TELECOMMUNICATIONS FINANCE GROUP
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on October 4, 1993 between
TELECOMMUNICATIONS FINANCE GROUP ("hereinafter Lessor") and Communication
TeleSystems International Corporation with its principal office located at
4350 LaJolla Village Drive, Suite 100, San Diego, CA 92122 ("hereinafter
Lessee").
1. LEASE.
Lessor, subject to the conditions set forth in Section 25 hereof, agrees
to lease to Lessee and Lessee agrees to lease from Lessor hereunder,
those items of personal property (the "Equipment") which are described
on Schedule 1 of Exhibit A hereto. Lessee agrees to execute and deliver
to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after
Turnover of the Equipment, and such execution shall constitute
Lessee's irrevocable acceptance of such items of Equipment for all
purposes of this Lease. The Delivery Certificate shall constitute a part
of this Lease to the same extent as if the provisions thereof were set
forth herein.
2. DEFINITIONS.
"AMORTIZATION DEDUCTIONS" as defined in Section 11 (b) (i) hereof.
"APPRAISAL PROCEDURE" shall mean the following procedure for determining
the Fair Market Sale Value of any item of Equipment. If either Lessor or
Lessee shall request by notice (the "Appraisal Request") to the other
that such value be determined by the Appraisal Procedure, (i) Lessor and
Lessee shall, within 15 days after the Appraisal Request, appoint an
independent appraiser mutually satisfactory to them, or (ii) if the
parties are unable to agree on a mutually acceptable appraiser within
such time, Lessor and Lessee shall each appoint one independent
appraiser (PROVIDED that if either party hereto fails to notify the
other party hereto of the identity of the independent appraiser chosen
by it within 30 days after the Appraisal Request, the determination of
such value shall be made by the independent appraiser chosen by such
other party), and (iii) if such appraisers cannot agree on such value
within 20 days after their appointment and if one appraisal is not
within 5 percent of the other appraisal, Lessor and Lessee shall choose a
third independent appraiser mutually satisfactory to them (or, if they
fail to agree upon a third appraiser within 25 days after the
appointment of the first two appraisers, such third independent
appraiser shall within 20 days thereafter be appointed by the American
Arbitration Association), and such value shall be determined by such third
independent appraiser within 20 days after his appointment, after
consultation with the other two independent appraisers. If the first two
appraisals are within 5% of each other, then the average of the two
appraisals shall be the Fair Market Sale Value. The fees and expenses of
all appraisers shall be paid by Lessee.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Florida.
"CODE" shall mean the Internal Revenue Code of 1954, as amended, or any
comparable successor law.
"COMMENCEMENT DATE" as defined in Section 3 hereof.
"DEFAULT" shall mean any event or condition which after the giving of
notice or lapse of time or both would become an Event of Default.
"DELIVERY CERTIFICATE" as defined in Section 1 hereof.
"EQUIPMENT" as defined in Section 1 hereof.
"EVENT OF DEFAULT" as defined in Section 18 hereof.
"EVENT OF LOSS" shall mean, with respect to any item of Equipment, the
actual or constructive total loss of such item of Equipment or the use
thereof, due to theft, destruction, damage beyond repair or rendition
thereof permanently unfit for normal use from any reason whatsoever, or
the condemnation, confiscation or seizure of, or requisition of title to
or use of, such item of Equipment.
"FAIR MARKET SALE VALUE" shall, at any time with respect to any item of
Equipment, be equal to the sale value of such item of Equipment which
would be obtained in an arm's-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing
buyer-user (other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b) hereof, Fair
Market Sale Value shall be determined by (i) an independent appraiser
(at Lessee's expense) selected by Lessor or (ii) by the Appraiser
Procedure if the Appraisal Request is made at least 90 days (but not
more than 360 days) prior to the termination or expiration of the Lease
Term, as the case may be, which determination shall be made (a) without
deduction for any costs or expenses of dismantling or removal; and (b)
on the assumption that such item of Equipment is free and clear of all
Liens and is in the condition and repair in which it is required to be
returned pursuant to Section 7(a) hereof. For purposes of Section 19(c)
hereof, Fair Market Sale Value shall be determined (at Lessee's expense)
by an independent appraiser selected by Lessor, on an "as-is, where-is"
basis, without regard to the provisions of clauses (a) and (b) above;
PROVIDED that if Lessor shall have sold any item of Equipment pursuant
to Section 19(b) hereof prior to giving the notice referred to in
Section 19(c) hereof, Fair Market Sale Value of such item of Equipment
shall be the net process of such sale of after deduction of all costs and
expenses incurred by Lessor in connection therewith; PROVIDED FURTHER,
that if for any reason Lessor is not able to obtain possession of any
item of Equipment pursuant to Section 19(a) hereof, the Fair Market Sale
Value of such item of Equipment shall be zero.
