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Federal Express - Transportation Agreement
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TRANSPORTATION AGREEMENT
BETWEEN
THE UNITED STATES POSTAL SERVICE
AND
FEDERAL EXPRESS CORPORATION
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TRANSPORTATION AGREEMENT
BETWEEN
THE UNITED STATES POSTAL SERVICE
AND
FEDERAL EXPRESS CORPORATION
TABLE OF CONTENTS
Preamble.....................................................................1 ARTICLE 1 - DEFINITIONS .....................................................1 ARTICLE 2 - FEDEX SERVICES ..................................................8 ARTICLE 3 - DISPUTE RESOLUTION ..............................................9 ARTICLE 4 - INDEPENDENT CONTRACTOR...........................................11 ARTICLE 5 - TAXES ...........................................................11 ARTICLE 6 - FEDEX COMPENSATION...............................................13 ARTICLE 7 - PAYMENTS ........................................................13 ARTICLE 8 - GENERAL OBLIGATIONS OF FEDEX ....................................14 ARTICLE 9 - GOVERNMENT REGULATION............................................18 ARTICLE 10 - DISCLOSURE/TRADEMARKS ..........................................18 ARTICLE 11 - OBLIGATIONS OF USPS ............................................21 ARTICLE 12 - LIABILITIES OF THE PARTIES......................................23 ARTICLE 13 - RISK OF LOSS; CLAIMS PROCEDURE;
LIMITATION OF LIABILITY.........................................25 ARTICLE 14 - REPRESENTATIONS AND WARRANTIES..................................25 ARTICLE 15 - TERM AND TERMINATION............................................26 ARTICLE 16 - EVENTS OF DEFAULT...............................................29 ARTICLE 17 - CONFIDENTIALITY.................................................30 ARTICLE 18 - FORCE MAJEURE...................................................30 ARTICLE 19 - STANDARD USPS CLAUSES...........................................31 ARTICLE 20 - APPLICABLE LAW..................................................47 ARTICLE 21 - ENTIRE AGREEMENT................................................47 ARTICLE 22 - AMENDMENTS OR MODIFICATIONS.....................................48 ARTICLE 23 - ASSIGNMENT......................................................48 ARTICLE 24 - WAIVER OF BREACH................................................48 ARTICLE 25 - NOTICES.........................................................48 ARTICLE 26 - REPRESENTATIVES.................................................49 ARTICLE 27 - SEVERABILITY....................................................50 ARTICLE 28 - ORDER OF PRECEDENCE CLAUSE......................................50 EXHIBIT A -- OPERATION SPECFICATIONS
Attachment I Day-turn Operating Plan
Attachment II Night-turn Operating Plan
Attachment III Airworthiness
Attachment IV Unacceptable Packages EXHIBIT B -- RATES EXHIBIT C -- PAYMENT PROCEDURES EXHIBIT D -- MEDIATORS LIST EXHIBIT E -- FORM OF ESCROW AGREEMENT
TRANSPORTATION AGREEMENT
THIS TRANSPORTATION AGREEMENT (this "AGREEMENT") is entered into as of January 10, 2001 between:
THE UNITED STATES POSTAL SERVICE, an independent establishment of the United States of America established pursuant to 39 United States Code Section 101 et seq., having an office at 475 L'Enfant Plaza S.W., Washington, D.C. 20260-1135 ("USPS"), and
FEDERAL EXPRESS CORPORATION, a company organized and existing under the laws of Delaware, having an office at 3610 Hacks Cross Roads, Memphis, Tennessee 38125 (together with its Affiliate, "FEDEX" and together with USPS, the "PARTIES" and each individually, a "PARTY").
PREAMBLE
WHEREAS, USPS is engaged in the transportation and delivery of, among other things, deferred, day-certain and time-sensitive shipments to various destinations throughout the United States and around the world,
WHEREAS, FedEx is engaged in the integrated air and ground transportation of, as well as providing import and export customs services for, time-sensitive and time-definite shipments to various destinations throughout the United States and around the world,
WHEREAS, USPS desires to provide for the transportation and delivery of the Products (as such term is defined in this Agreement) in accordance with the Operating Specifications (as such term is defined in this Agreement),
WHEREAS, USPS desires FedEx to perform and FedEx is willing to provide the FedEx Services (as such term is defined in this Agreement) to USPS.
