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Agreement Between North Carolina Railroad

This is an actual contract by Norfolk Southern.

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Sectors: Transportation
Governing Law: North Carolina, View North Carolina State Laws
Effective Date: July 27, 1999
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EXHIBIT 10(i), Page 1 of 44


AGREEMENT
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THIS AGREEMENT (hereinafter "Agreement" or "Master Agreement") dated the 27th day of July, 1999, by and between NORTH CAROLINA RAILROAD COMPANY (hereinafter "NCRR"), a North Carolina corporation, and NORFOLK SOUTHERN RAILWAY COMPANY (hereinafter "NSR"), a Virginia corporation:


WHEREAS, NCRR and Southern Railway Company (hereinafter "Southern") entered into a lease dated August 16, 1895 ("the 1895 agreement");


WHEREAS, NCRR and Southern entered into certain supplements or amendments to the 1895 agreement;


WHEREAS, Atlantic and North Carolina Railroad Company (hereinafter "ANC"), as lessor, a North Carolina corporation, and Atlantic & East Carolina Railway Company ("A&EC"), now a wholly owned subsidiary of NSR, as lessee, entered into a Lease and Indenture dated August 30, 1939 ("the 1939 agreement");


WHEREAS, ANC and A&EC entered into certain supplements or amendments to the 1939 agreement, the last of which supplements provided A&EC the option to continue the 1939 agreement through the end of 1994, and that option was properly exercised;


WHEREAS, effective September 29, 1989, ANC was merged into NCRR;


WHEREAS, effective December 31, 1990, Southern changed its name to NSR;


WHEREAS, the 1895 agreement and the 1939 agreement (together, as supplemented and amended, referred to herein as the "Old Leases") were to expire on January 1, 1995 and December 31, 1994, respectively, and have not been and will not be renewed and NSR has continued to operate the property of NCRR under the provisions of federal and/or state law;


WHEREAS, while the parties had negotiated an agreement to extend the Old Leases (the Lease Extension Agreement or "LEA"), the LEA was declared to be invalid by the U.S. District Court for the Eastern District of North Carolina for want of a quorum at the NCRR shareholders meeting called for the purpose of approving the LEA on December 15, 1995 and the Court entered an order enjoining the LEA. Before the LEA had been enjoined, NSR made certain payments to NCRR under the terms of the LEA consisting of payments as consideration for a release of certain claims for return of personalty (the "Release Payment"), and payments of rental under the LEA (the "Rental Payments"), and NSR has made additional payments to NCRR pursuant to an order of the U.S. Surface Transportation Board (the "Interim Payments");


WHEREAS, NCRR and NSR desire by these terms to provide for NSR's continued use of the property of NCRR which was the subject of the Old Leases for the operation of freight rail services thereon;


PAGE 112


EXHIBIT 10(i), Page 2 of 44


NOW THEREFORE, in consideration of the commitments and undertakings recited below, the parties hereto do hereby covenant and agree as follows:


Section 1. INDEX OF TERMS


TERM SECTION
---- -------
(a) NCRR-inclusive Preamble
(b) NSR-inclusive Preamble
(c) CSXT 2
(d) Old Leases 6
(e) Release Payment 6
(f) Rental Payments 6
(g) Interim Payments 6
(h) Cap 4
(i) Line of Road 24
(j) High Speed Passenger Trains 13
(k) Amtrak/NSR Direct Service Agreement 2
(l) Effective Date 27
(m) Period of Continued Occupancy 4
(n) Right of Way 15
(o) Return Date 18
(p) Designated Returned Property 18
(q) Designated NSR Facility Property 18
(r) Environmental Occurrence 24
(s) Contaminating Substance 24
(t) Leased Properties 24
(u) Trackage Rights Agreement 2


GENERAL PRINCIPLES OF INTERPRETATION


The following general principles will apply throughout this Agreement unless specifically stated to the contrary:


(a) Safety considerations will be paramount;


(b) For any operating scenario, NCRR and NSR intend to jointly work to
make changes in a manner that will: (1) minimize capital and
operating costs, and (2) minimize disruption to existing service so
as to maximize the value of both freight and passenger services;


(c) Cross subsidization of costs will not occur between passenger and
freight operations or between NSR freight and third-party freight
operations, including but not limited to operating and maintenance
expenses and capital expenditures;


(d) All costs, including but not limited to operating and maintenance
expenses and capital expenditures, will be borne by the party
hereto who requests the expenditure or the addition to capacity;
and


(e) "Costs" or "expenses" will be defined by the PPC/Dispute Resolution
provisions hereof.