"IMPOSITION" as defined in Section 11(a) hereof.
"INDEMNITEE" as defined in Section 17 hereof.
"LATE CHARGE RATE" shall mean an interest rate per annum equal to the
higher of two percent (2%) over the Reference Rate or eighteen percent
(18%), but not to exceed the highest rate permitted by applicable law.
"LEASE" and the terms "hereof", "herein", "hereto" and "hereunder", when
used in this Lease Agreement, shall mean and include this Lease
Agreement. Exhibits and the Delivery Certificate hereto as the same may
from time to time be amended, modified or supplemented.
"LEASE TERM" shall mean, with respect to any item of Equipment, the term
of the lease of such item of Equipment hereunder specified in Section 3
hereof.
"LESSEE" as defined in the introductory paragraph to this Lease.
"LESSOR" as defined in the introductory paragraph to this Lease.
"LESSOR'S VALUE" shall mean, with respect to any item of Equipment, and
installation if applicable, the total amount set forth in Schedule 1 of
Exhibit A hereto.
"LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of any person claiming through or under
Lessor, not based upon or relating to ownership of the Equipment or the
lease thereof hereunder and (ii) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of Owner (other than Lessor) claiming through
or under Lessor in connection with the transactions described in Section
21(b) hereof.
"LIENS" shall mean any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or any other
right or claim of any person, other than any Lessor's lien.
"LOSS PAYMENT DATE" shall mean with respect to any item of Equipment the
date on which payment, as described in Section 16(b) hereof, is made to
the Lessor by the Lessee as the result of an Event of Loss with respect
to such item. The Loss Payment Date shall be within ninety (90) days of
the said Event of Loss.
"OWNER" shall mean the entity or person having ownership interest to the
Equipment as contemplated by the provisions of Section 21(b) hereof and
may be a person other than Lessor.
"OWNER'S ECONOMICS" shall mean the after-tax yield and periodic
after-tax cash flow anticipated by Owner as of the date of this Lease,
in connection with the transactions contemplated by this Lease as
determined by Owner unless Lessor shall have transferred its interest in
the Equipment to another person as contemplated by the provisions of
Section 21(b) hereof in which case "Owner's Economics" shall mean the
after-tax yield and periodic after-tax cash flow anticipated by such
person as of the date of the lease between such person and Lessor
contemplated by said provisions, in connection with the transactions
contemplated by such lease as determined by such person.
"RECOVERY DEDUCTIONS" as defined in Section 11(b) (i) hereof.
SEE ATTACHED AMENDMENT
"RENT PAYMENT DATE" shall mean each date on which an installment of rent
is due and payable pursuant to Section 5(a) hereof.
"STIPULATED LOSS VALUE" shall mean, with respect to any item of
Equipment, the amount determined by multiplying the Lessor's VALUE of
such item of Equipment by the percentage set forth in Schedule A hereto
opposite the applicable Rent Payment Date; PROVIDED, that for purposes
of Sections 16(b) and 19(c) hereof, any determination of Stipulated Loss
Value as of a date occurring after the final Rent Payment Date with
respect to such Item of Equipment, shall be made as of such final Rent
Payment Date.
"TAX BENEFITS" shall mean the right to claim such deductions, credits,
and other benefits as are provided by the Code to an owner of property,
including the Recovery Deductions and Amortization Deductions.
"TURNOVER" shall mean that point in time when the equipment installation
personnel complete testing of the equipment, or when the equipment is
placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
3. LEASE TERM.
The term of the lease of Equipment hereunder shall commence on the
Commencement Date specified in the Delivery Certificate ("Commencement
Date") and, unless earlier terminated pursuant to the provisions hereof
or at law or equity, shall continue for a term of sixty (60) months
from such Commencement Date. The Commencement Date specified in the
Delivery Certificate shall be the date on which Turnover occurs at a
site provided by Lessee in accordance with the provisions of Section 4
hereof.
4. INSTALLATION.
Lessor shall arrange for installation of the Equipment, the cost of
which installation shall be deemed to be part of Lessor's Value. Exhibit
A hereto shall indicate whether such costs is included or excluded from
the monthly rent payments due in accordance with Section 5(a) hereof. If
excluded from such monthly rent payments, Lessor shall separately
invoice Lessee for such installation upon completion thereof and Lessee
shall pay such invoice within (30) days from the date thereof. Lessee
shall be obligated to timely provide a suitable site for the
installation of the Equipment in accordance with the Equipment
manufacturer's practices attached hereto as Exhibit C. Lessee shall be
responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for
providing adequate space, lighting, heating, air-conditioning and
A/C power at the installation site. Unavailability of Lessee furnished
facilities shall be cause for adjustments to the installation price set
forth in Schedule 1 of Exhibit A hereto.