FOR AND IN CONSIDERATION of the mutual covenants contained in this Agreement, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement and its Schedules, the following terms shall have the following meanings:
"ACTUAL AIRCRAFT ARRIVAL" means the actual time that an aircraft blocks in at a destination ramp.
"ADVERTISEMENT" means a free or paid mass or targeted communication under the control of a party intended for the general public or a specific potential or existing customer, the ultimate purpose of which is to promote the sale of such party's products or services, including, but not limited to, television, radio and internet commercials, out-of-home ads (e.g., billboards,
sports stadium displays, transit signs), direct mail ads, print ads and free standing inserts in newspapers, magazines, and electronic media.
"AREA DISTRIBUTION CENTER" (ADC) means any USPS or third Party location that receives packages inbound to a market from FedEx or acts as a destination that receives Packages inbound to a market from FedEx.
"AIR MAIL CENTER " (AMC) means any USPS or third Party location that acts as an origin or destination location for tendering USPS packages to or from FedEx outbound or inbound from a market or acts as an origin or destination location for tendering USPS packages to or from FedEx outbound or inbound.
"AIRWORTHY" means the conformity of an ULD with the conditions set forth in Attachment III to the Operation Specifications.
"AFFILIATE" means an entity that Controls or is directly or indirectly Controlled by a Party or is under joint Control with a Party that Controls. An Affiliate is also an entity that is under the common Control of another entity that also Controls a Party.
"ALL PURPOSE CONTAINER" (APC) is a type of USPS mail transport equipment into which Packages are sorted.
"ANNUAL TOTAL AIR FORECAST" means the forecast provided to FedEx by USPS pursuant to Section 4.2.0 of the Operating Specifications.
"BASELINE COMMITMENT" means the Baseline Commitment by origin that FedEx is committed to transport and that USPS is obligated to provide as set forth in the Operating Plans.
"BY-PASS NETWORK FLOW" means the By-pass Network Flow that is to be developed by the parties from time to time pursuant to the provisions of Section 3.6.0 of the Operating Specifications.
"BY-PASS TARGET RATE" means the percentage, determined on a system-wide aggregate basis, of ULDs that will be By-pass ULDs (which will not be less than 25% unless otherwise agreed by FedEx in writing). The By-pass Target rate will be determined on a Schedule Period basis in accordance with the procedures set forth in Section 3 of the Operating Specifications.
"BY-PASS ULDs" means a single ULD loaded at the origin location for a particular destination. The volume in the ULD will not be individually processed in the FedEx sort operation. USPS sometimes refers to By-pass ULDs as "intacts".
"CHANGE OF CONTROL EVENT" shall mean
(a) any Person or group (within the meaning of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules of the
Securities and Exchange Commission promulgated thereunder as in effect
on the date thereof) who is not a stockholder of FedEx Corporation as
of the date hereof becoming the beneficial owner pursuant to Rule
13d-3 or 13d-5 under the Exchange Act of Voting Stock of FedEx
Corporation having more than 30%
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of the voting power of all of the then outstanding Voting Stock of
FedEx Corporation;
(b) individuals who are not Continuing Directors constituting a majority
of the Board of Directors of FedEx Corporation, or individuals who are
not appointed or designated by FedEx Corporation constituting a
majority of the Board of Directors of FedEx;
(c) FedEx Corporation consolidating with or merging into any other Person,
or any other Person consolidating with or merging into FedEx
Corporation, unless the stockholders of FedEx immediately prior to
such transaction hold at least 50% of the outstanding Voting Stock of
the surviving corporation;
(d) FedEx consolidating with or merging into any other Person that is not
a direct or indirect subsidiary of FedEx Corporation, or any other
such Person merging with or into FedEx, unless Federal Express is the
surviving corporation;
(e) FedEx, in one transaction or a series of related transactions,
conveying, transferring or leasing, directly or indirectly, all or
substantially all of its assets to any other Person that is not a
direct or indirect subsidiary of FedEx Corporation; and
(f) FedEx Corporation and one or more of its direct or indirect
wholly-owned subsidiaries ceasing to own and control 80% of the issued
and outstanding Voting Stock of FedEx.
