EXHIBIT 4(b)
AMENDMENT TO LOAN AGREEMENT AND GUARANTY
THIS AMENDMENT TO LOAN AGREEMENT AND GUARANTY is entered into as of
September 22, 1998 by and among Xxxxxxx, Inc., a Delaware corporation (the
"Borrower"), Prince, Inc., a Delaware corporation and wholly owned subsidiary
of the Borrower ("Prince"), Fleet National Bank, a national banking
association, in its capacity as agent for itself and the other Banks (the
"Agent") and the Banks.
RECITALS
WHEREAS, capitalized terms used in this Amendment to Loan Agreement and
Guaranty (the "Amendment") and not expressly defined herein shall have the
respective meanings assigned thereto in that certain Loan Agreement dated as
of February 8, 1995 among the Borrower, the Agent and the Banks, as amended
June 4, 1997 (the "Loan Agreement") or that certain Guaranty of Prince dated
as of February 8, 1995 whereby Prince guaranteed the Obligations of Borrower
under the Loan Agreement (the "Prince Guaranty"), whichever is applicable;
WHEREAS, the Borrower, Prince, the Banks and the Agent desire to amend
the Loan Agreement and the Prince Guaranty as provided in this Amendment.
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by each of the parties hereto, the Borrower,
Prince, the Banks and the Agent hereby mutually agree as follows:
Section 1. Amendments. Effective as of the date hereof, the Loan
Agreement is hereby amended as follows:
(a) Section 1.01 of the Loan Agreement is amended by deleting the
definition of "Borrowed Money" and inserting the following definition in
substitution therefor:
"Borrowed Money" means with respect to any Person the aggregate
amount, without duplication, of the following items as and to the
extent reflected on such Person's consolidated balance sheet
(exclusive of any such item only required to be disclosed in a
note to such balance sheet) prepared in accordance with GAAP (any
such balance sheet of the Borrower being hereinafter referred to
as "Borrower's GAAP Balance Sheet"): (a) all obligations for
borrowed money; (b) all Capitalized Lease Obligations; and (c) all
obligations evidenced by bonds, debentures, the Notes, other
promissory notes or other similar instruments.
(b) Section 1.01 of the Loan Agreement is amended by deleting the
definition of "Lien" and inserting the following definition in
substitution therefor:
"Lien" means any mortgage, lien, pledge, charge, security
interest, conditional sale or other title retention agreement or
other encumbrance of any nature whatsoever; however, Lien does
not include any encumbrance relating to any Tax Reduction
Agreement.
(c) Section 1.01 of the Loan Agreement is amended by deleting the
definition of "Material Subsidiary" and inserting the following
definition in substitution therefor:
"Material Subsidiary" means Fiber, Prince, Xxxxxxx of Mississippi,
Inc. and any Subsidiary of the Borrower, which owns a Principal
Property, or any Subsidiary in which Borrower's share of the total
Tangible Assets (after inter-company eliminations) of such
Subsidiary exceeds fifteen percent (15%) of the Consolidated
Tangible Assets of the Borrower as of the most recent quarter end.
(d) Section 1.01 of the Loan Agreement is amended by inserting the
following definitions immediately after the definition of "P.M.":
"Permitted Receivables Program" means any agreement of the
Borrower or any of the Subsidiaries providing for sales, transfers
or conveyances of accounts receivable purporting to be sales (and
considered sales under GAAP) that do not provide, directly or
indirectly, for recourse against the seller of such accounts
receivable (or against any of such seller's Subsidiaries or
Affiliates) by way of a guaranty or any other credit support
arrangement, with respect to the amount of such accounts
receivable (based on the financial condition or circumstances of
the obligor thereunder), other than such limited recourse as is
reasonable given market standards for transactions of a similar
type, taking into account such factors as historical bad debt loss
experience and obligor concentration levels.