PAGE 113


EXHIBIT 10(i), Page 3 of 44


Section 2. RIGHTS GRANTED BY NCRR


(a) Subject to any applicable regulatory approval, NCRR hereby grants
to NSR, under the terms set forth in the attached Trackage Rights
Agreement of even date herewith, exclusive freight trackage rights
over the lines and properties of NCRR owned by NCRR as of the date
hereof, thereby extending to NSR the exclusive right to conduct
freight operations over the NCRR lines and properties, including
performance of local freight service on those lines and properties.
NCRR hereby also grants to NSR such operating rights over the lines
of NCRR as will permit continuation of the existing operations of
National Railroad Passenger Corporation ("Amtrak") over the lines
of NCRR pursuant to the "Basic Agreement" between Southern Railway
Company and The Alabama Great Southern Railroad Company and
National Railroad Passenger Corporation dated January 2, 1979, as
amended (hereinafter referred to as the "Amtrak/NSR Direct Service
Agreement" or the "Basic Agreement"), together with such additional
operating rights over lines of NCRR operated by NSR as may from
time to time during the term of this Agreement be required for the
continuation or modification of Amtrak's intercity rail passenger
service over the NCRR lines pursuant to the Basic Agreement and
Amtrak's franchise under federal law. It is the intent of the
parties, with respect to the operational facilities of NCRR
operated by NSR, that Amtrak and NSR shall continue to enjoy and be
able to fulfill their respective rights and obligations to each
other under the Basic Agreement (including the duty to make and the
right to receive payments thereunder) and under federal law for the
term of this Agreement. NCRR shall be consulted in advance of any
proposed extensions or modifications to the Basic Agreement that
could have a material effect upon the dispatching or maintenance of
the lines of NCRR operated by NSR or upon the facilities of NCRR
operated by NSR.


(b) NSR will fulfill freight common carrier duties of NCRR on the NCRR
segments for which NSR holds the exclusive freight trackage rights
from NCRR until such time as NSR's exclusive freight trackage
rights over the line or any segment thereof are terminated, and
until the federal Surface Transportation Board or any successor
agency has granted any approval that may be required by law for any
cessation of NSR's common carrier duties pursuant to Section 17
hereof.


(c) The exclusive freight trackage rights shall continue unless and
until there is initiation of service by a qualified third-party
freight operator on segments over which NSR ceases operations
pursuant to the terms and provisions set forth in Section 17
hereof.


(d) That interest in the portion of the "R" Line in Charlotte, North
Carolina which lies between the point of connection between said
"R" Line and CSX Transportation, Inc. ("CSXT") near 12th Street and
the easterly line of Second Street which remained a part of the Old
Leases upon their expiration will not be operated by NSR. Either
NSR or NCRR may seek discontinuance of its common carrier
obligation imposed by federal and state laws regulating the


PAGE 114


EXHIBIT 10(i), Page 4 of 44


operation of a railroad on such portion and each party will
cooperate with the other in any such proceedings. Nothing in this
Agreement shall be construed to affect the terms and obligations of
the agreement dated December 31, 1968 between NCRR and Southern
regarding certain property in Charlotte, North Carolina.


(e) The rights granted to NSR do not eliminate, modify or diminish the
rights of CSXT to operate and to serve customers between Fetner and
Raleigh (Boylan) or NSR's and CSXT's reciprocal operating rights
and obligations to each other relating thereto.


(f) Except as provided in Section 2(a), NCRR does not grant to NSR the
right to grant trackage or other rights to any carrier not at the
time of grant affiliated with NSR over the lines or property of
NCRR, and NCRR will not grant to others such rights on lines or
property over which NSR maintains the status of exclusive freight
operator without NSR's approval. Any grant of trackage or other
rights by NSR to a carrier affiliated with NSR shall not be
effective beyond the expiration of this Agreement, including
extensions or renewals, or with respect to segments over which NSR
ceases freight services hereunder the date of any cessation of NSR
service pursuant to Section 17 hereof. NSR will provide NCRR with
copies of any such proposed trackage or other rights documents not
less than 15 days prior to execution by NSR and its affiliate.


Section 3. TERM


(a) The term of the Agreement shall commence on the Effective Date and
end on December 31, 2014.