5. RENT: UNCONDITIONAL OBLIGATIONS.
SEE SCHEDULE G
(b) Lessee shall also pay to Lessor, on demand, interest at the Late
Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid on its due date, for any period for which
the same shall be overdue. Each payment made under this Lease shall be
applied first to the payment of interest then owing and then to rent or
other amounts owing hereunder. Interest shall be computed on the basis
of a 360-day year and actual days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay all rent
and all other amounts payable hereunder is ABSOLUTE and UNCONDITIONAL
under any and all circumstances and shall not be affected by any
circumstances of any character whatsoever, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense,
abatement or reduction or any right which Lessee may have against
Lessor, the manufacturer or supplier of any of the Equipment or anyone
else for any reason what-
2
soever; (ii) any defect in the title, condition, design, or operation of,
or lack of fitness for use of, or any damage to, or loss of, all or any
part of the Equipment from any cause whatsoever; (iii) the existence of
any Liens with respect to the Equipment; (iv) the invalidity,
unenforceability or disaffirmance of this Lease or any other document
related hereto; or (v) the prohibition of or interference with the use or
possession by Lessee of all or any part of the Equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for
patent, trademark or copyright infringement; (2) present or future
governmental laws, rules or orders; (3) the insolvency, bankruptcy or
reorganization of any person; and (4) any other cause whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which may at
any time hereafter be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender the lease of any Equipment. If for
any reason whatsoever this Lease or any Supplement, other than pursuant
to Section 16(b) hereof, shall be terminated in whole or in part by
operation of law or otherwise, Lessee will nonetheless pay to Lessor an
amount equal to each installment of rent at the time such installment
would have become due and payable in accordance with the terms hereof.
Each payment of rent or other amount paid by Lessee hereunder shall be
final and Lessee will not seek to recover all or any part of such payment
from Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER;
ASSIGNMENT OF WARRANTIES
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE
HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE, FREEDOM FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO
THE TITLE TO OR LESSOR'S OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO
ANY OTHER MATTER RELATING TO THE EQUIPMENT OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF
ON THE BASIS OF ITS OWN JUDGEMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON
ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE
TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES
AND/OR TAX TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO
EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS'
AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED,
HOWEVER, THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR
UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT
HEREUNDER, OR UPON THE RETURN OF THE EQUIPMENT TO LESSOR. LESSEE AGREES
TO SETTLE ALL CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE
MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF
ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT, HOWEVER, IN THE
EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO ACT ON
BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH
THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR
FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7. DISPOSITION OF EQUIPMENT.
(a) RETURN.
Lessee shall, upon the expiration of the Lease Term of each item of
Equipment, subject to paragraph (b) below, return such item of Equipment
to Lessor at such place within the continental United States of America
as Lessor shall designate in writing to Lessee. Until such item of
Equipment is returned to Lessor pursuant to the provisions of this
Section, all of the provisions of this Lease with respect thereto shall
continue in full force and effect. Lessee shall pay all the costs and
expenses in connection with or incidental to the return of the Equipment,
including, without limitation, the cost of removing, assembling, packing,
insuring and transporting the Equipment. At the time of such return, the
Equipment shall be in the condition and repair required to be maintained
by Section 12 hereof and free and clear of all Liens.
(b) PURCHASE OPTION SEE SCHEDULE D
8. REPRESENTATION AND WARRANTIES.
In order to induce Lessor to enter into this Lease and to lease the
Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) ORGANIZATION.
Lessee is duly organized, validly existing and in good standing under the
laws of the State of California and is duly qualified to do business and
is in good standing in the State in which the Equipment will be located.
(b) POWER AND AUTHORITY.
Lessee has full power, authority and legal right to execute, deliver and
perform this Lease, and the execution, delivery and performance hereof
has been duly authorized by Lessee's governing body or officer(s).
(c) ENFORCEABILITY.
This Lease has been duly executed and delivered by Lessee and constitutes
a legal, valid and binding obligation of Lessee enforceable in accordance
with its terms.
(d) CONSENTS AND PERMITS.
The execution, delivery and performance of this Lease does not require
any approval or consent of any trustee, shareholder, partner, sole
proprietor or holders of any
3
indebtedness or obligations of Lessee, and will not contravene any law,
regulation, judgment or decree applicable to Lessee, or the certificate
of partnership or incorporation or by-laws of Lessee, or contravene the
provisions of, or constitute a default under, or result in the creation
of any Lien upon any property of Lessee under any mortgage, instrument
or other agreement to which Lessee is a party or by which Lessee or its
assets may be bound or affected; and no authorization, approval, license,
filing or registration with any court or governmental agency or
instrumentality is necessary in connection with the execution, delivery,
performance, validity and enforceability of this Lease.