"Permitted Sale/Leaseback Transactions" means any sale and
leaseback by the Borrower or any Subsidiary of any property if:
(1) within 120 days after the effective date of the lease the
Borrower or such Subsidiary, either (A) applies the net proceeds
to the acquisition of another property of equal or greater fair
market value or (B) applies the proceeds to the retirement of
Indebtedness for Borrowed Money in an amount equal to the greater
of (i) the net proceeds received by the Borrower and its
Subsidiaries for the sale of the property leased, or (ii) the fair
market value of the property leased within 90 days prior to the
effective date of the lease, or (C) any combination of (A) and
(B); (2) the lease has a term of not more than five years; (3) the
Lien on any such property subject to such sale and leaseback would
be permitted under Section 5.02(A); (4) the sale and leaseback is
of the properties in connection with any Tax Reduction Agreement;
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(5) the sale and leaseback transaction is between the Borrower and
a Subsidiary or between Subsidiaries; or (6) such lease is entered
into within 360 days after the later of the acquisition,
completion of construction or commencement of operation of such
property; provided that any such sale and leaseback transaction
pursuant to subsections (2), (3) and (6) above are permitted only
if the amount of the net proceeds received in such transaction are
applied to reduce the Indebtedness for Borrowed Money within ten
(10) Business Days after the net proceeds are received; provided
further, that the foregoing restriction regarding the use of
proceeds for transactions pursuant to subsection (3) above shall
only apply to transactions which create Liens that are permitted
pursuant to Sections 5.02(A)(i), 5.02(A)(l) and 5.02(A)(p) of the
Loan Agreement, as amended.
(e) Section 1.01 of the Loan Agreement is amended by inserting the
following definition immediately after the definition of "Prince
Guaranty":
"Principal Property" means any manufacturing, processing,
distribution, research, research and development, warehousing or
principal administration facility (including, without limitation,
land, fixtures and equipment) owned or leased by the Borrower or
any Subsidiary (including any of the foregoing acquired or leased
after the date of the Loan Agreement) unless the Board of
Directors of the Borrower by Board Resolution and in good faith
declares that such facility is not of material importance to the
business conducted by the Borrower and its Subsidiaries taken as
an entirety; provided, however, the Board of Directors may not
make such a declaration regarding a facility and any such prior
declaration shall be ineffective for the purposes of this
definition if the net book value of the applicable facility is
greater than fifteen percent (15%) of the Consolidated Tangible
Assets of the Borrower as reflected on the consolidated balance
sheet of the Borrower at the most recent quarter end.
(f) Section 1.01 of the Loan Agreement is amended by inserting the
following language at the end of the definition of "Restricted
Guaranty":
"provided, further, that any guaranty or guaranties related to any
Tax Reduction Agreement are excluded from this definition."
(g) Section 1.01 of the Loan Agreement is amended by inserting the
following definition immediately after the definition of
"Syndication Agent":
"Synthetic Lease" means a transaction for the lease of property or
assets designed to permit the lessee (i) to claim depreciation on
such property or assets under U.S. tax law and (ii) to treat such
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lease as an operating lease or not to reflect the property or
assets on the lessee's balance sheet under GAAP.
(h) Section 1.01 of the Loan Agreement is amended by inserting the
following definition immediately after the definition of "Tangible
Assets":
"Tax Reduction Agreement" means (1) any Fee-in-Lieu-of-Tax
Agreement (as defined on Exhibit 1 to that certain Amendment to
Loan Agreement and Guaranty among Borrower, Prince and the Banks
named therein dated as of September 22, 1998 (the "Amendment")
attached hereto and made a part hereof) of Borrower or its
Subsidiaries as permitted under applicable state or municipal law
or any other arrangement providing similar benefits; or (2) any
Cross Border Lease Agreement (as defined on Exhibit 2 to the
Amendment attached hereto and made a part hereof) which is
designed to permit depreciation of the same property to be claimed
under the tax laws of two different countries.