"COMMITTED VOLUMES" means the volumes that USPS is committed to providing FedEx and that FedEx is committed to transporting during any Schedule Period as more fully described in Section 3.6.0 of the Operating Specifications.
"COMMITTED VOLUME SCHEDULE" means the schedule developed by FedEx as described in Section 3.6.0 of the Operating Specifications.
"CONSOLIDATION SCAN" (CONS) is a scan that associates multiple package tracking numbers to a consolidated unit and can associate multiple consolidated units to a single unit. This is the scan that is performed when individual pieces are consolidated into a ULD.
"CONTINUING DIRECTOR" means an individual who is a member of the Board of Directors of FedEx Corporation on the date of this Agreement or who shall have become a member of the Board of Directors of FedEx Corporation subsequent to such date and who shall have been nominated or elected by a majority of the other Continuing Directors then members of the Board of Directors of FedEx Corporation.
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"CONTAINERIZED TRANSPORT VEHICLE" (CTV) means any truck that is used to transport ULDs.
"CONTROL" or "TO CONTROL" means with respect to an entity ownership of more than 50% of the capital stock or equity interest and voting control of any entity and the power to designate a majority of the board of directors of such entity.
"DAILY RECONCILED AMOUNT" means the FedEx invoice amount for the specified shipping day.
"DANGEROUS GOODS" OR "HAZARDOUS MATERIAL" means articles or substances which are capable of posing a significant risk to health, safety or to property when transported by air and which are classified according to Section 3 (Classification) of the International Air Transport Association (IATA) Dangerous Good Regulations, regardless of variations, exceptions, exemptions, or limited quantity allowances.
"DAY-TURN OPERATING PLAN" means the Day-turn operating plan attached to the Operating Specifications as Attachment I and relates to the Day-turn Operations.
"DAY-TURN OPERATIONS" means the FedEx operation that operates Tuesday through Sunday and processes FedEx Economy Service volume.
"DELIVERY SCAN" means a scan performed by FedEx that indicates that FedEx has tendered volume to USPS.
"DISPATCH AND ROUTING TAG" (D&R TAG) means a bar coded USPS label that is attached to Handling Units. The D&R Tag provides an identification number that is unique for thirty days from generation in human and machine-readable format as well as the destination FedEx ramp identifier of the Handling Unit in human readable format.
"EMPLOYEES WITH ACCESS TO THE MAIL" means FedEx employees who transport, sort, load and unload mail to and from the aircraft including supervisors of such employees.
"ESCROW AGREEMENT" means the form Escrow Agreement attached to this Agreement as Exhibit E into which funds may be deposited pursuant to the provisions of Section 3.1 and 7.3 of this Agreement.
"FEDEX HOLIDAYS" means the holidays that FedEx does not operate as listed in Section 3.9.1 of the Operating Specifications.
"FEDEX SERVICES" means the services described in the Operating Specifications to be provided by FedEx to USPS.
"GOVERNMENTAL BODY" means any:
(i) international, federal, state or local jurisdiction of any nature;
(ii) international, federal, state or local government;
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(iii) international, federal, state or local governmental or
quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity
and any court or other tribunal); and
(iv) international, federal, state or local body exercising, or
entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power
of any nature.
"INBOUND MARKET VOLUME" means all inbound Handling Units to a destination AMC or ADC.
"HANDLING UNIT" means a ULD (other than a Partial ULD), Mailbag, Tub, Mail Tray, or Outside that is individually processed by FedEx. The term "Handling Unit" does not include the contents of a By-pass ULD.
"HAZARDOUS MATERIALS" has the meaning set forth in the definition for Dangerous Goods.
"HUB SCAN" means a scan performed by FedEx at a HUB.
"LEGAL REQUIREMENT" means any federal, state, local or other administrative order, constitution, law, ordinance, principle of common law, rule, regulation, statute, policy, procedure, directive, binding guideline or interpretation, or treaty.
"LOCAL" means the location closest to where an event or circumstance exists.
"LOCAL PLAN" means the individual plans that will be entered into at the Local level between FedEx and USPS in accordance with the Operating Specifications.
