<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________________ to ________________
Commission file number 0-16512
---------------------------------------------------------
American Income Partners III-B Limited Partnership
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2968859
- ---------------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
- ---------------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-----------------------------
Securities registered pursuant to Section 12(b) of the Act NONE
---------------------
Title of each class Name of each exchange on which registered
- -------------------------------- --------------------------------------------
- -------------------------------- --------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
1,127,330 Units Representing Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
---- ----
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. Not applicable. Securities are nonvoting for
this purpose. Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1995 (Part I and II)
<PAGE>
PART IV
<TABLE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------
<S> <C> <C>
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors...................................................................*
Statement of Financial Position
at December 31, 1995 and 1994....................................................................*
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993.............................................*
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993.............................................*
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993.............................................*
Notes to the Financial Statements................................................................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as
set forth in Item 601 of Regulation S-K, are not
applicable.
</TABLE>
Exhibit
Number
----------
4 Amended and Restated Agreement and Certificate of Limited
Partnership included as Exhibit A to the Prospectus which
is included in Registration Statement on Form S-1 (No. 33-
11160).
13 The 1995 Annual Report to security holders, a copy of
which is furnished for the information of the Securities
and Exchange Commission. Such Report, except for those
portions thereof which are incorporated herein by
reference, is not deemed "filed" with the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with Northwest Airlines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 as Exhibit 28 (b) and is
incorporated herein by reference.
* Incorporated herein by reference to the appropriate portion of the 1995
Annual Report to security holders for the year ended December 31, 1995. (See
Part II)
<PAGE>
Exhibit
Number
----------
99 (b) Lease agreement with Bally's Health and Tennis Corporation
was filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 as Exhibit 28 (d) and
is incorporated herein by reference.
99 (c) Lease agreement with Equicor, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 as Exhibit 28 (e) and is incorporated
herein by reference.
99 (d) Lease agreement with Contract Transportation Systems Co.
is filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and is included
herein.
99 (e) Lease agreement with The Denver and Rio Grande Western
Railroad is filed in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995 and is
included herein.
99 (f) Lease agreement with ING Aviation Lease is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is included herein.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacity and on the date indicated.
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
By: AFG Leasing Incorporated,
a Massachusetts corporation and the
Managing General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
----------------------------- -----------------------
Geoffrey A. MacDonald Gary D. Engle
Chief Executive Officer, President, Chief Operating
Chairman, and a member of the Officer and member of the
Executive Committee of AFG and Executive Committee of AFG
President and a Director of the (Principal Financial Officer)
Managing General Partner
(Principal Executive Officer)
Date: April 9, 1996 Date: April 9, 1996
--------------------------- ---------------------
By: /s/ Gary M. Romano
-----------------------------
Gary M. Romano
Vice President and Controller
of AFG and Clerk of the Managing General
Partner
(Principal Accounting Officer)
Date: April 9, 1996
---------------------------
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
Page
------
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-6
FINANCIAL STATEMENTS:
Report of Independent Auditors 7
Statement of Financial Position
at December 31, 1995 and 1994 8
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993 10
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 11
Notes to the Financial Statements 12-19
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 20
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 21
Schedule of Costs Reimbursed to the
Managing General Partner and its Affiliates
as Required by Section 10.4 of the Amended
and Restated Agreement and Certificate of
Limited Partnership 22
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1995:
<TABLE>
<CAPTION>
Summary of
Operations 1995 1994 1993 1992 1991
- ------------------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 988,217 $ 1,848,626 $ 2,099,057 $ 4,359,224 $ 5,319,789
Net income (loss) $ (138,635) $ 699,271 $ 387,803 $ (243,574) $ (539,206)
Per Unit:
Net income (loss) $ (0.12) $ 0.61 $ 0.34 $ (0.21) $ (0.47)
Cash distributions $ 1.12 $ 2.00 $ 2.00 $ 1.50 $ 3.12
Financial
Position
- ------------------------
Total assets $ 4,495,572 $ 6,464,885 $ 8,503,879 $ 10,835,606 $ 16,013,399
Total long-term
obligations -- $ 223,620 $ 591,954 $ 1,117,971 $ 4,041,438
Partners' capital $ 4,194,601 $ 5,614,292 $ 7,192,455 $ 9,082,086 $ 11,033,736
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to the year
ended December 31, 1994 and the year ended December 31, 1994
compared to the year ended December 31, 1993
Overview
- --------
As an equipment leasing partnership, American Income Partners III-B
Limited Partnership (the "Partnership") was organized to acquire a diversified
portfolio of capital equipment subject to lease agreements with third parties.
The Partnership was designed to progress through three principal phases:
acquisitions, operations, and liquidation. During the operations phase, a period
of approximately six years, all equipment in the Partnership's portfolio
progresses through various stages. Initially, all equipment generates rental
revenue under primary term lease agreements. During the life of the Partnership,
these agreements expire on an intermittent basis and equipment held pursuant to
the related leases are renewed, re-leased or sold, depending on prevailing
market conditions and the assessment of such conditions by American Finance
Group ("AFG") to obtain the most advantageous economic benefit. Over time, a
greater portion of the Partnership's original equipment portfolio becomes
available for remarketing and cash generated from operations and from sales or
refinancings begins to fluctuate. Ultimately, all equipment will be sold and the
Partnership will be dissolved. In accordance with the Partnership's stated
investment objectives and policies, the Managing General Partner is considering
the winding-up of the Partnership's operations, including the liquidation of its
entire portfolio. The Partnership's operations commenced in 1987.
Results of Operations
- ---------------------
For the year ended December 31, 1995, the Partnership recognized lease
revenue of $988,217 compared to $1,848,626 and $2,099,057 for the years ended
December 31, 1994 and 1993, respectively. The decrease in lease revenue between
1993 and 1995 was expected and resulted principally from primary lease term
expirations and the sale of equipment. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
The Partnership's equipment portfolio includes certain assets in which
the Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
In 1995, the Partnership sold equipment which was fully depreciated to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $470,835 compared to a net gain of $199,001 and
$516,300 on equipment having a net book value of $4,926 and $461,140 in 1994 and
1993, respectively.
It cannot be determined whether future sales of equipment will result in
a net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
-3-
<PAGE>
The total economic value realized upon final disposition of each asset
is comprised of all primary lease term revenue generated from that asset,
together with its residual value. The latter consists of cash proceeds realized
upon the asset's sale in addition to all other cash receipts obtained from
renting the asset on a re-lease, renewal or month-to-month basis. The
Partnership classifies such residual rental payments as lease revenue.
Consequently, the amount of gain or loss reported in the financial statements is
not necessarily indicative of the total residual value the Partnership achieved
from leasing the equipment.
Depreciation expense was $709,153, $1,125,714 and $1,994,828 for the
years ended December 31, 1995, 1994 and 1993, respectively. For financial
reporting purposes, to the extent that an asset is held on primary lease term,
the Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset on a straight-line basis over
such term. For purposes of this policy, estimated residual values represent
estimates of equipment values at the date of primary lease expiration. To the
extent that an asset is held beyond its primary lease term, the Partnership
continues to depreciate the remaining net book value of the asset on a straight-
line basis over the asset's remaining economic life (See Note 2 to the financial
statements herein).
The Partnership recorded a write-down of the carrying value of its
interest in an L1011-50 aircraft representing an impairment, during the year
ended December 31, 1995. The resulting charge, $762,100 ($0.67 per limited
partnership unit) in 1995 was based on a comparison of the estimated net
realizable value and corresponding carrying value for the Partnership's interest
in the aircraft.
Net realizable value was estimated based on (I) third-party appraisals
of the Partnership's aircraft and (ii) AFG's assessment of prevailing market
conditions for similar aircraft. In recent years, market values for used
commercial jet aircraft have deteriorated. Consistent price competition and
other pressures within the airline industry have inhibited sustained
profitability for many carriers. Most major airlines have had to re-evaluate
their aircraft fleets and operating strategies. Such issues complicate the
determination of net realizable value for specific aircraft, and particularly
used aircraft, because cost-benefit and market considerations may differ
significantly between major airlines. Aircraft condition, age, passenger
capacity, distance capability, fuel efficiency, and other factors also influence
market demand and market value for passenger jet aircraft.
Interest expense was $726 or less than 1% of lease revenue in 1995,
$23,228 or 1.3% of lease revenue in 1994 and $58,308 or 2.8% of lease revenue in
1993. Interest expense is not expected to be incurred in future periods due to
the retirement of all outstanding debt obligations.
Management fees were 5% of lease revenue in each of the years ended
December 31, 1995, 1994 and 1993 and will not change as a percentage of lease
revenue in future years.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented approximately 12.1%,
8.6% and 5.1% of lease revenue in 1995, 1994 and 1993, respectively. Operating
expenses in 1994 include repair, maintenance, legal and other costs incurred in
connection with the re-lease of an L1011-50 aircraft to a third party. The
amount of future operating expenses cannot be predicted with certainty; however,
such expenses are usually higher during the acquisition and liquidation phases
of a partnership. Other fluctuations typically occur in relation to the volume
and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is provided by the collection of periodic rents.
These cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash
-4-
<PAGE>
inflows of $1,234,405, $1,547,716 and $2,478,853 in 1995, 1994 and 1993,
respectively. Future renewal, re-lease and equipment sale activities will cause
a gradual decline in the Partnership's lease revenue and corresponding sources
of operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will decline as the
Partnership experiences a higher frequency of remarketing events.
During 1995, the Partnership and other affiliated partnerships, executed
a renegotiated and extended lease agreement in connection with two DC-10-40
aircraft leased by Northwest Airlines, Inc. ("Northwest"). Pursuant to these
agreement, Northwest will continue to lease the aircraft until September 3,
2000. The Partnership, which owns a 2.05% interest in these aircraft, will
receive $61,542 each year through December 31, 1999 and $46,157 during the year
ending December 31, 2000.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During 1994, the Partnership capitalized
$18,346 in connection with the upgrade of an L1011-50 aircraft. In 1995, the
Partnership realized $470,835 in equipment sale proceeds compared to $203,927
and $977,440 in 1994 and 1993, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal were reported as components of financing activities.
Cash inflows of $125,631 in 1993 resulted from leveraging a portion of the
Partnership's equipment portfolio with third-party lenders. No leveragings of
equipment occurred in 1994 and 1995.
Each note payable was recourse only to the specific equipment financed
and to the minimum rental payments contracted to be received during the debt
amortization period (which period generally coincided with the lease rental
term). As rental payments were collected, a portion or all of the rental payment
was used to repay the associated indebtedness.
Cash distributions to the General Partners and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the year ended December 31, 1995, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $1,281,056. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership (the
"Restated Agreement, as amended"), the Recognized Owners were allocated 99% of
these distributions, or $1,268,245, and the General Partners were allocated 1%,
or $12,811. The fourth quarter 1995 cash distribution was paid on January 22,
1996.
Cash distributions paid to the Recognized Owners consist of both a
return of and a return on capital. To the extent that cash distributions consist
of Cash From Sales or Refinancings, substantially all of such cash distributions
should be viewed as a return of capital. Cash distributions do not represent and
are not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
-5-
<PAGE>
The future liquidity of the Partnership will be influenced by the
foregoing and will be greatly dependent upon the collection of contractual rents
and the outcome of residual activities. The Managing General Partner anticipates
that cash proceeds resulting from these sources will satisfy the Partnership's
future expense obligations. However, the amount of cash available for
distribution in future periods will fluctuate. Equipment lease expirations and
asset disposals will cause the Partnership's net cash from operating activities
to diminish over time; and equipment sale proceeds will vary in amount and
period of realization. In addition, the Partnership may be required to incur
asset refurbishment or upgrade costs in connection with future remarketing
activities. Accordingly, fluctuations in the level of quarterly cash
distributions will occur during the life of the Partnership.
-6-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners III-B Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners III-B Limited Partnership as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' capital,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Income
Partners III-B Limited Partnership at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
-7-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 802,718 $ 958,005
Rents receivable, net of allowance for
doubtful accounts of $60,000 3,044 225,496
Accounts receivable - affiliate 5,490 125,811
Equipment at cost, net of accumulated
depreciation of $7,839,693 and $10,675,416
at December 31, 1995 and 1994, respectively 3,684,320 5,155,573
---------- ----------
Total assets $4,495,572 $6,464,885
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ -- $ 223,620
Accrued interest -- 8,572
Accrued liabilities 20,000 15,500
Accrued liabilities - affiliate 15,216 3,557
Deferred rental income 52,247 29,985
Cash distributions payable to partners 213,508 569,359
---------- ----------
Total liabilities 300,971 850,593
---------- ----------
Partners' capital (deficit):
General Partners (205,925) (191,728)
Limited Partnership Interests (1,127,330
Units; initial purchase price of $25 each) 4,400,526 5,806,020
---------- ----------
Total partners' capital 4,194,601 5,614,292
---------- ----------
Total liabilities and partners' capital $4,495,572 $6,464,885
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-8-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Income:
Lease revenue $ 988,217 $ 1,848,626 $ 2,099,057
Interest income 42,891 51,202 37,642
Gain on sale of equipment 470,835 199,001 516,300
------------ ----------- -----------
Total income 1,501,943 2,098,829 2,652,999
------------ ----------- -----------
Expenses:
Depreciation 709,153 1,125,714 1,994,828
Write-down of equipment 762,100 -- --
Interest expense 726 23,228 58,308
Equipment management
fees - affiliate 49,411 92,431 104,953
Operating expenses - affiliate 119,188 158,185 107,107
------------ ----------- -----------
Total expenses 1,640,578 1,399,558 2,265,196
------------ ----------- -----------
Net income (loss) $ (138,635) $ 699,271 $ 387,803
============ =========== ===========
Net income (loss) $ (0.12) $ 0.61 $ 0.34
per limited partnership unit ============ =========== ===========
Cash distributions declared per limited
partnership unit $ 1.12 $ 2.00 $ 2.00
============ =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-9-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Recognized Owners
Partners -----------------------------------
Amount Units Amount Total
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ (157,051) 1,127,330 $ 9,239,137 $ 9,082,086
Net income - 1993 3,878 -- 383,925 387,803
Cash distributions declared (22,774) -- (2,254,660) (2,277,434)
------------ ------------- ----------- ------------
Balance at December 31, 1993 (175,947) 1,127,330 7,368,402 7,192,455
Net income - 1994 6,993 -- 692,278 699,271
Cash distributions declared (22,774) -- (2,254,660) (2,277,434)
------------ ------------- ----------- ------------
Balance at December 31, 1994 (191,728) 1,127,330 5,806,020 5,614,292
Net loss - 1995 (1,386) -- (137,249) (138,635)
Cash distributions declared (12,811) -- (1,268,245) (1,281,056)
------------ ------------- ----------- ------------
Balance at December 31, 1995 $ (205,925) 1,127,330 $ 4,400,526 $ 4,194,601
============ ============= =========== ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-10-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ (138,635) $ 699,271 $ 387,803
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation 709,153 1,125,714 1,994,828
Write-down of equipment 762,100 -- --
Gain on sale of equipment (470,835) (199,001) (516,300)
Decrease in allowance for doubtful accounts -- (53,000) --
Changes in assets and liabilities:
Decrease in:
rents receivable 222,452 64,267 195,495
accounts receivable - affiliate 120,321 2,962 475,446
Increase (decrease) in:
accrued interest (8,572) (18,060) (15,820)
accrued liabilities 4,500 (49,000) (8,000)
accrued liabilities - affiliate 11,659 (7,976) (22,997)
deferred rental income 22,262 (17,461) (11,602)
------------- ------------- -------------
Net cash from operating activities 1,234,405 1,547,716 2,478,853
------------- ------------- -------------
Cash flows from (used in) investing activities:
Purchase of equipment -- (18,346) --
Proceeds from equipment sales 470,835 203,927 977,440
------------- ------------- -------------
Net cash from investing activities 470,835 185,581 977,440
------------- ------------- -------------
Cash flows from (used in) financing activities:
Proceeds from notes payable -- -- 125,631
Principal payments - notes payable (223,620) (368,334) (651,648)
Distributions paid (1,636,907) (2,277,434) (2,135,094)
------------- ------------- -------------
Net cash used in financing activities (1,860,527) (2,645,768) (2,661,111)
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents (155,287) (912,471) 795,182
Cash and cash equivalents at beginning of year 958,005 1,870,476 1,075,294
------------- ------------- -------------
Cash and cash equivalents at end of year $ 802,718 $ 958,005 $ 1,870,476
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 9,298 $ 41,288 $ 74,128
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-11-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
The Partnership was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on June 29,
1987, for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Partners' capital initially consisted of
contributions of $1,000 from the Managing General Partner (AFG Leasing
Incorporated) and $100 from the Initial Limited Partner (AFG Assignor
Corporation). On September 29, 1987 the Partnership issued 1,127,330 units
representing assignments of limited partnership interests (the "Units") to 2,125
investors. Unitholders and Limited Partners (other than the Initial Limited
Partner) are collectively referred to as Recognized Owners. Subsequent to the
Partnership's Closing on September 29, 1987, the Partnership had five General
Partners: AFG Leasing Incorporated, a Massachusetts corporation, Kestutis J.
Makaitis, Daniel J. Roggemann, Martin F. Laughlin and Geoffrey A. MacDonald
(collectively the "General Partners"). Messrs. Makaitis, Roggemann and Laughlin
elected to withdraw as Individual General Partners. The General Partners, each
of which is affiliated with American Finance Group ("AFG"), a Massachusetts
partnership, are not required to make any other capital contributions except as
may be required under the Uniform Act and Section 6.1(b) of the Amended and
Restated Agreement and Certificate of Limited Partnership (the "Restated
Agreement, as amended").
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
Significant operations commenced September 29, 1987 when the
Partnership made its initial equipment purchase. Pursuant to the Restated
Agreement, as amended, Distributable Cash From Operations and Distributable Cash
From Sales or Refinancings will be allocated 99% to the Recognized Owners and 1%
to the General Partners until Payout and 85% to the Recognized Owners and 15% to
the General Partners after Payout. Payout will occur when the Recognized Owners
have received distributions equal to their original investment plus a cumulative
annual return of 10% (compounded quarterly) on undistributed invested capital.
Under the terms of a Management Agreement between the Partnership and
AFG, management services are provided by AFG to the Partnership at fees which
the Managing General Partner believes to be competitive for similar services.
(Also see Note 4.)
12
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement of Cash Flows
- -----------------------
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1995, the Partnership had $800,000 invested in reverse repurchase agreements
secured by U.S. Treasury bills or interests in U.S. Government securities.
Revenue Recognition
- -------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually
and no significant amounts are calculated on factors other than the passage of
time. The leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents of
$1,336,884 are due as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1996 $ 666,013
1997 501,630
1998 61,542
1999 61,542
2000 46,157
----------
Total $1,336,884
==========
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue in each of the past three years is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Northwest Airlines, Inc. $ 402,598 $ 493,661 $ 585,067
ING Aviation Lease $ 197,624 -- --
Contract Transportation Systems Co. $ 100,603 -- --
The Denver and Rio Grande Western Railroad $ 100,260 -- --
Equicor, Incorporated -- $ 213,939 $ 226,302
Bally's Health and Tennis Corporation -- -- $ 256,798
</TABLE>
During 1995, the Partnership and other affiliated partnerships, executed
a renegotiated and extended lease agreement in connection with two DC-10-40
aircraft leased by Northwest Airlines, Inc. ("Northwest"). Pursuant to the
agreement, Northwest will continue to lease these aircraft until September 3,
2000. The Partnership, which owns a 2.05% interest in these aircraft, will
receive $61,542 each year through December 31, 1999 and $46,157 during the year
ending December 31, 2000.
During 1994, the Managing General Partner lowered the aggregate amount
reserved against potentially uncollectable rents to $60,000. This caused an
increase in lease revenue of $53,000 in 1994. The reserve was reviewed and
considered adequate as of December 31, 1995. It cannot be determined whether the
Partnership will recover any past due rents in the future; however, the Managing
General Partner will pursue the collection of all such items.
-13-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
Equipment cost represents asset base price plus acquisition fees and was
determined in accordance with the Restated Agreement, as amended, and certain
regulatory guidelines. Asset base price is affected by the relationship of the
seller to the Partnership as summarized herein. Where the seller of the
equipment was AFG or an affiliate, asset base price was the lower of (i) the
actual price paid for the equipment by AFG or the affiliate plus all actual
costs accrued by AFG or the affiliate while carrying the equipment less the
amount of all rents earned by AFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the Managing General
Partner in its best judgment, including all liens and encumbrances on the
equipment and other actual expenses. Where the seller of the equipment was a
third party who did not manufacture the equipment, asset base price was the
lower of (i) the price invoiced by the third party or (ii) fair market value as
determined by the Managing General Partner. Where the seller of the equipment
was a third party who also manufactured the equipment, asset base price was the
manufacturer's invoice price, which price was considered to be representative of
fair market value.
Depreciation
- ------------
The Partnership's depreciation policy is intended to allocate the cost
of equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
Periodically, the Managing General Partner evaluates the net carrying value of
equipment to determine whether it exceeds estimated net realizable value.
Adjustments to reduce the net carrying value of equipment are recorded in those
instances where estimated net realizable value is considered to be less than net
carrying value. Such adjustments are reflected separately on the accompanying
Statement of Operations as Write-Down of Equipment.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to
each Partner according to their respective ownership percentages (99% to the
Recognized Owners and 1% to the General Partners). See Note 5 concerning
allocation of income or loss for income tax purposes.