(i) Section 5.02(A) of the Loan Agreement is hereby amended by
deleting "Borrower or any Subsidiary" at the end of subsection
5.02(A)(h) and by adding the following language to the end of such
subsection:
"Borrower and its Subsidiaries taken as a whole"
(j) Section 5.02(A)(i) of the Loan Agreement is hereby amended by
deleting the reference to "Consolidated Stockholders' Equity" and
inserting in its stead "Consolidated Tangible Assets":
(k) Section 5.02(A) of the Loan Agreement is hereby amended by adding
the following language after subsection 5.02(A)(j):
(k) any Liens existing on properties or assets prior to the
acquisition thereof by the Borrower or any Subsidiary
(including by way of merger or consolidation), provided
that (x) such Lien is not created in contemplation of
or in connection with such acquisition and (y) such
Lien does not apply to any other property or assets of
the Borrower or any Subsidiary;
(l) Liens upon any property acquired, constructed or
improved by the Borrower or any Subsidiary which are
created or incurred within 360 days of the later of the
acquisition, completion of construction or commencement
of operation of the property to secure or provide for
the payment of up to the purchase price of such
property or the cost of such construction or
improvement, including carrying costs (but no other
amounts), provided that any such Lien shall not
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apply to any other property of the Borrower or any
Material Subsidiary;
(m) Liens on the property or assets of any Subsidiary in
favor of the Borrower or any Material Subsidiary;
(n) extensions, renewals or replacements of Liens referred
to in clauses (a) through (m) above, provided that any
such extension, renewal or replacement Lien shall be
limited to the property or assets covered by the Lien
extended, renewed or replaced and that the obligations
secured by any such extension, renewal or replacement
Lien shall be in an amount not greater than the amount
of the obligations secured by the Lien extended,
renewed or replaced;
(o) Liens to the extent that they are less than
$100,000,000 in the aggregate arising in connection
with all Permitted Receivables Programs (to the extent
the sale by the Borrower or the applicable Material
Subsidiary of its accounts receivable is deemed to give
rise to a Lien in favor of the purchaser thereof in
such accounts receivable or the proceeds thereof); and
(p) Liens upon any property or assets of the Borrower and
its Subsidiaries on property subject to a Synthetic
Lease or any right of access or other non-financial
encumbrance relating thereto.
(l) Section 5.01(K) of the Loan Agreement is hereby amended to read as
follows:
(K) Leverage Ratio. Maintain at the end of each of Borrower's
fiscal quarters a Leverage Ratio of not greater than .55 to 1.0;
provided, that solely for purposes of calculating Borrower's
compliance with this covenant, Adjusted Indebtedness shall exclude
any Tax Reduction Agreement transactions entered into by the
Borrower or any Subsidiary except to the extent that any such
transaction is recorded as a liability on the consolidated balance
sheet of the Borrower and there shall be subtracted from Adjusted
Indebtedness the excess of (A) Borrower's Cash Equivalent
Investments at such date over (B) the sum of (i) $10,000,000 and
(ii) the amount of federal income taxes that would be payable (if
any) if Borrower's Cash Equivalent Investments held outside the
United States were repatriated to the United States at the end of
such quarter, and taxed at the Assumed Rate. For purposes of this
Section 5.01(K) the term "Assumed Rate" means the greater of zero
or the difference between (a) the highest federal income tax rate
5
in the United States applicable to domestic corporations and (b)
the highest income tax rate applicable to Borrower or its
Subsidiaries, as appropriate, on Cash Equivalent Investments in
the jurisdiction in which such Cash Equivalent Investments are
held at the end of such quarter.
(m) Section 5.02(B) of the Loan Agreement is hereby amended to read as
follows:
(B) Dissolution, etc. (i) Dissolve, liquidate, wind up, except
for dissolution of any Subsidiary other than a Material
Subsidiary, (ii) merge or consolidate with any Person if (a)
Borrower is not the surviving corporation or (b) after any merger
or consolidation, a Default or Event of Default shall have
occurred, (iii) except pursuant to a Tax Reduction Agreement or a
Permitted Sale/Leaseback Transaction, sell, assign, lease or
otherwise dispose of or permit the disposal of or turn over the
management of (whether in one transaction or in a series of
related transactions) all or substantially all of its assets
except to Borrower or to any Subsidiary, or (iv) except pursuant
to a Tax Reduction Agreement or a Permitted Sale/Leaseback
Transaction, sell (whether in one transaction or in a series of
related transactions) any asset material to the Borrower or to the
Borrower and the Subsidiaries taken as a whole (whether now owned
or hereafter acquired and whether any such asset is leased back on
an operating lease basis or as a Capitalized Lease Obligation but
excluding transactions of the type described in paragraph 2 of
Exhibit H); provided that such restriction shall not apply (x) to
any such assets which are promptly replaced with assets of
substantially like kind, value and usefulness which are owned by
the Borrower or a Subsidiary and (y) to any transaction to the
extent that the aggregate book value of Tangible Assets sold
(measured at the time of such transaction in question) of the
assets involved in any such transaction does not exceed ten
percent (10%) of Consolidated Tangible Assets.
