation shall be entered on the books of the Corporation together with the
number of shares held by such person, the numbers of the certificates covering
such shares and the dates of issue of such certificates. The shares of stock
of the Corporation shall be transferable on the books of the Corporation by the
holders thereof in person, or by their duly authorized attorneys or legal
representatives, on surrender and cancellation of certificates for a like
number of shares, accompanied by an assignment or power of transfer endorsed
thereon or attached thereto, duly executed, and with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. A record shall be made of each transfer.
The Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates for stock and may
appoint a transfer agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
SECTION 3. LOST, DESTROYED AND MUTILATED CERTIFICATES
The holder of any stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificates
therefor. The Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it alleged to have been lost, stolen or
destroyed, and the Board of Directors may, in its discretion, require the owner
of the lost, stolen or destroyed certificate, or his legal representatives, to
give the Corporation a bond, in such sum not exceeding double the value of the
stock and with such surety or sureties as they may require, to indemnify it
against any claim that may be made against it by reason of the issue of such
new certificate and against all other liability in the premises, or may remit
such owner to such remedy or remedies as he may have under the laws of the
State of Delaware.
ARTICLE VII - DIVIDENDS, SURPLUS, ETC.
SECTION 1. GENERAL DISCRETION OF DIRECTORS
The Board of Directors shall have power to fix and vary the amount to be
set aside or reserved as working capital of the Corporation, or as reserves, or
for other proper purposes of the Corporation, and, subject to the requirements
of the Certificate of Incorporation, to determine whether any, if any, part of
the surplus or net profits of the Corporation shall be declared as dividends
and paid to the stockholders, and to fix the date or dates for the payment of
dividends.
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ARTICLE VIII - MISCELLANEOUS PROVISIONS.
SECTION 1. FISCAL YEAR
The fiscal year of the Corporation shall commence on the first day of
January and end on the last day of December.
SECTION 2. CORPORATE SEAL
The corporate seal shall be in such form as approved by the Board of
Directors and may be altered at their pleasure. The corporate seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced
or otherwise.
SECTION 3. NOTICES
Except as otherwise expressly provided, any notice required by these
By-laws to be given shall be sufficient if given by depositing the same in a
post office or letter box in a sealed postpaid wrapper addressed to the person
entitled thereto at his address, as the same appears upon the books of the
Corporation, or by telegraphing or cabling the same to such person at such
addresses; and such notice shall be deemed to be given at the time it is
mailed, telegraphed or cabled.
SECTION 4. WAIVER OF NOTICE
Any stockholder or director may at any time, by writing or by telegraph or
by cable, waive any notice required to be given under these By-laws, and if any
stockholder or director shall be present at any meeting his presence shall
constitute a waiver of such notice.
SECTION 5. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the Corporation, and in
such manner, as shall from time to time be designated by resolution of the
Board of Directors.
SECTION 6. DEPOSITS
All funds of the Corporation shall be deposited from time to time to the
credit of the Corporation in such bank or banks, trust companies or other
depositories as the Board of Directors may select, and, for the purpose of such
deposit, checks, drafts, warrants and other orders for the payment of money
which are payable to the order of the Corporation, may be endorsed for deposit,
assigned and delivered by any officer of the Corporation, or by such agents of
the Corporation as the Board of Directors or the President may authorize for
that purpose.
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SECTION 7. VOTING STOCK OF OTHER CORPORATIONS
Except as otherwise ordered by the Board of Directors or the Executive
Committee, the Chief Executive Officer or the Treasurer shall have full power
and authority on behalf of the Corporation to attend and to act and to vote at
any meeting of the stockholders of any corporation of which the Corporation is
a stockholder and to execute a proxy to any other person to represent the
Corporation at any such meeting, and at any such meeting the Chief Executive
Officer or the Treasurer or the holder of any such proxy, as the case may be,
shall possess and may exercise any and all rights and powers incident to
ownership of such stock and which, as owner thereof, the Corporation might have
possessed and exercised if present. The Board of Directors or the Executive
Committee may from time to time confer like powers upon any other person or
persons.
SECTION 8. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation shall indemnify any and all of its directors, including
former directors, who shall serve as a director of any corporation at the
request of this Corporation, to the fullest extent permitted under and in
accordance with the laws of the State of Delaware. The Corporation may
indemnify officers, employees and agents of the Corporation to the same extent
as for directors of the Corporation.
ARTICLE IX - AMENDMENTS
The Board of Directors shall have the power to make, rescind, alter, amend
and repeal these By-laws, provided, however, that the stockholders shall have
power to rescind, alter, amend or repeal any by-laws made by the Board of
Directors, and to enact by-laws which if so expressed shall not be rescinded,
altered, amended or repealed by the Board of Directors. No change of the time
or place for the annual meeting of the stockholders for the election of
directors shall be made except in accordance with the laws of the State of
Delaware.
Dated: January 21, 1997
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10(l)(xxi)
1997/1998 LCI INTERNATIONAL, INC. STOCK OPTION PLAN
1. PURPOSES.
The 1997/1998 LCI International, Inc. Stock Option Plan (the "Plan")
is intended to attract and retain the best available personnel for positions of
substantial responsibility with LCI International, Inc., a Delaware corporation
(the "Company"), LCI International Management Services, Inc. ("LCI"), or any
other subsidiary corporations of the Company, and to provide additional
incentive to such persons to exert their maximum efforts toward the success of
the Company and its subsidiary corporations. The above aims will be
effectuated through the granting of certain stock options ("Options"). Under
the Plan, the Company may grant "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or Options which are not intended to be ISOs ("Non-Qualified
Options").
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee (the "Committee")
consisting of at least two persons, appointed by the Board of Directors of the
Company (the "Board of Directors"), each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 (the "Exchange Act"). The Committee may exercise the power and authority
vested in the Board of Directors under the Plan. In administering the Plan,
the Committee shall follow any general guidelines not inconsistent with the
Plan established by the Board of Directors and may adopt rules and regulations
for carrying out the Plan. Within the limits of the express provisions of the
Plan, the Committee shall have the authority, in its discretion, to take the
following actions under the Plan:
(a) to determine the individuals to whom, and the time or
times at which, Options to purchase the Company's shares of common
stock, par value $.01 per share ("Common Shares"), shall be granted,
the number of Common Shares to be subject to each Option and whether
such Options shall be ISOs or Non-Qualified Options;
(b) to interpret the Plan;
(c) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(d) to determine the terms and provisions of the respective
stock option agreements granting Options, including the date or dates
upon which Options shall become exercisable, which terms need not be
identical;
(e) to accelerate the vesting of any outstanding Options;
(f) to delegate to the Company's Chief Executive Officer
authority to take all action described under Sections 2(a), (d) and
(e) of the Plan subject to limitations to be approved in writing, in
advance, by the Committee; and
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(g) to make all other determinations and take all other
actions necessary or advisable for the administration of the Plan. In
making such determinations, the Committee may take into account the
nature of the services rendered by such individuals, their present and
potential contributions to the Company's success, and such other
factors as the Committee, in its discretion, shall deem relevant. An
individual to whom an option has been granted under the Plan is
referred to herein as an "Optionee." The Committee's determinations on
the matters referred to in this Section 2 shall be conclusive.
3. SHARES SUBJECT TO THE PLAN.
The total number of Common Shares which shall be subject to Options
granted under the Plan shall not exceed 3,000,000 subject to adjustment as
provided in Section 7 hereof. The Company shall at all times, while the Plan
is in force, reserve such number of Common Shares as will be sufficient to
satisfy the requirements of outstanding Options. The Common Shares to be
issued upon exercise of Options shall be authorized and unissued or reacquired
Common Shares held in treasury. The unexercised portion of any expired,
terminated or canceled Option shall again be available for the grant of Options
under the Plan. In addition, in no event shall any one person be granted
options for more than 500,000 Common Shares during any calendar year for which
the Plan is in effect, subject to adjustment as provided in Section 7 hereof.
4. ELIGIBILITY.
(a) Options may be granted under the Plan only to employees of the
Company, LCI or to employees of any other "subsidiary corporation" (a
"Subsidiary") of the Company within the meaning of Section 424(f) of the Code.
The term "Company," when used in context of an Optionee's employment, shall be
deemed to include Subsidiaries of the Company.
(b) Nothing contained in the Plan shall be construed to limit the
right of the Company to grant stock options otherwise than under the Plan for
proper corporate purposes.
5. TERMS OF OPTIONS.
The terms of each Option granted under the Plan shall be determined by
the Committee consistent with the provisions of the Plan, including the
following:
(a) The purchase price of the Common Shares subject to each Option
shall be fixed by the Committee, in its discretion, at the time such Option is
granted; provided that such purchase price may not be less than the Fair Market
Value (as determined in accordance with Section 5(h) hereof) of the Common
Shares as of the date of grant.
(b) The dates on which each Option (or portion thereof) shall be
exercisable shall be fixed by the Committee, in its discretion, at the time
such Option is granted.
(c) The expiration of each Option shall be fixed by the Committee, in
its discretion, at the time such Option is granted. No Option shall be
exercisable after the expiration of ten (10) years
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<PAGE> 3
from the date of its grant and each Option shall be subject to earlier
termination as determined by the Committee, in its discretion, at the time such
Option is granted.
(d) The exercise period following death, disability and termination
of employment shall be determined by the Committee, in its discretion, at the
time the option is granted.
(e) Options shall be exercised by the delivery to the Company at its
principal office or at such other address as may be established by the
Committee (Attention: Corporate Treasurer) of written notice of the number of
Common Shares with respect to which the Option is being exercised accompanied
by payment in full of the purchase price of such shares. Unless otherwise
determined by the Committee at the time of grant, payment for such shares may
be made (i) in cash, (ii) by certified check or bank cashier's check payable to
the order of the Company in the amount of such purchase price, (iii) by
delivery to the Company of Common Shares held by the Optionee for at least six
months having a Fair Market Value equal to such purchase price, (iv) by
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds necessary to pay such purchase price and to
sell the Common Shares to be issued upon exercise of the Option and deliver the
cash proceeds less commissions and brokerage fees to the Optionee or to deliver
the remaining Common Shares to the Optionee, or (v) by any combination of the
methods or payment described in (i) through (iv) above.
(f) An Optionee shall not have any of the rights of a shareholder
with respect to the Common Shares subject to his or her Option until such
shares are issued to him or her upon the exercise of his or her Option.
(g) Options shall not be transferable, except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code, and may be exercised during the lifetime of the Optionee
only by him or her. No Option granted under the Plan shall be subject to
execution, attachment or other process.
(h) For purposes of the Plan, the Fair Market Value of Common Shares
as of any date shall be deemed to be the mean between the highest and lowest
sale prices reported on the New York Stock Exchange ("NYSE"), or the principal
national securities exchange on which such Common Shares are listed and traded
on the immediately preceding date, or, if there is no such sale on that date,
then on the last preceding date on which such a sale was reported. If the
Common Shares are not quoted on the NYSE, or listed on an exchange, or
representative quotes are not otherwise available, the Fair Market Value of the
Common Shares shall mean the amount determined by the Committee to be the Fair
Market Value based upon a good faith attempt to value the Common Shares
accurately.
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6. SPECIAL PROVISIONS APPLICABLE TO ISOS.
The following special provisions shall be applicable to ISOs granted
under the Plan.
(a) No ISOs shall be granted under the Plan after ten (10) years from
the earlier of (i) the date the Plan is adopted, or (ii) the date the Plan is
approved by the shareholders of the Company.
(b) ISOs may not be granted to a person who owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company, any of its Subsidiaries, or any "parent corporation" (a "Parent") of
the Company within the meaning of Section 424(e) of the Code.
(c) If the aggregate Fair Market Value of the Common Shares with
respect to which ISOs are exercisable for the first time by any Optionee during
a calendar year (under all plans of the Company and its Parents and
Subsidiaries) exceeds $100,000, such ISOs shall be treated, to the extent of
such excess, as Non-Qualified Options. For purposes of the preceding sentence,
the Fair Market Value of the Common Shares shall be determined at the time the
ISOs covering such shares were granted.
(d) Without prior written notice to the Company, no Common Shares
acquired by an Optionee upon exercise of an ISO granted hereunder may be
disposed of by the Optionee within two (2) years from the date such ISO was
granted, nor within one (1) year after the transfer of such Common Shares to
the Optionee; provided, however, that a transfer to a trustee, receiver, or
other fiduciary in any insolvent proceeding, as described in Section 422(c)(3)
of the Code shall not be deemed to be such a disposition. If Section 422 of
the Code is amended during the term of this Plan, the Committee may modify this
Plan consistently with such amendment.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding Common Shares are changed by
reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination or exchange of shares and the
like, or dividends payable in Common Shares, an appropriate adjustment shall be
made by the Committee in the aggregate number of shares available under the
Plan, the maximum number of shares which may be granted to any one person
during any calendar year, and in the number of shares and price per share
subject to outstanding Options. If the Company shall be reorganized,
consolidated, or merged with another corporation, or if all or substantially
all of the assets of the Company shall be sold or exchanged, an Optionee shall
at the time of issuance of the stock under such corporate event be entitled to
receive upon the exercise of his Option the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the occurrence or any such corporate event as if he
had been, immediately prior to such event, the holder of the number of Common
Shares covered by his Option.
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(b) Any adjustment under this Section 7 in the number of Common
Shares subject to Options shall apply proportionately to only the unexercised
portion of any Option granted hereunder. If fractions of a share would result
from any such adjustment, the adjustment shall be revised to the next lower
whole number of shares.
8. FURTHER CONDITIONS OF EXERCISE.
(a) Unless prior to the exercise of an Option, the Common Shares
issuable upon such exercise are the subject of a registration statement filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Securities Act"), and there is then in effect a
prospectus meeting the requirements of Section 10(a)(3) of the Securities Act,
the notice of exercise with respect to such Option shall be accompanied by a
representation or agreement of the Optionee to the Company to the effect that
such shares are being acquired for investment only and not with a view to the
resale or distribution thereof, or such other documentation as may be required
by the Company, unless, in the opinion of counsel to the Company, such
representation, agreement or documentation is not necessary to comply with the
Securities Act.
(b) Anything in subparagraph (a) of this Section 8 to the contrary
notwithstanding, the Company shall not be obligated to issue or sell any Common
Shares until they have been listed on each securities exchange on which the
Common Shares may then be listed and until and unless, in the opinion of
counsel to the Company, the Company may issue such shares pursuant to the
qualification of an effective registration statement, or an exemption from
registration, under such state and federal laws, rules or regulations as such
counsel may deem applicable. The Company shall use reasonable efforts to
effect such listing, qualification and registration, as the case may be.
9. TERMINATION, MODIFICATION AND AMENDMENT.
(a) The Plan (but not Options previously granted under the Plan)
shall terminate ten (10) years from the date of its adoption by the Board of
Directors, and no Option shall be granted after termination of the Plan. Any
Option outstanding at the termination date shall remain outstanding until it
either has expired or been exercised.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the outstanding shares
of the capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time terminate
the Plan or from time to time make such modifications or amendments of the Plan
as it may deem advisable; provided, however, that the Board of Directors shall
not, without approval by the affirmative vote of the holders of a majority of
the outstanding shares of the capital stock of the Company entitled to vote
thereon, increase (except as provided in Section 7) the maximum number of
Common Shares as to which Options may be granted under the Plan or change the
class of persons eligible to receive ISOs under the Plan.
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(d) No termination, modification or amendment of the Plan may
adversely affect the rights conferred by any Options without consent of the
affected Optionee.
10. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective upon adoption by the Board of
Directors of the Company, subject to the approval by the shareholders of the
Company. Options may be granted under the Plan prior to receipt of such
approval, provided that, in the event such approval is not obtained, the Plan
and all Options granted under the Plan shall be null and void and of no force
and effect.
11. NOT A CONTRACT OF EMPLOYMENT.
Nothing contained in the Plan or in any stock option agreement
executed pursuant hereto shall be deemed to confer upon any Optionee any right
to remain in the employ of the Company or subsidiary corporation.
12. GOVERNING LAW.
The Plan shall be governed by the laws of the State of Delaware
without reference to principles of conflict of law.
13. WITHHOLDING.
As a condition to the exercise of any Option, the Committee may
require that an Optionee satisfy, through withholding from other compensation
or otherwise, the full amount of all federal, state and local income and other
taxes required to be withheld in connection with such exercise.
14. APPROVED LEAVES OF ABSENCE.
In the case of an Optionee on an approved leave of absence, the
Committee may, if it determines that to do so would be in the best interests of
the Company, provide in a specific case for continuation of the Options held by
such Optionee during such leave of absence; such continuation to be in such
terms and conditions as the Committee determines to be appropriate, except that
in no event shall an option be exercisable after ten (10) years from the date
it is granted.
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10(l)(xxii)
LCI INTERNATIONAL, INC. AND SUBSIDIARIES
EXECUTIVE INCENTIVE COMPENSATION PLAN
PURPOSE OF THE PLAN
The Corporate Incentive Compensation Plan has been established to support LCI's
objective of being a leader in the telecommunications industry, and a Company
that stresses high quality products and services, superior customer service,
and a good return on its shareholder's investment. The Plan provides quarterly
incentive awards to Executive Officers of the Company, contingent upon the
financial performance of the Company, to motivate individual and corporate
performance that will inure to the benefit of LCI's shareholders.
The Plan, as it applies to the Chief Executive Officer ("CEO"), is intended to
comply with Section 162(m) of the Internal Revenue Code. Any Plan provision
which is determined to be in conflict with this Code section shall be null and
void.
PLAN ADMINISTRATION
The Executive Incentive Compensation Plan is administered by the Compensation
Committee of the Board of Directors. The Committee establishes the performance
goals which must be met before awards are payable under this Plan, administers
the Plan in accordance with terms and conditions of the Plan, and certifies
prior to payment of any awards that the performance goals for which awards are
payable were, in fact, met.
EFFECTIVE DATE
The fiscal quarters to which this Plan applies are the three month periods
ending March 31, June 30, September 30, and December 31.
ELIGIBILITY
The Chairman and CEO, the President and Chief Operating Officer, the Senior
Vice President and Chief Financial Officer, the Senior Vice President of Sales,
and executives in comparable positions with LCI International, Inc. are
eligible to participate in the Executive Incentive Compensation Plan.
To be eligible to receive an incentive award during any given fiscal quarter, a
participant must be in an eligible position during that fiscal quarter and
remain in an eligible position until the date the awards for that fiscal
quarter are paid.
Participants who assume an eligible position after the beginning of a fiscal
quarter will be eligible to participate in the Plan during that quarter. Their
Individual Incentive Target will be pro-rated, however, to reflect the actual
number of days in that position during the quarter vs. the total number of
available work days in the quarter.
Participants who leave the Company, either on a voluntary or involuntary basis,
prior to the date awards are paid will cease to be eligible to participate in
the Plan on the effective date of their termination of employment.
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CALCULATION OF AWARDS
Each eligible participant is assigned an Individual Incentive Target for the
purpose of calculating awards under the Corporate Incentive Compensation Plan.
The targets are based on the participant's base compensation rate. The
Individual Incentive Target represents the amount a participant would receive
as an award under the Plan for the quarter if all the Company financial
performance requirements are met. The actual award amount may be higher or
lower than this amount depending on actual Company financial performance during
the quarter for which the award is calculated. For the purposes of this Plan,
neither the Individual Incentive Target nor the base compensation rate of the
Chief Executive Officer may be increased after approval of this Plan by the
Compensation Committee.
Company financial performance is measured by comparing actual financial results
for a given quarter against the financial performance goals established by the
Compensation Committee prior to the beginning of that fiscal quarter. Such
goals shall not change, as this Plan applies to the CEO. The specific financial
elements used in this comparison are: Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA); Revenue Growth; Sales, General and
Administrative Expense Controls (SG&A); and Earnings Per Share (EPS). EBITDA
accounts for 40% of overall Company performance, Revenue Growth accounts for
20%, SG&A controls account for 20%, and EPS accounts for the remaining 20%.
The Compensation Committee authorizes the payment of incentive awards following
the end of each quarter, and certifies that the performance targets for which
incentives are payable have been met.
The Compensation Committee shall have the discretion to adjust the performance
goals in the event of an acquisition, disposition, corporate restructuring,
recapitalization, or other unusual event experienced by the Company. In no
event, however, may such adjustments increase the amount of compensation
payable that would otherwise be due upon attainment of the goal.
The award level based on Company financial performance may range from 0% to
200% depending on actual results. For participants other than the CEO, after
the award level is calculated, the Compensation Committee and the CEO
subjectively evaluate such participant's contribution to the Company's
performance and the award may be adjusted upward or downward as a result
provided however, in no event shall a participant's award be more than 200% of
the applicable incentive target. The Compensation Committee reserves the right
to reduce the level of incentives payable for all participants, at their sole
discretion.
AWARD PAYMENTS
Awards shall be paid as soon as practicable following the end of the fiscal
quarter for which awards are payable.
OTHER INFORMATION
The establishment of the Corporate Incentive Compensation Plan, the payment of
any award, or any action of the Compensation Committee in connection with the
Plan shall not be held or construed to confer upon any participant any legal
right to be continued in the employ of the Company.
Any decision made or action taken by the Compensation Committee in connection
with the construction, administration, interpretation and effect of the Plan
shall be within the absolute discretion of the Compensation Committee and shall
be conclusive and binding upon all persons.
This Plan may be terminated, suspended, withdrawn, amended or modified in whole
or in part at any time.
No member of the Board of Directors or Compensation Committee shall be liable
for any act or action hereunder, whether of commission or omission, taken by
any other member, officer, agent or participant, except in circumstances
involving bad faith, for anything done or omitted to be done, by
himself/herself.
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EXHIBIT 10(s)(i)
-------------------------------------------------------------
PARTICIPATION AGREEMENT
Dated as of November 15, 1996
among
LCI INTERNATIONAL, INC.,
as the Construction Agent and as the Lessee,
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, except as expressly
stated herein, but solely as the Owner Trustee
under the Stuart Park Trust
THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE
PARTIES HERETO FROM TIME TO TIME, as the Holders
THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE
PARTIES HERETO FROM TIME TO TIME, as the Lenders
and
NATIONSBANK OF TEXAS, N.A.,
as the agent for the
Lenders
-------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
HOLDER ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY OF TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Operative Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Land Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Construction of Improvements; Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Initial Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Initial Closing Date; Land Closing Date; Construction Advances . . . . . . . . . . . . . . . . . . . 4
FUNDING OF ADVANCES; REPORTING REQUIREMENTS ON COMPLETION DATE; THE LESSEE
DELIVERY OF NOTICES; CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Procedures for Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conditions to the Holders and the Lenders Obligations to Advance Funds on
the Initial Closing Date, for the Acquisition of the Land and otherwise. . . . . . . . . . . . 6
Conditions to the Holders' and the Lender's, Obligations to Make Construction
Advances for the Ongoing Construction on the Land Prior to the Basic Term Commencement Date. . 10
Additional Reporting and Delivery Requirements on Completion Date and on Construction Period
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Construction Agent Delivery of Allocation Notice, Notice Regarding the Holder Construction
Property Cost and Construction Budget Modifications . . . . . . . . . . . . . . . . . . . . . 14
CONDITIONS OF THE INITIAL CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Conditions to the Lessor's and the Holder's, Obligations . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<TABLE>
<S> <C>
Conditions to the Lessee's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Conditions to the Obligations of the Agent and the Lenders . . . . . . . . . . . . . . . . . . . . . 19
REPRESENTATIONS AND WARRANTIES ON THE INITIAL CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . 19
Representations and Warranties of the Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Representations and Warranties of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Representations and Warranties of the Construction Agent and the Lessee . . . . . . . . . . . . . . . 25
Representations and Warranties of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
REPRESENTATIONS AND WARRANTIES ON FUNDING DATES . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Representations and Warranties on the Land Closing Date . . . . . . . . . . . . . . . . . . . . . . . 29
Representations and Warranties Upon Initial Construction Advance . . . . . . . . . . . . . . . . . . 33
Representations and Warranties Upon the Date of Each Construction Advance That Is
Not the Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
PAYMENT OF CERTAIN EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Brokers' Fees and Stamp Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Certain Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Unused Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Administrative Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
OTHER COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Cooperation with the Construction Agent or the Lessee . . . . . . . . . . . . . . . . . . . . . . . . 41
Covenants of the Owner Trustee and the Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
The Lessee Covenants, Consent and Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Sharing of Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Grant of Easements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Appointment by the Agent, the Lenders, the Holders and the Owner Trustee . . . . . . . . . . . . . . 48
Collection and Allocation of Payments and Other Amounts . . . . . . . . . . . . . . . . . . . . . . . 49
CREDIT AGREEMENT AND TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
The Construction Agent's and the Lessee's Credit Agreement Rights . . . . . . . . . . . . . . . . . . 53
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
The Construction Agent's and the Lessee's Trust Agreement Rights . . . . . . . . . . . . . . . . . . 54
TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Effect of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
General Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
No Broker, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Amendments and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
GOVERNING LAW; WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Liability Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Rights of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Calculations under Operative Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
EXHIBITS
A - Forms of Requisition - Sections 4.2 and 5.2
B - Officer's Certificate - Section 5.6
C - Legal Opinion of Lessee's Counsel - Section 6.1(c)
D - Officer's Certificate - Section 6.1(g)
E - Officer's Certificate - Section 6.1(h)
F - Officer's Certificate - Section 6.2(d)
iii
<PAGE> 5
G - Officer's Certificate - Section 6.2(e)
H - Legal Opinion of Owner Trustee's Counsel - Section 6.2(f)
I - Description of Material Litigation - Section 7.3(d)
J - Architects Certificate; Engineers Certificate - Section 5.3(q)
K - Form of Mortgage - Section 5.3(m)
L - Form of Security Agreement - Section 5.3(m)
Appendix A - Rules of Usage and Definitions
iv
<PAGE> 6
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT dated as of November 15, 1996 (as amended,
modified, extended, supplemented, restated and/or replaced from time to time,
this "Agreement") is by and among LCI INTERNATIONAL, INC., a Delaware
corporation (the "Lessee" or the "Construction Agent"); FIRST SECURITY BANK,
NATIONAL ASSOCIATION, a national banking association, not in its individual
capacity (in its individual capacity, the "Trust Company"), except as expressly
stated herein, but solely as the Owner Trustee under the Stuart Park Trust (the
"Owner Trustee", the "Borrower" or the "Lessor"); the various banks and other
lending institutions which are parties hereto from time to time as lenders
(subject to the definition of Lenders in Appendix A hereto, individually, a
"Lender" and collectively, the "Lenders"); NATIONSBANK OF TEXAS, N.A., a
national banking association ("NationsBank"), as administrative agent for the
Lenders (in such capacity, the "Agent"); the various banks and other lending
institutions which are parties hereto from time to time as holders of
certificates issued with respect to the Stuart Park Trust (subject to the
definition of Holders in Appendix A hereto, individually, a "Holder" and
collectively, the "Holders"). Capitalized terms used but not otherwise defined
in this Agreement shall have the meanings set forth in Appendix A hereto.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. THE LOANS.
The Lenders have agreed to make Loans to the Lessor from time to time
in an aggregate principal amount of up to the aggregate amount of the
Commitments of the Lenders in order for the Lessor to acquire the Land and to
develop and construct certain Improvements thereon in accordance with the
Agency Agreement and the terms and provisions hereof, and in consideration of
the receipt of proceeds of the Loans, the Lessor will issue the Notes. The
Loans shall be made and the Notes shall be issued pursuant to the Credit
Agreement. Pursuant to Section 5 of this Agreement and Section 2 of the Credit
Agreement, the Loans will be made to the Lessor from time to time at the
request of the Construction Agent
1
<PAGE> 7
in consideration for the Construction Agent agreeing for the benefit of the
Lessor, pursuant to the Agency Agreement, to acquire the Land, to acquire the
Equipment, to construct certain Improvements and to cause the Lessee to lease
the Property, each in accordance with the Agency Agreement and the other
Operative Agreements. The Loans and the obligations of the Lessor under the
Credit Agreement shall be secured by the Collateral.
2. HOLDER ADVANCES.
Subject to the terms and conditions of this Agreement and in reliance
on the representations and warranties of each of the parties hereto contained
herein or made pursuant hereto on each date Advances are made in accordance
with Section 5 hereof, each Holder shall make a Holder Advance on a pro rata
basis to the Lessor with respect to the Trust based on its Holder Commitment in
an amount in immediately available funds such that the aggregate of all Holder
Advances on such date shall be four percent (4%) of the amount of the Requested
Funds on such date (except that in each case, the Holder Advance shall be
sufficient to fund Holder Yield); provided, no Holder shall be obligated for
any Holder Advance in excess of its pro rata share of the Available Holder
Commitment. The aggregate amount of Holder Advances shall be up to the
aggregate amount of the Holder Commitments. No prepayment or any other payment
with respect to any Advance shall be permitted such that the Holder Advance
with respect to such Advance is less than four percent (4%) of the outstanding
amount of such Advance, except in connection with termination or expiration of
the Term or in connection with the exercise of remedies relating to the
occurrence of a Lease Event of Default. The representations, warranties,
covenants and agreements of the Holders herein and in the other Operative
Agreements are several, and not joint or joint and several.
3. SUMMARY OF TRANSACTIONS.
3.1. Operative Agreements. On the date hereof, each of the
respective parties hereto and thereto shall execute and deliver this Agreement,
the Lease, the Agency Agreement, the Credit Agreement, the Notes, the
Certificates, the Trust Agreement, the Security Agreement, the Mortgage
Instrument, the Guaranty, and
2
<PAGE> 8
such other documents, instruments, certificates and opinions of counsel as
agreed to by the parties hereto.
3.2. Land Purchase. On the Land Closing Date and subject
to the terms and conditions of this Agreement (a) the Holders will each make a
Holder Advance in accordance with Sections 2 and 5 of this Agreement and the
terms and provisions of the Trust Agreement, (b) the Lenders will each make
Loans in accordance with Sections 1 and 5 of this Agreement and the terms and
provisions of the Credit Agreement, and (c) the Lessor will purchase and
acquire good and marketable title to the Land or portion thereof, identified by
the Construction Agent, in each case pursuant to a Deed and/or Bill of Sale, as
the case may be, and grant the Agent a lien on the Property (including the
Land) or such portion thereof by execution of the required Security Documents.
3.3. Construction of Improvements; Lease. Subject to the
provisions of Section 5.4 hereof, the Holders will each make Holder Advances
and the Lenders will make Loans, to be made as Construction Advances with
respect to particular Improvements to be constructed and with respect to
ongoing Work regarding the Equipment and construction of particular
Improvements, in each case, pursuant to the terms and conditions of this
Agreement and the Agency Agreement. The Construction Agent will act as a
construction agent on behalf of the Lessor respecting the Work, regarding the
Equipment, the construction of such Improvements and the expenditures of the
Construction Advances related to the foregoing. The Construction Agent shall
promptly notify the Lessor upon Completion of the Improvements and, on or
before the Construction Period Termination Date, the Lessee and the Lessor
shall execute and record a Lease Supplement relating to the Property specifying
the Basic Term Commencement Date whereupon the Basic Term shall commence with
respect to the Property.
4. THE CLOSINGS.
4.1. Initial Closing Date. All documents and instruments
required to be delivered on the Initial Closing Date shall be delivered at the
offices of Kennedy Covington Lobdell & Hickman, LLP, Charlotte, North Carolina,
or at such other location as may be determined by the Lessor and the Agent.
3
<PAGE> 9
4.2. Initial Closing Date; Land Closing Date; Construction
Advances. The Construction Agent shall deliver to the Lessor and the Agent a
requisition (a "Requisition"), substantially in the form attached hereto as
Exhibit A or in such other form as is reasonably satisfactory to the Lessor and
the Agent, in connection with (a) the Initial Closing Date relating to the
Transaction Expenses and other fees, expenses and disbursements payable,
pursuant to Section 9.1(a), by the Lessor and (b) the Land Closing Date
relating to an Acquisition Advance pursuant to Section 5.3 and (c) each date of
a Construction Advance pursuant to Section 5.4.
5. FUNDING OF ADVANCES; REPORTING REQUIREMENTS ON
COMPLETION DATE; THE LESSEE DELIVERY OF NOTICES; CERTAIN COVENANTS.
5.1. General. To the extent funds have been advanced to
the Lessor as Loans by the Lenders and as Holder Advances by the Holders, the
Lessor will use such funds from time to time in accordance with the terms and
conditions of this Agreement and the other Operative Agreements (i) to pay
interest on the Loans relating to the Property and to pay the Holder Yield on
the Holder Advances relating to the Property, in each case to the extent
accrued under the Credit Agreement or Trust Agreement (as the case may be)
during the period prior to the Basic Term Commencement Date with respect to the
Property, (ii) at the direction of the Construction Agent to acquire the Land
or any portion thereof in accordance with the terms of this Agreement, the
Agency Agreement and the other Operative Agreements, (iii) to make Advances to
the Construction Agent to permit it to pay, or to reimburse the Construction
Agent for paying, the costs of the acquisition, testing, engineering,
installation, development, construction, modification, design, and renovation,
as applicable, of the Property (or any portion thereof) in accordance with the
terms of the Agency Agreement, and the other Operative Agreements, and (iv) to
pay Transaction Expenses, fees, expenses and other disbursements payable by the
Lessor under Sections 9.1(a) and (b).
5.2. Procedures for Funding.
(a) The Construction Agent shall designate the date for
Advances hereunder in accordance with the terms and provisions
4
<PAGE> 10
hereof; provided, however, it is understood and agreed that no more than one
(1) Construction Advance may be requested during any calendar month. Not less
than (i) three (3) Business Days prior to the Initial Closing Date and (ii)
three (3) Business Days prior to the date on which any Construction or
Acquisition Advance is to be made, the Construction Agent shall deliver to the
Agent, (A) with respect to the Initial Closing Date and each Acquisition
Advance, a Requisition as described in Section 4.2 hereof (including without
limitation a legal description of the Land, a schedule of the Improvements, if
any, and a schedule of the Equipment, if any, acquired or to be acquired on
such date, and a schedule of the Work, if any, to be performed, each of the
foregoing in such detail as may be requested by the Agent and in a form
reasonably acceptable to the Agent) and (B) with respect to each Construction
Advance, a Requisition.
(b) Each Requisition shall: (i) be irrevocable, (ii)
request funds in an amount that is not in excess of the total aggregate of the
Available Commitments plus the Available Holder Commitments at such time, and
(iii) request that the Holders make Holder Advances and that the Lenders make
Loans to the Lessor for the payment of the Land Acquisition Costs (in the case
of an Acquisition Advance) or other Property Costs (in the case of a
Construction Advance) that have previously been incurred or are then payable
and were not subject to a prior Requisition, in each case as specified in the
Requisition.
(c) Subject to the satisfaction of the conditions
precedent set forth in Sections 5.3, 5.4 or 5.5, as applicable, on the Land
Closing Date or the date on which the Construction Advance is to be made, as
applicable, (i) the Lenders shall make Loans to the Lessor in an aggregate
amount equal to ninety-six percent (96%) of the Requested Funds specified in
any Requisition (except that in each case the Loans shall be sufficient to pay
interest then due and owing on the Loans), up to an aggregate principal amount
equal to the Available Commitments, (ii) each Holder shall make a pro rata
Holder Advance based on its Holder Commitment in an amount such that the
aggregate of all Holder Advances at such time shall be four percent (4%) of the
balance of the Requested Funds specified in such Requisition (except that in
each case the Holder Advance shall be sufficient to fund Holder Yield),
provided, no such Holder Advance shall exceed such Holder's pro rata share of
5
<PAGE> 11
the Available Holder Commitments; and (iii) the total amount of such Loans and
Holder Advances made on such date shall (x) be used by the Lessor to pay or to
reimburse the Construction Agent for payment of the Budgeted Total Property
Cost and Transaction Expenses within three (3) Business Days of the receipt by
the Lessor of such Advance, (y) be used by the Lessor on the date of such
Advance to pay interest on the Loans relating to the Property and to pay the
Holder Yield on the Holder Advances relating to the Property, in each case to
the extent accrued under the Credit Agreement or Trust Agreement (as the case
may be) during the period prior to the Basic Term Commencement Date with
respect to the Property, or (z) be advanced by the Lessor on the date of such
Advance to the Construction Agent or the Lessee to pay or reimburse either of
them for paying the Budgeted Total Property Cost and Transaction Expenses, as
applicable.
(d) With respect to an Advance obtained by the Lessor to
pay for Land and related Transaction Expenses and not expended by the Lessor
for such purpose on the date of such Advance, such amounts shall be held by the
Lessor (or the Agent on behalf of the Lessor) until the Land Closing Date or,
if such Land Closing Date does not occur within three (3) Business Days of the
date of the Lessor's receipt of such Advance, shall be applied to repay the
Lenders and the Holders and, subject to the terms hereof, and of the Credit
Agreement and the Trust Agreement, shall remain available for future Advances.
Any such amounts held by the Lessor (or the Agent on behalf of the Lessor)
shall be subject to the lien of the Security Agreement.
(e) All items described in Sections 5.3, 5.4 or 5.5 which
are to be delivered to the Lessor shall be delivered to Kennedy Covington
Lobdell & Hickman, LLP, on behalf of and as counsel for the Lessor.
5.3. Conditions to the Holders and the Lenders Obligations
to Advance Funds on the Initial Closing Date, for the Acquisition of the Land
and otherwise. The obligations of the Holders to make Holder Advances, and of
the Lenders to make Loans to the Lessor, (i) on the Initial Closing Date to pay
Transaction Expenses, fees, expenses and other disbursements payable by the
Lessor under Section 9.1(a) of this Agreement and (ii) on the Land Closing Date
for the purpose of providing funds to the Lessor necessary to pay
6
<PAGE> 12
the Transaction Expenses, fees, expenses and other disbursements payable by the
Lessor under Section 9.1(b) of this Agreement and to acquire the Land or any
portion thereof (an "Acquisition Advance") in each case are subject to the
satisfaction or waiver of the following conditions precedent on or prior to
such date respecting the Land (or portion thereof) to be acquired at such time
and all portions of the Land previously acquired (to the extent such conditions
precedent require the delivery of any agreement, certificate, instrument,
memorandum, legal or other opinion, appraisal, commitment, title insurance
commitment, lien report or any other document of any kind or type, such shall
be in form and substance reasonably satisfactory to the Agent, the Holders and
the Lessor):
(a) the correctness in all material respects of
the representations and warranties (including without limitation the
Incorporated Representations and Warranties) on each such date of the
Construction Agent and the Lessee contained herein and in each of the
other Operative Agreements;
(b) [INTENTIONALLY OMITTED]
(c) the Lessor shall have received a fully
executed counterpart copy of the Requisition, appropriately completed;
(d) title to the Land and any existing
Improvements (or each such portion thereof) shall conform to the
representations and warranties set forth in Section 8.1(c) hereof;
(e) the Construction Agent shall have delivered
to the Lessor the Deed with respect to the Land and existing
Improvements (if any) and a copy of the Bill of Sale with respect to
the Equipment (if any), respecting such of the foregoing as are being
acquired on each such date or which have been previously acquired;
(f) there shall not have occurred and be
continuing any Default or Event of Default under any of the Operative
Agreements and no Default or Event of Default under any of the
Operative Agreements will have occurred after giving effect to the
Advance requested by such Requisition;
7
<PAGE> 13
(g) the Construction Agent shall have delivered
to the Lessor title insurance commitments to issue policies respecting
the Land (or such portion thereof) in favor of the Lessor, the Agent
and the Holders from a title insurance company acceptable to the
Lessor, the Agent and the Holders subject to the Permitted Exceptions
with such other title exceptions thereto as are reasonably acceptable
to the Lessor and the Agent;
(h) the Construction Agent shall have delivered
to the Lessor an environmental site assessment respecting the Land (or
such portion thereof) prepared by a licensed professional engineer
reasonably acceptable to the Lessor and the Agent;
(i) the Construction Agent shall have delivered
to the Lessor a survey (with a flood hazard certification) respecting
the Land (or such portion thereof) prepared by an independent
recognized professional acceptable to the Lessor, the Agent and the
Holders;
(j) the Construction Agent shall have caused to
be delivered to the Lessor a legal opinion, addressed to the Lessor,
the Agent, the Lenders and the Holders, from counsel located in the
state where the Land is located substantially in the form attached as
Exhibit C hereto;
(k) [INTENTIONALLY OMITTED]
(l) the Construction Agent shall have delivered
to the Lessor, respecting the Land, invoices for the various
Transaction Expenses and other fees, expenses and disbursements
referenced in Sections 9.1(a) or (b) of this Agreement, as appropriate
to the extent not otherwise included on the Requisition referenced in
the foregoing Section 5.3(c);
(m) the Construction Agent shall have caused to
be delivered to the Lessor and there shall have been recorded (to the
extent required) by the Agent a Mortgage Instrument (substantially in
the form of Exhibit K hereto), the Security Agreement (substantially
in the form of Exhibit L hereto),
8
<PAGE> 14
and Lender Financing Statements respecting the Property and all
necessary recording fees, documentary stamp taxes and similar amounts
shall have been paid by the Construction Agent;
(n) the Lessee and the Lessor shall have executed
and delivered a memorandum regarding the Lease (such memorandum to be
substantially in the form attached to the Lease as Exhibit B and in
form suitable for recording);
(o) the Construction Agent shall have delivered
to the Lessor to the extent required and/or applicable, the Lessor
Financing Statements executed by the Lessee and the Lessor;
(p) with respect to each Acquisition Advance, the
sum of the Available Commitments of all Lenders plus the Available
Holder Commitment (after deducting the Unfunded Amount and after
giving effect to the Acquisition Advance) will be sufficient to pay
all amounts payable therefrom and to pay interest on the Loans and the
Holder Yield on the Holder Advances relating to the Property to the
extent accrued under the Credit Agreement and the Trust Agreement, as
the case may be, during the period prior to the Basic Term
Commencement Date;
(q) the Construction Agent shall have delivered
to the Lessor an Architects Certificate and Engineers Certificate
substantially in the form attached hereto as Exhibit J;
(r) INTENTIONALLY OMITTED;
(s) the Construction Agent shall have delivered
to the Lessor a preliminary construction budget (the "Construction
Budget") for the Improvements to be constructed on the Land;
(t) the Construction Agent shall have provided
evidence to the Lessor of general and excess liability insurance with
respect to the Property (including the Land) as provided in the Lease;
(u) the Construction Agent shall have caused an
Appraisal regarding the Land and the Property as a fully
9
<PAGE> 15
developed and completed base to be provided to the Lessor from an
appraiser selected by the Agent and the Holders in accordance with the
terms of the Lease;
(v) Lessee shall have certified to the Lessor,
the Agent, the Lenders and the Holders that all necessary (or in the
reasonable opinion of the Lessor, the Agent, the Holders, or their
respective counsel, advisable) Governmental Actions with respect to
the Property or the Lessee, in each case required by any law or
regulation enacted, imposed or adopted on or prior to each such date
or by any change in facts or circumstances on or prior to each such
date, shall have been obtained or made and be in full force and
effect;
(w) the Construction Agent shall cause (i)
Uniform Commercial Code lien searches, tax lien searches and judgment
lien searches regarding each of the Lessee and the Lessor to be
conducted (and copies thereof to be delivered to the Lessor) in
Virginia, Utah and (with respect to the Lessee only) Delaware by the
title insurance company providing the title insurance on the Property
or a search company reasonably acceptable to the Lessor and the Agent
and (ii) the liens referenced in such lien searches which are
objectionable to the Lessor or the Agent to be either removed or
otherwise handled in a manner satisfactory to the Lessor and the Agent
and the Holders; and
(x) each of the conditions set forth in Section
6.1 shall have been satisfied or waived by the Lessor and the Agent.
5.4. Conditions to the Holders' and the Lender's,
Obligations to Make Construction Advances for the Ongoing Construction on the
Land Prior to the Basic Term Commencement Date. The obligations of the Holders
to make Holder Advances, and the Lenders to make Loans, to the Lessor, (i) in
connection with all requests for Advances subsequent to the acquisition of the
Land (or any portion thereof) (and to pay the Transaction Expenses, fees,
expenses and other disbursements payable by the Lessor under Section 9.1 of
this Agreement in connection therewith) and, (ii) to pay the Holder Yield on
the Holder Advances relating to the Property and interest regarding the Loans
10
<PAGE> 16
relating to the Property, in each case regarding such Holder Yield and Interest
to the extent accrued and payable under the Trust Agreement or Credit Agreement
(as the case may be), during the period prior to the Basic Term Commencement
Date with respect to the Property, are subject to the satisfaction or waiver of
the following conditions precedent (to the extent such conditions precedent
require the delivery of any agreement, certificate, instrument, memorandum,
legal or other opinion, appraisal, commitment, title insurance commitment, lien
report or any other document of any kind of type, such shall be in form and
substance reasonably satisfactory to the Agent and the Lessor):
(a) the correctness in all material respects on
such date of the representations and warranties (including without
limitation the Incorporated Representations and Warranties) of the
Construction Agent and the Lessee contained herein and in each of the
other Operative Agreements;
(b) [INTENTIONALLY OMITTED]
(c) the Lessor shall have received a fully
executed counterpart of the Requisition, appropriately completed;
(d) based upon the applicable Construction Budget
which shall satisfy the requirements of this Agreement, the Available
Commitments and the Available Holder Commitment (after deducting the
Unfunded Amount) will be sufficient to complete the Improvements;
(e) there shall not have occurred and be
continuing any Default or Event of Default under any of the Operative
Agreements and no Default or Event of Default under any of the
Operative Agreements will have occurred after giving effect to the
Construction Advance requested by such Requisition;
(f) the title insurance policy delivered in
connection with the requirements of Section 5.3(g) shall provide for
(or shall be endorsed to provide for) insurance in an amount at least
equal to the maximum total Property Cost indicated by the Construction
Budget referred to in subparagraph (d) above
11
<PAGE> 17
and there shall be no title change or exception objectionable to the
Lessor, the Agent or the Holders;
(g) the Construction Agent shall have delivered
to the Lessor copies of the Plans and Specifications for the
applicable Improvements;
(h) the Construction Agent shall have delivered
to the Lessor invoices for any Transaction Expenses and other fees,
expenses and disbursements referenced in Section 9.1 that are to be
paid with the Advance;
(i) all consents, licenses, permits,
authorizations, assignments and building permits required as of such
date by all material Legal Requirements or pursuant to the terms of
any contract, indenture, instrument or agreement for the acquisition,
ownership, construction, completion, occupancy, operation, leasing or
subleasing of the Property have been obtained and are in full force
and effect, except to the extent that the failure to so obtain any
such item would not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect;
(j) the Construction Agent shall have delivered,
or caused to be delivered, invoices, Bills of Sale or other documents
reasonably acceptable to the Agent, the Holder and the Lessor in each
case with regard to any Equipment or other components of the Property
and naming the Lessor as purchaser and transferee;
(k) the Construction Agent shall have delivered
to the Lessor with respect to the acquisition of personal property
and/or fixtures and/or Equipment Lessor Financing Statements executed
by the Lessee and the Lessor; and
(l) the Construction Agent shall affirmatively
represent and warrant that (i) no event has occurred as described in
Sections 3.3(i) or (ii) of the Agency Agreement that would cause the
Property not to be completed by the Construction Period Termination
Date, (ii) the Property will be completed by the Construction Period
Termination Date, and (iii) the cost to complete the Property, and pay
all
12
<PAGE> 18
Transaction Expenses will not exceed the aggregate amount of remaining
funds available pursuant to the Holder Commitments and the Lender
Commitments.
5.5. Additional Reporting and Delivery Requirements on
Completion Date and on Construction Period Termination Date. On or prior to
the Completion Date for the Property, the Construction Agent shall deliver to
the Lessor an Officer's Certificate in the form attached hereto as Exhibit B
specifying (a) the address for the Property, (b) the Completion Date for the
Property, (c) the aggregate Property Cost for the Property (to the extent not
delivered with a Requisition), (d) detailed, itemized documentation supporting
the asserted Property Cost figures, (e) all Equipment (if any) has been
acquired and installed and such is operational and all Improvements have been
made in accordance with all applicable material Legal Requirements in a good
and workmanlike manner in accordance with the Plans and Specifications (except
to the extent that any deviation from the Plans and Specifications could not
reasonably be expected to materially impair the value, utility, economic life
or operation of the Property) and otherwise in full compliance with the
standards and practices of the Construction Agent with respect to equipment,
properties and improvements owned by the Construction Agent and (f) all
consents, licenses, permits, authorizations, assignments and building permits
required as of such date by all material Legal Requirements or pursuant to the
terms of any contract, indenture, instrument or agreement for the acquisition,
ownership, construction, completion, occupancy, operation, leasing or
subleasing of the Property have been obtained and are in full force and effect,
except to the extent that the failure to so obtain would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
The Lessor and the Agent shall have the right to contest the information
contained in such Officer's Certificate. Furthermore, on or prior to
Completion Date for the Property, the Construction Agent shall deliver or cause
to be delivered to the Lessor (unless previously delivered to the Lessor)
originals of the following, each of which shall be in form reasonably
acceptable to the Lessor and the Agent: (u) an as-built survey for the
Property; (v) insurance certificates respecting the Property as required
hereunder and under the Lease Agreement; (w) a Lease Supplement specify the
Basic Term Commencement Date (in form suitable for recording), and
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(x) if requested by the Lessor, the Agent or the Holders, amendments to the
Lessor Financing Statements executed by the appropriate parties. In addition,
on the Completion Date for the Property the Construction Agent covenants and
agrees that the recording fees, documentary stamp taxes or similar amounts
required to be paid in connection with the related Mortgage Instrument shall be
paid in an amount required by applicable law.
5.6. The Construction Agent Delivery of Allocation Notice,
Notice Regarding the Holder Construction Property Cost and Construction Budget
Modifications. The Construction Agent covenants and agrees to deliver (a) to
the Lessor, the Agent and the Holders each month during the Commitment Period
the Allocation Notice referred to in the first sentence of Section 2.3(b) of
the Credit Agreement, and a notice specifying the Holder Property Cost and (b)
to the Lessor, the Agent and the Holders each month notification of any
modification to any Construction Budget regarding the Property if such
modification increases the cost to construct the Property; provided, no
Construction Budget may be increased unless (x) the title insurance policies
referenced in Section 5.3(g) are also modified or endorsed, if necessary, to
provide for insurance in an amount that satisfies the requirements of Section
5.4 (f) of this Agreement, and (y) after giving effect to any such amendment
the Construction Budget remains in compliance with the requirements of Section
5.4(d) of this Agreement.
6. CONDITIONS OF THE INITIAL CLOSING.
6.1. Conditions to the Lessor's and the Holder's,
Obligations. The obligations of the Lessor and the Holders to consummate the
transactions contemplated by this Agreement, including without limitation the
obligation to execute and deliver the applicable Operative Agreements to which
each is a party on the Initial Closing Date, are subject to (i) the accuracy
and correctness on the Initial Closing Date of the representations and
warranties in all material respects of the other parties hereto contained
herein, (ii) the accuracy and correctness in all material respects on the
Initial Closing Date of the representations and warranties of the other parties
hereto contained in any other Operative Agreement or certificate delivered
pursuant hereto or thereto, (iii) the performance by the
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<PAGE> 20
other parties hereto of their respective agreements contained herein and in the
other Operative Agreements and to be performed by them on or prior to the
Initial Closing Date and (iv) the satisfaction or waiver by the Lessor and the
Holders of all of the following conditions on or prior to the Initial Closing
Date (all items described in this Section 6.1 which are stated to be delivered
to the Lessor, the Agent, the Lenders or the Holders shall, in fact, be
delivered to Kennedy Covington Lobdell & Hickman, LLP, on behalf of and as
counsel to each such Party.):
(a) Each of the Operative Agreements to be
entered into on the Initial Closing Date shall have been duly
authorized, executed and delivered by the parties thereto, other than
the Lessor, and shall be in full force and effect, and no Default or
Event of Default shall exist thereunder (both before and after giving
effect to the transactions contemplated by the Operative Agreements),
and the Lessor shall have received a fully executed copy of each of
the Operative Agreements (other than the Notes and the Guaranty of
which it shall have received specimens). The Operative Agreements (or
memoranda thereof), any supplements thereto and any financing
statements and fixture filings in connection therewith required under
the Uniform Commercial Code shall have been filed or shall be promptly
filed, if necessary, in such manner as to enable the Lessee's counsel
to render its opinion referred to in Section 6.1(c) hereof;
(b) All taxes, fees and other charges in
connection with the execution, delivery, recording, filing and
registration of the Operative Agreements shall have been paid or
provisions for such payment shall have been made to the satisfaction
of the Lessor and the Agent;
(c) Counsel for the Lessee acceptable to the
other parties hereto shall have issued to the Lessor, the Agent, the
Lenders and the Holders its opinion in the form attached hereto as
Exhibit C or in such other form as is reasonably acceptable to such
parties;
(d) All necessary (or in the reasonable opinion
of the Lessor, the Agent, the Holders or their respective counsel,
advisable) Governmental Actions, in each case required on or
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<PAGE> 21
prior to the date hereof or by any change in fact or circumstances on
or prior to the date hereof, shall have been obtained or made and be
in full force and effect or if such Governmental Actions have not been
obtained or made, the failure to obtain or make such Governmental
Action shall not have a Material Adverse Effect;
(e) No action or proceeding shall have been
instituted, nor shall any action or proceeding be overtly threatened,
before any Governmental Authority, nor shall any order, judgment or
decree have been issued or proposed to be issued by any Governmental
Authority or to set aside, restrain, enjoin or prevent the full
performance of this Agreement, any other Operative Agreement or any
transaction contemplated hereby or thereby which is reasonably likely
to have a Material Adverse Effect;
(f) In the reasonable opinion of the Lessor, the
Agent, the Holders and their respective counsel, the transactions
contemplated by the Operative Agreements do not and will not violate
any Legal Requirements and do not and will not subject the Lessor, the
Lenders, the Agent or the Holders to any adverse regulatory
prohibitions, constraints, penalties or fines;
(g) The Lessor, the Agent and the Holders shall
each have received an Officer's Certificate, dated as of the Initial
Closing Date, of the Lessee in the form attached hereto as Exhibit D
or in such other form as is reasonably acceptable to such parties
stating that (i) each and every representation and warranty of the
Lessee contained in the Operative Agreements to which it is a party is
true and correct in all material respects on and as of the Initial
Closing Date; (ii) no Default or Event of Default has occurred and is
continuing under any Operative Agreement; (iii) each Operative
Agreement to which the Lessee is a party is in full force and effect
with respect to it; and (iv) the Lessee has performed and complied
with all covenants, agreements and conditions contained herein or in
any Operative Agreement required to be performed or complied with by
it on or prior to the Initial Closing Date;
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(h) The Lessor, the Agent and the Holders shall
each have received (i) a certificate of the Secretary or an Assistant
Secretary of the Lessee in the form attached hereto as Exhibit E or in
such other form as is reasonably acceptable to such parties attaching
and certifying as to (1) the resolutions of its Board of Directors
duly authorizing the execution, delivery and performance by the Lessee
of each of the Operative Agreements to which it is or will be a party,
(2) its certificate of incorporation certified as of a recent date by
the Secretary of State of the State of Delaware and its by-laws and
(3) the incumbency and signature of persons authorized to execute and
deliver on its behalf the Operative Agreements to which it is a party
and (ii) a good standing certificate from the appropriate officer of
the State of Delaware as to its good standing in such state; and
(i) As of the Initial Closing Date, there shall
not have occurred any material adverse change in the consolidated
assets, liabilities, operations, business or financial condition of
the Lessee from that set forth in the audited financial statements of
the Lessee dated December 31, 1995.
6.2. Conditions to the Lessee's Obligations. The
obligation of the Lessee to consummate the transactions contemplated by this
Agreement, including without limitation the obligation to execute and deliver
the Operative Agreements to which it is a party on the Initial Closing Date, is
subject to (i) the accuracy and correctness on the Initial Closing Date of the
representations and warranties of the other parties hereto contained herein,
(ii) the accuracy and correctness on the Initial Closing Date of the
representations and warranties of the other parties hereto contained in any
other Operative Agreement or certificate delivered pursuant hereto or thereto,
(iii) the performance by the other parties hereto of their respective
agreements contained herein and in the other Operative Agreements, in each case
to be performed by them on or prior to the Initial Closing Date, and (iv) the
satisfaction or waiver by the Lessee of all of the following conditions on or
prior to the Initial Closing Date:
(a) In the reasonable opinion of the Lessee and
its counsel, the transactions contemplated by the Operative Agreements
do not and will not violate any material Legal
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<PAGE> 23
Requirements and do not and will not subject the Lessee to any adverse
regulatory prohibitions or constraints;
(b) No action or proceeding shall have been
instituted nor shall any action or proceeding be threatened, before
any Governmental Authority, nor shall any order, judgment or decree
have been issued or proposed to be issued by any Governmental
Authority, to set aside, restrain, enjoin or prevent the full
performance of this Agreement, any other Operative Agreement or any
transaction contemplated hereby or thereby which is reasonably likely
to have a Material Adverse Effect;
(c) Each of the Operative Agreements to be
entered into on the Initial Closing Date shall have been duly
authorized, executed and delivered by the parties thereto, other than
the Lessee, and shall be in full force and effect, and the Lessee
shall have received a fully executed copy of each of the Operative
Agreements;
(d) The Lessee, the Agent and the Holders shall
have received an Officer's Certificate of the Lessor dated as of the
Initial Closing Date in the form attached hereto as Exhibit F or in
such other form as is reasonably acceptable to the Lessee, the Agent
and the Holders, stating that (i) each and every representation and
warranty of the Lessor contained in the Operative Agreements to which
it is a party is true and correct on and as of the Initial Closing
Date; (ii) each Operative Agreement to which the Lessor is a party is
in full force and effect with respect to it, and (iii) the Lessor has
duly performed and complied with all covenants, agreements and
conditions contained herein or in any Operative Agreement required to
be performed or complied with by it on or prior to the Initial Closing
Date;
(e) The Lessee, the Agent and the Holders shall
have received (i) a certificate of the Secretary, an Assistant
Secretary, Trust Officer or Vice President of the Trust Company in the
form attached hereto as Exhibit G or in such other form as is
reasonably acceptable to the Lessee, the Agent and the Holders,
attaching and certifying as to (A) the signing resolutions duly
authorizing the execution, delivery
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<PAGE> 24
and performance by the Lessor of each of the Operative Agreements to
which it is or will be a party, (B) its articles of association or
other equivalent charter documents and its by-laws, as the case may
be, certified as of a recent date by an appropriate officer of the
Trust Company and (C) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative
Agreements to which it is a party and (ii) a good standing certificate
from the office of the Comptroller of the Currency; and
(f) Counsel for the Lessor acceptable to the
other parties hereto shall have issued to the Lessee, the Holders, the
Lenders and the Agent its opinion in the form attached hereto as
Exhibit H or in such other form as is reasonably acceptable to such
parties.
6.3. Conditions to the Obligations of the Agent and the
Lenders. The obligations of the Agent and the Lenders to consummate the
transactions contemplated by this Agreement, including without limitation the
obligation to execute and deliver each of the Operative Agreements to which any
such entity is a party on the Initial Closing Date, is subject to (i) the
accuracy and correctness on the Initial Closing Date of the representations and
warranties of the other parties hereto contained herein, (ii) the accuracy and
correctness on the Initial Closing Date of the representations and warranties
of the other parties hereto contained in any other Operative Agreement or
certificate delivered pursuant hereto or thereto, (iii) the performance by the
other parties hereto of their respective agreements contained herein and in the
other Operative Agreements, in each case to be performed by them on or prior to
the Initial Closing Date, and (iv) the receipt by the Agent of the items
required to be delivered to the Agent pursuant to this Section 6.
7. REPRESENTATIONS AND WARRANTIES ON THE INITIAL CLOSING
DATE.
7.1. Representations and Warranties of the Holders.
Effective as of the Initial Closing Date, each Holder severally as to itself,
and not jointly, represents and warrants to each of the other parties hereto
that:
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<PAGE> 25
(a) It is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation and
has the power and authority to carry on its business as now conducted
and to enter into and perform its obligations under each Operative
Agreement to which it is or is to be a party and each other agreement,
instrument and document to be executed and delivered by it on or
before each Closing Date in connection with or as contemplated by each
such Operative Agreement to which it is or will be a party;
(b) The execution, delivery and performance of
each Operative Agreement to which it is or will be a party have been
duly authorized by all necessary action on its part and neither the
execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of
the terms and provisions thereof (i) requires or will require any
approval of stockholders of, or approval or consent of any trustee or
holder of any indebtedness or obligations of, such Holder which have
not been obtained, (ii) contravenes or will contravene any Legal
Requirement applicable to or binding on it (except no representation
or warranty is made as to any Legal Requirement to which it may be
subject solely as a result of the activities of the Lessee) as of the
date hereof, (iii) contravenes or will contravene or result in any
breach of or constitute any default under, or result in the creation
of any Lien upon the Property, any Equipment or any of the
Improvements (other than Liens created by the Operative Agreements)
under its certificate of incorporation or other equivalent charter
documents, as the case may be, by-laws or any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, bank loan
or credit agreement or other agreement or instrument to which it is a
party or by which it or its properties is bound or affected or (iv)
does or will require any Governmental Action by any Governmental
Authority (other than arising solely by reason of the business,
condition or activities of the Lessee or any Affiliate thereof or the
construction or use of the Property, the Equipment or the
Improvements);
(c) Each Operative Agreement to which it is or
will be a party has been, or will be, duly executed and delivered by
20
<PAGE> 26
it and constitutes, or upon execution and delivery will constitute, a
legal, valid and binding obligation enforceable against it in
accordance with the terms thereof;
(d) There is no action or proceeding pending or,
to its knowledge, threatened against it before any Governmental
Authority that questions the validity or enforceability of any
Operative Agreement to which it is or will become a party or that, if
adversely determined, would materially and adversely affect its
ability to perform its obligations under the Operative Agreements to
which it is a party;
(e) It has not assigned or transferred any of its
right, title or interest in or under the Lease except in accordance
with the Operative Agreements;
(f) No Default or Event of Default under the
Operative Agreements attributable to it has occurred and is
continuing;
(g) It is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a
"holding company, or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended, or a "public
utility, within the meaning of the Federal Power Act, as amended. It
is not an "investment company" or a company controlled by an
"investment company" within the meaning of the Investment Company Act
or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended;
(h) Except as otherwise contemplated by the
Operative Agreements, it shall not, nor shall it direct the Lessor to,
use the proceeds of any Loan or Holder Advance for any purpose other
than the purchase of the Land (or any part thereof), the acquisition
and installation of the Equipment, the construction of Improvements,
the payment of the Transaction Expenses and the fees, expenses and
other disbursements referenced in Section 9.1 of this Agreement and
the payment of the interest on the Loans and the Holder Yield on the
Holder Advances which accrues prior to the Basic Term Commencement
Date with respect to the Property; and
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(i) It is acquiring its Certificate(s) and
interest in the Trust Estate for its own account for investment and
not with a view to any distribution (as such term is used in Section
2(11) of the Securities Act) thereof, and if in the future it should
decide to dispose of its interest in the Trust Estate, it understands
that it may do so only in compliance with the Securities Act and the
rules and regulations of the Securities and Exchange Commission
thereunder and any applicable state securities laws. Neither it nor
anyone authorized to act on its behalf has taken or will take any
action which would subject the issuance or sale of the Certificate(s)
or any interest in the Property, the Trust Estate or the Lease to the
registration requirements of Section 5 of the Securities Act. No
representation or warranty contained in this Section 7.1(i) shall
include or cover any action or inaction of the Lessee or any Affiliate
thereof whether or not purportedly on behalf of the Holders, the
Borrower or any of their Affiliates.