-14-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Net Income (Loss) and Cash Distributions Per Unit
- -------------------------------------------------
Net income (loss) and cash distributions per Unit are based on 1,127,330
Units outstanding during each of the three years in the period ended December
31, 1995 and computed after allocation of the General Partners' 1% share of net
income (loss) and cash distributions.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses paid by AFG on behalf of the Partnership are
reported as Accrued Liabilities Affiliate. (See Note 4.)
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the
accompanying financial statements. The Partners are responsible for reporting
their proportionate shares of the Partnership's taxable income or loss and other
tax attributes on their tax returns.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the impact of adoption to be material to
the financial statements of the Partnership.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at
December 31, 1995. In the opinion of AFG, the acquisition cost of the equipment
did not exceed its fair market value.
<TABLE>
<CAPTION>
Lease
Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------- ------ ------------ -----------------------
<S> <C> <C> <C>
Aircraft 36-108 $ 8,412,409 MN/Foreign
Motor vehicles 12-72 1,177,235 IL
Manufacturing 24-72 663,153 OH
Communications 1-60 618,182 KS/MD/NJ/NY/TX
Locomotives 57-60 438,017 GA/MI/MO/OH/OK
Materials handling 1-84 212,396 CA/MO/NJ/TX
Computers and peripherals 1-60 2,621 PA
------------
Total equipment cost 11,524,013
Accumulated depreciation (7,839,693)
------------
Equipment, net of accumulated depreciation $ 3,684,320
============
</TABLE>
-15-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by AFG or an
affiliated equipment leasing program sponsored by AFG. The Partnership and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Partnership to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the general
levels of risk which could result from a concentration in any single equipment
type, industry or lessee. At December 31, 1995, the Partnership's equipment
portfolio included equipment having a proportionate original cost of
$10,030,246, representing approximately 87% of total equipment cost.
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, AFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. At December 31, 1995, the Partnership was
not holding any equipment for sale or re-lease.
The Partnership recorded a write-down of the carrying value of its
interest in an L1011-50 aircraft representing an impairment, during the year
ended December 31, 1995. The resulting charge, $762,100 ($0.67 per limited
partnership unit) in 1995 was based on a comparison of the estimated net
realizable value and corresponding carrying value for the Partnership's interest
in the aircraft.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three years in
the period ended December 31, 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Equipment management fees $ 49,411 $ 92,431 $ 104,953
Administrative charges 21,000 12,000 14,955
Reimbursable operating expenses due
to third parties 98,188 146,185 92,152
------------- ------------- -------------
Total $ 168,599 $ 250,616 $ 212,060
============= ============= =============
</TABLE>
As provided under the terms of the Management Agreement, AFG is
compensated for its services to the Partnership. Such services include all
aspects of acquisition, management and sale of equipment. For acquisition
services, AFG is compensated by an amount equal to 4.75% of Equipment Base Price
paid by the Partnership. For management services, AFG is compensated by an
amount equal to the lesser of (i) 5% of gross lease rental revenue or (ii) fees
which the Managing General Partner reasonably believes to be competitive for
similar services
-16-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to AFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to AFG, pursuant to
Section 10.4 of the Restated Agreement, as amended, for persons employed by AFG
who are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by AFG
on behalf of the Partnership which are reimbursed to AFG.
All equipment was purchased from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in
Note 2.
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1995, the Partnership was owed $5,490 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1996.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of AFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by AFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action brought
in the United States District Court for the District of Massachusetts (the
"Court") on behalf of the unitholders (limited partners), sought to enjoin the
Offer and obtain unspecified monetary damages. A settlement of this litigation
was approved by the Court on November 15, 1995. A second class action, brought
in the Superior Court of the Commonwealth of Massachusetts (the "Superior
Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and
intervene in the first class action, was dismissed by the Superior Court. The
Plaintiffs have filed an appeal in this matter. The limited partners of the
Partnership tendered approximately 99,540 units or 8.83% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
are not expected to be adversely affected by these proceedings or settlements.
NOTE 5 - INCOME TAXES
- ---------------------
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income
or loss to each class of partner according to their respective ownership
percentages (99% to the Recognized Owners and 1% to the General Partners). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partners will be required to contribute
-17-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
to the Partnership an amount equal to any negative balance which may exist in
the General Partners' tax capital account. At December 31, 1995, the General
Partners had a positive tax capital account balance.
The following is a reconciliation between net income (loss) reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) $ (138,635) $ 699,271 $ 387,803
Financial statement depreciation in
excess of tax depreciation 352,477 288,498 965,303
Write-down of equipment 762,100 -- --
Prepaid rental income 22,262 (17,461) (11,602)
Other -- (111,399) 621,715
------------- ------------- -------------
Net income for federal income tax
reporting purposes $ 998,204 $ 858,909 $ 1,963,219
============= ============= =============
</TABLE>
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Partners' capital $ 4,194,601 $ 5,614,292
Add back selling commissions and
organization and offering costs 1,188,909 1,188,909
Financial statement distributions in excess
of tax distributions 2,135 5,694
Cumulative difference between federal income
tax and financial statement income (loss) (2,288,907) (3,425,746)
------------- ------------
Partners' capital for federal income tax
reporting purposes $ 3,096,738 $ 3,383,149
============= ============
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 6 - LEGAL PROCEEDINGS
- --------------------------
In 1991, a lessee of the Partnership, Healthcare Financial Services,
Inc. and Healthcare International, Inc., the guarantor of certain lease
obligations of Healthcare Financial Services, Inc., (collectively, the
"Debtors") filed for bankruptcy protection under Chapter 11 of the Bankruptcy
Code. The Partnership and certain other AFG-sponsored programs filed a proof of
claim in this case. All of the Partnership's affected equipment, having an
-18-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
original cost of $116,689 and representing approximately 1% of the Partnership's
aggregate equipment portfolio prior to its sale, was fully depreciated and was
partially assumed by a successor sub-lessee. In November 1993, the successor
sub-lessee ceased paying rent. AFG, on behalf of the Partnership and other AFG-
sponsored programs, filed a complaint on November 23, 1994 in the Superior Court
of the State of California to recover such unpaid rentals (including late fees,
interest and other related damages) from the successor sub-lessee. The Chapter
11 proceeding of the Debtors were dismissed on July 21, 1994. On November 27,
1995, the Partnership sold the affected equipment recognizing a nominal net gain
for financial statement purposes.
On March 15, 1993, Herman's Sporting Goods, Inc., a lessee of the
Partnership (the "Debtor") filed for protection under Chapter 11 of the
Bankruptcy Code in the United States District Court, Trenton, New Jersey. The
Chapter 11 proceeding remains pending. Certain unpaid rents due to the
Partnership were scheduled by the Debtor as unsecured claims. On August 23,
1994, the Court confirmed the Debtor's First Modified Plan of Reorganization, as
Amended and Modified, and the Partnership has received two of the three
scheduled payments from the Debtor with respect to its unsecured claims. In
addition, the Partnership sold a portion of the equipment, having an original
cost of $159,647, during 1994. This disposition resulted in a net gain of $3,600
for financial statement purposes. At December 31, 1995, the Partnership's
equipment portfolio included other equipment on lease to the Debtor with an
original cost of approximately $31,000, which is fully depreciated for financial
reporting purposes and which represents less than 1% of the Partnership's
aggregate equipment portfolio. Renewal rental schedules for this equipment are
currently in effect by order of the Bankruptcy Court. All scheduled renewal
lease rents from the Debtor have been collected to date and the Partnership has
not experienced any material losses as a result of this bankruptcy.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase, in a multi-step
transaction, certain of AFG's assets and (ii) provide accounting, asset
management and investor services to AFG and certain of AFG's affiliates,
including the Partnership and all other equipment leasing programs managed by
AFG (the "Investment Programs").
On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo, and (iii) certain furniture, fixtures and computer software.
PLM hired AFG's marketing force and certain other support personnel effective
January 1, 1996 in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide accounting, asset management and investor
services to the Partnership.
Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain
of its affiliates agreed not to compete with the lease origination business sold
to PLM for a period of five years. AFG reserved the right to satisfy all
equipment needs of the Partnership and all other Investment Programs and
reserved certain other rights not material to the Partnership. AFG also agreed
to change its name, except where it is used in connection with the Investment
Programs. AFG's management considers the amendment to the 1995 agreements to be
in the best interest of AFG and the Partnership.
-19-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1995, 1994, 1993
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition, may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Rents earned prior to disposal of equipment,
net of interest charges $ 4,157,961 $ 2,708,776 $ 5,634,384
Sale proceeds realized upon disposition of
equipment 470,835 203,927 977,440
------------- ------------- -------------
Total cash generated from rents and
equipment sale proceeds 4,628,796 2,912,703 6,611,824
Original acquisition cost of equipment
disposed 4,306,976 2,208,353 6,135,896
-------------- -------------- --------------
Excess of total cash generated to cost of
equipment disposed $ 321,820 $ 704,350 $ 475,928
============== ============== ==============
</TABLE>
-20-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1995
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income (loss) $ (609,470) $ 470,835 $ (138,635)
Add back:
Depreciation 709,153 -- 709,153
Write-down of equipment 762,100 -- 762,100
Management fees 49,411 -- 49,411
Less:
Principal reduction of notes payable (223,620) -- (223,620)
------------------ ------------------ ------------------
Cash from operations, sales and
refinancings 687,574 470,835 1,158,409
Less:
Management fees (49,411) -- (49,411)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 638,163 470,835 1,108,998
Other sources and uses of cash:
Cash at beginning of year 958,005 -- 958,005
Net change in receivables
and accruals 372,622 -- 372,622
Less:
Cash distributions paid (1,166,072) (470,835) (1,636,907)
------------------ ------------------ ------------------
Cash at end of year $ 802,718 -- $ 802,718
================== ================== ==================
</TABLE>
-21-
<PAGE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1995
For the year ended December 31, 1995, the Partnership reimbursed the
Managing General Partner and its Affiliates for the following costs:
Operating expenses $ 101,719
-22-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of American Income Partners III-B Limited Partnership of our report
dated March 12, 1996, included in the 1995 Annual Report to the Partners of
American Income Partners III-B Limited Partnership.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
-15-
<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT
NO. 84010HT151
Dated as of
January 4, 1984
between
AMTRAN CORPORATION
LESSOR
AND
CONTRACT TRANSPORTATION SYSTEMS CO.
LESSEE
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
1. Definitions................................................. 1
2. Agreement for Lease of Equipment............................ 3
3. Delivery and Acceptance of Equipment........................ 3
4. No Warranties by Lessor..................................... 3
5. Lease Term.................................................. 4
6. Rent........................................................ 4
7. Changes in Acquisition Cost................................. 4
8. Lessee's Representations and Warranties..................... 4
9. Titling and Registration; Identification Marks.............. 5
10. Fees and Taxes.............................................. 6
11. Indemnification by Lessee................................... 7
12. Use of Equipment; Liens..................................... 7
13. Equipment Maintenance, Repair, and Additions................ 9
14. Loss, Damage or Destruction of Equipment.................... 9
15. Transfer.................................................... 10
16. Reports..................................................... 10
17. Insurance................................................... 11
18. Return of Equipment......................................... 12
19. Lessor's Ownership: Equipment to be and
Remain Personal Property.................................. 13
20. Events of Default........................................... 13
21. Assignment by Lessor;Estoppel Certificates.................. 16
22. Option to Renew............................................. 17
23. Additional Rights of Lessor................................. 18
24. Net Lease; Non-Terminability................................ 19
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
25. Lessee's Right to Sublease
and Assign.................................................. 19
26. Recording, Registration and Filing.......................... 19
27. Investment Tax Credit....................................... 20
28. Option to Purchase.......................................... 20
29. Lessee's Right to Terminate................................. 20
30. Quiet Enjoyment............................................. 21
31. Notices..................................................... 22
32. Entire Agreement, Severability,
Effect and Modification of Lease....................... 22
33. Countersignature............................................ 22
34. Governing Law............................................... 22
35. Lessor's Right to Perform for Lessee........................ 22
36. Agreement for Lease Only.................................... 23
37. Financial Statements........................................ 23
38. Miscellaneous............................................... 23
</TABLE>
EXHIBIT 1 -- Rental Schedule and Certificate of
Inspection and Acceptance with
Stipulated Loss Values
EXHIBIT 2 -- Agreement
<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT NO. 84010HT151, dated as of January 4,
1984, between AMTRAN CORPORATION (herein called "Lessor"), a Massachusetts
corporation having a place of business at One Liberty Square, Boston,
Massachusetts 02109, and Contract Transportation Systems Co. (hereinafter called
"Lessee"), a Delaware corporation with its principal place of business at 1370
Ontario Street, Cleveland, Ohio 44101.
In consideration of the mutual covenants hereafter contained, Lessor and
Lessee hereby agree as follows:
1. Definitions - The following terms shall, unless the context otherwise
-----------
requires, have the following meanings for all purposes of this Lease:
"ACQUISITION COST" of any item of Equipment means an amount equal to
the sum of (i) the purchase price of such item of Equipment paid by Lessor,
plus, (ii) any excise, sales or use tax paid by Lessor on or with respect to
such item of Equipment, plus (iii) any reasonable costs, expenses and fees paid
or incurred by Lessor in obtaining and delivering such item of Equipment to
Lessee and any expenses of installation of such item of Equipment paid for by
Lessor.
"ADDITIONAL RENT" shall have the meaning specified in Section 6(b)
hereof.
"APPRAISAL" shall have the meaning specified in Section 22(c) hereof.
"BASIC RENT" shall have the meaning specified in Section 6(a) hereof.
"CASUALTY OCCURRENCE" shall have the meaning specified in Section 14
hereof.
"CERTIFICATE OF INSPECTION AND ACCEPTANCE" means the certification
contained in or which is an Exhibit to each Rental Schedule to be executed by
Lessee, substantially in the form of "Exhibit 1" attached hereto.
"DEFAULT INTEREST RATE" shall mean the rate of interest set forth in
Section 6(b) hereof.
"EQUIPMENT" means the equipment described on each Rental Schedule now
or hereafter executed pursuant to this Master Lease, and owned by Lessor and
leased by Lessor to Lessee or ordered by Lessor for lease to Lessee as provided
herein and any attachments, accessories, or additions thereto or substitutions
therefor.
"EVENTS OF DEFAULT" shall have the meaning specified in Section 20(a)
hereof.
"FAIR MARKET VALUE" means the appraised value of the Equipment in
question determined with the procedure for Appraisal set forth in Section 22(c)
hereof.
"FAIR RENTAL RATE" shall have the meaning specified in Section (22a)(2)
hereof.
<PAGE>
"INTERIM TERM" shall commence upon the commencement date set forth in
the applicable Rental Schedule and shall end on the commencement date of the
Primary Term.
"INVESTMENT TAX CREDIT" shall mean any investment tax credit provided
for in Section 38 et seq. of the Internal Revenue Code of 1954, as amended,
which may be available with respect to the Equipment or any item thereof.
"LEASE" shall have the meaning specified in Section 2 hereof.
"LEASE COMMENCEMENT DATE" with respect to an item of Equipment means
the date of the commencement of the Lease Term of such item and shall be the
date such item is accepted by Lessee for lease hereunder.
"LEASE TERM" for each Rental Schedule shall mean the "Interim Term"
plus the "Primary Term" including any period of renewal provided for herein.
"MANUFACTURER(S)" shall mean the manufacturer(s) listed for each item
of Equipment on the Rental Schedule in question.
"MASTER LEASE" shall have the meaning specified in Section 2 hereof.
"PAYMENT DATES" shall have the meaning specified in Section 6(a)
hereof.
"PRIMARY TERM" for each Rental Schedule shall commence and shall end on
the date set forth therein.
"PRIME RATE OF INTEREST" shall mean the rate of interest announced from
time to time as its "Prime Rate" by the lending institution providing the
permanent debt financing with respect to the Rental Schedule in question; if the
lending institution in question has no PRIME RATE OF INTEREST, then Lessor and
Lessee agree that the PRIME RATE OF INTEREST announced from time to time by
Morgan Guaranty Trust company of New York, in New York City shall apply
hereunder.
"RENEWAL TERM" shall have the meaning specified in Section 22(a)(2)
hereof.
"RENTAL SCHEDULE" means each schedule, substantially in the form of
"Exhibit 1" attached hereto, now or hereafter executed by Lessor and Lessee
pursuant to this Master Lease, setting forth a full description of Equipment to
be leased hereunder, its location, its Acquisition Cost, the amount of rent
payable by Lessee with respect thereto, the lease term thereof, the Lease
Commencement Date with respect thereto, and such other details as Lessor and
Lessee may desire.
"STIPULATED LOSS VALUE" shall have the meaning specified in Section
14(b) hereof.
"TERMINATION DATE" means the expiration or termination of the Primary
Term or Renewal Term of any item of Equipment, whether by the passage of time or
otherwise.
<PAGE>
2. AGREEMENT FOR LEASE OF EQUIPMENT - Lessor shall lease to Lessee and
--------------------------------
Lessee shall lease from Lessor such Equipment as may be mutually agreed, in the
manner and upon the terms and conditions specified in this Master Equipment
Lease Agreement (this "Master Lease"). Each Rental Schedule shall Incorporate
the terms of this Master Lease and shall constitute a separate lease (the term
"this Lease" shall hereinafter refer collectively to the applicable Rental
Schedule and this Master Lease, to the extent the terms of this Master Lease
are incorporated in such Rental Schedule).
3. DELIVERY AND ACCEPTANCE OF EQUIPMENT - Lessor and Lessee understand that
------------------------------------
the manufacturer or vendor of the Equipment will deliver the Equipment to the
premises of the Lessee specified in the Rental Schedule and such delivery shall
be deemed to be delivery of the Equipment by Lessor to Lessee hereunder. Lessor
hereby authorizes Lessee as its agent to accept for Lessor, and in Lessor's
name, the Equipment from said manufacturer or vendor upon delivery. Upon such
delivery, Lessee shall cause an inspector or inspectors of Lessee to inspect
the Equipment, and if it is found to be acceptable to accept delivery of such
Equipment and execute and deliver to Lessor a Certificate of Inspection and
Acceptance stating that such Equipment has been inspected and accepted and is
marked in accordance with Section 9 hereof, whereupon such Equipment shall be
deemed to have been delivered to and accepted by Lessee. Lessee's execution of
each Rental Schedule and Certificate of Acceptance shall obligate Lessee to
lease the Equipment described therein from Lessor upon the acceptance of such
Equipment by Lessee and Lessee shall be subject thereafter to all the terms and
conditions of this Lease.
4. NO WARRANTIES BY LESSOR - As between Lessor and Lessee, Lessee's
-----------------------
acceptance for lease hereunder of any Equipment as evidenced by its execution
of a Certificate of Inspection and Acceptance with respect thereto shall
constitute Lessee's acknowledgment that such Equipment:
(a) is of a size, design, capacity and manufacture acceptable to Lessee for
lease hereunder; and
(b) otherwise conforms to the requirements of this Lease and is subject to
all of the terms and conditions of this Lease.
LESSOR HEREBY MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS AS TO
ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION THE CONDITION, SELECTION,
QUALITY, SUITABILITY OR OPERATION OF ANY EQUIPMENT, OR THE MERCHANTABILITY,
FITNESS FOR ANY PARTICULAR PURPOSE OR PERFORMANCE OF THE EQUIPMENT OR THE
MAINTENANCE THEREOF, AND THE LESSEE LEASES THE EQUIPMENT "AS IS" AND "WHERE
IS". In no event shall any defect in, or unfitness of, any Equipment relieve
Lessee of the obligation to pay rent or to make any other payments required
hereunder or of any other obligation hereunder. Without limiting the generality
of the foregoing, Lessor shall not be liable to Lessee for any (a) defects,
either latent or patent, in any of the Equipment or for any direct or
consequential damage therefrom; (b) loss of use of any of the Equipment or for
any interruption in Lessee's business occasioned by Lessee s inability to use
any of the Equipment for any reason whatsoever; and (c) damages in the event
that the Manufacturer delays delivery of the Equipment. Lessor hereby transfers
and assigns to Lessee for and during the Lease Term all its rights and interest
in the Manufacturer's warranty with respect to any and all of the Equipment,
and agrees to execute all agreements and documents reasonably
-3-
<PAGE>
necessary to effect such transfer and assignment. To the extent that any claims
or rights of Lessor with respect to the Equipment may not be assigned or
otherwise be available to Lessee, Lessor will use its best efforts to enforce
such claims or rights against the Manufacturer.
5. LEASE TERM - The Equipment is leased for an Interim Term and a Primary
----------
Term unless and until the term of this Lease shall expire, be extended or be
terminated pursuant to any provision hereof. The Interim Term and the Primary
Term shall commence and expire on the dates set forth in the Rental Schedule
applicable to the item of Equipment in question. The provisions of Section 11
shall apply as between Lessor and Lessee with respect to any Equipment from the
time the Equipment is ordered by Lessor. Lessee hereby authorizes Lessor to
insert the Lease Commencement Date for an item of Equipment on the Rental
Schedule therefor when such item has been accepted by Lessee for lease
hereunder.
6. RENT (a) This Lease is a net lease and Lessee shall pay to Lessor in
----
immediately available funds on the due date, as fixed rent for the Equipment
during the Interim Term and the Primary Term, the amount set forth in the Rental
Schedule ("Basic Rent") on the dates set forth therein ("Payment Dates"), at
Lessor's address set forth above, or at such other address or to such other
person or entity as Lessor, from time to time, may designate.