(e) FINANCIAL CONDITION OF THE LESSEE.
The financial statements of Lessee heretofore furnished to Lessor are
complete and correct and fairly present the financial condition of Lessee
and the results of operations for the respective periods covered thereby,
there are no known contingent liabilities or liabilities for taxes of
Lessee which are not reflected in said financial statements and since the
date thereof, there has been no material adverse change in such financial
condition or operations.
(f) NO LITIGATION.
There is no action, suit, investigation or proceeding by or before any
court, arbitrator, administrative agency or other governmental authority
pending or threatened against or affecting Lessee (A) which involves the
transactions contemplated by this Lease or the Equipment; or (B) which,
if adversely determined, could have a material adverse effect on the
financial condition, business or operations of Lessee.
(g) UNITED STATES SOURCE INCOME.
No items of Equipment shall be used in a way that results in the creation
of an item of income to Lessor, the source of which for Federal Income
Tax purposes is without the United States.
9. LIENS.
Lessee will not directly or indirectly create, incur, assume, suffer, or
permit to exist any Lien on or with respect to the Equipment.
10. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its expense,
property damage, direct damage and liability insurance in such amounts,
against such risks, in such form and with such insurers as shall be
satisfactory to Lessor and any other Owner; provided, that the amount of
direct damage insurance shall not on any date be less than the greater of
the full replacement value of the Stipulated Loss Value of the Equipment
as of such date. Each insurance policy will, among other things, name
Lessor and any other Owner as an additional insured or as loss payee (as
the case may be) as their interests may appear, require that the insurer
give Lessor and any such Owner at least thirty (30) days prior written
notice of any alteration in or cancellation of the terms of such policy,
and require that the interest of Lessor and any such Owner be continued
insured regardless of any breach of or violation by Lessee of any
warranties, declarations or conditions contained in such insurance
policy. At Lessor's or such Owner's option, Lessee shall furnish to
Lessor and such Owner a certificate or other evidence satisfactory to
Lessor that such insurance coverage is in effect provided, however, that
Lessor and such Owner shall be under no duty to ascertain the existence
of adequacy of such insurance.
11. TAXES.
(a) GENERAL TAX PROVISIONS.
Lessee shall pay, and shall indemnify and hold Lessor harmless from and
against, all fees, taxes (whether sales, uses, excise, personal property
or other taxes), imposts, duties, withholdings, assessments and other
governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon), all the
foregoing being herein collectively called "impositions", which are at
any time levied or imposed against Lessor, Lessee, this Lease, the
Equipment or any part thereof by any Federal, State or Local Government
or taxing authority in the United States or by any foreign government or
any subdivision or taxing authority thereof upon, with respect to, as a
result of or measured by (i) the Equipment (or any part thereof), or this
Lease or the interests of the Lessor therein; or (ii) the purchase,
ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof;
or (iii) the rentals, receipts or earnings payable under this Lease or
otherwise arising from the Equipment or any part thereof; EXCLUDING,
HOWEVER, taxes based on or measured by the net income of Lessor that are
imposed by (1) the United States of America, or (2) the State of Florida
or any political subdivision of the State of Florida, or (3) any other
State of the United States of America or any political subdivision of any
such State in which Lessor is subject to impositions as the result
(whether solely or in part) of business or transactions unrelated to this
Lease. In case any report or return is required to be filed with respect
to any obligation of Lessee under this Section or arising out of this
Section, Lessee will notify Lessor of such requirement and make such
report or return in such manner as shall be satisfactory to Lessor;
PROVIDED, that the payment of any use taxes shall be made in such manner
as specified by Lessor in writing to Lessee; or (iv) The provisions of
this Section shall survive the expiration or earlier termination of this
Lease.
(b) SPECIAL TAX PROVISIONS.
(i) The owner of the items of Equipment, shall be entitled to take into
account in computing its Federal income tax liability, Current Tax Rate
and such deductions, credits, and other benefits as are provided by the
Code to an owner of property, including, without limitation;
(A) Recovery deductions ("Recovery Deductions") under Section 168(a)
of the Code for each item of Equipment in an amount determined,
commencing with the 1993 taxable year, by multiplying the Owner's
Cost of such item of Equipment by the percentages applicable under
Section 168(b) of the Code with respect to "(5)-year property" within
the meaning of Section 168(c)(2) of the Code;
(B) Amortization of expenses ("Amortization Deductions") paid or to
be paid by Owner in connection with this Lease at a rate no less rapid
than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11(b) only, the term "Owner"
shall include the "common parent" and all other corporations included in
the affiliated group, within the meaning of Section 1504 of the Code (or
any other successor section thereto), of which Owner is or becomes a
member.