"MAIL BAGS" means USPS bags with maximum dimensions of 30 inches by 15 inches by 15 inches. The closure of the Mail Bag must be such that no straps or strings are hanging loose. The Mail Bag must have a permanently affixed location on the side of the bag which allows the routing label to be affixed in such a manner that it can be scanned by the FedEx automated sorting equipment.
"MAIL TRAYS" means closed and secured containers with dimensions no greater than 21 inches by 19 inches by 19 inches used to carry mail.
"MARKET LANE" has the meaning set forth in Section 3.2.0 of the Operating Specifications.
"MARKET SERVICE COMMITMENT TIME" means the time specified by which FedEx commits to tender volume to USPS as more fully described in Section 8.5 hereof.
"MEDIATOR'S LIST" means the list of potential mediators as jointly agreed by the parties and attached as Exhibit D hereto.
"MINIMUM GUARANTEED VOLUMES" means the minimum volumes that USPS is obligated to provide to FedEx as more fully set forth in Section 11.1 hereof.
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"NATIONAL DISRUPTION" means the declaration of a national disruption by FedEx in accordance with its standard procedures for its national customer base [*].
"NETWORK EXPANSION REIMBURSEMENT" means an amount equal to [*] to be paid by USPS to FedEx pursuant to the provisions of Section 6.3 of this Agreement and any additional amounts that become payable by USPS to FedEx pursuant to the provisions of Section 11.4 of this Agreement.
"NIGHT-TURN OPERATING PLAN" means the Operating Plan attached to the Operating Specifications as Attachment II that relates to the Night-turn Operations.
"NIGHT-TURN OPERATIONS" means the FedEx operation that operates Monday night through Friday night and Sunday and processes primarily FedEx Overnight packages.
"OPERATING PLAN" means either the Day-turn Operating Plan or the Night-turn Operating Plan, individually or collectively.
"OPERATING SPECIFICATIONS" means the description of the services to be provided by FedEx under this Agreement and the responsibilities and obligations of each of the parties in connection therewith as set forth in Exhibit A to this Agreement.
"ORDER" means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.
"OUTBOUND MARKET VOLUME" means all outbound Handling Units originating from the geographic area served by an AMC.
"OUTSIDES" means individual packages with dimensions no greater than 108 inches in combined length and girth and with no single dimension greater than 84 inches.
"PACKAGE" means any box or envelope that is accepted by USPS for delivery to the consignee.
"PARTIAL ULD" means a ULD that is used to convey loose Handling Units from the AMC to the FedEx ramp. This ULD will be unloaded at the origin ramp.
"PERSON" means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.
"POSSESSION SCAN" means a scan performed by FedEx that indicates FedEx has accepted volume from USPS.
"PRELIMINARY NETWORK FLOW" has the meaning set forth in Section 3.6.0 of the Operating Specifications.
"PROCEEDING" means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought,
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conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"PROCESS CODE" means the code set forth in each Operating Plan that describes the method of and time periods for the pickup and delivery from and to each AMC and ADC.
"READY FOR CARRIAGE" means adequately packaged, labeled and secured Shipments in the condition required by the Operating Specification.
"REGIONAL DISRUPTION" means a major event that adversely affects transportation networks on a regional basis as evidenced by the declaration of a state of emergency by a state or Federal Governmental Body.
"SCANNING SPECIFICATIONS" means the specifications that are attached to the Operating Specifications as Attachment VI and which relate to the requirements for the D&R Tag and the scanning devices to be used by FedEx personnel in the performance of the FedEx Services.
"SCHEDULED AIRCRAFT ARRIVAL" means the planned block-in time at the FedEx ramp in accordance with the Schedule Period Operations Schedule.
"SCHEDULE BLOCK" means one or more Schedule Periods grouped together by FedEx for purposes of determining flight schedules during such period.
"SCHEDULE BLOCK IMPLEMENTATION DATE" means the first day of scheduled flights during any Schedule Block Period.
"SCHEDULE PERIOD" means one of the twelve periods ranging from twenty-eight (28) to thirty-five (35) days as shall from time to time be specified by FedEx.
"SCHEDULE PERIOD IMPLEMENTATION DATE" means the first day of scheduled flights during any `Schedule Period.
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"SCHEDULE PERIOD OPERATIONS SCHEDULE" means the flight schedule that is applicable during each Schedule Block as developed pursuant to the provisions of Section 3.6.0.