(b) Lessee shall also pay to Lessor on demand, in immediately available
funds on the due date, all amounts which Lessee is required to pay pursuant to
this Lease (other than Basic Rent) together with every fine, penalty, interest
and cost which may be added for non-payment or late payment thereof. Such
amounts shall constitute additional rent ("Additional Rent"). If Lessee shall
fail to pay any Additional Rent, Lessor shall have the right to pay the same and
shall have all rights, powers and remedies with respect thereto as are provided
herein or by law in the case of nonpayment of Basic Rent. With respect to any
amount of Basic Rent or Additional Rent not paid when due hereunder, Lessee
shall pay to Lessor interest on such overdue amount at the lower of: (1) two
percent (2%) above the Prime Rate of interest per annum but in no event less
than two percent (2%) per annum above the permanent debt rate of the Rental
Schedule(s) applicable to such overdue amount, or (ii) the highest rate
permitted by law ("Default Interest Rate"). Lessee shall perform all Its
obligations under this Lease at its sole cost and expense, and shall pay all
Basic Rent and Additional Rent when due. Lessor agrees to invoice Lessee on a
semi-annual basis for each Basic Rent payment, said invoice to be sent to Lessee
thirty (30) days prior to the due date of the Basic Rent payment in question.
7. CHANGES IN ACQUISITION COST - In the event that, subsequent to Lessor's
---------------------------
placing of the order for the Equipment with the Manufacturer and prior to the
execution by Lessee of the Certificate of Inspection and Acceptance, the
Acquisition Cost shall increase or decrease, Lessor and Lessee agree to make the
necessary changes to the Rental Schedule for such item of Equipment and to make
any necessary adjustments necessitated thereby in the rent figures set forth on
such Rental Schedule. Lessor agrees that it will take no action not sanctioned
by the Lessee which will cause the price of the Equipment to increase during the
period referred to in this Section 7.
-4-
<PAGE>
8. LESSEE'S REPRESENTATIONS AND WARRANTIES -- Lessee represents and
---------------------------------------
warrants for the benefit of Lessor (and if requested by Lessor, will provide
other supporting documents to the effect) that both as of the date of this Lease
and the date any Equipment is accepted for lease hereunder:
(a) Lessee is a corporation legally incorporated and validly existing, in
good standing under the laws of the state of its incorporation, with
full corporate power to enter into this Lease and to pay and perform its
obligations hereunder, and under each Rental Schedule and is qualified
to do business in the location(s) where the Equipment is installed;
(b) this Lease has been duly authorized, executed and delivered by and
Lessee, is enforceable in accordance with its terms and Lessee's
execution, delivery and performance thereunder do not and will not
contravene any provisions of or constitute a default under, any
indenture, mortgage, contract or other instrument by which it is bound;
(c) any approval required from any public regulatory body or from any parent
or affiliate of Lessee or from any other person, firm or corporation
with respect to the entering into or performance of this Lease by Lessee
has been obtained as of the date of this Lease or will be obtained
promptly thereafter;
(d) there are no suits or proceedings pending, or to the knowledge of Lessee
threatened, in any court or before any regulatory commission, board or
other administrative governmental agency against or affecting Lessee,
which, if decided against Lessee, would impair Lessee's ability to pay
the rents as they become due or perform any of its other obligations
pursuant to this Lease; and
(e) there has been no material adverse change to Lessee's financial
condition since the date of Lessee's most recent audited financial
statement.
9. TITLING AND REGISTRATION; IDENTIFICATION MARKS -- (a) The Lessee will,
on behalf of the Lessor and at the Lessee's expense, promptly obtain an
application for the Lessor's title for each item of Equipment, reflecting the
Lessor or its assignee as owner and whomever the Lessor shall designate as first
lienholder, the Manufacturer's certificate of title and a certificate of
registration issued in the name of the Lessor or its assignee. Certificates of
ownership shall be delivered to the Lessor or to whomever the Lessor shall
designate. The Lessee shall, at Lessee's expense, take such action as shall be
necessary from time to time to avoid suspension or revocation of any
certificates of ownership and to renew and maintain all certificates of
registration. If the Lessee is required to obtain any new certificate of
ownership or of registration, the Lessee shall, at Lessee's sole expense and
after prior written notice to the Lessor, obtain such new certificate of
ownership or of registration in the manner provided herein. The Lessor appoints
the Lessee its attorney-in-fact for the purpose of carrying out the Lessee's
obligations pursuant to this Section 9. The Lessee shall notify the Lessor of
the state in which each item of Equipment is titled and registered, the license
plate number of each item of Equipment, and any changes of such state of license
plate number.
-5-
<PAGE>
(b) If requested by Lessor or required by federal, state or local law, Lessor
shall furnish to Lessee and Lessee shall, at Lessee's expense, affix to the
Equipment a sign, tag or other form of notice to disclose Lessor's ownership of
the Equipment or that the Equipment is leased, and Lessee shall keep and
maintain such sign, tag or other form of notice affixed or attached to the
Equipment throughout the Lease Term. Lessee will not allow the name of any
persons other than Lessor or its assignee to be placed on any Equipment as a
claim of ownership other than that of Lessor; provided, however, that Lessee may
cause such Equipment to be lettered with the names or initials or other insignia
customarily affixed by the manufacturer thereof or used by Lessee on equipment
used by it of the same or a similar type for convenience of identification of
its rights to use such Equipment as permitted under this Lease or normal
advertising displays.
10. FEES AND TAXES - Lessee agrees to pay promptly when due, and to
--------------
indemnify and hold Lessor harmless from, all license, title and registration
fees whatsoever, all taxes (including without limitation all sales, use,
personal property, franchise, ad valorem, value added, leasing, leasing use,
-- -------
federal highway use, fuel, third structure and stamp taxes) and all levies,
imposts, duties, highway or bridge tolls, fees (including without limitation all
documentation fees) and all other charges (together with any penalties, fines or
interest thereon), whether such fees, taxes, or charges are general or special,
ordinary or extraordinary, foreseen or unforeseen, which are assessed, levied or
imposed by any governmental or taxing authority against or upon Lessor, with
respect to any Equipment or the purchase, acquisition, ownership, delivery,
leasing, possession, use, operation, control or return thereof, or the rents,
receipts or earnings arising therefrom which accrue during the term of this
Lease, excluding, however, any federal, state or local taxes levied on or
measured by Lessor's net income. In the event any such fees, levies, imposts,
duties, charges or taxes which are the responsibility of Lessee are paid by
Lessor, or if Lessor be required to collect or pay any thereof, Lessee shall
reimburse Lessor therefor (plus any penalties, fines or interest thereon)
promptly upon demand. Lessee will file all personal property tax returns
covering the Equipment, and unless and until Lessor notifies Lessee in writing
to the contrary, Lessee will pay the personal property taxes levied or assessed
thereon directly to the levying authority. Upon Lessor's written request, Lessee
shall submit to Lessor a true and correct copy of its personal property tax
return and its receipt evidencing payment of the tax. In the event Lessor elects
to pay personal property taxes directly to levying authority, Lessor shall
submit to Lessee a true and correct copy of Its personal property tax return and
its receipt evidencing payment of the tax and Lessee will then promptly
reimburse Lessor for the full amount of such personal property taxes so paid by
Lessor. All of the obligations of Lessee under this Section 10 with respect to
any fees, levies imposts, duties, charges, withholdings, taxes and governmental
charges (together with any penalties, fines or interest thereon) assessed,
levied imposed or accrued prior to the expiration or other termination of this
Lease shall continue in full force and effect notwithstanding such expiration or
other termination and are expressly made for the benefit of, and shall be
enforceable by, Lessor.
Lessor shall obtain a sales tax exemption, where available, with respect to
its purchase of the Equipment from the vendor thereof and any tax payable with
respect to the use of the Equipment by Lessee shall be paid by Lessee, a pro
rata basis, with each rental payment due hereunder, to the extent permissible by
law.
-6-
<PAGE>
11. INDEMNIFICATION BY LESSEE - Lessee shall indemnify Lessor against, and
-------------------------
agrees to defend, protect, save and keep Lessor harmless from any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, expenses and disbursements, including legal fees and expenses, of
whatsoever kind and nature imposed on, incurred by or asserted against Lessor
(including, without limitation, by way of strict or absolute liability), in any
way relating to or arising out of:
(a) The ordering, construction, purchase, acceptance, installment, rejection
or use of the Equipment; or
(b) Lessee's acts or omissions relating to the delivery, non-delivery,
possession, use, maintenance, operation, control, condition, return,
redelivery, storage, surrender, or other use of the Equipment during the term of
this Lease, including without limitation:
(i) claims or penalties arising from any violation of the laws of any
country or political subdivision thereof,
(ii) loss, damage, destruction, removal of any item of Equipment,
death or injury to any person, including tort claims of any kind,
whether based on fault or strict liability in tort (whether or not such
loss, damage, death or injury is shown to be caused by any use or misuse
of any item of Equipment),
(iii) any liens or other claims required to be removed or released by
Lessee pursuant to Section 12 hereof,
(iv) latent or other defects, whether or not discoverable, and
(v) any claim for patent, trademark or copyright infringement,
provided, however, Lessee shall have no obligation to Lessor under this Section
- -------- -------
11 for any indemnification or hold harmless claim against Lessee which in any
way relates to or arises out of the negligence or wilful misconduct of the
Lessor.
In case any action, suit or proceeding is brought against Lessor by reason of
any of the foregoing, Lessee, at Lessee's expense, shall cause the claim upon
which such action, suit or proceeding is based to be discharged, or shall resist
and defend such action, suit or proceeding (or cause the same to be resisted or
defended) by counsel designated by Lessee. If Lessor shall be made a party to
any litigation commenced against Lessee, and Lessee, at its expense, shall fail
to provide Lessor with counsel approved by Lessor, Lessee shall pay all costs
and attorneys' fees and expenses incurred by Lessor in connection with such
litigation. Notwithstanding any other provision hereof, Lessor shall not be
required to take any action hereunder involving the expenditure of funds unless
Lessee shall have provided Lessor with such funds as may reasonably be requested
by Lessor in connection with such action to be taken by Lessor. Lessor agrees,
at Lessee's expense, to cooperate and take such action as may be reasonably
necessary to generally assist Lessee in the conduct of any litigation relating
to this Lease and hereinbefore described in this Section 11.
-7-
<PAGE>
The indemnification of Lessee under this Section 11 shall survive the
payment of all obligations under, and the termination of, this Lease.
12. USE OF EQUIPMENT; LIENS - During the Lease Term, Lessee warrants and
------------------------
agrees that the Equipment will be used and operated under and in compliance with
the laws of the jurisdictions in which the Equipment may be located and
operated and in compliance with all lawful acts, rules, regulations and orders
of any judicial, legislative or regulatory body having power to regulate or
supervise the use of the Equipment. Lessee shall comply with and shall cause the
Equipment to comply with all contracts (including insurance policies) agreements
and restrictions applicable thereto or to the use or ownership thereof. Lessee
shall use each item of Equipment and permit each item of Equipment to be used
only for such purposes as such Equipment was designed and suited.
During the Lease Term Lessee, will not directly or indirectly create, incur,
assume or suffer to exist any mortgage, security interest, pledge, lien, charge,
encumbrance or claim on or with respect to the Equipment, Lessor's title
thereto, or any interest therein, except:
(a) the respective rights of Lessor (and its assigns, if any) and Lessee as
herein provided;
(b) liens or encumbrances granted or placed thereon by Lessor (or its
assigns, if any);
(c) liens or encumbrances resulting from claims against Lessor but not
against Lessee and unrelated to this Lease, and not resulting from any
default, act or omission of Lessee;
(d) liens for taxes either not yet due or being contested in good faith
and by appropriate proceedings;
(e) inchoate materialmen's, mechanics', workmen's, repairmen's, employees'
or other like liens arising in the ordinary course of business and not
delinquent; and
(f) liens arising out of judgments against Lessee with respect to which at
the time of appeal or proceeding for review is being prosecuted in good
faith and with respect to which there has been secured a stay of
execution pending such appeal or proceeding for review; provided,
--------
however, that the liens referred to in clauses (d) and (e) of this
-------
Section 12 and this clause (f) may remain only so long as the existence
thereof does not subject the Equipment in question to forfeiture,
seizure, sale or foreclosure or otherwise adversely affect the rights
of Lessor or its assigns.
Lessee, at its own expense, will promptly take such action as may be necessary
to keep the Equipment free and clear of, and to duly discharge, any such
mortgage, security interest, pledge, lien, charge, encumbrance or claim not
excepted above. Lessee agrees to procure and maintain in effect all licenses,
certificates, permits and other approvals and consents required by federal,
state, county, municipal or foreign laws and regulations in connection with
Lessee's possession, use, operation and maintenance of the Equipment. Except as
otherwise provided in Section 25 hereof, Lessee agrees that without
-8-
<PAGE>
Lessor's prior written consent, which consent will not be unreasonably
withheld, Lessee will not assign or transfer its rights under this Lease, or
sublease any of the Equipment, or remove or suffer any of the Equipment to be
removed from the location specified in the Rental Schedule for such Equipment,
or permit any Equipment to be used by anyone other than Lessee, Lessee's
employees, a representative of the manufacturer or an independent contractor
engaged by Lessee.
13. EQUIPMENT MAINTENANCE, REPAIR, AND ADDITIONS (a) During the Lease Term
--------------------------------------------
with respect thereto, Lessee, at Lessee's sole expense, will maintain the
Equipment and each item thereof in good and efficient operating repair,
appearance and condition except for ordinary wear and tear, and will make all
ordinary and extraordinary adjustments, replacements and repairs which may be
required to keep the Equipment and each item thereof in good and efficient
operating repair and condition. All maintenance and repairs to the Equipment
shall be made by the Manufacturer thereof or those of substantially equal skill
or knowledge in maintaining and repairing the Equipment.
(b) Upon request by Lessee, Lessor agrees to purchase or otherwise obtain
for the Lessee additional items of equipment that are available for interface
and connection with items of the Equipment and to lease the same to the Lessee
for the remaining Lease Term, including renewal terms, upon the same terms and
conditions as are herein specified, and the rentals for such additional items
shall be negotiated in good faith between Lessor and Lessee. Notwithstanding the
foregoing and provided that the value of the Equipment or any item thereof shall
not be reduced thereby, Lessee shall have the right at any time to add or
connect additional compatible equipment to the Equipment whether such compatible
equipment is owned by Lessee or on rental with any third party. In each case,
Lessee shall disconnect or detach such equipment upon the expiration or earlier
termination of this Lease, or such equipment shall become the property of the
Lessor. Lessee agrees to indemnify and hold Lessor harmless from any loss or
damage caused to the Equipment by the connection to, or disconnection from, any
compatible equipment.
14. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT - Lessee shall bear all risks
----------------------------------------
of damage to, taking of, or loss or destruction of, any item of Equipment during
the Lease Term thereof and until such Equipment has been returned to Lessor
pursuant to the provisions of Sections 18 or 20, whichever is applicable.
In the event that any item of Equipment shall become lost, stolen, destroyed
or irreparably damaged from any cause whatsoever, or if any item of Equipment or
Lessor's title thereto shall be requisitioned or seized by and governmental
authority (each such occurrence being hereafter called a "Casualty Occurrence")
during the Lease Term of such item until such item has been returned to Lessor
in accordance with the provisions of Sections 18 or 20 hereof, whichever is
applicable, Lessee shall promptly notify Lessor in writing of such fact, fully
informing Lessor of all details with respect thereto, and shall at the option of
Lessee:
(a) within ten (10) days of such Casualty Occurrence inform Lessor by
written notice of its intent to replace the item or items of Equipment suffering
such Casualty Occurrence and with the written consent of Lessor, replace the
same, as soon as practicable, with like property approved by the
-9-
<PAGE>
Lessor with a market value and utility at least equal to that of the replaced
Equipment prior to the Casualty Occurrence which property shall thereupon become
the property of Lessor subject to this Lease for the then remaining Lease Term.
In the event Lessee elects to replace the Equipment pursuant to this Section
14(a) and Lessor does not give its consent as provided for herein, Lessee agrees
to promptly pay either the Stipulated Loss Value or Fair Market Value pursuant
to the provisions of Section 14(b) hereof; or
In the event Lessee elects, with the written concurrence of Lessor, to
replace the Equipment pursuant to this Section 14(a), any insurance proceeds
received as a result of the Casualty Occurrence in question shall be applied
first in payment of any then due and unpaid obligation of Lessee to Lessor
hereunder and secondly to reimburse Lessee for funds it has expended to replace
the item of Equipment in question pursuant to this Section 14(a), provided that
-------- ----
all remaining amounts, if any, shall be paid to Lessor.
(b) pay Lessor in cash the greater of the Fair Market Value of the item of
Equipment in question as of the date of the Casualty Occurrence or the
"Stipulated Loss Value" as set forth in the Exhibit to the Rental Schedule
pursuant to which such item of Equipment is leased hereunder. This payment shall
be made on the next succeeding Payment Date following the Casualty Occurrence.
Upon such payment and the payment of all other rent and all other amounts then
due hereunder up to and including the Payment Date this Lease shall terminate
with respect to the Equipment or part thereof so paid for and all Lessor's right
and title to the Equipment shall pass to Lessee, "as is" and "where is" without
warranty or recourse, as evidenced by a duly executed bill of sale naming Lessor
as the seller and Lessee as the buyer.
In the event a payment has been or is to be made by Lessee pursuant to
Section 14(b) as the result of a Casualty Occurrence, any insurance proceeds
received as a result of the Casualty Occurrence in question shall be applied
first in payment of any then unpaid obligation of Lessee to Lessor hereunder and
secondly in payment of Lessee's obligation to pay the greater of Stipulated Loss
Value or Fair Market Value for such item if not already paid by Lessee to
Lessor, or, if already paid by Lessee, to reimbursement to Lessee for its
payment of Stipulated Loss Value or payment of Fair Market Value whichever is
the case, provided that all remaining amounts, if any, shall be paid to Lessor.
-------- ----
Nothing in this Section 14 shall in any way diminish Lessee's obligation to
return the Equipment pursuant to Sections 18 or 20 hereof in the event the
Lessee elects to replace the Equipment in question pursuant to clause (a)
hereof.
15. TRANSFER - Lessor may at its sole discretion sell or transfer any of
--------
the Equipment and/or this Lease to a partnership, trust or other person or
entity subject to the rights of the Lessee or any assignee of Lessee under this
Lease, provided, however, that Lessor agrees to pay any costs or expenses
-------- -------
associated with such transfer.
16. REPORTS - On or before February 1 of each year of the Lease Term,
-------
Lessee will cause to be furnished to Lessor, if requested, an accurate
statement, as of the preceding calendar year:
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<PAGE>
(a) showing the amount, description and identifying numbers of all items of
Equipment that may have suffered a Casualty Occurrence during the
preceding calendar year, and such other information regarding the
condition and state of repair of such items of Equipment as Lessor may
reasonably request;
(b) certifying that all items of Equipment have been marked as required by
Section 9 hereof; and
(c) certifying that all items of Equipment continue to remain located at the
premises specified on the Rental Schedule therefor or at such location
as has been approved in writing by the Lessor.
Lessor shall have the right, upon reasonable notice to Lessee, to inspect
the items of Equipment and Lessee's records with respect thereto at such times
as shall be reasonably necessary to confirm to Lessor the existence and proper
maintenance thereof during the continuance of the Lease.
17. INSURANCE - (a) Lessee will maintain, at its sole cost and expense, at
---------
all times during the Lease Term of any Equipment, and until such Equipment has
been returned to Lessor in accordance with the provisions of Sections 18 or 20,
whichever is applicable, with reputable insurers acceptable to Lessor, such
acceptance not to be unreasonably withheld, (A) insurance in an amount equal to
the greater of Fair Market Value or Stipulated Loss Value, of each item of
Equipment leased hereunder, insuring against loss and/or damage to such
Equipment arising out of any risk covered by fire, windstorm, explosion, and
extended coverage and against such other risks as are customarily insured
against by companies owning property of a similar character and engaged in a
business similar to that engaged in by Lessee, or, alternatively, Lessee shall
have the right to self assume with respect to damages set forth in clause (A)
hereof to the extent and in the amounts set forth in clause (A) hereof, and (B)
comprehensive public liability and property damage insurance, insuring against
liability for death, bodily injury and property damage resulting from ownership,
maintenance, use or operation of the Equipment in the minimum amount of
$5,000,000. All insurance policies shall (i) name Lessor (and also any assignee
of Lessor, if requested by such assignee) as an additional insured, with losses
under the physical loss and/or damage policies to be payable to Lessor and
Lessee as their respective interests may appear, (ii) with respect to the
physical loss and damage policies only, shall contain endorsements waiving any
default in payment of premium or satisfaction of any other obligation of the
Lessee as a condition to payment to Lessor as additional insured, and (iii)
provide that the policies may only be materially altered or canceled by the
insurer after thirty (30) days prior written notice to Lessor and to any
assignee of Lessor. Lessee shall deliver to Lessor, prior to the Lease
Commencement Date for any item of Equipment (or any such other time or times as
Lessor may request) a certificate or other evidence of the maintenance of all
such insurance satisfactory to Lessor, provided however, that Lessor shall be
under no duty to examine such certificates or other evidence of insurance, or to
advise Lessee in the event that its insurance is not in compliance with this
Lease. The comprehensive physical loss or damage insurance policy or policies
shall also provide that upon receipt by the insurer from Lessor of any written
notice of the occurrence of an Event of Default hereunder, any proceeds payable
by said insurer with respect to any loss or destruction of, or damage to, any
Equipment, shall be payable solely to Lessor (and to any
-11 -
<PAGE>
assignee of Lessor, if requested by such assignee) from the date of said
insurer's receipt of such written notice, up to the date said insurer receives
written notice from Lessor that said Event of Default is no longer continuing
hereunder. On or prior to acceptance of any item of Equipment for lease
hereunder, and thereafter not less than five (5) days prior to the expiration
dates of the expiring policies required pursuant to this Section 17, Lessee
shall deliver to each party hereto certificates of insurance issued by the
insurers thereunder or by an insurance broker authorized to bind such insurers
evidencing the insurance maintained pursuant to this Section 17; provided,
--------
however, that if the delivery of any certificate is delayed, Lessee shall
- -------
deliver the formal certificate upon receipt thereof.