7.2. Representations and Warranties of the Borrower.
Effective as of the Initial Closing Date, the Trust Company in its individual
capacity and as the Borrower, as indicated, represents and warrants to each of
the other parties hereto as follows, provided, that the representations in the
following paragraphs (h), (i), (j) and (k) are made solely in its capacity as
the Borrower:
(a) It is a national banking association and is
duly organized and validly existing and in good standing under the
laws of the United States of America and has the power and authority
to enter into and perform its obligations under the Trust Agreement
and (assuming due authorization, execution and delivery of the Trust
Agreement by the Holders) has the corporate and trust power and
authority to act as the Owner Trustee and to enter into and perform
the obligations under each of the other Operative Agreements to which
the Trust Company or the Owner Trustee, as the case may be, is or will
be a party and each other agreement, instrument and document to be
executed and delivered by it on or before such Closing Date in
connection with or as contemplated by each such Operative Agreement to
which the Trust Company or the Owner Trustee, as the case may be, is
or will be a party;
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(b) The execution, delivery and performance of
each Operative Agreement to which it is or will be a party, either in
its individual capacity or (assuming due authorization, execution and
delivery of the Trust Agreement by the Holders) as the Owner Trustee,
as the case may be, has been duly authorized by all necessary action
on its part and neither the execution and delivery thereof, nor the
consummation of the transactions contemplated thereby, nor compliance
by it with any of the terms and provisions thereof (i) does or will
require any approval or consent of any trustee or holders of any of
its indebtedness or obligations, (ii) does or will contravene any
Legal Requirement relating to its banking or trust powers, (iii) does
or will contravene or result in any breach of or constitute any
default under, or result in the creation of any Lien upon any of its
property under, (A) its charter or by-laws, or (B) any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract,
bank loan or credit agreement or other agreement or instrument to
which it is a party or by which it or its properties may be bound or
affected, which contravention, breach, default or Lien under clause
(B) would materially and adversely affect its ability, in its
individual capacity or as the Owner Trustee, to perform its
obligations under the Operative Agreements to which it is a party or
(iv) does or will require any Governmental Action by any Governmental
Authority regulating its banking or trust powers;
(c) The Trust Agreement and, assuming the Trust
Agreement is the legal, valid and binding obligation of the Holders,
each other Operative Agreement to which the Trust Company or the Owner
Trustee, as the case may be, is or will be a party have been, or on or
before such Closing Date will be, duly executed and delivered by the
Trust Company or the Owner Trustee, as the case may be, and the Trust
Agreement and each such other Operative Agreement to which the Trust
Company or the Owner Trustee, as the case may be, is a party
constitutes, or upon execution and delivery will constitute, a legal,
valid and binding obligation enforceable against the Trust Company or
the Owner Trustee, as the case may be, in accordance with the terms
thereof;
23
<PAGE> 29
(d) There is no action or proceeding pending or,
to its knowledge, threatened to which it is or will be a party, either
in its individual capacity or as the Owner Trustee, before any
Governmental Authority that, if adversely determined, would materially
and adversely affect its ability, in its individual capacity or as the
Owner Trustee, to perform its obligations under the Operative
Agreements to which it is a party or would question the validity or
enforceability of any of the Operative Agreements to which it is or
will become a party;
(e) It has not assigned or transferred any of its
right, title or interest in or under the Lease or the Agency Agreement
except in accordance with the Operative Agreements;
(f) No Default or Event of Default under the
Operative Agreements attributable to it has occurred and is
continuing;
(g) Except as otherwise contemplated in the
Operative Agreements, the proceeds of the Loans and Holder Advances
shall not be applied by the Owner Trustee for any purpose other than
the payment of Transaction Expenses and the fees, expenses and other
disbursements referenced in Sections 9.1 (a) and (b) of this
Agreement, the purchase of the Land, the acquisition, installation and
testing of the Equipment, the construction of Improvements and the
payment of interest on the Loans and the payment of the Holder Yield
on the Holder Advances, in each case to the extent accrued under the
Credit Agreement or Trust Agreement (as the case may be) during the
period prior to the Basic Term Commencement Date with respect to the
Property;
(h) Neither the Owner Trustee nor any Person
authorized by the Owner Trustee to act on its behalf has offered or
sold any interest in the Trust Estate or the Notes, or in any similar
security relating to the Property, or in any security the offering of
which for the purposes of the Securities Act would be deemed to be
part of the same offering as the offering of the aforementioned
securities to, or solicited any offer to acquire any of the same from,
any Person other than, in the case of the Notes, the Agent, and
neither the Owner Trustee nor any Person authorized by
24
<PAGE> 30
the Owner Trustee to act on its behalf will take any action which
would subject, as a direct result of such action alone, the issuance
or sale of any interest in the Trust Estate or the Notes to the
provisions of Section 5 of the Securities Act or require the
qualification of any Operative Agreement under the Trust Indenture Act
of 1939, as amended;
(i) The Owner Trustee's chief place of business,
chief executive office and office where the documents, accounts and
records relating to the transactions contemplated by this Agreement
and each other Operative Agreement are kept are located at 79 South
Main Street, Salt Lake City, Utah 84111;
(j) The Owner Trustee is not engaged principally
in, and does not have as one (1) of its important activities, the
business of extending credit for the purpose of purchasing or carrying
any margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System of the United States), and no
part of the proceeds of the Loans or the Holder Advances will be used
by it to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any such margin stock
or for any purpose that violates, or is inconsistent with, the
provisions of Regulations G, T, U, or X of the Board of Governors of
the Federal Reserve System of the United States; and
(k) The Owner Trustee is not an "investment
company" or a company controlled by an "investment company" within the
meaning of the Investment Company Act.
7.3. Representations and Warranties of the Construction
Agent and the Lessee. Effective as of the Initial Closing Date the
Construction Agent and the Lessee represent and warrant to each of the other
parties hereto that:
(a) The Incorporated Representations and
Warranties are true and correct and the Lessee has delivered to each
of the Lenders and Holders the financial statements and other reports
referred to in the Lessee Credit Agreement;
25
<PAGE> 31
(b) The execution and delivery by each of the
Construction Agent and the Lessee of this Agreement and the other
Operative Agreements and the performance by each of the Construction
Agent and the Lessee of its respective obligations under this
Agreement and the other Operative Agreements are within the corporate
powers of each of the Construction Agent and the Lessee, have been
duly authorized by all necessary corporate action on the part of each
of the Construction Agent and the Lessee (including without limitation
any necessary shareholder action), have received all necessary
governmental approval, and do not and will not (i) violate any
material Legal Requirement which is binding on the Construction Agent,
the Lessee or any of their Subsidiaries, (ii) contravene or conflict
with, or result in a breach of, any provision of the Certificate of
Incorporation, By-Laws or other organizational documents of any of the
Construction Agent, the Lessee or any of their Subsidiaries or of any
agreement, indenture, instrument or other document which is binding on
any of the Construction Agent, the Lessee or any of their Subsidiaries
or (iii) result in, or require, the creation or imposition of any Lien
(other than pursuant to the terms of the Operative Agreements) on any
asset of any of the Construction Agent, the Lessee or any of their
Subsidiaries;
(c) This Agreement is, and upon the execution and
delivery thereof the other Operative Agreements will be, the legal,
valid and binding obligation of each of the Construction Agent and the
Lessee, enforceable against each of the Construction Agent and the
Lessee in accordance with their terms. The Construction Agent and the
Lessee have each executed the various Operative Agreements to which
either of them is a party and required to be executed as of the
Initial Closing Date;
(d) Except as described in Exhibit I, there are
no material actions, suits or proceedings pending or to our knowledge,
threatened against the Lessee in any court or before any Governmental
Authority, that concern the Property or the Lessee's interest therein
or that question the validity or enforceability of any Operative
Agreement to which the Lessee is a party or the overall transaction
26
<PAGE> 32
described in the Operative Agreements to which the Lessee is a party;
(e) No Governmental Action by any Governmental
Authority or authorization, registration, consent, approval, waiver,
notice or other action by, to or of any other Person is required to
authorize or is required in connection with (i) the execution,
delivery or performance by the Construction Agent or the Lessee of any
Operative Agreement, (ii) the legality, validity, binding effect or
enforceability with respect to the Construction Agent or the Lessee of
any Operative Agreement to which either such Person is a party or
(iii) the acquisition, ownership, construction or operation of the
Property by the Lessee or the Construction Agent, in each case, except
those which have been obtained;
(f) Upon the execution and delivery of the Lease,
(i) the Lessee will have unconditionally accepted the Property
described in the Lease and will have a valid and subsisting leasehold
interest in the Property, subject only to the Permitted Exceptions,
and (ii) no offset will exist with respect to any Rent or other sums
payable under the Lease;
(g) Except as otherwise contemplated by the
Operative Agreements, the Construction Agent shall not use the
proceeds of any Holder Advance or Loan for any purpose other than the
purchase of the Land, the acquisition and installation of the
Equipment, the payment of the Transaction Expenses, fees, expenses and
other disbursements payable by the Lessor under Sections 9.1(a) and
(b), the construction of Improvements and the testing thereof and the
payment of interest on the Loans and Holder Yield on the Holder
Advances, in each case which accrue prior to the Basic Term
Commencement Date with respect to the Property;
(h) All information heretofore or
contemporaneously herewith furnished by either the Construction Agent
or the Lessee or any of their Subsidiaries to the Agent, the Owner
Trustee, any Lender or any Holder for purposes of or in connection
with this Agreement and the transactions contemplated hereby is, and
all information hereafter furnished by or at the direction of the
Construction Agent,
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<PAGE> 33
the Lessee or any of their Subsidiaries to the Agent, the Owner
Trustee, any Lender or any Holder pursuant hereto or in connection
herewith will be, true and accurate in every material respect on the
date as of which such information is dated or certified, and such
information, taken as a whole, does not and will not omit to state any
material fact necessary to make such information, taken as a whole,
not misleading; and
7.(gggg) The chief place of business, chief executive
office and office of the Construction Agent and the Lessee where the
documents, accounts and records relating to the transactions
contemplated by this Agreement and each other Operative Agreement are
kept are located at 8180 Greensboro Drive, McLean, Virginia 22102.
7.4. Representations and Warranties of the Agent.
Effective as of the Initial Closing Date, the Agent represents and warrants to
each of the other parties hereto that:
(a) It is a national banking association duly
organized and validly existing under the laws of the United States of
America and has the full power and authority to enter into and perform
its obligations under this Agreement and each other Operative
Agreement to which it is or will be a party;
(b) This Agreement and each other Operative
Agreement to which it is a party have been, or when executed and
delivered will be, duly authorized by all necessary corporate action
on the part of the Agent and have been, or on such Closing Date will
have been, duly executed and delivered by the Agent and, assuming the
due authorization, execution and delivery hereof and thereof by the
other parties hereto and thereto, are, or upon execution and delivery
thereof will be, legal, valid and binding obligations of the Agent,
enforceable against it in accordance with their respective terms;
(c) The execution, delivery and performance by
the Agent of this Agreement and each other Operative Agreement to
which it is or will be a party do not, and will not
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contravene the articles of association or by-laws or other charter
documents of the Agent or any applicable Law of the State of or of the
United States of America governing its activities and will not
contravene any provision of, or constitute a default under any
indenture, mortgage, contract or other instrument of which it is a
party or by which it or its properties are bound, or require any
consent or approval of any Governmental Authority under any applicable
law, rule or regulation of the State of North Carolina or any federal
law, rule or regulation of the United States of America governing its
activities; and
(d) Except as otherwise contemplated by the
Operative Agreements, the Agent shall not, nor shall it direct the
Lessor to, use the proceeds of any Loan for any purpose other than the
purchase of the Land, the acquisition, installation and testing of
Equipment, the payment of the Transaction Expenses, the construction
and testing of Improvements and the payment of interest on the Loans
during the period prior to the Basic Term Commencement Date with
respect to the Property.
8. REPRESENTATIONS AND WARRANTIES ON FUNDING DATES.
8.1. Representations and Warranties on the Land Closing
Date. The Construction Agent and the Lessee hereby represent and warrant as of
the Land Closing Date (and on each Land Closing Date in the event the Land is
purchased in multiple transactions) as follows (which representations and
warranties shall continue until satisfaction of all obligations of the Lessee
and the Construction Agent under the Operative Agreements):
(a) The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative
Agreements are true and correct in all material respects on and as of
the Land Closing Date as if made on and as of such date. The
Construction Agent and the Lessee are in all material respects in
compliance with their respective obligations under the Operative
Agreements and there exists no Default or Event of Default under any
of the Operative Agreements which is continuing and which has not been
cured within any cure period expressly granted under the terms of
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<PAGE> 35
the applicable Operative Agreement. No Default or Event of Default
will occur under any of the Operative Agreements as a result of, or
after giving effect to, the Advance requested by the Requisition on
such Land Closing Date;
(b) The Land or portion thereof to be acquired is
being acquired at a price that is not in excess of fair market value
and such Land or portion thereof consists of (i) unimproved Land, or
(ii) Land and existing Improvements thereon which Improvements are
either suitable for occupancy at the time of acquisition or will be
renovated and/or modified in accordance with the terms of this
Agreement and (iii) is located at the location set forth on the
applicable Requisition;
(c) Upon the acquisition of the Land or portion
thereof on the Land Closing Date, and at all times thereafter, the
Lessor will have good and marketable fee simple title to such Land,
subject only to Permitted Liens;
(d) The execution and delivery of each Operative
Agreement to which the Construction Agent and/or the Lessee are or is
a party on the Land Closing Date and the performance of the
obligations of the Construction Agent and the Lessee under each
Operative Agreement have been duly authorized by all requisite
corporate action of the Construction Agent or the Lessee, as
applicable;
(e) Each Operative Agreement to which the
Construction Agent and/or the Lessee are or is a party on the Land
Closing Date has been duly executed and delivered by the Construction
Agent and/or the Lessee;
(f) Each Operative Agreement to which the
Construction Agent and/or the Lessee are or is a party is a legal,
valid and binding obligation of the Construction Agent or the Lessee,
as applicable, enforceable against the Construction Agent or the
Lessee, as applicable, in accordance with its respective terms;
(g) No portion of any Land being acquired by the
Lessor on the Land Closing Date is located in an area
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identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, or if any such Property
or portion thereof is located in an area identified as a special flood
hazard area by the Federal Emergency Management Agency or other
applicable agency, then flood insurance has been obtained for the
Property in accordance with Section 14.2(b) of the Lease and in
accordance with the National Flood Insurance Act of 1968, as amended;
(h) The Construction Agent has obtained insurance
coverage for the Land or portion thereof being acquired by the Lessor
on such Land Closing Date which meet the requirements of the Lease and
all of such coverage is in full force and effect;
(i) The Land or portion thereof being acquired by
the Lessor on such Land Closing Date complies with all Legal
Requirements as of such date (including without limitation all zoning
and land use laws and, subject to such matters as are disclosed in the
Environmental Audit, Environmental Laws), except to the extent that
failure to comply therewith would not, individually or in the
aggregate, have a Material Adverse Effect;
(j) All utility services and facilities necessary
for the construction and operation of the Improvements and the
installation and operation of the Equipment existing on, or to be
constructed after, such Land Closing Date (including without
limitation gas, electrical, water and sewage services and facilities)
are available at the Land upon which such Improvements exist or will
be constructed prior to the Completion Date for the Property;
(k) (1) The Security Documents
create, as security for the Obligations (as such term is defined in
the Security Agreement), valid and enforceable security interests in,
and Liens on, all of the Collateral, in favor of the Agent, for the
ratable benefit of the Lenders and the Holders, as their respective
interests appear in the Operative Agreements, and such security
interests and Liens are junior to or subordinate to no other Liens
other than the Permitted
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Exceptions. To the extent that the Liens on the portion of the
Collateral comprised of real property can be perfected by recordation
in the real estate recording office in the Commonwealth of Virginia
identified by the Construction Agent or the Lessee, upon recordation
of the Mortgage Instrument in such real estate recording office, the
Lien created by the Mortgage Instrument shall be a perfected first
priority mortgage Lien on such real property in favor of the Agent,
for the ratable benefit of the Lenders and the Holders, as their
respective interests appear in the Operative Agreements subject only
to the Permitted Exceptions. To the extent that the security
interests in the portion of the Collateral comprised of personal
property can be perfected by filing in the filing offices in the
Commonwealth of Virginia identified by the Construction Agent or the
Lessee, upon filing of the Lender Financing Statements in such filing
offices, the security interests created by the Security Agreement
shall be perfected first priority security interests in such personal
property in favor of the Agent, for the ratable benefit of the Lenders
and the Holders, as their respective interests appear in the Operative
Agreements; and
(2) To the extent that the Lien
created by the Lease on the portion of the Property comprised of real
property can be perfected by recordation in the real estate recording
office in the Commonwealth of Virginia identified by the Construction
Agent or the Lessee, upon recordation of the memorandum of the Lease
Agreement in such real estate recording office, the Lien created by
the Lease Agreement shall be a perfected first priority mortgage Lien
on such real property in favor of the Agent, for the ratable benefit
of the Lenders and the Holders, as their respective interests appear
in the Operative Agreements subject only to the Permitted Exceptions.
To the extent that the security interests in the portion of the
Property comprised of personal property can be perfected by the filing
in the filing offices in the Commonwealth of Virginia or elsewhere
identified by the Construction Agent or the Lessee upon filing of the
Lessor Financing Statements in such filing offices, a security
interest created by the Lease Agreement shall be perfected first
priority security interest in such personal property in favor of the
Lessor, which rights
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<PAGE> 38
pursuant to the Lessor Financing Statements are assigned to the Agent,
for the ratable benefit of the Lenders and the Holders, as their
respective interests appear in the Operative Agreements; and
(l) All necessary (or in the reasonable opinion
of the Agent, the Holders, the Lessor or any of their respective
counsel, advisable) Governmental Action, in each case required by any
Law enacted, imposed or adopted on or prior to the date thereof or by
any change in facts or circumstances on or prior to the date thereof,
shall have been obtained or made and be in full force and effect.
8.2. Representations and Warranties Upon Initial
Construction Advance. The Construction Agent and the Lessee hereby represent
and warrant as of the date on which the Initial Construction Advance is made as
follows:
(a) The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative
Agreements are true and correct in all material respects on and as of
the date of the Initial Construction Advance as if made on and as of
such date. The Construction Agent and the Lessee are in all material
respects in compliance with their respective obligations under the
Operative Agreements and there exists no Default or Event of Default
under any of the Operative Agreements. No Default or Event of Default
will occur under any of the Operative Agreements as a result of, or
after giving effect to, the Advance requested by the Requisition on
such date;
(b) The Lessor has good and marketable fee simple
title to the Property, subject only to Permitted Liens;
(c) [INTENTIONALLY OMITTED]
(d) All consents, licenses, permits,
authorizations, assignments and building permits required as of the
date on which such Advance is made by all material Legal Requirements
or pursuant to the terms of any contract, indenture, instrument or
agreement for the acquisition, ownership, construction, completion,
occupancy, operation, leasing or
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subleasing of the Property with respect to which an Advance is being
made have been obtained and are in full force and effect, except to
the extent that the failure to so obtain would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect;
(e) The Construction Agent has obtained insurance
covering the Property which meets the requirements of Section 2.6 of
the Agency Agreement before commencing construction, repairs or
modifications, as the case may be, and such coverage is in full force
and effect;
(f) The Improvements which are the subject of the
Advance, as improved in accordance with the Plans and Specifications,
will comply as of the applicable Completion Date with all material
Legal Requirements and Insurance Requirements (including without
limitation all zoning and land use laws and (except to the extent
disclosed in the Environmental Audit) Environmental Laws), except to
the extent the failure to comply therewith would not, individually or
in the aggregate, have a Material Adverse Effect. The Plans and
Specifications have been or will be prepared in all material respects
in accordance with all applicable Legal Requirements (including
without limitation all applicable (except to the extent disclosed in
the Environmental Audit) Environmental Laws and building, planning,
zoning and fire codes), except to the extent the failure to comply
therewith would not, individually or in the aggregate, have a Material
Adverse Effect, and upon completion of such Improvements in accordance
with the Plans and Specifications, such Improvements will not encroach
in any manner onto any adjoining land (except as permitted by express
written easements), such Improvements shall not be subject to any Lien
except Permitted Liens and such Improvements and the use thereof by
the Lessee and its agents, assignees, employees, invitees, lessees,
licensees and tenants will comply as of the applicable Completion Date
in all respects with all applicable Legal Requirements (including
without limitation all applicable Environmental Laws and building,
planning, zoning and fire codes), except to the extent the failure to
comply therewith would not, individually or in the aggregate, have a
Material Adverse
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Effect. Upon completion of such Improvements in accordance with the
Plans and Specifications, (i) there will be no material defects to
such Improvements including without limitation the plumbing, heating,
air conditioning and electrical systems thereof and (ii) all water,
sewer, electric, gas, telephone and drainage facilities and all other
utilities required to adequately service such Improvements for their
intended use will be available pursuant to adequate permits (including
without limitation any that may be required under applicable
Environmental Laws), except to the extent that failure to obtain any
such permit would not, individually or in the aggregate, have a
Material Adverse Effect. There is no action, suit or proceeding
(including without limitation any proceeding in condemnation or
eminent domain or under any Environmental Law) pending or, to the best
knowledge of the Lessee or the Construction Agent, overtly threatened
which adversely affects the title to, or the use, operation or value
of, the Property. No fire or other casualty with respect to the
Property has occurred which fire or other casualty has had a Material
Adverse Effect. All utilities serving the Property, or proposed to
serve the Property in accordance with the Plans and Specifications,
are located in (and in the future will be located in) and vehicular
access to such Improvements is provided by (or will be provided by),
either public rights-of-way abutting the Property or Appurtenant
Rights. All licenses, approvals, authorizations, consents, permits
(including without limitation building, demolition and environmental
permits, licenses, approvals, authorizations and consents), easements
and rights-of-way, including without limitation proof of dedication,
required for (i) the use, treatment, storage, transport, disposal or
disposition of any Hazardous Substance on, at, under or from the real
property underlying such Improvements during the construction of such
Improvements and the use and operation of such Improvements following
such construction, (ii) the construction of such Improvements in
accordance with the Plans and Specifications and the Agency Agreement
and (iii) the use and operation of such Improvements following such
construction with the applicable Equipment which such Improvements
support for the purposes for which they were intended, except to the
extent that failure to obtain any such permit would not,
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individually or in the aggregate, have a Material Adverse Effect, have
either been obtained from the appropriate Governmental Authorities
having jurisdiction or from private parties, as the case may be, or
will be obtained from the appropriate Governmental Authorities having
jurisdiction or from private parties, as the case may be, prior to
commencing any such installation and construction or use and
operation, as applicable; and
(g) All conditions precedent contained in this
Agreement and in the other Operative Agreements relating to the
initial Advance to the Construction Agent of funds have been
substantially satisfied.
8.3. Representations and Warranties Upon the Date of Each
Construction Advance That Is Not the Initial Advance. The Construction Agent
and the Lessee hereby represent and warrant as of each date on which a
Construction Advance is made, when such Advance is not the Initial Construction
Advance, as follows:
(a) The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative
Agreements (including without limitation the representations and
warranties set forth in Section 8.2) are true and correct in all
material respects on and as of the date of such Construction Advance
as if made on and as of such date. The Construction Agent and the
Lessee are in all material respects in compliance with their
respective obligations under the Operative Agreements and there exists
no Default or Event of Default under any of the Operative Agreements
which is continuing and which has not been cured within any cure
period expressly granted under the terms of the applicable Operative
Agreement. No Default or Event of Default will occur under any of the
Operative Agreements as a result of, or after giving effect to, the
Advance requested by the Requisition on such date;
(b) Acquisition, installation and testing of the
Equipment and construction of the Improvements to date has been
performed in a good and workmanlike manner, substantially in
accordance with the Plans and Specifications and in compliance with
all Insurance Requirements and
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material Legal Requirements, except to the extent noncompliance with
any Legal Requirements would not, individually or in the aggregate,
have a Material Adverse Effect;
(c) All consents, licenses, permits,
authorizations, assignments and building permits required as of the
date on which such Advance is made by all material Legal Requirements
or pursuant to the terms of any contract, indenture, instrument or
agreement for the acquisition, installation, testing, ownership,
construction, completion, occupancy, operation, leasing or subleasing
of the Property have been obtained and are in full force and effect
except to the extent the failure to so obtain would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect;
(d) When completed, the Equipment and the
Improvements shall be wholly within any building restriction lines and
otherwise in compliance with all Insurance Requirements and applicable
Legal Requirements (unless consented to by applicable Government
Authorities or to the extent the failure to comply therewith would
not, individually or in the aggregate, have a Material Adverse
Effect), however established; and
(e) The Advance is secured by the Liens of the
Security Agreement and the Mortgage Instruments, and there have been
no Liens against the applicable Equipment or the Improvements or any
other portion of the Property since the filing of the UCC Financing
Statements and such Mortgage Instruments other than Permitted Liens.
The Construction Agent and the Lessee further acknowledge that upon
the acceptance and use of the funds by the Construction Agent or the Lessee, as
the case may be, on behalf of the Lessor that all such representations and
warranties remain true and correct on the date of such Advance and that all
consents and approvals have been obtained prior to the date of such Advance.
9. PAYMENT OF CERTAIN EXPENSES.
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9.1. Transaction Expenses. (a) The Lessor agrees
on the Initial Closing Date, to pay, or cause to be paid, all Transaction
Expenses arising from the Initial Closing Date, including without limitation
all reasonable fees, expenses and disbursements of the various legal counsels
for the Lessor and the Agent in connection with the transactions contemplated
by the Operative Agreements and incurred in connection with such Initial
Closing Date, all fees, taxes and expenses for the recording, registration and
filing of documents and all other reasonable fees, expenses and disbursements
incurred in connection with such Initial Closing Date; provided, however, the
Lessor shall pay such amounts described in this Section 9.1(a) only if (i) such
amounts are properly described in a Requisition delivered on or before the
Initial Closing Date, and (ii) funds are made available by the Lenders and the
Holders in connection with such Requisition in an amount sufficient to allow
such payment. On the Initial Closing Date after delivery and receipt of the
Requisition referenced in Section 4.2(a) hereof and satisfaction of the other
conditions precedent for such date, the Holders shall make Holder Advances and
the Lenders shall make Loans to the Lessor to pay for the Transaction Expenses,
fees, expenses and other disbursements referenced in this Section 9.1(a). The
Lessee agrees to timely pay all amounts referred to in this Section 9.1(a) to
the extent not paid by the Lessor.
(a) Assuming no Default or Event of Default shall have
occurred and be continuing and only for the period prior to the Basic Term
Commencement Date, the Lessor agrees on the Land Closing Date, on the date of
any Construction Advance and on the Completion Date to pay, or cause to be
paid, all Transaction Expenses including without limitation all reasonable
fees, expenses and disbursements of the various legal counsels for the Lessor
and the Agent in connection with the transactions contemplated by the Operative
Agreements and billed in connection with such Advance or such Completion Date,
all fees, expenses and disbursements incurred with respect to the various items
referenced in Sections 5.3, 5.4, 5.5 and/or 5.6 (including without limitation
any premiums for title insurance policies and charges for any updates to such
policies) and all other reasonable fees, expenses and disbursements in
connection with such Advance or such Completion Date including without
limitation all expenses relating to and all fees, taxes and expenses for the
recording,
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registration and filing of documents and during the Commitment Period, all
fees, expenses and costs referenced in Sections 9.3(i) or (ii) and all fees
referenced in Sections 9.3, 9.4, or 9.6; provided, however, the Lessor shall
pay such amounts described in this Section 9.1(b) only if (i) such amounts are
properly described in a Requisition delivered on the applicable date and (ii)
funds are made available by the Lenders and the Holders in connection with such
Requisition in an amount sufficient to allow such payment. On the Land Closing
Date, on the date of any Construction Advance or any Completion Date, after
delivery of the applicable Requisition and satisfaction of the other conditions
precedent for such date, the Holders shall make a Holder Advance and the
Lenders shall make Loans to the Lessor to pay for the Transaction Expenses,
fees, expenses and other disbursements referenced in this Section 9.1(b). The
Lessee agrees to timely pay all amounts referred to in this Section 9.1(b) to
the extent not paid by the Lessor.
9.2. Brokers' Fees and Stamp Taxes. The Lessee agrees to
pay or cause to be paid any brokers, fees and any and all stamp, transfer,
general intangible and other similar taxes, fees and excises, if any, including
without limitation any interest and penalties, which are payable in connection
with the transactions contemplated by this Agreement and the other Operative
Agreements.
9.3. Certain Fees and Expenses. The Lessee agrees to pay
or cause to be paid (i) the Advisory Fee payable by Lessee to the Agent; (i)
the initial and annual Owner Trustee's fee and all reasonable expenses of the
Owner Trustee and any co-trustees (including without limitation reasonable
counsel fees and expenses) or any successor owner trustee, for acting as the
owner trustee under the Trust Agreement, (iii) all reasonable costs and
expenses incurred by the Construction Agent, the Lessee, the Agent, the
Lenders, the Holders or the Lessor in entering into the Lease, any Lease
Supplement and any future amendments or supplements with respect to any of the
Operative Agreements, whether or not such Lease Supplement, amendments or
supplements are ultimately entered into, or giving or withholding of waivers of
consents hereto or thereto, which have been requested by the Lessor, the
Holders, the Construction Agent, the Lessee, or the Agent, (iv) all reasonable
costs and expenses incurred by the Lessor, the Holders, the Lenders or the
Agent in connection with
39
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any exercise of remedies under any Operative Agreement or any purchase of the
Property by the Lessee pursuant to Article XX of the Lease and (v) all
reasonable costs and expenses incurred by the Construction Agent, the Lessee,
the Agent, the Lenders, the Holders or the Lessor in connection with any
transfer or conveyance of the Property, whether or not such transfer or
conveyance is ultimately accomplished.
9.4. Unused Fee. During the Commitment Period, the Lessee
agrees to pay to the Agent for the account of (a) the Lenders, respectively, an
unused fee (the "Lender Unused Fee") computed at a rate per annum equal to
one-quarter of one percent (0.25%) multiplied by the Available Commitment of
each Lender during the Commitment Period and (b) the Holders, respectively, an
unused fee (the "Holder Unused Fee") computed at a rate per annum equal to
one-quarter of one percent (0.25%) multiplied by the then current unfunded
portion of the Holder Commitment of each Holder during the Commitment Period.
Such Unused Fees shall be calculated on the basis of a year of three hundred
sixty (360) days from the actual days elapsed and shall be payable monthly in
arrears on each Unused Fee Payment Date. If all or a portion of any such
Unused Fee shall not be paid when due, such overdue amount shall bear interest,
payable by the Lessee on demand, at a rate per annum equal to the ABR plus two
percent (2%) from the date of such non-payment until such amount is paid in
full (as well as before judgment).
9.5. INTENTIONALLY OMITTED.
9.6. Administrative Fee. During the Commitment Period,
the Lessee agrees to pay the Agent for its own account an administrative fee in
the amount of $20,000 per annum (the "Administrative Fee"). Such
Administrative Fee shall be payable annually in advance on the Initial Closing
Date and on each anniversary thereof and shall be prorated for a partial year.
If all or a portion of any such Administrative Fee shall not be paid when due,
such overdue amount shall bear interest, payable by the Lessee on demand, at a
rate per annum equal to the ABR plus two percent (2%) from the date of such
non-payment until such amount is paid in full (as well as before judgment).
10. OTHER COVENANTS AND AGREEMENTS.
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10.1. Cooperation with the Construction Agent or the
Lessee. The Holders, the Lessor (at the direction of the Holders) and the
Agent shall, to the extent reasonably requested by the Construction Agent or
the Lessee (but without assuming additional liabilities on account thereof), at
the Construction Agent's or the Lessee's expense cooperate with the
Construction Agent or the Lessee in connection with its covenants contained
herein including without limitation at any time and from time to time, upon the
request of the Construction Agent or the Lessee to promptly and duly execute
and deliver any and all such further instruments, documents and financing
statements (and continuation statements related thereto) as the Construction
Agent or the Lessee may reasonably request in order to perform such covenants.
10.2. Covenants of the Owner Trustee and the Holders. Each
of the Owner Trustee and the Holders hereby agrees that so long as this
Agreement is in effect:
(a) Each of the Owner Trustee (both in its trust
capacity and in its individual capacity) and the Holders will not
create or permit to exist at any time, and will, at its own cost and
expense, promptly take such action as may be necessary duly to
discharge, or to cause to be discharged, all Lessor Liens on the
Property attributable to it; provided, however, that the Owner Trustee
and the Holders shall not be required to so discharge any such Lessor
Lien while the same is being contested in good faith by appropriate
proceedings diligently prosecuted so long as such proceedings shall
not involve any material danger of impairment of the Liens of the
Security Documents or of the sale, forfeiture or loss of, and shall
not interfere with the use or disposition of, any Property or title
thereto or any interest therein or the payment of Rent;
(b) Without prejudice to any right under the
Trust Agreement of the Owner Trustee to resign (subject to requirement
set forth in the Trust Agreement that such resignation shall not be
effective until a successor, shall have agreed to accept such
appointment), or the Holders rights under the Trust Agreement to
remove the institution acting as the Owner Trustee (after consent to
such removal by
41
<PAGE> 47
the Agent as provided in the Trust Agreement), each of the Owner
Trustee and the Holders hereby agrees with the Lessee and the Agent
(i) not to terminate or revoke the trust created by the Trust
Agreement except as permitted by Article VIII of the Trust Agreement,
(ii) not to amend, supplement, terminate or revoke or otherwise modify
any provision of the Trust Agreement in such a manner as to adversely
affect the rights of any such party without the prior written consent
of such party and (iii) to comply with all of the terms of the Trust
Agreement, the nonperformance of which would adversely affect such
party;
(c) The Owner Trustee or any successor may resign
or be removed by the Holders as the Owner Trustee, a successor Owner
Trustee may be appointed and a corporation may become the Owner
Trustee under the Trust Agreement, only in accordance with the
provisions of Article IX of the Trust Agreement and, with respect to
such appointment, with the consent of the Lessee, which consent shall
not be unreasonably withheld or delayed;
(d) The Owner Trustee, in its capacity as the
Owner Trustee under the Trust Agreement, and not in its individual
capacity, shall not contract for, create, incur or assume any
Indebtedness, or enter into any business or other activity, other than
pursuant to or under the Operative Agreements;
(e) The Holders will not instruct the Owner
Trustee to take any action in violation of the terms of any Operative
Agreement;
(f) Neither any Holder nor the Owner Trustee
shall (i) commence any case, proceeding or other action with respect
to the Owner Trustee under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, arrangement, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (ii)
seek appointment of a receiver, trustee, custodian or other similar
official with respect to the Owner Trustee or for all or any
substantial benefit of the creditors of the Owner Trustee; and neither
any Holder nor the Owner Trustee shall take any action in
42
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furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in this paragraph;
(g) The Owner Trustee shall give prompt notice to
the Lessee, the Holders and the Agent if the Owner Trustee's chief
place of business or chief executive office, or the office where the
records concerning the accounts or contract rights relating to any
Property are kept, shall cease to be located at 79 South Main Street,
Salt Lake City, Utah 84111, or if it shall change its name;
(h) Provided that no Lease Default or Lease Event
of Default has occurred and is continuing, neither the Owner Trustee
nor any Holder shall, without the prior written consent of the Lessee,
consent to or permit any amendment, supplement or other modification
of the terms and provisions of the Credit Agreement or the Notes;
(i) Neither the Owner Trustee nor any Holder
shall consent to or permit any amendment, supplement or other
modification of the terms and provisions of any Operative Agreement,
in each case without the prior written consent of the Agent, subject
to the approval of the Majority Lenders, except as described in
Section 10.5 of this Agreement;
(j) The Owner Trustee (i) shall take such actions
and shall refrain from taking such actions with respect to the
Operative Agreements and/or relating to the Property and shall grant
such approvals and otherwise act or refrain from acting with respect
to the Operative Agreements and/or relating to the Property in each
case as directed in writing by the Agent or, in connection with
Section 10.5 hereof, the Lessee, notwithstanding any contrary
instruction or absence of instruction by any Holder or Holders; and
(ii) shall not take any action, grant any approvals or otherwise act
under or with respect to the Operative Agreements and/or any matters
relating to the Property without first obtaining the prior written
consent of the Agent (and without regard to any contrary instruction
or absence of instruction by any Holder); provided, however, that
notwithstanding the foregoing provisions of this subparagraph (j) the
Owner Trustee, the Agent and the Holders each acknowledge, covenant
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and agree that, with respect to all matters under the Operative
Agreements that require the consent and/or concurrence of all of the
Lenders pursuant to the terms of Section 9.1 of the Credit Agreement
(the "Unanimous Vote Matters"), neither the Owner Trustee nor the
Agent shall act or refrain from acting with respect to any Unanimous
Vote Matter until such party has received the approval of each Lender
and each Holder with respect thereto; and
(k) The Owner Trustee and the Holders shall at
all times maintain the character of the Holder Advances as evidenced
by the Certificates and as provided in Section 6.9 of the Trust
Agreement.
10.3. The Lessee Covenants, Consent and Acknowledgment.
(a) The Lessee acknowledges and agrees that the
Owner Trustee, pursuant to the terms and conditions of the Security
Agreement and the Mortgage Instruments, shall create Liens respecting
the various personal property, fixtures and real property described
therein in favor of the Agent. The Lessee hereby irrevocably consents
to the creation, perfection and maintenance of such Liens. Each of
the Construction Agent and the Lessee shall, to the extent reasonably
requested by any of the other parties hereto, cooperate with the other
parties in connection with their covenants herein or in the other
Operative Agreements and shall from time to time duly execute and
deliver any and all such future instruments, documents and financing
statements (and continuation statements related thereto) as any other
party hereto may reasonably request.
(b) The Lessor hereby instructs the Lessee, and
the Lessee hereby acknowledges and agrees, that until such time as the
Loans are paid in full and the Liens evidenced by the Security
Agreement and the Mortgage Instruments have been released (i) any and
all Rent (excluding Excepted Payments which shall be payable to each
Holder as appropriate) and any and all other amounts of any kind or
type under any of the Operative Agreements due and owing or payable to
the Lessor or the Owner Trustee shall instead be paid directly to the
Agent (excluding Excepted Payments which shall be payable to
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each Holder as appropriate) or as the Agent may direct from time to
time for allocation and distribution in accordance with the procedures
set forth in Section 10.7 hereof and (ii) the Lessee shall cause all
notices, certificates, financial statements, communications and other
information which is delivered, or is required to be delivered, to the
Lessor, to also to be delivered at the same time to the Agent and each
Holder.
(c) The Lessee shall not consent to or permit any
amendment, supplement or other modification of the terms or provisions
of any Operative Agreement without, in each case, obtaining the prior
written consent of the Agent and, to the extent required by the
proviso at the end of Section 10.2(j) hereof, each of the Holders.
The Lessee acknowledges that the actions of the Owner Trustee are
subject to the consent of the Agent as set forth in Section 10.2(j).
(d) The Lessee hereby covenants and agrees to
cause an Appraisal (in form and substance reasonably satisfactory to
the Agent and the Lessor and from an appraiser selected by the Agent
and a majority of the Holders) to be issued respecting the Property
upon acquisition of the Land as more fully provided in the Lease and
thereafter as requested by the Agent and/or a majority of the Holders
from time to time but no more frequently than every three (3) years;
provided, notwithstanding the foregoing, the Lessee agrees to cause
such Appraisals to be issued as requested by the Agent and/or any
Holder from time to time (i) at each and every time as such shall be
required to satisfy any regulatory requirements or other Legal
Requirement imposed on the Agent, any Lender and/or any Holder and
(ii) after the occurrence of an Event of Default. All Appraisals
issued after receipt of the initial Appraisal required by Section
10.1(e) shall be deemed "informational" and no minimum valuation of
the Property shall be required.
(e) The Lessee hereby covenants and agrees that,
except for amounts payable as Basic Rent and as otherwise expressly
specified in the Operative Agreements, any and all payment obligations
owing from time to time under the Operative Agreements to the Agent,
any Lender or any Holder
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shall (without further action) be deemed to be (i) obligations payable
by the Construction Agent prior to the commencement of the Basic Term
for the Property and (ii) Supplemental Rent obligations payable by the
Lessee after the commencement of the Basic Term for the Property.
Without limitation, such obligations shall include arrangement fees,
Administrative Fees, lease consulting fees, structuring fees,
participation fees, commitment fees, Unused Fees, prepayment
penalties, breakage costs, indemnities, trustee fees and Transaction
Expenses incurred by the parties hereto in connection with the
transactions contemplated by the Operative Agreements.
(f) At any time the Lessor or the Agent is
entitled under the Operative Agreements to possession of the Property
or any component thereof, each of the Construction Agent and the
Lessee hereby covenants and agrees, at its own cost and expense, to
assemble and make available to the Agent (on behalf of the Lessor) any
and all personal property components of the Property constituting
"goods".
(g) The Lessee hereby covenants and agrees that
Equipment respecting the Property shall at no time constitute in
excess of twelve percent (12%) of the aggregate Advances respecting
the Property funded at such time under the Operative Agreements.
(h) The Lessee hereby covenants and agrees that
the Property Cost for the Property shall not exceed $70,000,000.
(i) The Lessee hereby covenants and agrees that
it shall give prompt notice to the Lessor, the Holders and the Agent
if the Lessee's chief place of business or chief executive office, or
the office where the records concerning the accounts or contract
rights relating to the Property are kept, shall cease to be located at
8180 Greensboro Drive, McLean, Virginia 22102, or if it shall change
its name.
10.4. Sharing of Certain Payments. Except for Excepted
Payments, the parties hereto acknowledge and agree that all payments due and
owing by the Lessee to the Lessor under the Lease or any of the other Operative
Agreements shall be made by the
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Lessee directly to the Agent as more particularly provided in Section 10.3(b)
hereof. The Holders, the Agent, the Lenders and the Lessee acknowledge the
terms of Section 10.7 of this Participation Agreement regarding the allocation
of payments and other amounts made or received from time to time under the
Operative Agreements and agree, that all such payments and amounts are to be
allocated as provided in Section 10.7 of this Participation Agreement. In
connection therewith the Holders hereby (a) appoint the Agent to act as
collateral agent for the Holders in connection with the Lien granted by the
Security Documents to secure the Holder Amount and (b) acknowledge and agree
and direct that the rights and remedies of the beneficiaries of the Lien of the
Security Documents shall be exercised by the Agent on behalf of the Lenders and
the Holders as directed from time to time by the Majority Lenders and the
Majority Holders. The Agent hereby accepts such appointment.
10.5. Grant of Easements, etc. The Agent and the Holders
hereby agree that, so long as no Event of Default shall have occurred and be
continuing, and until such time as the Agent gives instructions to the contrary
to the Owner Trustee, the Owner Trustee shall, from time to time at the request
of the Lessee, in connection with the transactions contemplated by the Agency
Agreement, the Lease or the other Operative Agreements, (i) grant easements and
other rights in the nature of easements with respect to the Property including,
without limitation, a perpetual easement to the county of Arlington, Virginia
respecting a public park facility to be encompassed within the Property, (ii)
release existing easements or other rights in the nature of easements which are
for the benefit of the Property, (iii) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants or releases, and (iv)
execute and deliver to any Person such other documents or materials in
connection with the acquisition, development, construction, testing or
operation of the Property, including without limitation reciprocal easement
agreements, construction contracts, operating agreements, development
agreements, plats, replats or subdivision documents; provided, that each of the
agreements referred to in this Section 10.5 (other than the specified easements
referenced in clause (i) of this Section 10.5) shall be of the type normally
executed by the Lessee in the ordinary course of the Lessee's business and
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shall be on commercially reasonable terms so as not to diminish the value or
use of the Property in any material respect.
10.6. Appointment by the Agent, the Lenders, the Holders
and the Owner Trustee. Except as expressly provided in any Operative Agreement
where the Owner Trustee is required to act for or on behalf of the Holders,
each Holder and the Owner Trustee hereby designate and appoint the Agent to
take actions, exercise powers and perform duties as are expressly delegated to
the Agent by the terms of this Agreement (including without limitation
provisions of other agreements incorporated herein by reference) and other
Operative Agreements with respect to the Lenders and as specifically delegated
to the Owner Trustee on behalf of the Holders in any Operative Agreement. For
purposes hereof, and except as expressly provided herein to the contrary, the
provisions of Section 7 of the Credit Agreement, together with such other terms
and provisions of the Credit Agreement and the other Operative Agreements as
required for the full interpretation and operation of Section 7 of the Credit
Agreement are hereby incorporated by reference as if restated herein for the
mutual benefit of the Agent, each Lender and each Holder as if such Holder were
a Lender thereunder. Except as may be expressly provided to the contrary for
purposes of the Operative Agreements, outstanding Holder Advances shall be
taken into account and treated as Loans for purposes of determining Majority
Lenders; provided, however, in any case under the Operative Agreements where
the consent of the Holders is expressly required or the Holders are entitled to
take any action, such consent shall be given or action taken, whether directly
by the Holders or by the Agent (without the requirement that the consent of any
Lender be obtained or permission for such action be granted by any Lender);
and, provided, further, no amendment to any provision expressly requiring the
consent of the Holders or permitting the Holders to take action (whether
directly or through the Agent), shall be effective without the written consent
of the Holders. Further, the Agent shall be entitled to take such action on
behalf of the Owner Trustee as is delegated to the Agent under any Operative
Agreement (whether express or implied) as may be reasonably incidental thereto.
The parties hereto hereby agree to the provisions contained in this Section
10.6. The Agent shall provide to each Lender and each Holder copies of all
notices
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received by Agent from the Construction Agent or the Lessee under any Operative
Agreement.
10.7. Collection and Allocation of Payments and Other
Amounts. (a) The Lessee and the Construction Agent have agreed pursuant
to the terms of this Participation Agreement to pay to (i) the Agent any and
all Rent (excluding Excepted Payments) and any and all other amounts of any
kind or type under any of the Operative Agreements due and owing or payable to
the Lessor or the Owner Trustee and (ii) each Holder as appropriate the
Excepted Payments. Promptly after receipt, the Agent shall apply and allocate,
in accordance with the terms of this Section 10.7, such amounts received from
the Lessee or the Construction Agent and all other payments, receipts and other
consideration of any kind whatsoever received by the Agent pursuant to the
Security Agreement or otherwise received by the Agent, the Holders or any of
the Lenders in connection with the Collateral, the Security Documents or any of
the other Operative Agreements.
(a) Payments and other amounts received by the Agent from
time to time in accordance with the terms of subparagraph (a) shall be applied
and allocated as follows:
(i) Any such payment or amount identified as or
deemed to be Basic Rent shall be applied and allocated by the Agent
first, ratably to the Lenders and the Holders for application and
allocation to the payment of interest on the Loans and to the payment
of accrued Holder Yield with respect to the Holder Advances; and
second, if no Default or Event of Default is in effect, any excess
shall be paid to such Person or Persons as the Lessee may designate;
provided, that if a Default or Event of Default is in effect, such
excess (if any) shall instead be held by the Agent until the earlier
of (I) the first date thereafter on which no Default or Event of
Default shall be in effect (in which case such payments or returns
shall then be made to such other Person or Persons as the Lessee may
designate) and (II) the Maturity Date or the expiration Date, as the
case may be (or, if earlier, the date of any Acceleration), in which
case such amounts shall be applied and allocated in the manner
contemplated by Section 10.7(b)(iv) hereof. The Agent shall distribute
to (x) the Lenders, ratably based on their respective Commitments, all
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proceeds of Interest Payment Loans which shall be applied and
allocated to the interest on the Loans due and payable prior to the
Basic Term Commencement Date and (y) the Holders, based on their
respective Holder Commitments, all proceeds of Holder Advances made
with respect to the aggregate amount of Holder Yield on the Holder
Advances prior to the Basic Term Commencement Date.
(ii) If on any date the Agent or the Lessor shall
receive any amount in respect of (A) any Casualty or Condemnation
pursuant to Section 15.1(a) or 15.1(g) of the Lease (excluding any
payments in respect thereof which are payable to the Lessee in
accordance with the Lease), or (B) the Termination Value in connection
with the delivery of a Termination Notice pursuant to Article XVI of
the Lease, or (C) the Termination Value in connection with the
exercise of the Purchase Option under Section 20.1 of the Lease or the
exercise of the option of the Lessor to transfer the Property to the
Lessee pursuant to Section 20.3 of the Lease, or (D) any payment
required to be made or elected to be made by the Construction Agent to
the Lessor pursuant to the terms of the Agency Agreement, then in each
case, the Lessor shall be required to pay such amount received (1) if
no Acceleration has occurred, to prepay the principal balance of the
Loans and the Holder Advances, on a pro rata basis, a portion of such
amount to be distributed to the Lenders and the Holders, such amount
computed (x) in the case of the Loans, based on the ratio of the Loans
to the Property Cost and (y) in the case of the Holder Advances, based
on the ratio of the Holder Advances to the Property Cost or (2) if an
Acceleration has occurred, to apply and allocate the proceeds
respecting Sections 10.7(b)(ii)(A)-(D)in accordance with Section
10.7(b)(iii) hereof.
(iii) An amount equal to any payment identified as
proceeds of the sale (or lease upon the exercise of remedies) of the
Property or any portion thereof, whether pursuant to Article XXII of
the Lease or the exercise of remedies under the Security Documents or
otherwise, the execution of remedies set forth in Section 17.6 of the
Lease and any payment in respect of excess wear and tear pursuant to
Section 22.3 of the Lease (whether such payment relates to a
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period before or after the Construction Period Termination Date) shall
be applied and allocated by the Agent first, ratably to the payment of
the principal and interest of the Tranche B Loans then outstanding,
second, ratably to the payment to the Holders of an amount not to
exceed the outstanding principal balance of all Holder Advances plus
all outstanding Holder Yield with respect to such outstanding Holder
Advances, third, to the extent such amount exceeds the maximum amount
to be returned pursuant to the foregoing provisions of this paragraph
(iii), ratably to the payment of the principal and interest of the
Tranche A Loans then outstanding plus any and all other amounts owing
to the Agent and the Lenders hereunder or under any of the other
Operative Agreements, and fourth, to the extent moneys remain after
application and allocation pursuant to clauses first through third
above, to the Owner Trustee for application and allocation to any and
all other amounts owing to the Holders or the Owner Trustee and as the
Owner Trustee and the Holders shall determine; provided, where no
Event of Default shall exist and be continuing and a prepayment is
made for any reason with respect to less than the full amount of the
outstanding principal amount of the Loans and the outstanding Holder
Advances, the proceeds shall be applied and allocated ratably to the
Lenders and to the Holders based on the ratio of the outstanding
principal balance of the Loans and the outstanding Holder Advances to
the aggregate of such outstanding amounts of the Loans and the Holder
Advances.
(iv) An amount equal to (A) any such payment
identified as a payment pursuant to Section 22.1(b) of the Lease or
Sections 3.3 or 3.4 of the Agency Agreement (or otherwise) of the
Maximum Residual Guarantee Amount (and any such lesser amount as may
be required by Section 22.1(b) of the Lease) in respect of the
Property and (B) any other amount payable upon any exercise of
remedies after the occurrence of an Event of Default not covered by
Section 10.7(b)(i) or (iii) above (including without limitation any
amount received in connection with an Acceleration which does not
represent proceeds from the sale or liquidation of the Property),
shall be applied and allocated by the Agent first, ratably, to the
payment of the principal and interest balance of Tranche A Loans then
outstanding, second, ratably to the payment of the
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principal and interest balance of the Tranche B Loans then
outstanding, third, to the payment of any other amounts owing to the
Agent or the Lenders hereunder or under any of the other Operative
Agreement, and fourth, to the extent moneys remain after application
and allocation pursuant to clauses first through third above, to the
Owner Trustee for application and allocation to Holder Advances and
Holder Yield and any other amounts owing to the Holders or the Owner
Trustee as the Owner Trustee and the Holders shall determine.
(v) An amount equal to any such payment
identified as Supplemental Rent shall be applied and allocated by the
Agent to the payment of any amounts then owing to the Agent, the
Lenders, the Holders and the other parties to the Operative Agreements
(or any of them) (other than any such amounts payable pursuant to the
preceding provisions of this Section 10.7(b)) as shall be determined
by the Agent in its reasonable discretion; provided, however, that
Supplemental Rent received upon the exercise of remedies after the
occurrence and continuance of an Event of Default in lieu of or in
substitution of the Maximum Residual Guarantee Amount or as a partial
payment thereon shall be applied and allocated as set forth in Section
10.7(b)(iv).
(vi) The Agent in its reasonable judgment shall
identify the nature of each payment or amount received by the Agent
and apply and allocate each such amount in the manner specified above.
(b) Upon the termination of the Commitments and
the payment in full of the Loans and all other amounts owing by the Owner
Trustee hereunder or under any other Credit Document and the payment in full of
all amounts owing to the Holders and the Owner Trustee under the Trust
Agreement, any moneys remaining with the Agent shall be returned to the Owner
Trustee or such other Person or Persons as the Owner Trustee may designate. In
the event of an Acceleration it is agreed that, prior to the application and
allocation of amounts received by the Agent in the order described in Section
10.7(b) above, any such amounts shall first be applied and allocated to the
payment of (i) any and all sums advanced by the Agent in order to preserve the
Collateral or preserve its security interest therein, (ii) the expenses of
retaking, holding,
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preparing for sale or lease, selling or otherwise disposing or realizing on the
Collateral, or of any exercise by the Agent of its rights under the Security
Documents, together with reasonable attorneys' fees and expenses and court
costs and (iii) any and all other amounts reasonably owed to the Agent under or
in connection with the transactions contemplated by the Operative Agreements
(including without limitation any accrued and unpaid Administrative Fee).
11. CREDIT AGREEMENT AND TRUST AGREEMENT.
11.1. The Construction Agent's and the Lessee's Credit
Agreement Rights. Notwithstanding anything to the contrary contained in the
Credit Agreement, the Agent, the Lenders, the Holders, the Construction Agent,
the Lessee and the Owner Trustee hereby agree that, prior to the occurrence and
continuation of any Default or Event of Default, the Construction Agent or the
Lessee, as the case may be, shall have the following rights:
(a) the right and obligation (as more
specifically described in Section 5.6 hereof) to designate the portion
of the Loans on which interest is due and payable for purposes of the
definition of "Allocated Interest";
(b) the right to give the notice referred to in
Section 2.3 of the Credit Agreement, to designate the account to which
a borrowing under the Credit Agreement is to be credited pursuant to
Section 2.3 of the Credit Agreement and to provide the Allocation
Notice;
(c) the right to terminate or reduce the
Commitments pursuant to Section 2.5(a) of the Credit Agreement;
(d) the right to exercise the conversion and
continuation options pursuant to Section 2.7 of the Credit Agreement;
(e) the right to receive any certificate issued
pursuant to Section 2.11(a) of the Credit Agreement;
(f) the right to receive any certificate issued
pursuant to Section 2.11(b) of the Credit Agreement;
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(g) the right to receive any payment from a
Lender pursuant to Section 2.13(c) of the Credit Agreement;
(h) the right to receive any notice and any
certificate, in each case issued pursuant to Section 2.14 (a) of the
Credit Agreement;
(i) the right to replace any Lender pursuant to
Section 2.14(b) of the Credit Agreement;
(j) the right to approve any successor Agent
pursuant to Section 7.9 of the Credit Agreement;
(k) the right to consent to any assignment by a
Lender to which the Lessor has the right to consent pursuant to
Section 9.8 of the Credit Agreement; and
(l) without limiting the foregoing clauses (a)
through (k), and in addition thereto, provided, that no Event of
Default then exists, the Construction Agent or the Lessee, as the case
may be, shall have the right to exercise any other right of the Owner
Trustee under the Credit Agreement upon not less than five (5)
Business Days' prior written notice from the Construction Agent or the
Lessee, as the case may be, to the Owner Trustee and the Agent.
11.2. The Construction Agent's and the Lessee's Trust
Agreement Rights. Notwithstanding anything to the contrary contained in the
Trust Agreement, the Construction Agent, the Lessee, the Owner Trustee and the
Holders hereby agree that, prior to the occurrence and continuation of any
Default or Event of Default, the Construction Agent or the Lessee, as the case
may be, shall have the following rights:
(a) the right and the obligation (as more
specifically provided in Section 5.6 hereof) to designate the portion
of the Holder Advances on which Holder Yield is due and payable for
purposes of the definition of Allocated Return in Section 3.1(c) of
the Trust Agreement;
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(b) the right to exercise the conversion and
continuation options pursuant to Section 3.8 of the Trust Agreement;
(c) no removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to Section 9. 1 of
the Trust Agreement shall be made without the prior written consent
(not to be unreasonably withheld or delayed) of the Construction Agent
or the Lessee, as the case may be;
(d) the Holders and the Owner Trustee shall not
amend, supplement or otherwise modify any provision of the Trust
Agreement in such a manner as to adversely affect the rights of the
Construction Agent or the Lessee, as the case may be, without the
prior written consent (not to be unreasonably withheld or delayed) of
the Construction Agent or the Lessee, as the case may be; and
(e) the right to replace any Holder pursuant to
Section 3.9 of the Trust Agreement.
12. TRANSFER OF INTEREST.
12.1. Restrictions on Transfer. Each Lender may assign or
transfer all or a portion of its interest hereunder and under the other
Operative Agreements in accordance with Section 9.8 of the Credit Agreement.
The Holders may not, directly or indirectly, assign, convey or otherwise
transfer any of their right, title or interest in or to the Trust Estate or the
Trust Agreement without the prior written consent of the Agent and the Lessee
(which consent shall not be unreasonably withheld or delayed). The Owner
Trustee may, subject to the Lien of the applicable Security Documents but only
(a) with the prior written consent of the Agent, the Holders (which consent may
be withheld by the Agent and/or the Holders in their sole discretion) and (b)
(provided, no Default or Event of Default has occurred and is continuing) with
the prior written consent of the Lessee (which consent shall not be
unreasonably withheld or delayed), directly or indirectly, assign, convey,
appoint an agent with respect to enforcement of, or otherwise transfer any of
its right, title or interest in or to the Property, the Lease, the Trust
Agreement, this Agreement (including without limitation any right to
indemnification
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thereunder), or any other document relating to the Property or any interest in
the Property as provided in the Trust Agreement and the Lease. The provisions
of the immediately preceding sentence shall not apply to the obligations of the
Owner Trustee to transfer the Property to the Lessee or a third party purchaser
pursuant to Article XXII of the Lease upon payment for the Property in
accordance with the terms and conditions of the Lease.
12.2. Effect of Transfer. From and after any transfer
effected in accordance with this Section 12, the transferor shall be released,
to the extent of such transfer, from its liability hereunder and under the
other documents to which it is a party in respect of obligations to be
performed on or after the date of such transfer; provided, however, that any
transferor Holder shall remain liable hereunder and under such other documents
to the extent that the transferee Holder shall not have assumed the obligations
of the transferor Holder thereunder. Upon any transfer by the Owner Trustee,
the Lessor, a Holder or a Lender as above provided, any such transferee shall
assume the obligations of the Owner Trustee, the Lessor, the Holder or the
Lender, as the case may be, and shall be deemed an "Owner Trustee", "Lessor",
"Holder", or "Lender", as the case may be, for all purposes of such documents
and each reference herein to the transferor shall thereafter be deemed a
reference to such transferee for all purposes, except as provided in the
preceding sentence. Notwithstanding any transfer of all or a portion of the
transferor's interest as provided in this Section 12, the transferor shall be
entitled to all benefits accrued and all rights vested prior to such transfer
including without limitation rights to indemnification under any such document.
13. INDEMNIFICATION.
13.1. General Indemnity. Whether or not any of the
transactions contemplated hereby shall be consummated, the Indemnity Provider
hereby assumes liability for and agrees to defend, indemnify and hold harmless
each Indemnified Person on an After Tax Basis from and against any Claims,
which may be imposed on, incurred by or asserted against an Indemnified Person
(by any third party, including without limitation Claims arising from the
negligence of an Indemnified Person (but not to the extent such Claims arise
from the gross negligence, willful misconduct or
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willful breach of such Indemnified Person or are otherwise solely attributable
to acts or events occurring after the expiration of the Lease or after the
transfer of the Property to the Lessee or a third party)) in any way relating
to or arising or alleged to arise out of the execution, delivery, performance
or enforcement of this Agreement, the Lease or any other Operative Agreement or
on or with respect to the Property or any component thereof, including without
limitation Claims in any way relating to or arising or alleged to arise out of
(a) the financing, refinancing, purchase, acceptance, rejection, ownership,
design, construction, refurbishment, development, delivery, acceptance,
nondelivery, leasing, subleasing, possession, use, operation, maintenance
repair, modification, transportation, condition, sale, return, repossession
(whether by summary proceedings or otherwise), or any other disposition of the
Property or any part thereof, including without limitation the acquisition,
holding or disposition of any interest in the Property, lease or agreement
comprising a portion of any thereof; (b) any latent or other defects in the
Property or any portion thereof whether or not discoverable by an Indemnified
Person or the Indemnity Provider; (c) a violation of Environmental Laws,
Environmental Claims or other loss of or damage to any property or the
environment relating to the Property, the Lease, the Agency Agreement or the
Indemnity Provider; (d) the Operative Agreements, or any transaction
contemplated thereby; (e) any breach by the Indemnity Provider of any of its
representations or warranties under the Operative Agreements to which the
Indemnity Provider is a party or failure by the Indemnity Provider to perform
or observe any covenant or agreement to be performed by it under any of the
Operative Agreement; (f) the transactions contemplated hereby or by any other
Operative Agreement, in respect of the application of Parts 4 and 5 of Subtitle
B of Title I of ERISA; and (g) personal injury, death or property damage,
including without limitation Claims based on strict or absolute liability in
tort.
If a written Claim is made against any Indemnified Person or if any
proceeding shall be commenced against such Indemnified Person (including
without limitation a written notice of such proceeding), for any Claim, such
Indemnified Person shall promptly notify the Indemnity Provider in writing and
shall not take action with respect to such Claim without the consent of the
Indemnity Provider for thirty (30) days after the receipt of such notice by
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the Indemnity Provider; provided, however, that in the case of any such Claim,
if action shall be required by law or regulation to be taken prior to the end
of such period of thirty (30) days, such Indemnified Person shall endeavor to,
in such notice to the Indemnity Provider, inform the Indemnity Provider of such
shorter period, and no action shall be taken with respect to such Claim without
the consent of the Indemnity Provider before seven (7) days before the end of
such shorter period; provided, further, that the failure of such Indemnified
Person to give the notices referred to in this sentence shall not diminish the
Indemnity Provider's obligation hereunder except to the extent such failure
precludes in all respects the Indemnity Provider from contesting such Claim.
If, within thirty (30) days of receipt of such notice from the
Indemnified Person (or such shorter period as the Indemnified Person has
notified the Indemnity Provider is required by law or regulation for the
Indemnified Person to respond to such Claim), the Indemnity Provider shall
request in writing that such Indemnified Person respond to such Claim, the
Indemnified Person shall, at the expense of the Indemnity Provider, in good
faith conduct and control such action (including without limitation by pursuit
of appeals) (provided, however, that (A) if such Claim, in the Indemnified
Person's reasonable discretion, can be pursued by the Indemnity Provider on
behalf of or in the name of such Indemnified Person, the Indemnified Person, at
the Indemnity Provider's request, shall allow the Indemnity Provider to conduct
and control the response to such Claim and (B) in the case of any Claim, the
Indemnified Person may request the Indemnity Provider to conduct and control
the response to such Claim (with counsel to be selected by the Indemnity
Provider and consented to by such Indemnified Person, such consent not to be
unreasonably withheld; provided, however, that any Indemnified Person may
retain separate counsel at the expense of the Indemnity Provider in the event
of a conflict)) by, in the sole discretion of the Person conducting and
controlling the response to such Claim (1) resisting payment thereof, (2) not
paying the same except under protest, if protest is necessary and proper, (3)
if the payment be made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings, or (4) taking such other
action as is reasonably requested by the Indemnity Provider from time to time.