"SCHEDULE PERIOD REQUEST FORECAST" means the forecast provided to FedEx by USPS pursuant to the provisions of Section 3.5.0 of the Operating Specifications.
"SCHEDULE PERIOD TOTAL AIR FORECAST" means the forecast provided to FedEx by USPS pursuant to the provisions of Section 3.4.0 of the Operating Specifications.
"SERVICE COMMENCEMENT DATE" means August 27, 2001 or any earlier or later date on which FedEx begins the performance of the FedEx Services.
"SERVICE LEVEL" means the measurement of FedEx's performance calculated in the manner described in Section 8.5 of this Agreement.
"SERVICE LEVEL COMMITMENT" means the percentage of service level that FedEx commits to achieve as provided in Section 8.5 of this Agreement.
"SHIPMENT" means all Packages moving on an individually processed D&R Tag.
"SHIPPING DAY" means a day on which FedEx performs the FedEx Services.
"SHIPPING PERIOD" means Saturday through Friday.
"SHIPPING PERIOD RECONCILED AMOUNT" means the FedEx invoiced amount for the Shipping Period.
"TRANS LOG FILE" means the USPS data file that contains, for each D&R Tag, the actual weight, origin, and destination market for each Handling Unit. All changes to the Trans-Log File including layout, valid data values or data definitions must be communicated to FedEx not later than 60 calendar days prior to the implementation of the change unless otherwise mutually agreed.
"UNACCEPTABLE PACKAGES" means packages that are unacceptable for transportation in the FedEx network as described in Attachment IV to the Operating Specifications.
"UNIT LOAD DEVICE" (ULD) means the general name used to refer to FedEx air containers.
"UNIVERSAL ROUTING AND SORT AID" (URSA) means the alphanumeric code on FedEx packages to designate its routing.
"VOTING STOCK" means all outstanding shares of capital stock of a Person entitled to vote generally in the election of directors.
ARTICLE 2
FEDEX SERVICES
Effective as of the Service Commencement Date, USPS wishes FedEx to provide the FedEx Services and FedEx hereby agrees to perform the FedEx Services. The Parties expressly agree
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that, subject to the condition that FedEx shall remain liable hereunder, FedEx may provide the FedEx Services through an Affiliate or any sub-contractor. FedEx may not sub-contract the FedEx Services except in the ordinary course of business and in a manner that does not discriminate against USPS without the prior written consent of USPS. Notwithstanding the foregoing, FedEx may not sub-contract more than [*].
ARTICLE 3
DISPUTE RESOLUTION
3.1 The parties shall attempt in good faith to resolve any dispute arising out
of or relating to this Agreement in the following manner:
(a) Either Party may give the other Party written notice of any dispute
not resolved in the normal course of business. Said notice as it
relates to FedEx shall be the submission of a claim as described in
Article 19, Clause B-9. Said notice as it relates to USPS shall be the
provision to FedEx of a Contracting Officer's written Final Decision
as described in Article 19, Clause B-9. That notice must set forth the
basis for the initiating Party's claim and the documentation that the
initiating Party believes supports its claim. The authorized
representatives of both parties (the "Representatives"), will meet at
a mutually acceptable time and place within ten days after the date of
the delivery of that notice and as often after that time as they
reasonably deem necessary for the purpose of exchanging relevant
information and attempting to resolve the dispute.
(b) If, following the referral of the matter to their respective
Representatives, either Party declares the matter to be at an impasse,
the parties will jointly select a mediator from the Mediators List. If
the parties cannot agree upon the selection of a mediator within seven
days, each Party will select a mediator and the two mediators will
then select a third mediator. The parties will develop the Mediators
List, within 60 days of the execution of this Agreement (or such later
time as the parties mutually agree). If parties fail to agree upon the
Mediators List within such time frame, then upon declaration of an
impasse as referred to above, each Party will designate a mediator and
the two mediators will then select a third mediator. In each case
where the parties select a mediator that then selects a third
mediator, the three mediators will serve as a panel at the Mediation
Hearing referred to in (c) below. Any required action of the mediators
will be as determined by a majority of the mediators.