12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE.
(a) Lessee will use the Equipment in a careful and proper manner, will
comply with and conform to all governmental laws, rules and regulations
relating thereto, and will cause the Equipment to be operated in
accordance with the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at his own expense, keep and maintain the Equipment in
good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency therefore will at all times
be maintained and preserved reasonable wear and tear excepted. All such
repairs, parts, mechanisms, devices and replacements shall immediately,
without further act, become the property of Lessor and part of the
Equipment.
4
(c) Lessee will not make or authorize any improvement, change, addition
or alteration to the Equipment (i) if such improvement, change, addition
or alteration will impair the originally intended function or use of the
Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition or alteration; or (ii) if
any parts installed in or attached to or otherwise becoming a part of
the Equipment as a result of any such improvement, change, addition, or
alteration shall not be readily removable without damage to the
Equipment. Any part which is added to the Equipment without violating
the provisions of the immediately preceding sentence and which is not a
replacement or substitution for any property which was a part of the
Equipment, shall remain the property of Lessee and may be removed by
Lessee at any time prior to the expiration or earlier termination of the
Lease Term. All such parts shall be and remain free and clear of any
Liens. Any such part which is not so removed prior to the expiration or
earlier termination of the Lease Term shall, without further act, become
property of Lessor.
13. INSPECTION.
Upon prior notice, Lessor or its authorized representative may at any
reasonable time or times inspect the Equipment when it deems necessary
to protect its interest therein.
14. IDENTIFICATION.
Lessee shall, at its expense, attache to each item of Equipment a notice
satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. PERSONAL PROPERTY.
Lessee represents that the Equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its expense,
take such action (including the obtaining and recording of waivers) as
may be necessary to prevent any third party from acquiring any right to
or interest in the Equipment by virtue of the Equipment being deemed to
be real property or a part of real property or a part of other personal
property, and if at any time any person shall claim any such right or
interest, Lessee shall, at its expense, cause such claim to be waived in
writing or otherwise eliminated to Lessor's satisfaction within 30 days
after such claim shall have first become known to Lessee.
16. LOSS OR DAMAGE.
(a) All risk of loss, theft, damage or destruction to the Equipment or
any part thereof, however incurred or occasioned, shall be borne by
Lessee and, unless such occurrence constitutes an Event of Loss pursuant
to paragraph (b) of this Section, Lessee shall promptly give Lessor
written notice hereof and shall promptly cause the affected part or parts
of the Equipment to be replaced or restored to the condition and repair
required to be maintained by Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment shall
occur, Lessee shall promptly give Lessor written notice thereof, and
Lessee shall pay to Lessor as soon as it receives insurance proceeds
with respect to said Event of Loss but in any event no later than 180
days after the occurrence of said Event of Loss an amount equal to the
sum of (i) the Stipulated Loss Value of such item of Equipment computed
as of the Rent Payment Date with respect to such item of Equipment on or
immediately preceding the date of the occurrence of such Event of Loss;
and (ii) all rent and other amounts due and owing hereunder for such
item of Equipment on or prior to the Loss Payment Date. Upon payment of
such amount to Lessor, the lease of such item of Equipment hereunder
shall terminate, and Lessor will transfer within forty days to Lessee,
Lessor's right, title and interest in and to such item of Equipment, on
an "as-is, where-is" basis, without recourse and without representation
or warranty, express or implied, other than a representation and
warranty that such item of Equipment is free and clear of any Lessor's
Liens.
SEE SCHEDULE F
17. GENERAL INDEMNITY.
Lessee assumes liability for, and shall indemnify, protect save and keep
harmless Lessor and its agents, servants, successors and assigns (an
"Indemnitee") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses,
including reasonable legal expenses, of whatsoever kind and nature,
imposed on, incurred by or asserted against an Indemnitee, in any way
relating to or arising out of this Lease or the enforcement hereof, or
the manufacture, purchase, acceptance, rejection, ownership, possession,
use selection, delivery, lease, operation, condition, sale, return or
other disposition of the Equipment or any part thereof (including,
without limitation, latent or other defects, whether or not discoverable
by Lessee or any other person, any claim in tort for strict liability
and any claim for patent, trademark or copyright infringement);
PROVIDED, however, that Lessee shall not be required to indemnify any
Indemnitee for loss or liability arising from acts or events which occur
after the Equipment has been returned to Lessor in accordance with the
Lease, or for loss or liability resulting solely from the willful
misconduct or gross negligence of such Indemnitee. The provisions of this
Section shall survive the expiration or earlier termination of this Lease.