(b) In the event that Lessee shall fail to maintain insurance as herein
provided, Lessor or its assignee may at its option, but without obligation,
provide such insurance and, in such event, Lessee shall, upon demand from time
to time, reimburse Lessor or its assignee for the cost thereof, together with
interest on such cost computed at the Default Interest Rate per annum, computed
from the date of payment of such cost to the date of reimbursement. Lessor or
its assignee shall give Lessee prompt written notice of any such insurance.
(c) If no Event of Default or no event which, but for the lapse of time or
the giving of notice or both, would be an Event of Default, shall have occurred
and be continuing, and if the Lessee shall have made payment to Lessor or its
assignee of the Stipulated Loss Value for any item of Equipment, Lessee shall be
entitled to receive any insurance proceeds or condemnation payments with respect
to the related casualty occurrence up to an amount equal to such Stipulated Loss
Value, and any balance of such proceeds or payments shall remain the property of
Lessor and its successors and assigns. All casualty insurance proceeds in
respect to any item of Equipment not suffering a casualty occurrence shall be
paid to Lessee upon proof reasonably satisfactory to Lessor that any damage to
such item of Equipment in respect to which such proceeds were paid has been
fully repaired.
(d) Nothing in this Section 17 shall be construed to prohibit Lessor or its
assignee(s) from insuring at its own expense any item of Equipment or its
interest therein, and any insurance so maintained shall not provide for or
result in a reduction of the coverage or the amounts under any of the insurance
required to be maintained by Lessee under this Section 17.
18. RETURN OF EQUIPMENT - Upon the expiration or earlier termination of
-------------------
this Lease with respect to an item of Equipment, the Lessee, at its own risk and
expense, shall return such item of Equipment to the Lessor, together with all
license plates and all registration certificates, certificates of ownership,
maintenance and repair records and similar documents in the Lessee's possession,
at the place originally delivered hereunder, or such other places as the Lessor
and Lessee may mutually agree, in the condition in which such item of Equipment
is required to be maintained pursuant to Section 13 hereof and, with respect to
any items of Equipment which are tractor or trailer units, at least meeting the
following conditions:
(a) All items of Equipment originally furnished with such item of
Equipment, or the substantial equivalent thereof, shall be installed, intact and
in the condition required by Section 13 hereof at the time of return;
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<PAGE>
(b) The power train including engine, transmission and driveline shall
be in standard operating condition;
(c) All components of any item of Equipment shall function in their
original condition and appearance and as originally designed, reasonable wear
and tear excepted;
(d) Each item of Equipment shall comply with all applicable Department
of Transportation and other federal rules and regulations and all rules and
regulations of the jurisdiction in which such item of Equipment is returned; and
(e) Each item of Equipment shall be free of any advertising and
identification of Lessee.
Lessee shall provide storage for each item of Equipment at such item of
Equipment's redelivery location at Lessee's expense and risk for a period of
ninety (90) days or until Lessor has sold or otherwise disposed of such item of
Equipment, whichever shall first occur; provided Lessor has no right hereunder
--------
to abandon any item of Equipment to Lessee.
19. LESSOR'S OWNERSHIP EQUIPMENT TO BE AND REMAIN PERSONAL PROPERTY - Lessee
---------------------------------------------------------------
acknowledges and agrees that it has not, and by the execution of this Lease it
does not have or obtain, and by payments and performance hereunder it does not
and will not have or obtain, any title to the Equipment, nor any property right
or interest, legal or equitable, therein, except its rights as Lessee hereunder
and subject to the terms hereof. It is expressly understood that all of the
Equipment shall be and remain personal property notwithstanding the manner in
which the Equipment may be attached or affixed to realty, and that upon the
expiration or other termination of the Lease Term of any Equipment, Lessee shall
have the obligation, and Lessor shall have the right, to remove, or cause the
removal of, such Equipment, from the premises whereon the same is then located,
whether or not any such Equipment is affixed or attached to realty or to any
building. There shall be no merger of this Lease or the leasehold hereby created
with the fee interest in the any item of Equipment by reason of the fact that
the same person acquires or holds, directly or indirectly, this Lease or the
leasehold interest hereby created or any interest herein or in such leasehold
interest as well as the fee interest any item of Equipment or any interest in
such fee interest.
If Lessee is unable to return, or is prevented from returning, any Equipment
to Lessor upon the expiration or termination of the Lease Term hereof as
required under Sections 18 or 20 hereof, for any reason whatsoever including,
but not limited to, the assertion by any third party of any claim against such
Equipment, or of any right with respect thereto, whether or not resulting from
the manner in which such Equipment is affixed to or attached to, or installed on
or in, the realty or any building(s) thereof, such Equipment shall, for all
purposes of this Lease be deemed to have been subject of a Casualty Occurrence,
and Lessee shall pay to Lessor the amounts provided in Section 14(b) hereof,
with respect to such Equipment, at the time, in the manner, and with the
consequences provided in such Section.
20. EVENTS OF DEFAULT - (a) If, during the continuance of this Lease, one or
-----------------
more of the following events (hereinafter called "Events of Default") shall
occur:
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<PAGE>
(1) default shall be made in the payment of any rent hereunder, or default
shall be made in the payment of any obligation provided for in this Lease, and
any such default shall continue for more than ten (10) days after the due date
of such rent or obligation, provided that no Event of Default shall occur if the
-------- ----
failure of the Lessor to receive the payment in question is not the result of
any act or omission on the part of the Lessee and if payment is made to Lessor
by Lessee no later than one (1) business day after Lessee has notice of such
failure of Lessor to receive such payment;
(2) Lessee shall default in the observance and/or performance of any other
covenant, condition and agreement on the part of Lessee to be observed and/or
performed under this Lease and such default shall continue for thirty (30) days
after written notice from Lessor to Lessee specifying the default and demanding
the same to be remedied, provided there shall be no event of default if Lessee
is proceeding diligently to cure and if reasonable indemnification satisfactory
to Lessor and its assignee is provided;
(3) any material representation or warranty made by Lessee herein or in any
document or certificate furnished to Lessor in connection herewith or pursuant
hereto shall at any time prove to be incorrect when made in any material
respect;
(4) Lessee shall make or permit any unauthorized assignment or transfer of
this Lease or of Lessee's rights and obligations hereunder, or Lessee shall make
or permit any unauthorized sublease or transfer of any Equipment, or the
possession of same;
(5) Lessee shall make an assignment for the benefit of creditors, or cease
doing business as a going concern, or become insolvent or bankrupt or admit in
writing its inability to pay its debts as they mature, or consent to the
appointment of a trustee or receiver, or a trustee or a receiver shall be
appointed on decree or order of a court having jurisdiction in the premises, for
Lessee or for a substantial part of Lessee's property without Lessee's consent
and such decree or order shall continue undischarged and unstayed for a period
of ninety (90) days, or bankruptcy, reorganization, insolvency, arrangement, or
liquidation proceeding shall be instituted by or against Lessee, and if
instituted against Lessee, a decree or order adjudicating Lessee a bankrupt
shall continue undischarged and unstayed for a period of ninety (90) days;
(6) if pursuant to the merger of Lessee into another corporation pursuant to
which Lessee is not the surviving corporation, or the consolidation of Lessee
with one or more other corporations and the sale or other disposition of all or
substantially all the assets of Lessee to one or more other entities, the
surviving entity or transferee of assets, as the case may be, shall not deliver
to Lessor and to any assignee of Lessor's interest in this Lease an acknowledged
instrument in recordable form, assuming all obligations covenants and
responsibilities of Lessee hereunder and under any instrument executed by
Lessee, and acknowledging the assignment of Lessor's interest this Lease as
security for indebtedness;
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<PAGE>
(b) Then, in any such case, Lessor, at its option, may do any one or more of
the following;
(1) declare this Lease, with respect to the Rental Schedule in question, in
default upon written notice (or telephonic notice promptly confirmed in writing)
to Lessee, and proceed by appropriate court action or actions at law or in
equity or in bankruptcy to enforce performance by Lessee of the covenants and
terms of this Lease and/or to recover damages for the breach thereof;
(2) terminate this Lease upon written notice (or telephonic notice promptly
confirmed in writing) to Lessee; whereupon all right of Lessee to use the
Equipment shall absolutely cease and terminate;
(3) whether or not this Lease be terminated, repossess the Equipment,
wherever found, with legal process, and for this purpose Lessor and/or its
agents may enter upon any premises of or under the control or jurisdiction of
Lessee or any agent of Lessee, and remove the Equipment therefrom;
(4) with respect to any Equipment returned to or repossessed by Lessor, hold
or use such Equipment for any purpose whatsoever, including selling the same at
a private or public, cash or credit sale, or Lessor may re-lease such Equipment
in all the foregoing events free and clear of any rights of the Lessee and
without any duty to account to the Lessee with respect to such action or
inaction;
(5) whether or not Lessor shall have exercised, or shall thereafter at any
time exercise, any of its rights set forth above in this Section 20 with respect
to any item of Equipment, and upon written notice (or telephonic notice promptly
confirmed in writing) to the Lessee specifying a payment date which shall be not
earlier than ten days after the date of such notice, demand that the Lessee pay
to the Lessor, and the Lessee shall pay to the Lessor on the payment date
specified in such notice, as liquidated damages for loss of a bargain and not as
a penalty (in lieu of the Basic Rent for such item of Equipment due after the
payment date specified in such notice), any unpaid Basic Rent for such item of
Equipment due for periods prior to the payment date specified in such notice
plus whichever of the following amounts the Lessor, in its sole discretion,
shall specify in such notice: (i) an amount equal to the excess, if any, of 115%
of the Stipulated Loss Value for such item of Equipment computed as of the Basic
Rent Payment Date next preceding the payment date specified in such notice or if
such payment date occurs on a Basic Rent Payment Date, then computed as of such
Basic Rent Payment Date, over the present value of the fair market rental value
(determined as hereafter in this Section 20 provided) of such item of Equipment
for the remainder of the Lease Term or renewal term, as the case may be, as of
the payment date specified in such notice, such present value to be computed on
the basis of 12% per annum rate of discount from the respective dates upon which
such rent would be paid, or (ii) an amount equal to the excess, if any, of 115%
of the Stipulated Loss Value for such item of Equipment as of the Basic Rent
Payment Date next preceding the payment date specified in such notice or if such
payment date occurs on a Basic Rent Payment Date, then computed as of such Basic
Rent Payment Date, over the fair market sales value of such item of Equipment
(determined as hereafter in this Section 20 provided) as of the payment date
specified in such notice;
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<PAGE>
(6) whether or not any Equipment is returned to, or repossessed by Lessor,
as aforesaid, Lessee shall also be liable for, and Lessor may forthwith recover
from Lessee, all unpaid rent and other unpaid sums that accrued prior to the
date of Lessee's default. In addition to the foregoing, Lessor may also recover
from Lessee all costs and expenses arising out of Lessee's default, including
without limitation expenses of repossession of the Equipment and the storage,
repairs, reconditioning, sale and releasing thereof, reasonable attorneys' fees
and fees of collection agencies, incurred by Lessor in exercising any of its
rights or remedies hereunder; and
(7) if Lessor shall have sold any item of Equipment pursuant to paragraph
(4) above, Lessor, in lieu of exercising its rights under paragraph (5) above
with respect to such item of Equipment may, if it shall so elect, demand that
the Lessee pay to Lessor, and the Lessee shall pay to Lessor, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent
for such item of Equipment due on Payment Dates subsequent to the Payment Date
next preceding such sale), any unpaid Basic Rent for such item of Equipment due
for periods up to and including the Payment Date next preceding the date such
sale occurs plus the amount, if any, by which 115% of the Stipulated Loss Value
of such item of Equipment computed as of the Payment Date next preceding the
date of such sale or if such sale occurs on a Payment Date, then computed as of
such Payment Date, exceeds the net proceeds of such sale.
For the purposes of this Section 20, "fair market rental value" and
"fair market sales value" shall be determined on the basis of an appraisal of
The American Appraisal Company or a comparable independent appraiser chosen by
the Lessor, and the cost of any such appraisal shall be borne by the Lessee.
In the event that any court of competent jurisdiction determines that any
provision of this Section 20 is invalid or unenforceable in whole or in part,
such determination shall not prohibit Lessor from establishing damages it
sustained as a result of any breach of this Lease in any action or proceeding in
which Lessor seeks to recover such damages. Any repossession or resale of any
Equipment shall not bar an action for damages for breach of this Lease, as
hereinbefore provided, and the bringing of an action or the entry of judgment
against Lessee shall not bar Lessor's right to repossess any or all Equipment.
The remedies herein provided in favor of Lessor, shall not be deemed to be
exclusive, but shall be cumulative and shall be in addition to all other
remedies in Lessor's favor existing in law, in equity or bankruptcy.
If an Event of Default has occurred hereunder, Lessee shall pay to Lessor,
on demand, all expenses incurred by Lessor as a result thereof, including
reasonable attorneys' fees and expenses.
21. ASSIGNMENT BY LESSOR; ESTOPPEL CERTIFICATES. - (a) Lessor may, at any
-------------------------------------------
time and from time to time assign, in whole or in part, this Lease, any item of
the Equipment, the Basic Rent, Additional Rent and other sums at any time due
and to become due, or at any time owing or payable by the Lessee to Lessor under
any of the provisions of this Lease without notice to or consent of Lessee.
Lessee agrees that; if so requested, it will acknowledge such assignment in
writing to such assignee.
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<PAGE>
(b) No such assignee shall be obligated to perform any duty, covenant or
condition required to be performed by Lessor under any of the provisions of this
Lease. Lessee, by its execution hereof, acknowledges and agree that
notwithstanding any such assignment, each and every covenant, agreement,
representation and warranty of Lessor under this Lease shall be and remain the
sole liability of the Lessor and of every successor in interest of Lessor.
Lessee further acknowledges and agrees that from and after the receipt by Lessee
of written notice of such an assignment from Lessor, Lessee shall comply with
the directions or demands given in writing by the assignee and the assignee
shall have the right to exercise (either in its own name or in the name of the
Lessor) such rights, privileges and remedies of Lessor provided in such
assignments. Lessee shall not assert against the assignee any defense,
counterclaims, set-off, abatement, reduction or recoupment that Lessee may have
against Lessor. After any such assignment, this Lease may not be amended or
modified without the prior written consent of any such assignee. Upon any
assignment of this Lease or granting of any mortgage on or security interest in
any of the Equipment, Lessee agrees to execute and Lessor or its assignee may
record any instruments relating to such assignment, mortgage or security
interest desired by the Lessor or assignee in accordance with the laws of the
relevant jurisdiction(s) and the Lessee shall promptly submit on request such
documents as may be requested by the Lessor or assignee in order to secure and
complete any assignment, mortgage or security interest.
(c) Lessee will, from time to time, upon request by Lessor, execute,
acknowledge and deliver to Lessor a certificate signed by a responsible senior
officer of Lessee stating that this Lease is unmodified and in full effect (or,
if there have been modifications, that this Lease is in full effect as modified,
and setting forth such modifications) and the dates to which Basic Rent,
Additional Rent and other sums payable here under have been paid, and either
stating that to the knowledge of the signer of such certificate no default
exists hereunder or specifying each such default of which the signer has
knowledge. Lessee acknowledges any such certificate may be relied upon by any
existing or prospective assignee of Lessor's interest under this Lease or any
purchaser of any item of the Equipment.
22. OPTION TO RENEW - (a) Upon the expiration of the Primary Term with
---------------
respect to each Rental Schedule, provided that Lessee has paid all rentals and
all other sums then due by Lessee to Lessor, or which would become due upon the
request of Lessor, as required under the provisions of this Lease, and provided
that no Event of Default, and no event which with the giving of notice or lapse
of time, or both, would constitute an Event of Default, has occurred and then
remains unremedied to Lessor's satisfaction, Lessee shall have the option,
exercisable on at least 90 days prior written notice to Lessor to renew the
Lease Term with respect to all, but not less than all (except for items that
have been destroyed and for which Lessor has received payment of the Stipulated
Loss Value with respect thereto) of the Equipment then subject to said Rental
Schedule, either:
(1) on a month-to-month renewal basis, terminable by either Lessor or Lessee
upon thirty days written notice, at the same rate, terms and conditions
as described herein for a term that in no event shall exceed one year;
or
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(2) up to three (3) successive additional terms (each of which being herein
called a "Renewal Term") for one year each at a rental for each such
Renewal Term at a rate that would be obtained in an arms-length
transaction between an informed and willing prospective lessee and an
informed and willing lessor under no compulsion to lease (said rate
being herein called the "Fair Rental Rate").
(b) If, on or before a date 60 days prior to the expiration of the Primary
Term or any Renewal Term with respect to each Rental Schedule for which notice
of Renewal has been given, Lessor and Lessee are unable to agree upon a
determination of the Fair Rental Rate for the Equipment, Lessee and Lessor shall
have no obligation to renew this Lease. However, if Lessee wishes to proceed
with its option, Lessee shall give written notice to Lessor to that effect and
the Equipment shall be leased during the Renewal Term at the Fair Rental Rate
determined in accordance with the procedure for Appraisal below provided that
the total term of the Lease, including any Renewal Term(s) entered into pursuant
to Section 22 hereof, shall not exceed 75% of the useful life of the item of
Equipment in question.
(c) "Appraisal" shall mean a procedure whereby two recognized independent
equipment appraisers, one chosen by Lessee and one by Lessor shall mutually
agree upon the amount in question. Lessor or Lessee, as the case may be, shall
deliver a written notice to the other party appointing its appraiser within 15
business days after receipt from the other party of a notice appointing that
party's appraiser. If within 15 days after appointment of the two appraisers as
described above, the two appraisers are unable to agree upon the amount in
question, a third recognized independent appraiser shall be chosen within five
days thereafter by the mutual agreement of such first two appraisers, or if such
first two appraisers fail to agree upon the appointment of a third appraiser,
such appointment shall be made by an authorized representative of the American
Arbitration Association, and the appraisal of the third appraiser so appointed
and chosen shall be given within a period of ten (10) days after the selection
of such third appraiser. The average of the three appraisals arrived at by said
three appraisers shall be binding and conclusive on Lessor and Lessee. Lessor
and Lessee shall pay the fees of the respective appraisers appointed by them and
shall share equally the fees and expenses of the third appraiser, if any, and
those of the American Arbitration Association, if applicable.
(d) After a determination of the Fair Rental Rate of the Equipment has been
made in accordance with the procedure described above, Lessee's exercise of its
option shall be effective upon the expiration of the Primary Term of the Rental
Schedule in question.
23. ADDITIONAL RIGHTS OF LESSOR. - No right or remedy hereunder shall be
---------------------------
exclusive of any other right or remedy hereunder or now or hereafter existing.
Failure to insist upon the strict performance of any provision hereof or to the
exercise of any option, right, power or remedy contained herein shall not
constitute a waiver or relinquishment thereof for the future. Receipt by Lessor
of any Basic Rent, Additional Rent or other sum payable hereunder with knowledge
of the breach of any provision hereof shall not constitute a waiver of such
breach and no waiver by Lessor of any provision hereof shall be deemed to have
been made unless made in writing.
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<PAGE>
Lessor shall be entitled to injunctive relief in case of the violation, or
attempted or threatened violation, or any of the provisions hereof, or to a
decree compelling performance of any of the provisions hereof or to any other
remedy allowed to Lessor by law.
24. NET LEASE; NON-TERMINABILITY. - This Lease is a net lease and, except as
----------------------------
otherwise expressly provided herein, any present or future law to the contrary
notwithstanding, shall not terminate, nor shall Lessee be entitled to any
abatement, reduction, set-off, counterclaim, defense or deduction with respect
to any Basic Rent, Additional Rent or other sum payable hereunder, nor shall the
obligations of Lessee hereunder be affected, other than as expressly set forth
in this Lease, by reason of any damage to or destruction of any item of the
Equipment; any taking of any item of the Equipment by condemnation or otherwise;
any prohibition, limitation, restriction or prevention of Lessee's use or
enjoyment of any item of the Equipment; any other cause whether similar or
dissimilar to the foregoing; or any bankruptcy, insolvency, reorganization,
liquidation, dissolution or other proceeding affecting Lessor or any assignee of
Lessor in any action with respect to this Lease which may be taken by any
trustee, receiver or liquidator or by any court. The parties intend that the
obligations of Lessee hereunder shall be separate and independent covenants and
agreements and shall continue unaffected unless such obligations shall have been
modified or terminated pursuant to a written amendment to this Lease.