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The party controlling the response to any Claim shall consult in good
faith with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct of the response to such Claim; provided,
that all decisions ultimately shall be made in the discretion of the
controlling party. The parties agree that an Indemnified Person may at any
time decline to take further action with respect to the response to such Claim
and may settle such Claim if such Indemnified Person shall waive its rights to
any indemnity from the Indemnity Provider that otherwise would be payable in
respect of such Claim (and any future Claim, the pursuit of which is precluded
by reason of such resolution of such Claim) and shall pay to the Indemnity
Provider any amount previously paid or advanced by the Indemnity Provider
pursuant to this Section 13.1 by way of indemnification or advance for the
payment of an amount regarding such Claim.
Notwithstanding the foregoing provisions of this Section 13.1, an
Indemnified Person shall not be required to take any action and no Indemnity
Provider shall be permitted to respond to any Claim in its own name or that of
the Indemnified Person unless (A) the Indemnity Provider shall have agreed to
pay and shall pay to such Indemnified Person on demand and on an After Tax
Basis all reasonable costs, losses and expenses that such Indemnified Person
actually incurs in connection with such Claim, including without limitation all
reasonable legal, accounting and investigatory fees and disbursements and, if
the Indemnified Person has informed the Indemnity Provider (in its initial
notice of the Claim) that it intends to contest such Claim (whether or not the
control of the contest is then assumed by the Indemnity Provider), the
Indemnity Provider shall have agreed that the Claim is an indemnifiable Claim
hereunder, (B) in the case of a Claim that must be pursued in the name of an
Indemnified Person (or an Affiliate thereof), the amount of the potential
indemnity (taking into account all similar or logically related Claims that
have been or could be raised for which the Indemnity Provider may be liable to
pay an indemnity under this Section 13.1) exceeds $25,000, (C) the Indemnified
Person shall have reasonably determined that the action to be taken will not
result in any material danger of sale, forfeiture or loss of the Property, or
any part thereof or interest therein, will not interfere with the payment of
Rent, and will not result in risk of criminal liability, (D) if such Claim
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shall involve the payment of any amount prior to the resolution of such Claim,
the Indemnity Provider shall provide to the Indemnified Person an interest-free
advance in an amount equal to the amount that the Indemnified Person is
required to pay (with no additional net after-tax cost to such Indemnified
Person), (E) in the case of a Claim that must be pursued in the name of an
Indemnified Person (or an Affiliate thereof), the Indemnity Provider shall have
provided to such Indemnified Person an opinion of independent counsel selected
by the Indemnified Person and reasonably satisfactory to the Indemnity Provider
stating that a reasonable basis exists to contest such Claim (or, in the case
of an appeal of an adverse determination, an opinion of such counsel to the
effect that the position asserted in such appeal will more likely than not
prevail) and (F) no Event of Default shall have occurred and be continuing. In
no event shall an Indemnified Person be required to appeal an adverse judicial
determination to the United States Supreme Court. In addition, an Indemnified
Person shall not be required to contest any Claim in its name (or that of an
Affiliate) if the subject matter thereof shall be of a continuing nature and
shall have previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this Section 13.1, unless
there shall have been a change in law (or interpretation thereof) and the
Indemnified Person shall have received, at the Indemnity Provider's expense, an
opinion of independent counsel selected by the Indemnified Person and
reasonably acceptable to the Indemnity Provider stating that as a result of
such change in law (or interpretation thereof), it is more likely than not that
the Indemnified Person will prevail in such contest.
13.2. General Tax Indemnity. (a) The Indemnity Provider
shall pay and assume liability for, and does hereby agree to indemnify, protect
and defend the Property and all Indemnified Persons, and hold them harmless
against, all Impositions on an After Tax Basis, and all payments pursuant to
the Operative Agreements shall be made free and clear of and without deduction
for any and all present and future Impositions.
(a) Notwithstanding anything to the contrary in
Section 13.2(a) hereof, the following shall be excluded from the
indemnity required by Section 13.2(a):
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(i) Taxes (other than Taxes that are, or are in
the nature of, sales, use, rental, value added, transfer or property
taxes) that are imposed on a Indemnified Person (other than the
Lessor) by the United States federal government that are based on or
measured by the net income (including without limitation taxes based
on capital gains and minimum taxes) of such Person; provided, that
this clause (i) shall not be interpreted to prevent a payment from
being made on an After Tax Basis if such payment is otherwise required
to be so made;
(ii) Taxes (other than Taxes that are, or are in
the nature of, sales, use, rental, value added, transfer or property
taxes) that are imposed on any Indemnified Person (other than the
Lessor) by any state or local jurisdiction or taxing authority within
any state or local jurisdiction and that are based upon or measured by
the net income or net receipts, except that this clause (ii) shall not
apply to (and thus shall not exclude) any such Taxes imposed on an
Indemnified Person by the state (or any local taxing authority thereof
or therein) in which the Property is located, possessed or used under
the Lease; provided, that this clause (ii) shall not be interpreted to
prevent a payment from being made on an After Tax Basis if such
payment is otherwise required to be so made;
(iii) any Tax to the extent it relates to any act, event
or omission that occurs after the termination of the Lease and
redelivery or sale of the Property in accordance with the terms of the
Lease (but not any Tax that relates to such termination, redelivery or
sale and/or to any period prior to such termination, redelivery or
sale); and
(iv) any Taxes which are imposed on an Indemnified
Person as a result of the gross negligence or wilful misconduct of
such Indemnified Person itself (as opposed to gross negligence or
wilful misconduct imputed to such Indemnified Person), but not Taxes
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imposed as a result of ordinary negligence of such Indemnified Person;
(b) (i) Subject to the terms of Section 13.2(f), the
Indemnity Provider shall pay or cause to be paid all Impositions directly to
the taxing authorities where feasible and otherwise to the Indemnified Person,
as appropriate, and the Indemnity Provider shall at its own expense, upon such
Indemnified Person's reasonable request, furnish to such Indemnified Person
copies of official receipts or other satisfactory proof evidencing such
payment.
(i) In the case of Impositions for which no
contest is conducted pursuant to Section 13.2 (f) and which the
Indemnity Provider pays directly to the taxing authorities, the
Indemnity Provider shall pay such Impositions prior to the latest time
permitted by the relevant taxing authority for timely payment. In the
case of Impositions for which the Indemnity Provider reimburses an
Indemnified Person, the Indemnity Provider shall do so within thirty
(30) days after receipt by the Indemnity Provider of demand by such
Indemnified Person describing in reasonable detail the nature of the
Imposition and the basis for the demand (including without limitation
the computation of the amount payable). In the case of Impositions
for which a contest is conducted pursuant to Section 13.2(f), the
Indemnity Provider shall pay such Impositions or reimburse such
Indemnified Person for such Impositions, to the extent not previously
paid or reimbursed pursuant to subsection (a), prior to the latest
time permitted by the relevant taxing authority for timely payment
after conclusion of all contests under Section 13.2(f).
(ii) At the Indemnity Provider's request, the amount of
any indemnification payment by the Indemnity Provider pursuant to
subsection (a) shall be verified and certified by an independent
public accounting firm mutually acceptable to the Indemnity Provider
and the Indemnified Person. The fees and expenses of such independent
public accounting firm shall be paid by the
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Indemnity Provider unless such verification shall result in an
adjustment in the Indemnity Provider's favor of fifteen percent (15%)
or more of the payment as computed by the Indemnified Person, in which
case such fee shall be paid by the Indemnified Person.
(c) The Indemnity Provider shall be responsible for
preparing and filing any real and personal property or ad valorem tax returns
in respect of the Property. In case any other report or tax return shall be
required to be made with respect to any obligations of the Indemnity Provider
under or arising out of Section 13.2(a) hereof and of which the Indemnity
Provider has knowledge or should have knowledge, the Indemnity Provider, at its
sole cost and expense, shall notify the relevant Indemnified Person of such
requirement and (except if such Indemnified Person notifies the Indemnity
Provider that such Indemnified Person intends to file such report or return)
(A) to the extent required or permitted by and consistent with Legal
Requirements, make and file in Indemnity Provider's name such return, statement
or report; and (B) in the case of any other such return, statement or report
required to be made in the name of such Indemnified Person, advise such
Indemnified Person of such fact and prepare such return, statement or report
for filing by such Indemnified Person or, where such return, statement or
report shall be required to reflect items in addition to any obligations of the
Indemnity Provider under or arising out of Section 13.2(a) hereof, provide such
Indemnified Person at the Indemnity Provider's expense with information
sufficient to permit such return, statement or report to be properly made with
respect to any obligations of the Indemnity Provider under or arising out of
Section 13.2(a) hereof. Such Indemnified Person shall, upon the Indemnity
Provider's request and at the Indemnity Provider's expense, provide any data
maintained by such Indemnified Person (and not otherwise available to or within
the control of the Indemnity Provider) with respect to each Property which the
Indemnity Provider may reasonably require to prepare any required tax returns
or reports.
(d) As between the Indemnity Provider on one hand, and
the Lessor or the Agent, any Lender or any Holder on the
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other hand, the Indemnity Provider shall be responsible for, and the Indemnity
Provider shall indemnify and hold harmless the Lessor, the Agent, the Lenders
and each Holder (without duplication of any indemnification required by Section
13.2(a) hereof) on an After Tax Basis against, any obligation for United States
or foreign withholding taxes imposed in respect of the interest payable on the
Notes or with respect to Rent payments under the Lease (and, if the Lessor, the
Agent, any Lender or any Holder receives a demand for such payment from any
taxing authority, the Indemnity Provider shall discharge such demand on behalf
of the Lessor, the Agent, such Lender or such Holder); provided, however, that
the right of any Lender to make a claim for indemnification under this Section
13.2 (e) is subject to the compliance by such Lender with the requirements of
Section 2.13 of the Credit Agreement.
(e) (i) If a written Claim is made against any
Indemnified Person or if any proceeding shall be commenced against such
Indemnified Person (including without limitation a written notice of such
proceeding), for any Impositions, such Indemnified Person shall promptly notify
the Indemnity Provider in writing and shall not take action with respect to
such Claim or proceeding without the consent of the Indemnity Provider for
thirty (30) days after the receipt of such notice by the Indemnity Provider;
provided, however, that in the case of any such Claim or proceeding, if action
shall be required by law or regulation to be taken prior to the end of such
period of thirty (30) days, such Indemnified Person shall, in such notice to
the Indemnity Provider, inform the Indemnity Provider of such shorter period,
and no action shall be taken with respect to such Claim or proceeding without
the consent of the Indemnity Provider before seven (7) days before the end of
such shorter period; provided, further, that the failure of such Indemnified
Person to give the notices referred to this sentence shall not diminish the
Indemnity Provider's obligation hereunder except to the extent such failure
precludes in all respects the Indemnity Provider from contesting such Claim.
(i) If, within thirty (30) days of receipt of
such notice from the Indemnified Person (or such
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shorter period as the Indemnified Person has notified the Indemnity
Provider is required by law or regulation for the Indemnified Person
to commence such contest), the Indemnity Provider shall request in
writing that such Indemnified Person contest such Imposition, the
Indemnified Person shall, at the expense of the Indemnity Provider, in
good faith conduct and control such contest (including without
limitation by pursuit of appeals) relating to the validity,
applicability or amount of such Impositions (provided, however, that
(A) if such contest involves a tax other than a tax on net income and
can be pursued independently from any other proceeding involving a tax
liability of such Indemnified Person, the Indemnified Person, at the
Indemnity Provider's request, shall allow the Indemnity Provider (and
the Indemnity Provider shall be obligated) to conduct and control such
contest and (B) in the case of any contest, the Indemnified Person may
request the Indemnity Provider to conduct and control such contest
(with counsel to be selected by the Indemnity Provider and consented
to by such Indemnified Person, such consent not to be unreasonably
withheld; provided, however, that any Indemnified Person may retain
separate counsel at the expense of the Indemnity Provider in the event
of a conflict)) by, in the sole discretion of the Person conducting
and controlling such contest, (1) resisting payment thereof, (2) not
paying the same except under protest, if protest is necessary and
proper, (3) if the payment be made, using reasonable efforts to obtain
a refund thereof in appropriate administrative and judicial
proceedings, or (4) taking such other action as is reasonably
requested by the Indemnity Provider from time to time.
(ii) The party controlling the contest of any Imposition
shall consult in good faith with the noncontrolling party and shall
keep the non-controlling party reasonably informed as to the conduct
of such contest; provided, that all decisions ultimately shall be made
in the sole discretion of the controlling party. The parties agree
that an Indemnified Person may at any time decline to take further
action with
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respect to the contest of any Imposition and may settle such contest
if such Indemnified Person shall waive its rights to any indemnity
from the Indemnity Provider that otherwise would be payable in respect
of such Claim (and any future Claim by any taxing authority, the
contest of which is precluded by reason of such resolution of such
Claim) and shall pay to the Indemnity Provider any amount previously
paid or advanced by the Indemnity Provider pursuant to this Section
13.2 by way of indemnification or advance for the payment of an
Imposition other than expenses of such contest.
(iii) Notwithstanding the foregoing provisions of
this Section 13.2, an Indemnified Person shall not be required to take
any action and no Indemnity Provider shall be permitted to contest any
Impositions in its own name or that of the Indemnified Person unless
(A) the Indemnity Provider shall have agreed to pay and shall pay to
such Indemnified Person on demand and on an After Tax Basis all
reasonable costs, losses and expenses that such Indemnified Person
actually incurs in connection with contesting such Impositions,
including without limitation all reasonable legal, accounting and
investigatory fees and disbursements, and, if the Indemnified Person
has informed the Indemnity Provider (in its initial notice of the
Imposition) that it intends to contest such Imposition (whether or not
the control of the contest is then assumed by the Indemnity Provider),
the Indemnity Provider shall have agreed that the Imposition is an
indemnifiable Imposition hereunder, (B) in the case of a Claim that
must be pursued in the name of an Indemnified Person (or an Affiliate
thereof), the amount of the potential indemnity (taking into account
all similar or logically related Claims that have been or could be
raised in any audit involving such Indemnified Person for which the
Indemnity Provider may be liable to pay an indemnity under this
Section 13.2) exceeds $25,000, (C) the Indemnified Person shall have
reasonably determined that the action to be taken will not result in
any material danger of sale, forfeiture
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or loss of the Property, or any part thereof or interest therein, will
not interfere with the payment of Rent, and will not result in risk of
criminal liability, (D) if such contest shall involve the payment of
the Imposition prior to the contest, the Indemnity Provider shall
provide to the Indemnified Person an interest-free advance in an
amount equal to the Imposition that the Indemnified Person is required
to pay (with no additional net after-tax cost to such Indemnified
Person), (E) in the case of a Claim that must be pursued in the name
of an Indemnified Person (or an Affiliate thereof), the Indemnity
Provider shall have provided to such Indemnified Person an opinion of
independent tax counsel selected by the Indemnified Person and
reasonably satisfactory to the Indemnity Provider stating that a
reasonable basis exists to contest such Claim (or, in the case of an
appeal or an adverse determination, an opinion of such counsel to the
effect that the position asserted in such appeal will more likely than
not prevail) and (F) no Default or Event of Default shall have
occurred and be continuing. In no event shall an Indemnified Person
be required to appeal an adverse judicial determination to the United
States Supreme Court. In addition, an Indemnified Person shall not be
required to contest any Claim in its name (or that of an Affiliate) if
the subject matter thereof shall be of a continuing nature and shall
have previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this Section 13.2,
unless there shall have been a change in law (or interpretation
thereof) and the Indemnified Person shall have received, at the
Indemnity Provider's expense, an opinion of independent tax counsel
selected by the Indemnified Person and reasonably acceptable to the
Indemnity Provider stating that as a result of such change in law (or
interpretation thereof), it is more likely than not that the
Indemnified Person will prevail in such contest.
14. MISCELLANEOUS.
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14.1. Survival of Agreements. The representations,
warranties, covenants, indemnities and agreements of the parties provided for
in the Operative Agreements, and the parties, obligations under any and all
thereof, shall survive the execution and delivery of this Agreement, the
transfer of the Land to the Owner Trustee, the acquisition of any Equipment,
the construction of any Improvements, the Completion of the Property, any
disposition of any interest of the Owner Trustee in the Property or any
interest of the Holders in the Trust Estate, the payment of the Notes and any
disposition thereof and shall be and continue in effect notwithstanding any
investigation made by any party and the fact that any party may waive
compliance with any of the other terms, provisions or conditions of any of the
Operative Agreements. Except as otherwise expressly set forth herein or in
other Operative Agreements, the indemnities of the parties provided for in the
Operative Agreements shall survive the expiration or termination of any
thereof.
14.2. No Broker, etc. Each of the parties hereto
represents to the others that it has not retained or employed any broker,
finder or financial adviser to act on its behalf in connection with this
Agreement, nor has it authorized any broker, finder or financial adviser
retained or employed by any other Person so to act. Any party who is in breach
of this representation shall indemnify and hold the other parties harmless from
and against any liability arising out of such breach of this representation.
14.3. Notices. All notices required or permitted to be
given under this Agreement shall be in writing. Notices may be served by
certified or registered mail, postage paid with return receipt requested; by
private courier, prepaid; by telex, facsimile, or other telecommunication
device capable of transmitting or creating a written record; or personally.
Mailed notices shall be deemed delivered five (5) days after mailing, properly
addressed. Couriered notices shall be deemed delivered when delivered as
addressed, or if the addressee refuses delivery, when presented for delivery
notwithstanding such refusal. Telex or telecommunicated notices shall be
deemed delivered when receipt is either confirmed by confirming transmission
equipment or acknowledged by the addressee or its office. Personal delivery
shall be effective when accomplished. Unless a party changes its address by
giving notice to the other party as provided herein,
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notices shall be delivered to the parties at the following addresses:
If to the Construction Agent or the Lessee, to such entity at the
following address:
LCI International, Inc.
8180 Greensboro Drive, Suite 800
McLean, Virginia 22102
Attention: John J. Dillon
Telephone: 703/848-4490
Telecopy: 703/918-4460
If to the Owner Trustee, to it at the following address:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton
Vice President
Telephone: (801) 246-5300
Telecopy: (801) 246-5053
If to the Holders, to each such Holder at the address set forth for
such Holder on the signature page of the Trust Agreement.
If to the Agent, to it at the following address:
NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Brian D. Corum
Telephone: 214/508-0921
Telecopy: 214/508-9390
If to any Lender, to it at the address set forth for such Lender in
Schedule 1.1 of the Credit Agreement.
From time to time any party may designate additional parties and/or
another address for notice purposes by notice to each
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of the other parties hereto. Each notice hereunder shall be effective
upon receipt or refusal thereof.
14.4. Counterparts. This Agreement 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 an
original, but all such counterparts shall together constitute but one (1) and
the same instrument.
14.5. Amendments and Termination. Neither this Agreement
nor any of the terms hereof or any other Operative Agreement may be terminated,
amended, supplemented, waived or modified except by an instrument in writing
signed by the party against which the enforcement of the termination,
amendment, supplement, waiver or modification shall be sought; provided,
notwithstanding the foregoing, to the extent any Operative Agreement
contemplates consideration of any issue by (a) the Majority Lenders, then
consideration of such issue shall be governed by the judgment of the Majority
Lenders or (b) all the Lenders, then consideration of such issue shall be
governed by the judgment of all the Lenders. This Agreement may be terminated
by an agreement signed in writing by the Owner Trustee, the Holders, the
Lessee, the Lenders and the Agent.
14.6. Headings, etc. The Table of Contents and headings of
the various Articles and Sections of this Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof.
14.7. Parties in Interest. Except as expressly provided
herein, none of the provisions of this Agreement are intended for the benefit
of any Person except the parties hereto.
14.8. GOVERNING LAW; WAIVERS OF JURY TRIAL. (a) THIS
AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NORTH
CAROLINA AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
(a) EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW,
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
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14.9. Severability. Any provision of this Agreement that
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.
14.10. Liability Limited.
(a) The Lenders, the Agent, the Lessee and the
Holders each acknowledge and agree that the Owner Trustee is (except
as otherwise expressly provided herein or therein) entering into this
Agreement and the other Operative Agreements to which it is a party
(other than the Trust Agreement and to the extent otherwise provided
in Section 7.2 of this Agreement), solely in its capacity as trustee
under the Trust Agreement and not in its individual capacity and that
the Trust Company shall not be liable or accountable under any
circumstances whatsoever in its individual capacity for or on account
of any statements, representations, warranties, covenants or
obligations stated to be those of the Owner Trustee, except for its
own gross negligence or willful misconduct and as otherwise expressly
provided herein or in the other Operative Agreements.
(b) Anything to the contrary contained in this
Agreement, the Credit Agreement, the Notes or in any other Operative
Agreement notwithstanding, no Exculpated Person shall be personally
liable in any respect for any liability or obligation hereunder or in
any other Operative Agreement including without limitation the payment
of the principal of, or interest on, the Notes, or for monetary
damages for the breach of performance of any of the covenants
contained in the Credit Agreement, the Notes, this Agreement, the
Security Agreement, the Mortgage Instruments or any of the other
Operative Agreements. The Lenders and the Agent agree that, in the
event the Agent or any Lender pursues any remedies available to them
under the Credit Agreement, the Notes, this Agreement, the Security
Agreement, the Mortgage Instruments or under any other Operative
Agreement, neither the Lenders
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nor the Agent shall have any recourse against any Exculpated Person,
for any deficiency, loss or Claim for monetary damages or otherwise
resulting therefrom and recourse shall be had solely and exclusively
against the Trust Estate and the Lessee (with respect to the Lessee's
obligations under the Lease, the Participation Agreement and the
Agency Agreement); but nothing contained herein shall be taken to
prevent recourse against or the enforcement of remedies against the
Trust Estate in respect of any and all liabilities, obligations and
undertakings contained herein, in the Credit Agreement, in the Notes,
in the Security Agreement, the Mortgage Instruments or in any other
Operative Agreement. Notwithstanding the provisions of this Section,
nothing in this Agreement, the Credit Agreement, the Notes, the
Security Agreement, the Mortgage Instruments or any other Operative
Agreement shall: (i) constitute a waiver, release or discharge of any
indebtedness or obligation evidenced by the Notes or arising under
this Agreement, the Security Agreement, the Mortgage Instruments, the
Credit Agreement or any other Operative Agreement or secured by the
Security Agreement, the Mortgage Instruments or any other Operative
Agreement, but the same shall continue until paid or discharged; (ii)
relieve the Lessor or any Exculpated Person from liability and
responsibility for (but only to the extent of the damages arising by
reason of): any fraud, gross negligence or willful misconduct on the
part of the Lessor or any such Exculpated Person; (iii) relieve the
Lessor or any Exculpated Person from liability and responsibility for
(but only to the extent of the moneys misappropriated, misapplied or
not turned over) (a) except for Excepted Payments, misappropriation or
misapplication by the Lessor (i.e., application in a manner contrary
to any Operative Agreement) of any insurance proceeds or condemnation
award paid or delivered to the Lessor by any Person other than the
Agent, (b) except for Excepted Payments, any deposits or any escrows
or amounts owed by the Lessee under the Agency Agreement held by the
Lessor or (c) except for Excepted Payments, any rents or other income
received by the Lessor from the Lessee that are not turned over to the
Agent; or (iv) affect or in any way limit the Agent's rights and
remedies under any Operative Agreement with respect to the Rents and
its rights and powers thereunder or to obtain a judgment against the
Lessee's
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interest in the Property or to the extent the Lessee may be personally
liable as otherwise contemplated in clauses (ii) and (iii) of this
Section.
14.11. Rights of the Lessee. Notwithstanding any provision
of the Operative Agreements, if at any time all obligations (i) of the Owner
Trustee under the Credit Agreement and the Security Documents and (ii) of the
Lessee under the Operative Agreements have in each case been satisfied or
discharged in full, then the Lessee shall be entitled to (a) terminate the
Lease and (b) receive all amounts then held under the Operative Agreements and
all proceeds with respect to the Property. Upon the termination of the Lease
pursuant to the foregoing clause (a), the Lessor shall transfer to the Lessee
all of its right, title and interest free and clear of the Lien of the Lease
and all Lessor Liens in and to the Property then subject to the Lease in the
manner so provided in the Lease and any amounts or proceeds referred to in the
foregoing clause (b) shall be paid over to the Lessee.
14.12. Further Assurances. The parties hereto shall
promptly cause to be taken, executed, acknowledged or delivered, at the sole
expense of the Lessee, all such further acts, conveyances, documents and
assurances as the other parties may from time to time reasonably request in
order to carry out and effectuate the intent and purposes of this Participation
Agreement, the other Operative Agreements and the transactions contemplated
hereby and thereby (including without limitation the preparation, execution and
filing of any and all Uniform Commercial Code financing statements, filings of
Mortgage Instruments and other filings or registrations which the parties
hereto may from time to time request to be filed or effected). The Lessee, at
its own expense and without need of any prior request from any other party,
shall take such action as may be necessary (including without limitation any
action specified in the preceding sentence), or (if the Owner Trustee shall so
request) as so requested, in order to maintain and protect all security
interests provided for hereunder or under any other Operative Agreement.
14.13. Calculations under Operative Agreements. The parties
hereto agree that all calculations and numerical
73
<PAGE> 79
determinations to be made under the Operative Agreements by the Owner Trustee
shall be made by the Agent and that such calculations and determinations shall
be conclusive and binding on the parties hereto in the absence of manifest
error.
14.14. Confidentiality. Each of the Owner Trustee, the
Holders, the Agent and the Lenders severally hereby agrees to use reasonable
efforts to keep confidential all non-public information pertaining to the
Lessee or its Subsidiaries which is provided to it by the Lessee or its
Subsidiaries and which an officer of the Lessee or any of its Subsidiaries has
requested in writing be kept confidential, and shall not intentionally disclose
such information to any Person except:
(a) to the extent such information is public when
received by such Person or becomes public thereafter due to the act or
omission of any party other than such Person;
(b) to the extent such information is lawfully
and independently obtained from a source other than the Lessee or any
of its Subsidiaries and such Person neither knows or has reason to
know that such information from such source is subject to an
obligation of confidentiality or, if such information is subject to an
obligation of confidentiality, that disclosure of such information is
permitted;
(c) to counsel, auditors, accountants or agents
retained by any such Person or any Affiliates of any such Person
provided they agree to keep such information confidential as if such
Person or Affiliate were party to this Agreement and to financial
institution regulators, including without limitation examiners of any
Lender, the Agent or the Owner Trustee, any Holder or any Affiliate in
the course of examinations of such Persons;
(d) in connection with any litigation or the
enforcement or preservation of the rights of the Agent, the Owner
Trustee, the Lessor, any Lender or any Holder under the Operative
Agreements;
(e) to the extent required by any applicable
statute, rule or regulation or court order (including without
74
<PAGE> 80
limitation by way of subpoena) or pursuant to the request of any
regulatory or Governmental Authority having jurisdiction over any such
Person; provided, however, that such Person shall endeavor (if not
otherwise prohibited by Law) to notify the Lessee prior to any
disclosure made pursuant to this clause (e), except that no such
Person shall be subject to any liability whatsoever for any failure to
so notify the Lessee;
(f) the Agent may disclose such information to
the Lenders; or
(g) to the extent disclosure to other financial
institutions or other Persons is appropriate in connection with any
proposed or actual (i) assignment or grant of a participation by any
of the Lenders of interests in the Credit Agreement and/or any Note to
such other financial institutions or (ii) assignment by any Holder of
interests in the Trust Agreement to another Person; so long as such
financial institution or other Person first agrees in writing to hold
such information in confidence in accordance with the foregoing
provisions of this Section 14.14.
[signature pages follow]
75
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
LCI INTERNATIONAL, INC., as the
Construction Agent and as the Lessee
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, except as expressly stated
herein, but solely as the Owner Trustee
under the Stuart Park Trust
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
NATIONSBANK OF TEXAS, N.A., as a
Holder, as a Lender and as the Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
76
<PAGE> 82
THE BANK OF NEW YORK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
PNC LEASING CORP
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
77
<PAGE> 83
EXHIBIT A
REQUISITION FORM
(Pursuant to Sections 4.2 and 5.2 of the Participation Agreement)
LCI INTERNATIONAL, INC., a Delaware corporation (the "Company") hereby
certifies as true and correct and delivers the following Requisition to First
Security Bank, National Association, not individually, except as expressly
stated in the Participation Agreement (hereinafter defined), but solely as the
Owner Trustee under the Stuart Park Trust (the "Lessor"), NationsBank of Texas,
N.A., as the initial holder (together with subsequent holders, the "Holders"),
NationsBank of Texas, N.A., as the initial lender, (together with subsequent
Lenders, the "Lenders") and NationsBank of Texas, N.A., as administrative agent
for the Lenders pursuant to the Credit Agreement (the "Agent"):
Reference is made herein to that certain Participation Agreement dated
as of November __, 1996 (as such may be amended from time to time, the
"Participation Agreement") among the Company, in its capacity as the Lessee
and as the Construction Agent, the Lessor, the Holders, the Lenders and the
Agent. Capitalized terms used herein but not otherwise defined herein shall
have the meanings set forth therefor in the Participation Agreement.
Check one:
____ INITIAL CLOSING DATE: ________________
(three (3) Business Days prior notice required for Advance)
____ LAND CLOSING DATE: _________________
(three (3) Business Days prior notice required for Advance)
____ CONSTRUCTION ADVANCE DATE: ______________
(three (3) Business Days prior notice required for Advance)
15. Transaction Expenses and other fees, expenses and disbursements under
Section 9.1(a) or (b) of the Participation Agreement and any and all
other amounts contemplated to be financed under the Participation
Agreement including without limitation any Work, broker's fees, taxes,
A-1
<PAGE> 84
recording fees and the like (with supporting invoices or closing
statement attached):
<TABLE>
<CAPTION>
Party to Whom Amount Owed
Amount is Owed (in U.S. Dollars)
<S> <C> <C>
------------------------ -----------------------
- ------
------------------------ -----------------------
- ------
------------------------ -----------------------
- ------
------------------------ -----------------------
- ------
</TABLE>
16. Description of Land (which shall be a legal description of the Land in
connection with an Advance to pay Land Acquisition Costs and a street
address for the Property): See attached Schedule 1
17. Description of Improvements: See attached Schedule 2
18. Description of Equipment: See attached Schedule 3
19. Description of Work: See attached Schedule 4
20. Aggregate Loans and Holder Advances requested since the Initial
Closing Date with respect to the Property, including without
limitation all amounts requested under this Requisition:
$__________________
In connection with this Requisition, the Company hereby requests that
the Lenders make Loans to the Lessor in the amount of $_______________ and that
the Holders make Holder Advances to the Lessor in the amount of $_____________.
The Company hereby certifies (i) that the foregoing amounts requested do not
exceed the total aggregate of the Available Commitments plus the Available
Holder Commitments, (ii) each of the provisions of the Participation Agreement
applicable to the Loans and Holder Advances requested hereunder have been
complied with as of the date of this Requisition, (iii) no event has occurred
as described
A-2
<PAGE> 85
in Section 3.3(i) or (ii) of the Agency Agreement that would cause the Property
not to be completed by the Construction Termination Date, and (iv) the Property
will be completed by the Construction Termination Date.
The Company has caused this Requisition to the executed by its duly
authorized officer as of this __________ day of ___________, 19___.
LCI INTERNATIONAL, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
A-3
<PAGE> 86
SCHEDULE 1
Description of Land
(Legal Description and Street Address)
1
<PAGE> 87
SCHEDULE 2
Description of Improvements
2
<PAGE> 88
SCHEDULE 3
Description of Equipment
<TABLE>
<CAPTION>
===============================================================================================
General Description Make Model Serial Number
------------------- ---- ----- -------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
===============================================================================================
</TABLE>
3
<PAGE> 89
SCHEDULE 4
Work
Work Performed for which the Advance is requested:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
4
<PAGE> 90
EXHIBIT B
LCI INTERNATIONAL, INC.
OFFICER'S CERTIFICATE
(Pursuant to Section 5.5 of the Participation Agreement)
LCI INTERNATIONAL, INC. a Delaware corporation (the "Company") DOES HEREBY
CERTIFY as follows:
21. The address for the subject Property is _________________ Ballston,
Virginia.
22. The Completion Date for the construction of Improvements at the
Property occurred on ___________.
23. The aggregate Property Cost for the Property was $_________.
24. Attached hereto as Schedule I is the detailed, itemized documentation
supporting the asserted Property Cost figures.
25. All Improvements have been made in accordance with all applicable
Legal Requirements, in a good and workmanlike manner and otherwise in
full compliance with the standards and practices of the Company with
respect to Company-owned properties and improvements.
26. All Equipment has been acquired, installed and is operational and all
Improvements have been made in accordance with all applicable material
Legal Requirements in a good and workmanlike manner in accordance with
the Plans and Specifications (except to the extent that any deviation
from the Plans and Specifications could not reasonably be expected to
materially impair the value, utility, economic life or operation of
the Property) and otherwise in full compliance with the standards and
practices of the Company with respect to Company-owned equipment,
properties and additions.
27. All consents, licenses, permits, authorizations, assignments and
building permits required as of such date by all material Legal
Requirements or pursuant to the terms of any contract,
B-1
<PAGE> 91
indenture, instrument or agreement for the acquisition, ownership,
construction, completion, occupancy, operation, leasing or subleasing
of the Property have been obtained and are in full force and effect,
except to the extent that the failure to so obtain would not
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect.
28. Attached hereto as Schedule II is the environmental inspection
required by Section 10.3 of the Lease.
29. All requirements of the County of Arlington respecting the
construction of a public park and the granting of a permanent easement
to the County of Arlington or other governmental body respecting the
same have been fully complied with, the park has been accepted by the
applicable municipal authority and all rights of the County of
Arlington and its successors and assigns to cause a reversion of title
to all or any portion of the Land have terminated and have been
cancelled of record.
Capitalized terms used in this Officer's Certificate and not otherwise defined
have the respective meanings ascribed thereto in the Participation Agreement
dated as of November __, 19___ among the Company, as the Lessee, NationsBank of
Texas, N.A., as the initial Holder and the initial Lender, First Security Bank,
National Association, as the Owner Trustee and NationsBank of Texas, N.A., as
the Agent.
IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be
duly executed and delivered as of this ______ day of _____________, 199__.
LCI INTERNATIONAL, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
B-2
<PAGE> 92
Schedule I
(Itemized Documentation in Support of Asserted Property Cost)
1
<PAGE> 93
Schedule II
(Environmental Report Under Section 10.3 of the Lease)
1
<PAGE> 94
EXHIBIT C
[Outside Counsel Opinion for the Lessee]
(Pursuant to Section 6.1(c) of the Participation Agreement)
__________, 19___
TO THOSE ON THE ATTACHED DISTRIBUTION LIST
Re: Lease Financing Provided in favor of LCI International, Inc.
Dear Sirs:
We have acted as special counsel to LCI International, Inc., a Delaware
corporation (the "Lessee") in connection with certain transactions contemplated
by the Participation Agreement dated as of ____________, 1996 (the
"Participation Agreement"), among the Lessee, First Security Bank, National
Association (the "Owner Trustee"), NationsBank of Texas, N.A., as the initial
Holder (together with subsequent holders, the "Holders"), NationsBank of Texas,
N.A., as the initial lender, (together with subsequent lenders, the "Lenders"),
and NationsBank of Texas, N.A., as the administrative agent for the Lenders
(the "Agent"). This opinion is delivered pursuant to Section 6.1(c) of the
Participation Agreement. All capitalized terms used herein, and not otherwise
defined herein, shall have the meanings assigned thereto in Appendix A to the
Participation Agreement.
In connection with the foregoing, we have examined originals, or copies
certified to our satisfaction, of the Operative Agreements, and such other
corporate documents and records of the Lessee, certificates of public officials
and representatives of the Lessee as to certain factual matters, and such other
instruments and documents which we have deemed necessary or advisable to
examine for the purpose of this opinion. With respect to such examination, we
have assumed (i) the statements of fact made in all such certificates,
documents and instruments are true, accurate and complete; (ii) the due
authorization, execution and
C-1
<PAGE> 95
To Those On The Attached Distribution List
_____________. 1996
Page 2
delivery of the Operative Agreements by the parties thereto other than the
Lessee; (iii) the genuineness of all signatures (other than the signatures of
persons signing on behalf of the Lessee), the authenticity and completeness of
all documents, certificates, instruments, records and corporate records
submitted to us as originals and the conformity to the original instruments of
all documents submitted to us as copies, and the authenticity and completeness
of the originals of such copies; (iv) that all parties other than the Lessee
have all requisite corporate power and authority to execute, deliver and
perform the Operative Agreements; and (v) the enforceability of the Operative
Agreements against all parties thereto other than the Lessee and respecting the
opinion set forth below in section (i), First Security Bank, National
Association, individually or as the Owner Trustee, as the case may be.
Based on the foregoing, and having due regard for such legal considerations as
we deem relevant, and subject to the limitations and assumptions set forth
herein, including without limitation the matters set forth in the last two (2)
paragraphs hereof, we are of the opinion that:
1. The Lessee is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware and has the
power and authority to conduct its business as presently conducted and to
execute, deliver and perform its obligations under the Operative Agreements to
which it is a party. The Lessee is duly qualified to do business in all
jurisdictions in which its failure to so qualify would materially impair its
ability to perform its obligations under the Operative Agreements to which it
is a party or its financial position or its business as now and now proposed to
be conducted.
2. The execution, delivery and performance by the Lessee
of the Operative Agreements (including the Guaranty) to which it is a party
have been duly authorized by all necessary corporate action on the part of the
Lessee and the Operative Agreements to
C-2
<PAGE> 96
To Those On The Attached Distribution List
_____________. 1996
Page 2
which the Lessee is a party have been duly executed and delivered by the
Lessee.
3. The Operative Agreements (including the Guaranty) to
which the Lessee is a party constitute valid and binding obligations of the
Lessee enforceable against the Lessee in accordance with the terms thereof,
subject to bankruptcy, insolvency, liquidation, reorganization, fraudulent
conveyance, and similar laws affecting creditors, rights generally, and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law).
4. The execution and delivery by the Lessee of the
Operative Agreements (including the Guaranty) to which it is a party and
compliance by the Lessee with all of the provisions thereof do not and will not
(i) contravene the provisions of, or result in any breach of or constitute any
default under, or result in the creation of any Lien (other than Permitted
Liens) upon any of its property under, its Articles of Incorporation or By-Laws
or any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional
sales contract, bank loan or credit agreement or other agreement or instrument
to which the Lessee is a party or by which it or any of its property may be
bound or affected, or (ii) contravene any Laws or any order of any Governmental
Authority applicable to or binding on the Lessee.
5. No Governmental Action by, and no notice to or filing
with, any Governmental Authority is required for the due execution, delivery or
performance by the Lessee of any of the Operative Agreements to which it is a
party or for the acquisition, ownership, construction and completion of the
Property, except for those which have been obtained.
6. Except as set forth on Schedule 1 hereto, there are
no actions, suits or proceedings pending or to our knowledge, threatened
against the Lessee in any court or before any
C-3
<PAGE> 97
To Those On The Attached Distribution List
_____________. 1996
Page 2
Governmental Authority, that concern the Property or the Lessee's interest
therein or that question the validity or enforceability of any Operative
Agreement to which the Lessee is a party or the overall transaction described
in the Operative Agreements to which the Lessee is a party.
7. Neither the nature of the Property, nor any relationship
between the Lessee and any other Person, nor any circumstance in connection
with the execution, delivery and performance of the Operative Agreements to
which the Lessee is a party is such as to require any approval of stockholders
of, or approval or consent of any trustee or holders of indebtedness of, the
Lessee, except for such approvals and consents which have been duly obtained
and are in full force and effect.
8. The Security Documents which have been executed and delivered
as of the date of this opinion create, for the benefit of the Agent, the
security interests in the Collateral described therein which by their terms
such Security Documents purport to create. The Mortgage Instruments and UCC
fixture filings relating thereto (attached hereto as Schedules 2 and 3,
respectively) are in proper form for recording and/or filing with the offices
of the county clerks where the Property is located. Upon filing of each
Mortgage Instrument and UCC fixture filing in such offices, the Agent will have
a valid, perfected lien and security interest in the portion of the Collateral
described in such Mortgage Instrument or UCC fixture filing to the extent such
Collateral is comprised of real property and/or fixtures. The UCC financing
statements relating to the other Security Documents (attached hereto as
Schedule 4) are in proper form for recording and/or filing with the offices of
(i) the county clerks where (A) the principal place of business of the Lessee
is located and (B) the Property is located and (ii) the Secretary of State
where (A) the principal place of business of the Lessee is located and (B) the
Property is located. Upon filing of such UCC-1 financing statements in such
offices, the Agent will have a valid, perfected
C-4
<PAGE> 98
To Those On The Attached Distribution List
_____________. 1996
Page 2
lien and security interest in that portion of the Collateral which can be
perfected by such filing under Article 9 of the UCC.
9. The Operative Agreements to which First Security
Bank, National Association, individually or as the Owner Trustee, is a party
constitute valid and binding obligations of such party and are enforceable
against First Security Bank, National Association, individually or as the Owner
Trustee, as the case may be, in accordance with the terms thereof, subject to
bankruptcy, insolvency, liquidation, reorganization, fraudulent conveyance, and
similar laws affecting creditors, rights generally, and general principles of
equity (regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
10. The execution and delivery by First Security Bank,
National Association, individually or as the Owner Trustee, as the case may be,
of the Operative Agreements to which it is a party and compliance by First
Security Bank, National Association, individually or as the Owner Trustee, with
all of the provisions thereof do not and will not contravene any law, rule or
regulation of the Commonwealth of Virginia or the State of North Carolina.
11. The issuance, sale and delivery of the Notes and the
issuance and delivery of the Certificates under the circumstances contemplated
by the Participation Agreement do not, under existing law, require registration
of the Notes or the Certificates being issued on the date hereof under the
Securities Act of 1933, as amended, or the qualification of the Loan Agreement
under the Trust Indenture Act of 1939, as amended.
12. By reason of their participation in the transaction
contemplated under the Operative Agreements, none of the Agent, the Lenders,
the Holders or the Owner Trustee has to (a) qualify as a foreign corporation in
the Commonwealth of Virginia or the State of North Carolina, (b) file any
application or any designation for service of process in the Commonwealth of
Virginia
C-5
<PAGE> 99
To Those On The Attached Distribution List
_____________. 1996
Page 2
or the State of North Carolina or (c) pay any franchise, income, sales, excise,
stamp or other taxes of any kind to the Commonwealth of Virginia or the State
of North Carolina.
13. The provisions in the Operative Agreements concerning
Rent, interest, fees, prepayment premiums and other similar charges do not
violate the usury laws or other similar laws regulating the use or forbearance
of money of the Commonwealth of Virginia or the State of North Carolina.
14. Title to the Property may be held in the name of the
Owner Trustee as follows: First Security Bank, National Association, not
individually, but solely as the Owner Trustee under the Stuart Park Trust.
15. If the transactions contemplated by the Operative
Agreements are characterized as a lease transaction by a court of law of
competent jurisdiction in the Commonwealth of Virginia, the Lease and the forms
of Lease Supplement are in form sufficient under the laws of the Commonwealth
of Virginia to demise to the Lessee a valid leasehold interest in the Property.
The forms of Memoranda of Lease, when recorded with the recording offices of
the respective county clerks for the counties where the Property is to be
located, will have been filed or recorded in all public offices in the
Commonwealth of Virginia in which filing or recording is necessary to provide
constructive notice of the Lease to third Persons and to establish of record
the interest of the Lessor thereunder as to the Property appropriately
described in such Memoranda of Lease.
16. If the transactions contemplated by the Operative
Agreements are characterized as a loan transaction by a court of competent
jurisdiction in the Commonwealth of Virginia, the combination of the Deeds
relating to the Property described in the Lease Supplements, the Lease and such
Lease Supplements (and the other Operative Agreements incorporated therein by
reference) are sufficient under the laws of such states to create a valid,
C-6
<PAGE> 100
To Those On The Attached Distribution List
_____________. 1996
Page 2
perfected lien or security interest in such Property, enforceable as a
mortgage, and, when the Deeds and the Memoranda of Lease relating to such
Property have been recorded with the recording offices of the respective county
clerks for the counties where the Property are located, such documents will
have been filed or recorded in all public offices in the Commonwealth of
Virginia in which filing or recording is necessary to perfect the lien of the
Lessor thereunder to the extent that such Property constitutes real property.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters stated herein. This opinion is
based on and is limited to the laws of the Commonwealth of Virginia, and the
federal laws of the United States of America. Insofar as the foregoing opinion
relates to matters of law other than the foregoing, no opinion is hereby given.
This opinion is for the sole benefit of the Lessee, NationsBank of Texas, N.A.,
as the Agent, the Holders, the Lenders, First Security Bank, National
Association, not individually, but solely as the Owner Trustee under the Stuart
Park Trust and their respective successors and assigns and may not be relied
upon by any other person other than such parties and their respective
successors and assigns without the express written consent of the undersigned.
The opinions expressed herein are as of the date hereof and we make no
undertaking to amend or supplement such opinions if facts come to our attention
or changes in the current law of the jurisdictions mentioned herein occur which
could affect such opinions.
Very truly yours,
[LESSEE'S OUTSIDE COUNSEL]
C-7
<PAGE> 101
Distribution List
NationsBank of Texas, N.A., as the Agent, a Holder and a Lender
First Security Bank, National Association, not individually, but solely as the
Owner Trustee under the Stuart Park Trust.
The Industrial Bank of Japan, a Holder and a Lender
The Bank of New York, a Holder and a Lender
The Bank of Nova Scotia, a Holder and a Lender
PNC Leasing Corp, a Holder and a Lender
The First National Bank of Chicago, a Holder and a Lender
C-8
<PAGE> 102
SCHEDULE 1
(Litigation)
C-9
<PAGE> 103
SCHEDULE 2
(Mortgage Instruments)
C-10
<PAGE> 104
SCHEDULE 3
(UCC Fixture Filings)
C-11
<PAGE> 105
SCHEDULE 4
(UCC Financial Statements)
C-12
<PAGE> 106
EXHIBIT D
LCI INTERNATIONAL, INC.
OFFICER'S CERTIFICATE
(Pursuant to Section 6.1(g) of the Participation Agreement)
LCI INTERNATIONAL, INC., a Delaware corporation (the "Company") DOES
HEREBY CERTIFY as follows:
30. Each and every representation and warranty of the Company
contained in the Operative Agreements to which it is a party
is true and correct on and as of the date hereof.
31. No Default or Event of Default has occurred and is continuing
under any Operative Agreement.
32. Each Operative Agreement to which the Company is a party is in
full force and effect with respect to it.
33. The Company has duly performed and complied with all
covenants, agreements and conditions contained in the
Participation Agreement (hereinafter defined) or in any
Operative Agreement required to be performed or complied with
by it on or prior to the date hereof.
Capitalized terms used in this Officer's Certificate and not otherwise defined
herein have the respective meanings ascribed thereto in the Participation
Agreement dated as of November __, 1996 among the Company, as the Lessee,
NationsBank of Texas, N.A., as the initial holder (together with subsequent
holders, the "Holders"), NationsBank of Texas, N.A., as initial lender,
(together with subsequent lenders, the "Lenders") and NationsBank of Texas,
N.A., as administrative agent for the Lenders pursuant to the Credit Agreement
(the "Agent").
IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be
duly executed and delivered as of this _____ day of November, 1996.
D-1
<PAGE> 107
LCI INTERNATIONAL, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
D-2
<PAGE> 108
EXHIBIT E
LCI INTERNATIONAL, INC.
OFFICER'S CERTIFICATE
(Pursuant to Section 6.1(h) of the Participation Agreement)
LCI INTERNATIONAL, INC., a Delaware corporation (the "Company") DOES
HEREBY CERTIFY as follows:
34. Attached hereto as Schedule I is a true, correct and complete copy of
the resolutions of the Board of Directors of the Company duly adopted
by the Board of Directors of the Company on November __, 1996. Such
resolutions have not been amended, modified or rescinded since their
date of adoption and remain in full force and effect as of the date
hereof.
35. Attached hereto as Schedule II is a true, correct and complete copy of
the Articles of Incorporation of the Company on file in the Office of
the Secretary of State of the State of Delaware. Such Articles of
Incorporation have not been amended, modified or rescinded since their
date of adoption and remain in full force and effect as of the date
hereof.
36. Attached hereto as Schedule III is a true, correct and complete copy
of the By-laws of the Company. Such By-laws have not been amended,
modified or rescinded since their date of adoption and remain in full
force and effect as of the date hereof.
37. The persons named below now hold the offices set forth opposite their
names, and the signatures opposite their names and titles are their
true and correct signatures.
<TABLE>
<CAPTION>
Name Office Signature
---- ------ ---------
<S> <C> <C>
-------------- ------------- ---------------
-------------- ------------- ---------------
-------------- ------------- ---------------
</TABLE>
E-1
<PAGE> 109
-------------- ------------- ---------------
IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be
duly executed and delivered as of this ______ day of November, 1996.
LCI INTERNATIONAL, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
E-2
<PAGE> 110
SCHEDULE I
BOARD RESOLUTIONS
1
<PAGE> 111
SCHEDULE II
ARTICLES OF INCORPORATION
2
<PAGE> 112
SCHEDULE III
BY-LAWS
3
<PAGE> 113
EXHIBIT F
FIRST SECURITY BANK, NATIONAL ASSOCIATION
OFFICER'S CERTIFICATE
(Pursuant to Section 6.2(d) of the Participation Agreement)
FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking
association, not individually (except with respect to paragraph 1 below, to the
extent any such representations and warranties are made in its individual
capacity) but solely as the owner trustee under the Stuart Park Trust (the
"Owner Trustee"), DOES HEREBY CERTIFY as follows:
38. Each and every representation and warranty of the Owner Trustee
contained in the Operative Agreements to which it is a party is true
and correct on and as of the date hereof.
39. Each Operative Agreement to which the Owner Trustee is a party is in
full force and effect with respect to it.
40. The Owner Trustee has duly performed and complied with all covenants,
agreements and conditions contained in the Participation Agreement
(hereinafter defined) or in any Operative Agreement required to be
performed or complied with by it on or prior to the date hereof.
Capitalized terms used in this Officer's Certificate and not otherwise defined
herein have the respective meanings ascribed thereto in the Participation
Agreement dated as of November __, 1996 among LCI International, Inc., as the
Lessee, NationsBank of Texas, N.A., as the initial holder (together with
subsequent holders, the "Holders"), NationsBank of Texas, N.A., as the initial
lender, (together with subsequent lenders, the "Lenders") and NationsBank of
Texas, N.A., as administrative agent for the Lenders pursuant to the Credit
Agreement (the "Agent").
IN WITNESS WHEREOF, the Owner Trustee has caused this Officer's Certificate to
be duly executed and delivered as of this ____ day of November, 1996.
F-1
<PAGE> 114
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, except as expressly stated
herein, but solely as the Owner Trustee
under the Stuart Park Trust
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
F-2
<PAGE> 115
EXHIBIT G
FIRST SECURITY BANK, NATIONAL ASSOCIATION
OFFICER'S CERTIFICATE
(Pursuant to Section 6.2(e) of the Participation Agreement)
CERTIFICATE OF ASSISTANT SECRETARY
I, __________________, Senior Vice President and a duly elected and
qualified Assistant Secretary of the Board of Directors of First Security Bank,
National Association (the "Association"), hereby certify as follows:
1. The Association is a National Banking Association duly
organized, validly existing and in good standing under the laws of the United
States. With respect thereto the following is noted:
1. Pursuant to Revised Statutes 324, et seq., as amended,
12 U.S.C. 1, et seq., the Comptroller of the Currency charters and
exercises regulatory and supervisory authority over all National
Banking Associations;
2. On December 9, 1881, the First National Bank of
Ogden, Utah was chartered as a National Banking Association under the
laws of the United States and under Charter No. 2597;
3. On October 2, 1922, in connection with a
consolidation of The First National Bank of Ogden, Ogden, Utah, and
The Utah National Bank of Ogden, Ogden, Utah, the title was changed to
"The First & Utah National Bank of Ogden"; on January 18, 1923, The
First & Utah National Bank of Ogden changed its title to "First Utah
National Bank of Ogden"; on January 19, 1926, the title was changed to
"First National Bank of Ogden"; on February 24, 1934, the title was
changed to "First Security Bank, National Association"; and
G-1
<PAGE> 116
4. Security Bank, National Association, Ogden, Utah,
continues to hold a valid certificate to do business as a National
Banking Association.
2. The Association's Articles of Association, as amended, are in
full force and effect, and a true, correct and complete copy is attached hereto
as Exhibit A and incorporated herein by reference. Said Articles were last
amended October 20, 1975, as required by law on notice at a duly called special
meeting of the shareholders of the Association.
3. The Association's By-Laws, as amended, are in full force and
effect; and a true, correct and complete copy is attached hereto as Exhibit B
and incorporated herein by reference. Said ByLaws, still in full force and
effect, were adopted September 17, 1942, by resolution, after proper notice of
consideration and adoption of By-Laws was given to each and every shareholder,
at a regularly called meeting of the Board of Directors with a quorum present.
4. Pursuant to the authority vested in it by an Act of Congress
approved December 23, 1913 and known as the Federal Reserve Act, as amended,
the Federal Reserve Board (now the Board of Governors of the Federal Reserve
System) has granted to the Association now known as "First Security Bank,
National Association" of Ogden, Utah, the right to act, when not in
contravention of State or local law, as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver,
committee of estates of lunatics, or in any other fiduciary capacity in which
State banks, trust companies or other corporations which come into competition
with National Banks are permitted to act under the laws of the State of Utah;
and under the provisions of applicable law, the authority so granted remains in
full force and effect.
5. Pursuant to authority vested by Act of Congress (12 U.S.C. 92a
and 12 U.S.C. 481, as amended) the Comptroller of the Currency has issued
Regulation 9, as amended, dealing, in part, with the Fiduciary Powers of
National Banks, said regulation providing in subparagraph 9.7(a)(1-2):
G-2
<PAGE> 117
(a) The board of directors is responsible for the proper
exercise of fiduciary powers by the Bank. All matters pertinent
thereto, including the determination of policies, the investment and
disposition of property held in fiduciary capacity, and the direction
and review of the actions of all officers, employees, and committees
utilized by the Bank in the exercise of its fiduciary powers, are the
responsibility of the board. In discharging this responsibility, the
board of directors may assign, by action duly entered in the minutes,
the administration of such of the Bank's fiduciary powers as it may
consider proper to assign to such directors), officer(s), employee(s)
or committee(s) as it may designate.
(b) No fiduciary account shall be accepted without the
prior approval of the board, or of the director(s), officer(s), or
committee(s) to whom the board may have designated the performance of
that responsibility.
6. A Resolution relating to Exercise of Fiduciary Powers
was adopted by the Board of Directors at a meeting held July 26, 1994 at which
time there was a quorum present; said resolution is still in full force and
effect and has not been rescinded. Said resolution is attached hereto as
Exhibit C and incorporated herein by reference.
7. A Resolution relating to the Designation of officers
and Employees to Exercise Fiduciary Powers was adopted by the Trust Policy
Committee at a meeting held February 7, 1996 at which time a quorum was
present; said resolution is still in full force and effect and has not been
rescinded. Said resolution is attached hereto as Exhibit D and is incorporated
herein by reference.
8. Attached hereto as Exhibit E and incorporated herein
by reference, is a listing of facsimile signatures of persons authorized
(herein "Authorized Signatory or Signatories") on behalf of the Association and
its Trust Group to act in exercise of its fiduciary powers subject to the
resolutions in Paragraphs 6 and 7, above.
G-3
<PAGE> 118
9. The principal office of the First Security Bank,
National Association, Trust Group and of its departments, except for the St.
George, Utah, Ogden, Utah, and Provo, Utah, branch offices, is located at 79
South Main Street, Salt Lake City, Utah 84111 and all records relating to
fiduciary accounts are located at such principal office of the Trust Group or
in storage facilities within Salt Lake County, Utah, except for those of the
Ogden, Utah, St. George, Utah, and Provo, Utah, branch offices, which are
located at said office.
10. Each Authorized Signatory (i) is a duly elected or
appointed, duly qualified officer or employee of the Association; (ii) holds
the office or job title set forth below his or her name on the date hereof;
(iii) and the facsimile signature appearing opposite the name of each such
officer or employee is a true replica of his or her signature.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Association this ___ day of November, 1996.
(SEAL)
-------------------------
-------------------------
-----------Vice President
Assistant Secretary
G-4
<PAGE> 119
(Attached to Certificate of Assistant
Secretary of First Security Bank,
National Association)
EXHIBIT A
ARTICLES OF ASSOCIATION
1
<PAGE> 120
(Attached to Certificate of Assistant
Secretary of First Security Bank,
National Association)
EXHIBIT B
BY-LAWS
2
<PAGE> 121
(Attached to Certificate of Assistant
Secretary of First Security Bank,
National Association)
EXHIBIT C
RESOLUTION RELATING TO
EXERCISE OF FIDUCIARY POWERS
3
<PAGE> 122
(Attached to Certificate of Assistant
Secretary of First Security Bank,
National Association)
EXHIBIT D
RESOLUTION RELATING TO THE
DESIGNATION OF OFFICERS AND EMPLOYEES
TO EXERCISE FIDUCIARY POWERS
4
<PAGE> 123
(Attached to Certificate of Assistant
Secretary of First Security Bank,
National Association)
EXHIBIT E
AUTHORIZED SIGNATORY OR SIGNATORIES
5
<PAGE> 124
EXHIBIT H
[The Owner Trustee's Outside Counsel Opinion]
(Pursuant to Section 6.2(f) of the
Participation Agreement)
___________, 1996
TO THOSE ON THE ATTACHED DISTRIBUTION LIST
Re: Trust Agreement dated as of November __, 1996
Dear Sirs:
We have acted as special counsel for First Security Bank, National Association,
a national banking association, in its individual capacity ("FSB") and in its
capacity as trustee (the "Owner Trustee") under the Trust Agreement dated as of
November, 1996 (the "Trust Agreement") by and among it, NationsBank of Texas,
N.A. (together with subsequent holders, the "Holders"), in connection with the
execution and delivery by the Owner Trustee of the Operative Agreements to
which it is a party. Except as otherwise defined herein, the terms used herein
shall have the meanings set forth in Appendix A to the Participation Agreement
dated as of November __, 1996 (the "Participation Agreement") by and among LCI
International, Inc., First Security Bank, National Association, in its
individual capacity as expressly set forth therein and otherwise as the Owner
Trustee and NationsBank of Texas, N.A., as the Agent, the initial Holder
(together with subsequent holders, the "Holders") and the initial Lender
(together with subsequent lenders, the "Lenders").
We have examined originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records and other instruments as we
have deemed necessary or advisable for the purpose of rendering this opinion.
Based upon the foregoing, we are of the opinion that:
11. FSB is a national banking association duly organized,
validly existing and in good standing under the laws of
H-1
<PAGE> 125
United States of America and each of FSB and the Owner Trustee has
under the laws of the State of Utah and federal banking law the power
and authority to enter into and perform its obligations under the
Trust Agreement and each other Operative Agreement to which it is a
party.
12. The Owner Trustee is the duly appointed trustee under
the Trust Agreement.
13. Trust Agreement has been duly authorized, executed
and delivered by one (1) of the officers of FSB and, assuming due
authorization, execution and delivery by the Holders, is a legal,
valid and binding obligation of the Owner Trustee (and to the extent
set forth therein, against FSB), enforceable against the Owner Trustee
(and to the extent set forth therein, against FSB) in accordance with
its terms, and the Trust Agreement creates under the laws of the State
of Utah for the Holders the beneficial interest in the Trust Estate it
purports to create and is a valid trust under the laws of the State of
Utah.
14. The Operative Agreements to which it is party have
been duly authorized, executed and delivered by FSB, and, assuming due
authorization, execution and delivery by the other parties thereto,
are legal, valid and binding obligations of FSB, enforceable against
FSB in accordance with their respective terms.
15. The Operative Agreements to which it is party have
been duly authorized, executed and delivered by the Owner Trustee,
and, assuming due authorization, execution and delivery by the other
parties thereto, are legal, valid and binding obligations of the Owner
Trustee, enforceable against the Owner Trustee in accordance with
their respective terms. The Notes and the Certificates have been duly
issued, executed and delivered by the Owner Trustee, pursuant to
authorization contained in the Trust Agreement, and the Certificates
are entitled to the benefits and security afforded by the Trust
Agreement in accordance with its terms and the terms of the Trust
Agreement.
H-2
<PAGE> 126
16. The execution and delivery by each of FSB and the
Owner Trustee of the Trust Agreement and the Operative Agreements to
which it is a party, and compliance by FSB or the Owner Trustee, as
the case may be, with all of the provisions thereof do not and will
not contravene any Laws applicable to or binding on FSB, or as the
Owner Trustee, or contravene the provisions of, or constitute a
default under, its charter documents or by-laws or, to our knowledge
after due inquiry, any indenture, mortgage contract or other agreement
or instrument to which FSB or the Owner Trustee is a party or by which
it or any of its property may be bound or affected.
17. The execution and delivery of the Operative
Agreements by each of FSB and the Owner Trustee and the performance by
each of FSB and the Owner Trustee of their respective obligations
thereunder does not require on or prior to the date hereof the consent
or approval of, the giving of notice to, the registration or filing
with, or the taking of any action in respect of any Governmental
Authority or any court.
18. Assuming that the trust created by the Trust
Agreement is treated as a grantor trust for federal income tax
purposes within the contemplation of Section 671 through 678 of the
Internal Revenue Code of 1986, there are no fees, taxes, or other
charges (except taxes imposed on fees payable to the Owner Trustee)
payable to the State of Utah or any political subdivision thereof in
connection with the execution, delivery or performance by the Owner
Trustee, the Agent, the Lenders, the Lessee or the Holders, as the
case may be, of the Operative Agreements or in connection with the
acquisition of the Property by the Owner Trustee or in connection with
the making by any Holder of its investment in the Trust or its
acquisition of the beneficial interest in the Trust Estate or in
connection with the issuance and acquisition of the Certificates, or
the Notes, and neither the Owner Trustee, the Trust Estate nor the
trust created by the Trust Agreement will be subject to any fee, tax
or other governmental charge (except taxes on fees payable to the
Owner Trustee) under the laws of the State of Utah or any political
subdivision thereof on, based on or measured by, directly or
indirectly, the gross receipts, net income or
H-3
<PAGE> 127
value of the Trust Estate by reason of the creation or continued
existence of the trust under the terms of the Trust Agreement pursuant
to the laws of the State of Utah or the Owner Trustee's performance of
its duties under the Trust Agreement.
19. There is no fee, tax or other governmental charge
under the laws of the State of Utah or any political subdivision
thereof in existence on the date hereof on, based on or measured by
any payments under the Certificates, Notes or the beneficial interests
in the Trust Estate, by reason of the creation of the trust under the
Trust Agreement pursuant to the laws of the State of Utah or the Owner
Trustee's performance of its duties under the Trust Agreement within
the State of Utah.
20. Upon the filing of the financing statement on form
UCC-1 in the form attached hereto as Exhibit A with the ___________,
the Agent's security interest in the Trust Estate, for the benefit of
the Lenders, will be perfected, to the extent that such perfection is
governed by Article 9 of the Uniform Commercial Code as in effect in
the State of Utah (the "Utah UCC").