(n) Section 10 of the Prince Guaranty is hereby amended to read as
follows:
10. The Guarantor further covenants and agrees that during such
time as this Guaranty is in effect the Guarantor will not, without
the prior written consent of the Agent, incur any Indebtedness for
Borrowed Money to any third party except Indebtedness for Borrowed
Money which would be permitted to exist under the terms of the
Loan Agreement. In the event of any breach of said covenants and
agreements, all Obligations, regardless of their terms, shall at
the Agent's election be deemed for the purposes of this Guaranty
to have become matured, and, at the Agent's election, the
Guarantor shall promptly pay to the Agent the entire amount of the
6
Obligations, and the Agent may take any action deemed necessary or
advisable to enforce this Guaranty.
(o) Section 15 of the Prince Guaranty is hereby amended to read as
follows:
15. The Guarantor hereby covenants and agrees to and with the
Agent and each of the Lenders and their successors and assigns
that the Guarantor shall not engage in any business other than (i)
holding of the equity interests of Fiber and other Persons, (ii)
receipt of dividends and distributions on such interests, (iii)
payment of dividends and/or making loans to the Principal Debtor,
(iv) collection of principal of and interest on such loans, (v)
engaging in intercompany loans and transactions, (vi) acquiring,
holding, managing and licensing intangible assets, and (vii)
intercompany money management transactions. The Guarantor shall
maintain its own books and records, its separate corporate
identity and conduct itself in all respects as a separate
corporation observing customary corporate formalities in
connection therewith.
Section 2. Representations and Warranties. The Borrower and Prince
hereby represent and warrant that (i) they have full power and authority to
execute and deliver this Amendment and to perform their respective
obligations hereunder, (ii) each has taken all corporate action necessary for
the execution and delivery by it of this Amendment and the performance by it
of its obligations hereunder, (iii) this Amendment constitutes a valid and
binding obligation of each enforceable against each in accordance with its
terms except to the extent enforceability may be subject to bankruptcy,
insolvency, moratorium and other similar law affecting the rights of
creditors generally or the application of principles of equity, whether in an
action at law or proceeding in equity, (iv) all of the representations and
warranties of the Borrower contained in the Loan Agreement, as amended, are
materially true and correct as of the date hereof, except to the extent (a)
they expressly relate to an earlier date, (b) they relate to the
representation contained in Section 4.01(O), or (c) as otherwise reflected in
the Borrower's most recent 10K, and (v) no Default or Event of Default has
occurred and is continuing on and as of the date hereof.
Section 3. Reference to and Effect Upon the Loan Agreement and Prince
Guaranty.
3.1 The Loan Agreement and Prince Guaranty, as specifically amended
hereby, is hereby ratified, confirmed and approved and shall remain in full
force and effect.
3.2 The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Agent or any
Bank under the Loan Agreement, nor constitute an amendment of any provision
7
of the Loan Agreement, except as specifically set forth herein. Upon the
effectiveness of this Amendment (i) each reference in the Loan Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words of similar import
shall mean and be a reference to the Loan Agreement as amended by this
Amendment; (ii) each reference in any Note or Related Document to the Loan
Agreement shall mean and be a reference to the Loan Agreement as amended by
this Amendment, and (iii) each reference in the Prince Guaranty to "this
Guaranty", "hereunder", "hereof", "herein" or words of similar import shall
mean and be a reference to the Prince Guaranty as amended by this Amendment.
Section 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York without regard
to its conflict of laws provisions.
Section 5. Headings. Article and Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
Section 6. Counterparts. This Agreement may be executed and delivered
in any number of counterparts each of which shall be deemed an original, and
this Agreement shall be effective when at least one counterpart hereof has
been executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Loan
Agreement and Guaranty to be executed as a sealed instrument by their
respective officers thereunto duly authorized as of the date first written
above.
XXXXXXX, INC.
By:
Name: Xxxxxx Xxxxxxx
Title: Assistant Treasurer
PRINCE, INC.
By:
Name: Xxxxxx Xxxxxxx
Title: Treasurer
FLEET NATIONAL BANK, as Agent and as a Bank
By:
Name:
Title:
8
BANK OF AMERICA NT&SA, as successor by
merger to Bank of America Illinois
By:
Name:
Title:
WACHOVIA BANK OF GEORGIA, N.A., as Co-Lead
and as a Bank
By:
Name:
Title:
BANK OF NOVA SCOTIA
By:
Name:
Title:
THE BANK OF TOKYO TRUST COMPANY
By:
Name:
Title:
CIBC, INC.