25. LESSEE'S RIGHT TO SUBLEASE AND ASSIGN - Notwithstanding the provisions
-------------------------------------
of Section 12 hereof and provided that no Event of Default has occurred and is
continuing, Lessee shall have the right (a) to sublease the Equipment for a term
or terms expiring no later than the day prior to the Termination Date of this
Lease subject to the prior written approval of the Lessor, which approval shall
not be unreasonably withheld, except that no such consent shall be required for
any sublease to a parent, domestic subsidiary or sister corporation of or any
other business entity affiliated with the Lessee, and (b) to assign this Lease,
provided that Lessee shall remain liable for the full performance of all terms,
- -------- ----
covenants and conditions of this Lease as a principal and not as a surety and
that the Agreement dated as of February 15, 1984 by The Sherwin-Williams Company
in favor of the Lessor relating to this Lease, attached hereto as Exhibit 2,
remains in full force and effect with respect to the continuing obligations of
Lessee and the obligations of such assignee of the Lessee, and further provided,
------- --------
that such assignee shall agree to be bound by all the terms and provisions
hereof. No sublease or assignment of the Equipment by Lessee shall relieve
Lessee of any of its obligations hereunder.
26. RECORDING, REGISTRATION AND FILING - Lessee shall, at its expense,
---------
accomplish all recording, registrations and filings of this Lease and any
mortgage, security interest, waiver, license, permit or certificate incident
thereto, required by law or deemed reasonably necessary by Lessor to protect its
interests in the Equipment, and shall furnish Lessor with satisfactory evidence
of each such recording, registration and filing. Notwithstanding anything
contained herein to the contrary, the cost of filing any mortgage or security
interest intended for the protection of Lessor shall be borne solely by Lessor.
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27. INVESTMENT TAX CREDIT - Lessor agrees to pass to Lessee any Investment
---------------------
Tax Credit. Lessor agrees that it will exercise the available election therefor
in a proper and timely manner and then pass such Investment Tax Credit directly
to Lessee. Lessor hereby acknowledges that all such available Investment Tax
Credit shall be for Lessee's account
28. OPTION TO PURCHASE - (a) Upon the expiration of the Primary Term or any
------------------
Renewal Term with respect to each Rental Schedule, provided that Lessee has paid
all rentals and all other sums then due by Lessee to Lessor, or which would
become due upon request of Lessor, as required under the provisions of this
Lease, and provided that no Event of Default, and no event which with the giving
of notice or lapse of time, or both, would constitute an Event of Default, has
occurred and then remains unremedied to Lessor's satisfaction, Lessee shall have
the option, exercisable on at least 120 days prior written notice to Lessor to
purchase the Equipment with respect to all, but not less than all (except for
items that have been destroyed and for which Lessor has received payment of the
Stipulated Loss Value with respect thereto) of the Equipment then subject to
said Rental Schedule, at the then Fair Market Value, unless otherwise specified
on the applicable Rental Schedule.
(b) If, on or before a date 60 days prior to the expiration of the Primary
Term or any Renewal Term with respect to each Rental Schedule, Lessor and Lessee
are unable to agree upon a determination of the Fair Market Value for the
Equipment, Lessee shall have no obligation to purchase the Equipment. However,
if Lessee wishes to exercise its option at Fair Market Value it shall so notify
Lessor in writing, and such value shall be determined in accordance with the
procedure for Appraisal as set forth in Section 22 hereto.
(c) After a determination of the Fair Market Value of the Equipment has been
made in accordance with the procedure described above, Lessee shall purchase the
Equipment by payment to Lessor of the Fair Market Value in cash upon the
expiration of the term of the applicable Rental Schedule. Upon payment by Lessee
to Lessor of the Fair Market Value, in cash, Lessor shall deliver to Lessee
title to the Equipment evidenced by a valid bill of sale conveying title from
Lessor to Lessee.
29. LESSEE'S RIGHT TO TERMINATE - Provided that no Event of Default has
---------------------------
occurred and remains unremedied, and no event which with the giving of notice or
lapse of time, or both would constitute an event of default:
A. Lessee shall have the option to terminate prior to the expiration of the
primary lease term provided that: (i) a minimum of sixteen (16) semiannual
payments of Basic Rent shall have been made from the Commencement Date of the
primary term, (ii) not less than 180 days prior notice to exercise the early
termination option shall have been given in writing to Lessor, (iii) termination
shall be effective on the date (the "Termination Date") which is the later of
(a) the last day of the month following expiration of ninety-six (96) full
months from the Commencement Date of the Primary Term or (b) the last day of the
month following expiration of the 180 day notice period, or (c) the date of
payment of the Termination Value provided that either (a) or (b) has been
satisfied, and (iv) Lessee shall pay on or prior to the Termination Date an
amount equal to the Termination Value (as hereinafter defined) and all other
sums due Lessor under this Lease including all rents due and owing to the Lessor
up to and including the Payment Date of the last Basic Rent immediately
preceding the Termination Date.
-20-
<PAGE>
B. During the period from receipt of notice to Lessor until the Termination
Date, Lessor and Lessee shall each use its best efforts to obtain firm written
offers for the re-lease of the Equipment, and each party shall submit to the
other copies of all offers received. No offer shall be considered a Qualified
Offer to re-lease unless (i) the offer and offeror have been approved in all
respects by Lessor and by Lessor's assignee, (Lessor shall not unreasonably
withhold its approval and will exercise its best efforts to ensure that Lessor's
Assignee does not unreasonably withhold its approval), and (ii) the offer is
received prior to the Termination Date and can be accepted on such date. If no
Qualified Offer to re-lease has been received then the Lessee shall continue the
Lease until expiration.
The "Termination Value" referred to in this Section 29 shall be an amount equal
to the product of the applicable percentage as set forth with respect to such
Termination Date in Exhibit 1 to the applicable Rental Schedule multiplied by
the Manufacturer's Invoice Cost of the Equipment subject to the notice of
termination.
The "Proceeds" referred to in this Section 29 shall be the net present value
under a re-lease of the Equipment of all future rents from such re-lease
discounted at the lowest interest rate committed in writing in a Qualified
Offer. In calculating the Proceeds, only those non-terminable payments that
accrue from the Termination Date to the end of the Primary Term or the end of
the re-lease, whichever is earlier, shall be taken into account. Lessee shall
upon the Effective Date of Termination pay to Lessor or its Assignee(s) in cash
the amount equal to the Termination Value of the Equipment. Immediately
following the receipt of this payment Lessor shall pay to Lessee in cash an
amount equal to the lesser of the Termination Value or the Proceeds. When Lessor
and its Assignee(s) have received all the sums due and payable hereunder, then
Lessee shall receive from Lessor and its Assignee(s) a legally enforceable
notice of termination of Lessee's rights and obligations under this Lease.
Lessee shall also pay Lessor, on demand, all reasonable and necessary costs
incurred by Lessor, if any, associated with (a) solicitation of offers to re-
lease and (b) the remarketing, deinstallation, transportation (including
transportation insurance), refurbishing and reinstallation of the Equipment.
C. No assignee to whom this Lease has been assigned, whether as collateral
security or otherwise, shall have no obligation to solicit offers for the re-
lease of the Equipment pursuant to this early termination option.
Notwithstanding the assignment of this Lease, this early termination option
shall survive in favor of Lessee. Lessee agrees to look only to Lessor and not
to any assignee of Lessor for the performance of any affirmative obligation
hereunder. The Lessee shall not be relieved of any of its obligations under the
Lease until the Termination Payment, as detailed on Exhibit 1, has been paid in
full to Assignee.
30. QUIET ENJOYMENT - So long as no Event of Default has occurred and is
---------------
continuing hereunder, Lessee shall have peaceful and quiet use and enjoyment of
the Equipment against acts of Lessor or anyone claiming solely by, through, or
under Lessor.
-21-
<PAGE>
31. NOTICES - Except as provided in Section 20 hereof, any notice required
-------
or permitted to be given by either party hereto to the other shall be deemed to
have been given five (5) days after it is deposited in the United States mail,
registered, postage prepaid, addressed to either party at its address set forth
herein, or to such other address as either party shall hereafter furnish to the
other in writing.
Notice shall be sent to parties at the following locations:
1. If to Lessee: Contract Transportation Systems Co.
1370 Ontario Street
P.O. Box 856
Cleveland, OH 44101
with a copy to:
The Sherwin-Williams Company
101 Prospect Avenue N.W.
Cleveland, OH 44115
Attention: Treasurer
2. If to Lessor: AmTran Corporation
One Liberty Square
Boston, MA 02109
32. ENTIRE AGREEMENT, SEVERABILITY, EFFECT AND MODIFICATION OF LEASE - This
----------------------------------------------------------------
Lease constitutes the entire agreement between the parties with respect to the
leasing of the Equipment. Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction, shall be, as to such jurisdiction,
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No variation or
modification of this Lease and no waiver of any of its provisions or conditions
shall be valid unless in writing and signed by duly authorized representatives
of Lessor and Lessee.
33. COUNTERSIGNATURE - This Lease is not binding until executed by both
----------------
parties.
34. GOVERNING LAW - Lessor and Lessee agree that this Lease shall be
-------------
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
35. LESSOR'S RIGHT TO PERFORM FOR LESSEE - If Lessee fails to duly and
------------------------------------
promptly perform any of its obligations under this Lease (except for the payment
of rent) or falls to comply with any of the covenants or agreements contained
herein, Lessor may itself perform such obligations or comply with such covenants
or agreements, for the account of Lessee without thereby waiving any default,
and any amount paid or expense (including reasonable attorneys' fees) reasonably
incurred by Lessor in connection with such performance or compliance shall,
together with interest thereon at the Default Interest Rate be payable by Lessee
to Lessor on demand.
-22-
<PAGE>
36. AGREEMENT FOR LEASE ONLY - Lessor and Lessee agree that this Lease is
------------------------
and is intended to be a true lease (and not a lease intended as a security or a
lease in the nature of a security interest) and further agree to treat this
Lease as a true lease for all purposes, including without limitation, legal,
tax, clerical and accounting.
37. FINANCIAL STATEMENTS - Lessee agrees to furnish, upon Lessor's request
--------------------
such financial information concerning Lessee as Lessor or Lessor's assignee may
reasonably require during the term of this Lease.
38. MISCELLANEOUS. The captions in this Master Lease and this Lease are for
-------------
convenience of reference only and shall not define or limit the provisions
hereof or thereof.
The Master Lease and this Lease may be executed in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this Master Lease and this
Lease, it shall not be necessary to produce or account for more than one such
counterpart.
IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to the due authority,
have caused these presents to be signed in their respective names, by their duly
authorized officers and their corporate seals, if applicable, to be hereunto
affixed and duly attested, as of the date first above written.
LESSOR: LESSEE:
AMTRAN CORPORATION CONTRACT TRANSPORTATION SYSTEMS CO.
By: /s/ Geoffrey A. MacDonald By: /s/ SIGNATURE APPEARS HERE
__________________________ ___________________________
Tit1e: /s/ Vice President Title: Treasurer
_______________________ ________________________
-23-
<PAGE>
EXHIBIT 1
RENTAL SCHEDULE ____
AND
CERTIFICATE OF INSPECTION AND ACCEPTANCE
RENTAL SCHEDULE ___ and CERTIFICATE OF INSPECTION AND ACCEPTANCE to Master
Equipment Lease No. 84010HT151 dated as of January 4, 1984 (the "Lease") by and
between the undersigned, the terms and conditions of which are hereby
incorporated herein by reference. Lessee hereby (a) authorizes Lessor to order
for lease to Lessee the equipment described herein (the "Equipment") and to
insert hereon the Lease Commencement Date for such Equipment upon Lessee's
acceptance of same for lease. (b) agrees to lease such Equipment upon Lessee's
acceptance of same for lease, (b) agrees to lease such equipment from Lessor
effective the Lease Commencement Date thereof and for the lease term specified
below, and (c) agrees to pay Lessor the rent, in the amounts and at the times
specified below, and (c) agrees to pay Lessor the rent, in the amounts and at
the times specified below, for each item of Equipment. All of the terms used
herein which are defined in the Lease shall have the same meaning as so defined.
<TABLE>
<CAPTION>
Item Trailor Lessor's
No. Serial No. Unit No. Year Make Model Cost
- ---- -------------------- -------- ---- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Equipment Cost: (State) $
-----------------
GRAND TOTAL EQUIPMENT COST: $
LEASE TERM: Interim Term: Primary Term:
Commencement Date: * Commencement Date:
---------- ---------
Expiration Date: Expiration Date:
---------- ---------
</TABLE>
*with respect to each Item of Equipment shall be the Acceptance Dates set forth
above.
PAYMENT DATES: The Interim Term rent payment is due and payable
The remaining rentals commence and continue semi-annually
in arrears through and including
<PAGE>
-24-
BASIC RENT:
Basic Rent Per Period:
-----------
Basic Rent Per Day:
-----------
NOTE 1: Basic Rent Per Day is applicable during the Interim Term and is payable
on the first Payment Date.
Note 2: Basic Rent Per Period and Basic Rent Per Day is computed by multiplying
the Equipment Cost as set forth above by:
Periodic Lease Rate Factor:
----------
Per Diem Lease Rate Factor:
----------
NOTE 3: Lease rates and rentals are based on an assumed debt rate of % and
will be revised to reflect the actual debt rate.
The undersigned, being a duly authorized representative of the Lessor and the
Lessee hereby CERTIFY that the units of Equipment described above have been duly
delivered to Lessee in good order and duly inspected and accepted by the Lessee
as of the Acceptance Date reflected above on behalf of the Lessee as conforming
in all respects with the requirements and provisions of the Lease.
AMTRAN CORPORATION CONTRACT TRANSPORTATION SYSTEMS CO.
- ------------------ -----------------------------------
LESSOR LESSEE
By By
------------------------------- ----------------------------
Title Title
---------------------------- --------------------------
Date Date
----------------------------- --------------------------
<PAGE>
-25-
ANNEX C
- --------------------------------------------------------------------------------
[CS&M Ref. 4650-037]
LEASE OF RAILROAD EQUIPMENT
Dated as of January 1, 1979
between
THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY
and
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
as Trustee
- --------------------------------------------------------------------------------
Filed and recorded with the Interstate Commerce Commission pursuant to
49 U.S.C. (S) 11303 on March 30, 1979, at 9:55 a.m., recordation number 10238-B.
A Uniform Commercial Code financing statement was filed with the
Office of the Secretary of State of Colorado at 1:41 p.m., on April 16, 1979,
File No. 363588, listing the Lessee as Debtor, the Owner-Trustee as the Secured
Party and the Agent as Assignee of the Secured Party and covering the Equipment
listed herein. (This was a precautionary filing in the event the Lease might be
determined to be a U.C.C. security agreement, contrary to the intent of the
parties.)
<PAGE>
<TABLE>
<CAPTION>
Lease of Railroad Equipment
Table of Contents
Page
----
<C> <C> <S> <C>
(S) 1. Net Lease............................................... L-1
(S) 2. Delivery and Acceptance of Units........................ L-2
(S) 3. Rentals................................................. L-3
(S) 4. Term of Lease........................................... L-4
(S) 5. Identification Marks.................................... L-4
(S) 6. Taxes................................................... L-5
(S) 7. Maintenance; Casualty Occurrences,
Insurance............................................... L-8
(S) 8. Reports and Inspection.................................. L-11
(S) 9. Disclaimer of Warranties; Compliance
with Laws and Rules; Indemnification.................... L-12
(S) 10. Default................................................. L-15
(S) 11. Return of Units upon Default............................ L-18
(S) 12. Assignment; Possession and Use.......................... L-20
(S) 13. Renewal Options and Right of First Refusal.............. L-22
(S) 14. Return of Units upon Expiration of
Lease Term.............................................. L-24
(S) 15. Recording............................................... L-26
(S) 16. Interest on Overdue Rentals............................. L-26
(S) 17. Notices................................................. L-27
(S) 18. Severability; Effect and Modification of Lease.......... L-27
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
Page
----
<C> <C> <S> <C>
(S) 19. Execution............................................... L-27
(S) 20. Law Governing........................................... L-28
(S) 21. Definitions............................................. L-28
(S) 22. Concerning the Lessor................................... L-28
</TABLE>
Schedule I--Schedule of Equipment
Schedule 2--Casualty Values
<PAGE>
LEASE OF RAILROAD EQUIPMENT dated as of January 1, 1979,
between THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, a
Delaware corporation (the "Lessee"), and FIRST SECURITY BANK OF
UTAH, NATIONAL ASSOCIATION, a national banking association, as
Trustee (the "Lessor") under a Trust Agreement dated as of the
date hereof (the "Trust Agreement") with George S. Eccles (the
"Owner").
The Lessor is entering into a conditional sale agreement (the
"Security Documentation") dated as of the date hereof with Whitehead & Kales
Company (the "Builder") wherein the Builder has agreed to manufacture, sell and
deliver to the Lessor the units of railroad equipment described in Schedule 1
hereto (the "Equipment").
The Builder is assigning its interests in the Security Documentation
to United States Trust Company of New York, acting as agent (hereinafter,
together with its successors and assigns, called the "Vendor") under a
Participation Agreement dated as of the date hereof (the "Participation
Agreement") with the Lessee and the parties named in Schedule A thereto.
The Lessee desires to lease such number of units of the Equipment as
are delivered and accepted and settled for under the Security Documentation (the
"Units") at the rentals and for the terms and upon the conditions hereinafter
provided.
NOW, THEREFORE; in consideration of the premises and of the rentals to
be paid and the covenants hereinafter mentioned to be kept and performed by the
Lessee, the Lessor hereby leases the Units to the Lessee upon the following
terms and conditions:
(S) 1. Net Lease. This Lease is a net lease and the Lessee shall not
---------
be entitled to any abatement of rent, reduction thereof or setoff against rent,
including, but not limited to, abatements, reductions or setoffs due or alleged
to be due by reason of any past, present or future claims of the Lessee against
the Lessor under this Lease or under the Security Documentation, or against the
Builder or the Vendor or otherwise; nor, except as otherwise expressly provided
herein, shall this Lease terminate, or the respective obliga-
<PAGE>
L-2
tions of the Lessor or the Lessee be otherwise affected, by reason of any defect
in or damage to or loss of possession or loss of use or destruction of all or
any of the Units from whatsoever cause, any liens, encumbrances or rights of
others with respect to any of the Units, the prohibition of or other restriction
against the Lessee's use of all or any of the Units, the interference with such
use by any person or entity, the invalidity or unenforceability or lack of due
authorization of this Lease, any insolvency of or any bankruptcy, reorganization
or similar proceeding against the Lessee, or for any other cause whether similar
or dissimilar to the foregoing, any present or future law to the contrary
notwithstanding, it being the intention of the parties hereto that the rents
and other amounts payable by the Lessee hereunder shall continue to be payable
in all events in the manner and at the times herein provided unless the
obligation to pay the same shall be terminated pursuant to the express
provisions of this Lease. To the extent permitted by applicable law, the Lessee
hereby waives any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender the lease of any of the Units except in accordance
with the express terms hereof. Each rental or other payment made by the Lessee
hereunder shall be final and the Lessee shall not seek to recover all or any
part of such payment from the Lessor for any reason whatsoever.
(S) 2. Delivery and Acceptance of Units. The Lessor hereby appoints
--------------------------------
the Lessee its agent for inspection and acceptance of the Units pursuant to the
Security Documentation. The Lessor will cause the Units to be delivered to the
Lessee at the point within the United States of America at which the Units are
delivered to the Lessor under the Security Documentation. Upon such delivery,
the Lessee will cause an employee of the Lessee to inspect the same, and if such
Unit is found to be acceptable, to accept delivery of such Unit and the Lessee
shall execute and deliver to the Lessor a certificate of acceptance (the
"Certificate of Acceptance") in accordance with the provisions of Article 3 of
the Security Documentation, stating that such Unit has been inspected and
accepted on behalf of the Lessee and the Lessor on the date of such Certificate
of Acceptance and is marked in accordance with (S) 5 hereof, whereupon, except
as provided in the next sentence hereof, such Unit shall be deemed to have been
delivered to and accepted by the Lessee and shall be subject thereafter to all
the terms and conditions of this Lease. The delivery, inspection and acceptance
<PAGE>
L-3
hereunder of any unit of Equipment excluded from the Security Documentation
pursuant to the first paragraph of Article 4 thereof shall be null and void and
ineffective to subject such unit to this Lease.
(S) 3. Rentals. The Lessee agrees to pay to the Lessor as rental for
-------
each Unit subject to this Lease one interim and 10 consecutive annual payments
in arrears. The interim payment for each Unit subject to this Lease is payable
on September 15, 1979, and shall be in an amount equal to the product of (a) the
Purchase Price (as defined in the CSA) for such Unit multiplied by (b) the
number of days elapsed from and including the date of delivery for such Unit
under the CSA to but not including the interim payment date multiplied by (c) a
fraction, the numerator of which shall be the greater of 9.6% or 125% of the
interest rate charged by Citibank N.A., New York, on 90-day loans to prime
commercial borrowers as of the Deposit Date and the denominator of which shall
be 365. The annual payments are payable on September 15 in each year,
commencing September 15, 1980, to and including September 15, 1989, as follows:
the first five such payments shall be in an amount equal to 11.1949% of the
Purchase Price of each such Unit then subject to this Lease; and the next five
such payments shall each be in an amount equal to 13.6825% of the Purchase Price
of each such Unit then subject to this Lease. The percentages set forth in the
preceding sentence are based upon an assumed delivery and acceptance date on or
before June 30, 1979, for all trilevel auto racks described on Schedule 1
hereto. In the event that the delivery and acceptance date for any of such
trilevel auto racks shall occur after June 30, 1979, such percentages shall be
adjusted by such amount as will cause the Lessor's net return over the term of
this Lease to equal the net return that would have been available had such
delivery and acceptance date occurred on or before June 30, 1979, and the
parties hereto agree to execute such amendments and other documents as may be
necessary to adjust such percentages and all other terms dependent upon the
delivery and acceptance dates, including, without limitation, Casualty Values,
in order to reflect any such occurrence of such delivery acceptance date.