Your attention is directed to the Utah UCC, which provides, in part, that a
filed financing statement which does not state a maturity date or which states
a maturity date of more than five (5) years is effective only for a period of
five (5) years from the date of filing, unless within six (6) months prior to
the expiration of said period a continuation statement is filed in the same
office or offices in which the original statement was filed. The continuation
statement must be signed by the secured party, identify the original statement
by file number and state that the original statement is still effective. Upon
the timely filing of a continuation statement, the effectiveness of the
original financing statement is continued for five (5) years after the last
date to which the original statement was effective. Succeeding continuation
statements may be filed in the same manner to continue the effectiveness of the
original statement.
H-4
<PAGE> 128
The opinions set forth in paragraphs 3 and 4 above are subject to the
qualification that enforceability of the Trust Agreement and the other
Operative Agreements to which the Owner Trustee is a party, in accordance with
their respective terms, may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of creditors,
rights generally.
We are attorneys admitted to practice in the State of Utah and in rendering the
foregoing opinions we have not passed upon, or purported to pass upon, the laws
of any jurisdictions other than the State of Utah and the federal banking law
governing the banking and trust powers of FSB.
This opinion is for the sole benefit of LCI International, Inc., NationsBank of
Texas, N.A, as the Agent, the Lenders, the Holders, FSB, not individually, but
solely as the Owner Trustee under the Stuart Park Trust and their respective
successors and assigns and may not be relied upon by any other person other
than such parties and their respective successors and assigns without the
express written consent of the undersigned. The opinions expressed herein are
as of the date hereof and we make no undertaking to amend or supplement such
opinions if facts come to our attention or changes in the current law of the
jurisdictions mentioned herein occur which could affect such opinions.
Very truly yours,
(Name of the Owner Trustee's
Outside Counsel]
H-5
<PAGE> 129
Distribution List
NationsBank of Texas, N.A., as the Agent, a Holder and a Lender
LCI International, Inc.
First Security Bank, National Association, not individually, but solely as the
Owner Trustee under the Stuart Park Trust
The Lenders
The Holders
1
<PAGE> 130
EXHIBIT I
[Description of Material Litigation]
(Pursuant to Section 7.3(d) of the Participation Agreement)
NONE
I-1
<PAGE> 131
EXHIBIT J
SKIDMORE, OWINGS & MERRILL LLP
ARCHITECT'S CERTIFICATE
(Pursuant to Section 5.3(q) of the Participation Agreement)
Skidmore, Owings & Merrill LLP, a New York Limited Liability
Partnership (the "Company") DOES HEREBY CERTIFY as follows:
21. The Company has served as architect in connection with the preparation
of, and has prepared (or will prepare), architectural plans and
specifications (collectively, the "Plans and Specifications") for a
project consisting of the construction of an office tower of
approximately 306,000 square feet together with an approximately
620-space underground parking garage (the "Intended Use") located on
approximately half of a city block bounded by Fairfax Drive, Taylor
Street and Stuart Street in Arlington County, Virginia. The Company
has performed, or will perform, certain specified architectural design
work in connection with the development of the project pursuant to
that certain contract to be executed by and between the Company and
LCI International (the "Contract"). Pursuant to the Contract, the
Company will act as the architect during the development of the
Project.
22. The Plans and specifications provide, or will provide, for the
construction referred to above, which, when completed in conformity
with the Construction Contract Documents, which include the Plans and
Specifications, will comply with the requirements of applicable laws
of governmental authorities having jurisdiction thereof including
zoning, land use and applicable codes and regulations of municipal and
county authorities including, the Site Plan Amendment #256 approved
August 3, 1996, by the Arlington County Board and attached hereto as
Exhibit A (the "1996 Site Plan Approval"). We are not aware of any
fact or circumstance which would preclude the issuance of permits
required by any applicable governmental authority, including those
required under or in
J-1
<PAGE> 132
connection with the 1996 Site Plan Approval in order to permit the
development and construction of the Project in a timely manner. Based
on our knowledge, information and belief, there are no facts or issues
outstanding with respect to the construction of the Project in
accordance with the 1996 Site Plan Approval and Plans and
Specifications which would cause any material delay or otherwise
impair the issuances of all applicable permits for the construction of
the Project in a timely manner or which would materially impair or
delay construction of the Project in a timely manner.
23. The Plans and Specifications have been (or will be) prepared in
accordance with the standards of sound architectural practice and same
will specify that only new materials will be utilized. If completed
in accordance with the Plans and Specifications, the Project is
expected to be of sound structure and constructed for its Intended
Use.
24. It is our opinion that, upon completion of the Project in conformity
with the Plans and Specifications, all applicable permits, licenses,
and certificates of occupancy to permit the use and operation of the
Project for its Intended Use will be obtainable.
25. We are not informed of, and have no knowledge of, any outstanding
violations of any applicable law, rules, regulations, or ordinances
with respect to the Project.
26. The requirements for parking and building setback lines are governed
by the 1996 Site Plan Approval, and the Plans and Specifications will
comply therewith. The Drawings and Specifications indicate ingress
and egress to the Project from Fairfax Drive and Taylor Streets, which
is (are) dedicated to public use and accepted for maintenance by
Arlington County.
27. It is our understanding that there exists a requirement to provide
twelve (12) parking spaces within the Project to First Virginia Bank,
which is located on adjacent property. This requirement is within the
contemplation of the Plans and
J-2
<PAGE> 133
Specifications and said Plans and Specifications for the Project will
provide for the required parking spaces as part of the parking
required by the 1996 Site Plan Approval.
28. If completed in accordance with the Plans and Specifications, the
Project will comply with all lot area, height, floor area and bulk,
front, rear and side yard setbacks, and parking requirements of zoning
ordinances and other requirements of applicable governmental
authorities which apply to the Project, standing alone, separate and
distinct from any adjacent or contiguous parcel.
29. If completed in accordance with the Plans and Specifications,
satisfactory methods of vehicular and pedestrian access to, and egress
from, the Project and adjoining or nearby public ways will be
available, sufficient to meet the reasonable needs of the Project's
Intended Use and all applicable requirements of public authorities.
30. To the undersigned's best knowledge, the Plans and Specifications do
not incorporate any asbestos, PCB's, ureaformaldehyde, radioactive
material, or other toxic or hazardous wastes, materials, or product,
as defined in federal, state, or local laws and regulations.
This statement is made to the best of our professional knowledge,
information and belief as registered Architects and is based on observation and
other information available to us at the time our services were rendered and
you may share this conclusion with your lenders as needed as the project
progresses with the proviso that it is made according to our current level of
information and knowledge of your requirements.
IN WITNESS WHEREOF, the Company has caused this Architect's
Certificate to be duly executed and delivered as of this ________ day of
______________, 199____.
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
J-3
<PAGE> 134
VIKA, INC.
ENGINEER'S CERTIFICATE
VIKA, Inc., A Maryland Corporation (the "Company") DOES HEREBY CERTIFY as
follows:
31. The company has served as civil engineer in connection with the
preparation of and has provided engineering drawings, (collectively,
the "Plans and Specifications") for a project consisting of the
construction of an office tower of approximately 306,000 square feet
together with an approximately 620-space underground parking garage
(the "Intended Use") located on approximately half of a city block
bounded by North Fairfax Drive, North Taylor Street and North Stuart
Street in Arlington County, Virginia. The Company has performed, or
will perform, certain specified engineering work in connection with
the development of the project pursuant to that certain contract to be
executed by and between the Company and LCI International (the
"Contract"). Pursuant to the Contract, the Company will act as the
civil engineer during the development of the project.
32. The Plans and Specifications will comply with the requirements of
applicable laws of governmental authorities having jurisdiction
thereof, including zoning, land use and other applicable codes and
regulations, including, the Site Plan Amendment #256 approved, August
3, 1996, by the Arlington County Board. Based upon our knowledge,
information and belief, there are no facts or issues outstanding with
respect to the construction of the Project in accordance with the 1996
Site Plan Approval and Plans and Specifications which would cause any
material delay or otherwise impair the issuances of all applicable
permits for the construction of the project in a timely manner or
which would materially impair or delay construction of the project in
a timely manner.
33. The Plans and Specifications have been (or will be) prepared in
accordance with the standards of sound engineering practice.
J-4
<PAGE> 135
34. We are not informed of, and have no knowledge of any outstanding
violations of any applicable law, rules, regulations, or ordinances
with respect to the Project.
35. If completed in accordance with the Plans and Specifications, the
Project will comply with all the lot area, height, floor area and
bulk, front, rear and side yard setbacks, and parking requirements of
zoning ordinances and other requirements of applicable governmental
authorities which apply to the Project, standing alone, separate and
distinct from any adjacent or contiguous parcel.
36. The Plans and Specifications require the following utilities:
a. Electricity
b. Telephone
c. Water
d. Sewer
e. Storm Sewer
37. We have confirmed that all such utilities are available to the
boundaries of the project and in a proper location and in sufficient
size to adequately serve the project upon completion of the
construction and service to the project will be obtained.
38. The survey prepared by the Company dated August, 1996 and last revised
on October 31, 1996 has been reviewed and based on said survey and
review of the site, there are no structures or utility lines on the
site of the project including, but not limited to, existing sanitary
sewer and storm sewer lines and existing structures such as timber
planters which will materially interfere with the construction of
improvements at the site of the project.
39. Upon completion of the project and in accordance with plans and
specifications, design conditions are such that no drainage of surface
or other water across the property of others, or over the site of the
Project from land of others,
J-5
<PAGE> 136
is called for or indicated by the Plans and Specifications or required
for the Project.
IN WITNESS WHEREOF, The Company has caused this Engineer's Certificate
to be duly executed and delivered this 15th day of November, 1996.
BY:
--------------------------------------
NAME:
------------------------------------
TITLE:
-----------------------------------
J-6
<PAGE> 137
EXHIBIT K
[Form of Mortgage]
(Pursuant to Section 5.3(m) of the Participation Agreement)
K-1
<PAGE> 138
EXHIBIT L
[Form of Security Agreement]
(Pursuant to Section 5.3(m) of the Participation Agreement)
K-2
<PAGE> 139
- --------------------------------------------------------------------------------
Appendix A
Rules of Usage and Definitions
- --------------------------------------------------------------------------------
40. Rules of Usage
The following rules of usage shall apply to this Appendix A and the
Operative Agreements (and each appendix, schedule, exhibit and annex to the
foregoing) unless otherwise required by the context or unless otherwise defined
therein:
1. Except as otherwise expressly provided, any
definitions set forth herein or in any other document shall be equally
applicable to the singular and plural forms of the terms defined.
2. Except as otherwise expressly provided,
references in any document to articles, sections paragraphs, clauses,
annexes, appendices, schedules or exhibits are references to articles,
sections, paragraphs, clauses, annexes, appendices, schedules or
exhibits in or to such document.
3. The headings, subheadings and table of
contents used in any document are solely for convenience of reference
and shall not constitute a part of any such document nor shall they
affect the meaning, construction or effect of any provision thereof.
4. References to any Person shall include such
Person, its successors and permitted assigns and transferees.
5. Except as otherwise expressly provided,
reference to any agreement means such agreement as amended, modified,
extended, supplemented, restated and/or replaced from time to time in
accordance with the applicable provisions thereof.
6. Except as otherwise expressly provided,
references to any law includes any amendment or modification to such
law
Appendix-1
<PAGE> 140
and any rules or regulations issued thereunder or any law enacted in
substitution or replacement therefor.
7. When used in any document, words such as
"hereunder", "hereto", "hereof" and "herein" and other words of like
import shall, unless the context clearly indicates to the contrary,
refer to the whole of the applicable document and not to any particular
article, section, subsection, paragraph or clause thereof.
(h) References to "including" means including
without limiting the generality of any description preceding such
term and for purposes hereof the rule of ejusdem generis shall not be
applicable to limit a general statement, followed by or referable to
an enumeration of specific matters, to matters similar to those
specifically mentioned.
9. References herein to "attorney's fees",
"legal fees", "costs of counsel" or other such references shall be
deemed to include the allocated cost of in-house counsel.
10. Each of the parties to the Operative
Agreements and their counsel have reviewed and revised, or requested
revisions to, the Operative Agreements, and the usual rule of
construction that any ambiguities are to be resolved against the
drafting party shall be inapplicable in the construing and
interpretation of the Operative Agreements and any amendments or
exhibits thereto.
11. Capitalized terms used in any Operative
Agreements which are not defined in this Appendix A but are defined in
another Operative Agreement shall have the meaning so ascribed to such
term in the applicable Operative Agreement.
41. Definitions
"ABR" shall mean, for any day, a rate per annum equal to the greater of
(a) the Prime Lending Rate in effect on such day, and (b) the Federal Funds
Effective Rate in effect on such day plus one half of one percent (0.5%). For
purposes hereof: "Prime Lending Rate" shall mean the rate which the Agent
announces from
Appendix-2
<PAGE> 141
time to time as its prime lending rate as in effect from time to time. The
Prime Lending Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. Any Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Lending Rate. The Prime Lending Rate shall change automatically and
without notice from time to time as and when the prime lending rate of the
Agent changes. "Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate per annum equal for each day during such period to
the weighted average of the rates on overnight Federal funds transactions with
members or the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for such day on such transactions received by the Agent from
three (3) Federal funds brokers of recognized standing selected by it. Any
change in the ABR due to a change in the Prime Lending Rate or the Federal
Funds Effective Rate shall be effective as of the opening of business on the
effective day of such change in the Prime Lending Rate or the Federal Funds
Effective Rate, respectively.
"ABR Holder Advance" shall mean a Holder Advance bearing a Holder Yield
based on the ABR.
"ABR Loans" shall mean Loans the rate of interest applicable to which
is based upon the ABR.
"Acceleration" shall have the meaning given to such term in Section 6
of the Credit Agreement.
"Accounts" shall have the meaning given to such term in Section 1 of
the Security Agreement.
"acquire" or "purchase" shall mean, with respect to the Property, Land
or any portion thereof, the acquisition or purchase of the Property, Land or
any portion thereof by the Lessor from any Person.
Appendix-3
<PAGE> 142
"Acquisition Advance" shall have the meaning given to such term in
Section 5.3 of the Participation Agreement.
"Acquisition Loan" shall mean any Loan made in connection with an
Acquisition Advance.
"Administrative Fee" shall mean an administration fee payable to the
Agent pursuant to Section 9.6 of the Participation Agreement.
"Advance" shall mean a Construction Advance or an Acquisition Advance.
"Advisory Fee" shall mean the Lease Advisory Fee payable by the Lessee
to the Agent for services rendered by the Agent respecting the Lease.
"Affiliate" shall mean, with respect to any Person, any Person or group
acting in concert in respect of the Person in question that, directly or
indirectly, controls or is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including without
limitation, with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies of a Person,
whether through the ownership of voting securities or by contract or otherwise.
"After Tax Basis" shall mean, with respect to any payment to be
received, the amount of such payment increased so that, after deduction of the
amount of all taxes required to be paid by the recipient calculated at the then
maximum marginal rates generally applicable to Persons of the same type as the
recipients (less any tax savings realized as a result of the payment of the
indemnified amount) with respect to the receipt by the recipient of such
amounts, such increased payment (as so reduced) is equal to the payment
otherwise required to be made.
"Agency Agreement" shall mean the Agency Agreement, dated as of the
Initial Closing Date between the Construction Agent and the Lessor.
Appendix-4
<PAGE> 143
"Agency Agreement Event of Default" shall mean an "Event of Default" as
defined in Section 5.1 of the Agency Agreement.
"Agent" shall mean NationsBank of Texas, N.A., as administrative agent
for the Lenders pursuant to the Credit Agreement, or any successor agent
appointed in accordance with the terms of the Credit Agreement and respecting
the Security Documents, for the Lenders and the Holders, to the extent of their
interests.
"Allocated Interest" shall mean with respect to the period the Property
is a Construction Period Property for which the Basic Term has not commenced,
as of any Scheduled Interest Payment Date, the amount of interest due and
payable on such date with respect to a portion of the Loans (which portion
shall be designated by the Borrower by written notice (the "Allocation Notice")
to the Agent) having an aggregate principal amount equal to the Construction
Loan Property Cost of the Property as of such date.
"Allocated Return" shall mean, as of any Scheduled Interest Payment
Date with respect to the period the Property is a Construction Period Property
for which the Basic Term has not commenced, the amount of Holder Yield due and
payable on such date with respect to a portion of the Holder Advances (which
portion shall be designated by the Owner Trustee by written notice to the
Holders) having an aggregate stated amount equal to the Holder Property Cost of
the Property as of such date.
"Allocation Notice" shall have the meaning given to such term in the
definition of "Allocated Interest."
"Applicable Percentage" shall mean with respect to the applicable Level
Status, the applicable rate per annum set forth opposite such Level Status:
- --------------------------------------------------------------------------------
Applicable
Level Status Percentage
for
Eurodollar Loans
- --------------------------------------------------------------------------------
Appendix-5
<PAGE> 144
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Level I Status 0.675%
- --------------------------------------------------------------------------------
Level II Status 0.925%
- --------------------------------------------------------------------------------
Level III Status 1.175%
- --------------------------------------------------------------------------------
Level IV Status 1.300%
- --------------------------------------------------------------------------------
Level V Status 1.550%
- --------------------------------------------------------------------------------
</TABLE>
Changes in the Applicable Percentage resulting from changes in the Level Status
shall be made by the Agent three (3) Business Days following receipt by the
Agent of quarterly or annual financial statements for the Lessee and its
Subsidiaries and the accompanying Officer's Compliance Certificate for the
Lessee setting forth the Leverage Ratio of the Lessee and its Subsidiaries as
of the most rent fiscal quarter end. In the event the Lessee fails to deliver
such financial statements and certificate within the times required by Section
28.1 of the Lease, the Applicable Margin shall be the highest Applicable Margin
set forth above until the delivery of such financial statements and
certificate.
"Appraisal" shall mean, with respect to the Property, an appraisal to
be delivered in connection with the Participation Agreement or in accordance
with the terms of the Lease, in each case prepared by a reputable appraiser
reasonably acceptable to the Agent, which in the judgment of counsel to the
Agent, complies with all of the provisions of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended, the rules and
regulations adopted pursuant thereto, and all other applicable Legal
Requirements.
"Appraisal Procedure" shall have the meaning given such term in Section
22.4 of the Lease.
"Appurtenant Rights" shall mean (a) all agreements, easements, rights
of way or use, rights of ingress or egress, privileges, appurtenances,
tenements, hereditaments and other rights and benefits at any time belonging or
pertaining to the Land underlying the Improvements or the Improvements,
including without limitation the use of any streets, ways, alleys, vaults or
Appendix-6
<PAGE> 145
strips of land adjoining, abutting, adjacent or contiguous to the Land and (b)
all permits, licenses and rights, whether or not of record, appurtenant to such
Land or the Improvements.
"Assignment and Acceptance" shall mean an Assignment and Acceptance
substantially in the form attached to the Credit Agreement as Exhibit B.
"Available Commitment(s)" shall mean, as to any Lender (or all Lenders
if the context so requires) at any time, an amount equal to the excess, if any,
of (a) the amount of such Lender's Commitment over (b) the aggregate principal
amount of all Loans made by such Lender as of such date after giving effect to
Section 5.2(d) of the Participation Agreement (but without giving effect to any
other repayments or prepayments of any Loans hereunder).
"Available Holder Commitments" shall mean an amount equal to the
excess, if any, of (a) the amount of the Holder Commitments over (b) the
aggregate amount of the Holder Advances made since the Initial Closing Date
after giving effect to Section 5.2(d) of the Participation Agreement (but
without giving effect to any other repayments or prepayments of any Holder
Advances).
"Bankruptcy Code" shall mean Title 11 of the U. S. Code entitled
"Bankruptcy," as now or hereafter in effect or any successor thereto.
"Base Amount" shall have the meaning specified in Section 10.1(e) of
the Lease.
"Basic Rent" shall mean, the sum of (i) the Loan Basic Rent and (ii)
the Lessor Basic Rent, calculated as of the applicable date on which Basic Rent
is due.
"Basic Term" shall have the meaning specified in Section 2.2 of the
Lease.
"Basic Term Commencement Date" shall have the meaning specified in
Section 2.2 of the Lease.
Appendix-7
<PAGE> 146
"Basic Term Expiration Date" shall have the meaning specified in
Section 2.2 of the Lease.
"Benefitted Lender" shall have the meaning specified in Section 9.10(a)
of the Credit Agreement.
"Bill of Sale" shall mean a Bill Of Sale regarding Equipment in form
and substance satisfactory to the Holders, the Agent and the Owner Trustee.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States (or any successor).
"Borrower" shall mean the Owner Trustee, not in its individual capacity
but as Borrower under the Credit Agreement.
"Borrowing Date" shall mean any Business Day specified in a notice
delivered pursuant to Section 2.3 of the Credit Agreement as a date on which
the Lessor requests the Lenders to make Loans hereunder.
"Budgeted Total Property Cost" shall mean, at any date of determination
with respect to the Property during the period it is a Construction Period
Property, an amount equal to the aggregate amount which the Construction Agent
in good faith expects to be expended in order to acquire the Land, all
Equipment, construct all Improvements and achieve Completion with respect to
the Property (including without limitation amounts expected to be expended to
pay Allocated Interest and Allocated Return with respect to the Property).
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in Texas, North Carolina or Virginia are
authorized or required by law to close; provided, however, that when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capitalized Lease" shall mean, as applied to any Person, any lease of
property (whether real, personal, tangible, intangible or
Appendix-8
<PAGE> 147
mixed of such Person) by such Person as the lessee which would be capitalized
on a balance sheet of such Person prepared in accordance with GAAP.
"Casualty" shall mean any damage or destruction of all or any portion
of the Property as a result of a fire or other casualty.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of 1986.
"Certificate" shall mean a Certificate in favor of each Holder
regarding the Holder Commitment of such Holder issued pursuant to the terms and
conditions of the Trust Agreement in favor of each Holder.
"Chattel Paper" shall have the meaning given to such term in Section 1
of the Security Agreement.
"Claims" shall mean any and all obligations, liabilities, losses,
actions, suits, penalties, claims, demands, costs and expenses (including
without limitation reasonable attorney's fees and expenses) of any nature
whatsoever.
"Closing Date" shall mean the Initial Closing Date and the Land Closing
Date.
"Code" shall mean the Internal Revenue Code of 1986 together with rules
and regulations promulgated thereunder, as amended from time to time, or any
successor statute thereto.
"Collateral" shall mean all assets of the Lessor, the Construction
Agent and the Lessee, now owned or hereafter acquired, upon which a Lien is
purported to be created by the Security Documents.
"Commitment" shall mean, as to any Lender, such Lender's Lender
Commitment.
Appendix-9
<PAGE> 148
"Commitment Percentage" shall mean, as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal amount
of all of the Loans then outstanding), and such Commitment Percentage shall
take into account both the Lender's Tranche A Commitment and the Lender's
Tranche B Commitment.
"Commitment Period" shall mean the period from and including the
Initial Closing Date to and including the Construction Period Termination Date,
or such earlier date as the Commitments shall terminate as provided in the
Credit Agreement.
"Completion" shall mean, with respect to the Property, such time as the
acquisition, installation, testing and final completion of the Improvements on
the Land has been achieved in accordance with the Plans and Specifications, the
Agency Agreement and/or the Lease, and in compliance with all material Legal
Requirements and Insurance Requirements and a certificate of occupancy has been
issued with respect to the Property by the appropriate governmental entity.
"Completion Date" shall mean, with respect to the Property, the earlier
of (a) the date on which Completion for the Property has occurred or (b) the
Construction Period Termination Date.
"Condemnation" shall mean any taking or sale of the use, access,
occupancy, easement rights or title to the Property or any part thereof, wholly
or partially (temporarily or permanently), by or on account of any actual or
threatened eminent domain proceeding or other taking of action by any Person
having the power of eminent domain, including without limitation an action by a
Governmental Authority to change the grade of, or widen the streets adjacent
to, the Property or alter the pedestrian or vehicular traffic flow to the
Property so as to result in a change in access to the Property, or by or on
account of an eviction by paramount title or any transfer made in lieu of any
such proceeding or action.
Appendix-10
<PAGE> 149
"Construction Advance" shall mean an advance of funds to pay Property
Costs pursuant to Section 5.4 of the Participation Agreement.
"Construction Agent" shall mean LCI International, Inc., a
corporation, as the construction agent under the Agency Agreement.
"Construction Budget" shall mean the cost of acquisition, installation,
testing, constructing and developing any Improvements as determined by the
Construction Agent in its reasonable, good faith judgment.
"Construction Commencement Date" shall mean, with respect to
Improvements, the date on which construction of such Improvements commences
pursuant to the Agency Agreement.
"Construction Contract" shall mean any contract entered into between
the Construction Agent or the Lessee with a Contractor for the construction of
Improvements or any portion thereof on the Property.
"Construction Loan" shall mean any Loan made in connection with a
Construction Advance.
"Construction Loan Property Cost" shall mean with respect to the
Property during any period it is a Construction Period Property, at the date of
determination, an amount equal to (a) the aggregate principal amount of
Construction Loans and Interest Payment Loans made on or prior to such date
with respect to the Property minus (b) the aggregate principal amount of
prepayments or repayments of the Loans allocated to reduce the Construction
Loan Property Cost of the Property pursuant to Section 2.6(c) of the Credit
Agreement.
"Construction Period" shall mean, with respect to the Property, the
period commencing on the Construction Commencement Date for the Property and
ending on the Completion Date for the Property.
Appendix-11
<PAGE> 150
"Construction Period Property" means, at any date of determination, the
Property in the event that the Basic Term has not commenced on or prior to such
date.
"Construction Period Termination Date" shall mean the earlier of (a)
the date that the Commitments have been terminated in their entirety in
accordance with the terms of Section 2.5(a) of the Credit Agreement, or (b) the
date which occurs thirty (30) months after the Initial Closing Date.
"Contingent Obligation" shall mean, as applied to any Person, any
agreement, undertaking or arrangement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes or is contingently liable upon, the obligation or
liability of any other Person or agrees to maintain the net worth or working
capital or other financial condition of any other Person, or otherwise assures
any creditor of such other Person against loss, including without limitation
any comfort letter, operating agreement, take-or-pay contract or application
for a letter of credit (or similar instrument which is issued upon the
application of such Person or upon which such Person becomes an account party
or for which such Person is in any way liable), but excluding the endorsement
of instruments for deposit or collection in the ordinary course of business.
"Contractor" shall mean each entity with whom the Construction Agent or
the Lessee contracts to construct any Improvements or any portion thereof on
the Property.
"Contracts" shall have the meaning given to such term in Section 1 of
the Security Agreement.
"Control" shall mean (including without limitation, with correlative
meanings, for the terms "controlled by" and "under common control with"), as
used with respect to any Person, the possession directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
Appendix-12
<PAGE> 151
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Lessee, are treated as a single
employer under Section 414 of the Code.
"Co-Owner Trustee" shall have the meaning specified in Section 9.2 of
the Trust Agreement.
"Credit Agreement" shall mean the Credit Agreement, dated as of the
Initial Closing Date, among the Lessor, the Agent and the Lenders, as specified
therein.
"Credit Agreement Default" shall mean any event or condition which,
with the lapse of time or the giving of notice, or both, would constitute a
Credit Agreement Event of Default.
"Credit Agreement Event of Default" shall mean any event or condition
defined as an "Event of Default" in Section 6 of the Credit Agreement.
"Credit Documents" shall mean the Credit Agreement, the Notes the
Security Documents and the Mortgage Instrument.
"Deed" shall mean a warranty deed regarding the Land and/or
Improvements in form and substance satisfactory to the Holders, the Agent and
the Owner Trustee.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall have the meaning given to such term in
Section 9.1 of the Credit Agreement.
"Deficiency Balance" shall have the meaning given in Section 22.1(b) of
the Lease Agreement.
"Documents" shall have the meaning given to such term in Section 1 of
the Security Agreement.
Appendix-13
<PAGE> 152
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Election Notice" shall have the meaning given to such term in Section
20.1 of the Lease.
"Employee Benefit Plan" or "Plan" shall mean an employee benefit plan
(within the meaning of Section 3(3) of ERISA, including without limitation any
Multiemployer Plan), or any "plan" as defined in Section 4975(e)(1) of the Code
and as interpreted by the Internal Revenue Service and the Department of Labor
in rules, regulations, releases or bulletins in effect on any Closing Date.
"Environmental Audit" shall have the meaning given to such term in
Section 10.2 of the Lease.
"Environmental Claims" shall mean any investigation, notice, violation,
demand, allegation, action, suit, injunction, judgment, order, consent decree,
penalty, fine, lien, proceeding, or claim (whether administrative, judicial, or
private in nature) arising (a) pursuant to, or in connection with, an actual or
alleged violation of, any Environmental Law, (b) in connection with any
Hazardous Substance, (c) from any abatement, removal, remedial, corrective, or
other response action in connection with a Hazardous Substance, Environmental
Law, or other order of a Tribunal or (d) from any actual or alleged damage,
injury, threat, or harm to health, safety, natural resources, or the
environment.
"Environmental Laws" shall mean any Law, permit, consent, approval,
license, award, or other authorization or requirement of any Tribunal relating
to emissions, discharges, releases, threatened releases of any Hazardous
Substance into ambient air, surface water, ground water, publicly owned
treatment works, septic system, or land, or otherwise relating to the handling,
storage, treatment, generation, use, or disposal of Hazardous Substances,
pollution or to the protection of health or the environment, including without
limitation CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. 6901,
et seq., and state statutes analogous thereto.
Appendix-14
<PAGE> 153
"Environmental Violation" shall mean any activity, occurrence or
condition that violates or threatens (if the threat requires remediation under
any Environmental Law and is not remediated during any grace period allowed
under such Environmental Law) to violate or results in or threatens (if the
threat requires remediation under any Environmental Law and is not remediated
during any grace period allowed under such Environmental Law) to result in
noncompliance with any Environmental Law.
"Equipment" shall mean equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever purchased, leased or
otherwise acquired using the proceeds of the Loans or the Holder Advances by
the Construction Agent, the Lessee or the Lessor as specified or described in
either a requisition or a Lease Supplement, whether or not now or subsequently
attached to, contained in or used or usable in any way in connection with any
operation of any Improvements or other improvements to real property, including
but without limiting the generality of the foregoing, all equipment described
in the Appraisal including without limitation all heating, electrical, and
mechanical equipment, lighting, switchboards, plumbing, ventilation, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and systems,
cleaning systems (including without limitation window cleaning apparatus),
telephones, communication systems (including without limitation satellite
dishes and antennae), televisions, computers, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security systems, motors,
engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and
fixtures of every kind and description.
"Equipment Schedule" shall mean (a) each Equipment Schedule attached to
the applicable Requisition and (b) each Equipment Schedule attached to the
applicable Lease Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
Appendix-15
<PAGE> 154
"ERISA Affiliate" shall mean each entity required to be aggregated with
the Lessee pursuant to the requirements of Section 414(b) or (c) of the Code.
"Eurocurrency Reserve Requirements" shall mean for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including without limitation basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed or eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D) maintained by a member bank of the Federal
Reserve System.
"Eurodollar Holder Advance" shall mean a Holder Advance bearing a
Holder Yield based on the Eurodollar Rate.
"Eurodollar Loans" shall mean Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean for the Interest Period for each
Eurodollar Loan or Eurodollar Holder Advance comprising part of the same
borrowing or advance (including without limitation conversions, extensions and
renewals), a per annum interest rate equal to the per annum rate determined by
the Agent on the basis of the offered rates for deposits in dollars for a
period of time corresponding to such Interest Period (and commencing on the
first day of such Interest Period), which appear on the Reuters Screen LIBO
Page as of 11:00 a.m. (London time) two (2) Business Days before the first day
of such Interest Period (provided, that if at least two (2) such offered rates
appear on the Reuters Screen LIBO Page, the rate in respect of such Interest
Period will be the arithmetic mean of such offered rates). As used herein,
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks) ("RMMRS"). In the event the RMMRS is not then quoting
such offered rates, "Eurodollar Rate" shall mean for the Interest Period for
each Eurodollar Loan or Eurodollar Holder Advance
Appendix-16
<PAGE> 155
comprising part of the same borrowing or advance (including without limitation
conversions, extensions and renewals), the average (rounded upward to the
nearest one sixteenth (1/16) of one percent (1%)) per annum rate of interest
determined by the office of the Agent (each such determination to be conclusive
and binding) as of two (2) Business Days prior to the first day of such
Interest Period, as the effective rate at which deposits in immediately
available funds in U.S. dollars are being, have been, or would be offered or
quoted by the Agent to major banks in the applicable interbank market for
Eurodollar deposits at any time during the Business Day which is the second
Business Day immediately preceding the first day of such Interest Period, for a
term comparable to such Interest Period and in the amount of the requested
Eurodollar Loan and Eurodollar Holder Advance. If no such offers or quotes are
generally available for such amount, then the Agent shall be entitled to
determine the Eurodollar Rate by estimating in its reasonable judgment the per
annum rate (as described above) that would be applicable if such quote or
offers were generally available.
"Event of Default" shall mean a Lease Event of Default, an Agency
Agreement Event of Default or a Credit Agreement Event of Default.
"Excepted Payments" shall mean: (a) all indemnity payments (including
without limitation indemnity payments made pursuant to Section 13 of the
Participation Agreement), whether made by adjustment to Basic Rent or
otherwise, to which the Owner Trustee, any Holder or any of their respective
Affiliates, agents, officers, directors or employees is entitled;
(b) any amounts (other than Basic Rent or Termination Value) payable
under any Operative Agreement to reimburse the Owner Trustee, any Holder or any
of their respective Affiliates (including without limitation the reasonable
expenses of the Owner Trustee, the Trust Company and the Holders incurred in
connection with any such payment) for performing or complying with any of the
obligations of the Lessee under and as permitted by any Operative Agreement;
Appendix-17
<PAGE> 156
(c) any amount payable to a Holder by any transferee of such interest
of a Holder as the purchase price of such Holder's interest in the Trust Estate
(or a portion thereof);
(d) any insurance proceeds (or payments with respect to risks
self-insured or policy deductibles) under liability policies other than such
proceeds or payments payable to the Agent or any Lender;
(e) any insurance proceeds under policies maintained by the Owner
Trustee or any Holder;
(f) Transaction Expenses or other amounts, fees, disbursements or
expenses paid or payable to or for the benefit of the Owner Trustee or any
Holder;
(g) all right, title and interest of any Holder or the Owner Trustee
to the Property or any portion thereof or any other property to the extent any
of the foregoing has been released from the Liens of the Security Documents and
the Lease pursuant to the terms thereof;
(h) upon termination of the Credit Agreement pursuant to the terms
thereof, all remaining property covered by the Lease or Security Documents;
(i) all payments in respect of the Holder Yield;
(j) any payments in respect of interest to the extent attributable to
payments referred to in clauses (a) through (i) above; and
(k) any rights of either the Owner Trustee or the Trust Company to
demand, collect, sue for or otherwise receive and enforce payment of any of the
foregoing amounts, provided, that such rights shall not include the right to
terminate the Lease.
"Excepted Rights" shall mean the rights retained by the Owner Trustee
pursuant to Section 8.2(a)(i) of the Credit Agreement.
"Excess Proceeds" shall mean the excess, if any, of the aggregate of
all awards, compensation or insurance proceeds
Appendix-18
<PAGE> 157
payable in connection with a Casualty or Condemnation over the Termination
Value paid by the Lessee pursuant to the Lease with respect to such Casualty or
Condemnation.
"Exculpated Persons" shall mean the Borrower, the Holders, the Lessor,
their officers, directors, shareholders and partners.
"Expiration Date" shall mean either (a) the Basic Term Expiration
Date, (b) to the extent there is a first Renewal Term and the Lessee elects in
accordance with the terms and provisions of Article XX of the Lease, the
Purchase Option or the Sale Option at the end of such first Renewal Term, then
the Expiration Date shall be the fourth annual anniversary of the Basic Term
Commencement Date or (c) to the extent there is a second Renewal Term and the
Lessee elects in accordance with the terms and provisions of Article XX of the
Lease, the Purchase Option or the Sale Option at the end of such second Renewal
Term, then the Expiration Date shall be the fifth annual anniversary of the
Basic Term Commencement Date; provided, in no event shall the Expiration Date
(exclusive of any Extended Renewal Term) be later than the fifth annual
anniversary of the Basic Term Commencement Date unless such later date has been
expressly agreed to in writing by each of the Lessor, the Lessee, the Agent,
the Lenders and the Holders.
"Expiration Date Purchase Option" shall mean the Lessee's option to
purchase the Property on the Expiration Date.
"Extended Renewal Term" shall have the meaning specified in Section
2.2 of the Lease.
"Facility" shall mean a facility used for the treatment, storage or
disposal of Hazardous Substances.
"Fair Market Sales Value" shall mean, with respect to the Property,
the amount, which in any event, shall not be less than zero (0), that would be
paid in cash in an arms-length transaction between an informed and willing
purchaser and an informed and willing seller, neither of whom is under any
compulsion to purchase or sell, respectively, the Property. Fair Market Sales
Value of the Property shall be determined based on the assumption
Appendix-19
<PAGE> 158
that, except for purposes of Section 17 of the Lease, the Property is in the
condition and state of repair required under Section 10.1 of the Lease and the
Lessee is in compliance with the other requirements of the Operative
Agreements.
"Federal Funds Effective Rate" shall have the meaning given to such
term in the definition of ABR.
"Final Expiration Date" has the meaning specified in Section 20.1 of
the Lease.
"Fixtures" shall mean all fixtures relating to the Improvements,
including without limitation all components thereof, located in or on the
Improvements, together with all replacements, modifications, alterations and
additions thereto.
"Force Majeure Event" shall mean any event beyond the control of the
Construction Agent, other than a Casualty or Condemnation, including without
limitation strikes or lockout (but only when the Construction Agent is legally
prevented from securing replacement labor or materials as a result thereof),
adverse soil conditions, acts of God, adverse weather conditions, inability to
obtain labor or materials after all possible efforts have been expended by the
Construction Agent, governmental activities, civil commotion and enemy action;
but excluding any event, cause or condition that results from the Construction
Agent's financial condition.
"GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the accounting principles board of the
American Institute of Certified Public Accountants, and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, that are applicable to the circumstances as of the
date of determination.
"Governmental Action" shall mean all permits, authorizations
registrations, consents, approvals, waivers, exceptions, variances, orders,
judgments, written interpretations, decrees, licenses, exemptions,
publications, filings, notices to and declarations of or with, or required by,
any Governmental
Appendix-20
<PAGE> 159
Authority, or required by any Legal Requirement, and shall include, without
limitation, all environmental and operating permits and licenses that are
required for the full use, occupancy, zoning and operating of the Property.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" shall mean the Guaranty Agreement dated as of the Initial
Closing Date made by the Lessee in favor of the Agent, for the benefit of the
Tranche A Lenders.
"Hard Costs" shall mean all costs and expenses payable for supplies,
materials, labor and profit with respect to the Improvements under any
Construction Contract.
"Hazardous Substance" shall mean any of the following: (a) any
petroleum or petroleum product, explosives, radioactive materials, asbestos,
formaldehyde, polychlorinated biphenyls, lead and radon gas; (b) any substance,
material, product, derivative, compound or mixture, mineral, chemical, waste,
gas, medical waste, or pollutant, in each case whether naturally occurring,
manmade or the by-product of any process, that is toxic, harmful or hazardous
to the environment or human health or safety as determined in accordance with
any Environmental Law; or (c) any substance, material, product, derivative,
compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant
that would support the assertion of any claim under any Environmental Law,
whether or not defined as hazardous as such under any Environmental Law.
"Holder Advance" shall mean any advance made by any Holder to the
Owner Trustee pursuant to the terms of the Trust Agreement or the Participation
Agreement.
"Holder Amount" shall mean as of any date, the aggregate amount of
Holder Advances made by each Holder to the Trust Estate pursuant to Section 2
of the Participation Agreement and Section 3.1 of the Trust Agreement less any
payments of any Holder
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Advances received by the Holders pursuant to Section 3.4 of the Trust
Agreement.
"Holder Applicable Margin" shall mean two and one-half percent
(2.50%).
"Holder Commitments" shall mean $2,800,000, provided, that the Holder
Commitment of each Holder shall be as set forth in the Trust Agreement.
"Holder Construction Property Cost" shall mean, with respect to the
Construction Period Property for which the Basic Term has not commenced, at any
date of determination, an amount equal to the outstanding Holder Advances made
with respect thereto under the Trust Agreement.
"Holder Overdue Rate" shall mean the lesser of (a) the ABR plus two
percent (2%) and (b) the highest rate permitted by applicable law.
"Holder Property Cost" shall mean with respect to a Property an amount
equal to the outstanding Holder Advances with respect thereto.
"Holder Unused Fee" shall have the meaning given to such term in
Section 9.4 of the Participation Agreement.
"Holder Yield" shall mean with respect to Holder Advances from time to
time either the Eurodollar Rate plus the Holder Applicable Margin or the ABR as
elected by the Owner Trustee from time to time with respect to such Holder
Advances in accordance with the terms of the Trust Agreement; provided,
however, (a) upon delivery of the notice described in Section 3.7(c) of the
Trust Agreement, the outstanding Holder Advances of each Holder shall bear a
yield at the ABR applicable from time to time from and after the dates and
during the periods specified in Section 3.7(c) of the Trust Agreement, and (b)
upon the delivery by a Holder of the notice described in Section 3.9(e) of the
Trust Agreement, the Holder Advances of such Holder shall bear a yield at the
ABR applicable from time to time after the dates and during the periods
specified in Section 3.9(e) of the Trust Agreement.
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"Holders" shall mean NationsBank of Texas, N.A. and the other banks
and financial institutions which hereafter may be from time to time holders of
Certificates in connection with the Stuart Park Trust.
"Impositions" shall mean any and all liabilities, losses, expenses,
costs, charges and Liens of any kind whatsoever for fees, taxes, levies,
imposts, duties, charges, assessments or foreign withholdings (collectively,
"Taxes") and all interest, additions to tax and penalties thereon, which at any
time prior to, during or with respect to the Term or in respect of any period
for which the Lessee shall be obligated to pay Supplemental Rent, may be
levied, assessed or imposed by any Governmental Authority upon or with respect
to (a) the Property or the leasing, financing, refinancing, demolition,
construction, substitution, subleasing, assignment, control, condition,
occupancy, servicing, maintenance, repair, ownership, possession, activity
conducted on, delivery, insuring, use, operation, improvement, sale, transfer
of title, return or other disposition of the Property or any part thereof or
interest therein or any rentals, receipts or earnings arising therefrom; (b)
the Notes or Certificates or any part thereof or interest therein; or (c) the
Operative Agreements, the performance thereof, or any payment made or accrued
pursuant thereto or otherwise in connection with the transactions contemplated
thereby.
"Improvements" shall mean, with respect to the construction,
renovations and/or Modifications on the Land, all buildings, structures,
Fixtures, and other improvements of every kind existing at any time and from
time to time on or under the Land purchased, leased or otherwise acquired using
the proceeds of the Loans or the Holder Advances, together with any and all
appurtenances to such buildings, structures or improvements, including without
limitation sidewalks, utility pipes, conduits and lines, parking areas and
roadways, and including without limitation all Modifications and other
additions to or changes in the Improvements at any time, including without
limitation (a) any Improvements existing as of the Land Closing Date as such
Improvements may be referenced on the applicable Requisition and (b) any
Improvements made subsequent to such Land Closing Date.
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"Incorporated Covenants" shall have the meaning given to such term in
Section 28.1 of the Lease.
"Incorporated Representations and Warranties" shall have the meaning
given to such term in Section 28.1 of the Lease.
"Indebtedness" of a Person shall mean, without duplication, such
Person's:
(a) obligations for borrowed money;
(b) obligations representing the deferred purchase price of
property (whether real, personal, tangible, intangible or mixed) or
services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade);
(c) obligations, whether or not assumed, secured by liens
or payable out of the proceeds or production from property now or
hereafter owned or acquired by such Person;
(d) obligations which are evidenced by notes, acceptances
or other instruments;
(e) Capitalized Lease obligations;
(f) net liabilities under interest rate swap, exchange or
cap agreements; and
(g) contingent obligations.
"Indemnified Person" shall mean the Lessor, the Owner Trustee, in its
individual and its trust capacity, the Agent, the Holders, the Lenders, and
their respective successors, assigns, directors, shareholders, partners,
officers, employees, agents and Affiliates.
"Indemnity Provider" shall mean, respecting the Property, the
Construction Agent from the date of the Participation Agreement to and
including the Basic Term Commencement Date for the Property and the Lessee for
the duration of the Term for the Property.
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"Initial Closing Date" shall mean the date of the Participation
Agreement.
"Initial Construction Advance" shall mean any initial Advance to pay
for: (a) Property Costs for construction of any Improvements; and (b) the
Property Costs of restoring or repairing the Property which is required to be
restored or repaired in accordance with Section 15.1(e) of the Lease.
"Inspector" shall mean any Person engaged by the Agent to oversee the
monitoring of the progress of any Improvements and reviewing of Requisitions
and to provide related services relating to administration of such Improvements
during the Construction Period.
"Instruments" shall have the meaning given to such term in Section 1
of the Security Agreement.
"Insurance Requirements" shall mean all terms and conditions of any
insurance policy either required by the Lease to be maintained by the Lessee or
required by the Agency Agreement to be maintained by the Construction Agent,
and all requirements of the issuer of any such policy and, regarding self
insurance, any other requirements of the Lessee.
"Interest Payment Loan" shall mean any Loan made to fund the payment
of Allocated Interest with respect to a Construction Period Property.
"Interest Period" shall mean (a) during the Commitment Period as to
any Eurodollar Loan or Eurodollar Holder Advance (i) with respect to the
initial Interest Period, the period beginning on the date of the first
Eurodollar Loan and Eurodollar Holder Advance and ending one (1) month
thereafter, and (ii) with respect to each succeeding Interest Period during the
Commitment Period, the period beginning the day after the end of the preceding
Interest Period for each Eurodollar Loan and Eurodollar Holder Advance and
ending one (1) month thereafter and (b) during the period from and after the
Commitment Period as to any Eurodollar Loan or Eurodollar Holder Advance (i)
initially, the period
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commencing on the conversion or continuation date for each Eurodollar Loan and
Eurodollar Holder Advance and ending one (1) month, three (3) months or six (6)
months thereafter; and (ii) thereafter, as selected by the Lessor (in the case
of a Eurodollar Loan) or the Owner Trustee (in the case of a Eurodollar Holder
Advance) in its applicable notice give with respect thereto, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan or Eurodollar Holder Advance and ending one (1) month,
three (3) months or six (6) months thereafter, as selected by the Lessor by
irrevocable notice to the Agent (in the case of a Eurodollar Loan) or by the
Owner Trustee (in the case of a Eurodollar Holder Advance) in each case not
less than three (3) Business Days prior to the last day of the then current
Interest Period with respect thereto; provided, however, that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(A) if any Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day (except
that where the next succeeding Business Day falls in the next succeeding
calendar month, then on the next preceding Business Day), (B) no Interest
Period shall extend beyond the Maturity Date or the Expiration Date, as the
case may be, (C) where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the Interest
Period is to end, such Interest Period shall end on the last Business Day of
such calendar month and (D) during the period from and after the Commitment
Period, there shall not be more than twelve (12) Interest Periods outstanding
at any one (1) time.
"Interim Lease Term" shall mean the period commencing on the Land
Closing Date and ending at midnight on the day immediately preceding the Basic
Term Commencement Date.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, together with the rules and regulations promulgated
thereunder.
"IRS" shall mean the United States Internal Revenue Service, or any
successor or analogous organization.
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<PAGE> 165
"Land" shall mean the parcel(s) of real property described on (a) the
Requisition issued by the Construction Agent on the Land Closing Date relating
to such parcel and (b) Exhibit A to the Lease; provided, that the term "Land"
shall include, collectively, all parcels of real property acquired in
connection therewith.
"Land Acquisition Cost" shall mean the cost to the Lessor to purchase
the Land or a portion thereof on a Land Closing Date.
"Land Closing Date" shall mean the date on which the Lessor purchases
the Land or a portion thereof (the Land).
"Law" shall mean any statute, law, ordinance, regulation, rule,
directive, order, writ, injunction or decree of any Tribunal.
"Lease" or "Lease Agreement" shall mean the Deed of Lease Agreement
dated as of the Initial Closing Date, between the Lessor and the Lessee,
together with any Lease Supplements thereto.
"Lease Default" shall mean any event or condition which, with the
lapse of time or the giving of notice, or both, would constitute a Lease Event
of Default.
"Lease Event of Default" shall have the meaning specified in Section
17.1 of the Lease.
"Lease Supplement" shall mean each Lease Supplement substantially in
the form of Exhibit B-1 to the Lease, together with all attachments and
schedules thereto.
"Legal Requirements" shall mean all foreign, federal, state, county,
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting the Owner Trustee, the
Holders, the Lessor, the Lessee, the Agent, any Lender or the Property, any
Land, Improvement, Equipment or the taxation, demolition, construction, use or
alteration of such Improvements, whether now or hereafter enacted and in force,
including without limitation any that require repairs, modifications or
alterations in or to the Property or in any way limit the use and enjoyment
thereof
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(including without limitation all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 et. seq., and
any other similar federal, state or local laws or ordinances and the
regulations promulgated thereunder) and any that may relate to environmental
requirements (including without limitation all Environmental Laws), and all
permits, certificates of occupancy, licenses, authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments which are either of record or known to the Lessee
affecting the Property or the Appurtenant Rights.
"Lender Commitments" shall mean $67,200,000; and the Lender Commitment
of each Lender shall be as set forth in Schedule 1.1 to the Credit Agreement as
such Schedule 1.1 may be amended and replaced from time to time.
"Lender Financing Statements" shall mean UCC financing statements and
fixture filings appropriately completed and executed for filing in the
applicable jurisdiction in order to procure a security interest in favor of the
Agent in the Collateral subject to the Security Documents.
"Lender Unused Fee" shall have the meaning given to such term in
Section 9.4 of the Participation Agreement.
"Lenders" shall initially mean NationsBank of Texas, N. A. and shall
include the other banks and financial institutions which hereafter may be from
time to time party to the Participation Agreement and the Credit Agreement.
"Lessee" shall have the meaning set forth in the Lease.
"Lessee Credit Agreement" shall mean that certain Second Amended and
Restated Credit Agreement dated as of February 14, 1996 among Lessee as
Borrower, the lenders party thereto, First Union National Bank of North
Carolina as Credit Agent and Managing Agent, and NationsBank of Texas, N.A. as
Administrative Agent and Managing Agent as amended by First Amendment and
Waiver dated August 29, 1996 and as further amended by Second Amendment dated
as of November 15, 1996.
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<PAGE> 167
"Lessee Credit Agreement Event of Default" shall mean an Event of
Default as defined in Section 11.1 of the Lessee Credit Agreement.
"Lessee Scheduled Termination Date" shall mean the final day of the
Term as specified in the final Election Notice (which shall be a Payment Date
or the Expiration Date) after the Basic Term has commenced for the Property and
on which date the Lessee shall purchase the Property pursuant to the Purchase
Option or cause the Property to be sold pursuant to the Sale option.
"Lessor" shall mean the Owner Trustee, not in its individual capacity,
but as the Lessor under the Lease.
"Lessor Basic Rent" shall mean the scheduled Holder Yield due on the
Holder Advances on any Scheduled Interest Payment Date pursuant to the Trust
Agreement (but not including interest on (a) any such scheduled Holder Yield
due on the Holder Advances prior to the Basic Term Commencement Date with
respect to the Property or (b) overdue amounts under the Trust Agreement or
otherwise).
"Lessor Financing Statements" shall mean UCC financing statements and
fixture filings appropriately completed and executed for filing in the
applicable jurisdictions in order to protect the Lessor's interest under the
Lease to the extent the Lease is a security agreement or a mortgage.
"Lessor Lien" shall mean any Lien, true lease or sublease or
disposition of title arising as a result of (a) any claim against the Lessor or
the Trust Company, in its individual capacity, not resulting from the
transactions contemplated by the Operative Agreements, (b) any act or omission
of the Lessor or the Trust Company, in its individual capacity, which is not
required by the Operative Agreements or is in violation of any of the terms of
the Operative Agreements, (c) any claim against the Lessor or the Trust
Company, in its individual capacity, with respect to Taxes or Transaction
Expenses against which the Lessee is not required to indemnify the Lessor or
the Trust Company, in its individual capacity, pursuant to Section 13 of the
Participation Agreement or (d) any claim against the Lessor arising out of any
transfer by
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<PAGE> 168
the Lessor of all or any portion of the interest of the Lessor in the Property,
the Trust Estate or the Operative Agreements other than the transfer of title
to or possession of the Property by the Lessor pursuant to and in accordance
with the Lease, the Credit Agreement, the Security Agreement or the
Participation Agreement or pursuant to the exercise of the remedies set forth
in Article XVII of the Lease.
"Level Status" means the applicable Level Status set forth in the
table below (with Level Status I being the lowest Level Status and Level Status
V being the highest Level Status):
<TABLE>
<CAPTION>
===========================================================================================================
<S> <C>
LEVEL STATUS LEVERAGE RATIO
- -----------------------------------------------------------------------------------------------------------
LEVEL STATUS I LESS THAN 1.5 TO 1.0
- -----------------------------------------------------------------------------------------------------------
LEVEL STATUS II EQUAL TO OR GREATER THAN 1.5 TO 1.0 BUT LESS THAN
2.0 TO 1.0
- -----------------------------------------------------------------------------------------------------------
LEVEL STATUS III EQUAL TO OR GREATER THAN 2.0 TO 1.0 BUT LESS THAN
2.75 TO 1.0
- -----------------------------------------------------------------------------------------------------------
LEVEL STATUS IV EQUAL TO OR GREATER THAN 2.75 TO 1.0 BUT LESS THAN
3.0 TO 1.0
- -----------------------------------------------------------------------------------------------------------
LEVEL STATUS V EQUAL TO OR GREATER THAN 3.0 TO 1.0
===========================================================================================================
</TABLE>
"Leverage Ratio" shall have the meaning specified in the Lessee Credit
Agreement.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien, option or charge of any kind.
"Limited Recourse Amount" shall mean with respect to the Property on
an aggregate basis, an amount equal to the Termination Value with respect to
the Property on each Payment Date, less the Maximum Residual Guarantee Amount
as of such date with respect to the Property.
"Loan Basic Rent" shall mean the scheduled interest due on the Loans
on any Scheduled Interest Payment Date pursuant to the
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<PAGE> 169
Credit Agreement (but not including interest on (a) any such Loan prior to the
Basic Term Commencement Date with respect to the Property or (b) any overdue
amounts under Section 2.8(c) of the Credit Agreement or otherwise).
"Loan Property Cost" shall mean, with respect to the Property at any
date of determination, an amount equal to (a) the aggregate principal amount
all Loans (including without limitation all Acquisition Loans, Construction
Loans and Interest Payment Loans) made on or prior to such date with respect to
the Property minus (b) the aggregate amount of prepayments or repayments (if
any) as the case may be of the Loans allocated to reduce the Loan Property Cost
of the Property pursuant to Section 2.6(c) of the Credit Agreement.
"Loans" shall mean the loans extended pursuant to the Credit Agreement
and shall include both the Tranche A Loans and the Tranche B Loans.
"Majority Holders" shall mean at any time Holders whose Certificates
represent at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate
Certificates outstanding.
"Majority Lenders" shall mean at any time Lenders whose Loans
outstanding represent at least sixty-six and two thirds percent (66-2/3%) of
the aggregate Loans outstanding.
"Marketing Period" shall mean, if the Lessee has given a Sale Notice
in accordance with Section 20.1 of the Lease, the period commencing on the date
such Sale Notice is given and ending on the Expiration Date.
"Material Adverse Effect" shall, mean a material adverse effect on (a)
the business, condition (financial or otherwise), assets, liabilities or
operations of the Lessee and its Subsidiaries taken as a whole, (b) the ability
of the Lessee or any Subsidiary to perform its respective obligations under any
Operative Agreement to which it is a party, (c) the validity or enforceability
of any Operative Agreement or the rights and remedies of the Agent, the
Lenders, the Holders, or the Lessor thereunder, (d) the validity, priority or
enforceability of any
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<PAGE> 170
Lien on the Property created by any of the Operative Agreements, or (e) the
value, utility or useful life of the Property or the use, or ability of the
Lessee to use, the Property for the purpose for which it was intended.
"Material Subsidiary" means any Subsidiary of the Lessee which either
(a) has assets which constitute five percent (5%) or more of the consolidated
assets of the Lessee and its Subsidiaries or (b) has revenues during its most
recently ended fiscal year which constitute more than five percent (5%) of the
consolidated revenues of the Lessee and its Subsidiaries during the most
recently ended fiscal year of the Lessee.
"Maturity Date" shall mean the Expiration Date.
"Maximum Property Cost" shall mean the Property Cost for the Property
subject to the Lease as of the applicable determination date (calculated
without regard to the purchase or sale of the Property).
"Maximum Residual Guarantee Amount" shall mean an amount equal to the
product of the Property Cost for the Property times eighty-eight percent (88%).
"Modifications" shall have the meaning specified in Section 11.1(a) of
the Lease.
"Mortgage Instrument" shall mean any mortgage, deed of trust or any
other instrument executed by the Owner Trustee and the Lessee in favor of the
Agent (for the benefit of the Lenders and the Holders) and evidencing a Lien on
the Property, in form and substance reasonably acceptable to the Agent.
"Multiemployer Plan" shall mean any plan described in Section 4001 (a)
(3) of ERISA to which contributions are or have been made or required by the
Lessee or any of its Subsidiaries or ERISA Affiliates.
"Multiple Employer Plan" shall mean a plan to which the Lessee or any
ERISA Affiliate and at least one (1) other employer other than an ERISA
Affiliate is making or accruing an obligation
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<PAGE> 171
to make, or has made or accrued an obligation to make, contributions.
"Net Proceeds" shall mean all amounts paid in connection with any
Casualty or Condemnation, and all interest earned thereon, less the expense of
claiming and collecting such amounts, including without limitation all costs
and expenses in connection therewith for which the Agent or the Lessor are
entitled to be reimbursed pursuant to the Lease.
"Net Sale Proceeds Shortfall" shall mean the amount by which the
proceeds of a sale described in Section 22.1 of the Lease (net of all expenses
of sale) are less than the Limited Recourse Amount with respect to the Property
if it has been determined that the Fair Market Sales Value of the Property at
the expiration of the Term of the Lease has been impaired by greater than
expected wear and tear during the Term of the Lease.
"New Facility" shall have the meaning given to such term in Section
28.1 of the Lease.
"Non-Excluded Taxes" shall have the meaning given to such term in
Section 2.13 of the Credit Agreement.
"Notes" shall mean those notes issued to the Lenders pursuant to the
Credit Agreement and shall include both the Tranche A Notes and the Tranche B
Notes.
"Obligations" shall have the meaning given to such term in Section 1
of the Security Agreement.
"Occupational Safety and Health Law" shall mean the Occupational
Safety and Health Act of 1970 and any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating or relating
to, or imposing liability or standards of conduct concerning, employee health
and/or safety, as now or at any time hereafter in effect.
"Officer's Certificate" with respect to any person shall mean a
certificate executed on behalf of such person by a Responsible Officer who has
made or caused to be made such examination or
Appendix-33
<PAGE> 172
investigation as is necessary to enable such Responsible Officer to express an
informed opinion with respect to the subject matter of such Officer's
Certificate.
"Officer's Compliance Certificate" shall have the meaning specified in
Section 7.2 of the Lessee Credit Agreement.
"Operative Agreements" shall mean the following: the Participation
Agreement, the Agency Agreement, the Trust Agreement, the Certificates, the
Credit Agreement, the Notes, the Lease (and a memorandum thereof in a form
reasonably acceptable to the Agent), each Lease Supplement (and a memorandum
thereof in a form reasonably acceptable to the Agent) , the Security Agreement,
the Mortgage Instruments, the Guaranty and all Bills of Sale.
"Original Executed Counterpart" shall mean any instrument marked "THIS
COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof
and containing the receipt of the Agent therefor on or following such signature
page.
"Overdue Interest" shall mean any interest payable pursuant to Section
2.8(c) of the Credit Agreement.
"Overdue Rate" shall mean (a) with respect to Basic Rent, and any
other amount owed under or with respect to the Credit Agreement or the Security
Documents, the rate specified in Section 2.8(b) of the Credit Agreement, (b)
with respect to the Lessor Basic Rent, the Holder Yield and any other amount
owed under or with respect to the Trust Agreement, the applicable rate
specified in the Trust Agreement, and (c) with respect to any other amount, the
amount referred to in clause (y) of Section 2.8(b) of the Credit Agreement.
"Owner Trustee," "Borrower" or "Lessor" shall mean First Security
Bank, National Association, not individually, except as expressly stated in the
various Operative Agreements, but solely as the Owner Trustee under the Stuart
Park Trust, and any successor or replacement Owner Trustee expressly permitted
under the Operative Agreements.
Appendix-34
<PAGE> 173
"Participant" shall have the meaning given to such term in Section 9.7
of the Credit Agreement.
"Participation Agreement" shall mean the Participation Agreement dated
as of the Initial Closing Date, among the Lessee, the Owner Trustee, not in its
individual capacity except as expressly stated therein, the Holders, the
Lenders and the Agent.
"Payment Date" shall mean any Scheduled Interest Payment Date and any
date on which interest or Holder Yield in connection with a prepayment of
principal on the Loans or of the Holder Advances is due under the Credit
Agreement or the Trust Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation created by
Section 4002(a) of ERISA or any successor thereto.
"Pension Plan" shall mean a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
Multiemployer Plan), and to which the Lessee or any ERISA Affiliate may have
any liability, including without limitation any liability by reason of having
been a substantial employer within the meaning of section 4063 of ERISA at any
time during the preceding five (5) years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Permitted Exceptions" shall mean:
(a) Liens of the types described in clauses (a) and (b)
of the definition of Permitted Liens;
(b) Liens for Taxes not yet due; and
(c) all encumbrances, exceptions, restrictions,
easements, rights of way, servitudes, encroachments and irregularities
in title, other than Liens which, in the reasonable assessment of the
Agent, do not materially impair the use of the Property for its
intended purpose.
"Permitted Facility" shall mean an approximately 306,000 gross square
foot office building (including a 660 space
Appendix-35
<PAGE> 174
underground parking garage) to be constructed in Ballston, Virginia.
"Permitted Liens" shall mean:
(a) the respective rights and interests of the parties to
the Operative Agreements as provided in the Operative Agreements;
(b) the rights of any sublessee or assignee under a
sublease or an assignment expressly permitted by the terms of the
Lease;
(c) Liens for Taxes that either are not yet due or are
being contested in accordance with the provisions of Section 13.1 of
the Lease;
(d) Liens arising by Operation of law, materialmen's,
mechanics', workmen's, repairmen's, employees', carriers',
warehousemen's and other like Liens relating to the construction of
the Improvements or in connection with any modifications or arising in
the ordinary course of business for amounts that either are not more
than thirty (30) days past due or are being diligently contested in
good faith by appropriate proceedings, so long as such proceedings
satisfy the conditions for the continuation of proceedings to contest
Taxes set forth in Section 13.1 of the Lease;
(e) Liens of any of the types referred to in clause (d)
above that have been bonded for not less than the full amount in
dispute (or as to which other security arrangements satisfactory to
the Lessor and the Agent have been made), which bonding (or
arrangements) shall comply with applicable Legal Requirements, and
shall have effectively stayed any execution or enforcement of such
Liens;
(f) Liens arising out of judgments or awards with respect
to which appeals or other proceedings for review are being prosecuted
in good faith and for the payment of which adequate reserves have been
provided as required by GAAP or other appropriate provisions have been
made, so long as such
Appendix-36
<PAGE> 175
proceedings have the effect of staying the execution of such judgments
or awards and satisfy the conditions for the continuation of
proceedings to contest Taxes set forth in Section 13.1 of the Lease;
(g) Liens in favor of municipalities to the extent agreed
to by the Lessor; and
(h) Permitted Exceptions.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
governmental authority or any other entity.