By:
Name:
Title:
THE CHASE MANHATTAN BANK, as successor by
merger to The Chase Manhattan Bank, N.A.
By:
Name:
Title:
9
THE CHASE MANHATTAN BANK, as successor by
merger to Chemical Bank New Jersey, N.A.
By:
Name:
Title:
FIRST UNION BANK, as successor to First
Fidelity Bank, N.A.
By:
Name:
Title:
THE FUJI BANK, LIMITED
By:
Name:
Title:
ISITUTO BANCARIO SAN PAULO DI TORINO SPA
By:
Name:
Title:
KREDIETBANK NV
By:
Name:
Title:
MELLON BANK, N.A.
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION, successor by
merger to Midlantic Bank, N.A.
By:
Name:
Title:
10
CITIBANK, N.A., as successor to Toronto
Dominion (New York), Inc.
By:
Name:
Title:
BANCA MONTE dei PASCHI di SIENA S.p.A.
By:
Name:
Title:
11
Exhibit I
Fee-in-Lieu-of-Tax Agreements
-----------------------------
A "Fee in Lieu-of-Tax Agreement" means any transaction, agreement or
arrangement which:
(1) is between the Borrower and/or a Subsidiary of the Borrower and a
third party that reduces the tax obligation of such entity, other than
income tax obligations (i.e. property, sales, use, and contractor's)
which would have been payable without such transaction, agreement or
arrangement;
(2) does not increase the Borrower's Indebtedness for Borrowed Money,
except to the extent of the costs of entering into the transaction, on
the date the transaction, agreement or arrangement is executed; and
(3) does not provide additional funding (except for the tax savings)
whether in the form of a lease or otherwise for the Borrower's and/or a
Subsidiary's construction or use of an asset.
---------------------------------------------------------
For illustrative purposes only and not as part of the definition of Fee-in-
Lieu-of-Tax Agreement, the form of fee-in-lieu-of-tax agreement, the "deemed"
cash transfers, and the steps taken at the different stages of the
transaction that the Borrower has in place currently in South Carolina are
summarized as follows:
South Carolina Fee-in-Lieu-of Tax Agreement Summary
---------------------------------------------------
"Deemed" Cash Transfers to Establish Fee-in-Lieu Assets with Darlington
County:
1. Borrower funds asset additions by Fiber;
2. Borrower borrows money to buy Darlington County Bonds. (Bond amount is
equal to annual fee-in-lieu asset additions by Fiber);
3. Darlington County issues Bonds;
4. Borrower buys Bonds;
5. Darlington County buys assets from Fiber with Bond money received from
Borrower;
6. Fiber transfers title to its "fee-in-lieu" assets to Darlington County
and enters into a leaseback agreement with Darlington County;
7. Fiber repays loan from Borrower, Inc. (see #1 above) with sale proceeds
from Darlington County;
8. Borrower repays bank borrowing associated with Bond purchase in #2 above.
12
Exhibit 1: continued
--------------------
Actual and "Deemed" Annual Cash Transfers Associated with Lease and Bonds:
--------------------------------------------------------------------------
Annually Fiber pays lease payments to Darlington County. The lease payments
include the following: (1) actual cash for an amount "in-lieu" of property
taxes (this amount is less than Fiber would have paid for property taxes if
it had not received this incentive); and (2) Fiber is "deemed" to pay
Borrower 6% interest on the assets covered under the "fee-in-lieu" (this is
equal to the Bond interest owed by Darlington County to Borrower and the
documents allow that this amount can be paid directly by Fiber to Borrower).
Since no cash is transferred between Fiber and Borrower there is a deemed
transfer by Borrower to Fiber which is either a loan or a contribution to
capital.
"Deemed" Cash Transfers at the End of the Fee-In-Lieu Agreement:
----------------------------------------------------------------
1. Borrower borrows funds from a bank and lends them to Fiber to enable
Fiber to buy back its "fee-in-lieu" assets;
2. Fiber buys back its "fee-in-lieu" assets from Darlington County with the
money Borrower has lent it;
3. Darlington County returns title to the "fee-in-lieu" assets to Fiber;
4. Darlington County pays Borrower the cash it receives from Fiber to buy
back its Bonds;
5. Borrower returns the Bonds to Darlington County for cancellation;
6. Borrower repays the bank for money it borrowed and lent to Fiber (see #1
above).