(c) The place of mediation (the "Mediation Hearing") will be held in
Washington DC and shall be held within five days of the
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appointment of the mediator or mediators, as the case may be. At the
mediation hearing each Party will make a presentation supporting its
position on the matter in dispute. No later than five days following
the Mediation Hearing the mediator or the mediators, as the case may
be, shall render an opinion as to whether it is improbable or probable
that the initiating Party will prevail on the disputed matter if the
matter were to be litigated in a court of competent jurisdiction
without a jury. The mediator or mediators, as the case may be, must
base their decision on the evidence introduced at the hearing,
including all logical and reasonable inferences from that evidence. In
rendering their decision, the mediators will determine the parties'
rights and obligations according to the substantive and procedural
laws of the law governing this Agreement and the terms of this
Agreement.
(d) If the mediator or mediators have opined that it is probable that the
initiating Party will prevail on the disputed matter, and the
non-initiating Party remains unwilling to pay the amount of the claim,
the non-initiating party will make the payments referred to in Section
7.3 of this Agreement into an interest bearing escrow account pursuant
to the terms of the Escrow Agreement attached hereto as Exhibit E. The
dispute will then be resolved in accordance with the provisions of
Clause B-9 of Article 19 below. Upon resolution of the dispute, the
amount held in escrow will be released to the initiating Party if and
to the extent that a payment is to be made to the initiating Party
otherwise the amounts on deposit in the escrow account will be paid to
the non-initiating Party.
3.2 Either Party, in its discretion, may be represented by an attorney at the
Mediation Hearing.
3.3 The parties may extend any deadline specified in this Article 3 by mutual
agreement.
3.4 The parties will treat all negotiations conducted in accordance with the
requirements of this Article 3, including, without limitation, the exchange
of any position memoranda, as confidential and as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and the rules of
evidence of any court having jurisdiction over the dispute.
3.5 The provisions of this Article 3 shall not be applicable to the payment of
any amounts invoiced or reconciled in accordance with the provisions of
Exhibit C hereunder. All disputes arising from such payments will be
handled in accordance with Section 7.3 of this Agreement.
3.6 Each Party shall be responsible for the payments of its own costs incurred
in connection with the provisions of this Article 3. Each Party will bear
one-half of the costs of the Mediators utilized in connection with this
Article 3.
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ARTICLE 4
INDEPENDENT CONTRACTOR
The Parties intend that an independent contractor relationship will be created by this Agreement. Each Party is interested only in the results of the other Party's work and shall not exercise any control over the conduct or supervision of the work or the means of its performance. Each Party shall have full responsibility for the collection and payment of its own international, federal, state and local employment-related taxes and contributions, including penalties and interest, insurance, social security, income tax, workers' compensation or any other similar statute Each Party shall indemnify and hold the other harmless for any liability (including taxes, interest, and penalties) resulting from its improper or incorrect tax reporting, withholding, remitting, and similar activities or obligations, or from the failure to file, collect, report or pay any of the above mentioned employment taxes.
ARTICLE 5
TAXES
5.1 Except as provided in 5.2 below, any and all taxes, excises, fees,
duties and assessments whatsoever (including interest and
penalties) ("Tax" or "Taxes") arising out of the sale or
performance of the FedEx Services, in any manner levied, assessed
or imposed by any Governmental Body or subdivision or agency
thereof having jurisdiction shall be the sole responsibility and
liability of USPS. FedEx reserves the right to add the amount of
any such Tax to its charges for the Services.
5.2 Except as provided in Section 5.3 below, USPS' obligations under
5.1 shall not extend to taxes based upon, measured by or with
respect to, the net or gross income, items of tax preference or
minimum tax or excess profits, receipts, capital, franchise, net
worth or conduct of business or any other similarly-based taxes of
FedEx.
5.3 USPS represents that it has obtained from the Internal Revenue
Service (IRS) a ruling which permits USPS to pay directly to IRS
the federal excise tax applicable to the air transportation of mail
within the United States, and which relieves air transportation
carriers of mail of any obligation to collect and remit to IRS such
excise tax on the air transportation of mail. USPS further
represents that IRS has recognized that the terminal handling of
mail is an accessorial service that is not subject to the federal
excise tax, provided the charges therefor are separately stated on
billing documents. In light of these representations the parties
agree as follows:
(a) USPS shall be exclusively responsible for payment to the IRS of
federal excise taxes on air transportation services under this
contract.