"Plans and Specifications" shall mean, with respect to Improvements,
the plans and specifications for such Improvements to be constructed or already
existing, as such Plans and Specifications may be amended, modified or
supplemented from time to time in accordance with the terms of the
Participation Agreement.
"Prime Lending Rate" shall have the meaning given to such term in the
definition of ABR.
"Property" shall mean, with respect to the Permitted Facility to be
acquired, constructed and/or renovated pursuant to the terms of the Operative
Agreements, the Land and each item of Equipment and the various Improvements,
in each case located on the Land, including without limitation the Construction
Period Property and the Property after the Basic Term has commenced.
"Property Cost" shall mean with respect to the Property the aggregate
amount of the Loan Property Cost, plus the Holder Property Cost for the
Property (as such amounts shall be increased respecting the Holder Advances and
the Loans extended from time to time to pay for the Transaction Expenses, fees,
expenses and other disbursements referenced in Sections 9.1(a) and (b) of the
Participation Agreement).
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"Purchase Option" shall have the meaning given to such term in Section
20.1 of the Lease.
"Purchasing Lender" shall have the meaning given to such term in
Section 9.8(a) of the Credit Agreement.
"Register" shall have the meaning given to such term in Section 9.9(a)
of the Credit Agreement.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System (or any successor), as the same may be modified and
supplemented and in effect from time to time.
"Release" shall mean any release, pumping, pouring, emptying,
injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge,
disposal or emission of a Hazardous Substance.
"Renewal Term" shall have the meaning specified in Section 2.2 of the
Lease.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental
Rent, in each case payable under the Lease.
"Reportable Event" shall have the meaning specified in ERISA.
"Requested Funds" shall mean any funds requested by the Lessee or the
Construction Agent, as applicable, in accordance with Section 5 of the
Participation Agreement.
"Requirement of Law" shall mean, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.
"Requisition" shall have the meaning specified in Section 4.2 of the
Participation Agreement.
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<PAGE> 177
"Responsible Officer" shall mean the Chairman or Vice Chairman of the
Board of Directors, the Chairman or Vice Chairman of the Executive Committee of
the Board of Directors, the President, any Senior Vice President or Executive
Vice President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer, except that when used with respect to
the Trust Company or the Owner Trustee, "Responsible Officer" shall also
include the Cashier, any Assistant Cashier, any Trust Officer or Assistant
Trust Officer, the Controller and any Assistant Controller or any other officer
of the Trust Company or the Owner Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of his knowledge of and familiarity
with the particular subject.
"Sale Date" shall have the meaning given to such term in Section
22.1(a) of the Lease.
"Sale Notice" shall mean a notice given to the Lessor in connection
with the election by the Lessee of its Sale Option.
"Sale Option" shall have the meaning given to such term in Section
20.1 of the Lease.
"Scheduled Interest Payment Date" shall mean (a) as to any Eurodollar
Loan or Eurodollar Holder Advance, the last day of the Interest Period
applicable to such Eurodollar Loan or Eurodollar Holder Advance, (b) as to any
ABR Loan or any ABR Holder Advance, the fifteenth day of each month and (c) as
to all Loans and Holder Advances, the date of any voluntary or involuntary
payment, prepayment, return or redemption, and the Maturity Date or the
Expiration Date, as the case may be.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Security Agreement" shall mean the Security Agreement dated as of the
Initial Closing Date between the Lessor and the Agent, for the benefit of the
Lenders.
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"Security Documents" shall mean the collective reference to the
Security Agreement, the Mortgage Instruments, the Guaranty, the Lease (to the
extent the Lease is construed as a security instrument) and all other security
documents hereafter delivered to the Agent granting a lien on any asset or
assets of any Person to secure the obligations and liabilities of the Lessor
under the Credit Agreement and/or under any of the other Credit Documents or to
secure any guarantee of any such obligations and liabilities.
"Soft Costs" shall mean all costs related to the development and
construction of the Improvements other than Hard Costs, including without
limitation fees and expenses related to appraisals, title examinations, title
insurance, surveys, environmental site assessments, geotechnical soil
investigations and similar costs, the Lender Unused Fee, the Holder Unused Fee,
the Advisory Fee, fees and expenses of the Owner Trustee payable or
reimbursable under the Operative Agreements and costs and expenses incurred
pursuant to Sections 9.3 (i) and (ii) of the Participation Agreement.
"Stuart Park Trust" shall mean the grantor trust created pursuant to
the terms and conditions of the Trust Agreement.
"Subsidiary" shall mean, as to any Person, any corporation of which at
least a majority of the outstanding stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person, or by one
(1) or more Subsidiaries, or by such Person and one (1) or more Subsidiaries.
"Supplemental Amounts" shall have the meaning given to such term in
Section 9.18 of the Credit Agreement.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Basic Rent) which the Lessee assumes or agrees to pay
to the Lessor, the Trust Company, the Holders, the Agent, the Lenders or any
other Person under the Lease or under
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<PAGE> 179
any of the other Operative Agreements including without limitation payments of
the Termination Value and the Maximum Residual Guarantee Amount and all
indemnification amounts, liabilities and obligations.
"Taxes" shall have the meaning specified in the definition of
Impositions.
"Term" shall mean the Interim Lease Term, Basic Term and each Renewal
Term, if any.
"Termination Date" shall have the meaning specified in Section 16.2(a)
of the Lease.
"Termination Event" shall mean (a) with respect to any Pension Plan,
the occurrence of a Reportable Event or an event described in Section 4062(e)
of ERISA, (b) the withdrawal of the Lessee or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or the
termination of a Multiple Employer Plan, (c) the distribution of a notice of
intent to terminate a Plan or Multiemployer Plan pursuant to Section 4041(a)(2)
or 4041A of ERISA, (d) the institution of proceedings to terminate a Plan or
Multiemployer Plan by the PBGC under Section 4042 of ERISA, (e) any other event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or
Multiemployer Plan, or (f) the complete or partial withdrawal of the Lessee or
any ERISA Affiliate from a Multiemployer Plan.
"Termination Notice" shall have the meaning specified in Section 16.1
of the Lease.
"Termination Value" shall mean the sum of (a) with respect to the
Property, an amount equal to the outstanding Property Cost for the Property as
of the last occurring Payment Date, plus (b) any and all accrued interest on
the Loans and any and all Holder Yield on the Holder Advances related to the
Property Cost, plus (c) all other Rent and other amounts then due and payable
or accrued under the Agency Agreement, Lease and/or under any other Operative
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<PAGE> 180
Agreement (including without limitation all costs and expenses referred to in
clause FIRST of Section 22.2 of the Lease).
"Total Condemnation" shall mean a Condemnation that involves a taking
of the Lessor's entire title to the Property.
"Tranche A Commitments" shall mean the obligation of the Tranche A
Lenders to make the Tranche A Loans to the Lessor in an aggregate principal
amount at any one (1) time outstanding not to exceed the aggregate of the
amounts set forth opposite each Tranche A Lender's name on Schedule 1.1 to the
Credit Agreement, as such amount may be reduced from time to time in accordance
with the provisions of the Operative Agreements; provided, no Tranche A Lender
shall be obligated to make Tranche A Loans in excess of such Tranche A Lender's
share of the Tranche A Commitments as set forth adjacent to such Tranche A
Lender's name on Schedule 1.1 to Credit Agreement.
"Tranche A Lenders" shall mean NationsBank of Texas, N.A. and the
several banks and other financial institutions from time to time party to the
Credit Agreement that commit to make the Tranche A Loans.
"Tranche A Loans" shall mean the Loans made pursuant to the Tranche A
Commitment.
"Tranche A Note" shall have the meaning given to it in Section 2.2 of
the Credit Agreement.
"Tranche B Commitments" shall mean the obligation of the Tranche B
Lenders to make the Tranche B Loans to the Lessor in an aggregate principal
amount at any one (1) time outstanding not to exceed the aggregate of the
amounts set forth opposite each Tranche B Lender's name on Schedule 1.1 to the
Credit Agreement, as such amount may be reduced from time to time in accordance
with the provisions of the Operative Agreements; provided, no Tranche B Lender
shall be obligated to make Tranche B Loans in excess of such Tranche B Lender's
share of the Tranche B Commitments as set forth adjacent to such Tranche B
Lender's name on Schedule 1.1 to Credit Agreement.
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"Tranche B Lenders" shall mean NationsBank of Texas, N.A. and the
several banks and other financial institutions from time to time party to the
Credit Agreement that commit to make the Tranche B Loans.
"Tranche B Loan" shall mean the Loans made pursuant to the Tranche B
Commitment.
"Tranche B Note" shall have the meaning given to it in Section 2.2 of
the Credit Agreement.
"Transaction Expenses" shall mean all Soft Costs and all other costs
and expenses incurred in connection with the preparation, execution and
delivery of the Operative Agreements and the transactions contemplated by the
Operative Agreements including without limitation:
(a) the reasonable fees, out-of-pocket expenses and
disbursements of counsel in negotiating the terms of the Operative
Agreements and the other transaction documents, preparing for the
closings under, and rendering opinions in connection with, such
transactions and in rendering other services customary for counsel
representing parties to transactions of the types involved in the
transactions contemplated by the Operative Agreements;
(b) the reasonable fees, out-of-pocket expenses and
disbursements of accountants for the Lessee or the Construction Agent
in connection with the transaction contemplated by the Operative
Agreements;
(c) any and all other reasonable fees, charges or other
amounts payable to the Lenders, the Agent, the Holders, the Owner
Trustee or any broker which arises under any of the Operative
Agreements;
(d) any other reasonable fee, out-of-pocket expenses,
disbursement or cost of any party to the Operative Agreements or any
of the other transaction documents; and
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(e) any and all Taxes and fees incurred in recording or
filing any Operative Agreement or any other transaction document, any
deed, declaration, mortgage, security agreement, notice or financing
statement with any public office, registry or governmental agency in
connection with the transactions contemplated by the Operative
Agreement.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
territorial, or other court or government body, subdivision agency, department,
commission, board, bureau or instrumentality of a governmental body.
"Trust" shall mean Stuart Park Trust, a grantor trust created pursuant
to the Trust Agreement.
"Trust Agreement" shall mean the Trust Agreement dated as of the
Initial Closing Date between the Holders and the Owner Trustee.
"Trust Company" shall mean First Security Bank, National Association,
in its individual capacity, and any successor owner trustee under the Trust
Agreement in its individual capacity.
"Trust Estate" shall have the meaning specified in Section 2.2 of the
Trust Agreement.
"Type" shall mean, as to any Loan, whether it is an ABR Loan or a
Eurodollar Loan.
"UCC Financing Statements" shall mean collectively the Lender
Financing Statements and the Lessor Financing Statements.
"Unanimous Vote Matters" shall have the meaning given it in Section
10.2(j) of the Participation Agreement.
"Unfunded Amount" shall have the meaning specified in Section 3.2 of
the Agency Agreement.
"Unfunded Liability" shall mean, with respect to any Plan, at any
time, the amount (if any) by which (a) the present value of all benefits under
such Plan exceeds (b) the fair market value of
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<PAGE> 183
all Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of the Company or any member of the Controlled
Group to the PBGC or such Plan under Title IV of ERISA.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial
Code as in effect in any applicable jurisdiction.
"United States Bankruptcy Code" shall mean Title 11 of the United
States Code.
"Unused Fee" shall mean, collectively, the Holder Unused Fee and the
Lender Unused Fee.
"Unused Fee Payment Date" shall mean the last Business Day of each
month and the last Business Day of the Commitment Period, or such earlier date
as the Commitments shall terminate as provided in the Credit Agreement or the
Holder Commitment shall terminate as provided in the Trust Agreement.
"Voting Power" shall mean, with respect to securities issued by any
Person, the combined voting power of all securities of such person which are
issued and outstanding at the time of determination and which are entitled to
vote in the election of directors or such Person, other than securities having
such power only by reason of the happening of a contingency.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Work" shall mean the furnishing of labor, materials, components,
furniture, furnishings, fixtures, appliances, machinery, equipment, tools,
power, water, fuel, lubricants, supplies, goods and/or services with respect to
the Property.
Appendix-45
<PAGE> 1
EXHIBIT 10(s)(ii)
UNCONDITIONAL GUARANTY AGREEMENT
THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty"), dated as of
November 15, 1996 made by LCI INTERNATIONAL, INC., a Delaware corporation (the
"Guarantor"), in favor of NATIONSBANK OF TEXAS, N.A., as Agent for the ratable
benefit of the Tranche A Lenders party to the Participation Agreement dated
November 15, 1996 among the Guarantor, as Lessee and Construction Agent; First
Security Bank, National Association, in its capacity as Owner Trustee under the
Stuart Park Trust, as Owner Trustee, Borrower, and Lessor; the various Lenders
from time to time party thereto; the various Holders from time to time party
thereto; and NationsBank of Texas, N.A., in its capacity as agent for the
Lenders, as agent (as amended or modified, the "Participation Agreement").
STATEMENT OF PURPOSE
Pursuant to the terms of the Participation Agreement and the other
Operative Agreements, the Tranche A Lenders, inter alia, have agreed to extend
certain credit facilities to the Borrower in the aggregate principal amount of
up to the aggregate Tranche A Commitments under the Credit Agreement.
The proceeds of the credit facilities being extended by the Tranche A
Lenders to the Borrower are being used by the Borrower to construct the
Property, which Property shall be leased by the Borrower to the Guarantor
pursuant to the terms of the Lease Agreement and the other Operative
Agreements. Therefore, the extension of credit by the Tranche A Lenders to the
Borrower will inure to the benefit of the Guarantor, directly or indirectly, as
more particularly set forth in the Operative Agreements.
In connection with the transactions contemplated by the Participation
Agreement and the other Operative Agreements and as a condition precedent to
the extension by the Tranche A Lenders of the Tranche A Loans, the Tranche A
Lenders have requested, and the Guarantor has agreed to execute and deliver,
this Guaranty.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, and to induce the Tranche A Lenders to make available Tranche
A Loans pursuant to the
<PAGE> 2
Participation Agreement and the other Operative Agreements, it is agreed as
follows:
Definitions. Capitalized terms used herein (including the preamble
hereof) shall have the meanings assigned to them in the Participation
Agreement, unless the context otherwise requires or unless otherwise defined
herein. References in the Operative Agreements or any of them to the
"Guaranty" or herein to this "Guaranty" shall include and mean this Guaranty,
including all amendments and supplements hereto now or hereafter in effect.
Guaranty of Obligations of Borrower Relating to Tranche A Loans. The
Guarantor hereby unconditionally guarantees to the Agent for the ratable
benefit of the Tranche A Lenders, and their respective successors, endorsees,
transferees and assigns, the prompt payment (whether at stated maturity, by
acceleration or otherwise) and performance of all Obligations of the Borrower
relating to or in any way arising from, out of or in connection with the
Tranche A Loans, whether primary or secondary (whether by way of endorsement or
otherwise), whether now existing or hereafter arising, whether or not from time
to time reduced or extinguished (except by payment thereof) or hereafter
increased or incurred, whether or not recovery may be or hereafter become
barred by the statute of limitations, whether enforceable or unenforceable as
against the Borrower, whether or not discharged, stayed or otherwise affected
by any bankruptcy, insolvency or other similar law or proceeding, whether
created directly with any Tranche A Lender or acquired by any Tranche A Lender
through assignment, endorsement or otherwise, whether matured or unmatured,
whether joint or several, as and when the same become due and payable (whether
at maturity or earlier, by reason of acceleration, mandatory repayment or
otherwise), in accordance with the terms of any such instruments evidencing any
such obligations, including all renewals, extensions or modifications thereof
(all Obligations of the Borrower to any Tranche A Lender relating to or in any
way arising from, out of or in connection with the Tranche A Loans, including
all of the foregoing, being hereinafter collectively referred to as the
"Guaranteed Obligations"); provided, that notwithstanding anything to the
contrary contained herein, it is the intention of the Guarantor and the Tranche
A Lenders that the amount of the Guarantor's
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<PAGE> 3
obligations with respect to the Guaranteed Obligations shall be in, but notin
excess of, the maximum amount thereof not subject to avoidance or recovery by
operation of applicable law governing bankruptcy, reorganization, arrangement,
adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent
transfers or conveyances or other similar laws (including, without limitation,
11 U.S.C. Section 547, Section 548, Section 550 and other "avoidance"
provisions of Title 11 of the United States Code) applicable at any time to the
Guarantor and this Guaranty (collectively, "Applicable Insolvency Laws"). To
that end, but only in the event and to the extent that the Guarantor's
obligations with respect to the Guaranteed Obligations or any payment made
pursuant to the Guaranteed Obligations would, but for the operation of the
foregoing proviso, be subject to avoidance or recovery under Applicable
Insolvency Laws, the amount of the Guarantor's obligations with respect to the
Guaranteed Obligations shall be limited to the largest amount which, after
giving effect thereto, would not, under Applicable Insolvency Laws, render the
Guarantor's obligations with respect to such Guaranteed Obligations
unenforceable or avoidable or otherwise subject to recovery under Applicable
Insolvency Laws. To the extent any payment actually made pursuant to the
Guaranteed Obligations exceeds the limitation of the foregoing proviso, then
the amount of such excess shall, from and after the time of payment by
Guarantor, be reimbursed by the Tranche A Lenders upon demand by Guarantor.
The foregoing proviso is intended solely to preserve the rights of the Agent
for the benefit of the Tranche A Lenders hereunder against the Guarantor to the
maximum extent permitted by Applicable Insolvency Laws and neither the Borrower
or any other Guarantor under the Operative Agreements nor any other Person
shall have any right or claim under such proviso that would not otherwise be
available under Applicable Insolvency Laws.
Nature of Guaranty. The Guarantor agrees that this Guaranty is a
continuing, irrevocable, unconditional guaranty of payment and performance and
not of collection, and that its obligations under this Guaranty shall be
primary, absolute and unconditional, irrespective of, and unaffected by:
the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, the
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<PAGE> 4
Participation Agreement or any other Operative Agreement or any other
agreement, document or instrument to which the Borrower is or may become a
party;
the absence of any action to enforce this Guaranty, the
Participation Agreement or any other Operative Agreement or the waiver or
consent by the Agent or any Tranche A Lender with respect to any of the
provisions of this Guaranty, the Participation Agreement or any other
Operative Agreement;
the existence, value or condition of, or failure to perfect its Lien
against, any security for or other guaranty of the Guaranteed Obligations
or any action, or the absence of any action, by the Agent or any Tranche
A Lender in respect of such security or guaranty (including, without
limitation, the release of any such security or guaranty); or
any other action or circumstances which might otherwise constitute a
legal or equitable discharge or defense of a surety or guarantor;
it being agreed by the Guarantor that, subject to the proviso in Section 2
hereof, its obligations under this Guaranty shall not be discharged until the
final and indefeasible payment and performance, in full, of the Guaranteed
Obligations. The Guarantor expressly waives all rights it may now or in the
future have under any statute (including without limitation North Carolina
General Statutes Section 26-7 et seq., or similar law), or at law or in equity,
or otherwise, to compel the Agent or any Tranche A Lender to proceed in respect
of the Guaranteed Obligations against the Borrower or any other party or
against any security for or other guaranty of the payment and performance of
the Guaranteed Obligations before proceeding against, or as a condition to
proceeding against, the Guarantor. The Guarantor further expressly waives and
agrees not to assert or take advantage of any defense based upon the failure of
the Agent or any Tranche A Lender to commence an action in respect of the
Guaranteed Obligations against the Borrower, the Guarantor or any other party
or any security for the payment and performance of the Guaranteed Obligations.
The Guarantor agrees that any notice or directive
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<PAGE> 5
given at any time to the Agent or any Tranche A Lender which is inconsistent
with the waivers in the preceding two sentences shall be null and void and may
be ignored by the Agent or such Tranche A Lender, and, in addition, may not be
pleaded or introduced as evidence in any litigation relating to this Guaranty
for the reason that such pleading or introduction would be at variance with the
written terms of this Guaranty, unless the Agent and the Majority Lenders (as
determined with respect to Tranche A Loans only) have specifically agreed
otherwise in writing. The foregoing waivers are of the essence of the
transaction contemplated by the Operative Agreements and, but for this Guaranty
and such waivers, the Agent and Tranche A Lenders would decline to enter into
the Operative Agreements.
Demand by the Agent. In addition to the terms set forth in Section 3, and
in no manner imposing any limitation on such terms, if all or any portion of
the then outstanding Guaranteed Obligations under the Participation Agreement
and the other Operative Agreements are declared to be immediately due and
payable, then the Guarantor shall, upon demand in writing therefor by the Agent
to the Guarantor, pay all or such portion of the outstanding Guaranteed
Obligations (subject to the proviso in Section 2 hereof) then declared due and
payable. Payment by the Guarantor shall be made to the Agent, to be credited
and applied upon the Guaranteed Obligations, in immediately available federal
funds to an account designated by the Agent or at the address referenced herein
for the giving of notice to the Agent or at any other address that may be
specified in writing from time to time by the Agent.
Waivers. In addition to the waivers contained in Section 3, the Guarantor
waives, and agrees that it shall not at any time insist upon, plead or in any
manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshalling of assets or redemption laws, or
exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by the Guarantor of its obligations
under, or the enforcement by the Agent or the Tranche A Lenders of, this
Guaranty. The Guarantor further hereby waives diligence, presentment, demand,
protest and notice of whatever kind or nature with respect to any of the
Guaranteed
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<PAGE> 6
Obligations and waives the benefit of all provisions of law which are or might
be in conflict with the terms of this Guaranty. The Guarantor represents,
warrants and agrees that its obligations under this Guaranty are not and shall
not be subject to any counterclaims, offsets or defenses of any kind against
the Agent, the Tranche A Lenders or the Borrower whether now existing or which
may arise in the future.
Benefits of Guaranty. The provisions of this Guaranty are for the benefit
of the Agent and the Tranche A Lenders and their respective successors,
transferees, endorsees and assigns, and nothing herein contained shall impair,
as between the Borrower, the Agent and the Tranche A Lenders, the obligations
of the Borrower under the Operative Agreements. In the event all or any part
of the Guaranteed Obligations are transferred, endorsed or assigned by the
Agent or the Tranche A Lender to any Person or Persons, any reference to the
"Agent" or the "Tranche A Lenders" herein shall be deemed to refer equally to
such Person or Persons.
Modification of Loan Documents etc. If the Agent or the Tranche A Lenders
shall at any time or from time to time, with or without the consent of, or
notice to, the Guarantor:
change or extend the manner, place or terms of payment of, or renew
or alter all or any portion of, the Guaranteed Obligations;
take any action under or in respect of the Operative Agreements in
the exercise of any remedy, power or privilege contained therein or
available to it at law, in equity or otherwise, or waive or refrain from
exercising any such remedies, powers or privileges;
amend or modify, in any manner whatsoever, the Operative Agreements;
extend or waive the time for performance by the Guarantor, the
Borrower or any other Person of, or compliance with, any term, covenant
or agreement on its part to be performed or observed under an Operative
Agreement (other than this Guaranty), or waive such performance or
compliance
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<PAGE> 7
or consent to a failure of, or departure from, such performance or
compliance;
take and hold security or collateral for the payment of the
Guaranteed Obligations or sell, exchange, release, dispose of, or
otherwise deal with, any property pledged, mortgaged or conveyed, or in
which the Agent or the Tranche A Lenders have been granted a Lien, to
secure any indebtedness or other obligation of the Guarantor or the
Borrower to the Agent or the Tranche A Lenders;
release anyone who may be liable in any manner for the payment of
any amounts owed by the Guarantor or the Borrower to the Agent or any
Tranche A Lender;
modify or terminate the terms of any intercreditor or subordination
agreement pursuant to which claims of other creditors of the Guarantor or
the Borrower are subordinated to the claims of the Agent or any Tranche A
Lender; or
apply any sums by whomever paid or however realized to any amounts
owing by the Guarantor or the Borrower to the Agent or any Tranche A
Lender in such manner as the Agent or any Tranche A Lender shall
determine in its discretion;
then neither the Agent nor any Tranche A Lender shall incur any liability to
the Guarantor as a result thereof, and no such action shall impair or release
the obligations of the Guarantor under this Guaranty.
Reinstatement. The Guarantor agrees that, if any payment made by the
Borrower or any other Person applied to the Guaranteed Obligations is at any
time annulled, set aside, rescinded, invalidated, declared to be fraudulent or
preferential or otherwise required to be refunded or repaid, or the proceeds of
Collateral for the Guaranteed Obligations are required to be returned by the
Agent or any Tranche A Lender to the Borrower, its estate, trustee, receiver or
any other party, including, without limitation, the Guarantor, under any Legal
Requirement or equitable cause, then, to the extent of such payment or
repayment, the Guarantor's liability hereunder (and any Lien or Collateral
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<PAGE> 8
securing such liability) shall be and remain in full force and effect, as fully
as if such payment had never been made, and, if prior thereto, this Guaranty
shall have been canceled or surrendered (and if any Lien or Collateral securing
the Guarantor's liability hereunder shall have been released or terminated by
virtue of such cancellation or surrender), this Guaranty (and such Lien or
Collateral) shall be reinstated in full force and effect, and such prior
cancellation or surrender shall not diminish, release, discharge, impair or
otherwise affect the obligations of the Guarantor in respect of the amount of
such payment (or any Lien or Collateral securing such obligation).
Waiver of Subrogation and Contribution. The Guarantor hereby irrevocably
waives any claims or other rights which it may now or hereafter acquire against
the Borrower that arise from the existence or performance of the Guarantor's
obligations under this Guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, any
right to participate in any claim or remedy of the Agent or the Tranche A
Lenders against the Borrower or any security or collateral which the Agent or
the Tranche A Lenders now have or may hereafter acquire, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, by any payment made hereunder or otherwise, including without limitation,
the right to take or receive from the Borrower, directly or indirectly, in cash
or other property or by set-off or in any other manner, payment or security on
account of such claim or other rights.
Representations and Warranties. To induce the Agent and the Tranche A
Lenders to execute the Participation Agreement and the other Operative
Agreements and, in case of the Tranche A Lenders, to make any Tranche A Loans,
the Guarantor hereby represents and warrants that:
(a) the Guarantor has the corporate power, authority and
legal right to execute, deliver and perform this Guaranty and has
taken all necessary corporate action to authorize its execution,
delivery and performance of, this Guaranty;
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(b) this Guaranty constitutes the legal, valid and binding
obligation of the Guarantor enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(c) the execution, delivery and performance of this Guaranty
will not violate any provision of any Legal Requirement or
contractual obligation of the Guarantor and will not result in the
creation or imposition of any Lien on any of the properties or
revenues of the Guarantor pursuant to any Legal Requirement or
contractual obligation;
(d) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and
no consent of any other Person (including, without limitation, any
stockholder or creditor of the Guarantor), is required in
connection with the execution, delivery, performance, validity or
enforceability of this Guaranty;
(e) no litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the
knowledge of the Guarantor, threatened by or against the Guarantor
or against any of its properties or revenues with respect to this
Guaranty or any of the transactions contemplated hereby; and
(f) the Guarantor has good record and marketable title in fee
simple to or valid leasehold interests in all of its real property, and
has good title to all of its other property, free of any and all Liens of
any type whatsoever, except those permitted by the terms of the Operative
Agreements.
Remedies.
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(a) Upon the occurrence of any Event of Default, with the consent of the
Majority Lenders (as determined with reference to the Tranche A Loans only),
the Agent may, or upon the request of the Majority Lenders (as determined with
reference to the Tranche A Loans only), the Agent shall, enforce against the
Guarantor its obligations and liabilities hereunder and exercise such other
rights and remedies as may be available to the Agent hereunder, under the
Operative Agreements or otherwise.
(b) No right or remedy herein conferred upon the Agent is intended to be
exclusive of any other right or remedy contained herein or in any other
Operative Agreement or otherwise, and every such right or remedy contained
herein and therein or now or hereafter existing at law, or in equity, or by
statute, or otherwise shall be cumulative. The Majority Lenders (as determined
with reference to the Tranche A Loans only) may instruct the Agent to pursue,
or refrain from pursuing, any remedy available to the Agent at such times and
in such order as such Majority Lenders shall determine, and such Majority
Lenders' election as to such remedies shall not impair any remedies against the
Guarantor not then exercised. In addition, any election of remedies which
results in the denial or impairment of the right of the Agent to seek a
deficiency judgment against the Borrower shall not impair the Guarantor's
obligation to pay the full amount of the Guaranteed Obligations.
SECTION 12. Miscellaneous.
Entire Agreement; Amendments. This Guaranty, together with the other
Operative Agreements, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements with
respect to the subject matter hereof and may not be amended or supplemented
except by a writing signed by the Guarantor and the Agent.
Headings. The headings in this Guaranty are for convenience of reference
only and are not part of the substance of this Guaranty.
Severability. In the event that any one or more of the provisions
contained in this Guaranty shall be determined to be
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<PAGE> 11
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision or provisions in every other
respect and the remaining provisions of this Guaranty shall not be in any way
impaired.
Notices. All notices and communications hereunder shall be given in
accordance with Section 14.3 of the Participation Agreement.
Binding Effect. This Guaranty shall bind the Guarantor and shall inure to
the benefit of the Agent and the Tranche A Lenders and their respective
successors and assigns. The Guarantor may not assign this Guaranty or delegate
any of its duties hereunder.
Non-Waiver. The failure of the Agent or any Tranche A Lender to enforce
any right or remedy hereunder, or promptly to enforce any such right or remedy,
shall not constitute a waiver thereof, nor give rise to any estoppel against
the Agent or any Tranche A Lender, nor excuse the Guarantor from its
obligations hereunder. Any waiver of any such right or remedy by the Tranche A
Lenders must be in writing and signed by the Majority Lenders (as determined
with respect to Tranche A Loans only).
Termination. This Guaranty shall terminate and be of no further force or
effect on the date when the Guaranteed Obligations have been indefeasibly paid
in full and the Tranche A Commitments terminated.
Governing Law. This Guaranty shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina, without
reference to the conflicts or choice of law principles thereof.
(i) Consent to Jurisdiction. To the fullest extent permitted by
applicable law, the Guarantor hereby irrevocably consents to the personal
jurisdiction of the state and federal courts located in Mecklenburg County,
North Carolina, in any action, claim or other proceeding arising out of any
dispute in connection with this Guaranty, any rights or obligations hereunder,
or the performance of such rights and obligations. The
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Guarantor hereby irrevocably consents to the service of a summons and complaint
and other process in any action, claim or proceeding brought by the Agent or
any Tranche A Lender in connection with this Guaranty, any rights or
obligations hereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner referenced in Section 12(d).
Nothing in this Section 12(i) shall affect the right of the Agent or any
Tranche A Lender to serve legal process in any other manner permitted by Legal
Requirements or affect the right of the Agent or any Tranche A Lender to bring
any action or proceeding against the Guarantor or its properties in the courts
of any other jurisdictions.
(j) Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE AGENT, EACH TRANCHE A LENDER AND THE GUARANTOR HEREBY IRREVOCABLY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM
OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS
AND OBLIGATIONS.
(k) Expenses. The Guarantor agrees that it will reimburse the Agent and
each Tranche A Lender for all expenses (including reasonable attorneys fees and
expenses) incurred by the Agent or such Tranche A Lender in connection with the
obligations of the Guarantor under this Guaranty and any other Operative
Agreements and all expenses (including reasonable attorneys fees and expenses)
incurred by the Agent or any Tranche A Lender in connection with the
enforcement of this Guaranty.
(l) Limitation of Liability. Neither the Agent, the Tranche A Lenders nor
any Affiliate thereof shall have any liability with respect to, and the
Guarantor hereby waives, releases and agrees not to sue upon, any claim for any
special, indirect, punitive, exemplary or consequential damages suffered by the
Guarantor in connection with, arising out of, or in any way related to this
Guaranty and the other Operative Agreements, the transactions contemplated
herein or therein, or any act, omission or event occurring in connection
herewith or therewith.
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(m) Indemnities. The Guarantor agrees to hold the Agent and the Tranche A
Lenders harmless from and against all losses suffered by the Agent and the
Tranche A Lenders in connection with (i) the exercise by the Tranche A Lenders
of any right or remedy granted to them under this Guaranty, (ii) any claim, and
the prosecution or defense thereof, arising out of or in any way connected with
this Guaranty, and (iii) the collection or enforcement of the Guaranteed
Obligations or any of them; provided, that the Guarantor shall not be obligated
to reimburse the Agent or the Tranche A Lenders for costs and expenses, or
indemnify the Agent or the Tranche A Lenders for any loss, resulting from the
gross negligence or willful misconduct of the Agent or the Tranche A Lenders.
Notwithstanding any termination of this Guaranty, the indemnities to which the
Agent and the Tranche A Lenders are entitled under this Guaranty shall continue
in full force and effect and shall protect the Agent and the Tranche A Lenders
against events arising after such termination as well as before.
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
under seal by its duly authorized officers as of the date first above written.
LCI INTERNATIONAL, INC.
[CORPORATE SEAL]
By:
------------------------------------
Attest: Name:
----------------------------
By: Title:
-------------------------- ---------------------------
Name:
-------------
Title:
-----------------
<PAGE> 1
EXHIBIT 10(s)(iii)
AGENCY AGREEMENT
between
LCI INTERNATIONAL, INC.,
as the Construction Agent
and
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as the
Owner Trustee under the Stuart Park Trust,
as the Lessor
Dated as of November 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
APPOINTMENT OF THE CONSTRUCTION AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Acceptance and Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Scope of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Covenants of the Construction Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
THE PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Amendments; Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Failure to Complete the Property; Payment of Maximum Residual Guarantee Amount . . . . . . . . . . . . . . . . 5
3.4 Failure to Complete the Property and Purchase Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
PAYMENT OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Right to Receive Construction Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Remedies; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI
THE LESSOR'S RIGHTS; THE CONSTRUCTION AGENT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Exercise of the Lessor's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 The Lessor's Right to Cure the Construction Agent's Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.3 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.5 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.8 Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.9 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 4
EXHIBIT 10(s)(iii)
AGENCY AGREEMENT
THIS AGENCY AGREEMENT, dated as of November 15, 1996 (as amended,
modified, extended, supplemented, restated and/or replaced from time to time,
the "Agreement"), between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national
banking association ("FSB"), not in its individual capacity, but solely as
Owner Trustee under the Stuart Park Trust (the "Lessor") and LCI INTERNATIONAL,
INC., a Delaware corporation (the "Construction Agent").
PRELIMINARY STATEMENT
A. The Lessor and the Construction Agent are parties to that
certain Lease Agreement, dated as of even date herewith (as amended, modified,
extended, supplemented, restated and/or replaced from time to time, the
"Lease"), pursuant to which the Construction Agent, as lessee (in such
capacity, the "Lessee") has agreed to lease certain Land, Improvements and
Equipment from the Lessor (collectively, the "Property").
B. In connection with the execution and delivery of the
Participation Agreement, the Lease and the other Operative Agreements, and
subject to the terms and conditions hereof, (i) the Lessor desires to appoint
the Construction Agent as its sole and exclusive agent in connection with the
identification and acquisition of the Land (provided, title to the Land shall
be held in the name of the Lessor) and the development, construction,
installation, acquisition and testing of the Improvements and the Equipment in
accordance with the Plans and Specifications and (ii) the Construction Agent
desires, for the benefit of the Lessor, to identify and acquire the Land and to
cause the development, construction, installation, acquisition, and testing of
the Improvements, the Equipment and the other components of the Property
thereon in accordance with the Plans and Specifications and to undertake such
other liabilities and obligations as are herein set forth.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
Defined Terms.
Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings set forth in the Participation Agreement, dated as of
November 15, 1996, among the Lessee, FSB, not in its individual capacity, but
solely as Owner Trustee under the Stuart Park Trust, and NationsBank of Texas,
N.A., as a Holder, a Lender and the Agent for the Lenders.
ARTICLE II
APPOINTMENT OF THE CONSTRUCTION AGENT
Appointment. Subject to the terms and conditions hereof, the
Lessor hereby irrevocably designates and appoints the Construction Agent as its
exclusive agent, and the Construction Agent accepts such appointment, in
connection with the identification and acquisition of the Land (provided, title
to the Land shall be held in the name of the Lessor) and the development,
construction, acquisition, installation, and testing of the Improvements, the
Equipment and the other components of the Property in accordance with the Plans
and Specifications on the Land, and pursuant to the terms of this Agreement,
the Participation Agreement and the other Operative Agreements.
Notwithstanding any provisions hereof or in any other Operative Agreement to
the contrary, the Construction Agent acknowledges and agrees that the Lessor
shall advance no more than the sum of the aggregate Commitment of the Lenders
plus the aggregate amount of the Holder Commitments of the Holders in regard to
the Property (including without limitation for any and all Advances in the
aggregate from the Lenders under the Credit Agreement and from the Holders
under the Trust Agreement).
Acceptance and Undertaking. The Construction Agent hereby
unconditionally accepts the agency appointment and undertakes, for the benefit
of the Lessor, to identify and acquire certain Land (provided, title to the
Land shall be held in the
2
<PAGE> 6
name of the Lessor) and the construction, development, acquisition,
installation, and testing of the Improvements, the Equipment and the other
components of the Property in accordance with the Plans and Specifications and
the Operative Agreements.
Term. This Agreement shall commence on the date hereof and
shall terminate on the Construction Period Termination Date.
Scope of Authority.
(a) The Lessor hereby expressly authorizes the
Construction Agent, or any agent or contractor of the Construction Agent, and
the Construction Agent unconditionally agrees, for the benefit of the Lessor,
to take all action necessary or desirable for the performance and satisfaction
of any and all of the Lessor's obligations under any construction agreement and
to fulfill all of the obligations of the Construction Agent including without
limitation:
(i) the identification and assistance
with the acquisition of the Land in accordance with the terms and
conditions of the Participation Agreement;
(ii) all design and supervisory functions
relating to the development, construction, acquisition, installation,
and testing of the related Improvements, Equipment and other
components of the Property and performing all engineering work related
thereto;
(iii) (A) negotiating and entering into
all contracts and arrangements to procure the equipment necessary to
construct the Property and (B) negotiating all contracts and
arrangements to develop, acquire, install, construct and test the
Improvements, the Equipment and the other components of the Property
on such terms and conditions as are customary and reasonable in light
of local and national standards and practices and the businesses in
which the Lessee is engaged;
(iv) obtaining all necessary permits,
licenses, consents, approvals, entitlements and other authorizations,
required under applicable Law (including
3
<PAGE> 7
without limitation Environmental Laws), from all Governmental
Authorities in connection with the construction, development,
acquisition, installation, construction and testing of the
Improvements, the Equipment and the other components of the Property
in accordance with the Plans and Specifications, and all of the
foregoing required for the use and occupancy of the Property;
(v) maintaining all books and records
with respect to the Property and the development, construction,
operation and management thereof; and
(vi) performing any other acts necessary
in connection with the identification and acquisition of the Land and
the construction, development, acquisition, installation, and testing
of the related Improvements, Equipment and all other additional
components of the Property in accordance with the Plans and
Specifications.
(b) Neither the Construction Agent nor any of its
Affiliates or agents shall enter into any contract in the name of the Lessor
without the Lessor's prior written consent.
(c) Subject to the terms and conditions of this Agreement
and the other Operative Agreements, the Construction Agent shall have sole
management and control over the construction, development, installation, and
testing means, methods, sequences and procedures with respect to the Property.
Delegation of Duties. The Construction Agent may execute any
of its duties under this Agreement by or through agents, contractors, employees
or attorneys-in-fact; provided, however, that no such delegation shall limit or
reduce in any way the Construction Agent's duties and obligations under this
Agreement.
Covenants of the Construction Agent. The Construction Agent
hereby covenants and agrees that it will:
(a) following the Construction Commencement Date, cause
the development, construction, acquisition, installation,
4
<PAGE> 8
and testing of the Property to be prosecuted in a good and workmanlike manner,
and in accordance with the (i) Plans and Specifications, (ii) the Construction
Budget, (iii) the contracts relating to the Improvements, the Equipment, other
components for the Property, and (iv) the construction contracts, the
construction schedule, prevalent industry practices and all Legal Requirements
and Insurance Requirements;
(b) [Intentionally omitted];
(c) cause the Completion Date for any Improvements to
occur on or before the Construction Period Termination Date, free and clear (by
removal or bonding) of Liens or claims for materials supplied or labor or
services performed in connection with the development, acquisition,
installation, construction or testing thereof;
(d) cause all material outstanding punch list items with
respect to such Improvements to be completed by the Completion Date;
(e) at all times subsequent to the initial Advance
respecting the Land (i) cause good and marketable title to the Property
(including the Land) to vest in the Owner Trustee subject only to Permitted
Liens, (ii) cause a valid, perfected, first priority Lien on the Property to be
in place in favor of the Agent (for the benefit of the Lenders) to the extent
provided in the Operative Agreements subject to the Permitted Exceptions, (iii)
file all necessary documents under the applicable real property law and Article
9 of the Uniform Commercial Code to perfect such title and Liens and (iv) not
permit Liens (other than those in favor of the Agent and Permitted Liens) to be
filed or maintained respecting the Property;
(f) no less than five (5) Business Days prior to the
scheduled date for the initial Construction Advance to be made in connection
with the Property, the Construction Agent shall deliver to the Lessor true,
complete and correct copies of the Construction Budget therefor. Thereafter,
the Construction Agent, on a monthly basis, shall deliver to the Lessor true,
correct and complete copies of any material modifications of the Construction
5
<PAGE> 9
Budget and progress reports regarding the development, acquisition,
installation, construction and testing of the Property;
procure insurance for the Property during the Construction
Period in accordance with the provisions of Article XIV of the Lease; and
(h) on or before the Construction Period Termination
Date, cause the Basic Term to commence with respect to the Property.
ARTICLE III
THE PROPERTY
Construction. The Construction Agent shall cause the (i)
Land to be acquired (provided title shall be held in the name of the Lessor)
and (ii) Improvements, the Equipment and all other components of the Property
to be developed, constructed, acquired, installed, tested, equipped, maintained
and used in full compliance with all Legal Requirements and Insurance
Requirements.
Amendments; Modifications.
(a) The Construction Agent may at any time revise, amend
or modify (i) the Plans and Specifications without the consent of the Lessor;
provided, that any such amendment to the Plans and Specifications does not (x)
result in the Completion Date of the Improvements occurring on or after the
Construction Period Termination Date or (y) result in the cost of all
Improvements exceeding the amount specified in the Construction Budget or the
aggregate total of the Available Commitments and the Available Holder
Commitments (any excess of the cost of Improvements over the then available
Lender and Holder funding being the "Unfunded Amount"), and (ii) the
Construction Budget and enter into any related amendments, modifications or
supplements without the consent of the Lessor; provided, that such revisions,
amendments or modifications to the Plans and Specifications or related
amendments, modifications or supplements to the
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<PAGE> 10
Construction Budget do not exceed the then aggregate total of Available
Commitments and the Available Holder Commitments.
(b) The Construction Agent agrees that it will not
implement any revision, amendment or modification to the Plans and
Specifications for the Property if the aggregate effect of such revision,
amendment or modification, when taken together with any previous or
contemporaneous revision, amendment or modification to the Plans and
Specifications for the Property, would cause a material reduction in value in
excess of the cost reduction of such revision, amendment or modification of the
Property when completed, unless such revision, amendment or modification is
required by Legal Requirements.
3.3 Failure to Complete the Property; Payment of Maximum Residual
Guarantee Amount. If at any time prior to the Completion Date of the Property
(i) there occurs a Casualty (other than a Casualty caused by the Construction
Agent's negligence) or a Condemnation, the proceeds of which exceed or are
expected to exceed 10% of the Construction Budget or that will prevent the
Property from being completed by the Construction Period Termination Date, or
(ii) there shall occur a Force Majeure Event that will prevent the Property
from being completed by the Construction Period Termination Date, then in
either such event the Construction Agent on or prior to the date thirty (30)
days prior to the Construction Period Termination Date shall notify the Lessor,
the Agent, each Lender and each Holder of the occurrence of such event (said
notice being referred to as the "Section 3.3 Notice"), and the Lessor shall
then have an election (which such election shall be made at the direction of
the Agent) of one of the following options: (1) grant an extension of the
Construction Period Termination Date or (2) require the Lessee to pay to the
Lessor an amount equal to the Maximum Residual Guarantee Amount (provided,
however, Lessee may nevertheless exercise its Purchase Option). The failure of
the Construction Agent to give the Section 3.3 Notice to Lessor shall
constitute an irrevocable waiver by the Construction Agent to be governed by
the provisions of this Section 3.3 but such failure shall not terminate Lessee'
right to exercise its Purchase Option under Article XX of the Lease. The
Construction Period Termination Date shall be extended only if such extension
is consented to in writing by the Lessor,
7
<PAGE> 11
the Agent, the Majority Lenders and the Majority Holders on or prior to the
Construction Period Termination Date. The Lessor shall notify the Construction
Agent within thirty (30) days of receipt of the Section 3.3 Notice of the
option selected by the Lessor. If the Construction Period Termination Date is
not so extended, then within five (5) business days of Lessor's notification to
the Construction Agent that such extension shall not be permitted, the
Construction Agent shall pay to the Lessor the Maximum Residual Guarantee
Amount and shall surrender, or cause to be surrendered, the Property in
accordance with the terms and conditions of Section 10.1 of the Lease provided,
however, Lessee may, within such five (5) day period exercise its Purchase
Option and close the purchase of the Property in accordance with Article XX of
the Lease.
3.4 Failure to Complete the Property and Purchase Obligation. In
the event that (i) the Completion Date for the Property shall not occur on or
prior to the Construction Period Termination Date for any reason (except for
any reason described in Sections 3.3(i) unless Construction Agent fails to give
the Section 3.3 Notice) or (ii) the Construction Period Termination Date is not
extended by the Lessor, the Agent, the Majority Lenders and the Majority
Holders or (iii) the Construction Agent shall abandon or permanently
discontinue the construction and development of the Property (other than for a
Force Majeure Event as provided in Section 3.3(ii) above) which abandonment or
discontinuance shall be deemed to have occurred if no work at the Property is
undertaken or completed during a period of thirty (30) days (unless the
stoppage is a schedule stoppage due to normal weather consideration in which
such event, abandonment or discontinuance shall not be deemed to have accrued
unless such stoppage shall continue for more than ninety (90) days) or more, or
(iv) there shall occur any material Environmental Violation, then in any such
event the Construction Agent shall pay to Lessor, on a date designated by the
Construction Agent (which date shall be no more than thirty (30) days after the
occurrence of the applicable event) an aggregate amount equal to the liquidated
damages amount referenced in Section 5.3(b) of this Agreement and on such date
subject to receipt of such liquidated amount Lessor shall transfer and convey
to the Construction Agent all right, title and interest of Lessor in and to the
Property. At the cost
8
<PAGE> 12
and expense of the Construction Agent, the Lessor shall convey the Property "AS
IS, WHERE IS" and in its then present physical condition to the Construction
Agent or its designee free and clear of liens created by or through Lessor. If
the Construction Agent is not required to pay such liquidated damages, it shall
promptly and diligently complete the development, construction, acquisition,
refinancing, installation and testing of the Property in accordance with the
Plans and Specifications and with the terms hereof and cause the Completion
Date with respect to the Property to occur on or prior to the Construction
Period Termination Date. Any determination that an Environmental Violation is
immaterial for purposes of this Agreement shall not limit the obligation of
Lessee respecting such Environmental Violation under the Lease.
3.5 Change in Control. If as a result of one (1) or more
transactions prior to the Completion Date, any person or group of persons
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended) other than Warburg Pincus Capital Company, L.P. or its Affiliates,
shall, without the approval of the board of directors of the Lessee, obtain
ownership or control of more than fifty percent (50%) of the common stock or
fifty percent (50%) of the voting power of the Lessee entitled to vote in the
election of members of the board of directors of the Lessee (any such event a
"Change in Control"), then the Lessor shall then have an election (which such
election shall be exercised at the direction of the Agent) of one of the
following options: (i) approve the Change in Control and continue the Lease on
the same terms and conditions or such other terms as Lessor and Lessee shall
agree upon, or (ii) treat the next succeeding Payment Date after such Change in
Control as a deemed Expiration Date whereupon the Lessee shall be entitled to
exercise those options as would otherwise be available to Lessee under the
Lease, including Article XX thereof as if the Expiration Date had occurred in
the ordinary course.
ARTICLE IV
PAYMENT OF FUNDS
9
<PAGE> 13
Right to Receive Construction Cost.
(a) In connection with the development, construction,
acquisition, installation, and testing of the Property and during the course of
the construction of the Improvements on the Property, the Construction Agent
may request that the Lessor advance funds for the payment of Land Acquisition
Costs or Project Costs, and the Lessor will comply with such request to the
extent provided for in the Participation Agreement. The Construction Agent and
the Lessor acknowledge and agree that the Construction Agent's right to request
such funds and the Lessor's obligation to advance such funds for the payment of
Land Acquisition Costs or Project Costs is subject in all respects to the terms
and conditions of the Participation Agreement and each of the other Operative
Agreements. Without limiting the generality of the foregoing it is
specifically understood and agreed that in no event shall the aggregate amounts
advanced by the Lenders and the Holders for Land Acquisition Costs or Project
Costs and any other amounts due and owing hereunder or under any of the other
Operative Agreements exceed the sum of the aggregate Commitment of the Lenders
plus the aggregate amount of the Holder Commitments, including without
limitation such amounts owing for (i) development, construction, acquisition,
installation, and testing of the Property, (ii) additional amounts which
accrue or become due and owing under the Credit Agreement or Trust Agreement as
obligations of the Lessor prior to the Completion Date (for interest payments
on the Loans or payments of the Holder Yield on the Holder Advances) or (iii)
any other purpose.
(b) The proceeds of any funds made available to the
Lessor to pay Land Acquisition Costs or Project Costs shall be made available
to the Construction Agent in accordance with the Requisition relating thereto
and the terms of the Participation Agreement. The Construction Agent will use
such proceeds only to pay the Land Acquisition Costs or Project Costs set forth
in the Requisition relating to such funds.
ARTICLE V
EVENTS OF DEFAULT
10
<PAGE> 14
Events of Default. If any one (1) or more of the following
events (each an "Event of Default") shall occur:
(a) the Construction Agent fails to apply any funds paid
by the Lessor to the Construction Agent within ten (10) days after the receipt
of the same in a manner consistent with the requirements of the Operative
Agreements and as specified in the applicable Requisition to the payment of
Land Acquisition Cost or Property Costs or for the development, construction,
acquisition, installation, and testing of the Property and related Improvements
and Equipment;
(b) each of the Completion Date and the Basic Term
Commencement Date with respect to the Property shall fail to occur for any
reason (other than as a result of the occurrence of an event described in
Sections 3.3(i) or (ii) hereof) on or prior to the Construction Period
Termination Date;
(c) any Lease Event of Default shall have occurred and
not be cured within any cure period expressly permitted under the terms of the
Lease; and
(d) the Construction Agent shall materially breach any of
its representations or warranties under any Operative Agreement to which it is
a party or shall fail to observe or perform any material term, covenant or
condition of this Agreement or any other Operative Agreement to which it is a
party other than as set forth in paragraphs (a), (b) or (c) of this Section
5.1;
then, in any such event, the Lessor may, in addition to the other rights and
remedies provided for in this Agreement, terminate this Agreement by giving the
Construction Agent written notice of such termination and upon the expiration
of the time fixed in such notice and the payment of all amounts owing by the
Construction Agent hereunder (including without limitation any amounts
specified under Section 5.3 hereof), this Agreement shall terminate. The
Construction Agent shall pay all costs and expenses incurred by or on behalf of
the Lessor, including without limitation fees and expenses of counsel, as a
result of any Event of Default hereunder.
11
<PAGE> 15
Damages. The termination of this Agreement pursuant to
Section 5.1 shall in no event relieve the Construction Agent of its liability
and obligations hereunder, all of which shall survive any such termination.
Remedies; Remedies Cumulative. (a) If an Event of Default
shall have occurred and be continuing, the Lessor shall have all rights
available at law, equity or otherwise.
(a) Upon the occurrence of an Event of Default, the
Lessor shall have (in addition to its rights otherwise described in this
Agreement or existing at law, equity or otherwise) the option (and shall be
deemed automatically, and without any further action, to have exercised such
option upon the occurrence of any Lease Event of Default arising under Sections
17.1(g), (h) (i) or (j) of the Lease) to transfer and convey to the
Construction Agent upon a date designated by the Lessor all right, title and
interest of the Lessor in and to the Property (including without limitation any
Land and/or any Improvements, any interest in any Improvements, any Equipment
whether complete or under construction). On any transfer and conveyance date
specified by the Lessor pursuant to this Section 5.3(b), (i) the Lessor shall
transfer and convey all of its right, title and interest in and to the Property
free and clear of the Lien of the Lease and all Lessor Liens, (ii) the
Construction Agent hereby covenants and agrees that it will accept such
transfer and conveyance of right, title and interest in and to the Property or
Construction Period Property and (iii) the Construction Agent hereby promises
to pay to the Lessor, as liquidated damages (it being agreed that it would be
impossible accurately to determine actual damages) but exclusive of the
indemnities payable under Section 13 of the Participation Agreement, an
aggregate amount equal to the Termination Value of the Property. The
Construction Agent specifically acknowledges and agrees that its obligations
under this Section 5.3(b), including without limitation its obligations to
accept the transfer and conveyance of the Property and its payment obligations
described in subparagraph (iii) of this Section 5.3(b) , shall be absolute and
unconditional under any and all circumstances and shall be performed and/or
paid, as the case may be, without notice or demand and without any abatement,
reduction, diminution, set-off, defense, counterclaim or
12
<PAGE> 16
recoupment whatsoever. Notwithstanding the foregoing provisions of this
Section 5.3(b), the Lessor shall have the right in its sole discretion to
rescind any exercise of its option under this Section 5.3(b) upon the giving of
its written confirmation of such rescission to the Construction Agent.
(b) The Construction Agent shall have the right to cure
an Event of Default hereunder with respect to the Property by purchasing or
causing the Lessee to purchase the Property from the Lessor for an amount equal
to the liquidated damages amount set forth in Section 5.3(b) of this Agreement.
(c) No failure to exercise and no delay in exercising, on
the part of the Lessor, any right, remedy, power or privilege under this
Agreement or under the other Operative Agreements shall operate as a waiver
thereof; nor shall any single or partial exercise of any right remedy, power or
privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges provided in this Agreement are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
ARTICLE VI
THE LESSOR'S RIGHTS; THE CONSTRUCTION AGENT'S RIGHTS
Exercise of the Lessor's Rights. Subject to the Excepted
Rights and the Excepted Payments, the Construction Agent and the Lessor hereby
acknowledge and agree that, subject to and in accordance with the terms of the
Security Agreement made by the Lessor in favor of the Agent, the rights and
powers of the Lessor under this Agreement have been assigned to the Agent.
The Lessor's Right to Cure the Construction Agent's Defaults.
The Lessor, without waiving or releasing any obligation or Event of Default,
may (but shall be under no obligation to) remedy any Event of Default for the
account of and at the sole cost and expense of the Construction Agent. All
out-of-pocket costs and expenses so incurred (including without limitation fees
and expenses of counsel) , together with interest thereon at the
13
<PAGE> 17
Overdue Rate from the date on which such sums or expenses are paid by the
Lessor, shall be paid by the Construction Agent to the Lessor on demand.
ARTICLE VII
MISCELLANEOUS
Notices. All notices, requests and demands to or upon the
parties hereto to be effective shall be in writing including without limitation
by facsimile transmission), and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when actually delivered or, in
the case of notice by facsimile transmission, when received and telephonically
confirmed, addressed as follows, or to such address as may be hereafter
notified in writing by the parties hereto:
If to the Lessor:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton, Vice President
Telephone No.: (801) 246-5300
Telecopy No.: (801) 246-5053
with a copy to the Agent:
NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Brian D. Corum
Telephone No.: (214) 508-0921
Telecopy No.: (214) 508-9390
and with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
100 No. Tryon Street, Suite 4200
Charlotte, North Carolina 28202-4006
14
<PAGE> 18
Attention: Glen B. Hardymon
Telephone No.: (704) 331-7446
Telecopy No.: (704) 331-7598
If to the Construction Agent:
LCI International, Inc.
8180 Greensboro Drive, Suite 800
McLean, Virginia 22102
Attention: John J. Dillon
Telephone No.: (703) 848-4490
Telecopy No.: (703) 848-4460
with copy to:
Squire, Sanders & Dempsey
41 South High Street
Columbus, Ohio 43215
Attention: Richard W. Rubenstein
Telephone No.: (614) 365-2700
Telecopy No.: (614) 365-2499
Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Lessor, the Construction Agent and their
respective successors and the assigns of the Lessor. The Construction Agent
may not assign this Agreement or any of its rights or obligations hereunder in
whole or in part to any Person without the prior written consent of the Lessor.
GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF VIRGINIA WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Submission To Jurisdiction; Waivers. Each party hereto hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the other
15
<PAGE> 19
Operative Agreements to which it is a party, or for recognition and enforcement
of any judgement in respect thereof, to the state and federal courts located in
Mecklenburg County, North Carolina;
(b) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail) postage prepaid, to the
Borrower at its address set forth in Section 9.2 of the Credit Agreement or at
such other address of which the Agent shall have been notified pursuant
thereto;
(c) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(d) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or proceeding
referred to in this Section 7.4 any special, exemplary, punitive or
consequential damages.
Amendments and Waivers. Subject to Section 14.5 of the
Participation Agreement, the Lessor and the Construction Agent may, from time
to time, enter into written amendments, supplements or modifications hereto.
Counterparts. This Agreement may be executed in any number of
separate counterparts and all of said counterparts, when executed, taken
together shall be deemed to constitute one (1) and the same instrument.
Severability. Any provision of this Agreement 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.
Headings and Table of Contents. The headings and table of
contents contained in this Agreement are for convenience of
16
<PAGE> 20
reference only and shall not limit or otherwise affect the meaning hereof.
WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT ALLOWED BY
APPLICABLE LAW, THE LESSOR AND THE CONSTRUCTION AGENT IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
[SIGNATURE PAGES FOLLOW]
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
17
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
LCI INTERNATIONAL, INC., as the
Construction Agent
By:
-------------------------------------
Name:
---------------------------
Title:
--------------------------
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its
individual capacity, but
solely as Owner Trustee under
the STUART PARK TRUST, as the
Lessor
By:
-------------------------------------
Name:
---------------------------
Title:
--------------------------
18
<PAGE> 1
EXHIBIT 10(s)(iv)
DEED OF LEASE AGREEMENT
Dated as of November 15, 1996
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity,
but solely as the Owner Trustee
under the Stuart Park Trust,
as Lessor
and
LCI INTERNATIONAL, INC.,
as Lessee
- -------------------------------------------------------------------------------
This Deed of Lease Agreement is subject to a security interest in favor of
NationsBank of Texas, N.A., a national banking association, as the Agent (the
"Agent") under a Security Agreement dated as of November 15, 1996, between
First Security Bank, National Association, not individually except as expressly
stated therein, but solely as the Owner Trustee under the Stuart Park Trust
and the Agent, as amended, modified, extended, supplemented, restated and/or
replaced from time to time in accordance with the applicable provisions
thereof. This Deed of Lease Agreement has been executed in several
counterparts. To the extent, if any, that this Deed of Lease Agreement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Deed
<PAGE> 2
of Lease Agreement may be created through the transfer or possession of any
counterpart other than the original counterpart containing the receipt therefor
executed by the Agent on the signature page hereof.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Lease Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Payment of Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Performance on a Non-Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Rent Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Taxes; Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 No Termination or Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Ownership of the Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 Condition of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Possession and Use of the PropertY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Compliance With Legal Requirements and Insurance Requirements . . . . . . . . . . . . . . . . . . . 10
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.1 Maintenance and Repair; Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
1
<PAGE> 4
<TABLE>
<S> <C>
10.2 Hazardous Substance Removal and Remediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.3 Lessor's Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.4 Environmental Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.1 Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.1 Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.1 Permitted Contests Other Than in Respect of Indemnities . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.1 Public Liability and Workers, Compensation Insurance . . . . . . . . . . . . . . . . . . . . . . . . 16
14.2 Permanent Hazard and Other Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.3 Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.1 Casualty and Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.2 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15.3 Notice of Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.1 Termination Upon Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.2 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.3 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.1 Lease Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.2 Surrender of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
17.3 No Obligation to Relet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
17.4 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17.5 Power of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.6 Final Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.7 Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17.8 Waiver of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17.9 Assignment of Rights Under Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17.10 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<TABLE>
<S> <C>
18.1 Lessor's Right to Cure Lessee's Lease Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
19.1 Provisions Relating to Lessee's Exercise of its Purchase Option . . . . . . . . . . . . . . . . . . 32
19.2 No Purchase or Termination With Respect to Less than All of the Property . . . . . . . . . . . . . . 32
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
20.1 Purchase Option or Sale Option-General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 32
20.2 Lessee Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
20.3 Third Party Sale Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
22.1 Sale Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
22.2 Application of Proceeds of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
22.3 Indemnity for Excessive Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
22.4 Appraisal Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
22.5 Certain Obligations Continue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
23.1 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
24.1 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
25.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
25.2 Subleases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
26.1 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XXVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
27.1 Acceptance of Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
27.2 No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
28.1 Incorporation of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
29.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.1 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.2 Amendments and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.4 Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.6 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.7 Calculation of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.8 Memoranda of Lease and Lease Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
30.9 Allocations between the Lenders and the Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 45
30.10 Limitations on Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
30.11 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
30.12 Exercise of Lessor Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
30.13 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
30.14 Discharge of Lessee's Obligations by its Affiliates . . . . . . . . . . . . . . . . . . . . . . . 46
30.15 USURY SAVINGS PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
EXHIBITS:
- --------
A - The Land
B - Memorandum of Lease
B-1 - Lease Supplement
</TABLE>
4
<PAGE> 7
DEED OF LEASE AGREEMENT
THIS DEED OF LEASE AGREEMENT (as amended, modified, extended,
supplemented, restated and/or replaced from time to time, this "Lease"), dated
as of November 15, 1996, is between FIRST SECURITY BANK, NATIONAL ASSOCIATION,
a national banking association, having its principal office at 79 South Main
Street, Salt Lake City, Utah 84111, not in its individual capacity but solely
as the Owner Trustee under the Stuart Park Trust, a trust organized under the
laws of the State of Virginia, as lessor (the "Lessor"), and LCI INTERNATIONAL,
INC., a corporation organized under the laws of the State of Delaware and
having its principal office at 8180 Greensboro Drive, McLean, Virginia 22102,
as lessee (the "Lessee").
W I T N E S S E T H:
A. WHEREAS, subject to the terms and conditions of the
Participation Agreement and the Agency Agreement, Lessor will purchase various
tracts or parcels of unimproved real estate as more particularly described on
Exhibit A attached hereto (the "Land") and incorporated herein by reference
from unrelated third parties all as designated by Lessee and fund the
development, construction, operation, maintenance, and repair of an
approximately 306,000 gross square foot office building, an approximately
660-car underground parking facility and related improvements on such Land by
the Construction Agent; and
B. WHEREAS, the Basic Term shall commence with respect to
the Property upon the earlier to occur of (i) the Completion of such Property
or (ii) during such time as the Property is a Construction Period Property as
of the date of any Agency Agreement Event of Default, the date of such Agency
Agreement Event of Default; and
C. WHEREAS, Lessor as of the date hereof desires to lease to
Lessee, and Lessee desires to lease from Lessor, the Property;
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<PAGE> 8
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions. Capitalized terms used but not otherwise
defined in this Lease have the respective meanings specified in Appendix A to
the Participation Agreement of even date herewith (as such may be amended,
modified, extended, supplemented, restated and/or replaced from time to time,
the "Participation Agreement") among Lessee, the Construction Agent, First
Security Bank, National Association, not in its individual capacity, except as
expressly stated therein, as the Owner Trustee under the Stuart Park Trust, the
Holders, the Lenders and the Agent.