18. EVENTS OF DEFAULT.
The following events shall each constitute an event of default (herein
called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or Lessor's
agent) the "Delivery Certificate" within twenty-four (24) hours of
Turnover of the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day of
the month following the Commencement Date, or such other initiation of
lease payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other amount
owing hereunder after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by Section 10
hereof or to perform or observe any of the covenants contained in
Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it with respect to
this Lease and such failure shall continue unremedied for 30 days after
the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure; or (b) the date on
5
which notice thereof shall be given by Lessor to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in any
document, certificate or financial or other statement now or hereafter
furnished Lessor in connection with this Lease shall prove at any time to
have been untrue, incomplete or misleading in any material respect as of
the time when made; or
(vii) The entry of a decree or order for relief by a court having
jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or
insolvent, or approving as properly filed a petition seeking a
reorganization, arrangement, adjustment or composition of or in respect
of Lessee in an involuntary proceeding or case under the Federal
bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or State bankruptcy, insolvency or other similar law,
or appointing a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of Lessee or of any substantial part
of this property, or ordering the winding-up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 30 days; or
(viii) The institution by Lessee of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the commencement by
Lessee of a voluntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal
or state bankruptcy, insolvency or other similar law, or the consent by
it to the filing of any such petition or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of Lessee or of any substantial
part of its property, or the making by it of any assignment for the
benefit of creditors or the admission by it of its inability to pay its
debts generally as they become due or its willingness to be adjudicated
a bankrupt or the failure of Lessee generally to pay its debts as they
become due or the taking of corporate action by Lessee in furtherance of
any of the foregoing.
19. REMEDIES.
SEE SCHEDULE F
(a) demand that Lessee, and Lessee shall at its expense upon such
demand, return the Equipment promptly to Lessor at such place in
the continental United States of America as Lessor shall specify,
or Lessor and/or its agents, at its option, may with or without
entry upon the premises where the Equipment is located and disable
the Equipment, or make the Equipment inoperable permanently or
temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary
proceedings or otherwise, all without liability for by reason of
such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or for disabling or
otherwise;
(b) sell the Equipment at public or private sale, with or without
notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep
idle the Equipment as Lessor in its sole discretion may determine,
all free and clear of any rights of Lessee and without any duty to
account to Lessee with respect to such action or inaction or for
any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which
shall be not earlier than 20 days after the date of such notice,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor,
on the payment date specified in such notice, as liquidated damages
for loss of a bargain and not as a penalty, all accrued and unpaid
rent for the Equipment due on all Rent Payment Dates up to and
including the payment date specified in such notice PLUS an amount
(together with interest on such amount at the Late Charge Rate, from
the payment date specified in such notice to the date of actual
payment) equal to the excess, if any, of the Stipulated Loss Value
of the Equipment as of the payment date specified in such notice
over the Fair Market Sale Value of the Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate
court action to enforce the terms hereof or to recover damages for
the breach hereof or to rescind this Lease. Lessor is entitled to
recover any amount that fully compensates the Lessor for any damage
to or loss of the Lessor's residual interest in the leased property
caused by the Lessee's default.
In the event any present value discounting is applied, the discount
rate used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid rent and
other amounts due hereunder before or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or
the exercise of Lessor's remedies with respect thereto, including all
reasonable costs and expenses incurred in connection with the placing of
the Equipment in the condition required by Section 12 hereof.
No remedy referred to in this Section 19 is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy
referred to herein or otherwise available to Lessor at law or in
equity; and the exercise or beginning of exercise by Lessor of any one
or more of such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all such other remedies. No express or
implied waiver by Lessor of an Event of Default shall in any way be, or
be construed to be, a waiver of any future or subsequent Event of
Default. To the extent permitted by applicable law, Lessee hereby waives
any rights now or hereafter conferred by statute or otherwise which may
require Lessor to sell or lease or otherwise use the Equipment in
mitigation of Lessor's damages or losses or which may otherwise limit or
modify any of Lessor's rights or remedies under this Lease.
20. LESSOR'S RIGHT TO PERFORM.
If Lessee fails to make any payment required to be made by it hereunder
or fails to perform or comply with any of its other agreements contained
herein, Lessor may itself make such payment or perform or comply with such
agreement, and the amount of such payment and the amount of the
reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Late Charge Rate, shall be
deemed to be additional rent, payable by Lessee within 30 days of notice.