(b) NSR shall have the option to renew the Agreement for two additional
fifteen-year terms, provided NSR notifies NCRR in writing of its
intention to renew at least two years prior to the expiration of
the Agreement or, with respect to the second renewal period, two
years prior to the expiration of the first renewal period.


Section 4. COMPENSATION


(a) Beginning on January 1, 2000, and during the term of this Agreement
and any renewal thereof, or during any Period of Continued
Occupancy (as defined in this Section), NSR shall pay to NCRR an
"Annual Trackage Rights Fee." For the period January 1, 2000,
through December 31, 2000, the Annual Trackage Rights Fee payable
to NCRR shall be ELEVEN MILLION DOLLARS ($11,000,000).


(b) For each calendar year thereafter the Agreement continues in effect
and during any Period of Continued Occupancy, the Annual Trackage
Rights Fee shall be adjusted in accordance with the following
formula except that in no event will any increase or decrease in
such Annual Trackage Rights Fee for any year exceed an amount equal


PAGE 115


EXHIBIT 10(i), Page 5 of 44


to four-and-one-half percent (4-1/2%) of the Annual Trackage Rights
Fee applicable to the previous year (hereinafter the "Cap"). The
formula is:


For 2001 and subsequent calendar years the Annual Trackage Rights
Fee shall be an amount calculated by multiplying the prior year's
Annual Trackage Rights Fee by the "Factor" obtained by dividing the
Implicit Price Deflator for Gross Domestic Product ("IPD-GDP") for
the calendar year preceding the prior calendar year by the IPD-GDP
for the calendar year preceding that calendar year. For any given
calendar year, the denominator of the fraction used to calculate
the Factor will be the same as the numerator of the fraction used
to calculate the immediately prior year's Factor. The calculation
of the Factor to be applied to the immediately prior year's Annual
Trackage Rights Fee shall be carried out to five places to the
right of the decimal and rounded. Presently, IPD-GDP is developed
by the United States Department of Commerce, Bureau of Economic
Analysis and is reported in the publication of ECONOMIC INDICATORS
prepared for the Joint Economic Committee by the Council of
Economic Advisors. The denominator of the initial Factor will
utilize the IPD-GDP for 1998, as published in the December 1999
issue of ECONOMIC INDICATORS. The numerator will be the IPD-GDP
for 1999 as published in the December 2000 issue of ECONOMIC
INDICATORS.


(c) If during the term of this Agreement, including any renewal period,
the IPD-GDP is no longer published, the parties will attempt in
good faith to agree upon a replacement index, using the PPC/Dispute
Resolution procedures herein if necessary.


(d) The parties will renegotiate the Cap if over any seven consecutive
year period the average rate of inflation as measured by the IPD-
GDP exceeds four and one-half percent (4-1/2%) with the matter to
be resolved through the PPC/Dispute Resolution procedures herein if
the parties are unable to agree on a new cap.


(e) In no event will the Annual Trackage Rights Fee, through
deflationary adjusters, as applicable to the entirety of the NCRR,
go below ELEVEN MILLION DOLLARS ($11,000,000). In the event that
the Annual Trackage Rights Fee is adjusted under the provisions of
Section 17(d) of this Agreement, the $11,000,000 minimum Annual
Trackage Rights Fee set forth in the preceding sentence will be
adjusted by the same percentage used to adjust the Annual Trackage
Rights Fee pursuant to Section 17(d) hereof.


(f) In the event NSR does not extend the Agreement or at the end of the
extended terms, the payment provisions of the Agreement at that
time will continue to apply and payments may not be withheld by NSR
so long as NSR continues to operate over any portion of the NCRR
lines (other than the line between Pomona and Elm described in
Section 21(b) hereof) (referred to herein as a "Period of Continued
Occupancy").


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EXHIBIT 10(i), Page 6 of 44


(g) The Annual Trackage Rights Fee will be paid by NSR to NCRR, without
set-off or reduction, in monthly installments not later than the
15th day of each month. If any such payment is not paid within a
grace period of seven (7) days after such due date, a late payment
penalty charge shall be charged to NSR. The late payment penalty
charge shall be in the amount of one and one-half percent (1-1/2%)
per month (simple interest) for each month, or part thereof, after
such grace period as the Annual Trackage Rights Fee shall remain
unpaid. If owed, NSR will pay such late payment penalty charge
together with the Annual Trackage Rights Fee due. Nothing in this
Section 4 pertaining to or calling for the payment of the late
payment penalty charge or for an overdue payment of the Annual
Trackage Rights Fee shall be construed to be a waiver or acceptance
by NCRR for such payment to be overdue, and NCRR retains all rights
it has for payment of trackage rights fees.