Interpretation. The rules of usage set forth in Appendix
A to the Participation Agreement shall apply to this Lease.
ARTICLE II
Property. Subject to the terms and conditions set forth
in this Lease and contained in any Lease Supplement contemplated hereby and by
the Participation Agreement relating to the Property, Lessor hereby leases,
lets and demises unto Lessee, and Lessee hereby leases, rents and takes
possession from Lessor all of Lessor's right, title and interest in the
Property, including (i) the Land, (ii) all Improvements now or hereafter
constructed thereon, (iii) each item of Equipment located or installed on the
Land or within the Improvements, and (iv) all easements, privileges, rights and
appurtenances thereto, to have and to hold the same for the Term subject to the
covenants, agreements, terms, conditions, limitations and provisions herein set
forth.
Lease Term.
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<PAGE> 9
(a) The Interim Lease Term of this Lease with respect to the
Property shall begin upon the Land Closing Date and shall end at midnight on
the day immediately preceding the Basic Term Commencement Date (as hereinafter
defined).
(b) The basic term of this Lease with respect to the Property
(the "Basic Term") shall begin upon the earlier to occur of (a) the Completion
Date for the Property or (b) if the Property is a Construction Period Property
as of the date of any Agency Agreement Event of Default, the date of such
Agency Agreement Event of Default (in each case the "Basic Term Commencement
Date") and shall end on November 14, 1999 (the "Basic Term Expiration Date"),
unless the Basic Term is earlier terminated or the term of this Lease is
renewed (as described below) in accordance with the provisions of this Lease.
(c) If no Default or Event of Default has occurred and is
continuing, and if Lessee has not provided written notice to Lessor, the Agent
and the Holders at least one hundred twenty (120) days prior to the first day
of the applicable Renewal Term of its determination to exercise its Purchase
Option or Sale Option under Article XX hereof, the term of this Lease for the
Property shall be automatically extended for one (1) year following the Basic
Term Expiration Date, and if so renewed, provided no Default or Event of
Default has occurred and is then continuing, automatically thereafter for one
(1) additional one (1) year period from the first anniversary of the Basic Term
Expiration Date (each, a "Renewal Term"); provided, that the expiration date
for the final Renewal Term for the Property shall not be later than the fifth
(5th) annual anniversary of the Initial Closing Date; provided further,
however, the Lessee shall have the option to request an extension of the Term
of this Lease for a maximum of three (3) additional one (1) year periods to
commence immediately following the expiration date of the final Renewal Term to
be comprised of three (3) annual one (1) year lease terms (each, an "Extended
Renewal Term") which such request for an Extended Renewal Term (i) must be made
in writing by Lessee delivered to each of the Lessor, Agent, Holders and
Lenders not less than one hundred twenty (120) days prior to the expiration
date for the Final Renewal Term and (ii) must be approved in
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<PAGE> 10
writing by each of Lessor, the Agent, the Lenders and the Holders in their sole
and absolute discretion.
Title. The Property is leased to Lessee without any
representation or warranty, express or implied, by Lessor and subject to the
rights of parties in possession (if any), the existing state of title
(including without limitation the Permitted Exceptions) and all applicable
Legal Requirements. Lessee shall in no event have any recourse against Lessor
for any defect in Lessor's title to the Property or any interest of Lessee
therein other than for Lessor Liens.
Lease Supplements. On or prior to the Basic Term
Commencement Date, Lessee and Lessor shall each execute and deliver a Lease
Supplement for the Property effective as of such Basic Term Commencement Date
in substantially the form of Exhibit B-1 hereto.
ARTICLE III
Rent.
Lessee shall pay Basic Rent in arrears on each
Payment Date, and on any date on which this Lease shall terminate with
respect to the Property during the Term; provided, however, Lessee
shall have no obligation to pay Basic Rent with respect to the
Property until the Basic Term has commenced.
Basic Rent shall be due and payable in lawful money
of the United States and shall be paid by wire transfer of immediately
available funds on the due date therefor (or within the applicable
grace period) on or before 9:00 A.M. Charlotte, North Carolina, time
to such account or accounts at such bank or banks as Lessor shall from
time to time direct.
Lessee's inability or failure to take possession of
all or any portion of the Property when delivered by Lessor, whether
or not attributable to any act or omission of Lessor, the Construction
Agent, Lessee or any other Person or for any other reason whatsoever,
shall not delay or otherwise
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<PAGE> 11
affect Lessee's obligation to pay Rent for the Property in accordance
with the terms of this Lease.
Payment of Basic Rent. Basic Rent shall be paid
absolutely net to Lessor or its designee, so that this Lease shall yield to
Lessor the full amount thereof, without set-off, deduction or reduction.
Supplemental Rent. Lessee shall pay to the Person
entitled thereto any and all Supplemental Rent when and as the same shall
become due and payable, and if Lessee fails to pay any Supplemental Rent,
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall
pay to Lessor, as Supplemental Rent due and owing to Lessor, among other
things, to the extent permitted by applicable Legal Requirements, (a) any and
all unpaid fees, charges, payments, amounts and other obligations (other than
the obligations of Lessor to pay the principal amount of the Loans and the
Holder Amount) due and owing by Lessor, in any capacity, under the Credit
Agreement, under the Trust Agreement and/or under any other Operative Agreement
(including without limitation any amounts owing to the Lenders under Section
2.11, Section 2.12, Section 2.13 and Section 9.5 of the Credit Agreement and
any amounts owing to the Holders under Section 3.9 or Section 3.10 of the Trust
Agreement) within ten (10) days of receipt of demand therefor from Lessor,
Agent, any Lender or any Holder and (b) within three (3) days following notice
that the Overdue Rate is applicable, interest at the applicable Overdue Rate on
any installment of Basic Rent not paid when due (subject to the applicable
grace period) for the period for which the same shall be overdue and on any
payment of Supplemental Rent not paid when due or demanded by the appropriate
Person for the period from the due date or the date of any such demand, as the
case may be, until the same shall be paid. The expiration or other termination
of Lessee's obligations to pay Basic Rent hereunder shall not limit or modify
the obligations of Lessee with respect to Supplemental Rent. Unless expressly
provided otherwise in this Lease, in the event of any failure on the part of
Lessee to pay and discharge any Supplemental Rent as and when due, Lessee shall
also promptly pay and discharge any fine, penalty, interest or cost which may
be assessed or added for
5
<PAGE> 12
nonpayment or late payment of such Supplemental Rent, all of which shall also
constitute Supplemental Rent.
Performance on a Non-Business Day. If any Basic Rent is
required to be paid hereunder on a day that is not a Business Day, then such
Basic Rent shall be due on the corresponding Scheduled Interest Payment Date.
If any Supplemental Rent is required hereunder on a day that is not a Business
Day, then such Supplemental Rent shall be due on the next succeeding Business
Day.
Rent Payment Provisions. Lessee shall make payment of
all Basic Rent and Supplemental Rent when due (subject to the applicable grace
periods) regardless of whether any of the Operative Agreements pursuant to
which same is calculated and is owing shall have been rejected, avoided or
disavowed in any bankruptcy or insolvency proceeding involving any of the
parties to any of the Operative Agreements. Such provisions of such Operative
Agreements and their related definitions are incorporated herein by reference
and shall survive any termination, amendment or rejection of any such Operative
Agreements.
6
<PAGE> 13
ARTICLE IV
Taxes; Utility Charges. Lessee shall pay or cause to be
paid all Impositions with respect to the Property and/or the use, occupancy,
operation, repair, access, maintenance or operation thereof and all charges for
electricity, power, gas, oil, water, telephone, sanitary sewer service and all
other rents, utilities and operating expenses of any kind or type used in or on
the Property and related real property during the Term. Upon Lessor's request,
Lessee shall provide from time to time Lessor with evidence of all such
payments referenced in the foregoing sentence. Lessee shall be entitled to
receive any credit or refund with respect to any Imposition or utility charge
paid by Lessee. Unless an Event of Default shall have occurred and be
continuing, the amount of any credit or refund received by Lessor on account of
any Imposition or utility charge paid by Lessee, net of the costs and expenses
incurred by Lessor in obtaining such credit or refund, shall be promptly paid
over to Lessee. All charges for Impositions or utilities imposed with respect
to the Property for a period during which this Lease expires or terminates
shall be adjusted and prorated on a daily basis between Lessor and Lessee, and
each party shall pay or reimburse the other for such party's pro rata share
thereof.
ARTICLE V
Quiet Enjoyment. Subject to the rights of Lessor
contained in Sections 17.2, 17.3 and 20.3 and the other terms of this Lease and
the other Operative Agreements and so long as no Event of Default shall have
occurred and be continuing, Lessee shall peaceably and quietly have, hold and
enjoy the Property for the Term, free of any claim or other action by Lessor or
anyone rightfully claiming by, through or under Lessor (other than Lessee) with
respect to any matters arising from and after the Land Acquisition Date.
ARTICLE VI
Net Lease. This Lease shall constitute a net lease, and
the obligations of Lessee hereunder are absolute and unconditional. Lessee
shall pay all operating expenses arising
7
<PAGE> 14
out of the use, operation and/or occupancy of the Property. Any present or
future law to the contrary notwithstanding, this Lease shall not terminate, nor
shall Lessee be entitled to any abatement, suspension, deferment, reduction,
set-off, counterclaim, or defense with respect to the Rent, nor shall the
obligations of Lessee hereunder be affected (except as expressly herein
permitted and by performance of the obligations in connection therewith) for
any reason whatsoever, including without limitation by reason of: (a) any
damage to or destruction of the Property or any part thereof; (b) any taking of
the Property or any part thereof or interest therein by Condemnation or
otherwise; (c) any prohibition, limitation, restriction or prevention of
Lessee's use, occupancy or enjoyment of the Property or any part thereof, or
any interference with such use, occupancy or enjoyment by any Person or for any
other reason; (d) any title defect, Lien or any matter affecting title to the
Property; (e) any eviction by paramount title or otherwise; (f) any default by
Lessor hereunder; (g) any action for bankruptcy, insolvency, reorganization,
liquidation, dissolution or other proceeding relating to or affecting the
Agent, any Lender, Lessor, Lessee, any Holder or any Governmental Authority;
(h) the impossibility or illegality of performance by Lessor, Lessee or both;
(i) any action of any Governmental Authority or any other Person; (j) Lessee's
acquisition of ownership of all or part of the Property; (k) breach of any
warranty or representation with respect to the Property or any Operative
Agreement by any Person; (l) any defect in the condition, quality or fitness
for use of the Property or any part thereof; or (m) any other cause or
circumstance whether similar or dissimilar to the foregoing and whether or not
Lessee shall have notice or knowledge of any of the foregoing. The parties
intend that the obligations of Lessee hereunder shall be covenants, agreements
and obligations that are separate and independent from any obligations of
Lessor hereunder and shall continue unaffected unless such covenants,
agreements and obligations shall have been modified or terminated in accordance
with an express provision of this Lease. LESSOR AND LESSEE ACKNOWLEDGE AND
AGREE THAT THE PROVISIONS OF THIS SECTION 6.1 HAVE BEEN SPECIFICALLY REVIEWED
AND SUBJECT TO NEGOTIATION AND THAT THE PROVISIONS HEREOF SHALL SURVIVE ANY
TERMINATION OF THIS LEASE.
8
<PAGE> 15
No Termination or Abatement. Lessee shall remain
obligated under this Lease in accordance with its terms and shall not take any
action to terminate, rescind or avoid this Lease, notwithstanding any action
for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting any Person or any Governmental Authority, or any action
with respect to this Lease or any Operative Agreement which may be taken by any
trustee, receiver or liquidator of any Person or any Governmental Authority or
by any court with respect to any Person, or any Governmental Authority. Lessee
hereby waives all right (a) to terminate or surrender this Lease (except as
expressly permitted under the terms of the Operative Agreements) or (b) to
avail itself of any abatement, suspension, deferment, reduction, set-off,
counterclaim or defense with respect to any Rent. Lessee shall remain
obligated under this Lease in accordance with its terms and Lessee hereby
waives any and all rights now or hereafter conferred by statute or otherwise to
modify or to avoid strict compliance with its obligations under this Lease.
Notwithstanding any such statute or otherwise, Lessee shall be bound by all of
the terms and conditions contained in this Lease.
ARTICLE VII
Ownership of the Property.
Lessor and Lessee acknowledge that Lessor is formed
for the sole purpose of facilitating the transactions contemplated by
the Operative Agreement and Lessor and Lessee intend and agree that
for federal and all state and local income tax purposes (A) this Lease
will be treated as a financial arrangement; (B) the Lenders and the
Holders will be deemed lenders making loans for the benefit of the
Lessee, which loans are secured by all of the Property, this Lease and
to the extent set forth in the Operative Agreements; and (C) Lessee
will be treated as the owner of all of the Property and will be
entitled to claim cost recovery (i.e., "depreciation") deductions
respecting the Improvement and all of the tax benefits ordinarily
available to the owner of property similar to the Property for such
tax purposes. Lessor will claim no depreciation deduction with
respect to the Improvements and will treat the payments of all Basic
9
<PAGE> 16
Rent as interest income for federal and state income tax purposes.
Lessee will claim deprecation deductions with respect to the
Improvements and will treat the Basic Rent as interest expenses for
federal and state income tax purposes. Lessor, the Lenders and the
Holders shall take no action inconsistent with such intent for tax
purposes.
Lessor and Lessee intend and agree that with respect
to the nature of the transaction evidenced by this Lease in the
context of the exercise of remedies under the Operative Agreements,
including without limitation in the case of any insolvency or
receivership proceedings or a petition under the United States
Bankruptcy laws or any other application of applicable insolvency laws
or statutes of the United States of America or any state or
commonwealth thereof affecting Lessee, Lessor, the Lenders or the
Holders or any enforcement or collection action, the transactions
evidenced by this Lease shall be regarded as loans made under a
financing arrangement by the Lenders and the Holders as unrelated
third party lenders to Lessee secured by all of the Property.
Lessor and Lessee further intend and agree that, for
the purpose of securing Lessee's obligations hereunder, (i) this Lease
shall be deemed to be a security agreement and financing statement
within the meaning of Article 9 of the Uniform Commercial Code
respecting the Property and all proceeds (including without limitation
insurance proceeds thereof) to the extent such is personal property
and an irrevocable grant and conveyance of a lien and mortgage (in the
nature of a deed of trust) on the Property and all proceeds (including
without limitation insurance proceeds thereof) to the extent such is
real property; (ii) the acquisition of title to the Property
referenced in Article II (including the Land described in Exhibit A
hereto) shall be deemed to be a grant by Lessee to Lessor of, and
Lessee hereby grants to Lessor, a lien on and security interest,
mortgage lien and deed of trust in all of Lessee's right, title and
interest in and to the Property and all proceeds (including without
limitation insurance proceeds thereof) of the conversion, voluntary or
involuntary, of the foregoing
10
<PAGE> 17
into cash, investments, securities or other property, whether in the
form of cash, investments, securities or other property, and an
assignment of all rents, profits and income produced by the Property;
and (iii) notifications to Persons holding such property, and
acknowledgements, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of Lessee shall be
deemed to have been given for the purpose of perfecting such lien,
security interest, mortgage lien and deed of trust under applicable
law. Lessor and Lessee shall promptly take such actions as may be
necessary or advisable in either party's opinion (including without
limitation the filing of Uniform Commercial Code Financing Statements,
Uniform Commercial Code Fixture Filings and memoranda of this Lease
and any Lease Supplements) to ensure that the lien, security interest,
lien, mortgage lien and deed of trust in the Property and the other
items referenced above will be deemed to be a perfected lien, security
interest, mortgage lien and deed of trust of first priority under
applicable law and will be maintained as such throughout the Term.
ARTICLE VIII
Condition of the Property. LESSEE ACKNOWLEDGES AND
AGREES THAT IT IS LEASING THE PROPERTY "AS-IS WHERE-IS" WITHOUT REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY LESSOR AND IN EACH CASE SUBJECT TO
(A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION
THEREOF (IF ANY), (C) ANY STATE OF FACTS REGARDING ITS PHYSICAL CONDITION OR
WHICH AN ACCURATE SURVEY MIGHT SHOW, (D) ALL APPLICABLE LEGAL REQUIREMENTS AND
(E) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF AND/OR
THE DATE OF ANY LEASE SUPPLEMENT. NEITHER LESSOR NOR THE AGENT NOR ANY LENDER
NOR ANY HOLDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION,
DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE PROPERTY (OR ANY
PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF), AND
NEITHER LESSOR NOR THE AGENT NOR ANY LENDER NOR ANY HOLDER SHALL
11
<PAGE> 18
BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREON OR THE FAILURE OF
THE PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT.
LESSEE HAS OR PRIOR TO THE BASIC TERM COMMENCEMENT DATE WILL HAVE BEEN AFFORDED
FULL OPPORTUNITY TO INSPECT THE PROPERTY AND THE IMPROVEMENTS THEREON (IF ANY),
IS OR WILL BE (INSOFAR AS LESSOR, THE AGENT, EACH LENDER AND EACH HOLDER ARE
CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS ENTERING INTO
THIS LEASE SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN INSPECTIONS, AND ALL
RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING SENTENCE, AS BETWEEN
LESSOR, THE AGENT, THE LENDERS AND THE HOLDERS, ON THE ONE HAND, AND LESSEE, ON
THE OTHER HAND, ARE TO BE BORNE BY LESSEE.
Possession and Use of the PropertY.
At all times during the Term the Property shall be
used by Lessee in the ordinary course of its business. Lessee shall
pay, or cause to be paid, all charges and costs required in connection
with the use of the Property as contemplated by this Lease. Lessee
shall not commit or permit any waste of the Property or any part
thereof.
The address stated in Section 29.1 of this Lease is
the chief place of business and chief executive office of Lessee (as
such terms are used in Section 9-103(3) of the Uniform Commercial Code
of any applicable jurisdiction), and Lessee will provide Lessor with
prior written notice of any change of location of its chief place of
business or chief executive office. Regarding the Property, the Lease
correctly identifies the location of the related Equipment and
Improvements and contains an accurate legal description for the Land.
Lessee has no other places of business where the Equipment or
Improvements will be located other than that identified in Exhibit A
to this Lease.
Lessee will not attach or incorporate any item of
Equipment to or in any other item of equipment or personal property or
to or in any real property (except the Land identified on Exhibit A to
this Lease) in a manner that could give rise to the assertion of any
Lien on such item of Equipment by reason of such attachment or the
assertion of a
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claim that such item of Equipment has become a fixture and is subject
to a Lien in favor of a third party that is prior to the Liens thereon
created by the Operative Agreements.
On the Basic Term Commencement Date, Lessor and
Lessee shall execute (i) a Lease Supplement in regard to the Property
which shall set forth the Basic Term Commencement Date and the
Expiration Date and (ii) an amended Uniform Commercial Code Financing
Statement containing an Equipment Schedule that has a complete
description of each item of Equipment, an Improvement Schedule that
has a complete description of each Improvement and a legal description
of the Land leased hereunder. Simultaneously with the execution and
delivery of such Lease Supplement, such Equipment, Improvements, Land,
and the remainder of such Property shall be deemed to have been
accepted by Lessee for all purposes of this Lease and to be subject in
all respects to this Lease.
At all times during the Term with respect to the
Property, Lessee will comply with all obligations under and (to the
extent no Event of Default exists and provided that such exercise will
not impair the value, utility or remaining useful life of such
Property) shall be permitted to exercise all rights and remedies
under, all operation and easement agreements and related or similar
agreements applicable to the Property.
ARTICLE IX
Compliance With Legal Requirements and Insurance
Requirements. Subject to the terms of Article XIII relating to permitted
contests, Lessee, at its sole cost and expense, shall (a) comply with all
applicable Legal Requirements (including without limitation all Environmental
Laws), and all Insurance Requirements relating to the Property, including
without limitation the acquisition, installation, testing, use, development,
construction, operation, maintenance, repair, refurbishment and restoration
thereof, whether or not compliance therewith shall require structural or
extraordinary changes in the Property or interfere with the use and enjoyment
of the Property, and (b) procure, maintain and comply with all material
licenses,
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permits, orders, approvals, consents and other authorizations required for the
acquisition, installation, testing, use, development, construction, operation,
maintenance, repair, refurbishment and restoration of the Property. Lessor
agrees to take such actions as may be reasonably requested by Lessee in
connection with the compliance by Lessee of its obligations under this Section
9.1.
ARTICLE X
Maintenance and Repair; Return.
Lessee, throughout the Term at its sole cost and
expense, shall maintain the Property in good condition, repair and
working order (ordinary wear and tear excepted) and make all necessary
repairs thereto and replacements thereof, of every kind and nature
whatsoever, whether interior or exterior, ordinary or extraordinary,
structural or nonstructural or foreseen or unforeseen, in each case as
required by all Legal Requirements, Insurance Requirements, and
manufacturer's specifications and standards and on a basis consistent
with the operation and maintenance of properties or equipment
comparable in type and function to the Property, such that the
Property is capable of being immediately utilized by a third party and
in compliance with standard industry practice subject, however, to the
provisions of Article XV with respect to Casualty and Condemnation.
Lessee shall not use or locate any component of the
Property outside of any Approved State. Lessee shall not move or
relocate any component of the Property beyond the boundaries of the
Land (comprising part of the Property) described herein and in any
applicable Lease Supplement.
If any component of the Property becomes worn out,
lost, destroyed, damaged beyond repair or otherwise permanently
rendered unfit for use and the failure to replace such component would
have a Material Adverse Effect, Lessee, at its own expense, will
within a reasonable time replace such component with a replacement
component which is free and
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clear of all Liens (other than Permitted Liens) and has a value,
utility and useful life at least equal to the component replaced
(assuming the component replaced had been maintained and repaired in
accordance with the requirements of this Lease). All components which
are added to the Property shall immediately become the property of
(and title thereto shall vest in) Lessor and shall be deemed
incorporated in the Property and subject to the terms of this Lease as
if originally leased hereunder.
Upon reasonable advance notice, Lessor and its agents
shall have the right at Lessor's expense to inspect the Property and
all maintenance records with respect thereto at any reasonable time
during normal business hours but shall not, in the absence of an Event
of Default, materially disrupt the business of Lessee.
Prior to commencement of construction of Improvements
on the Land comprising a portion of the Property the Lessee (at
Lessee's sole expense) will cause an Appraisal to be delivered to the
Lessor reflecting an appraised value when the Property is completed at
least equal to one hundred percent (100%) of the Termination Value
(the "Base Amount"). Lessor, in its reasonable discretion, may
request (at Lessee's sole expense) a re-appraisal of the Property upon
the occurrence and during the continuation of an Event of Default; or
if no Event of Default has occurred and is continuing, no more
frequently than every three (3) years following the Basic Term
Commencement Date unless such an Appraisal is required by any Legal
Requirement applicable to Lessor, any Lender or any Holder; provided,
however, no minimum valuation shall be required respecting any
re-appraisal.
Lessor shall under no circumstances be required to
build any improvements or install any equipment on the Property, make
any repairs, replacements, alterations or renewals of any nature or
description to the Property, make any expenditure whatsoever in
connection with this Lease or maintain the Property in any way.
Lessor shall not be required to maintain, repair or rebuild all or any
part of
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the Property, and Lessee waives the right to (i) require Lessor to
maintain, repair, or rebuild all or any part of the Property, or (ii)
make repairs at the expense of Lessor pursuant to any Legal
Requirement, Insurance Requirement, contract, agreement, covenants,
condition or restriction at any time in effect.
Lessee shall, upon the expiration or earlier
termination of this Lease, if Lessee shall not have exercised its
Purchase Option with respect to the Property and purchased such
Property, surrender the Property to Lessor pursuant to (i) the
exercise of certain remedies upon the occurrence of a Lease Event of
Default or (ii) the second paragraph of Section 22.1(a) hereof, or the
third party purchaser, as the case may be, subject to Lessee's
obligations under this Lease (including without limitation the
obligations of Lessee at the time of such surrender under Sections
9.1, 10.1(a)-(f), 10.2, 11.1, 12.1, 22.1 and 23.1 hereof).
Hazardous Substance Removal and Remediation. Following
the Land Acquisition Date, Lessee agrees to undertake with all reasonable
diligence a remediation program to remove the chlorinated solvent contamination
in groundwater beneath the Property as described in letter of Engineering
Consulting Services, Ltd. addressed to Development Resources, Inc. dated
September 12, 1996 (ECS Project No. 1280-I) (the "Environmental Audit") and in
accordance with the recommended remediation program as described therein, at
its expense, with proper off-site disposal, and to perform, to the extent
required by any Environmental Law, any Governmental Authority, all
environmental response, investigation, removal, corrective and remedial actions
with respect to Hazardous Substances on, at, or beneath the Property in a
reasonably diligent manner. Lessee's obligations hereunder shall survive any
Lease Event of Default, any termination of this Lease pursuant to Section 17.1
hereof, and any default under any Operative Agreements.
Lessor's Right of Inspection. Lessor shall have the
right at any time after and during the continuation of any Default or Event of
Default, to conduct or cause to be conducted an
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environmental inspection or audit of the Property by itself or by a qualified
environmental consultant or engineer selected by Lessor; and Lessee hereby
grants to Lessor, the Agent, the Lenders and the Holders and their employees,
agents, and independent contractors (hereinafter collectively called "Lessor
and its Representatives"), the right to enter the Property upon reasonable
notice for the purpose of conducting after and during the continuation of any
Default or Event of Default under any of the Operative Agreements, any
inspection, audit or tests, making soil borings, extracting samples, installing
monitoring wells, and conducting such other procedures as Lessor and its
Representatives deem necessary or desirable in connection with such inspection
or audit. At any time during this Lease, provided Lessor has a reasonable
basis for doing so, Lessor may require Lessee to cause to be performed, at the
expense of Lessee, for the benefit of Lessor and its Representatives, an
inspection or audit of the Property by an environmental consultant or engineer
approved by Lessor, and Lessee shall furnish to Lessor, at no cost to Lessor,
the written inspection or audit report certifying as to the presence or absence
of Hazardous Substances on, at, or under the Property. Notwithstanding the
foregoing obligations, no less than once every twelve months, and upon
Completion of the Property, Lessee shall cause to be performed, at the expense
of Lessee, for the benefit of Lessor and its Representatives, an inspection or
audit of chlorinated solvent contamination of the Property by an environmental
consultant or engineer approved by Lessor, and Lessee shall furnish to Lessor,
at no cost to Lessor, a written inspection or audit report which shall, at a
minimum, fully delineate the extent of chlorinated solvent contamination on,
at, or under the Property provided that if two (2) consecutive annual reports
shall disclose that such contamination described in the Environmental Audit has
been reduced to levels permitted by Environmental Laws, no further annual
reports shall be required pursuant to this Section 10.3 except that Lessee
shall nonetheless provide to Lessor and Agent copies of all analytical data or
reports generated thereafter with respect to any monitoring or testing of the
Property.
Environmental Inspection. If Lessee has not given notice
of exercise of its Purchase Option on the Expiration Date pursuant to Section
20.1, or for whatever reason Lessee does not
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purchase the Property in accordance with the terms of this Lease, then not more
than one hundred twenty (120) days nor less than sixty (60) days prior to the
Expiration Date, Lessee at its sole expense shall cause to be delivered to
Lessor an environmental assessment for the Property recently prepared (no more
than thirty (30) days prior to the date of delivery) by an independent licensed
professional engineer reasonably acceptable to Lessor and the Agent, and
addressed to and in form, scope and content reasonably satisfactory to Lessor
and the Agent and which environmental assessment (i) shall be sufficient in
scope to determine compliance with all applicable Environmental Laws and all
applicable Legal Requirements and (ii) if such environmental assessment reveals
the need for additional review (including soil, air, water or ground water
samplings and analysis) Lessee shall have provided such additional information
or environmental assessment as may reasonably be required by Lessor and the
Agent and, any remediation recommended therein to be performed shall have been
performed.
ARTICLE XI
Modifications.
Lessee at its sole cost and expense, at any time and
from time to time without the consent of Lessor may make
modifications, alterations, renovations, improvements and additions to
the Property or any part thereof and substitutions and replacements
therefor (collectively, "Modifications"), and Lessee shall make any
and all Modifications required to be made pursuant to any Legal
Requirement; provided, that: (i) except for any modification required
to be made pursuant to a Legal Requirement, no Modification shall
materially impair the value, utility or useful life of the Property
from that which existed immediately prior to such Modification; (ii)
each Modification shall be done expeditiously and in a good and
workmanlike manner; (iii) Lessee shall comply with all material Legal
Requirements (including without limitation all Environmental Laws) and
Insurance Requirements applicable to any Modification, including
without limitation the obtaining of all permits, licenses, consents
and certificates of
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occupancy, and the structural integrity of the Property shall not be
adversely affected; (iv) to the extent required by Section 14.2(a),
Lessee shall maintain builders' risk insurance at all times when a
modification is in progress; (v) subject to the terms of Article XIII
relating to permitted contests, Lessee shall pay all costs and
expenses and discharge any Liens arising with respect to any
Modification; (vi) each Modification shall comply with the
requirements of this Lease (including without limitation Sections 8.2
and 10.1); and (vii) no Improvement shall be demolished or otherwise
rendered unfit for use unless Lessee shall finance the proposed
replacement Modification outside of this lease facility. All
Modifications shall immediately and without further action upon their
incorporation into the Property (1) become property of Lessor, (2) be
subject to this Lease and (3) be titled in the name of Lessor. Lessee
shall not remove or attempt to remove any Modification from the
Property. Lessee, at its own cost and expense, will pay for the
repairs of any damage to the Property caused by the removal or
attempted removal of any Modification.
The construction process provided for in the Agency
Agreement is acknowledged by Lessor and the Agent to be consistent
with and in compliance with the terms and provisions of this Article
XI.
ARTICLE XII
Warranty of Title.
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Title to the Property (including without limitation
all Equipment, all Improvements, all replacement components to the
Property and all Modifications) shall immediately and without further
action vest in and such shall become the property of Lessor and be
subject to the terms of this Lease from and after the date hereof or
such date of incorporation into the Property. Lessee agrees that,
subject to the terms of Article XIII relating to permitted contests,
Lessee shall not directly or indirectly create or allow to remain, and
shall promptly discharge at its sole cost and expense, any Lien,
defect, attachment, levy, title retention agreement or claim upon the
Property, any component thereof or any Modifications or any Lien,
attachment, levy or claim with respect to the Rent or with respect to
any amounts held by Lessor, the Agent or any Holder pursuant to any
Operative Agreement, other than Permitted Liens and Lessor Liens.
Lessee shall promptly notify Lessor in the event it receives actual
knowledge that a Lien other than a Permitted Lien or Lessor Lien has
occurred with respect to the Property, the Rent or any other such
amounts, and Lessee represents and warrants to, and covenants with,
Lessor that the Liens in favor of Lessor created by the Operative
Agreements are first priority perfected Liens subject only to
Permitted Liens.
Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied,
to or for the performance by any contractor, mechanic, laborer,
materialman, supplier or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration,
addition, repair or demolition of or to any Property or any part
thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE
FURNISHED TO LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY PART
THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS
FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT
THE INTEREST OF LESSOR IN AND TO THE PROPERTY.
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ARTICLE XIII
Permitted Contests Other Than in Respect of Indemnities.
Except to the extent otherwise provided for in Section 13 of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Legal Requirement, or utility charges
payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or
encroachment, and Lessor agrees not to pay, settle or otherwise compromise any
such item, provided, that (a) the commencement and continuation of such
proceedings shall suspend the collection of any such contested amount from, and
suspend the enforcement thereof against, the Property, Lessor, each Holder, the
Agent and each Lender; (b) there shall not be imposed a Lien (other than
Permitted Liens) on the Property and no part of the Property nor any Rent would
be in any danger of being sold, forfeited, lost or deferred; (c) at no time
during the permitted contest shall there be a risk of the imposition of
criminal liability or material civil liability on Lessor, any Holder, the Agent
or any Lender for failure to comply therewith; and (d) in the event that, at
any time, there shall be a material risk of extending the application of such
item beyond the end of the Term, then Lessee shall deliver to Lessor an
officer's Certificate certifying as to the matters set forth in clauses (a),
(b) and (c) of this Section 13.1. Lessor, at Lessee's sole cost and expense,
shall execute and deliver to Lessee such authorizations and other documents as
may reasonably be required in connection with any such contest and, if
reasonably requested by Lessee, shall join as a party therein at Lessee's sole
cost and expense.
ARTICLE XIV
Public Liability and Workers, Compensation Insurance.
During the Term, Lessee shall procure and carry, at Lessee's sole cost and
expense, contractual liability insurance, commercial general liability and
umbrella liability insurance for claims for injuries or death sustained by
persons or damage to property while on the Property or the premises where the
Equipment
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is located and the adjoining land, streets, sidewalks or ways or occurring as a
result of construction and use of the Improvements on the Land or as a result
of any activities taking place on the Property after construction, and such
other public liability coverages as are then customarily carried by similarly
situated companies conducting business similar to that conducted by Lessee.
Such insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by Lessee with respect to similar properties and equipment
that it owns and are then carried by similarly situated companies conducting
business similar to that conducted by Lessee, and in no event shall have a
minimum combined single limit per occurrence coverage (i) for commercial
general liability no less than $2,000,000 (with a deductible or retention of no
more than $50,000), and (ii) for umbrella liability no less than $20,000,000
with an attachment point of $2,000,000. The policies shall name Lessee as the
insured and shall be endorsed to name Lessor, the Holders, the Agent and the
Lenders as additional insureds. The policies shall also specifically provide
that such policies shall be considered primary insurance which shall apply to
any loss or claim before any contribution by any insurance which Lessor, any
Holder, the Agent or any Lender may have in force. In the operation of the
Property, Lessee shall comply with applicable workers compensation laws and
protect Lessor, each Holder, the Agent and each Lender against any liability
under such laws.
Permanent Hazard and Other Insurance.
During the Term of this Lease, Lessee shall keep the
Property insured against all risk of physical loss or damage by fire
and other risks under an "all-risk" insurance policy and shall
maintain builders risk insurance during construction of any
Improvements or Modifications, in each case in amounts covering 100%
of the replacement cost value of the Improvements and Equipment
(including tenant improvements) with an agreed amount endorsement and
on terms that (i) are no less favorable than insurance covering other
similar properties owned by Lessee and (ii) are then carried by
similarly situated companies conducting business similar to that
conducted by Lessee. The form of the all-risk policy in effect during
the period the Property constitutes a
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Construction Period Property shall be on a builders risk,
non-reporting form and contain a right to occupancy endorsement. The
"all-risk" policy shall provide, among other things, sprinkler
coverage, boiler, machinery and plate glass coverage, cost of
demolition coverage, increased costs of construction and the value of
the undamaged portion of the building coverage and soft cost coverage.
The policies shall name Lessee as the insured and shall be endorsed to
name Lessor as a named additional insured and loss payee and the
Holders and the Agent, on behalf of itself and the Lenders to the
extent of their respective interests, as mortgagee and an additional
named insured and loss payee; provided, so long as no Event of Default
exists, any loss payable under the insurance policies required by this
Section for losses up to $7,000,000 will be paid to Lessee.
If, during the Term the area in which the Property is
located is designated a "flood-prone" area pursuant to the Flood
Disaster Protection Act of 1973, or any amendments or supplements
thereto or is in a zone designated A or V, then Lessee shall comply
with the National Flood Insurance Program as set forth in the Flood
Disaster Protection Act of 1973. In addition, Lessee will fully
comply with the requirements of the National Flood Insurance Act of
1968 and the Flood Disaster Protection Act of 1973, as each may be
amended from time to time, and with any other Legal Requirement,
concerning flood insurance to the extent that it applies to any such
Property. During the Term, Lessee shall, in the operation and use of
the Property, maintain workers' compensation insurance consistent with
that carried by similarly situated companies conducting business
similar to that conducted by Lessee and containing minimum liability
limits of no less than $100,000. In the operation of the Property,
Lessee shall comply with workers, compensation laws applicable to
Lessee, and protect Lessor, the Holders, the Agent and each Lender
against any liability under such laws.
Coverage.
As of the date of this Lease and annually thereafter
during the Term, Lessee shall furnish Lessor, the
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Holders and the Agent with certificates prepared by the insurers or insurance
broker of Lessee showing the insurance required under Sections 14.1 and 14.2 to
be in effect, naming (to the extent of their respective interests) Lessor, the
Holders, the Agent and the Lenders as additional insureds and loss payees and
evidencing the other requirements of this Article XIV. All such insurance
shall be at the cost and expense of Lessee and provided by nationally
recognized, financially sound insurance companies having a financial rating of
at least A-X in the most recent edition of Best's Insurance Reports or
otherwise acceptable to Lessor, the Holders and the Agent and legally qualified
to issue such insurance. Lessee shall cause such certificates to include a
provision for thirty (30) days, advance written notice by the insurer to
Lessor, the Holders and the Agent in the event of cancellation or material
alteration of such insurance. Additionally, all such policies will provide
that (i) the same may not be invalidated against Lessor, Holders, the Agent and
the Lenders by reason of any action or inaction or violation of a condition or
a breach of warranty of the policies or the application thereof by Lessee or
any other Person; (ii) that the insurer will give written notice to Lessor and
the Agent in the event of non-payment of premiums by Lessee when due; (iii)
that neither Lessor, the Holders, the Agent, any Lender nor any Person other
than Lessee shall be liable for the payment of any premiums, commissions or
assessments in connection with such insurance; (iv) a waiver of any rights of
subrogation of the insurer against Lessor, the Holders, the Agent or any
Lender; and (v) that all provisions thereof, except the limits of liability
(which shall be applicable to all insureds as a group) and all liability for
premiums (which shall be solely a liability of Lessee), shall operate in the
same manner as if there were a separate policy covering each such insured,
without right of contribution from any other insurance which may be carried by
any insured. If an Event of Default has occurred and is continuing and Lessor
so requests, Lessee shall deliver to Lessor copies of all insurance policies
required by Sections 14.1 and 14.2.
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Lessee agrees that the insurance policy or policies
required by Sections 14.1, 14.2(a) and 14.2(b) shall include an
appropriate clause pursuant to which any such policy shall provide
that it will not be invalidated should Lessee or any Contractor, as
the case may be, waive, at any time, any or all rights of recovery
against any party for losses covered by such policy or due to any
breach of warranty, fraud, action, inaction or misrepresentation by
Lessee or any Person acting on behalf of Lessee. Lessee hereby waives
any and all such rights against Lessor, the Holders, the Agent and the
Lenders to the extent of payments made to any such Person under any
such policy.
Neither Lessor nor Lessee shall carry separate
insurance concurrent in kind or form or contributing in the event of
loss with any insurance required under this Article XIV, except that
Lessor may carry separate liability insurance at Lessor's sole cost so
long as (i) Lessee's insurance is designated as primary and in no
event excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii)
each such insurance policy will not cause Lessee's insurance required
under this Article XIV to be subject to a coinsurance exception of any
kind.
Lessee shall pay as they become due all premiums for
the insurance required by Section 14.1 and Section 14.2, shall renew
or replace each policy prior to the expiration date thereof or
otherwise maintain the coverage required by such Sections without any
lapse in coverage.
ARTICLE XV
Casualty and Condemnation.
Subject to the provisions of this Article XV and
Article XVI (in the event Lessee delivers, or is obligated to deliver
or is deemed to have delivered, a Termination Notice), and prior to
the occurrence and continuation of a Default or an Event of Default,
Lessee shall be entitled to receive (and Lessor hereby irrevocably
assigns to Lessee all
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of Lessor's right, title and interest in) any award, compensation or
insurance proceeds under Sections 14.2(a) or (b) hereof to which
Lessee or Lessor may become entitled by reason of their respective
interests in the Property (i) if all or a portion of the Property is
damaged or destroyed in whole or in part by a Casualty or (ii) if the
use, access, occupancy, easement rights or title to the Property or
any part thereof is the subject of a Condemnation; provided, however,
if a Default or an Event of Default shall have occurred and be
continuing or if such award, compensation or insurance proceeds shall
exceed $7,000,000, then such award, compensation or insurance proceeds
shall be paid directly to Lessor or, if received by Lessee, shall be
held in trust by Lessee for Lessor, and shall be paid over by Lessee
to Lessor and held in accordance with the terms of this subparagraph
(a). All amounts held by Lessor hereunder on account of any award,
compensation or insurance proceeds either paid directly to Lessor or
turned over to Lessor shall be held as security for the performance of
Lessee's obligations hereunder and under the other Operative
Agreements.
Lessee may appear in any proceeding or action to
negotiate, prosecute, adjust or appeal any claim for any award,
compensation or insurance payment on account of any such Casualty or
Condemnation and shall pay all expenses thereof. At Lessee's
reasonable request, and at Lessee's sole cost and expense, Lessor and
the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. Lessor and Lessee agree that
to the fullest extent permitted by applicable law this Lease shall
control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
If Lessee shall receive notice of a Casualty or a
possible Condemnation of the Property or any interest therein where
damage to the Property is estimated to equal or exceed ten percent
(10%) of the Property Cost, Lessee shall give notice thereof to Lessor
and to the Agent promptly after the receipt of such notice. In such
event or in the event that a condemnation award, other compensation or
insurance proceeds in excess of $7,000,000 are received by Lessee or
Lessor in
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respect of any Casualty or Condemnation, then at the option of the
Lessor or the Agent to be exercised by written notice to Lessee,
Lessee shall be deemed to have delivered a Termination Notice and the
provisions of Sections 16.1 and 16.2 shall apply.
In the event of a Casualty or a Condemnation
(regardless of whether notice thereof must be given pursuant to
paragraph (c)), this Lease shall terminate in accordance with Section
16.1 if Lessee, within thirty (30) days after such occurrence,
delivers to Lessor and the Agent a notice to such effect.
If pursuant to this Section 15.1 this Lease shall
continue in full force and effect following a Casualty or
Condemnation, Lessee shall, at its sole cost and expense and using, if
available, the proceeds of any award, compensation or insurance with
respect to such Casualty or Condemnation (including without limitation
any such award, compensation or insurance which has been received by
the Agent and which should be turned over to Lessee pursuant to the
terms of the Operative Agreements, and if not available or sufficient,
using its own funds), diligently repair any damage to the Property
caused by such Casualty or Condemnation in conformity with the
requirements of Sections 10.1 and 11.1, using the as-built Plans and
Specifications or manufacturer's specifications for the applicable
Improvements, Equipment or other components of the Property (as
modified to give effect to any subsequent Modifications, any
Condemnation affecting the Property and all applicable Legal
Requirements), so as to restore the Property to substantially the same
remaining economic value, useful life, utility, condition, operation
and function as existed immediately prior to such Casualty or
Condemnation (assuming all maintenance and repair standards have been
satisfied). In such event, title to the Property shall remain with
Lessor.
In no event shall a Casualty or Condemnation with
respect to which this Lease remains in full force and effect under
this Section 15.1 affect Lessee's obligations to pay Rent pursuant to
Article III.
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Notwithstanding anything to the contrary set forth in
Section 15.1(a) or Section 15.1(e) hereof, if following the Completion
Date a Casualty occurs with respect to the Property or Lessee receives
notice of a Condemnation with respect to the Property, and following
such Casualty or Condemnation, the Property cannot reasonably be
restored, repaired or replaced on or before the day one hundred eighty
(180) days prior to the Expiration Date or the date nine (9) months
after the occurrence of such Casualty or Condemnation (if such
Casualty or Condemnation occurs during the Term) to the substantially
same remaining economic value, useful life, utility, condition,
operation and function as existed immediately prior to such Casualty
or Condemnation (assuming all maintenance and repair standards have
been satisfied) or on or before such day the Property is not in fact
so restored, repaired or replaced, then Lessee shall be required to
exercise its Purchase Option for the Property on the next Payment Date
and pay Lessor the Termination Value for the Property; provided, if
any Default or Event of Default has occurred and is continuing, Lessee
shall also promptly (and in any event within three (3) Business Days)
pay Lessor any award, compensation or insurance proceeds received on
account of any Casualty or Condemnation with respect to the Property;
provided, further, that upon payment in full of the Termination Value
to the Lessor as herein provided any Excess Proceeds shall be paid to
Lessee. If a Default has occurred and is continuing and any Loans,
Holder Advance or other amounts are then owing, then any Excess
Proceeds (to the extent of any such Loans, Holder Advance or other
amounts owing) shall be paid to Lessor, held as security for the
performance of Lessee's obligations hereunder and under the other
Operative Agreements and applied to such obligations upon the exercise
of remedies in connection with the occurrence of an Event of Default.
If at any time prior to the Completion Date of the
Property (i) there occurs a Casualty (other than a Casualty caused by
the Lessee's negligence) or a Condemnation, the proceeds of which
exceed or are expected to exceed ten percent (10%) of the Construction
Budget or that will prevent
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the Property from being completed by the Construction Termination Date
or (ii) there shall occur a Force Majeure Event that will prevent the
Property from being completed by the Construction Termination Date,
then in either such event the Lessee on or prior to the date thirty
(30) days prior to the Construction Period Termination Date shall
notify the Lessor, the Agent, each Lender and each Holder of the
occurrence of such event in the manner set forth in Section 3.3 of the
Agency Agreement and the Lessor shall be entitled to the election as
so provided in said Section 3.3. of the Agency Agreement. In the
event that the Lessor shall, in accordance with said Section 3.3 of
the Agency Agreement, elect to require the Lessee to pay to the Lessor
the Maximum Residual Guaranty Amount then the Lessee shall pay to the
Lessor the Maximum Residual Guaranty Amount and shall surrender or
cause to be surrendered the Property in accordance with the terms and
provisions of Section 10.1 hereof.
Environmental Matters. Promptly upon Lessee's actual
knowledge of the presence of Hazardous Substances in any portion of the
Property in concentrations and conditions that constitute an Environmental
Violation and which, in the reasonable opinion of Lessee, the cost to undertake
any legally required response, clean up, remedial or other action will or might
result in a cost to Lessee of more than $50,000, Lessee shall notify Lessor in
writing of such condition. In the event of any Environmental Violation
(regardless of whether notice thereof must be given), Lessee shall, not later
than thirty (30) days after Lessee has actual knowledge of such Environmental
Violation, either deliver to Lessor a Termination Notice pursuant to Section
16.1, if applicable, or, at Lessee's sole cost and expense, promptly and
diligently undertake and complete any response, clean up, remedial or other
action (including without limitation the pursuit by Lessee of appropriate
action against any off-site or third party source for contamination) necessary
to remove, cleanup or remediate the Environmental Violation in accordance with
all Environmental Laws. Any such undertaking shall be timely completed in
accordance with prudent industry standards. If Lessee does not deliver a
Termination Notice pursuant to Section 16.1, Lessee shall, upon completion of
remedial action by Lessee,
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cause to be prepared by a reputable licensed environmental engineer acceptable
to Lessor a report describing the Environmental Violation and the actions taken
by Lessee (or its agents) in response to such Environmental Violation, and a
statement by the engineer that the Environmental Violation has been remedied in
full compliance with applicable Environmental Law. Not less than sixty (60)
days prior to the time that Lessee elects to re-market the Property pursuant to
Section 20.1 hereof or any other provision of any Operative Agreement, Lessee
at its expense shall cause to be delivered to Lessor an environmental
assessment respecting the Property dated no more than thirty (30) days prior to
the date of delivery by an independent licensed professional engineer
acceptable to Lessor, the Holders and the Agent, and addressed to and in form,
scope and content reasonably satisfactory to Lessor, the Holders and the Agent
and which environmental assessment (i) shall be sufficient in scope to
determine compliance with all applicable Environmental Laws and all applicable
Legal Requirements and (ii) if such environmental assessment reveals the need
for additional review (including soil, air, water or groundwater samplings and
analysis) Lessee shall have provided such additional information or
environmental assessment as required by Lessor, the Holder and the Agent and,
any remediation recommended therein to be performed shall have been performed.
Notwithstanding any other provision of any Operative Agreement, if Lessee fails
to comply with the foregoing obligation regarding the environmental assessment,
Lessee shall be obligated to purchase the Property for its Termination Value
and shall not be permitted to exercise (and Lessor shall have no obligation to
honor any such exercise) any rights under any Operative Agreement regarding a
sale of the Property to a Person other than Lessee or any Affiliate of Lessee.
Notice of Environmental Matters. Promptly, but in any
event within five (5) days from the date Lessee has actual knowledge thereof,
Lessee shall provide to Lessor written notice of any material pending or
threatened claim, action or proceeding involving any Environmental Law or any
Release on or in connection with the Property. All such notices shall describe
in reasonable detail the nature of the claim, action or proceeding and Lessee's
proposed response thereto. In addition, Lessee shall provide to Lessor, within
five (5) Business Days of receipt, copies of all
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material written communications with any Governmental Authority relating to any
Environmental Law in connection with the Property. Lessee shall also promptly
provide such detailed reports of any such material environmental claims as may
reasonably be requested by Lessor.
ARTICLE XVI
Termination Upon Certain Events. If any of the following
occur: (i) as a result of a Casualty or Condemnation, Lessee has delivered a
notice pursuant to Section 15.1(d), or is deemed to have delivered such notice
pursuant to Section 15.1(c), then following the applicable Casualty or
Condemnation this Lease shall terminate or (ii) Lessee has delivered notice
pursuant to the second sentence of Section 15.2 that, due to the occurrence of
an Environmental Violation, this Lease shall terminate, then in either such
event Lessee shall be obligated to deliver, within thirty (30) days of its
receipt of notice of the applicable Condemnation or the occurrence of the
applicable Casualty or Environmental Violation, a written notice to Lessor in
the form described in Section 16.2(a) (a "Termination Notice") of the
termination of this Lease.
Procedures.
A Termination Notice shall contain: (i) notice of
termination of this Lease on a Payment Date not more than sixty (60)
days after Lessor's receipt of such Termination Notice (the
"Termination Date"); and (ii) a binding and irrevocable agreement of
Lessee to pay the Termination Value for the Property and purchase such
Property on such Termination Date.
On the Termination Date, Lessee shall pay to Lessor
the Termination Value for the Property, and Lessor shall convey the
Property or the remaining portion thereof, if any, to Lessee (or
Lessee's designee), all in accordance with Section 20.2.
Change in Control. If as a result of one (1) or more
transactions prior to the Expiration Date, any Person or
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group of Persons (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended) other than Warburg Pincus Capital Company,
L.P. or its Affiliates, shall, without the approval of the board of directors
of the Lessee, obtain ownership or control of more than fifty percent (50%) of
the common stock of Lessee or fifty percent (50%) of the voting power of the
Lessee entitled to vote in the election of members of the board of directors of
the Lessee (any such event a "Change in Control"), then the Lessor shall have
an election (which such election shall be made at the direction of the Agent)
of one of the following options within 90 days of such Change in Control; (i)
approve the Change in Control and continue the Lease on the same terms and
conditions or such other terms as Lessor and Lessee shall agree upon with the
concurrence of the Agent and all of the lenders and all of the Holders or (ii)
if the requisite approval required in the immediately preceding clause (i)
shall not be secured, accelerate the Expiration Date of the Lease and treat the
next succeeding Payment Date as the Expiration Date of the Lease for all
purposes. The Lessor shall notify the Lessee within ninety (90) days of such
Change in Control of its election of (i) or (ii) as applicable under the
preceding sentence. In the event that the Lessor shall fail to notify the
Lessee of its election within such ninety (90) day period then Lessor shall be
deemed to have elected the option set forth in clause (ii) of this Section
16.3. In the event that the Lessor elects the option set forth in clause (ii)
of this Section 16.3, then Lessee shall be required to elect either the "Sale
Option" or the "Purchase Option" as provided in Article XX hereof within ten
(10) days of Lessor's election or deemed election thereof.
ARTICLE XVII
Lease Events of Default. If any one (1) or more of the
following events (each a "Lease Event of Default") shall occur:
Lessee shall fail to make payment of (i) any Basic
Rent (except as set forth in clause (ii)) within three (3) days after
the same has become due and payable or (ii) any Termination Value, on
the date any such payment is due and payable, or any payment of Basic
Rent or Supplemental Rent
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due on the due date of any such payment of Termination Value, or any
amount due on the Expiration Date;
Lessee shall fail to make payment of any Supplemental
Rent (other than Supplemental Rent referred to in Section 17.1(a)(ii))
within (i) thirty (30) days after such payment has become due and
payable in the case of all Impositions (but such Impositions must, in
all events, be paid within ten (10) days of the same becoming
delinquent), and (ii) thirty (30) days as to all other Supplemental
Rent (other than as referred to in Section 17.1(a)(ii) and in clause
(i) of this Section 17.1(b)) after such payment has become due and
payable.
Lessee shall fail to maintain insurance as required
by Article XIV of this Lease or to deliver any requisite annual
certificate with respect thereto within ten (10) days of the date such
certificate is due under the terms hereof;
Lessee shall fail to observe or perform any material
term, covenant or condition of Lessee under this Lease (including
without limitation the Incorporated Covenants) or any other Operative
Agreement to which Lessee is a party, or Lessee shall fail to observe
in any material respect any Legal Requirement regarding the Property
and such default or failure shall continue for a period of thirty (30)
days after written notice thereof has been given to the Lessee by the
Lessor or the Agent;
(e) Any representation or warranty made by Lessee
set forth in this Lease (including without limitation the Incorporated
Representations and Warranties) or in any other Operative Agreement or
in any document entered into in connection herewith or therewith or in
any document, certificate or financial or other statement delivered in
connection herewith or therewith shall be false or inaccurate in any
material way when made;
(f) An Agency Agreement Event of Default shall
have occurred and be continuing;
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(g) Lessee or any of its Subsidiaries shall
default in the payment when due beyond any applicable grace period of
any principal of or interest on any Indebtedness having an outstanding
principal amount of at least $5,000,000; or any event or condition
shall occur which results in the acceleration of the maturity of any
such Indebtedness or enables the holder of any such Indebtedness or
any Person acting on such holder's behalf to accelerate the maturity
thereof;
(h) The liquidation or dissolution of Lessee or
any Material Subsidiary (unless the liquidation or dissolution of such
Material Subsidiary is in connection with an internal restructuring of
Lessee and such liquidation and dissolution has been approved by Agent
and the Majority Lenders), or the suspension of the business of Lessee
or any Material Subsidiary, or the filing by Lessee or any Material
Subsidiary of a voluntary petition or an answer seeking
reorganization, arrangement, readjustment of its debts or for any
other relief under the United States Bankruptcy Code, as amended, or
under any other insolvency act or law, state or federal, now or
hereafter existing, or any other action of Lessee or any Material
Subsidiary indicating its consent to, approval of or acquiescence in,
any such petition or proceeding; the application by Lessee or any
Material Subsidiary for, or the appointment by consent or acquiescence
of Lessee or any Material Subsidiary of a receiver, a trustee or a
custodian of Lessee or any Material Subsidiary for all or a
substantial part of its property; the making by Lessee or any Material
Subsidiary of any assignment for the benefit of creditors; the
inability of Lessee or any Material Subsidiary or the admission by
Lessee or any Material Subsidiary in writing of its inability to pay
its debts as they mature; or Lessee or any Material Subsidiary taking
any corporate action to authorize any of the foregoing;
(i) The filing of an involuntary petition against
Lessee or any Material Subsidiary in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts or for any
other relief under the United States Bankruptcy Code, as
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amended, or under any other insolvency act or law, state or federal,
now or hereafter existing; or the involuntary appointment of a
receiver, a trustee or a custodian of Lessee for all or a substantial
part of its property; or the issuance of a warrant of attachment,
execution or similar process against any substantial part of the
property of Lessee or any Material Subsidiary, and the continuance of
any of such events for ninety (90) days undismissed or undischarged;
(j) The adjudication of Lessee or any Material
Subsidiary as bankrupt or insolvent;
(k) The entering of any order in any proceedings
against Lessee or any Material Subsidiary decreeing the dissolution,
divestiture or split-up of Lessee or any Material Subsidiary, and such
order remains in effect for more than sixty (60) days;
(l) Any material report, certificate, financial
statement or other instrument delivered to Lessor by or on behalf of
Lessee pursuant to the terms of this Lease or any other Operative
Agreement is false or misleading in any material respect when made or
delivered;
(m) Any Lessee Credit Agreement Event of Default
shall have occurred and be continuing and shall not have been waived;
(n) A final judgment or judgments for the payment
of money shall be rendered by a court or courts against Lessee or any
of its Material Subsidiaries in excess of $5,000,000 in the aggregate,
and (i) the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be
procured, within thirty (30) days from the date of entry thereof, or
(ii) Lessee or such Material Subsidiary shall not, within said period
of thirty (30) days, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal, or (iii) such
judgment or
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judgments shall not be discharged (or provisions shall not be made for
such discharge) within thirty (30) days after a decision has been
reached with respect to such appeal and the related stay has been
lifted;
(o) Lessee or any Material Subsidiary shall (i)
default in the payment of any
Indebtedness (other than as
referred to in Sections
17.1(a) and (b)) the
aggregate outstanding amount
of which is in excess of
$5,000,000 beyond the period
of grace, if any, provided in
the instrument or agreement
under which such Indebtedness
is created; or (ii) default
in the observance or the
performance of any other
agreement or conditions
relating to any Indebtedness
(other than as referred to in
Sections 17.1(a) and (b)) the
aggregate outstanding amount
of which is in excess of
$5,000,000 or contained in
any instrument or agreement
evidencing, securing or
relating thereto;
(p) Lessee or any member of the Controlled Group
shall fail to pay when due an amount or amounts aggregating in excess
of $5,000,000 which it shall have become liable to pay to the PBGC or
to a Pension Plan under Title IV of ERISA; or notice of intent to
terminate a Pension Plan or Pension Plans having aggregate Unfunded
Liabilities in excess of $5,000,000 shall be filed under Title IV of
ERISA by Lessee or any member of the Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause
a trustee to be appointed to administer any such Pension Plan or
Pension Plans or a proceeding shall be instituted by a fiduciary of
any such Pension Plan or Pension Plans against Lessee or any member of
the Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA; or
a condition
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shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any such Pension Plan or Pension Plans must
be terminated; or
(q) Prior to the Basic Term Commencement Date the
Agency Agreement shall cease to be in full force and effect;
(r) This Lease or the Guaranty shall cease to be
in full force and effect;
then, in any such event, (i) the Property, if a Construction Period Property,
(whether or not the Basic Term has previously commenced) shall automatically
become subject to the terms of this Lease as more specifically provided in
Section 2.2(b) hereof and (ii) Lessor may, in addition to the other rights and
remedies provided for in this Article XVII and in Section 18.1, terminate this
Lease by giving Lessee five (5) days notice of such termination, and this Lease
shall terminate, and all rights of Lessee under this Lease shall cease. Lessee
shall, to the fullest extent permitted by law, pay as Supplemental Rent all
costs and expenses incurred by or on behalf of Lessor, including without
limitation reasonable fees and expenses of counsel, as a result of any Lease
Event of Default hereunder.
Surrender of Possession. If a Lease Event of Default
shall have occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days
written notice, surrender to Lessor possession of the Property. Lessor may
enter upon and repossess the Property by such means as are available at law or
in equity, and may remove Lessee and all other Persons and any and all personal
property and Lessee's equipment and personalty and severable Modifications from
the Property. Lessor shall have no liability by reason of any such entry,
repossession or removal performed in accordance with applicable law. Upon the
written demand of Lessor, Lessee shall return the Property promptly to Lessor,
in the manner and condition required by, and otherwise in accordance with the
provisions of, Section 22.1(c) hereof.
No Obligation to Relet. If a Lease Event of Default
shall have occurred and be continuing, and whether or not this
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Lease shall have been terminated pursuant to Section 17.1, Lessor may, BUT
SHALL BE UNDER NO OBLIGATION TO, relet the Property or any portion thereof, for
such term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the Term) and on such conditions
(which may include concessions of free rent) and for such purposes as Lessor
may determine, and Lessor may collect, receive and retain the rents resulting
from such reletting. Lessor and Lessee further confirm their intention that
this Lease be treated as a loan and financing arrangement and Lessee
acknowledges that, as such, the provisions set forth in Article XVII are
designed and intended to provide for the repayment of such loan under such
financing arrangement to the extent and in the manner provided. Accordingly,
notwithstanding anything herein to the contrary and notwithstanding any law or
rule of law to the contrary, Lessor shall have no obligation following a Lease
Event of Default to mitigate damages by reletting or otherwise leasing all or
any portion of the Property, and Lessee does hereby expressly waive any and all
rights it may have to require Lessor or any successor in interest to lease or
relet all or any portion of the Property or any right of Lessee to receive a
credit for any funds received by Lessor in connection with any reletting of the
Property it may, in its sole and absolute discretion, elect to undertake.
Damages. Neither (a) the termination of this Lease
pursuant to Section 17.1; (b) the repossession of the Property; nor (c) the
failure of Lessor to relet the Property or any portion thereof, nor the failure
of Lessor to collect or receive any rentals due upon any such reletting, shall
relieve Lessee of its liabilities and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. If any Lease Event of
Default shall have occurred and be continuing and notwithstanding any
termination of this Lease pursuant to Section 17.1, Lessee shall forthwith pay
to Lessor all Rent and other sums due and payable hereunder to and including
without limitation the date of such termination. Thereafter, on the days on
which the Basic Rent or Supplemental Rent, as applicable, are payable under
this Lease or would have been payable under this Lease if the same had not been
terminated pursuant to Section 17.1 and until the end of the Term hereof or
what would have been the Term in the absence of such termination, Lessee shall
pay Lessor, as current
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liquidated damages (it being agreed that it would be impossible accurately to
determine actual damages) an amount equal to the Basic Rent and Supplemental
Rent that are payable under this Lease or would have been payable by Lessee
hereunder if this Lease had not been terminated pursuant to Section 17.1,
without reduction, deduction or credit for the net proceeds, if any, which are
actually received by Lessor with respect to the period in question as a result
of any reletting of the Property or any portion thereof; provided, that
Lessee's obligation to make payments of Basic Rent and Supplemental Rent under
this Section 17.4 shall continue only so long as Lessor shall not have received
the amounts specified in Section 17.6. To the extent Lessor receives any
damages pursuant to this Section 17.4, such amounts shall be regarded as
amounts paid on account of Rent. LESSEE SPECIFICALLY ACKNOWLEDGES AND AGREES
THAT ITS OBLIGATIONS UNDER THIS SECTION 17.4 SHALL BE ABSOLUTE AND
UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES AND SHALL BE PAID AND/OR
PERFORMED, AS THE CASE MAY BE, WITHOUT NOTICE OR DEMAND AND WITHOUT ANY
ABATEMENT, REDUCTION, DIMINUTION, SET-OFF, DEFENSE, COUNTERCLAIM OR RECOUPMENT
WHATSOEVER.
Power of Sale. Without limiting any other remedies set
forth in this Lease, in the event that a court of competent jurisdiction rules
that this Lease constitutes a mortgage, deed of trust or other secured
financing as is the intent of the parties, then Lessor and Lessee agree that
Lessee has granted, pursuant to Section 7.1(b) hereof and any Lease Supplement,
a Lien against the Property WITH POWER OF SALE, and that, upon the occurrence
and during the continuance of any Lease Event of Default, Lessor shall have the
power and authority, to the extent provided by law, after prior notice and
lapse of such time as may be required by law, to foreclose its interest (or
cause such interest to be foreclosed) in the Property.