The Lessee shall pay as additional rental the following: (i) on the
Cut-Off Date (as defined in Paragraph 8 of the Participation Agreement), an
amount equal to any amounts payable by the Lessor pursuant to clause (a) of the
final paragraph of Paragraph 8 of the Participation Agreement on such date plus
an amount equal to any amounts payable by
<PAGE>
L-4
the Lessor pursuant to the first paragraph of Paragraph 8 of the Participation
Agreement, and (ii) on September 15, 1979, an amount equal to any amount payable
to the Lessor in respect of interim interest pursuant to clause (b) of the
final paragraph of Paragraph 8 of the Participation Agreement.
Notwithstanding any other provision hereof, to the extent that the
Lessee shall be denied possession of a Unit or Units because of the occurrence
of a default under the Security Documentation which is not an Event of Default
(as such term is hereinafter defined) under this Lease, the Lessee shall have no
further obligation to make any additional rental payments for such Unit or Units
with regard to periods subsequent to its loss of possession of such Unit or
Units.
If any of the rental payment dates referred to above is not a business
day the rental payment otherwise payable on such date shall be payable on the
next succeeding business day. The term "business day" as used herein means a
calendar day, excluding Saturdays, Sundays and any other day on which banking
institutions in New York, New York, are authorized or obligated to remain
closed.
The Lessor irrevocably instructs the Lessee to make all the payments
provided for in this Lease, including, but not limited to, the payments provided
for in this (S) 3 and in (S) 7 hereof, at the principal office of the Vendor,
for the account of the Lessor in care of the Vendor, with instructions to the
Vendor first, to apply such payments to satisfy the obligations of the Lessor
under the Security Documentation, and second, so long as no event of default or
event which with the lapse of time and/or demand provided for in the Security
Documentation could constitute an event of default under the Security
Documentation shall have occurred and be continuing, to pay any balance promptly
to the Lessor at such place as the Lessor shall specify in writing. The Lessee
agrees to make each payment provided for herein as contemplated by this
paragraph in Federal or other funds immediately available to the Vendor by 11:00
a.m., New York time, on the date such payment is due.
(S) 4. Term of Lease. The term of this Lease as to each Unit shall
-------------
begin on the date of delivery and acceptance of such Unit hereunder and, subject
to the provisions of (S)(S) 7 and 10 hereof, shall terminate on the date on
which the final payment of rent in respect thereof is due pursuant to (S) 3
hereof. The obligations of the Lessee hereunder (including, but not limited to,
the obligations under (S)(S) 6, 7, 9
<PAGE>
L-5
and 14 hereof) shall survive the expiration of the term of this Lease.
Notwithstanding anything to the contrary contained herein, all rights
and obligations of the Lessee under this Lease and in and to the Units are
subject to the rights of the Vendor under the Security Documentation. If an
event of default should occur under the Security Documentation, the Vendor may
terminate this Lease (or rescind its termination), all as provided therein.
(S) 5. Identification Marks. The Lessee (at its own expense) will
---------------------
cause each Unit to be kept numbered with its identifying number set forth in
Schedule 1 hereto, or in the case of any Unit not there listed, such identifying
number as shall be set forth in any amendment or supplement hereto extending
this Lease to cover such Unit, and will keep and maintain, plainly, distinctly,
permanently and conspicuously marked on each side of each Unit, in letters not
less than one inch in height, the words "Leased from First Security Bank of
Utah, National Association, as Trustee, and Ownership subject to a Security
Agreement filed with the Interstate Commerce Commission and a Security Interest
under the Uniform Commercial Code", or other appropriate words designated by the
Vendor, with appropriate changes thereof and additions thereto as from time to
time may be required by law in order to protect the Lessor's and Vendor's title
to and interest in such Unit and the rights of the Lessor under this Lease and
of the rights of the Vendor under the Security Documentation. The Lessee will
not place any such Unit in operation or exercise any control or dominion over
the same until such words shall have been so marked and will replace promptly
any such markings which may be removed, defaced or destroyed. The Lessee will
not change the road number of any Unit unless and until (i) a statement of new
number or numbers to be substituted therefor shall have been filed with the
Vendor and the Lessor and duly filed, recorded and deposited by the Lessee in
all public offices where this Lease and the Security Documentation shall have
been filed, recorded and deposited and (ii) the Lessee shall have furnished the
Vendor and the Lessor an opinion of counsel to such effect. The Units may be
lettered with the names or initials or other insignia customarily used by the
Lessee or its affiliates.
Except as provided in the immediately preceding paragraph, the Lessee
will not allow the name of any person, association or corporation to be placed
on any Unit as a designation that might be interpreted as a claim of ownership.
<PAGE>
L-6
(S) 6. Taxes. All payments to be made by the Lessee hereunder will
------
be free of expense to the Lessor for collection or other charges and will be
free of expense to the Lessor with respect to the amount of any local, state,
Federal or foreign taxes (other than any United States Federal income tax
payable by the Lessor in consequence of the receipt of payments provided for
herein and, to the extent that the Lessor receives credit therefor against its
United States Federal income tax liability, any foreign income tax, and other
than the aggregate of all state or local taxes measured by net income based on
such receipts, value added taxes in lieu of such net income taxes and any state
franchise tax which is not based on or measured by net income up to the amount
of any such taxes which would be payable to the state and city in which the
Lessor has its principal place of business without apportionment to any other
state, except any such tax which is in substitution for or relieves the Lessee
from the payment of taxes which it would otherwise be obligated to pay or
reimburse as herein provided) or license fees, ad valorem property taxes, taxes
and charges (Federal, state and local), fines or penalties and interest (all
such expenses, taxes, license fees, ad valorem property taxes, taxes and charges
(Federal, state and local), fines and penalties and interest being hereinafter
called impositions) hereafter levied or imposed upon or in connection with or
measured with respect to this Lease or any sale, rental, use, payment, shipment,
delivery or transfer of title under the terms hereof or the Security
Documentation, all of which impositions the Lessee assumes and agrees to pay on
demand in addition to the payments to be made by it provided for herein. The
Lessee will also pay promptly all impositions which may be imposed upon any Unit
or for the use or operation thereof or upon the earnings arising therefrom
(except as provided above) or upon the Lessor by reason of its ownership thereof
and will keep at all times all and every part of such Unit free and clear of all
impositions which might in any way affect the title of the Lessor or the
interest of the Lessor or result in a lien upon any such Unit; provided,
--------
however, that the Lessee shall be under no obligation to pay any impositions of
- -------
any kind so long as such imposition remains unpaid and Lessee is contesting in
its own name and in good faith and by appropriate legal or administrative
proceedings such impositions, or the Lessor is required to contest such
impositions as provided in this S 6, and the nonpayment thereof does not, in the
reasonable opinion of the Lessor, adversely affect the title, property or rights
of the Lessor hereunder or the Lessor or the Vendor under the Security
Documentation. The Lessee
<PAGE>
L-7
agrees to give the Lessor notice of such contest brought in Lessee's name
within 30 days after institution thereof and the Lessor agrees to provide such
information as may be reasonably requested by the Lessee in furtherance of such
contest. If any impositions shall have been charged or levied against the
Lessor directly and paid by the Lessor, the Lessee shall pay the Lessor on
presentation of an invoice therefor if the Lessor shall have been legally liable
with respect thereto (as evidenced by an opinion of counsel for the Lessor) or
the Lessee shall have approved the payment thereof, and the Lessor agrees to
give the Lessee written notice promptly after it first obtains knowledge of the
making of such charge or levy, and agrees to take such other action as may
reasonably be requested by the Lessee for the purpose of contesting payment or
obtaining refund of all or a portion of such imposition, as hereinafter provided
in this (S) 6.
In the event that the Lessor shall become obligated to make any
payment to the Builder or the Vendor or otherwise pursuant to any correlative
provision of the Security Documentation not covered by the foregoing paragraph
of this (S) 6, the Lessee shall pay such additional amounts (which shall also be
deemed impositions hereunder) to the Lessor to fulfill completely its
obligations pursuant to said provision; provided, however, that the Lessor shall
-----------------
have contested (if required to do so under this (S) 6) such impositions in good
faith and to the extent permitted under the Security Documentation.
In the event any returns, statements or reports with respect to
impositions involving any Unit are required to be made, the Lessee will make
such returns, statements and reports in such manner as to show the interest of
the Lessor and the Vendor in such Units, as shall be satisfactory to the Lessor
and the Vendor or, where not so permitted, will notify the Lessor and the Vendor
of such requirement and will prepare and deliver such reports to the Lessor and
the Vendor within a reasonable period of time prior to the time such reports are
to be filed in such manner as shall be satisfactory to the Lessor and the
Vendor.
In the event that, during the continuance of this Lease, the Lessee
becomes liable for the payment or reimbursement of any imposition, pursuant to
this (S) 6, such liability shall continue, notwithstanding the expiration of
this Lease, until all such impositions are paid or reimbursed by the Lessee.
<PAGE>
L-8
In the event the Lessee may be prohibited by law or is impaired from
contesting in its own name any imposition covered by this (S) 6 in respect of
which the Lessee would otherwise be required to make payments to the Lessor
pursuant hereto, the Lessor shall, upon request and at the expense of the
Lessee, take all legal and other appropriate action reasonably requested by the
Lessee to contest such imposition. The Lessor shall not be obligated to take any
such legal or other appropriate action unless the Lessee shall first have
indemnified the Lessor for all liabilities and expenses which may be entailed
therein. Further, the Lessee shall indemnify and hold the Lessor harmless from
and against any and all claims, costs, expenses, damages, losses and liabilities
incurred in connection therewith as a result of, or incident to, any action
taken by the Lessor or Lessee under this (S) 6. The Lessee shall be entitled to
any refund received by the Lessor or the Lessee in respect of any imposition
paid by the Lessee, provided no Event of Default (or other event which after
notice or lapse of time or both would become an Event of Default) shall have
occurred and be continuing.
The Lessee shall, whenever reasonably requested by the Lessor, submit
to the Lessor copies of returns, statements, reports, billings and remittances,
or furnish other evidence satisfactory to the Lessor of the Lessee's performance
of its duties under this (S) 6. The Lessee shall also furnish promptly upon
request such data as the Lessor reasonably may require to permit the Lessor's
compliance with the requirements of taxing jurisdictions.
The amount which the Lessee shall be required to pay with respect to
any imposition which is subject to indemnification under this (S) 6 shall be an
amount sufficient to restore the Lessor to the same net after tax rate of return
and after tax cash position, after considering the effect of such payment on its
United States Federal income taxes and state and city income taxes or franchise
taxes based on net income, that the Lessor would have been in had such
imposition not been imposed.
(S) 7. Maintenance; Casualty Occurrences; Insurance. The Lessee
---------------------------------------------
agrees that, at Lessee's own cost and expense, it will be responsible for
ordinary maintenance and repairs required to maintain and keep all of the Units
which are subject to this Lease in good operating order, repair and condition
and eligible for interchange service.
In the event that any Unit shall be or become worn
<PAGE>
L-9
out lost, stolen, destroyed, or irreparably damaged, from any cause whatsoever,
returned to the Builder pursuant to the patent indemnity provisions of the
Security Documentation, or taken or requisitioned by condemnation or otherwise
by the United States Government or any political subdivision thereof for a
stated period which shall exceed the then remaining term of the Security
Documentation or for an indefinite period, but only when such period shall
exceed the term hereof, or by any other governmental entity resulting in loss of
possession by the Lessee for a period of 90 consecutive days (such occurrences
being hereinafter called Casualty Occurrences), prior to the return of such Unit
in the manner set forth in (S) 14 hereof, the Lessee shall promptly and fully
notify the Lessor and the Vendor with respect thereto. On the September 15 next
succeeding such notice the Lessee shall pay to the Lessor an amount equal to the
rental payment or payments, if any, in respect of such Unit due and payable on
such date plus a sum equal to the Casualty Value (as hereinafter defined) of
such Unit as of the date of such payment in accordance with the schedule
referred to below. Upon the making of such payment by the Lessee in respect of
any Unit, the rental for such Unit shall cease to accrue, the term of this Lease
as to such Unit shall terminate and (except in the case of the loss, theft,
complete destruction or return to the Builder of such Unit) the Lessor shall be
entitled to recover possession of such Unit and the Lessee shall pay all costs
of removal of such Unit and of freight to the place designated pursuant to (S)
14 hereof.
The Casualty Value of each Unit as of the payment date on which
payment is to be made as aforesaid shall be that percentage of the Purchase
Price of such Unit as is set forth in Schedule 2 hereto opposite such date;
provided, however, that if the Casualty Value for any Unit as of such payment
- -----------------
date as determined pursuant to Schedule 2 reflects an amount representing
investment credit recapture to the Owner that is greater or lesser than the
actual amount of investment credit recapture incurred by the Owner as a result
of the Casualty Occurrence to such Unit, the Casualty Value for such Unit as so
determined shall be appropriately decreased or increased so as to reflect the
actual amount of investment credit recapture incurred by the Owner as a result
of the Casualty Occurrence to such Unit.
Whenever any Unit shall suffer a Casualty Occurrence after termination
of this Lease at the expiration of the original or extended term hereof and
before such Unit shall have been returned in the manner provided in (S) 14
hereof, the
<PAGE>
L-10
Lessee shall promptly and fully notify the Lessor with respect thereto and pay
to the Lessor an amount equal to the Casualty Value of such Unit, which shall be
20% of the Purchase Price of such Unit (unless such termination occurs after the
term of this Lease has been extended pursuant to (S) 13 hereof, in which case
the amount of such Casualty Value shall be as agreed upon between the Lessor and
the Lessee at the time of such extension). Upon the making of any such payment
by the Lessee in respect of any Unit (except in the case of the loss, theft or
complete destruction of such Unit), the Lessor shall be entitled to recover
possession of such Unit.
The Lessor hereby irrevocably appoints the Lessee its agent to dispose
of any Unit suffering a Casualty Occurrence or any component thereof, at the
best price obtainable on an "as is, where is" basis. Provided that the Lessee
has previously paid the Casualty Value to the Lessor, the Lessee shall be
entitled to the proceeds of such sale to the extent they do not exceed the
Casualty Value of such Unit, and shall pay any excess to the Lessor.
In the event of the requisition for use (which is not a Casualty
Occurrence) by the United States Government or any political subdivision thereof
(hereinafter called the Government) of any Unit during the term of this Lease
all of the Lessee's obligations under this Lease with respect to such Unit shall
continue to the same extent as if such requisition had not occurred, except that
if such Unit is returned by the Government at any time after the end of the term
of this Lease, the Lessee shall be obligated to return such Unit to the Lessor
pursuant to (S) 11 or 14 hereof, as the case may be, promptly upon such return
by the Government rather than at the end of the term of this Lease, but the
Lessee shall in all other respects comply with the provisions of said (S) 11 or
14, as the case may be, with respect to such Unit. All payments received by the
Lessor or the Lessee from the Government for the use of such Unit during the
term of this Lease shall be paid over to, or retained by, the Lessee provided no
Event of Default (or other event which after notice or lapse of time or both
would become an Event of Default) shall have occurred and be continuing; and all
payments received by the Lessor or the Lessee from the Government for the use of
such Unit after the term of this Lease, shall be paid over to, or retained by,
the Lessor.
Except as hereinabove in this (S) 7 provided, the Lessee shall not be
released from its obligations hereunder in the event of, and shall bear the risk
of, any Casualty
<PAGE>
L-1l
Occurrence to any Unit from and after delivery and acceptance thereof by the
Lessee hereunder.
The Lessee will, at all times prior to the return of the Equipment to
the Lessor, at its own expense, cause to be carried and maintained property
insurance (which may be self-insurance to the extent hereinafter permitted) and
public liability insurance in respect of the Units at the time subject hereto,
in amounts (subject to customary deductibles) and against risks customarily
insured against by railroad companies in respect of similar equipment, and, in
any event, comparable in amounts and against risks customarily insured against
by the Lessee in respect of similar equipment owned by it. If the Lessor shall
receive any insurance proceeds or condemnation payments in respect of a Unit
suffering a Casualty Occurrence, the Lessor shall, subject to the Lessee's
having made payment of the Casualty Value in respect of such Unit, pay such
proceeds or condemnation payments to the Lessee up to an amount equal to the
Casualty Value with respect to a Unit paid by the Lessee and any balance of such
proceeds or condemnation payments shall remain the property of the Lessor.
Insurance proceeds received by the Lessor from the Lessee's insurance coverage
in respect of any Unit not suffering a Casualty Occurrence shall be paid to the
Lessee upon proof satisfactory to the Lessor that any damage to such Unit in
respect of which such proceeds were paid has been fully repaired, but only to
the extent of the Lessee's costs (including overhead and profit, if applicable)
in effecting such repairs. Except as aforesaid, all such insurance proceeds
shall be retained by the Lessor.
(S) 8. Reports and Inspection. On or before April 30 in each year,
-----------------------
commencing with the calendar year 1980, the Lessee will furnish to the Lessor
and the Vendor (a) an accurate statement (i) setting forth as at the preceding
December 31 the amount, description and numbers of all Units then leased
hereunder and covered by the Security Documentation, the amount, description and
numbers of all Units that have suffered a Casualty Occurrence during the
preceding calendar year or are then undergoing repairs (other than running
repairs) or then withdrawn from use pending such repairs (other than running
repairs) and such other information regarding the condition and state of repair
of the Units as the Lessor or the Vendor may reasonably request, (ii) stating
that, in the case of all Units repainted or repaired during the period covered
by such statement, the numbers and markings required by (S) 5 hereof and by the
<PAGE>
L-12
Security Documentation have been preserved or replaced and (iii) stating that
the Lessee is in compliance with the insurance provisions of (S) 7 hereof and
setting forth a description of the insurance, if any, in effect with respect to
the Equipment pursuant to (S) 7 hereof and (b) a certification of insurance
coverage from the Lessee's independent broker stating the amounts, if any, of
such insurance in effect and the amount of deductible. The Lessor, at its sole
cost and expense, shall have the right by its agents, to inspect the Units and
the Lessee's records with respect thereto at such reasonable times as the Lessor
may request during the continuance of this Lease. The Lessee shall promptly
notify the Lessor and the Vendor of any material changes or any material
proposed changes of which the Lessee has knowledge in its insurance coverage in
effect with respect to the Equipment pursuant to (S) 7 hereof.
The Lessee shall furnish to the Lessor the reports required to be
furnished to the Lessor pursuant to Paragraph 10 of the Participation Agreement.
(S) 9. Disclaimer of Warranties; Compliance with Laws and Rules;
---------------------------------------------------------
Indemnification. THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS
- ----------------
OR IMPLIED, AS TO THE DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF THE
MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE UNITS DELIVERED TO THE LESSEE
HEREUNDER, AND THE LESSOR MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS OF THE
UNITS FOR ANY PARTICULAR PURPOSE OR AS TO TITLE TO THE UNITS OR ANY COMPONENT
THEREOF, OR AS TO THE LESSEE'S RIGHT TO QUIET ENJOYMENT THEREOF (EXCEPT AS TO
ACTS OF THE LESSOR), OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY UNIT, EITHER UPON DELIVERY THEREOF TO THE LESSEE OR
OTHERWISE NOR SHALL THE LESSOR (EXCEPT AS TO VOLUNTARY ACTS OF LESSOR) BE
RESPONSIBLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY
IN TORT), it being agreed that all such risks, as between the Lessor and the
Lessee, are to be borne by the Lessee; but the Lessor hereby irrevocably
appoints and constitutes the Lessee its agent and attorney-in-fact during the
term of this Lease to assert and enforce from time to time, in the name of and
for the account of the Lessor and/or the Lessee, as their interests may appear,
at the Lessee's sole cost and expense, whatever claims and rights the Lessor may
have against the Builder under the provisions of Item 2 of Annex A of the
Security Documentation; provided, however, that if at any time an Event of
-------- -------
Default shall have occurred and be continuing, the Lessor may assert and
enforce, at the Lessee's sole cost and expense, such claims and rights. The
Lessor shall have no responsibility
<PAGE>
L-13
or liability to the Lessee or any other person with respect to any of the
following: (i) any liability, loss or damage caused or alleged to be caused
directly or indirectly by any Units or by any inadequacy thereof or deficiency
or defect therein or by any other circumstances in connection therewith; (ii)
the use, operation or performance of any Units or any risks relating thereto; or
(iii) the delivery, operation, servicing, maintenance, repair, improvement or
replacement of any Units. The Lessee's delivery of a Certificate of Acceptance
shall be conclusive evidence as between the Lessee and the Lessor that the Units
described therein are in all the foregoing respects satisfactory to the Lessee,
and the Lessee will not assert any claim of any nature whatsoever against the
Lessor based on any of the foregoing matters.
The Lessee agrees, for the benefit of the Lessor and the Vendor, to
comply in all respects (including without limitation, with respect to the use,
maintenance and operation of each Unit) with all applicable laws of the
jurisdictions in which its operations involving the Units may extend, with all
lawful rules of the Department of Transportation, the Interstate Commerce
Commission and any other legislative, executive, administrative or judicial body
exercising any power or jurisdiction over the Units and with all applicable
interchange rules, to the extent that such laws and rules affect the title,
operation or use of the Units, and in the event that, prior to the expiration of
this Lease or any renewal thereof, such laws or rules require any alteration,
replacement, addition or modification of or to any part on any Unit, the Lessee
will conform therewith at its own expense; provided, however, that the Lessee
-------- -------
may at its own expense, in good faith, contest the validity or application of
any such law or rule in any reasonable manner which does not, in the reasonable
opinion of the Lessor or the Vendor, adversely affect the property or rights of
the Lessor or the Vendor under this Lease or under the Security Documentation.