Section 5. INTERIM COMPENSATION


Within three business days of the execution of this Agreement, NSR will pay to NCRR one-half of the remaining compensation to be paid to NCRR as back rental for the period ending December 31, 1999, pursuant to the Memorandum of Understanding dated April 27, 1999, and shall pay the remainder of such back rental not later than December 31, 1999.


Section 6. RELEASE


(a) For and in consideration of the receipt and retention of the
Release Payment by NCRR, NCRR hereby agrees that each and every
obligation NSR or A&EC may have under the Old Leases with respect
to or in any manner connected with the use, depreciation,
maintenance, repair, renewal, replacement or return to NCRR of (i)
locomotives and railroad cars and (ii) any other items of personal
property which are not customarily located or used on property
owned or determined to be owned by NCRR during any part of at least
10 months of any consecutive 12 month period during the 10 years
preceding the termination of this Agreement and any renewal will be
of no further force or effect, and NCRR hereby releases and
discharges NSR from all such claims relating to such property.


(b) For and in consideration of the receipt and retention of the Rental
Payments, the Interim Payments and the payments by NSR set forth in
this Agreement, NCRR hereby agrees that each and every obligation
NSR or A&EC may have to pay rent or other forms of periodic
compensation to NCRR for the use of NCRR's property under the Old
Leases and from January 1, 1995 through December 31, 1999 has been
fully satisfied and paid, and NCRR hereby releases and discharges NSR
from all claims for the payment of rent or other forms of periodic
compensation under the Old Leases.


PAGE 117


EXHIBIT 10(i), Page 7 of 44


Section 7. DISPATCHING


(a) NSR will dispatch all NCRR lines except for the segment between
Boylan and Fetner presently dispatched by CSXT and any segments for
which NCRR and NSR subsequently agree in writing that NSR will not
dispatch. NSR will dispatch the NCRR lines with the same diligence
and safety considerations as it dispatches lines of its ownership
with similar train densities and operating characteristics.


(b) NSR will exercise operational control over NCRR line segments which
NSR dispatches, including controlling all access to the property
within 25 feet of the tracks over which it has trackage rights. In
accessing such property, NCRR and those accessing such property
with permission from NCRR will be required by NCRR to comply with
all NSR safety, access, and insurance processes and procedures.
Except with respect to any access by NCRR in the ordinary course of
the management of its property, NSR may charge reasonable costs to
accommodate requests for such access.


(c) NSR will not dispatch any NCRR line segment on which a third-party
operator begins operations in accordance with the provisions of
this Agreement.


(d) NSR will not provide dispatching services on lines where passenger
speeds exceed 90 mph.


(e) NSR will give priority to scheduled passenger trains over freight
trains, and will establish priority protocols to be applied between
scheduled passenger trains as requested by NCRR.


(f) Should any dispute arise over NSR's dispatching of passenger
trains, or the priority they are given, NCRR will describe in
writing the method by which it seeks to have the passenger trains,
or freight trains affecting passenger trains, dispatched. If NSR
does not agree with the proposed method requested by NCRR, any
unresolved issues shall be resolved pursuant to PPC/Dispute
Resolution procedure herein.


(g) NCRR reserves the right to terminate NSR's contract hereunder to
perform dispatching for failure by NSR to abide by the PPC/Dispute
Resolution procedures herein or any decision made pursuant to such
procedures. NSR shall have 30 days from the date of any final
decision or award made pursuant to the PPC/Dispute Resolution
procedure to remedy such dispatching deficiencies and to document
such remedy to NCRR in writing. If the time periods are not
adequate for NSR to make the changes, such schedule shall be
reviewed and addressed pursuant to the PPC/Dispute Resolution
procedure herein.


PAGE 118


EXHIBIT 10(i), Page 8 of 44


Section 8. MAINTENANCE


(a) NSR will maintain the lines of NCRR over which it serves as the
exclusive freight operator.


(b) The standard of maintenance of any line segment shall be the FRA
track classifications as of July 1, 1999, consistent with timetable
and track profile speed restrictions and any other restrictions
therein that affect the speed of operation. The effective
timetables and track profiles are attached hereto as EXHIBIT A.