We are currently attempting to negotiate similar agreements in other states
and would expect that in principal they would reduce various taxes and not
subject the Borrower to any funding risk. In general, if these transactions
were terminated, the Borrower or its Subsidiaries would not be required to
borrow additional funds or enter into additional financing transactions.
13
Exhibit 2
---------
Cross Border Lease Agreement
----------------------------
A "Cross Border Lease Agreement" is defined as an agreement, arrangement or
transaction (1) which is designed to permit depreciation of the same property
to be claimed under the tax laws of two or more different countries; and (2)
which at the date such agreements, arrangements or transactions are entered
into neither (a) increases the Indebtedness for Borrowed Money by more than
$10 million, nor (b) provides current funding from a transaction which is an
operating lease in accordance with GAAP by more than $10 million.
------------------------------------------------------------------
For illustrative purposes only, and not as part of the definition of Cross
Border Lease Agreement, the following outline describes the basic steps of
one type of generic Cross Border Lease transaction:
1) A U.S. entity enters into a transaction with a foreign investor. The
foreign investor generally creates a separate foreign entity to
participate in the transaction. The transaction involves the U.S entity
transferring property to the newly formed foreign entity and leasing it
back. Depending on the legal structure the transaction may be
characterized as a financing for GAAP and U.S. income tax purposes or as
a payment of an upfront cash benefit. Thus the U.S. entity is treated as
the owner of the property and is entitled to depreciation deductions.
The transaction is characterized as a purchase and lease for foreign tax
purposes. Therefore the foreign investor also claims depreciation on the
property. The net present value of the foreign investor's after tax cash
savings, a result of reduced foreign taxes due to depreciation
deductions, is divided between the U.S. entity and the foreign investor.
Note that in calculating the benefit to the foreign investor the upfront
tax benefits received must be reduced by taxes paid at the end of the
transaction when the foreign entity "sells" the property. This gain may
be subject to lower (capital gains) tax rates.
2) Assuming the transaction is not legally defeased and cash is paid for the
asset on inception, the basic payments associated with the transaction,
as well as their character, are as follows:
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Exhibit 2: continued
--------------------
Transaction U.S. Entity Foreign Entity
----------- ----------- ---------------
Beginning of Loan from foreign entity Purchase of property
transaction payment for GAAP and U.S. income from U.S. entity for
(cash from foreign tax purposes. income tax purposes.
entity to U.S. entity).
Periodic payments Interest payments on Lease payments for
(cash from U.S. loan for GAAP and U.S. income tax purposes
entity to foreign income tax purposes.
entity).
End of transaction Repayment of loan from Sale of property back
payment (generally foreign entity for GAAP to U.S. entity for
cash from U.S. entity and U.S. income tax income tax purposes.
to foreign entity). purposes.
Modifications of this structure as well as different forms of the transaction
may be utilized which impact the flow of funds.
3) Assuming the U.S. entity defeases some or all of its obligations under
the lease, as is often the case the U.S. entity will generally deposit
funds with a highly-rated financially sound bank operating in the foreign
investor's country. The total amount defeased will not be greater than
and will generally approximate the net present value of the U.S. entity's
periodic payments as well as the net present value of the end of
transaction payment. The defeasance may be legal or economic. On a
portion of the transaction which is defeased the U.S. entity may be
subject to secondary liability with respect to the defeased obligations
in the event of default by the defeasance bank.
4) In these transactions if the U.S. entity terminates the transaction
early, e.g. because of casualty in respect of the property involved in
the transaction, there is an obligation as of that date to restore the
foreign investor to its anticipated position. This contingent obligation
may require credit support such as a letter of credit or other
arrangements. Generally, both parties to the transaction bear the tax
risk of their respective jurisdictions.
5) As part of the documentation for the transaction, the U.S. entity will
generally be required to enter into certain agreements regarding the
operation of the assets subject to the lease as well as agreements
associated with various assets at the site that support the assets
subject to the lease. Additional agreements that may be executed include
access right agreements or service agreements.
15
These transactions commonly involve transportation equipment and historically
provide benefits to both parties to the transaction. Any contingent
liabilities associated with these transactions are generally remote and no
liability is normally recorded in the U.S. entity's financial statements.
16