Final Liquidated Damages. If a Lease Event of Default
shall have occurred and be continuing, whether or not this Lease shall have
been terminated pursuant to Section 17.1 and whether or not Lessor shall have
collected any current liquidated damages pursuant to Section 17.4, Lessor shall
have the right to recover, by demand to Lessee and at Lessor's election, and
Lessee shall pay to Lessor, as and for final liquidated damages, but
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exclusive of the indemnities payable under Section 13 of the Participation
Agreement, and in lieu of all current liquidated damages beyond the date of
such demand (it being agreed that it would be impossible accurately to
determine actual damages) the Termination Value. Upon payment of the amount
specified pursuant to the first sentence of this Section 17.6, Lessee shall be
entitled to receive from Lessor, either at Lessee's request or upon Lessor's
election, in either case at Lessee's cost, an assignment of Lessor's entire
right, title and interest in and to the Property, Improvements, Fixtures,
Modifications, Equipment and all components thereof, in each case in recordable
form and otherwise in conformity with local custom and free and clear of the
Lien of this Lease (including without limitation the release of any memoranda
of Lease and/or the Lease Supplement recorded in connection therewith) and any
Lessor Liens. The Property shall be conveyed to Lessee "AS-IS, WHERE-IS" and
in its then present physical condition. If any statute or rule of law shall
limit the amount of such final liquidated damages to less than the amount
agreed upon, Lessor shall be entitled to the maximum amount allowable under
such statute or rule of law; provided, however, Lessee shall not be entitled to
receive an assignment of Lessor's interest in the Property, the Improvements,
Fixtures, Modifications, Equipment or the components thereof unless Lessee
shall have paid in full the Termination Value. LESSEE SPECIFICALLY
ACKNOWLEDGES AND AGREES THAT ITS OBLIGATIONS UNDER THIS SECTION 17.6 SHALL BE
ABSOLUTE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES AND SHALL BE PAID
AND/OR PERFORMED, AS THE CASE MAY BE, WITHOUT NOTICE OR DEMAND AND WITHOUT ANY
ABATEMENT, REDUCTION, DIMINUTION, SET-OFF, DEFENSE, COUNTERCLAIM OR RECOUPMENT
WHATSOEVER.
Environmental Costs. If a Lease Event of Default shall
have occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall pay directly to any third
party (or at Lessor's election, reimburse Lessor) for the cost of any
environmental testing and/or remediation work undertaken respecting the
Property, as such testing or work is deemed appropriate in the reasonable
judgment of Lessor. Lessee shall pay all amounts referenced in the immediately
preceding sentence within ten (10) days of any request by Lessor for such
payment. The provisions of this Section 17.7
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shall not limit the obligations of Lessee under any Operative Agreement
regarding indemnification obligations, environmental testing, remediation
and/or work.
Waiver of Certain Rights. IF THIS LEASE SHALL BE
TERMINATED PURSUANT TO SECTION 17.1, LESSEE WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, (a) ANY NOTICE OF RE-ENTRY OR THE INSTITUTION OF LEGAL
PROCEEDINGS TO OBTAIN RE-ENTRY OR POSSESSION; (b) ANY RIGHT OF REDEMPTION,
RE-ENTRY OR POSSESSION; (c) THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE
EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT; AND (d) ANY OTHER
RIGHTS WHICH MIGHT OTHERWISE LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES
UNDER THIS ARTICLE XVII.
Assignment of Rights Under Contracts. If a Lease Event
of Default shall have occurred and be continuing, and whether or not this Lease
shall have been terminated pursuant to Section 17.1, Lessee shall upon Lessor's
demand immediately assign, transfer and set over to Lessor all of Lessee's
right, title and interest in and to each agreement executed by Lessee in
connection with the acquisition, installation, testing, use, development,
construction, operation, maintenance, repair, refurbishment and restoration of
the Property (including without limitation all right, title and interest of
Lessee with respect to all warranty, performance, service and indemnity
provisions), as and to the extent that the same relate to the acquisition,
installation, testing, use, development, construction, operation, maintenance,
repair, refurbishment and restoration of the Property.
Remedies Cumulative. The remedies herein provided shall
be cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise, including without limitation any
mortgage foreclosure remedies.
ARTICLE XVIII
Lessor's Right to Cure Lessee's Lease Defaults. Lessor,
without waiving or releasing any obligation or Lease Event of Default, may (but
shall be under no obligation to) remedy any Lease Event of Default for the
account and at the sole cost and
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expense of Lessee, including without limitation the failure by Lessee to
maintain the insurance required by Article XIV, and may, to the fullest extent
permitted by law, and notwithstanding any right of quiet enjoyment in favor of
Lessee, enter upon the Property, or any other real property owned or leased by
Lessee and take all such action thereon as may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of any lessee. All
out-of-pocket costs and expenses so incurred (including without limitation fees
and expenses of counsel), together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid by Lessor, shall be paid
by Lessee to Lessor on demand.
ARTICLE XIX
Provisions Relating to Lessee's Exercise of its Purchase
Option. Subject to Section 19.2, in connection with any termination of this
Lease pursuant to the terms of Section 16.2, or in connection with Lessee's
exercise of its Purchase Option, upon the date on which this Lease is to
terminate, and upon tender by Lessee of the amounts set forth in Sections
16.2(b) or 20.2, as applicable, Lessor shall execute and deliver to Lessee (or
to Lessee's designee) at Lessee's cost and expense an assignment of Lessor's
entire interest in the Property, in each case in recordable form and otherwise
in conformity with local custom and free and clear of any Lessor Liens
attributable to Lessor but without any other warranties (of title or otherwise)
from Lessor. The Property shall be conveyed to Lessee "AS-IS, "WHERE-IS" and
in its then present physical condition.
No Purchase or Termination With Respect to Less than All
of the Property. Lessee shall not be entitled to exercise its Purchase Option
or the Sale Option separately with respect to the Land, Equipment and/or
Improvements comprising the Property but shall be required to exercise its
Purchase Option or its Sale Option with respect to the entire Property.
ARTICLE XX
Purchase Option or Sale Option-General Provisions. Not
less than one hundred twenty (120) days and no more than one
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hundred eighty (180) days prior to the Expiration Date or (respecting the
Purchase Option only) at any time after the Land Closing Date, Lessee may give
Lessor and the Agent irrevocable written notice (the "Election Notice") that
Lessee is electing to exercise either (a) the option to purchase the Property
on the Expiration Date or on any Payment Date as specified in the Election
Notice (the "Purchase Option") or (b) with respect to an Election Notice given
in connection with the Expiration Date only, the option to re-market the
Property to a Person other than Lessee or any Affiliate of Lessee and cause a
sale of the Property to occur on the Expiration Date pursuant to the terms of
Section 22.1 (the "Sale Option"). If Lessee does not give an Election Notice
indicating the Purchase Option or the Sale Option at least one hundred twenty
(120) days and not more than one hundred eighty (180) days prior to the
Expiration Date, then, unless such Expiration Date is the "Final Expiration
Date" to which the Term may be extended, the term of this Lease shall be
extended in accordance with Section 2.2 hereof; if such Expiration Date is the
"Final Expiration Date", then Lessee shall be deemed to have elected the
Purchase Option. For purposes hereof the term "Final Expiration Date" refers
to the last day of a Renewal Term that constitutes an Expiration Date. If
Lessee shall either (i) elect (or be deemed to have elected) to exercise the
Purchase Option or (ii) elect the Sale Option and fail to cause the Property to
be sold in accordance with the terms of Section 22.1 on the Expiration Date,
then in either case Lessee shall pay to Lessor on the date on which such
purchase or sale is scheduled to occur an amount equal to the Termination Value
for the Property (which the parties do not intend to be a "bargain" purchase),
Lessee shall comply with the terms and provisions of Section 22.1(c) and, upon
receipt of such amounts and satisfaction of such obligations, Lessor shall
transfer to Lessee all of Lessor's right, title and interest in and to the
Property in accordance with Section 20.2.
Lessee Purchase Option. Provided, no Default or Event of
Default shall have occurred and be continuing and provided that the Election
Notice has been appropriately given specifying the Purchase Option, Lessee
shall purchase the Property on the Expiration Date or Payment Date (all as
specified in the Election Notice) at a price equal to the Termination Value
(which the parties do not intend to be a "bargain" purchase price).
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Subject to Section 19.2, in connection with any termination of this
Lease pursuant to the terms of Section 16.2, or in connection with Lessee's
exercise of its Purchase Option, upon the date on which this Lease is to
terminate, and upon tender by Lessee of the amounts set forth in Section
16.2(b) or this Section 20.2, as applicable, Lessor shall execute, acknowledge
(where required) and deliver to Lessee, at Lessee's cost and expense, each of
the following: (a) a special or limited warranty deed conveying the Property
(to the extent it is real property) to Lessee free and clear of the Lien of
this Lease, the Lien of the Credit Documents and any Lessor, Liens; (b) a Bill
of Sale conveying the Property (to the extent it is personal property) to
Lessee free and clear of the Lien of this Lease, the Lien of the Credit
Documents and any Lessor Liens; (c) any real estate tax affidavit or other
document required by law to be executed and filed in order to record the deed;
and (d) FIRPTA affidavits. The Property shall be conveyed to Lessee "AS-IS,
WHERE-IS" and in its then present physical condition.
If the Property is the subject of remediation efforts respecting
Hazardous Substances at the Expiration Date which could materially and
adversely impact the Fair Market Sales Value of such Property, then Lessee
shall be obligated to repurchase the Property pursuant to this Section 20.2.
On the Expiration Date and/or any Payment Date on which Lessee has
elected to exercise its Purchase Option, unless such amounts have been
otherwise paid at such time, Lessee shall pay (or cause to be paid) to Lessor
and all other parties, as appropriate, the sum of all costs and expenses
referred to in Section 22.2(a), and all Rent and all other amounts then due and
payable or accrued under this Lease and/or any other Operative Agreement.
Third Party Sale Option.
Provided, that (i) no Default or Event of Default
shall have occurred and be continuing and (ii) the Election Notice has
been appropriately given specifying the Sale Option, Lessee shall
undertake to cause a sale of the
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Property on the Expiration Date (all as specified in the Election
Notice) in accordance with the provisions of Section 22.1 hereof.
In the event Lessee exercises the Sale Option then,
as soon as practicable and in all events not less than sixty (60) days
prior to the Expiration Date, Lessee at its expense shall cause to be
delivered to Lessor an environmental assessment for the Property
recently prepared (no more than thirty (30) days old prior to the date
of delivery) by an independent licensed professional engineer
acceptable to Lessor, the Holders and the Agent, addressed to and in
form, scope and content satisfactory to Lessor, the Holders and the
Agent. In the event that Lessor and the Agent shall not have received
such environmental assessment by the date sixty (60) days prior to the
Expiration Date or in the event that such environmental assessment
shall reveal the existence of any material violation of Environmental
Laws, other material Environmental Violation or potential material
Environmental Violation (with materiality determined in each case in
Lessor's sole discretion), then Lessee on the Expiration Date shall
pay to Lessor an amount equal to the Termination Value for the
Property and any and all other amounts due and owing hereunder. Upon
receipt of such payment and all other amounts due under the Operative
Agreements, Lessor shall transfer to Lessee all of Lessor's right,
title and interest in and to the Property in accordance with Section
19.1.
ARTICLE XXI
Article XXI Intentionally Omitted
ARTICLE XXII
Sale Procedure.
During the Marketing Period, Lessee, on behalf of
Lessor, shall obtain bids for the cash purchase of the Property in
connection with a sale to one (1) or more third party purchasers to be
consummated on the Expiration Date
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(the "Sale Date") for the highest price available, shall notify Lessor
promptly of the name and address of each prospective purchaser and the
cash price which each prospective purchaser shall have offered to pay
for the Property and shall provide Lessor with such additional
information about the bids and the bid solicitation procedure as
Lessor may reasonably request from time to time. All such prospective
purchasers must be Persons other than Lessee or any Affiliate of
Lessee. On the Sale Date unless such amounts have been otherwise paid
at such time, Lessee shall pay (or cause to be paid) to Lessor and all
other parties, as appropriate, the sum of all costs and expenses
referred to in Section 22.2(a), all Rent and all other amounts then
due and payable or accrued under this Lease and/or any other Operative
Agreement.
Lessor may reject any and all bids and may assume sole
responsibility for obtaining bids by giving Lessee written notice to
that effect; provided, however, that notwithstanding the foregoing,
Lessor may not reject the bids submitted by Lessee if any such bid is
greater than or equal to the Limited Recourse Amount and represent
bona fide offers from one (1) or more third party purchasers. If the
price which a prospective purchaser or the prospective purchasers
shall have offered to pay for the Property on the Expiration Date is
less than the Limited Recourse Amount or if such bid does not
represent a bona fide offer from one (1) or more third parties, Lessor
may elect to retain the Property by giving Lessee written notice of
Lessor's election to retain the Property, and upon receipt of such
notice, Lessee shall surrender, or cause to be surrendered, the
Property in accordance with the terms and conditions of Section 10.1.
Unless Lessor shall have elected to retain the Property
pursuant to the provisions of the final sentence of the preceding
paragraph, Lessee shall arrange for Lessor to sell the Property free
and clear of the Lien of this Lease and any Lessor Liens attributable
to it, without recourse or warranty (of title or otherwise), for cash
on the Sale Date to the purchaser or purchasers identified by Lessee
or Lessor, as the case may be; provided, however, solely as to
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Lessor or the Trust Company, in its individual capacity, any Lessor
Lien shall not constitute a Lessor Lien so long as Lessor or the Trust
Company, in its individual capacity, is diligently contesting such
Lessor Lien by appropriate proceedings. To effect such transfer and
assignment, Lessor shall execute, acknowledge (where required) and
deliver to the appropriate purchaser each of the following: (a) a
special or limited warranty deed conveying the Property (to the extent
it is real property titled to Lessor) to the appropriate purchaser
free and clear of the Lien of this Lease, the Lien of the Credit
Documents and any Lessor Liens; (b) a Bill of Sale conveying the
Property (to the extent it is personal property) titled to Lessor to
the appropriate purchaser free and clear of the Lien of this Lease,
the Lien of the Credit Documents and any Lessor Liens; (c) any real
estate tax affidavit or other document required by law to be executed
and filed in order to record the deed; and (d) FIRPTA affidavits, as
appropriate. Lessee shall surrender the Property so sold or subject
to such documents to the purchaser in the condition specified in
Section 10.1. Lessee shall not take or fail to take any action which
would have the effect of unreasonably discouraging bona fide third
party bids for the Property. If the Property is not either (i) sold
on the Sale Date in accordance with the terms of this Section 22.1, or
(ii) retained by Lessor pursuant to an affirmative election made by
Lessor pursuant to the second sentence of the second paragraph of this
Section 22.1(a), then Lessee shall be obligated to pay Lessor on the
Sale Date an amount equal to the Termination Value less any sales
proceeds received and to comply with the terms and provisions of
Section 22.1(c).
If the Property is sold on a Sale Date to one (1) or
more third party purchasers in accordance with the terms of Section
22.1(a) and the purchase price paid for the Property is less than the
Property Cost for such Property (hereinafter such difference shall be
referred to as the "Deficiency Balance"), then Lessee hereby
unconditionally promises to pay to Lessor on the Sale Date the lesser
of (i) the Deficiency Balance, or (ii) the Maximum Residual Guarantee
Amount. On a Sale Date if (w) no Event of Default
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has occurred and is continuing, (x) Lessor receives the Termination
Value for the Property from one (1) or more third party purchasers,
(y) Lessor receives all other amounts specified in the last sentence
of the first paragraph of Section 22.1(a) and (z) the purchase price
paid for the Property on such date exceeds the Property Cost, then
Lessee may retain such excess. If the Property is retained by Lessor
pursuant to an affirmative election made by Lessor pursuant to the
provisions of Section 22.1(a), then Lessee hereby unconditionally
promises to pay to Lessor on the Sale Date an amount equal to the
Maximum Residual Guarantee Amount. Any payment of the foregoing
amounts described in this Section 22.1(b) shall be made together with
a payment of all other amounts referenced in the last sentence of the
first paragraph of Section 22.1(a). Upon payment in full of the
Maximum Residual Guarantee Amount as provided in this Section 22.1(b)
and all other amounts required to be paid by Lessee pursuant to the
Operative Agreements including, without limitation, the amounts
referenced in this Section 22.1(b), and provided Lessee shall comply
with the requirements of Section 22.1(c) hereof, then Lessee shall
have no further obligations under this Lease except for the
indemnification obligations under Section 13 of the Participation
Agreement.
In the event that the Property is either sold to one
(1) or more third party purchasers on the Sale Date or retained by
Lessor in connection with an affirmative election made by Lessor
pursuant to the provisions of Section 22.1(a), then in either case on
the applicable Sale Date Lessee shall provide Lessor or such third
party purchaser with (i) all permits, certificates of occupancy,
governmental licenses and authorizations necessary to use, operate,
repair, access and maintain the Property for its intended purposes,
(ii) such manuals, permits, easements, licenses, intellectual
property, know-how, rights-of-way and other rights and privileges in
the nature of an easement as are reasonably necessary or desirable in
connection with the use, operation, repair, access to or maintenance
of the Property for its intended purpose or otherwise as Lessor or
such third party purchaser(s) shall reasonably request (and a
royalty-free
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license or similar agreement to effectuate the foregoing on terms
reasonably agreeable to Lessor or such third party purchaser(s), as
applicable), (iii) a services agreement covering such services and
supplies to be provided by Lessee as Lessor or such third party
purchaser(s) may request in order to use and operate the Property for
its intended purposes at such rates (not in excess of arm's-length
fair market rates) as shall be acceptable to Lessee and Lessor or such
third party purchaser(s), and (iv) such quitclaim deeds, releases, and
bills of sale respecting the Property as Lessor or such third party
purchaser(s) shall reasonably request. All assignments, licenses,
easements, agreements and other deliveries required by clauses (i),
(ii), (iii), and (iv) of this paragraph (c) shall be in form
reasonably satisfactory to Lessor or such third party purchaser(s), as
applicable, and shall be fully assignable (including without
limitation both primary assignments and assignments given in the
nature of security) without payment of any fee, cost or other charge.
Application of Proceeds of Sale. Lessor shall apply the
proceeds of sale of the Property in the following order of priority:
FIRST, to pay or to reimburse Lessor for the payment
of all reasonable costs and expenses incurred by Lessor in connection
with the sale;
SECOND, so long as the Credit Agreement is in effect
and any Holder Advances or any amount is owing to the Holders under
any Operative Agreement, to the Agent to be applied pursuant to
intercreditor provisions between the Lenders and the Holders contained
in the Operative Agreements; and
THIRD, to Lessee.
Indemnity for Excessive Wear. If the proceeds of the
sale described in Section 22.1 with respect to the Property, less all expenses
incurred by Lessor in connection with such sale, shall be less than the Limited
Recourse Amount, and at the time of
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such sale it shall have been reasonably determined (pursuant to the Appraisal
Procedure described in Section 22.4 below) that the Fair Market Sales Value of
the Property, shall have been impaired by greater than expected wear and tear
during the term of the Lease, as a result of the failure of the Lessee to
maintain the Property in accordance with the terms of this Lease, Lessee shall
pay to Lessor within ten (10) days after receipt of Lessor's written statement
(i) the amount of such excess wear and tear determined by the Appraisal
Procedure or (ii) the amount of the Net Sale Proceeds Shortfall, whichever
amount is less.
Appraisal Procedure. For determining the Fair Market
Sales Value of the Property or any other amount which may, pursuant to any
provision of any Operative Agreement, be determined by an appraisal procedure,
Lessor and Lessee shall use the following procedure (the "Appraisal
Procedure"). Lessor and Lessee shall endeavor to reach a mutual agreement as
to the Fair Market Sales Value or other amount at issue within a period of ten
(10) days from commencement of the Appraisal Procedure under the applicable
section of the Lease; and if Lessor and Lessee cannot agree on such Fair Market
Sales Value, or other amount at issue, as applicable, within ten (10) days,
then such issue shall be submitted by Lessor and Lessee to two (2) qualified
appraisers, one (1) chosen by Lessee and one (1) chosen by Lessor, and any
decision unanimously reached by such appraisers shall be binding on Lessor and
Lessee; but if either party shall fail to choose an appraiser within twenty
(20) days after notice from the other party of the selection of its appraiser,
then the decision by such appointed appraiser shall be binding on Lessee and
Lessor. If the two (2) appraisers cannot agree on such Fair Market Sales
Value, or other amount at issue, as applicable, within twenty (20) days after
both shall have been appointed, then a third appraiser shall be selected by the
two (2) appraisers or, failing agreement as to such third appraiser within
thirty (30) days after both shall have been appointed, by the American
Arbitration Association. The decisions of the three (3) appraisers shall be
given within twenty (20) days of the appointment of the third appraiser and the
decision of the appraiser most different from the average of the other two (2)
shall be discarded and such average shall be binding on Lessor and Lessee;
provided, that if the highest appraisal and the lowest appraisal are
equidistant from the third appraisal, the
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third appraisal shall be binding on Lessor and Lessee. The fees and expenses
of the appraiser appointed by Lessee shall be paid by Lessee; the fees and
expenses of the appraiser appointed by Lessor shall be paid by Lessor (such
fees and expenses not being indemnified pursuant to Section 13 of the
Participation Agreement); and the fees and expenses of the third appraiser
shall be divided equally between Lessee and Lessor.
Certain Obligations Continue. During the Marketing
Period, the obligation of Lessee to pay Rent with respect to the Property
(including without limitation the installment of Basic Rent due on the
Expiration Date) shall continue undiminished until payment in full to Lessor of
the sale proceeds, if any, the Maximum Residual Guarantee Amount, the amount
due under Section 22.3, if any, and all other amounts due to Lessor or any
other Person with respect to the Property or any Operative Agreement. Lessor
shall have the right, but shall be under no duty, to solicit bids, to inquire
into the efforts of Lessee to obtain bids or otherwise to take action in
connection with any such sale, other than as expressly provided in this Article
XXII.
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ARTICLE XXIII
Holding Over. If Lessee shall for any reason remain in
possession of the Property after the expiration or earlier termination of this
Lease (unless the Property is conveyed to Lessee), such possession shall be as
a tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to the Property and Lessee shall continue
to pay Basic Rent at one hundred ten percent (110%) of the Basic Rent that
would otherwise be due and payable at such time. Such Basic Rent shall be
payable from time to time upon demand by Lessor and such additional ten percent
(10%) amount shall be applied by Lessor to the payment of the Loans pursuant to
the Credit Agreement and the Holder Advances pursuant to the Trust Agreement
pro rata between the Loans and the Holder Advances. During any period of
tenancy at sufferance, Lessee shall, subject to the second preceding sentence,
be obligated to perform and observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenants at sufferance, to continue their occupancy and
use of the Property. Nothing contained in this Article XXIII shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee after
the expiration or earlier termination of this Lease (unless the Property is
conveyed to Lessee) and nothing contained herein shall be read or construed as
preventing Lessor from maintaining a suit for possession of the Property or
exercising any other remedy available to Lessor at law or in equity.
ARTICLE XXIV
24.1 Risk of Loss. During the Term, unless Lessee shall not
be in actual possession of the Property solely by reason of Lessor's exercise
of its remedies of dispossession under Article XVII, the risk of loss or
decrease in the enjoyment and beneficial use of the Property as a result of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise is assumed by Lessee, and Lessor shall in no event be
answerable or accountable therefor.
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ARTICLE XXV
Assignment.
Lessee may not assign this Lease or any of its rights
or obligations hereunder or with respect to the Property in whole or
in part to any Person without the prior written consent of the Agent,
the Holders and Lessor; provided, however, upon written notice to the
Lessor and the Agent, Lessee may assign its rights under this Lease to
a wholly owned Subsidiary of Lessee.
No assignment by Lessee (referenced in this Section
25.1 or otherwise) or other relinquishment of possession to Property
shall in any way discharge or diminish any of the obligations of
Lessee to Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to any assignment regarding this
Lease.
Subleases.
Promptly, but in any event within five (5) Business
Days, following the execution and delivery of any sublease permitted
by this Article XXV, Lessee shall notify Lessor and the Agent of the
execution of such sublease. As of the date of each Lease Supplement,
Lessee shall lease the Property described in such Lease Supplement
from Lessor, and any existing tenant respecting such Property shall
automatically be deemed to be a subtenant of Lessee and not a tenant
of Lessor.
Lessee may sublet the Property or any portion thereof
(i) to any wholly-owned Subsidiary of Lessee and (ii) to any other
Person, without the prior written consent of the Agent, any Holder or
Lessor provided that the term of any such sublease complies with the
provisions of Section 25.2(c) and such sublease is, at all times,
subordinate to this Lease and all of the Security Documents .
No sublease (referenced in this Section 25.2 or
otherwise) or other relinquishment of possession to the
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Property shall in any way discharge or diminish any of Lessee's
obligations to Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to the Property, or portion
thereof, so sublet. During the Basic Term, the term of any such
sublease shall not extend beyond the Basic Term. During any Renewal
Term, the term of any such sublease shall not extend beyond such
Renewal Term. In the event that the Lessor, Agent, Holders and
Lenders in their sole and absolute discretion shall permit one or more
Extended Renewal Terms, then, during any such Extended Renewal Term,
the term of any such sublease shall not extend beyond such Extended
Renewal Term. Each sublease shall be expressly subject and
subordinate to this Lease and all of the Security Documents.
ARTICLE XXVI
26.1 No Waiver. No failure by Lessor or Lessee to insist upon
the strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial payment
of Rent during the continuance of any such default, shall constitute a waiver
of any such default or of any such term. To the fullest extent permitted by
law, no waiver of any default shall affect or alter this Lease, and this Lease
shall continue in full force and effect with respect to any other then existing
or subsequent default.
ARTICLE XXVII
Acceptance of Surrender. No surrender to Lessor of this
Lease or of all or any portion of the Property or of any interest therein shall
be valid or effective unless agreed to and accepted in writing by Lessor and
the Agent and no act by Lessor or the Agent or any representative or agent of
Lessor or the Agent, other than a written acceptance, shall constitute an
acceptance of any such surrender.
No Merger of Title. There shall be no merger of this
Lease or of the leasehold estate created hereby by reason of the fact that the
same Person may acquire, own or hold, directly or indirectly, in whole or in
part, (a) this Lease or the
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leasehold estate created hereby or any interest in this Lease or such leasehold
estate, (b) any right, title or interest in the Property, (c) any Notes, or (d)
a beneficial interest in Lessor.
ARTICLE XXVIII
Incorporation of Covenants. Reference is made to the
Lessee Credit Agreement and the representations and warranties of Lessee
contained in Articles VI and VII of the Lessee Credit Agreement (hereinafter
referred to as the "Incorporated Representations and Warranties") and the
covenants contained in Articles VIII, IX and X of the Lessee Credit Agreement
(hereinafter referred to as the "Incorporated Covenants"). Lessee agrees with
Lessor that the Incorporated Representations and Warranties and the
Incorporated Covenants (and all other relevant provisions of the Lessee Credit
Agreement related thereto, including without limitation the defined terms
contained in Article I thereof which are used in the Incorporated
Representations and Warranties and the Incorporated Covenants) are hereby
incorporated by reference into this Lease to the same extent and with the same
effect as if set forth fully herein and shall inure to the benefit of Lessor,
without giving effect to any waiver, amendment, modification or replacement of
the Lessee Credit Agreement or any term or provision of the Incorporated
Representations and Warranties or the Incorporated Covenants occurring
subsequent to the date of this Lease, except to the extent otherwise
specifically provided in the following provisions of this paragraph. In the
event a waiver is granted under the Lessee Credit Agreement or an amendment or
modification is executed with respect to the Lessee Credit Agreement, and such
waiver, amendment and/or modification affects the Incorporated Representations
and Warranties or the Incorporated Covenants, then such waiver, amendment or
modification shall be effective with respect to the Incorporated
Representations and Warranties and the Incorporated Covenants as incorporated
by reference into this Lease only if consented to in writing by the Majority
Lenders. In the event of any replacement of the Lessee Credit Agreement with a
similar credit facility (the "New Facility") the representations and warranties
and covenants (affirmative, negative and financial) contained in the New
Facility which correspond to the representations and warranties and covenants
contained in Articles
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VI, VII, VIII, IX and X of the Lessee Credit Agreement shall become the
Incorporated Representations and Warranties and the Incorporated Covenants
hereunder only if consented to in writing by Lessor and the Majority Lenders
and, if such consent is not granted or if the Lessee Credit Agreement is
terminated and not replaced, then the representations and warranties and
covenants contained in Articles VI, VII, VIII, IX and X of the Lessee Credit
Agreement (together with any modifications or amendments approved in accordance
with this paragraph) shall continue to be the Incorporated Representations and
Warranties and the Incorporated Covenants hereunder.
ARTICLE XXIX
Notices. All notices required or permitted to be given
under this Lease shall be in writing. Notices may be served by certified or
registered mail, postage prepaid with return receipt requested; by private
courier, prepaid; by telex, facsimile, or other telecommunication device
capable of transmitting or creating a written record; or personally. Mailed
notices shall be deemed delivered five (5) days after mailing, properly
addressed. Couriered notices shall be deemed delivered when delivered as
addressed, or if the addressee refuses delivery, when presented for delivery
notwithstanding such refusal. Telex or telecommunicated notices shall be
deemed delivered when receipt is either confirmed by confirming transmission
equipment or acknowledged by the addressee or its office. Personal delivery
shall be effective when accomplished. Unless a party changes its address by
giving notice to the other party as provided herein, notices shall be delivered
to the parties at the following addresses:
If to Lessee:
LCI International, Inc.
8180 Greensboro Drive, Suite 800
McLean, Virginia 22102
Attention: John J. Dillon
Telephone No.: (703) 848-4490
Telecopy No.: (703) 918-4460
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with copy to:
Squire, Sanders & Dempsey
41 South High Street
Columbus, Ohio 43215
Attention: Richard W. Rubenstein
Telephone No.: (614) 365-2700
Telecopy No.: (614) 365-2499
If to Lessor:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton, Vice President
Telephone No.: (801) 246-5300
Telecopy No.: (801) 246-5053
with a copy to the Agent:
NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Brian D. Corum
Telephone No.: (214) 508-0921
Telecopy No.: (214) 508-9390
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
100 No. Tryon Street, Suite 4200
Charlotte, North Carolina 28202-4006
Attention: Glen B. Hardymon
Telephone No.: (704) 331-7446
Telecopy No.: (704) 331-7598
or such additional parties and/or other address as such party may hereafter
designate, and shall be effective upon receipt or refusal thereof.
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ARTICLE XXX
Miscellaneous. Anything contained in this Lease to the
contrary notwithstanding, all claims against and liabilities of Lessee or
Lessor arising from events commencing prior to the expiration or earlier
termination of this Lease shall survive such expiration or earlier termination.
Any provision of this Lease which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
Amendments and Modifications. Neither this Lease, any
Lease Supplement nor any provision hereof may be amended, waived, discharged or
terminated except by an instrument in writing in recordable form signed by
Lessor and Lessee, subject to Sections 10.2 and 14.5 of the Participation
Agreement.
Successors and Assigns. All the terms and provisions of
this Lease shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Headings and Table of Contents. The headings and table
of contents in this Lease are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
Counterparts. This Lease may be executed in any number
of counterparts, and by different parties hereto in separate counterparts, each
of which when so executed shall be an original, but all of which shall together
constitute one (1) and the same instrument.
GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA
WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF.
Calculation of Rent. All calculation of Rent payable
hereunder shall be computed based on the actual number of
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days elapsed over a year of three hundred sixty (360) days or, to the extent
such Rent is based on the Prime Lending Rate, three hundred sixty-five (365)
(or three hundred sixty-six (366), as applicable) days.
Memoranda of Lease and Lease Supplements. This Lease
shall not be recorded; provided, Lessor and Lessee shall promptly record a
memorandum of this Lease and a Lease Supplement (in substantially the form of
Exhibits B and B-1, as applicable, attached hereto) regarding the Property
promptly after the Land Acquisition Date and the commencement of the Basic
Term, as applicable in the local filing office with respect thereto, in all
cases at Lessee's cost and expense, and as required under applicable law to
sufficiently evidence this Lease or any such Lease Supplement in the applicable
real estate filing records.
Allocations between the Lenders and the Holders.
Notwithstanding any other term or provision of this Lease to the contrary, the
allocations of the proceeds of the sale of the Property and any and all other
Rent and other amounts received hereunder shall be subject to the intercreditor
provisions between the Lenders and the Holders contained in the Operative
Agreements (or as otherwise agreed among the Lenders and the Holders from time
to time).
Limitations on Recourse. Notwithstanding anything
contained in this Lease to the contrary, Lessee agrees to look solely to
Lessor's estate and interest in the Property (and in no circumstance to the
Agent, the Lenders, the Holders or otherwise to Lessor) for the collection of
any judgment requiring the payment of money by Lessor in the event of liability
by Lessor, and no other property or assets of Lessor or any shareholder, owner
or partner (direct or indirect) in or of Lessor, or any director, officer,
employee, beneficiary, Affiliate of any of the foregoing shall be subject to
levy, execution or other enforcement procedure for the satisfaction of the
remedies of Lessee under or with respect to this Lease, the relationship of
Lessor and Lessee hereunder or Lessee's use of the Property or any other
liability of Lessor to Lessee. Nothing in this Section shall be interpreted so
as to limit the terms of Sections 6.1 or 6.2.
59
<PAGE> 66
WAIVERS OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, LESSOR AND LESSEE IRREVOCABLY AND UNCONDITIONALLY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS LEASE OR ANY COUNTERCLAIM THEREIN.
Exercise of Lessor Rights. Lessee hereby acknowledges
and agrees that the rights and powers of Lessor under this Lease have been
assigned to the Agent pursuant to the terms of the Security Agreement and the
other Operative Agreements.
Submission To Jurisdiction; Waivers. Each of the parties
hereto hereby irrevocably and unconditionally:
submits for itself and its property in any legal
action or proceeding relating to this Lease and the other Operative Agreements
to which it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the personal jurisdiction of the state and federal courts
located in Mecklenburg County, North Carolina;
agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail) postage prepaid, to such party
at its address set forth in Section 29.1 or at such other address of which the
parties hereto shall have been notified pursuant thereto;
agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or proceeding
referred to in this Section 30.13 any special, exemplary or punitive damages.
Discharge of Lessee's Obligations by its Affiliates.
Lessor agrees that performance of any of Lessee's obligations hereunder by one
or more of Lessee's Affiliates or one or more of Lessee's sublessees of the
Property or any part thereof shall
60
<PAGE> 67
constitute performance by Lessee of such obligations to the same extent and
with the same effect hereunder as if such obligations were performed by Lessee,
but no such performance shall excuse Lessee from any obligation not performed
by it or on its behalf under the Operative Documents.
USURY SAVINGS PROVISION. IT IS THE INTENT OF THE PARTIES
HERETO TO CONFORM TO AND CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY
LAW FROM TIME TO TIME IN EFFECT. TO THE EXTENT ANY RENT OR PAYMENTS HEREUNDER
ARE HEREINAFTER CHARACTERIZED BY ANY COURT OF COMPETENT JURISDICTION AS THE
REPAYMENT OF PRINCIPAL AND INTEREST THEREON, THIS SECTION 30.14 SHALL APPLY.
ANY SUCH RENT OR PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO
HEREIN AS "INTEREST." ALL AGREEMENTS AMONG THE PARTIES HERETO ARE HEREBY
LIMITED BY THE PROVISIONS OF THIS PARAGRAPH WHICH SHALL OVERRIDE AND CONTROL
ALL SUCH AGREEMENTS, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
WRITTEN OR ORAL. IN NO WAY, NOR IN ANY EVENT OR CONTINGENCY (INCLUDING WITHOUT
LIMITATION PREPAYMENT OR ACCELERATION OF THE MATURITY OF ANY OBLIGATION), SHALL
ANY INTEREST TAKEN, RESERVED, CONTRACTED FOR, CHARGED, OR RECEIVED UNDER THIS
LEASE OR OTHERWISE, EXCEED THE MAXIMUM NON-USURIOUS AMOUNT PERMISSIBLE UNDER
APPLICABLE LAW. IF, FROM ANY POSSIBLE CONSTRUCTION OF ANY OF THE OPERATIVE
AGREEMENTS OR ANY OTHER DOCUMENT OR AGREEMENT, INTEREST WOULD OTHERWISE BE
PAYABLE IN EXCESS OF THE MAXIMUM NON-USURIOUS AMOUNT, ANY SUCH CONSTRUCTION
SHALL BE SUBJECT TO THE PROVISIONS OF THIS PARAGRAPH AND SUCH AMOUNTS UNDER
SUCH DOCUMENTS OR AGREEMENTS SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM
NON-USURIOUS AMOUNT PERMITTED UNDER APPLICABLE LAW, WITHOUT THE NECESSITY OF
EXECUTION OF ANY AMENDMENT OR NEW DOCUMENT OR AGREEMENT. IF LESSOR SHALL EVER
RECEIVE ANYTHING OF VALUE WHICH IS CHARACTERIZED AS INTEREST WITH RESPECT TO
THE OBLIGATIONS OWED HEREUNDER OR UNDER APPLICABLE LAW AND WHICH WOULD, APART
FROM THIS PROVISION, BE IN EXCESS OF THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL
TO THE AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE INTEREST SHALL, WITHOUT PENALTY,
BE APPLIED TO THE REDUCTION OF THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL
AND NOT TO THE PAYMENT OF INTEREST, OR REFUNDED TO LESSEE OR ANY OTHER PAYOR
THEREOF, IF AND TO THE EXTENT SUCH AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE
EXCEEDS THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL. THE RIGHT TO DEMAND
PAYMENT OF ANY AMOUNTS EVIDENCED
61
<PAGE> 68
BY ANY OF THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY
INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND LESSOR
DOES NOT INTEND TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN THE EVENT OF SUCH
DEMAND. ALL INTEREST PAID OR AGREED TO BE PAID TO LESSOR SHALL, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED, AND SPREAD
THROUGHOUT THE FULL STATED TERM (INCLUDING WITHOUT LIMITATION ANY RENEWAL OR
EXTENSION) OF THIS LEASE SO THAT THE AMOUNT OF INTEREST ON ACCOUNT OF SUCH
PAYMENTS DOES NOT EXCEED THE MAXIMUM NON-USURIOUS AMOUNT PERMITTED BY
APPLICABLE LAW.
[Signature pages follow]
62
<PAGE> 69
IN WITNESS WHEREOF, the parties have caused this Lease to be duly
executed and delivered as of the date first above written.
<TABLE>
<S> <C>
LCI INTERNATIONAL, INC.
[CORPORATE SEAL]
By:
---------------------------------------------------------
Name:
-------------------------------------------------------
Title:
------------------------------------------------------
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual capacity, but solely as the Owner Trustee under
the Stuart Park Trust, as Lessor
By:
---------------------------------------------------------
Name: Val T. Orton
Title: Vice President
</TABLE>
Receipt of this original
counterpart of the foregoing
Lease is hereby acknowledged
as the date hereof
NATIONSBANK OF TEXAS, N.A.,
as the Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 70
EXHIBIT A TO THE DEED OF LEASE AGREEMENT
Legal Description of the Land
[TO BE SUPPLIED]
<PAGE> 1
EXHIBIT 11
Primary
[LCI INTERNATIONAL LOGO]
Computation of Earnings per Common Share
Primary
(In millions, except per share data)
<TABLE>
<CAPTION>
------------------------ -------------
1996 1995 1994
------------------------ -------------
<S> <C> <C> <C>
INCOME ON COMMON STOCK
===============================
Net Income $ 74.8 $ 50.8 $ 6.8
Preferred Dividends (2.8) (5.7) (5.8)
-------------------------------------
Income on Common Stock $ 72.0 $ 45.1 $ 1.0
=====================================
SHARES OUTSTANDING
===============================
Weighted Average Number of 71.7 60.8 59.2
Common Shares Outstanding
Common Shares Issuable Upon
the Assumed Exercise of Stock 14.3 12.9 10.4
Options and Stock Warrants
Common Shares Repurchased
Through Treasury Stock Method
Upon the Assumed Exercise of Stock
Options and Stock Warrants (3.9) (4.8) (4.1)
Assumed Conversion of
Convertible Preferred Stock 5.2 12.1 -
---------------------------------------
Weighted Average Number of
Common Shares Outstanding 87.3 81.0 65.5
=======================================
EARNINGS PER SHARE
===============================
NET INCOME PER COMMON SHARE $ 0.86 $ 0.63 $ 0.02
=======================================
</TABLE>
<PAGE> 2
EXHIBIT 11
Fully Diluted
[LCI INTERNATIONAL LOGO]
Computation of Earnings per Common Share
Fully Diluted
(In millions, except per share data)
<TABLE>
<CAPTION>
------------------------ -------------
1996 1995 1994
------------------------ -------------
<S> <C> <C> <C>
INCOME ON COMMON STOCK
===============================
Net Income $ 74.8 $ 50.8 $ 6.8
Preferred Dividends (2.8) (5.7) (5.8)
-------------------------------------
Income on Common Stock $ 72.0 $ 45.1 $ 1.0
=====================================
SHARES OUTSTANDING
===============================
Weighted Average Number of 71.7 60.8 59.2
Common Shares Outstanding
Common Shares Issuable Upon
the Assumed Exercise of Stock 14.3 12.9 10.8
Options and Stock Warrants
Common Shares Repurchased
Through Treasury Stock Method
Upon the Assumed Exercise of Stock
Options and Stock Warrants (3.9) (3.7) (3.3)
Assumed Conversion of
Convertible Preferred Stock 5.2 12.1 -
---------------------------------------
Weighted Average Number of
Common Shares Outstanding 87.3 82.1 66.7
=======================================
EARNINGS PER SHARE
===============================
NET INCOME PER COMMON SHARE $ 0.86 $ 0.62 $ 0.02
=======================================
</TABLE>
<PAGE> 1
EXHIBIT 13
Excerpt from 1996 Annual Report to Shareowners
LCI INTERNATIONAL, INC.
Selected Consolidated Financial Data
(In Millions, Except Revenue per MOU and Earnings per Common Share)
<TABLE>
<CAPTION>
1996 1995 1994(A) 1993(A) 1992(A)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 1,103.0 $ 672.9 $ 464.0 $ 341.2 $ 260.5
Operating Expenses 959.5 590.3 413.1 320.0 267.0
Operating Income 143.5 82.6 50.9 21.2 (6.5)
Income (Loss) Before Extraordinary Items 74.8 50.8 6.8 (2.6) (41.7)
Net Income (Loss) 74.8 50.8 6.8 (10.9) (41.7)
Income (Loss) on Common Stock $ 72.0 $ 45.1 $ 1.0 $ (13.0) $ (46.9)
OPERATING DATA
Minutes of Use (MOUs) 8,159.1 4,862.6 3,288.4 2,270.4 1,677.2
Revenue per MOU $ 0.1245 $ 0.1236 $ 0.1226 $ 0.1273 $ 0.1263
EBITDA(B) $ 207.0 $ 126.5 $ 87.0 $ 67.6 $ 50.3
BALANCE SHEET DATA
Total Assets $ 950.0 $ 773.4 $ 469.7 $ 359.8 $ 323.6
Long-term Debt and Capital Lease Obligations 235.9 274.9 144.8 84.3 255.9
Redeemable Preferred Stock -- -- -- -- 4.1
Shareowners' Equity (Deficit) $ 430.7 $ 344.8 $ 201.7 $ 195.3 $ (38.0)
EARNINGS PER COMMON SHARE(C)
Income (Loss) per Share
Before Extraordinary Items $ 0.86 $ 0.62 $ 0.02 $ (0.10) $ (1.33)
Extraordinary Loss per Share -- -- -- (0.18) --
- ----------------------------------------------------------------------------------------------------------------------------
Income (Loss) per Share $ 0.86 $ 0.62 $ 0.02 $ (0.28) $ (1.33)
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES(C) 87.3 82.1 66.7 47.2 31.4
CASH DIVIDENDS PER SHARE -- -- -- -- --
</TABLE>
(A) Includes write-off of assets, loss contingency expenses and
restructuring charges of $62.5 in 1994, $13.8 in 1993, and $24.4 in 1992.
(B) Earnings before interest, income taxes, depreciation and amortization
(EBITDA) excludes nonrecurring charges discussed in note (A) above.
(C) Earnings per common share and weighted average number of common shares are
presented on a fully diluted basis.
1
<PAGE> 2
Excerpt from 1996 Annual Report to Shareowners
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
LCI International, Inc., together with its subsidiaries (LCI or the Company),
is a facilities-based, long-distance telecommunications carrier that provides a
broad range of domestic and international telecommunications service offerings
in all market segments: commercial, wholesale and residential/small business.
The Company provides service to its customers through leased and owned digital
fiber-optic facilities. Collectively, these facilities constitute the Company's
network (the Network).
Historically, the Company has operated in the $80 billion long-distance
telecommunications industry. The long-distance industry is highly competitive
and is currently dominated by the three largest interexchange carriers: AT&T
Corporation (AT&T), MCI Communications Corporation (MCI) and Sprint
Corporation (Sprint). In 1996, fewer than ten other publicly traded
interexchange carriers, including the Company, had annual revenues exceeding $1
billion. The balance of the long-distance industry comprises several hundred
smaller interexchange carriers. Recent legislative and regulatory activity is
designed to create one telecommunications industry to encompass both
long-distance and local telecommunications services. The local
telecommunications industry is approximately $95 billion and is dominated by
the seven Regional Bell Operating Companies (RBOCs) and GTE Communi-cations
Corporation (GTE). The RBOCs and GTE have been granted the authority to provide
Local Access Transport Area (interLATA) long-distance service outside their
respective regions. The nature of competition in this combined industry is
expected to change significantly as legislative and regulatory activities
progress. The Company intends to provide combined local and long-distance
services to compete in what is expected to be a $150 billion combined market.
While the revenue of long-distance telecommunications industry providers has
grown between 5% and 8% annually in recent years, the Company has experienced
64%, 45% and 36% growth in revenues in 1996, 1995 and 1994, respectively, as
well as 68%, 48% and 45% growth in the volume of switched minutes of use (MOUs)
during the same periods. This growth has been primarily generated by internal
growth in all service areas of the Company's business. The Company's
residential/small business revenues grew in excess of 125%, 170% and 120% in
1996, 1995 and 1994, respectively, while international service revenues from
all segments grew in excess of 100% in each of the same periods. Revenues from
the Company's business segment exhibited overall growth rates of 45%, 28% and
31% in 1996, 1995 and 1994, respectively. The Company intends to continue
expanding sales, marketing and promotional efforts across all customer
segments, to expand its service lines and to provide local service.
The Company's ability to compete and grow is subject to changing industry
conditions. Recent legislation and the resulting judicial and regulatory action
have had a significant impact on the current industry environment. These
changes will alter the nature and degree of competition in both the local and
long-distance segments of the industry.
INDUSTRY ENVIRONMENT
LEGISLATIVE MATTERS
Telecommunications Act of 1996. In February 1996, the Telecommunications Act of
1996 (the Act) was passed by the United States Congress and signed into law by
President Clinton. This comprehensive telecommunications legislation was
designed to increase competition in the long-distance and local
telecommunications industries. The legislation will allow the RBOCs to provide
long-distance service in exchange for opening their local networks to
competition. Under the legislation, the RBOCs can immediately provide interLATA
long-distance service outside of their local-service territories. However, an
RBOC must apply to the Federal Communications Commission (FCC) to provide
long-distance services within any of the states in which the RBOC currently
operates. The
2
<PAGE> 3
Excerpt from 1996 Annual Report to Shareowners
RBOCs must satisfy several pro-competitive criteria before the
FCC will approve an RBOC's request to provide in-region interLATA long-distance
services. The legislation provides a framework for the Company and other
long-distance carriers to compete with incumbent local exchange carriers (LECs)
by reselling service of local telephone companies, interconnecting with LEC
network facilities or building new local-service facilities.
Under the Act, a telecommunications provider can request initiation of
interconnection/resale negotiations with a LEC. The Company is currently in
formal negotiations with various LECs to reach local-service agreements and LCI
intends to vigorously compete in the local-service market. Initially, the
Company will provide local service to customers on a bundled resale basis. The
Company's decision to sell unbundled services or to build local-service
facilities is dependent on eco-nomic viability and favorable regulation.
REGULATORY MATTERS
Interconnection Order. In order to implement the Act, the FCC is required to
undertake a variety of regulatory actions which can impact competition in the
telecommunications industry. These regulatory actions include the adoption of a
comprehensive order to implement policies, rules and procedures regarding
local-service competition as required under the Act (Interconnection Order).
The Interconnection Order establishes a minimum national framework for
interconnection with LECs, the purchase of unbundled local network elements
from LECs, local-service resale discounts and procedures by which agreements
for the provision of local service through LECs are to be arbitrated. Several
LECs, state regulatory agencies and other parties have appealed the FCC's
Interconnection Order. The United States Court of Appeals for the Eighth
Circuit issued a stay of the Interconnection Order, pending the outcome of the
appeals. Because the legal outcome of these appeals is uncertain, the Company
is unable to predict what impact the pending judicial proceedings will have on
local-service competition or on RBOC provision of in-region interLATA
long-distance services.
Geographic Rate Averaging. The FCC also released an order regarding rate
averaging. Under the FCC's rate averaging order, the rates charged by all
providers of interexchange telecommunications services to customers in rural
and high-cost areas cannot be higher than the rates charged by such providers
to their customers in urban areas. The Company is unable to predict how this
order will affect its results of operations or financial position.
Access Charge Reform. In December 1996, the FCC proposed changes to access
charges levied by LECs on long-distance service providers. These charges
currently represent approximately one-half of the long-distance industry
revenues. The FCC's intention is to require the charges for access services to
be consistent with actual economic cost. The FCC has proposed two approaches
for access charge reform: The first proposed solution is a market-based
approach that relies on competitive pressure, while the second is a
prescriptive approach which would involve FCC intervention. It is widely
expected that material changes to current industry cost structures could result
from these proceedings. The Company intends to actively participate in these
proceedings. In light of the uncertainty regarding the FCC's ultimate actions
in these proceedings, the Company is unable to predict what impact the pending
proceedings will have on the Company's cost structure.
Local Service. The Company is involved in state regulatory proceedings in
various states to secure approval to resell local service, which would enable
the Company to provide combined local and long-distance services to existing
and prospective customers. The Company has received approval to resell local
service in 21 states (Alabama, California, Colorado, Connecticut, Florida,
Georgia, Illinois, Indiana, Iowa, Maryland, Michigan, Minnesota, Mississippi,
Nevada, New York, Pennsylvania, South Carolina, Tennessee, Texas, Washington
and Wisconsin) and the District of Columbia, and has applications for
local-service authority pending in another seven states. The Company is
currently reselling local telecommunications service in California, Illinois
and New York.
INDUSTRY STRUCTURE
The current long-distance telecommunications market is highly competitive.
Several of the Company's competitors are substantially larger and have
substantially greater financial, technical and marketing resources. As the
Company grows, it expects to face increased competition, particularly from
AT&T, MCI and Sprint. The Company also competes with other interexchange
carriers and resellers in various types of long-distance services.
3
<PAGE> 4
Excerpt from 1996 Annual Report to Shareowners
The Company's growth is based on a marketing strategy that focuses on
differentiating LCI through "Simple, Fair and Inexpensive" domestic and
international telecommunications service offerings in all market segments. This
strategic direction is supported by geographic expansion of sales presence and
Network operating facilities, as well as expansion in sales channels, targeted
service offerings to each market segment and selective acquisitions.
The principal competitive factors affecting the implementation of the Company's
strategy are the industry environment as described above, pricing, efficient
low-cost operations, customer service and diversity of services and features.
The Company's pricing approach is to offer a simple, flat-rate pricing
structure with rates generally below those of AT&T, MCI and Sprint. This
pricing strategy is supported by a continuous focus on lowering the unit cost
of the Company's cost of service, which enables the Company to competitively
price its services. Recently, certain long-distance carriers have introduced
flat-rate pricing programs whose impact on the Company has not yet been
determined. The Company's ability to compete effectively will depend on
maintaining high-quality, market-driven services at prices generally equal to
or below those charged by its major competitors.
As a result of the passage of the Act and the effect of other regulatory
matters discussed above, the structure of the industry is expected to change by
facilitating the provision of local service by carriers other than LECs, while
permitting RBOCs to provide interLATA long-distance service within their
service territories. Consequently, the Company expects competition within the
industry to increase in both the long-distance and local markets.
REVIEW OF OPERATIONS
The Company's revenues primarily consist of switched and private-line revenues.
The Company's switched revenues are a function of switched MOUs and rate
structure (rates charged per MOU), which in turn are based upon the Company's
customer and service mix. Private-line revenues are a function of fixed rates
that do not vary with usage. The Company's cost of services consists primarily
of expenses incurred for origination, termination and transmission of calls
through LECs and over the Company's Network, and the cost of transmission
through other long-distance carriers. The Company's results of operations
include the acquisition of Pennsylvania Alternative Communications, Inc. (PACE)
from June 1, 1996, and the acquisitions of Teledial America, Inc. (Teledial
America) and ATS Network Communications, Inc. (ATS) from January 1, 1996. For
the comparative periods presented, the Company's results of operations include
the acquisition of Corporate Telemanagement Group, Inc. (CTG) from September 1,
1995.
REVENUES
Total revenues increased 64% to $1.1 billion in 1996, from $672.9 million in
1995. Total revenues in 1995 increased 45% from $464.0 million in 1994.
Revenues for all periods presented are reduced by estimated allowances for
credits and uncollectible accounts (sales allowance).
Revenues from business customers increased approximately 45% during 1996 as
compared to approximately 30% during both 1995 and 1994. Business revenues
continue to represent more than half of the Company's total revenues.
Residential/small business revenues increased in excess of 100% for all years
presented. The residential/small business segment represented more than 30% of
total revenues for 1996, as compared to approximately 20% for 1995 and 10% for
1994. Growth in international service revenues across all revenue service lines
continued in excess of 100% for all years presented.
During the last half of 1996, several of the Company's competitors announced
new flat-rate pricing plans or promotions for the residential market. LCI
continues to believe that its Simple, Fair and Inexpensive marketing and
service pricing approach is very competitive in retaining existing customers,
as well as in obtaining new customers. As LCI's residential/small business base
grows, however, the year-over-year growth rates are expected to decline from
current reported growth rates.
The Company experienced a 1% increase year-over-year in revenue per MOU for
both 1996 and 1995. Revenue per MOU is affected by several factors.
Residential/small business and international revenues have a higher rate
structure per MOU, and the Company's growth in these segments has favorably
impacted revenue per MOU.
4
<PAGE> 5
Excerpt from 1996 Annual Report to Shareowners
Factors placing downward pressure on revenue per MOU include competitive market
conditions, a higher sales allowance for uncollectibles on the growing base of
residential/small business revenues and a change in the mix of business volumes
from switched services to dedicated access services. The Company's growth in
various segments has changed its revenue mix and consequently impacts revenue
per MOU. Changes in revenue per MOU are not necessarily indicative of the
performance that can be expected in the Company's gross margin, both in total
and as a percentage of revenue. The Company is committed to growing in all
market segments, which have different rate structures and generate a variety of
gross margins, but have similar operating margins.
The Company experienced an increase in its sales allowance in 1996 as a result
of the growth in revenue and a shift in the customer mix toward the
residential/small business service segment which, historically, has a higher
uncollectible rate than the business revenue segment. This increase in sales
allowance was also due to growth in specific geographic markets where the
Company experienced a higher level of sales allowance than the Company's
historical levels.
The Company uses a variety of channels to market its services. In addition to
its internal sales force, the Company uses a combination of advertising,
telemarketing and third-party sales agents. With respect to third-party sales
agents, compensation for sales is paid to agents in the form of an ongoing
commission based upon collected revenue attributable to customers identified by
the agents. Service responsibilities, including billing and customer service
functions for such customers, are performed by the Company. American
Communications Network, Inc. (ACN), a nationwide network of third-party sales
agents, continued to be the most successful of the Company's sales agents and
accounted for a significant portion of the Company's residential/small business
sales growth. In June 1996, the Company extended its contract with ACN through
April 2011. In consideration for the contract extension, as well as exclusivity
and non-compete provisions, the Company committed to make two payments on
designated dates which will be amortized over the life of the contract. A
portion of these payments is contingent on future performance by ACN. The
agreement also contains a provision whereby ACN will receive a payment if there
is a change in the control of the Company. In consideration for this change in
control payment, the Company will receive a 31% reduction in the ongoing
commission rates paid to ACN. The change in control payment is calculated based
on a multiple of three times the average monthly collected revenue generated by
customers identified by ACN. Average monthly collected revenue is calculated
over a 24-month performance period subsequent to the change in control. The
amount of this payment is therefore dependent upon ACN's level of performance
during this period.
GROSS MARGIN
The Company's gross margin increased 67% to $460.7 million in 1996 from $276.7
million in 1995. Gross margin in 1995 increased 46% from $189.7 million in
1994. The following table provides information regarding gross margin:
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,103.0 $ 672.9 $ 464.0
Cost of Services 642.3 396.2 274.3
------------------------------------------------------------------------
Gross Margin $ 460.7 $ 276.7 $ 189.7
------------------------------------------------------------------------
Gross Margin % 41.8% 41.1% 40.9%
-------------------------------------------------------------------------
</TABLE>
During 1996, 1995 and 1994, the gross margin as a percentage of revenue
increased to 41.8%, 41.1% and 40.9%, respectively. The increase in gross margin
as a percentage of revenue resulted from the net impact of several items. The
Company experienced the positive impact of growth in residential/small business
and international traffic, which provide higher gross margins. The improvements
in Network efficiencies and lower access costs due to LEC rate reductions
provided cost savings that also favorably impacted gross margin. The Network
efficiencies resulted from integration of traffic from acquired companies onto
the Network and improved application of Network optimization techniques. The
favorable impacts on gross margin were partially offset by competitive
pressures for lower pricing across all service lines and in some international
markets. The net impact
5
<PAGE> 6
Excerpt from 1996 Annual Report to Shareowners
of all of these factors resulted in an overall improvement in the gross margin
as a percentage of revenue.
The Company continues to evaluate strategies to reduce its cost of services.
These strategies include using its embedded fiber-optic capacity, expanding its
owned fiber-optic capacity and gaining access to fiber- optic and broadband
capacity through contract negotiations or other arrangements with carriers. In
addition, the Company continues to identify variable-cost network traffic that
can be cost-effectively routed onto the Company's fixed-cost Network. Through
these strategies, LCI plans to improve the reliability and efficiency of the
Network and to continue to pursue opportunities to reduce its cost of services
per MOU.
OPERATING EXPENSES AND OPERATING INCOME
The following table provides information regarding operating expenses and
operating income:
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross Margin $ 460.7 $ 276.7 $ 189.7
Selling, General and Administrative Expenses 253.7 150.1 102.7
- ----------------------------------------------------------------------------------------------------
Earnings Before Interest, Income Taxes,
Depreciation and Amortization (EBITDA) 207.0 126.6 87.0
Depreciation and Amortization 63.5 44.0 36.1
- ----------------------------------------------------------------------------------------------------
Operating Income $ 143.5 $ 82.6 $ 50.9
- ----------------------------------------------------------------------------------------------------
As a Percent of Revenue:
Gross Margin 41.8 % 41.1 % 40.9 %
Selling, General and Administrative Expenses 23.0 % 22.3 % 22.1 %
- ----------------------------------------------------------------------------------------------------
EBITDA 18.8 % 18.8 % 18.8 %
Depreciation and Amortization 5.8 % 6.5 % 7.8 %
Operating Income 13.0 % 12.3 % 11.0 %
- ----------------------------------------------------------------------------------------------------
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 69% to $253.7 million in 1996 and increased
46% to $150.1 million in 1995 from $102.7 million in 1994. As a percentage of
revenues, selling, general and administrative expenses were 23.0%, 22.3% and
22.1% for 1996, 1995 and 1994, respectively. The Company's selling, general and
administrative expenses are impacted primarily by three expenses: payroll,
commissions and billing services. Payroll expenses increased $37.5 million,
$17.4 million and $13.5 million year-over-year for 1996, 1995 and 1994,
respectively, due to an increase in the number of employees that resulted from
the Company's acquisitions and expansion of the sales and customer support
infrastructure. This growth in the payroll expense year-over-year was less than
the corresponding growth in revenues for the same periods.
The growth in residential/small business revenue to more than 30% of the
Company's customer base in 1996 was responsible for a significant portion of
the growth in selling, general and administrative expenses during the past
three years. Although the residential/ small business service line resulted in
increased costs, it also provided a higher gross margin, allowing the Company
to manage EBITDA to a consistent percentage of revenue.
The increase in selling, general and administrative expenses reflects, in part,
the $35.3 million, $15.7 million and $5.5 million increase in commission
expenses for the years ended December 31, 1996, 1995 and 1994, respectively,
over the comparable prior periods. The growth in residential/small business
revenue sold by third-party sales agents with an ongoing commission was the
primary cause of the increase in commission expense. The costs incurred for
commissions primarily replace other variable marketing and selling expenses for
this revenue segment. Billing services expenses increased $14.6 million, $6.5
million and $2.7 million year-over-year for 1996, 1995 and 1994, respectively,
primarily for residential/small business billing service expenses, which are
performed by LECs. LEC billing costs declined year-over-year on a per-bill
basis, but the increase in
6
<PAGE> 7
Excerpt from 1996 Annual Report to Shareowners
residential/small business customers and the related revenue caused an overall
increase in this expense year-over-year. Both commission and billing services
expenses grew at a faster rate than total revenues due to the shift in customer
mix toward residential/small business services.
The Company anticipates an incremental increase in selling, general and
administrative expenses with the continued expansion of its geographic sales
presence and its entrance into the local-services market. The Company also
expects continued increases in selling, general and administrative expenses as
a result of the growth in the residential/small business segment, which incurs
higher proportional costs but also provides a higher gross margin than other
segments.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
for 1996, 1995 and 1994 increased 44%, 22% and 10% year-over-year,
respectively, due to the Company's increased capital expenditures to support
its growth in revenues and volumes, as well as additional amortization expense
from acquisitions. The growth in revenue has exceeded the growth in
depreciation and amortization expense, which has caused depreciation and
amortization expense as a percentage of revenues to decrease to 6% in 1996,
from 7% in 1995 and 8% in 1994. The Company's revenue growth out-paced the
growth in the cost of additional Network and other capital assets, due to LCI's
ability to take advantage of improved technology with higher capacity at lower
costs.
OPERATING INCOME. Operating income increased 74% to $143.5 million in 1996 and
62% to $82.6 million in 1995 from $50.9 million in 1994. As a percentage of
revenues, operating income increased to 13%, 12% and 11% for the years ended
December 31, 1996, 1995 and 1994, respectively, reflecting the management of
the unit cost of services and selling, general and administrative expenses
during a period of significant growth in revenues and MOUs.
OTHER (INCOME)EXPENSE, NET
Other income, net of other expenses, was $.3 million in 1996 compared to $.9
million in 1995. Other income, net for the year ended December 31, 1996,
includes a gain on the sale of a wholly owned CTG subsidiary which provided
service to non-strategic geographic locations. In 1995, other income included a
gain related to the resolution of the STN Incorporated (STN) investment. In
1994, other expense, net, was $59.8 million, primarily a result of the
nonrecurring charge of $62.5 million relating to the loss of the STN
investments and accrued loss contingencies related to STN obligations.