(c) Any routine slow orders in effect on January 1, 2000 will be
eliminated by October 1, 2000, and any routine slow orders
subsequently imposed will be eliminated within 90 days of
imposition. A list of show orders in effect will be provided on or
about January 1, 2000.


(d) In the event of slow orders necessitated by unusual events or
requiring major construction or capital expenditure, the
PPC/Dispute Resolution procedure will be employed to establish a
reasonable time frame for NSR to make the necessary repairs.


(e) NCRR will bear all initial and future costs for any upgrades it
requests.


(f) NSR will not maintain any NCRR line segment on which a third-party
operator begins operations under the provisions of the Agreement.


(g) NSR will not maintain any line on which passenger speeds exceed
90 mph.


(h) NSR will submit to NCRR in writing not less than 30 days in advance
a description of any changes it intends to make to the maintenance
levels affecting the lines of NCRR; if NCRR objects to such changes
the PPC/Dispute Resolution procedure described herein will be
utilized to review such proposed changes wherein such changes may
be approved as submitted by NSR or modified.


(i) NCRR reserves the right to terminate NSR's contract hereunder to
perform maintenance for failure by NSR to abide by the PPC/Dispute
Resolution procedures herein or any decision made pursuant to such
procedures. NSR shall have 270 days from the date of any final
decision or award made pursuant to the PPC/Dispute Resolution
procedure set forth herein to remedy such maintenance deficiencies
and to document such remedy to NCRR in writing. If the time
periods are not adequate for NSR to make the changes, such schedule
shall be reviewed and addressed pursuant to the PPC/Dispute
Resolution procedure herein.


PAGE 119


EXHIBIT 10(i), Page 9 of 44


Section 9. CAPITAL IMPROVEMENTS


(a) Capital Improvements at the Request of NSR:


(i) NSR may, at its sole cost, make capital improvements to the
property of NCRR to render the property more amenable to its
freight railroad operations.


(ii) Such improvements will not be made without the prior approval
of NCRR, which approval will not be unreasonably withheld.


(iii) NCRR shall own all capital improvements made by NSR to
the property of NCRR hereunder upon expiration or termination
of the Agreement, or with regard to improvements made to any
segment which NSR ceases to operate, upon the cessation of
service by NSR on such segment pursuant to Section 17 hereof.


(b) Capital Improvements at the Request of NCRR:


(i) NCRR (or NCRR on behalf of passenger operators) may, at its
sole cost, make capital improvements to the NCRR property.


(ii) All such capital improvements on lines over which NSR operates
or will operate shall be performed by NSR unless NSR has
expressly agreed to the contrary. However, if a shortage of
available manpower would delay implementation beyond a
reasonable completion date, NSR and NCRR agree to cooperate to
jointly seek concurrence from the appropriate labor
organizations representing NSR's employees, if such
concurrence is required, for such work to be done by qualified
contractors selected in accordance with the PPC/Dispute
Resolution procedure and to be engaged by NSR.


(iii) Payments required of NCRR under the terms of this
Agreement may be paid by NCDOT or by other passenger service
operators.


(iv) NSR will not be required to begin construction on any such
project(s) until all necessary capital funds are set aside for
the project, and mechanisms are in place to pay other costs or
expenses associated with the project identified in the
separate agreement required by the provisions of paragraph (f)
below.


(c) Any track, signal, bridge, or structure constructed on the lines of
NCRR, whether by NCRR (on its own behalf or on behalf of a
passenger operator) or NSR, must be built, maintained and operated
consistent with the following goals:


(i) Such construction must not interfere with or disadvantage NSR
freight operations or the utility or capacity of the line for
freight operations;


PAGE 120


EXHIBIT 10(i), Page 10 of 44


(ii) Such construction must not preclude eventual double-tracking
of the line between Greensboro and Raleigh;


(iii) Such construction must not preclude capacity expansion to
accommodate growth of intercity/regional passenger and freight
traffic; and


(iv) Access by NSR to its present and future customers on both
sides of the tracks on which NSR has or will have trackage
rights will be maintained at no cost to NSR.


(d) Should one party determine it has a need for additional capacity,
the additional capacity shall be added in consultation with the
other party utilizing the PPC/Dispute Resolution procedure, at the
cost and expense of the party that needs the capacity.


(e) Should NSR and NCRR mutually determine that each needs additional
capacity, the parties shall jointly plan, through the PPC/Dispute
Resolution procedure, for the necessary additional capacity to meet
the needs. The costs of such additional joint capacity will be
prorated on the relative additional capacity needs of the
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