(b) Bills submitted by FedEx to USPS for air transportation services under
this contract shall not include any amounts for federal excise taxes,
whether separately stated or incorporated as an element of charges for
air transportation services. All charges for taxable transportation
and non-taxable terminal handling services shall be clearly identified
as such and shall be separately stated on all bills submitted by
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Fedex to USPS under this contract. This separate statement shall be
made in a manner consistent with Generally Accepted Accounting
Principles and with FedEx's then current methodology for calculating
its federal excise tax liability.
(c) USPS shall hold harmless, save and defend FedEx from any demand or
claim of, or on behalf of, the IRS or the United States based on the
application of federal excise taxes (including interest and penalties
thereon) to the transportation services performed by FedEx under this
contract, or any portion thereof. If FedEx's excise tax liability on
its services other than the FedEx Services provided to USPS is
increased as a result of providing the FedEx Services to USPS, USPS
shall indemnify FedEx for such increase as if such increase were a tax
subject to the indemnity of the first sentence of this Section 5.3(c).
Such increase shall be the difference between (x) FedEx's excise tax
liability if it had not provided the FedEx Services to USPS and (y)
FedEx's actual excise tax liability. The accuracy of the calculation
by FedEx of an amount payable pursuant to this Section 5.3(c) shall be
verified, upon the request of USPS, by a firm of independent public
accountants reasonably acceptable to FedEx and to USPS. In order to
enable such accountants to verify such calculations, FedEx shall
provide to such accountants (for their own confidential use and not to
be disclosed to USPS or any other person and subject to the execution
of a satisfactory confidentiality agreement) all information
reasonably necessary for such verification, including any computer
analyses used by FedEx to calculate such amount or amounts. This
verification shall be made in a manner consistent with Generally
Accepted Accounting Principles and with FedEx's then current
methodology for calculating its federal excise tax liability. The cost
of such verification shall be borne by USPS unless it is determined
that the actual amount payable deviates in favor of USPS by more than
5% from the amount originally determined by FedEx, in which case such
costs will be borne by FedEx.
(d) FedEx may, in its sole discretion, apply for a ruling from the
Internal Revenue Service to the effect that it may exclude the
revenues and transportation costs of providing the FedEx Services to
USPS in determining FedEx's excise tax liability on its services for
customers other than USPS. Such ruling application may include further
guidance as determined by FedEx. USPS agrees to fully cooperate with
FedEx in the application for any such ruling, including, but not
limited to, joining FedEx as a named Party on such ruling application.
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ARTICLE 6
FEDEX COMPENSATION
6.1 As consideration for the performance of the FedEx Services, FedEx shall
receive compensation from USPS in accordance with Exhibit B.
6.2 FedEx shall be entitled to compensation from USPS for any additional
services as may be agreed in writing. Notwithstanding the foregoing, FedEx
shall not be obligated to perform any additional services or to accept any
changes to the obligations and responsibilities of FedEx or USPS without
FedEx written consent.
6.3 To reimburse FedEx for a portion of certain expenses incurred or to be
incurred to expand FedEx's existing network to enable it to perform the
FedEx Services, USPS shall pay the Network Expansion Reimbursement as
follows: One half of the Network Expansion Reimbursement shall (subject to
the satisfaction of the condition set forth in Section 15. 2 (b)) be
payable on March 30, 2001 with the balance due on October 15, 2001. USPS's
obligation to pay the Network Expansion Reimbursement is unconditional and
shall not be refundable except to the extent that the parties shall
mutually agree that the costs to be reimbursed have not been and will not
be incurred. For the avoidance of doubt, the parties acknowledge that while
the FedEx actual expenses to be incurred will be in excess of the Network
Expansion Reimbursement amount, USPS's obligation will be limited to such
amount. The parties further agree that the Network Expansion Reimbursement
represents the [*].
ARTICLE 7
PAYMENTS
7.1 Payments shall be made in accordance with the Payment Procedures set forth
in EXHIBIT C to this Agreement. All payments shall be in United States
Dollars in current funds, without offset or reduction. If such charges are
not paid when due, the defaulting Party shall be charged interest in the
manner and amount prescribed by the Prompt Payment Act.
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