6
21. LOCATION; ASSIGNMENT OR SUBLEASE;
TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED IN
SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUCH
CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE
CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE
IN THE SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR (WHICH MAY NOT BE UNREASONABLY
WITHHELD), ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE OR
OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY
ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION
OF THESE PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS
INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER AND
(ii) MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE
ABOVE-DESCRIBED TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i)
THAT ANY SUCH ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S
DUTIES AND OBLIGATION HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES NOT
MATERIALLY INCREASE THE BURDEN OR RIGHT IMPOSED ON THE LESSEE, AND (iii)
THAT THE ASSIGNMENT IS PERMITTED EVEN IF THE ASSIGNMENT COULD BE DEEMED TO
MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. STATUS CHANGES IN LESSEE.
Lessee will not without thirty (30) days prior written notice to Lessor,
(a) enter into any transaction of merger or consolidation unless it is
the surviving corporation or after giving effect to such merger or
consolidation its net worth equals or exceeds that which existed prior to
such merger or consolidation; or (b) change the form of organization of
its business which may not be unreasonably withheld; or (c) change its
name or its chief place of business. Lessee must obtain Lessor's prior
written concurrence before Lessee may undertake any actions to (a)
liquidate or dissolve or similar action of the Lessee's organization, or
(b) sell, transfer or otherwise dispose of all or any substantial part of
Lessee's assets.
23. FURTHER ASSURANCES; FINANCIAL INFORMATION.
(a) Lessee will, at its expense, promptly and duly execute and deliver to
Lessor such further documents and assurances and take such further action
as Lessor may from time to time reasonably request in order to establish
and protect the rights, interests and remedies created or intended to be
created in favor of Lessor hereunder, including, without limitation, the
execution and filing of Uniform Commercial Code financing statements
covering the Equipment and proceeds therefrom in the jurisdictions in
which the Equipment is located from time to time. To the extent permitted
by applicable law, Lessee hereby authorizes Lessor to file any such
financing statements without the signature of Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the Equipment is from time to
time located.
(c) Lessee will furnish to Lessor as soon as available, but in any event
not later than 90 days after the end of each fiscal year of Lessee, a
consolidated balance sheet of Lessee as at the end of such fiscal year,
and consolidated statements of income and changes in financial position
of Lessee for such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles applied on a
basis consistently maintained throughout the period involved. These
reports will not be disclosed to anyone other than the Lessor and/or
Owner as provided in Section 21(b).
24. NOTICES.
All notices, demands and other communications hereunder shall be in
writing, and shall be deemed to have been given or made when deposited
in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the following persons may from
time to time designate in writing to the other persons listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: Communication TeleSystems International
4350 LaJolla Village Drive, Suite 100
San Diego, CA 92122
25. CONDITIONS PRECEDENT:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements covering
Equipment and proceeds therefrom and landlord and/or mortgagee waivers
or disclaimers and/or severance agreements with respect to the items
of Equipment covered by this Lease as Lessor shall deem necessary or
desirable in order to perfect and protect its interests therein shall
have been duly executed and filed, at Lessee's expense, in such
public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained herein
or in any document or certificate furnished Lessor in connection
herewith shall be true and correct on and as of the date of this
Lease with the same force and effect as if made on and as of such
date; no Event of Default or Default shall be in existence on such date
or shall occur as a result of the lease by Lessee of the Equipment
specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, there shall have been no
material adverse change in the financial condition of business or
Lessee;
(iv) All proceedings to be taken in connection with the transactions
contemplated by this Lease, and all documents incidental thereto,
shall be satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form and substance
satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel;
and
(vii) No Change in Tax Law, which in the sole judgment of Lessor
would adversely affect Lessor's Economics, shall have occurred or
shall appear, in Lessor's good faith judgment, to be imminent.
26. SOFTWARE LICENSE.
Reference is made to the form of DCO Software License Agreement attached
hereto as Exhibit B (the "License Document"). Lessor has arranged for the
Equipment manufacturer to grant Lessee a license to use the Software as
defined in the License Document in conjunction with the equipment leased
hereunder in accordance with the
7
terms of the License Document. The original license fee is contained in
the lease rate. To avail itself of the license grant, Lessee must execute
the License Document, upon commencement of the Lease. The option to
obtain a fully paid up license as provided in Article 2 of the License
Document may be exercised by the Lessee and the payment made directly to
the equipment manufacturer named in the License Document. "Buyer" and
"Licensee" as used in the License Document are synonymous with lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR
FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR
OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR ANY
LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY
OTHER PARTY.