The Lessee, at its own cost and expense, may furnish other additions,
modifications and improvements to the Units during the term of this Lease. Any
additions, modifications and improvements made by the Lessee which are readily
removable without causing material damage to the Units shall be owned by the
Lessee and may be removed by the Lessee at any time during the term of this
Lease or any renewal thereof and prior to the return thereof to the Lessor
pursuant to (S) 11 or 14 hereof, except additions, modifications and
improvements required to maintain each Unit's eligibility for interchange
service or to comply with the provisions of the first para-
<PAGE>
L-14
graph of (S) 7 or the first sentence of this paragraph. Any additions,
modifications and improvements made by the Lessee which are not so readily
removable shall become the property of the Lessor.
The Lessee agrees to indemnify, protect and hold harmless the Lessor
(in both its individual and fiduciary capacities) and the Vendor from and
against all losses, damages, injuries, liabilities, claims (including without
limitation claims for strict liability in tort) and demands whatsoever,
regardless of the cause thereof, and expenses in connection therewith,
including, but not limited to, counsel fees and expenses, patent liabilities,
penalties and interest, arising out of or as the result of the entering into or
the performance of or the occurrence of a default, an event of default or an
Event of Default under the Security Documentation, the Participation Agreement,
this Lease, or any sub-lease entered into pursuant to (S) 12 hereunder, the
ownership of any Unit, the ordering, acquisition, use, operation, condition,
purchase, delivery, rejection, storage or return of any Unit or any accident in
connection with the operation, use, condition, possession, storage or return of
any Unit resulting in damage to property or injury or death to any person,
except as otherwise provided in (S) 14 of this Lease, or the transfer of title
to the Equipment by the Vendor pursuant to any provision of the Security
Documentation. The indemnities arising under this paragraph shall continue in
full force and effect with respect to all events, facts, conditions or other
circumstances occurring or existing prior to the expiration or termination of
the term of this Lease and return of the Units as provided in (S) 14 of this
Lease; provided, however, that the Lessor shall not be indemnified by the Lessee
-------- -------
for any event which would otherwise give rise to the foregoing indemnification,
if such event is caused by the wilful misconduct or gross negligence of the
Lessor, its officers, employees, representatives or agents; provided, further,
-------- -------
that the foregoing indemnification shall not apply to any failure of payment of
the principal of or interest on the Conditional Sale Indebtedness and shall not
be deemed to operate as a guarantee of the residual value of any Unit. The
amount the Lessee shall be required to pay with respect to any of its
obligations under this paragraph shall include a payment to the indemnified
party sufficient to restore such party to the same position, after considering
the effect of such payment on its United States Federal income taxes and state
and city income taxes or franchise taxes based on net income, that the
indemnified party would have been in had the liability or expense indemnified
against not been incurred.
<PAGE>
L-15
The Lessee further agrees to indemnify, protect and hold harmless the
Vendor and the Builder as third party beneficiaries hereof from and against any
and all liability, claims, costs, charges and expenses, including royalty
payments and counsel fees, in any manner imposed upon or accruing against the
Vendor or the Builder because of the use in or about the construction or
operation of any of the Units of any article of material specified by the Lessee
and not manufactured by the Builder or of any design, system, process, formula
or combination specified by the Lessee and not developed or purported to be
developed by the Builder which infringes or is claimed to infringe on any patent
or other right. The Lessee will give notice to the Builder of any claim known to
the Lessee from which liability may be charged against the Builder under the
Security Documentation.
The Lessee shall not be released from its obligations hereunder in the
event of any damage to or the destruction or loss of any or all of the Units.
The Lessee agrees to prepare and deliver to the Lessor within a
reasonable time prior to the required date of filing (or, to the extent
permissible, file on behalf of the Lessor) any and all reports (other than tax
returns) to be filed by the Lessor with any Federal, state or other regulatory
authority by reason of the ownership by the Lessor or the Vendor of the Units or
the leasing thereof to the Lessee.
(S) 10. Default. If, during the continuance of this Lease, one or more
-------
of the following events (each such event being herein sometimes called an Event
of Default) shall occur:
(A) default shall be made in payment of any amount provided for in
(S) 3 or (S) 7 of this Lease and such default shall continue for ten
business days, or default shall be made in payment of any other amount
provided for in this Lease and such default shall continue for ten business
days after written notice from the Lessor or the Vendor to the Lessee
specifying the default and demanding that the same be remedied;
(B) the Lessee shall make or permit any unauthorized assignment or
transfer of this Lease, or any interest herein, or of the right to
possession of the Units, or any thereof and shall fail or refuse to cause
such assignment or transfer to be canceled by agreement of all parties
having any interest therein and to recover
<PAGE>
L-16
possession of such Units within 15 days after written notice from the
Lessor to the Lessee demanding such cancelation and recovery of
possession;
(C) default shall be made in the observance or performance of any
other of the covenants, conditions and agreements on the part of the Lessee
contained herein or in the Participation Agreement, and such default shall
continue for 30 days after written notice from the Lessor or the Vendor to
the Lessee specifying the default and demanding that the same be remedied;
(D) a petition for reorganization under Section 77 of the Bankruptcy
Act, as now constituted or as said Section 77 may hereafter be amended or
under any other provision of Title 11 of the United States Code, as now
constituted or as hereafter amended, shall be filed by or against the
Lessee and, unless such petition shall have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such
stay shall continue in force or such ineffectiveness shall continue), all
the obligations of the Lessee under this Lease and the Consent (as defined
in the Security Documentation) shall not have been and shall not continue
to have been duly assumed in writing, pursuant to a court order or decree,
by a trustee or trustees appointed (whether or not subject to ratification)
in such proceedings in such manner that such obligations shall have the
same status as obligations incurred by such trustee or trustees, within 30
days after such appointment, if any, or 60 days after such petition shall
have been filed, whichever shall be earlier or by the trustee in such
proceedings in accordance with the provisions of 11 U.S.C. (S) 1168, or any
successor provision, as the same may hereinafter be amended; or
(E) any other proceedings shall be commenced by or against the Lessee
for any relief which includes, or might result in, any modification of the
obligations of the Lessee hereunder, under any bankruptcy or insolvency
laws, or laws relating to the relief of debtors, readjustments of
indebtedness, reorganizations, arrangements, compositions or extensions
(other than a law which does not permit any readjustments of the
obligations of the Lessee hereunder or under the Consent), and, unless such
proceedings shall have been dismissed, nullified, stayed or otherwise
rendered ineffective (but then only so long as such stay shall continue in
force or such ineffective-
<PAGE>
L-17
ness shall continue), all the obligations of the Lessee under this Lease
and the Consent shall not have been and shall not continue to have been
duly assumed in writing, pursuant to a court order or decree, by a trustee
or trustees or receiver or receivers appointed (whether or not subject to
ratification) for the Lessee or for the property of the Lessee in
connection with any such proceedings in such manner that such obligations
shall have the same status as obligations incurred by such a trustee or
trustees or receiver or receivers, within 30 days after such appointment,
if any, or 60 days after such proceedings shall have been commenced,
whichever shall be earlier;
then, in any such case, the Lessor, at its option, may:
(a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by the Lessee of the applicable covenants of
this Lease or to recover damages for the breach thereof; or
(b) by notice in writing to the Lessee terminate this Lease, whereupon
all rights of the Lessee to the use of the Units shall absolutely cease and
terminate as though this Lease had never been made, but the Lessee shall
remain liable as herein provided; and thereupon the Lessor may by its
agents enter upon the premises of the Lessee or other premises where any of
the Units may be and take possession of all or any of such Units and
thenceforth hold, possess, sell, operate, lease to others and enjoy the
same free from any right of the Lessee, or its successors or assigns, to
use the Units for any purposes whatever and without any duty to account to
the Lessee for such action or inaction or for any proceeds arising
therefrom; but the Lessor shall, nevertheless, have a right to recover from
the Lessee any and all amounts which under the terms of this Lease may be
then due or which may have accrued to the date of such termination
(computing the rental for any number of days less than a full rental period
by multiplying the rental for such full rental period by a fraction of
which the numerator is such number of days and the denominator is the total
number of days in such full rental period) and also to recover forthwith
from the Lessee as damages for loss of the bargain and not as a penalty, an
amount equal to the excess, if any, of the Casualty Value as of the rental
payment date on or next preceding the date of termination over the amount
the Lessor reasonably
<PAGE>
L-18
estimates to be the sales value of such Unit at such time; provided,
--------
however, that in the event the Lessor shall have sold any Unit, the Lessor,
-------
in lieu of collecting any amounts payable to the Lessor by the Lessee
pursuant to the preceding clause of this part (b) with respect to such
Unit, may, if it shall so elect, demand that the Lessee pay the Lessor and
the Lessee shall pay to the Lessor on the date of such sale, as liquidated
damages for loss of a bargain and not as a penalty, an amount equal to the
excess, if any, of the Casualty Value for such Unit, as of the rental
payment date on or next preceding the date of termination over the net
proceeds of such sale; or
(c) make the payment or perform or comply with any agreement, the
nonpayment, nonperformance or noncompliance with which caused such Event of
Default, 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 at the rate of 10.6% per annum, shall be payable by
Lessee as additional rental hereunder upon demand by Lessor.
In addition, the Lessee shall be liable, except as otherwise provided above, for
any and all unpaid amounts due hereunder before, during or after the exercise of
any of the foregoing remedies and for all reasonable attorneys' fees and other
costs and expenses incurred by reason of the occurrence of any Event of Default
or the exercise of the Lessor's remedies with respect thereto, including all
costs and expenses incurred in connection with the return of any Unit.
The remedies in this Lease provided in favor of the Lessor shall not
be deemed exclusive, but shall be cumulative and may be exercised concurrently
or consecutively, and shall be in addition to all other remedies in its favor
existing at law or in equity. The Lessee hereby waives any mandatory
requirements of law, now or hereafter in effect, which might limit or modify the
remedies herein provided, to the extent that such waiver is not, at the time in
question, prohibited by law. The Lessee hereby waives any and all existing or
future claims to any offset against the rental payments due hereunder, and
agrees to make such payments regardless of any offset or claim which may be
asserted by the Lessee or on its behalf.
<PAGE>
L-19
The failure of the Lessor to exercise the rights granted it hereunder
upon the occurrence of any of the contingencies set forth herein shall not
constitute a waiver of any such right upon the continuation or recurrence of any
such contingencies or similar contingencies.
(S) 11. Return of Units Upon Default. If this Lease shall terminate
-----------------------------
pursuant to (S) 10 hereof, the Lessor may, upon such further notice, if any, as
may be required for compliance with any mandatory legal requirements then in
force and applicable to the action to be taken by the Lessor, take or cause to
be taken by its agent or agents, immediate possession of each of the Units, or
one or more of the Units and may remove the same from possession and use of the
Lessee or any other person and for such purpose may enter upon the premises of
the Lessee or any other premises where the Units may be located and may use and
employ in connection with such removal any supplies, services and aids and any
available trackage and other facilities or means of the Lessee, subject to all
mandatory requirements of due process of law.
If this Lease shall terminate pursuant to (S) 10 hereof, the Lessee
shall forthwith deliver possession of the Units to the Lessor. Each Unit so
delivered shall be in the same operating order, repair and condition as when
originally delivered to the Lessee, ordinary wear and tear excepted. For the
purpose of delivering possession of any Unit or Units to the Lessor as above
required, the Lessee shall at its own cost, expense and risk:
(a) forthwith and in the usual manner cause the Equipment to be moved
to such point or points on the lines of the Lessee or any of its affiliates
as the Lessor reasonably may designate;
(b) if the Vendor shall so request cause the Equipment to be detached
from each unit of railroad rolling stock to which it has been attached; at
the option of the Vendor, permit the Vendor to store the Equipment on any
of the lines or elsewhere on the premises of the Lessee, as the Vendor may
reasonably designate (or if the storage of the Equipment on such lines or
premises would materially impair the Lessee's ability to perform its
obligations as a common carrier by rail, on such other lines or premises of
Lessee as shall be satisfactory to the Vendor), at the risk of the Vendee
without charge for rent or storage until the
<PAGE>
L-20
Equipment has been sold, leased or otherwise disposed of by the Vendor; and
(c) transport the same to any place on the lines of railroad operated
by the Lessee or any of its affiliates or to any connecting carrier for
shipment, all as directed by the Lessor, but only in such manner as shall
not materially impair the ability of the Lessee to perform its obligations
as a common carrier by rail.
The assembling, delivery, storage, insurance and transporting of the Units as
hereinbefore provided shall be at the expense and risk of the Lessee and are of
the essence of this Lease, and upon application to any court of equity having
jurisdiction in the premises the Lessor shall be entitled to a decree against
the Lessee requiring specific performance of the covenants of the Lessee so to
assemble, deliver, store and transport the Units. During any storage period, the
Lessee will, at its own cost and expense, maintain and keep the Equipment in
good order and repair and will permit the Lessor or any person designated by it,
including the authorized representative or representatives of any prospective
purchaser, lessee or user of any such Unit, to inspect the same. As between the
Lessor and the Lessee, all amounts earned in respect of the Units after the date
of termination of this Lease shall belong to the Lessor and, if received by the
Lessee, shall be promptly turned over to the Lessor. In the event any Unit is
not assembled, delivered and stored, as hereinabove provided, within 60 days
after such termination the Lessee shall, in addition, pay to the Lessor for each
day thereafter an amount equal to the amount, if any, by which the product of
(i) a fraction the numerator of which is 10.6% and the denominator of which is
360, and (ii) the Purchase Price of such Unit for each such day exceeds the
actual earnings received by the Lessor on such Unit for each such day; such
payment shall not affect the obligation of the Lessee to redeliver the Equipment
pursuant to the first sentence of this paragraph.
Without in any way limiting the obligation of the Lessee under the
foregoing provisions of this (S) 11, the Lessee hereby irrevocably appoints the
Lessor as the agent and attorney of the Lessee, with full power and authority,
at any time while the Lessee is obligated to deliver possession of any Unit to
the Lessor, to demand and take possession of such Unit in the name and on behalf
of the Lessee from whomsoever shall be in possession of such Unit at the time.
(S) 12. Assignment; Possession and Use. This Lease
-------------------------------
<PAGE>
L-21
shall be assignable in whole or in part by the Lessor without the consent of the
Lessee, but the Lessee shall be under no obligation to any assignee of the
Lessor except upon written notice of such assignment from the Lessor, provided
that no assignment for other than security purposes shall be made without the
consent of the Lessee, which consent shall not be unreasonably withheld. All the
rights of the Lessor hereunder (including, but not limited to, the rights under
(S)(S) 6, 7 and 10 and the rights to receive the rentals payable under this
Lease) shall inure to the benefit of the Lessor's assigns.
So long as the Lessee shall not be in default under this Lease and the
Lessee shall have fully complied with the provisions of the fourth paragraph of
this (S) 12 the Lessee shall be entitled to the possession and use of the Units
and, without the Lessor's consent, to sublease the Units to, or to permit their
use by, a user incorporated in the United States of America (or any State
thereof or the District of Columbia), upon lines of railroad owned or operated
by the Lessee or such user or by a railroad company or companies incorporated in
the United States of America (or any State thereof or the District of Columbia),
or over which the Lessee, such user, or such railroad company or companies have
trackage rights or rights for operation of their trains, and upon the lines of
railroad of connecting and other carriers in the usual interchange of traffic or
in through or run-through service, but only upon and subject to all the terms
and conditions of this Lease; provided, however, that the Lessor's consent, not
-------- -------
to be unreasonably withheld, must be obtained for any sublease that is for a
term or terms that aggregate more than six months in any one year; provided
--------
further, however, that the Lessee shall not sublease or permit the sublease or
- ------- -------
use of any Unit to service involving regular operation and maintenance outside
the United States of America; and provided further, however, that any such
-------- ------- -------
sublease or use shall be consistent with the provisions of Paragraph 12 of the
Participation Agreement. No such assignment or sublease shall relieve the Lessee
of its obligations hereunder which shall be and remain those of principal and
not a surety.
The Lessee will initially affix the Units to railroad flat cars
furnished by Trailer Train Company. The Lessee will not install or affix the
Units to any other railroad rolling stock (other than installation of individual
Units on a temporary basis) unless the owner of such other rolling stock and all
persons having a security interest therein shall have acknowledged that such
owner or holder of a security interest
<PAGE>
L-22
shall not acquire any interest in, or rights with respect to, Units which may be
installed on such railroad rolling stock.
Any such sublease may provide that the subleasee, so long as it shall
not be in default under such sublease, shall be entitled to the possession of
the Units included in such sublease and the use thereof; provided, however, that
-------- -------
every such sublease shall be subject to the rights and remedies of the Vendor
under the Security Documentation and the Lessor under this Lease in respect of
the Units covered by such sublease upon the occurrence of an Event of Default
thereunder or hereunder.
The Lessee, at its own expense, will as soon as possible cause to be
duly discharged any lien, charge, security interest or other encumbrance (except
any sublease as aforesaid and other than an encumbrance resulting from claims
against the Lessor, the Vendee or the Vendor not related to the ownership or
leasing of, or the security title of the Vendor to, the Units) which may at any
time be imposed on or with respect to any Unit including any accession thereto
or the interest of the Lessor, the Vendor or the Lessee therein; except that
this covenant will not be breached by reason of liens for taxes, assessments or
governmental charges or levies, in each case not due and delinquent or
undetermined or inchoate materialmen's, mechanics', workmen's, repairmen's or
other like liens arising in the ordinary course of business and, in each case,
not delinquent; and, furthermore, the Lessee shall be under no obligation to
discharge any such lien, charge, security interest or encumbrance so long as it
is contesting the same in good faith and by appropriate legal proceedings and
the failure to discharge the same does not, in the reasonable opinion of the
Lessor and the Vendor, adversely affect the title, property or rights of the
Lessor hereunder or the Vendor under the Security Documentation.
Nothing in this (S) 12 shall be deemed to restrict the right of the
Lessee to assign or transfer its leasehold interest under this Lease in the
Units or possession of the Units to any railroad corporation incorporated under
the laws of any state of the United States of America or the District of
Columbia (which shall have duly assumed the obligations of the Lessee hereunder)
into or with which the Lessee shall have become merged or consolidated or which
shall have acquired or leased all or substantially all the lines of railroad of
the Lessee; provided, however, that such assignee, lessee or transferee will
-------- -------
not, upon the effectiveness of such merger, consolidation, lease or acquisition
be in default under any provision of this Lease and that such acquisition or
lease
<PAGE>
L-23
of railroad lines of the Lessee shall not alter in any way the Lessee's
obligation to the Lessor and Vendor hereunder which shall be and remain those of
a principal and not a surety.
(S) 13. Renewal Options and Right of First Refusal. Provided that
-------------------------------------------
this Lease has not been earlier terminated and the Lessee is not in default
hereunder, the Lessee may by written notice delivered to the Lessor not less
than six months prior to the end of the original term of this Lease elect to
extend the term of this Lease in respect of all but not fewer than all of the
Units then covered by this Lease, for a two-year period commencing on the
scheduled expiration of the original term of this Lease. Thereafter the Lessee
may, subject to the first proviso of this (S) 13, elect to extend the term of
this Lease in respect of all but not fewer than all of the Units then covered by
this Lease for three additional two-year periods upon written notice delivered
to the Lessor not less than six months prior to the end of the preceding renewal
period. Each of such extensions shall be on the same terms and conditions as are
contained in this Lease, except as to the amount of rentals, which for the first
of such renewal periods shall be in an amount equal to 6.2194% of the Purchase
Price of each of the Units then subject to this Lease and for each of the three
succeeding renewal periods shall be at a "Fair Market Rental" (as such term is
defined in this (S) 13) payable annually in arrears, and except as to applicable
Casualty Values, which shall be as agreed upon between the Lessor and the Lessee
at the time of each of such extensions.
If the Lessor elects to sell the Units to third parties effective upon
the expiration of the original or any extended term of this Lease, or at any
time within ninety days after such expiration, the Lessee shall have the right
of first refusal to purchase such Units. The Owner shall, in a commercially
reasonable manner, solicit offers to buy such Units (excepting additions,
modifications and improvements which may be removed by the Lessee pursuant to
(S) 9 hereof), and upon receipt thereof shall exhibit to the Lessee a true copy
of the most favorable bona fide offer. The Lessee may by written notice
delivered within 15 days of the receipt of said copy advise the Lessor and the
Owner that the management of the Lessee intends to recommend to its Board of
Directors that its right of first refusal be exercised, and, within a further
period of 30 days following the giving of such written notice, the Lessee shall
by written notice delivered to the Lessor and the Owner either exercise such
right of first refusal or advise the Lessor and the Owner that the
<PAGE>
L-24
Board of Directors of the Lessee has determined that such right of first refusal
should not be exercised. If such right of first refusal is exercised as
aforesaid, the Lessee shall purchase such Units at the sale price and on the
same terms set forth in such offer; provided that any such sale to a third party
--------
shall be subject to the Lessee's right to continue to lease the Units pursuant
to the terms hereof.
Upon purchase of the Units by the Lessee, the Lessor shall upon
request of the Lessee execute and deliver to the Lessee or to the Lessee's
assignee or nominee, a bill of sale (without representations or warranties
except that such Units are free and clear of all claims, liens, security
interest and other encumbrances by or in favor of any person claiming by,
through or under the Lessor) for such Units, and such other documents as may be
required to release such Units, from the terms and scope of this Lease and to
transfer title thereto to the Lessee or such assignee or nominee, in such forms
as may reasonably be requested by the Lessee, all at the Lessee's expense.