INTEREST EXPENSE, NET
Interest expense, net of capitalized interest, increased to $28.8 million in
1996 from $16.3 million in 1995 and $8.8 million in 1994. Increased interest
expense in 1996 was primarily the result of higher levels of outstanding debt
and capital leases throughout 1996 as compared to 1995. The Company's
acquisitions of Teledial America, ATS and PACE increased outstanding debt by
$120 million in 1996. The proceeds from the sale of accounts receivable through
the Accounts Receivable Securitization Program (Securitization Program), in the
third and fourth quarters of 1996, were used to decrease the outstanding debt
to $235.8 million at December 31, 1996. The Company's acquisitions and capital
expenditures during 1995 increased outstanding debt and capital leases to
$274.7 million at December 31, 1995, from $144.8 million at December 31, 1994.
The effective weighted average interest rate on all indebtedness outstanding
was 8.24% in 1996, as compared to 8.20% in 1995 and 7.35% in 1994. The Company
expects lower interest rates due to the reduction of the outstanding balances
under the Revolving Credit Facility (Credit Facility) for a full year in 1997.
INCOME TAXES
Income tax expense was $40.2 million and $16.4 million in 1996 and 1995,
respectively, and a benefit of $24.5 million in 1994. Increased income tax
expense resulted from an increase in the effective tax rate to 35% in 1996 from
24% in 1995 and the increase in income before income taxes for the year ended
December 31, 1996 as
7
<PAGE> 8
Excerpt from 1996 Annual Report to Shareowners
compared to the same period in 1995. The effective income tax rate was lower
than the statutory rate in 1996 and 1995 and was a benefit in 1994, primarily
due to the Company's expected utilization of available net operating losses
(NOLs). Previously generated NOLs for financial reporting purposes have been
fully realized as of December 31, 1996. (See Note 10 to the Consolidated
Financial Statements.)
PREFERRED DIVIDENDS
Preferred dividends were $2.8 million, $5.7 million and $5.8 million for 1996,
1995 and 1994, respectively, as a result of the dividend requirements on the
Company's previously outstanding 5% Cumulative Convertible Exchangeable
Preferred Stock (Preferred Stock). During 1996, nearly all of the 4.6 million
shares of Preferred Stock outstanding at December 31, 1995 were converted into
shares of the Company's Common Stock, par value $.01 per share (Common Stock).
On September 3, 1996, the remaining shares of Preferred Stock were redeemed by
the Company. The conversion of Preferred Stock will result in an annual savings
of $5.8 million, based upon the original 4.6 million shares issued in August
1993.
NET INCOME AND EARNINGS PER COMMON SHARE
Net income increased to $74.8 million for 1996, $50.8 million for 1995 and $6.8
million for 1994. Income on common stock was $72.0 million, $45.1 million and
$1.0 million for 1996, 1995 and 1994, respectively.
For the years ended December 31, 1996 and 1995, the earnings per common share
were calculated as net income before preferred dividends divided by the
weighted average number of common shares. For the year ended December 31, 1994,
the earnings per common share were calculated as the income on common stock
divided by the weighted average number of common shares. For the years ended
December 31, 1996 and 1995, the weighted average number of common shares
included the assumed conversion of any Preferred Stock then outstanding during
any point in the period, into 12.1 million shares of Common Stock. For the
years ended December 31, 1994, the assumed conversion of the Preferred Stock
into Common Stock was excluded from the weighted average number of common
shares as such stock was anti-dilutive. For all years presented, Common Stock
equivalents were reflected in the weighted average number of common shares
using the treasury stock method. (See Note 2 to the Consolidated Financial
Statements.)
LIQUIDITY AND CAPITAL RESOURCES
LCI International, Inc. is a holding company and conducts its operations
through its direct and indirect wholly owned subsidiaries. LCI SPC I, Inc.
(SPC) is a wholly owned subsidiary of LCI and facilitates the Securitization
Program. Except in certain limited circumstances, SPC is subject to certain
contractual prohibitions concerning the payment of dividends and the making of
loans and advances to LCI. There are, however, no restrictions on the movement
of cash within the remainder of the consolidated group, and the Company's
discussion of its liquidity is based on the consolidated group. The Company
measures its liquidity based on cash flow as reported in its consolidated
statements of cash flow; however, the Company does use other operational
measures, as outlined below, to manage its operations.
CASH FLOWS -- OPERATING ACTIVITIES
The Company provided $303.7 million of cash from operations, which includes the
proceeds of $112.0 million from the Securitization Program for the year ended
December 31, 1996. Cash provided from operations, excluding the proceeds from
the Securitization Program, was $188.1 million, compared to $53.9 million and
$38.1 million for 1995 and 1994, respectively. The increase in 1996, as well as
in 1995 and 1994, is due to the significant growth in revenues and net income
for the periods, as well as improved management of working capital and stronger
cash collections during 1996 when compared to 1995 and 1994.
8
<PAGE> 9
Excerpt from 1996 Annual Report to Shareowners
CASH FLOWS -- INVESTING ACTIVITIES
The Company has supported its growth strategy with both capital additions and
acquisitions. In 1996, the Company spent $144.3 million in capital expenditures
to acquire additional switching, transmission and distribution capacity, as
well as to develop information systems support. Capital expenditures increased
$47.0 million in 1996 when compared to 1995, and increased $31.3 million in
1995 when compared to 1994. The Company's acquisitions of Teledial America, ATS
and PACE, as well as other intangible assets, resulted in the use of $124.6
million in cash for the year ended December 31, 1996. In 1995, the Company
spent $66.4 million to acquire CTG and $97.3 million for capital additions. In
1994, the Company spent $7.9 million for acquisitions and $66.0 million for
capital expenditures. The remaining investing activities in 1995 and 1994
reflect the payment for the investment in STN.
CASH FLOWS -- FINANCING ACTIVITIES
In 1996, financing activities used a net $34.8 million. During 1996, the
Company experienced net borrowing of $70.7 million under its debt agreements,
to fund its acquisitions and capital expenditures as discussed in investing
activities, above. The net borrowings were offset by the $112.0 million in
proceeds provided by the sale of accounts receivable pursuant to the
Securitization Program, which were used to pay down outstanding balances under
the Credit Facility. In 1995 and 1994, financing activities provided a net
$121.8 million and $67.3 million, respectively, primarily from borrowings under
the Credit Facility.
CAPITAL RESOURCES
In February 1996, the Company obtained a $700 million Credit Facility with a
syndicate of banks, which allows the Company to borrow funds on a daily basis.
As a result, the Company uses its available cash to reduce the balance of its
Credit Facility and maintains no cash on hand. Under the Credit Facility, the
Company had $215.0 million and $260.7 million outstanding and $10.0 million and
$10.4 million reserved for letters of credit issued for various business
matters, as of December 31, 1996 and 1995, respectively. As of December 31,
1996 and 1995, respectively, the Company had $475.0 million and $178.9 million
available under the Credit Facility.
The amount that can be borrowed under the Credit Facility is subject to
reduction based on the outstanding balance beginning June 30, 1998 until
maturity on March 31, 2001. The interest rate on the debt outstanding is
variable based on several indices. (See Note 5 to the Consolidated Financial
Statements.) The weighted average interest rates on the debt outstanding under
the Credit Facility were 6.09% and 6.88% on December 31, 1996 and 1995,
respectively. The Credit Facility contains certain balance sheet, operating
cash flow, capital expenditure and negative covenant requirements. As of
December 31, 1996, the Company was in compliance with all covenants.
In September 1996, the Company entered into two separate discretionary line of
credit agreements (Lines of Credit) with commercial banks for a total of $50
million. The Lines of Credit provide flexible short-term borrowing facilities
at competitive rates. As of December 31, 1996, $8.0 million was outstanding on
the Lines of Credit.
In August 1996, the Company entered into the Securitization Program to sell a
percentage ownership interest in a defined pool of the Company's trade accounts
receivable. The Company can sell an undivided interest in a designated pool of
accounts receivable on an ongoing basis to maintain the participation interest
up to the limit of $150 million. As of December 31, 1996, the pool of trade
accounts receivable that was available for sale totaled approximately $120
million, and the amount of receivables sold totaled $112.0 million.
Although the Company believes it has sufficient operating cash flows and
available borrowing capacity to fund its current operations and anticipated
capital requirements, the Company continues to evaluate other sources of
financing. The Company has filed a shelf registration statement with the
Securities and Exchange Commission, which would allow the issuance of $300
million of debt and/or equity securities. The Company has not yet determined
when or if any new capital financing will be completed.
9
<PAGE> 10
Excerpt from 1996 Annual Report to Shareowners
CAPITAL REQUIREMENTS
During 1997, the Company expects that its non-binding commitment for capital
expenditures (excluding acquisitions) will increase from the 1996 levels and
are dependent on the Company's geographic and revenue growth. These capital
requirements are primarily for switching and transmission facilities,
technology platforms and information systems applications. In addition to its
ongoing capital requirements, the Company entered into an agreement, in
February 1997, to extend its Network. This commitment will extend the Company's
fiber-optic network by over 3,100 route miles, and is expected to require
capital expenditures of approximately $120 million, including equipment.
The Company has relied upon strategic acquisitions as one means of expanding
its network, sales and service presence, and revenues across the country. The
Company evaluates each potential acquisition to determine its strategic fit
within the Company's growth, operating margin and income objectives. The
Company expects to continue to actively explore potential acquisitions and may
enter into discussions from time to time with potential acquisition candidates,
but there can be no assurance that the Company will be able to enter into or
complete acquisition agreements on acceptable terms.
In May 1996, the Company entered into two separate agreements with a
third-party sales agent and an affiliated party to this agent. In consideration
for the contract extensions, as well as exclusivity and non-compete provisions
in the agreements, the Company has made and will make payments on various
designated dates over several years in accordance with the two agreements.
Certain of these payments are contingent upon achievement of defined
performance measures. The Company believes that these payments, if required,
can be funded by operations or borrowing capacity under the Credit Facility.
During 1996, the Company executed lease agreements for a new corporate
headquarters and an additional facility for its operating subsidiaries. The
agreement for the new corporate headquarters building is a three-year operating
lease with a maximum residual guarantee payment at the end of the lease term.
The agreement for the facility for the operating subsidiaries is a capital
lease. Occupancy for the subsidiaries' facility will begin in mid-1997 and
extend for a 15-year term. (See Note 6 to the Consolidated Financial
Statements.)
COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain interexchange carriers, LECs and
third-party vendors to lease facilities for originating, terminating and
transporting services. These agreements require the Company to maintain minimum
monthly and/or annual billings based on usage. The Company has met and expects
to continue to meet such minimum usage requirements. The third-party carriers
include WorldCom Network Services, Inc. d/b/a WilTel, Sprint and MCI. In
addition, the Company uses services provided by each RBOC, GTE and other smaller
LECs. The Company currently has one significant contract with a third-party
carrier. Subject to the ability of that carrier to meet the Company's
operational requirements, the Company is obligated to use this carrier for a
significant percentage of services that the Company provides through its leased
facilities. The amounts payable under that contract, however, represent less
than 10% of the Company's revenue on an annual basis. (See Note 7 to the
Consolidated Financial Statements.) The Company has engineered its Network to
minimize the impact on its customers of a service failure by any third-party
carrier and has established contingency plans to reroute traffic as quickly as
possible if a service failure by a third-party carrier should occur. Although
most service failures that the Company has experienced have been corrected in a
relatively short time period, a catastrophic service failure could interrupt the
provision of service by both the Company and its competitors for a lengthy time
period. The restoration period for a catastrophic service failure cannot be
reasonably determined; however, neither the Company nor the industry has
experienced a catastrophic service failure in its history.
The Company has been named as a defendant in various litigation matters.
Management intends to vigorously defend these outstanding claims. The Company
believes that it has adequate accrued loss contingencies and that current
pending or threatened litigation matters will not have a material adverse
impact on the Company's results of operations or financial condition. (See Note
7 to the Consolidated Financial Statements.)
10
<PAGE> 11
Excerpt from 1996 Annual Report to Shareowners
FEDERAL INCOME TAXES
The Company generated significant NOLs in prior years that are available to
reduce current cash requirements for income taxes. See Note 10 of the
Consolidated Financial Statements for a discussion of the availability and
utilization of the NOLs.
IMPACT OF INFLATION AND SEASONALITY
The Company does not believe that the relatively moderate levels of inflation
that have been experienced in the United States in recent years have had a
significant effect on its revenues or earnings.
The Company's long-distance revenue is subject to seasonal variations based on
each segment. Use of long-distance services by commercial customers is
typically lower on weekends throughout the year and in the fourth quarter, due
to holidays. As residential revenues increase as a proportion of the Company's
total revenues, the seasonal impact due to changes in commercial calling
patterns will be reduced.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 -- SAFE HARBOR CAUTIONARY
STATEMENT
This report contains forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995 (the Reform Act). These forward-looking
statements express the beliefs and expectations of management regarding LCI's
future results and performance and include, without limitation, the following:
statements concerning the Company's future outlook; the Company's plans to enter
the local-service market; the effect of FCC and judicial rulings pertaining to
the Telecommunications Act of 1996, local-service competition and RBOC entry
into the long-distance market; the impact of marketplace competition on pricing
strategies and rates; expected revenue growth; the cost reduction strategies and
opportunities to expand the Network which may allow for increased gross margin;
the expected future interest rates and interest savings from the Securitization
Program; funding of capital expenditures and operations; the Company's beliefs
regarding a catastrophic service failure; and other similar expressions
concerning matters that are not historical facts.
Such statements are based on current expectations and involve a number of known
and unknown risks and uncertainties that could cause the actual results,
performance and/or achievements of the Company to differ materially from any
future results, performance or achievements, expressed or implied by the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements and any such statement is qualified by
reference to the following cautionary statements. In connection with the safe
harbor provisions of the Reform Act, the Company's management is hereby
identifying important factors that could cause actual results to differ
materially from management's expectations including, without limitation, the
following: increased levels of competition in the telecommunications industry,
including RBOC entry into the interLATA long-distance industry and the impact on
pricing; the ability of LCI's direct sales force and alternative channels of
distribution to obtain new sales; the adoption and application of rules and
regulations implementing the Act; the availability of leased capacity to support
the Company's geographic expansion; the ability to negotiate appropriate
local-service agreements with LECs; and other risks described from time to time
in the Company's periodic filings with the Securities and Exchange Commission.
The Company is not required to publicly release any changes to these
forward-looking statements for events occurring after the date hereof or to
reflect other unanticipated events.
OTHER MATTERS
ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
A new accounting pronouncement on accounting for transfers and servicing of
financial assets was issued in 1996 and is effective for fiscal years beginning
after December 15, 1996. As explained in Note 2 to the Consolidated Financial
Statements, the Company does not expect any significant impact from the
adoption of this pronouncement.
11
<PAGE> 12
Excerpt from 1996 Annual Report to Shareowners
REPORT OF MANAGEMENT
The management of LCI International, Inc. is responsible for the preparation of
all information, including the financial statements and related notes, included
in this Annual Report. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances, and include amounts based on the best judgment of management.
Financial information included elsewhere in this Annual Report is consistent
with these financial statements.
In recognition of its responsibility for the integrity and objectivity of data
in the financial statements, management maintains a system of internal
accounting controls. This system has been established to ensure, within
reasonable limits, that assets are safeguarded, that transactions are properly
recorded and executed in accordance with management's authorization and that
accounting records provide a solid foundation from which to prepare the
financial statements. The system is supported by an internal auditing function
which assesses the effectiveness of internal controls and reports its findings
to management throughout the year. It is recognized that no system of internal
controls can detect and prevent all errors and irregularities. Management
believes that the established system provides an acceptable balance between
benefits to be gained and their related costs.
The Company's independent public accountants are engaged to express an opinion
on the year-end financial statements. As part of their audit of the Company's
1996 financial statements, they considered the Company's system of internal
controls to the extent they deemed necessary to determine the nature, timing
and extent of their audit tests.
The Audit Committee of the Board of Directors meets regularly with the
independent public accountants and management to review the work performed and
to ensure that each is properly discharging its responsibilities. The
independent public accountants have full and free access to the Audit
Committee, without the presence of management, to discuss the results of their
audits, internal accounting controls and financial reporting.
Joseph A. Lawrence Jeffrey H. VonDeylen
Senior Vice President - Corporate Controller
Finance and Development
and Chief Financial Officer
12
<PAGE> 13
Excerpt from 1996 Annual Report to Shareowners
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF LCI INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of LCI
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareowners equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Companys 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 financial statements referred to above present fairly, in
all material respects, the financial position of LCI International, Inc. and
subsidiaries, as of December 31, 1996 and 1995, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
February 6, 1997
13
<PAGE> 14
Excerpt from 1996 Annual Report to Shareowners
LCI International, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions Except for Earnings per Common Share)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 1,103.0 $ 672.9 $ 464.0
Cost of Services 642.3 396.2 274.3
- -----------------------------------------------------------------------------------------------------
GROSS MARGIN 460.7 276.7 189.7
Selling, General and Administrative Expenses 253.7 150.1 102.7
Depreciation and Amortization 63.5 44.0 36.1
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME 143.5 82.6 50.9
Other (Income) Expense, Net (.3) (.9) 59.8
Interest Expense, Net 28.8 16.3 8.8
- -----------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 115.0 67.2 (17.7)
Income Tax Expense (Benefit) 40.2 16.4 (24.5)
- -----------------------------------------------------------------------------------------------------
NET INCOME 74.8 50.8 6.8
Preferred Dividends 2.8 5.7 5.8
- -----------------------------------------------------------------------------------------------------
INCOME ON COMMON STOCK $ 72.0 $ 45.1 $ 1.0
- -----------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
PRIMARY $ 0.86 $ 0.63 $ 0.02
- -----------------------------------------------------------------------------------------------------
FULLY DILUTED $ 0.86 $ 0.62 $ 0.02
- -----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Primary 87.3 81.0 65.5
Fully Diluted 87.3 82.1 66.7
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
Excerpt from 1996 Annual Report to Shareowners
LCI International, Inc.
CONSOLIDATED BALANCE SHEETS
(In Millions)
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Trade Accounts Receivable, Less Allowance for Doubtful Accounts
of $23.4 and $9.8 for 1996 and 1995, Respectively $ 85.2 $ 161.6
Current Deferred Tax Assets, Net 48.9 23.1
Prepaids and Other 16.4 19.6
- ----------------------------------------------------------------------------------------------------------------
Total Current Assets 150.5 204.3
- ----------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Fiber-Optic Network 392.5 357.3
Technology Platforms, Equipment and Building Lease 123.2 90.8
Less - Accumulated Depreciation and Amortization (171.8) (181.4)
- ----------------------------------------------------------------------------------------------------------------
343.9 266.7
Plant Under Construction 58.9 35.3
- ----------------------------------------------------------------------------------------------------------------
Total Property, Plant and Equipment, Net 402.8 302.0
- ----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Excess of Cost over Net Assets Acquired, Net of
Accumulated Amortization of $25.8 and $16.8
for 1996 and 1995, Respectively 350.5 245.6
Other, Net 46.2 21.5
- ----------------------------------------------------------------------------------------------------------------
Total Other Assets 396.7 267.1
- ----------------------------------------------------------------------------------------------------------------
Total Assets $ 950.0 $ 773.4
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
Excerpt from 1996 Annual Report to Shareowners
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 37.1 $ 39.2
Facility Costs Accrued and Payable 123.0 66.7
Accrued Expenses and Other 53.3 22.0
- -----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 213.4 127.9
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 235.8 274.7
- -----------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS 70.0 26.0
- -----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY
Preferred Stock - Authorized 15 Shares, Issued and
Outstanding 4.6 Shares in 1995 -- 114.5
Common Stock - Authorized 300 Shares, Issued and
Outstanding 77.5 Shares in 1996 and Authorized 100 Shares,
Issued and Outstanding 64.4 Shares in 1995 .8 .6
Paid-in Capital 427.2 298.9
Retained Earnings (Deficit) 2.8 (69.2)
- -----------------------------------------------------------------------------------------------------------------
Total Shareowners' Equity 430.8 344.8
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $ 950.0 $ 773.4
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
Excerpt from 1996 Annual Report to Shareowners
LCI International, Inc.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(In Millions)
<TABLE>
<CAPTION>
Preferred Common
Stock Stock
--------- ----------------------- Retained Total
$.01 Par Issued and $.01 Par Paid-in Earnings Shareowners'
Value Outstanding Value Capital (Deficit) Equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 115.0 58.5 $ .6 $195.0 $(115.3) $195.3
- -------------------------------------------------------------------------------------------------------------------------
Employee Stock Purchases and
Exercise of Options/Warrants,
Including Related Tax Benefit -- .5 -- 2.1 -- 2.1
STN Incorporated Stock Exchange -- .3 -- 3.0 -- 3.0
Other -- -- -- .4 -- .4
Net Income -- -- -- -- 6.8 6.8
Preferred Dividends -- -- -- -- (5.8) (5.8)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $ 115.0 59.3 $ .6 $200.5 $(114.3) $201.8
- -------------------------------------------------------------------------------------------------------------------------
Acquisition of CTG, Inc. -- 4.6 -- 93.1 -- 93.1
Employee Stock Purchases and
Exercise of Options/Warrants,
Including Related Tax Benefit -- .4 -- 4.8 -- 4.8
Conversion/Redemption of
Preferred Stock (.5) .1 -- .5 -- --
Net Income -- -- -- -- 50.8 50.8
Preferred Dividends -- -- -- -- (5.7) (5.7)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 114.5 64.4 $ .6 $298.9 $ (69.2) $344.8
- -------------------------------------------------------------------------------------------------------------------------
Employee Stock Purchases and
Exercise of Options/Warrants,
Including Related Tax Benefit -- 1.0 -- 14.0 -- 14.0
Conversion/Redemption of
Preferred Stock (114.5) 12.1 .2 114.3 -- --
Net Income -- -- -- -- 74.8 74.8
Preferred Dividends -- -- -- -- (2.8) (2.8)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ -- 77.5 $ .8 $427.2 $ 2.8 $430.8
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 18
Excerpt from 1996 Annual Report to Shareowners
LCI International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
<TABLE>
<CAPTION>
For the Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 74.8 $ 50.8 $ 6.8
Adjustments to Net Income:
Depreciation and Amortization 63.5 44.0 36.1
Provision for Bad Debt 15.8 8.2 5.8
Change in Deferred Taxes 36.4 (1.2) (30.7)
Loss Contingencies and Other Charges -- -- 62.5
Change in Assets/Liabilities:
Trade Accounts Receivable (59.0) (71.3) (35.6)
Net Securitization Activity 112.0 -- --
Accounts Payable and Facility Costs Accrued and Payable 49.0 20.9 1.4
Other Assets/Liabilities 7.6 2.5 (8.2)
- --------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 300.1 53.9 38.1
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures - Property, Plant and Equipment (144.3) (97.3) (66.0)
Payment for Acquisitions and Other (121.0) (66.4) (7.9)
Payments for STN Incorporated -- (12.0) (31.5)
- --------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (265.3) (175.7) (105.4)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net Debt (Payments) Borrowings (41.3) 122.8 70.9
Preferred Dividend Payments (2.8) (5.8) (5.7)
Proceeds from Employee Stock Plans and Warrants 9.3 4.8 2.1
- --------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (34.8) 121.8 67.3
- --------------------------------------------------------------------------------------------------------------
Change in Cash and Cash Equivalents -- -- --
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at the Beginning of the Year -- -- --
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at the End of the Year $ -- $ -- $ --
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 26.1 $ 15.1 $ 8.8
- --------------------------------------------------------------------------------------------------------------
Cash Paid for Income Taxes $ 1.3 $ 2.9 $ 1.1
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NON-CASH ACTIVITY:
During 1996, shareowners converted 4.6 million shares of Preferred Stock into
12.1 million shares of Common Stock. In September 1995, the Company issued 4.6
million shares of its Common Stock as partial consideration to purchase CTG,
with a market value of approximately $93.2 million. The reconciliation of net
income to net cash provided by operating activities is net of assets purchased
and liabilities assumed through the acquisition.
The accompanying notes are an integral part of these statements.
18
<PAGE> 19
Excerpt from 1996 Annual Report to Shareowners
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION AND PURPOSE
The financial statements presented herein include the consolidated balance
sheets of LCI International, Inc., a Delaware corporation, and its wholly owned
subsidiaries (LCI or the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareowners' equity and cash
flows for the three years ended December 31, 1996.
LCI is a facilities-based telecommunications carrier that provides a broad
range of domestic and international voice and data services offerings to the
commercial, wholesale and residential/small business market segments. The
Company serves its customers primarily through leased and owned digital
fiber-optic facilities.
2. ACCOUNTING POLICIES
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company uses its
available cash to reduce the balance of its Revolving Credit Facility (Credit
Facility) and generally maintains no cash on hand.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable represent amounts due from customers for
telecommunications services. Switched revenues include amounts recognized for
services provided, but not yet billed. A portion of the residential accounts
receivable balance is billed through local exchange carriers (LECs) who are
responsible for the collection of these accounts. The Company receives
information from the LECs about uncollectible accounts three to thirteen months
after the account is billed. The Company's reserve includes an estimate for
these future uncollectible accounts.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In accordance with Statement of Financial Accounting Standards (SFAS) No. 77,
"Reporting by Transferors for Transfers of Receivables with Recourse," the
transfers of receivable balances meet the criteria to be classified as a sale
for accounting purposes. As such, amounts sold under the Accounts Receivable
Securitization Program (Securitization Program) are not included in the
accompanying consolidated financial statements. The costs of the Securitization
Program are included in other (income) expense, net in the accompanying
consolidated statements of operations. The cash proceeds are included in
operating activities, while the use of the proceeds are included in financing
activities in the accompanying consolidated statements of cash flows.
PREPAIDS AND OTHER
Prepaids and other assets include deferred customer promotion costs that are
amortized over the life of the related contracts, and various other accounts
and notes receivable expected to be received within the next year.
19
<PAGE> 20
Excerpt from 1996 Annual Report to Shareowners
PROPERTY, PLANT AND EQUIPMENT
These assets are stated at cost or at fair market value if obtained as part of
an acquisition. Construction costs include material, labor, interest and
overhead for certain general and payroll related costs. Property, plant and
equipment as of December 31, 1996 and 1995, includes the net book value of $9.3
million and $10.2 million for a capitalized building lease for the Company's
operating subsidiaries' headquarters. Routine repairs and maintenance of
property and replacements of minor items are charged to expense as incurred.
Depreciation of buildings and equipment is provided using the composite method
over the estimated useful lives of these assets. The cost of equipment retired
in the ordinary course of business, less proceeds, is charged to accumulated
depreciation. The capitalized building lease is amortized on a straight-line
basis over the term of the lease.
The estimated depreciation and amortization periods by asset type are as
follows:
<TABLE>
<CAPTION>
Asset Category Years
- -----------------------------------------------------------
<S> <C>
Fiber Optic Network:
Outside Plant and Buildings 30
Transmission, Distribution and Switching 10
Installations 3
Technology Platforms 5
Information Systems - Hardware and Software 3 - 5
General Office Equipment 5 - 10
Capitalized Building Lease 15
</TABLE>
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired (goodwill) consists of the excess of
the cost to acquire an entity over the estimated fair market value of the net
assets acquired. Goodwill is amortized on a straight-line basis over 40 years.
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. In evaluating whether goodwill is recoverable, the Company
estimates the sum of the expected future cash flows, undiscounted and without
interest charges, derived from such goodwill over its remaining life. The
Company believes that no such impairment existed at December 31, 1996.
Amortization of goodwill was $9.2 million, $4.0 million and $2.8 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
OTHER ASSETS
Other assets consist of debt issuance costs, rights of way, customer lists,
non-compete agreements and other deferred costs. Other assets as of December
31, 1995 included a net deferred tax asset of $8.8 million. Debt issuance costs
are amortized over the life of the applicable debt agreements. Rights-of-way
costs are amortized over the life of the respective agreements. Customer lists
and non-compete agreements are amortized over the estimated life or contract
term of the customer list or non-compete agreement.
OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits primarily include long-term deferred
income taxes and other long-term liabilities. As of December 31, 1996, net
long-term deferred tax liabilities of $53.4 million were included in other
liabilities and deferred credits.
REVENUE RECOGNITION
Telecommunications revenues are recognized when services are provided and are
net of estimated credits and uncollectible amounts.
ADVERTISING COST
Costs for advertising are expensed as incurred within the fiscal year.
20
<PAGE> 21
Excerpt from 1996 Annual Report to Shareowners
INCOME TAXES
The Company follows SFAS No. 109 "Accounting for Income Taxes." (See Note 10.)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EARNINGS PER COMMON SHARE
The weighted average number of common shares used to calculate earnings per
common share included the Company's Common Stock, par value $.01 per share
(Common Stock) and Common Stock equivalents. Common Stock equivalents include
Common Stock issuable pursuant to stock options and Common Stock warrants.
During 1996, substantially all of the previously outstanding 5% Cumulative
Convertible Exchangeable Preferred Stock, par value $.01 per share (Preferred
Stock), was converted into Common Stock. For 1996 and 1995, the weighted
average number of common shares included the assumed conversion of any
Preferred Stock then outstanding during any point in the period. In 1994, the
assumed conversion of the Preferred Stock into Common Stock was excluded from
the weighted average number of common shares as such stock was anti-dilutive.
For all years presented, outstanding stock options and Common Stock warrants
were reflected in the weighted average number of common shares using the
treasury stock method. The primary weighted average number of common shares was
calculated using the average daily closing price of the Common Stock for the
period. The fully diluted weighted average number of common shares was
calculated using the higher of the end of the period closing price of the
Common Stock or the average daily closing price of the Common Stock.
For 1996 and 1995, earnings per common share are calculated as net income
before preferred dividends divided by the weighted average number of common
shares, as defined above. For 1994, earnings per common share are calculated as
the income on common stock divided by the respective weighted average number of
common shares, as defined above.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of current assets and liabilities approximate their fair
market value because of the short- term maturity of these financial
instruments. The fair market value of long-term debt is discussed further in
Note 5.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. The risk is
limited due to the number of market segments, the large number of entities
comprising the Company's customer base and the dispersion of those entities
across many different industries and geographic regions. As of December 31,
1996, the Company had no significant concentrations of credit risk.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for 1995 and 1994 to conform with the 1996 presentation.
ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS 125 is required for financial statements for fiscal years
beginning after December 15, 1996; earlier adoption is not permitted. The
Securiti-zation Program was structured to comply with the provisions of SFAS
125, which the Company will adopt in 1997, and accordingly, the Company does
not expect any significant impact to its results of operations or financial
condition from adoption of this statement.
3. ACQUISITIONS
The Company has supplemented growth from its base business with several
strategic acquisitions. Each acquisition over the last three years was
accounted for as a purchase.
In June 1996, the Company purchased the long-distance business assets of
Pennsylvania Alternative Communications, Inc. (PACE). The results of operations
for PACE were included in the Company's consolidated
21
<PAGE> 22
Excerpt from 1996 Annual Report to Shareowners
statement of operations from June 1, 1996 and the acquisition was not
considered significant for financial reporting purposes.
In January 1996, the Company purchased the long-distance business assets of
Teledial America, Inc. (Teledial America), which did business as U.S. Signal
Corporation, and an affiliated company, ATS Network Communications, Inc. (ATS).
The Company acquired both companies for approximately $99 million in cash, with
an additional maximum payment of $24 million contingent on achieving certain
revenue performance and customer retention milestones over an 18-month period
commencing at the closing date. The amount of goodwill recorded in the purchase
transactions was $98.8 million. The results of operations for Teledial America
and ATS were included in the consolidated statement of operations from January
1, 1996. The purchase of ATS was not considered significant for financial
reporting purposes.
In September 1995, the Company acquired Corporate Telemanagement Group, Inc.
(CTG), a Greenville, South Carolina-based provider of long-distance services to
commercial customers throughout the United States. Under the terms of the
agreement, the Company acquired all of the outstanding shares of CTG and shares
underlying certain outstanding warrants in exchange for $44.5 million in cash
and 4.6 million shares of the Company's Common Stock valued at $20.25 per
share, the market price on the date of the acquisition. In conjunction with the
transaction, the Company assumed approximately $24 million in debt, of which
$21.9 million was refinanced. The amount of goodwill recorded in the purchase
transaction was $156.6 million. The consolidated statements of operations
include the results of CTG from September 1, 1995.
The following unaudited pro forma summary presents the revenues, net income and
earnings per common share from the combination of the operations of the Company
and its significant acquisitions during the periods -- CTG and Teledial
America. The pro forma information is provided as if each acquisition had
occurred at the beginning of both the fiscal year of the purchase and the
immediately preceding fiscal year. Pro forma information is not provided for
1996, as both acquisitions were included in the consolidated results of
operations from January 1, 1996. The pro forma information is provided for
informational purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of the future results of operations of the combined
enterprise.
<TABLE>
<CAPTION>
(In Millions Except Earnings per Unaudited Pro Forma Information
Common Share Amounts) for the Years Ended December 31,
- -----------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
Net Revenues $ 814.7 $ 520.0
Net Income 54.0 0.5
Earnings per Common Share $ 0.63 $ 0.01
</TABLE>
During the fourth quarter of 1994, the Company recognized a loss of $62.5
million on its investment in STN Incorporated (STN). This loss, recorded in
other (income) expense, net in the accompanying consolidated statement of
operations, included $47.6 million for the full impairment of the STN
investments and $14.9 million for accrued loss contingencies related to future
STN obligations.
4. ACCOUNTS RECEIVABLE SECURITIZATION
In August 1996, the Company entered into an agreement to sell a percentage
ownership interest in a defined pool of its trade accounts receivable
(Securitization Program). LCI SPC I, Inc. (SPC), a wholly owned, bankruptcy-
remote subsidiary of the Company, was formed to execute the sale of
receivables. Under this Securitization Program, the Company can transfer an
undivided interest in a designated pool of its accounts receivable on an
ongoing basis to maintain the participation interest up to a maximum of $150
million. At December 31, 1996, the pool of trade accounts receivable that were
available for sale totaled approximately $120 million. The amount of
receivables sold, but not yet collected at December 31, 1996, totaled $112
million and the proceeds were used to reduce the outstanding balance of the
Company's long-term debt. Total proceeds from the sale of accounts receivable
during the year was $535 million. The accounts receivable balances sold are not
included in the
22
<PAGE> 23
Excerpt from 1996 Annual Report to Shareowners
accompanying consolidated balance sheet at December 31, 1996. The cost of the
Securitization Program is based on a discount rate equal to the short-term
commercial paper rate plus certain fees and expenses. The Company retains
substantially all the same risk of credit loss as if the receivables had not
been sold, and has established reserves for such estimated credit losses.
Under the Securitization Program agreement, the Company acts as agent for the
purchaser of the receivables by performing recordkeeping and collection
functions on the participation interest sold. The agreement contains certain
covenants regarding the quality of the accounts receivable portfolio, as well
as financial covenants which are substantially identical to those contained in
the Company's Credit Facility. (See Note 5.) Except in certain limited
circumstances, SPC is subject to certain contractual prohibitions concerning
the payment of dividends and the making of loans and advances to LCI.
5. DEBT
CREDIT FACILITY
The Company can borrow up to $700 million from a syndicate of banks under the
Credit Facility. The amount that can be borrowed under the Credit Facility is
subject to reduction based on the outstanding balance, beginning on June 30,
1998, until maturity on March 31, 2001. This Credit Facility bears interest at
a rate consisting of two components: The base rate component is dependent upon
a market indicator; the second component varies from 0.625% to 1.5% based on
the level of borrowings (leverage ratio). The weighted average interest rates
on the outstanding borrowings under the Credit Facility as of December 31, 1996
and 1995 were 6.09% and 6.88%, respectively. The Credit Facility contains
various financial covenants, the most restrictive being the leverage ratio
requirement. As of December 31, 1996 and 1995, the Company was in compliance
with all Credit Facility covenants and had $215.0 million and $260.7 million,
respectively, outstanding under the Credit Facility. The carrying amount of the
Credit Facility approximates its fair value as the underlying instruments are
variable rate notes that reprice frequently.
The Company has an interest rate cap agreement with a syndicate of banks that
limits the Company's base interest rate exposure to 7.5%. The agreement is for
a two-year period ending February 1998 on a $130 million notional principal
balance of the Credit Facility. In an event of non-performance by the
commercial banks, the Company would have exposure to the extent of any increase
in the base rate component above 7.5%. The Company believes the probability of
such an event is remote.
In November 1996, the Company entered into an interest rate swap agreement for
a one-year period. The agreement, with two commercial banks, is on a $100
million notional principal balance of the Credit Facility. Under the agreement,
the Company makes a fixed-rate payment to the banks at an interest rate of
5.58% in exchange for the receipt of a payment from the banks based on a
variable interest rate. As of December 31, 1996, the fair value of the
agreement was not material. In an event of non-performance by a commercial
bank, the Company would be required to make interest payments in accordance
with the Credit Facility. The Company believes that the probability of such an
event is remote.
LINES OF CREDIT
During 1996, the Company obtained two separate discretionary lines of credit
(Lines of Credit) for a total of $50 million. The Lines of Credit bear interest
at a rate dependent upon a market indicator. The interest rate as of December
31, 1996 on the $8.0 million outstanding balance under the Lines of Credit was
5.93%. The outstanding balance in the accompanying consolidated balance sheets
is reflected in long-term debt, due to the availability under the Credit
Facility.
6. LEASES
The Company's capital leases primarily include its operating subsidiaries'
headquarters building lease, which expires in 2005. The noncurrent portion of
capital lease obligations was $12.9 and $14.2 million as of December 31, 1996
and 1995, respectively. The Company has operating leases for office space and
equipment with lease terms from three to ten years with options for renewals.
The Company has entered into several rights-of-way (ROW) lease agreements that
allowed for installation of its fiber-optic network facilities. The terms of
these
23
<PAGE> 24
Excerpt from 1996 Annual Report to Shareowners
agreements range from one to 30 years, and most contain renewal options. These
agreements also provide for rental payments to be made for use of other land
and buildings occupied in connection with the ROW agreements, maintenance and
repairs.
During 1996, the Company entered into an operating lease agreement for the
rental of a new corporate headquarters being developed in suburban Virginia.
This agreement has a three-year base term with two options to renew for one
year each. The agreement includes a maximum residual guarantee which is
included in the minimum lease payments, below. The property will be owned by an
unrelated entity that will lease the facility to the Company. Financing for the
project will be provided by a syndicate of banks. Also during 1996, the Company
executed a $19 million capital lease agreement for an additional headquarters
facility for its operating subsidiaries. The lease term begins July 1997 and,
therefore, is not included in the capital lease schedule.
Total expenses for operating leases for the years ended December 31, 1996, 1995
and 1994 were $10.0 million, $6.1 million and $4.2 million, respectively. The
Company is required, at a minimum, to make the following payments on capital
and operating leases:
<TABLE>
<CAPTION>
(In Millions) Capital Operating
- ---------------------------------------------------------------------
<S> <C> <C>
1997 $ 3.3 $ 12.9
1998 3.1 13.0
1999 2.6 65.5
2000 2.9 9.3
2001 2.9 7.4
Thereafter 11.3 34.3
- ---------------------------------------------------------------------
Total Minimum Lease Payments 26.1 $142.4
Less - Amounts Representing Interest 12.0 ----------
- ----------------------------------------------------
Capital Lease Obligations 14.1
Less - Amounts Due Within One Year 1.2
- ----------------------------------------------------
Noncurrent Portion of Capital
Lease Obligations $ 12.9
- ----------------------------------------------------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
During 1997, the Company expects that its nonbinding commitment for capital
expenditures (excluding acquisitions) will increase from the levels expended in
1996 and is dependent on the Company's geographic and revenue growth. The
Company's capital requirements are primarily for switching and transmission
facilities and technology platforms arising from the Company's strategic
expansion plans. In addition to its ongoing capital requirements, the Company
entered into an agreement, in February 1997, to extend its fiber-optic network.
This commitment will extend the Company's fiber-optic network by over 3,100
route miles, and is expected to require capital expenditures of approximately
$120 million, including equipment.
VENDOR AGREEMENTS
The Company has agreements with certain telecommunications interexchange
carriers and third-party vendors that require the Company to maintain minimum
monthly and/or annual billings based on usage. The Company has a single
five-year contract with a particular third-party carrier which began in August
1995. This contract has minimum annual usage requirements and an increasing
cumulative minimum usage requirement, which if not met, subjects the Company to
an underutilization charge. Through December 31, 1996, the Company had
significantly exceeded both the first-year minimum annual usage requirement of
$48 million and the cumulative minimum usage of $103 million established for
the second year. The Company's minimum monthly billing commitments under all
other vendor agreements are approximately $4 million through 1997. The Company
has historically met all minimum billing requirements and believes that the
minimum usage commitments will be met in the future.
24
<PAGE> 25
Excerpt from 1996 Annual Report to Shareowners
LEGAL MATTERS
In 1991, Thomas J. Byrnes and Richard C. Otto v. LCI Communications Holdings
Co. et al. was filed by two former members of the Company's management in
Common Pleas Court, Franklin County, Ohio. The suit alleged age discrimination
by the Company. In 1993, a jury returned a verdict in favor of the Plaintiffs
and the Common Pleas Court awarded approximately $8.1 million in damages and
attorney's fees.
Both the Plaintiffs and the Company appealed the matter to the Court of Appeals
in Ohio, which, in a two-to-one decision, overruled each of the Company's
assignments of error and two of the Plaintiffs' claims, and sustained the
Plaintiffs' request for approximately $.1 million in pre-judgment interest in
addition to the previous award. The Company appealed the matter to the Supreme
Court of Ohio (the Court). On December 11, 1996, the Court reversed the Court
of Appeals, finding that, as a matter of law, there was insufficient evidence
to sustain the verdict for Plaintiffs. In December 1996, the Plaintiffs filed
with the Court a Motion for Reconsideration, which was denied by the Court in
January 1997. At this time, the Company is unable to determine whether the
Plaintiffs will file a petition asking the United States Supreme Court to
consider the case.
The Company has been named as a defendant in various other litigation matters.
Management intends to vigorously defend these outstanding claims. The Company
believes it has adequate accrued loss contingencies and that current or
threatened litigation matters will not have a material adverse impact on the
Company's results of operations or financial condition.
8. SHAREOWNERS' EQUITY
PREFERRED STOCK
On September 3, 1996, the remaining outstanding shares of the Company's
previously outstanding 5% Cumulative Convertible Exchangeable Preferred Stock
(Preferred Stock) were redeemed by the Company. Preferred dividends, cumulative
from the date of issuance, were paid quarterly at an annual rate of $1.25 per
share on the outstanding shares until redemption. Prior to redemption,
shareowners converted 4,599,895 shares of Preferred Stock into 12,104,661
shares of Common Stock.
In January 1997, the Board of Directors adopted a shareholder rights plan (the
Rights Plan). In order to implement the Rights Plan, the Board of Directors
declared a dividend of one preferred share purchase right (a Right) for each
share of the Company's Common Stock to shareowners of record on January 22,
1997. Each Right, when exercisable, represents the right to purchase one
one-thousandth of a share of a newly issued series of Preferred Stock of the
Company, designated as Junior Participating Preferred Stock, par value $.01 per
share, or, in certain circumstances, to purchase shares of Common Stock at less
than the prevailing market price. The exercise price is $100 per Right, the
redemption price is $.01 per Right, and the Right expires on January 22, 2007.
The Rights will be exercisable only in the event that any person or entity,
together with its affiliates or associates, acquires more than a certain
specified percentage of Common Stock of the Company. The Rights Plan was
designed to ensure that shareowners receive fair and equal treatment in the
event of any proposed takeover of the Company.
COMMON STOCK
In September 1995, the Company issued 4,601,586 shares of Common Stock to
purchase CTG at $20.25 per share, the market price at the date of acquisition.
COMMON STOCK WARRANTS
In 1993, the Company issued warrants for 5,408,900 shares of Common Stock, at
$2.83 per share, that expire in 2003. During 1996, 1995 and 1994, holders
exercised 164,336, 40,572 and 41,216 warrants for an aggregate amount of
148,253, 33,100 and 41,216 shares of Common Stock, respectively. As of December
31, 1996, there were 5,162,776 unexercised Common Stock warrants.
25
<PAGE> 26
Excerpt from 1996 Annual Report to Shareowners
EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution retirement plan for its employees.
Under this plan, eligible employees may contribute a percentage of their base
salary, subject to certain limitations. Beginning in 1994, the Company elected
to match a portion of the employees' contributions. The expense of the
Company's matching contribution was $.7 million in 1996, $.6 million in 1995
and $.3 million in 1994. Under this plan, employees may purchase shares of
LCI's Common Stock at market prices. During 1996, 1995 and 1994, 63,200, 45,484
and 35,328 shares were issued under this plan at an average price of $27.76,
$15.62 and $9.32, respectively.
9. INCENTIVE STOCK PLANS
STOCK OPTIONS
The Company has stock option plans under which options to purchase shares of
Common Stock may be granted to directors and key employees. Under the plans,
the Company may grant incentive stock options (ISOs) as defined by the Internal
Revenue Code or non-qualified options (NQOs). Stock options generally have a
five-year vesting period. Twenty percent of each option granted generally
becomes exercisable on the first anniversary of the grant and 1.66% each month
thereafter for 48 months. In the event of a change in control of the Company,
all options outstanding would become 100% exercisable. Under the plans, options
expire up to 10 years after the date of the grant. Except in the case of ISOs,
the option price may be less than the fair market value of the Common Stock as
of the date of grant. The option price under all plans is fixed at the
discretion of an administrative committee of the Board of Directors at the time
of grant. During 1996, 1995 and 1994, the option price for all options granted
was the fair market value of the shares on the date of grant. The weighted
average fair value of options granted during 1996 and 1995 for the stock option
plans was $6.69 and $4.53, respectively, and for the ESPP was $9.48 and $7.17,
respectively. Shares of Common Stock underlying surrendered options may be
re-granted by the Board of Directors. As of December 31, 1996, there were
12,590,852 options authorized under the Company's stock option plans.
Information regarding these stock option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Exercisable Average
Shares Options Exercise Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding as of December 31, 1993 4,167,316 1,466,448 $ 3.76
- ----------------------------------------------------------------------------------------------
Options Granted 1,813,600 9.07
Options Exercised (152,520) 2.69
Options Surrendered (456,520) 7.13
- ----------------------------------------------------------------------------------------------
Outstanding as of December 31, 1994 5,371,876 2,003,154 5.29
- ----------------------------------------------------------------------------------------------
Options Granted 2,799,798 12.91
Options Exercised (218,366) 4.88
Options Surrendered (340,522) 9.77
- ----------------------------------------------------------------------------------------------
Outstanding as of December 31, 1995 7,612,786 3,047,337 7.89
- ----------------------------------------------------------------------------------------------
Options Granted 2,352,000 23.14
Options Exercised (555,033) 6.91
Options Surrendered (431,810) 18.40
- ----------------------------------------------------------------------------------------------
Outstanding as of December 31, 1996 8,977,943 4,184,670 $ 11.48
- ----------------------------------------------------------------------------------------------
Options Available for Grant as of
December 31, 1996 2,686,090
- -----------------------------------------------------------
</TABLE>
26
<PAGE> 27
Excerpt from 1996 Annual Report to Shareowners
The following table presents information for the 8,977,943 options outstanding
as of December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------
Range of Number of Weighted Weighted Number of Weighted
Exercise Options Average Average Options Average
Price Exercise Contractual Exercise
Price Life (Years) Price
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.17 - $ 2.83 1,837,464 $ 1.56 6.00 1,818,476 $ 1.55
$ 4.56 - $ 9.75 2,417,114 $ 7.54 6.83 1,448,604 $ 7.47
$ 9.94 - $11.22 1,942,537 $ 11.15 7.98 713,500 $ 11.15
$11.25 - $20.03 561,498 $ 16.39 8.56 161,349 $ 15.77
$20.53 - $35.13 2,192,500 $ 23.19 9.13 44,500 $ 26.77
- -----------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (ESPP), which enables
substantially all employees to purchase shares of Common Stock on monthly
offering dates at a purchase price equal to the lesser of 85% of the fair
market value of the Common Stock on the date of its purchase, or 85% of the
fair market value of the Common Stock, as established at intervals from time to
time. In 1995, the Company's shareowners approved an extension of the ESPP
until no later than November 1997 or until shares authorized under the ESPP are
exhausted. A maximum of 1,800,000 shares of Common Stock were authorized for
purchase under the ESPP. During 1996, 1995 and 1994, 247,273, 192,396, and
218,638 shares were issued under the ESPP at an average price of $24.64, $11.59
and $5.88, respectively. As of December 31, 1996, the amount of Common Stock
available for issuance was 965,595 shares.
STOCK-BASED COMPENSATION PLANS
The Company follows the requirements of APB Opinion No. 25 to account for its
stock option plans and ESPP and, accordingly, no compensation cost is
recognized in the consolidated statements of operations for these plans. The
Company adopted SFAS No. 123 "Accounting for Stock-Based Compensation," which
requires certain disclosures about stock-based employee compensation
arrangements. SFAS 123 requires pro forma disclosure of the impact on net
income and earnings per share if the fair value method defined in SFAS 123 had
been used.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model, with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.7% and 6.7% for the stock options plans and 5.5% and 5.6% for the
ESPP; no expected dividend yields; expected lives of 3.9 years and 4.0 years
for the stock options plans and 1.5 years and 2.2 years for the ESPP; expected
volatility of 39.6% and 48.3% for the stock option plans and 45.3% and 47.5%
for the ESPP. Pro forma net income, as if the fair value method had been
applied, was $66.9 million and $47.5 million for the years ended December 31,
1996 and 1995, respectively. The pro forma earnings per share on a fully
diluted basis for the same periods were $0.77 and $0.58.
In accordance with SFAS 123, the fair value method was not applied to options
granted prior to January 1, 1995. The resulting pro forma impact may not be
representative of results to be expected in future periods and is not
reflective of actual stock performance.
27
<PAGE> 28
Excerpt from 1996 Annual Report to Shareowners
10. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994, consisted of:
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Tax Expense:
Federal $ 2.0 $ -- $ 0.6
State 1.2 0.5 0.4
Deferred Tax Expense (Benefit):
Increase in Deferred Tax Liability 4.0 1.7 15.1
Decrease (Increase) in Deferred Tax Asset 38.8 25.9 (22.9)
Decrease in Valuation Allowance (5.8) (11.7) (17.7)
- ----------------------------------------------------------------------------------
Income Tax Expense (Benefit) $ 40.2 $ 16.4 $ (24.5)
- ----------------------------------------------------------------------------------
</TABLE>
The decrease in the valuation allowance in 1996, 1995 and 1994 resulted from
the Company's realization of its net operating loss (NOLs) carryforwards based
on the Company's growth in recurring operating income. The Company pays state
income taxes on the greater of a net worth basis or an income basis in a
majority of the states in which it operates. The Company records state deferred
tax assets and liabilities at an average blended rate of 5%.
The significant items giving rise to the deferred tax (assets) and liabilities
as of December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
- --------------------------------------------------------------------------------------------------
$ % $ % $ %
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected Tax Expense (Benefit) at
Federal Statutory Income Tax Rate $ 40.2 35.0 $23.5 35.0 $ (6.2) (35.0)
Effect of:
State Income Tax Expense 5.0 4.4 2.0 2.9 0.5 2.5
Non-deductible Expenses 1.7 1.4 1.0 1.6 0.6 3.6
Change in Valuation Allowance (5.8) (5.0) (11.7) (17.4) (17.7) (99.9)
Other, Net (0.9) (0.8) 1.6 2.3 (1.7) (9.6)
- --------------------------------------------------------------------------------------------------
Income Tax Expense (Benefit) $40.2 35.0 $16.4 24.4 $(24.5) (138.4)
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company's 1996 deferred income tax balances were included in current
deferred tax assets, net $48.9 million, and in other non-current liabilities of
$53.4 million. The 1995 deferred income tax balances were included in current
deferred tax assets, net of $23.1 million and other assets of $8.8 million.
The Company has generated significant NOLs that may be used to offset future
taxable income. Each year's NOL has a maximum 15-year carryforward period. The
Company's ability to fully use its NOL carryforwards is dependent on future
taxable income. As of December 31, 1996, the Company has NOL carryforwards of
$103 million for income tax return purposes subject to various expiration dates
beginning in 1998 and ending in 2008. The future tax benefit of these NOL
carryforwards of $41.3 million and $70.4 million using a 40% effective tax rate
in 1996 and 1995, has been recorded as a deferred tax asset.
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company has filed a shelf registration statement with the Securities and
Exchange Commission to register $300 million of debt and/or equity securities,
for issuance on a delayed or continuous basis. Any debt securities issued may
be guaranteed by certain of the Company's wholly owned subsidiaries (Guarantor
Subsidiaries). Such guarantees will be full, unconditional and joint and
several. Certain of the Company's subsidiaries would not provide any
guarantees (Non-Guarantor Subsidiaries) primarily as a result of contractual
prohibitions. The primary Non-Guarantor Subsidiary is SPC, discussed in Note 4.
Separate financial statements of the Guarantor Subsidiaries have not been
presented because the Company's management has determined that they would not
be material. The following supplemental financial information sets forth, on an
unconsolidated basis, statement of
28
<PAGE> 29
Excerpt from 1996 Annual Report to Shareowners
operations, balance sheet and statement of cash flow information for the parent
company only (Parent Company), for the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries. The comparative statements for 1995 and 1994 have
not been presented as the Non-Guarantor information is not material to the
consolidated financial statements for that period. The supplemental financial
information reflects the Company's investments in subsidiaries using the equity
method of accounting. Certain immaterial reclassifications have been made to
provide for uniform disclosure for the period presented.
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $1,103.0 $ -- $ -- $ 1,103.0
Cost of Services -- 642.3 -- -- 642.3
------- -------- -------- ---------- ----------
Gross Margin -- 460.7 -- -- 460.7
Selling, General and
Administrative Expenses 0.1 253.6 -- -- 253.7
Depreciation and Amortization -- 63.5 -- -- 63.5
------- -------- -------- ---------- ----------
Operating (Loss) Income (0.1) 143.6 -- -- 143.5
Interest and Other (Income) Expense, Net 23.7 9.5 (4.7) -- 28.5
Intercompany (Income) Expense (28.6) 28.6 -- -- --
Equity in Earnings of Subsidiaries (71.6) -- -- 71.6 --
------- -------- -------- ---------- ----------
Income Before Income Taxes 76.4 105.5 4.7 (71.6) 115.0
Income Tax Expense 1.6 36.9 1.7 -- 40.2
------- -------- -------- ---------- ----------
Net Income 74.8 68.6 3.0 (71.6) 74.8
Preferred Dividends 2.8 -- -- -- 2.8
------- -------- -------- ---------- ----------
Income on Common Stock $ 72.0 $ 68.6 $ 3.0 $ (71.6) $ 72.0
======= ======== ======== ========== ==========
</TABLE>
(Continued on next page.)
29
<PAGE> 30
Excerpt from 1996 Annual Report to Shareowners
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Trade Accounts Receivable, Net $ -- $ 14.8 $ 70.4 $ -- $ 85.2
Current Deferred Tax Assets, Net 19.7 29.2 -- -- 48.9
Prepaids and Other 4.5 11.9 -- -- 16.4
Intercompany Receivable 370.4 -- -- (370.4) --
--------- -------- ------ --------- -------
Total Current Assets 394.6 55.9 70.4 (370.4) 150.5
Property, Plant and Equipment, Net -- 402.8 -- -- 402.8
Excess of Cost over Net Assets Acquired, Net -- 350.5 -- -- 350.5
Investment in Affiliates 250.4 -- -- (250.4) --
Other, Net 16.3 29.5 0.4 -- 46.2
--------- -------- ------ --------- -------
Total Assets $ 661.3 $ 838.7 $ 70.8 $ (620.8) $ 950.0
========= ======== ====== ========= =======
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ -- $ 37.1 $ -- $ -- $ 37.1
Facility Costs Accrued and Payable -- 123.0 -- -- 123.0
Intercompany Payable -- 363.2 7.3 (370.5) --
Accrued Expenses and Other 3.4 49.9 -- -- 53.3
--------- -------- ------ --------- -------
Total Current Liabilities 3.4 573.2 7.3 (370.5) 213.4
Long-term Debt and Capital Lease
Obligations 223.0 12.8 -- -- 235.8
Other Liabilities and Deferred Credits 4.1 65.9 -- -- 70.0
SHAREOWNERS' EQUITY:
Preferred Stock -- 66.4 -- (66.4) --
Common Stock 0.8 -- 12.0 (12.0) 0.8
Paid-in Capital 427.2 43.2 60.5 (103.7) 427.2
Retained (Deficit) Earnings 2.8 77.2 (9.0) (68.2) 2.8
--------- -------- ------ --------- -------
Total Shareowners' Equity 430.8 186.8 63.5 (250.3) 430.8
--------- -------- ------ --------- -------
Total Liabilities and
Shareowners' Equity $ 661.3 $ 838.7 $ 70.8 $ (620.8) $ 950.0
========= ======== ====== ========= =======
</TABLE>
(Continued on next page.)
30
<PAGE> 31
Excerpt from 1996 Annual Report to Shareowners
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Cash Provided by (Used in)
Operating Activities $ 91.7 $ 268.9 $ (60.5) $ -- $ 300.1
-------- -------- ------- ------- --------
INVESTING ACTIVITIES:
Investment in SPC (60.5) -- 60.5 -- --
Capital Expenditures -- (144.3) -- -- (144.3)
Payments for Acquisitions and Other -- (121.0) -- -- (121.0)
-------- -------- ------- ------- --------
Net Cash (Used in) Provided by
Investing Activities (60.5) (265.3) 60.5 -- (265.3)
-------- -------- ------- ------- --------
FINANCING ACTIVITIES:
Net Debt Payments (37.7) (3.6) -- -- (41.3)
Preferred Dividend Payments (2.8) -- -- -- (2.8)
Proceeds from Employee Stock
Plans and Warrants 9.3 -- -- -- 9.3
-------- -------- ------- ------- --------
Net Cash (Used in)
Financing Activities (31.2) (3.6) -- -- (34.8)
-------- -------- ------- ------- --------
Change in Cash and
Cash Equivalents -- -- -- -- --
-------- -------- ------- ------- --------
Cash and Cash Equivalents at the
Beginning of the Year -- -- -- -- --
-------- -------- ------- ------- --------
Cash and Cash Equivalents at the
End of the Year $ -- $ -- $ -- $ -- $ --
======== ======== ======= ======= ========
</TABLE>
31
<PAGE> 32
Excerpt from 1996 Annual Report to Shareowners
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31:
<TABLE>
<CAPTION>
(In Millions, Except Earnings per Common Share) 1996
- ----------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 250.6 $ 269.4 $ 289.2 $ 293.8
Cost of Services 148.6 157.6 166.6 169.5
- ----------------------------------------------------------------------------------------------------------
Gross Margin 102.0 111.8 122.6 124.3
Selling, General and Administrative Expenses 56.7 61.5 67.7 67.8
Depreciation and Amortization 14.1 15.6 16.3 17.5
- ----------------------------------------------------------------------------------------------------------
Operating Income 31.2 34.7 38.6 39.0
Interest and Other Expense, Net 7.7 7.5 7.7 5.6
- ----------------------------------------------------------------------------------------------------------
Income Before Income Taxes 23.5 27.2 30.9 33.4
Income Tax Expense 8.2 9.5 10.8 11.7
- ----------------------------------------------------------------------------------------------------------
Net Income 15.3 17.7 20.1 21.7
Income on Common Stock $ 13.9 $ 16.8 $ 19.6 $ 21.7
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Earnings per Common Share(A)
Income per Share $ 0.18 $ 0.20 $ 0.23 $ 0.25
- ----------------------------------------------------------------------------------------------------------
Primary Weighted Average Shares(B) 86.3 87.2 87.7 87.8
- ----------------------------------------------------------------------------------------------------------
Fully Diluted Weighted Average Shares(B) 86.6 87.6 87.7 87.8
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In Millions, Except Earnings per Common Share) 1995
- ----------------------------------------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $144.2 $152.0 $173.0 $203.7
Cost of Services 85.8 89.8 101.2 119.4
- ----------------------------------------------------------------------------------------------------------
Gross Margin 58.4 62.2 71.8 84.3
Selling, General and Administrative Expenses 31.5 33.7 38.9 46.0
Depreciation and Amortization 9.7 10.2 11.2 12.9
- ----------------------------------------------------------------------------------------------------------
Operating Income 17.2 18.3 21.7 25.4
Interest and Other Expense, Net 3.4 3.7 4.5 3.8
- ----------------------------------------------------------------------------------------------------------
Income Before Income Taxes 13.8 14.6 17.2 21.6
Income Tax Expense 3.3 3.5 4.1 5.5
- ----------------------------------------------------------------------------------------------------------
Net Income 10.5 11.1 13.1 16.1
Income on Common Stock $ 9.0 $ 9.7 $ 11.6 $ 14.8
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Earnings per Common Share(A)
Income per Share $ 0.13 $ 0.14 $ 0.16 $ 0.19
- ----------------------------------------------------------------------------------------------------------
Primary Weighted Average Shares(B) 78.4 79.3 82.1 85.2
- ----------------------------------------------------------------------------------------------------------
Fully Diluted Weighted Average Shares(B) 78.8 79.9 82.4 85.6
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(A) The quarterly per share amounts represent both primary and fully diluted
as both calculations yield the same result.
(B) The weighted average shares include the assumed conversion of preferred
stock. Income per share is calculated as net income divided by weighted
average shares outstanding.
32
<PAGE> 1
EXHIBIT 21
LCI INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
---------------------------
LCI INTERNATIONAL, INC.
(LCII) 8/16/88
(Incorporated: Delaware)
----------------------------
|
----------------------------------------------------------------------------------------------------
| | | |
- -------------------------------- ------------------------------- -------------------------------- -------------------------------
<S> <C> <C> <C>
1056974 Ontario Inc. LCI International SC, Inc. LCI International Management LCI SPC I, INC.
(#Corp.) 12/20/93 (LCISC) 12/13/95 Services, Inc. (LCIM) 9/5/84 (SPC) 6/7/96
(Incorporated: Ontario, Canada) (Incorporated: Delaware) (Incorporated: Delaware) (Incorporated: Delaware)
(wholly-owned subsidiary of LCII)(wholly-owned subsidiary of LCII)(wholly-owned subsidiary of LCII)(wholly-owned subsidiary of LCII)
- -------------------------------- ------------------------------- -------------------------------- -------------------------------
|
|
|
--------------------------------
LCI International Telecom Corp.*
(LCIT) 12/7/83
(Incorporated: Delaware)
(wholly-owned subsidiary of LCIM)
--------------------------------
|
|
|
--------------------------------
LCI International of Virginia, Inc.
(LCIVA) 1/16/97
(Incorporated: Virginia)
(wholly-owned subsidiary of LCIT)
--------------------------------
</TABLE>
* Certificated Public Utility
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 6, 1997, included in and incorporated by reference in
this Form 10-K, into the Company's previously filed Form S-8 Registration
Statements File No. 33-64838, No. 33-74246, No. 33-94120 and No. 333-2580 and
its previously filed Form S-3 Registration Statement File No. 33-96186.
Washington, D. C.,
March 14, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K as
of December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 85,150<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 150,482
<PP&E> 574,659
<DEPRECIATION> (171,878)
<TOTAL-ASSETS> 949,986
<CURRENT-LIABILITIES> 213,421
<BONDS> 0
0
0
<COMMON> 774
<OTHER-SE> 430,687
<TOTAL-LIABILITY-AND-EQUITY> 949,986
<SALES> 0
<TOTAL-REVENUES> 1,102,992
<CGS> 0
<TOTAL-COSTS> 642,299
<OTHER-EXPENSES> 316,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,764
<INCOME-PRETAX> 114,999
<INCOME-TAX> 40,249
<INCOME-CONTINUING> 74,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,750
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
<FN>
<F1>Trade Accounts Receivable, Less Allowance for Doubtful Accounts
</FN>
</TABLE>