28. MISCELLANEOUS.
(a) Any provision of this Lease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provisions in any other jurisdiction. To the extent permitted by
applicable law, Lessee hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought. No delay or failure on the part of
Lessor to exercise any power or right hereunder shall operate as a waiver
thereof, nor as an acquiescence in any default, no shall any single or
partial exercise of any power or right preclude any other or further
exercise thereof, or the exercise of any other power or right. After the
occurrence of any Default or Event of Default, the acceptance by Lessor
of any payment of rent or other sum owed by Lessee pursuant hereto shall
not constitute a waiver by Lessor of such Default or Event of Default,
regardless of Lessor's knowledge or lack of knowledge thereof at the time
of acceptance of any such payment, and shall not constitute a
reinstatement of this Lease, if this Lease shall have been declared in
default by Lessor pursuant to Section 18 hereof or otherwise, unless
Lessor shall have agreed in writing to reinstate the Lease and to waive
the Default or Event of Default.
In the event Lessee tenders payment to Lessor by check or draft containing
a qualified endorsement purporting to limit or modify Lessee's liability
or obligations under this Lease, such qualified endorsement shall be of
no force and effect even if Lessor processes the check or draft for
payment.
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the
Lease of the Equipment.
(d) This Lease shall constitute an agreement of an operating lease, and
nothing herein shall be construed as conveying to Lessee any right, title
or interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, Lessor and its successors and
assigns and Lessee and, to the extent permitted by Section 21 hereof, its
successors and assigns.
(f) The headings of the Sections are for convenience of reference only,
are not a part of this Lease and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute but
one and the same instrument.
(h) This Lease is deemed made and entered into in the State of Florida
and shall be governed by and construed under and in accordance with the
laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal action,
suit, or proceeding arising out of or in any way in connection with this
Lease shall be instituted or brought in the courts of the State of
Florida, or the United States Courts for the District of Florida, and by
execution and delivery of this Lease, Lessee hereby irrevocably accepts
and submits to, for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of any such court, and to
all proceedings in such courts. Lessee irrevocably consents to service of
any summons and/or legal process by registered or certified United States
mail, postage prepaid, to Lessee at the address set forth in Section 24
hereof, such method of service to constitute, in every respect, sufficient
and effective service of process in any legal action or proceeding.
Nothing in this Lease shall affect the right to service of process in any
other manner permitted by law or limit the right of Lessor to bring
actions, suits or proceedings in the court of any other jurisdiction.
Lessee further agrees that final judgment against it in any such legal
action, suit or proceeding shall be conclusive and may be enforced in any
other jurisdiction, within or outside the United States of America, by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and the amount of the liability.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed as of the day and year first above written and by its signature
below Lessee expressly acknowledges that this Lease may not be modified
unless done so in a writing signed by each of the parties hereto or their
successors in interest.
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS INTERNATIONAL
- -------------------------------- ---------------------------------------
(Lessee)
By: CC Callaway By: Edward S. Soren
- -------------------------------- ---------------------------------------
Edward S. Soren - President
- -------------------------------- ---------------------------------------
(Authorized Representative of (Name & Title)
Telecommunications Finance Group)
Date Signed: 5/26/94 Date Signed: 12-20-93
8
AMENDMENT TO LEASE AGREEMENT DATED OCTOBER 4, 1993 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
COMMUNICATION TELESYSTEMS INTERNATIONAL (LESSEE)
FOR A USED DCO-CS LOCATED IN SEATTLE, WASHINGTON
"REFERENCE RATE" shall mean the rate of interest publicly announced
by Citibank, N.A. in New York, New York from time to time as its prime
rate.
The reference rate is not intended to be the lowest rate of interest
charged by Citibank, N.A. in connection with extensions of credit to
debtors. The Reference Rate shall be determined at the close of
business on the 15th day of each calendar month (if the 15th day is
not a Business Day, then on the first preceding Business Day) and
shall become effective as of the first day of the calendar month
succeeding such determination and shall continue in effect to, and
including, the last day of said calendar month.
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS INTERNATIONAL
- -------------------------------- ---------------------------------------
(Lessee)
By: CC Callaway By: Edward S. Soren
- -------------------------------- ---------------------------------------
Edward S. Soren - President
- -------------------------------- ---------------------------------------
(Authorized Representative of (Name & Title)
Telecommunications Finance Group)
Date Signed: 5/26/94 Date Signed: 12-20-93
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Lease Agreement (10/4/93)
have been omitted from this Exhibit and shall be furnished supplementally to
the Commission upon request:
Schedule A - Stipulated Loss Value
Schedule B - Amendment to Lease Agreement
Schedule C - Amendment to Lease Agreement
Schedule D - Amendment to Lease Agreement
Schedule E - Buyout Price on 60 Month Lease, with a Three Month Payment
Deferral, as a Percentage of Lessors Cost as Shown in
Schedule 1 of Exhibit A of the Lease
Schedule F - Amendment to Lease Agreement
Schedule G - Amendment to Lease Agreement
Exhibit A - Certificate of Delivery and Acceptance
Exhibit B - Software License Agreement
Exhibit C - Assignment of Purchase Order