Fair Market Rental shall be determined on the basis of, and shall be
equal in amount to, the rental which would obtain in an arm's-length transaction
between an informed and willing lessee (other than a lessee currently in
possession) and an informed and willing lessor under no compulsion to lease and,
in such determination, costs of removal from the location of current use shall
not be a deduction from such rental but there shall be excluded any rental value
attributable to additions, modifications and improvements which the Lessee is
entitled to remove pursuant to (S) 9 hereof; provided, however, that Fair Market
-------- -------
Rental shall be determined as provided; in the preceding sentences on the basis
of the term and other terms and conditions of the lease being considered.
If, after 45 days from the giving of notice by the Lessee of the
Lessee's election to extend the term of this Lease beyond the first renewal
period, as provided in the first or second paragraph of this (S) 13, the Lessor
and the Lessee are unable to agree upon a determination of Fair Market Rental,
such rental shall be determined in accordance with the foregoing definition by
the following procedure: If either party to such determination shall have given
written notice to the other requesting determination of such value by this
appraisal procedure, the parties shall consult for the purpose of appointing a
qualified independent appraiser by mutual agreement. If no such appraiser is so
appointed within 20 business days after such notice is
<PAGE>
L-25
given, each party shall appoint an independent appraiser within 25 business days
after such notice is given, and the two appraisers so appointed shall within 35
business days after such notice is given appoint a third independent appraiser.
If no such third appraiser is appointed within 35 business days after such
notice is given, either party may apply, to make such appointment, to the
American Arbitration Association, and both parties shall be bound by any
appointment so made. Any appraiser or appraisers appointed pursuant to the
foregoing procedure shall be instructed to determine the Fair Market Rental of
the Units subject to the proposed extended term within 90 days after his or
their appointment. If the parties shall have appointed a single appraiser or if
either party shall have failed to appoint an appraiser, the determination of the
single appraiser appointed shall be final. If three appraisers shall be
appointed, the determination of the appraiser which differs most from the other
two appraisers shall be excluded, the remaining two determinations shall be
averaged and such latter average shall be final and binding upon the parties
hereto. The appraisal proceedings shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as in
effect on the date hereof, except as modified hereby. The provision for this
appraisal procedure shall be the exclusive means of determining Fair Market
Rental and shall be in lieu of any judicial or other procedure for the
determination thereof, and each party hereto hereby consents and agrees not to
assert any judicial or other procedures. The expenses of the appraisal procedure
shall be borne equally by the Lessee and the Lessor.
(S) 14. Return of Units upon Expiration of Lease Term. As soon as
----------------------------------------------
practicable on or after the expiration of the original term or an extended term
of this Lease with respect to any Unit which Lessee does not purchase or release
pursuant to (S)13, the Lessee will, at its own cost and expense, at the request
of the Lessor, deliver possession of such Unit to the Lessor at such point or
points on its lines as the Lessee may reasonably designate, in such city on the
lines of Lessee as Lessor may reasonably designate, or in the absence of
Lessor's designation, in such city on the lines of Lessee as Lessee may
designate, and permit the Lessor to store such Unit at such point or points on
the Lessee's lines where storage facilities are available as it may select for a
period not exceeding sixty days and transport the same, at any time within such
sixty day period, to any reasonable place on the lines of railroad operated by
the Lessee, or to any connecting carrier for shipment, all as directed by the
<PAGE>
L-26
Lessor, the movement and storage of such Units to be at the expense and risk of
the Lessee. During any such storage period the Lessee will permit the Lessor or
any person designated by it, including the authorized representative or
representatives of any prospective purchaser, lessee or user of such Unit, to
inspect the same; provided, however, that the Lessee shall not be liable, except
-------- -------
in the case of negligence of the Lessee or of its employees or agents, for any
injury to, or the death of, any person exercising, either on behalf of the
Lessor or any prospective purchaser, lessee or user, the rights of inspection
granted under this sentence. Each Unit returned to the Lessor pursuant to this
(S) 14 shall (i) be in the same operating order, repair and condition as when
originally delivered to the Lessee, ordinary wear and tear excepted, (ii) except
for additions, modifications and improvements which the Lessee is entitled to
remove under the provisions of (S) 9 of this Lease, meet all operating standards
then in effect under the applicable rules of any governmental agency or other
organization with jurisdiction, and (iii) if requested by the Lessor, be
detached from each unit of railroad rolling stock to which it has been attached.
The assembling, delivery, storage and transporting of the Units as hereinbefore
provided are of the essence of this Lease, and upon application to any court of
equity having jurisdiction in the premises, the Lessor shall be entitled to a
decree against the Lessee requiring specific performance of the covenants of the
Lessee so to assemble, deliver, store and transport the Units. All amounts
earned in respect of the Units after the date of termination of this Lease shall
belong to the Lessor and, if received by the Lessee, shall be promptly turned
over to the Lessor. In the event any Unit is not assembled, delivered and
stored, as hereinabove provided, within 60 days after such termination, the
Lessee shall, in addition, pay to the Lessor for each day thereafter an amount
equal to the amount, if any, by which the product of (i) a fraction the
numerator of which is 10.6% and the denominator of which is 360, and (ii) the
Purchase Price of such Unit for each such day, exceeds (iii) the actual earnings
received by the Lessor on such Unit for each such day.
(S) 15. Recording. The Lessee, at its own expense, will cause this
----------
Lease, the Security Documentation and any assignment hereof or thereof to be
filed and recorded with the Interstate Commerce Commission in accordance with 49
U.S.C. S 11303(a). The Lessee, at its own expense, will further cause this Lease
and/or appropriate financing statements or continuation statements to be filed
and recorded, and from time to time when required refiled and rerecorded,
<PAGE>
L-27
in accordance with the applicable provisions of the Uniform Commercial Code of
the States of Utah and Colorado (and, if the Lessee changes its chief place of
business to a different state, in any such other state) and in any other state
of the United States of America or the District of Columbia where filing is
reasonably requested by the Lessor for the purpose of proper protection, to the
satisfaction of counsel for the Lessor, of its interests and rights under this
Agreement or for the purpose of carrying out the intention of this Agreement.
The Lessee will undertake the filing, registering, deposit, and recording
required of the Lessor under the Security Documentation and will from time to
time do and perform any other act and will execute, acknowledge, deliver, file,
register, record (and will refile, reregister, deposit and redeposit or rerecord
whenever required) any and all further instruments required by law or reasonably
requested by the Lessor or the Vendor for the purpose of proper protection, to
their satisfaction, of the Vendor's and the Lessor's respective interests in the
Units, or for the purpose of carrying out the intention of this Lease, the
Security Documentation and the assignment thereof to the Vendor; and the Lessee
will promptly furnish to the Vendor and the Lessor evidence of all such filing,
registering, depositing or recording, and an opinion or opinions of counsel for
the Lessee with respect thereto satisfactory to the Vendor and the Lessor. This
Lease and the Security Documentation shall be filed and recorded with the
Interstate Commerce Commission and under the Uniform Commercial Code of the
State of Utah prior to the delivery and acceptance hereunder of any Unit.
(S) 16. Interest on Overdue Rentals. Anything to the contrary herein
----------------------------
contained notwithstanding, any nonpayment of rentals and other obligations due
hereunder shall result in the obligation on the part of the Lessee promptly to
pay, to the extent legally enforceable, interest at a rate per annum equal to
10.6% on the overdue rentals and other obligations for the period of time during
which they are overdue or such lesser amount as may be legally enforceable.
(S) 17. Notices. Any notice required or permitted to be given by
--------
either party hereto to the other shall be deemed to have been given when mailed,
first class, postage prepaid, addressed as follows:
(a) if to the Lessor, at 79 South Main Street, Salt Lake City, Utah
84125, Attention of Corporate Trust Division, Trust Department; with a copy
to: Itel Corporation, Equipment Finance Division, One Embarcadero
<PAGE>
L-28
Center, San Francisco, California 94111, Attention of Financial Service
Group, Contract Administration; and
(b) if to the Lessee, at One Park Central, 1515 Arapahoe Street,
Denver, Colorado 80217, Attention Manager of Equipment Planning;
or addressed to either party at such other address as such party shall hereafter
furnish to the other party in writing. Copies of each such notice shall be given
to the Vendor at 130 John Street, New York, New York 10038, Attention of
Corporate Trust and Agency Division.
(S) 18. Severability; Effect and Modification of Lease. Any provision
-----------------------------------------------
of this Lease which is prohibited or unenforceable in any jurisdiction, shall
be, as to such jurisdiction, ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Except for the Participation Agreement and the Trust Agreement, this
Lease exclusively and completely states the rights of the Lessor and the Lessee
with respect to the leasing of the Units and supersedes all other agreements,
oral or written, with respect thereto. No variation or modification of this
Lease and no waiver of any of its provisions or conditions shall be valid unless
in writing and signed by duly authorized signatories for the Lessor and the
Lessee.
(S) 19. Execution. This Lease may be executed in several counterparts,
----------
such counterparts together constituting but one and the same instrument, but the
counterpart delivered to the Vendor pursuant to the assignment hereof to the
Vendor shall be deemed to be the original and all other counterparts shall be
deemed duplicates thereof. Although for convenience this Lease is dated as of
the date first set forth above, the actual date or dates of execution hereof by
the parties hereto is or are, respectively, the date or dates stated in the
acknowledgments hereto annexed.
(S) 20. Law Governing. The terms of this Lease and all rights and
--------------
obligations hereunder shall be governed by the laws of the State of Colorado;
provided, however, that the parties shall be entitled to all rights conferred by
- -------- -------
49 U.S.C. (S) 11303.
<PAGE>
L-29
(S) 21. Definitions. Whenever the term "Lessor" is used in this Lease,
------------
it shall also include the Owner and any assignee of the Owner and, where the
context so requires (including but not limited to certain of the provisions of
(S) 6 hereof), shall, except for purposes of any assignment of the "Lessor's"
rights under this Lease, refer only to the Owner or such assignee of the Owner.
(S) 22. Concerning the Lessor. Each and all of the warranties,
---------------------
representations, undertakings and agreements herein made on the part of the
Lessor are each and every one of them made and intended not as personal
representations, undertakings and agreements by First Security Bank of Utah,
National Association, or for the purpose or with the intention of binding said
bank personally but are made and intended for the purpose of binding only the
Trust Estate as such term is used in the Trust Agreement, and this Lease is
executed and delivered by the said bank solely in the exercise of the powers
expressly conferred upon said bank as trustee under the Trust Agreement, and no
personal liability or personal responsibility is assumed by or shall at any time
be asserted or enforceable against said bank, except for wilful misconduct or
gross negligence, or against the Owner under the Trust Agreement (except under
the last paragraph of Section 5.01 thereof) or on account of any representation,
undertaking or agreement herein of the Lessor or the Owner, either expressed or
implied, all such personal liability (except as aforesaid), if any, being
expressly waived and released by the Lessee and by all persons claiming by,
through or under the Lessee.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be executed as of the date first above written.
THE DENVER AND RIO GRANDE WESTERN
RAILROAD COMPANY,
by W. J. Holtman
-----------------------------
Vice President
[Corporate Seal]
Attest:
C. E. Schmeckpeper
- -----------------------------
Secretary
<PAGE>
L-30
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION, not in its
individual capacity but solely
as Trustee,
by William C. McGregor
-----------------------------
Authorized Signatory
[Seal]
Attest:
John R. Sager
- -----------------------------
Authorized Signatory
<PAGE>
STATE OF COLORADO,)
)ss.:
COUNTY OF DENVER, )
On this 15th day of March 1979, before me personally appeared
W. J. Holtman, to me personally known, who, being by me duly sworn, says that he
is a President of THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, that one
of the seals affixed to the foregoing instrument is the corporate seal of said
Corporation, that said instrument was signed and sealed on behalf of said
Corporation by authority of its Board of Directors, and he acknowledged that the
execution of the foregoing instrument was the free act and deed of said
Corporation.
Dale F. Machart
-----------------------------
Notary Public
[Notarial Seal]
My Commission expires July 10, 1979
STATE OF UTAH, )
) ss.:
COUNTY OF SALT LAKE,)
On this the 14th day of March 1979, before me personally appeared
William C. McGregor, to me personally known, who being by me duly sworn, says
that he is an Authorized Officer of First Security Bank of Utah, National
Association, that one of the seals affixed to the foregoing instrument is the
seal of said bank, that said instrument was signed and sealed on behalf of said
bank by authority of its Board of Directors, and he acknowledged that the
execution of the foregoing instrument was the free act and deed of said bank.
Venna L. De Cora
-----------------------------
Notary Public
[Notarial Seal]
My Commission expires November 15, 1981
<PAGE>
SCHEDULE 1 TO LEASE
<TABLE>
<CAPTION>
D+RGW I.D.
Numbers
Type Quantity (Inclusive)
---- -------- -----------
<S> <C> <C>
Fully-enclosed 36 207-242
trilevel auto racks
Fully-enclosed 14 243-256
coverless trilevel
auto racks
Fully-enclosed 36 171-206
bilevel auto racks
</TABLE>
<PAGE>
SCHEDULE 2 TO LEASE
CASUALTY VALUES
<TABLE>
<CAPTION>
Casualty Payment Percentage of
Dates Purchase Price
- ---------------- --------------
<S> <C>
September 15, 1979 103.4830
September 15, 1980 102.6252
September 15, 1981 100.3031
September 15, 1982 96.7315
September 15, 1983 92.0214
September 15, 1984 86.2911
September 15, 1985 77.4176
September 15, 1986 67.6956
September 15, 1987 57.2622
September 15, 1988 46.1350
September 15, 1989 and thereafter during storage 34.6653
</TABLE>
<PAGE>
CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT
AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979
- ----------------------------------------------------------
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84125
George S. Eccles
In care of First Security Leasing Company
79 South Main Street
Salt Lake City, Utah 84111
The Denver and Rio Grande Western Railroad Company
One Park Central
1515 Arapahoe Street
Denver, Colorado 80217
I, duly appointed and authorized representative for the Vendee and the
Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated
as of January 1, 1979, respectively, do hereby certify that I inspected and
accepted delivery under the Conditional Sale Agreement and Lease of Equipment of
the following Items of Equipment:
TYPE OF EQUIPMENT: Enclosed Tri-Level Auto Rack
DATE ACCEPTED: April 24, 1979
NUMBER OF UNITS: Twenty-Two (22)
NUMBERED:
<TABLE>
<CAPTION>
W&K
TTX SERIAL NO. D+RGW NO.
--- ---------- ---------
<S> <C> <C>
ETTX 854117 66763/764 218
ETTX 854109 66761/762 217
ETTX 853781 66767/768 220
ETTX 854116 66765/766 219
ETTX 854087 66747/748 210
ETTX 854005 66755/756 214
ETTX 853785 66753/754 213
ETTX 854014 66741/742 207
ETTX 820880 66745/746 209
ETTX 854059 66743/744 208
ETTX 854056 66749/750 211
ETTX 853991 66751/752 212
ETTX 854071 66757/758 215
ETTX 854111 66759/760 216
ETTX 853782 66769/770 221
ETTX 853777 66771/772 222
ETTX 853776 66773/774 223
ETTX 854120 66775/776 224
ETTX 854010 66777/778 225
ETTX 853986 66779/780 226
ETTX 854039 66781/782 227
ETTX 854055 66783/784 228
</TABLE>
<PAGE>
I do further certify that the foregoing Items of Equipment are in good
order and condition and appear to conform to the specifications, requirements
and standards applicable thereto and to all applicable United States Department
of Transportation and Interstate Commerce Commission requirements and
specifications and to all applicable interchange requirements of the Association
of American Railroads.
I do further certify that each of the foregoing Items of Equipment has
been marked by means of a stencil printed in contrasting colors upon each side
of each Item of Equipment in letters not less than one inch in height as
follows:
"Leased from First Security Bank of Utah, National Association, as
Trustee, and Ownership Subject to a Security Agreement filed with the
Interstate Commerce Commission and a Security Interest under the Uniform
Commercial Code."
The execution of this Certificate will in no way relieve or decrease
the responsibility of Lessee for any warranties it has made with respect to the
Equipment.
cc: Ms. Chris Collins /s/ G.L. Nicalin
Corporate Trust and ---------------------------------------
Agency Division Inspector and Authorized Representative
United States Trust of First Security Bank of Utah,
Company of New York National Association, as Vendee,
130 John Street and The Denver and Rio Grande
New York, N. Y. 10038 Western Railroad Company, as
Lessee
<PAGE>
CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT
AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979
- ----------------------------------------------------------
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84125
George S. Eccles
In care of First Security Leasing Company
79 South Main Street
Salt Lake City, Utah 84111
The Denver and Rio Grande Western Railroad Company
One Park Central
1515 Arapahoe Street
Denver, Colorado 80217
I, duly appointed and authorized representative for the Vendee and the
Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated
as of January 1, 1979, respectively, do hereby certify that I inspected and
accepted delivery under the Conditional Sale Agreement and Lease of Equipment of
the following Items of Equipment:
TYPE OF EQUIPMENT: Enclosed Tri-Level Auto Rack
DATE ACCEPTED: April 25, 1979
NUMBER OF UNITS: Fourteen (14)
NUMBERED:
<TABLE>
<CAPTION>
W&K
TTX SERIAL NO. D&RGW NO.
--- ---------- ---------
<S> <C> <C>
ETTX 854073 66785/786 229
ETTX 854051 66787/788 230
ETTX 853995 66789/790 231
ETTX 854080 66791/792 232
ETTX 854098 66793/794 233
ETTX 854100 66795/796 234
ETTX 854097 66797/798 235
ETTX 854082 66799/800 236
ETTX 854065 66801/802 237
ETTX 854113 66803/804 238
ETTX 853988 66805/806 239
ETTX 853831 66807/808 240
ETTX 854094 66809/810 241
ETTX 854020 66811/812 242
</TABLE>
<PAGE>
I do further certify that the foregoing Items of Equipment are in good
order and condition and appear to conform to the specifications, requirements
and standards applicable thereto and to all applicable United States Department
of Transportation and Interstate Commerce Commission requirements and
specifications and to all applicable interchange requirements of the Association
of American Railroads.
I do further certify that each of the foregoing Items of Equipment has
been marked by means of a stencil printed in contrasting colors upon each side
of each Item of Equipment in letters not less than one inch in height as
follows:
"Leased from First Security Bank of Utah, National Association, as
Trustee, and Ownership Subject to a Security Agreement filed with the
Interstate Commerce Commission and a Security Interest under the Uniform
Commercial Code."
The execution of this Certificate will in no way relieve or decrease
the responsibility of Lessee for any warranties it has made with respect to the
Equipment.
cc: Ms. Chris Collins /s/ G.L. Nicalin
Corporate Trust and ---------------------------------------
Agency Division Inspector and Authorized Representative
United States Trust of First Security Bank of Utah,
Company of New York National Association, as Vendee,
130 John Street and The Denver and Rio Grande
New York, N. Y. 10038 Western Railroad Company, as
Lessee
<PAGE>
CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT
AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979
- ----------------------------------------------------------
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84125
George S. Eccles
In care of First Security Leasing Company
79 South Main Street
Salt Lake City, Utah 84111
The Denver and Rio Grande Western Railroad Company
One Park Central
1515 Arapahoe Street
Denver, Colorado 80217
I, duly appointed and authorized representative for the Vendee and the
Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated
as of January 1, 1979, respectively, do hereby certify that I inspected and
accepted delivery under the Conditional Sale Agreement and Lease of Equipment of
the following Items of Equipment:
TYPE OF EQUIPMENT: Enclosed Bi-Level Auto Rack
DATE ACCEPTED: May 25, 1979
NUMBER OF UNITS: Twenty-one (21)
NUMBERED:
<TABLE>
<CAPTION>
W&K
TTX SERIAL NO. D&RGW NO.
--- ---------- ---------
<S> <C> <C>
TTGX 911544 67257/258 182
TTGX 911534 67259/260 183
TTGX 910482 67261/262 184
TTGX 911538 67263/264 185
TTGX 912071 67265/266 186
TTGX 911513 67267/268 187
TTGX 912753 67269/270 188
TTGX 912072 67271/272 189
TTGX 911800 67273/274 190
TTGX 912426 67275/276 191
TTGX 911529 67277/278 171
TTGX 912788 67279/280 172
TTGX 911511 67281/282 173
TTGX 910979 67283/284 174
TTGX 911486 67285/286 175
TTGX 911662 67287/288 176
TTGX 912690 67289/290 177
TTGX 912765 67291/292 178
TTGX 912234 67293/294 179
TTGX 912240 67295/296 180
TTGX 911860 67297/298 181
</TABLE>
<PAGE>
I do further certify that the foregoing Items of Equipment are in good
order and condition and appear to conform to the specifications, requirements
and standards applicable thereto and to all applicable United States Department
of Transportation and Interstate Commerce Commission requirements and
specifications and to all applicable interchange requirements of the Association
of American Railroads.
I do further certify that each of the foregoing Items of Equipment has
been marked by means of a stencil printed in contrasting colors upon each side
of each Item of Equipment in letters not less than one inch in height as
follows:
"Leased from First Security Bank of Utah, National Association, as
Trustee, and Ownership Subject to a Security Agreement filed with the
Interstate Commerce Commission and a Security Interest under the Uniform
Commercial Code."
The execution of this Certificate will in no way relieve or decrease
the responsibility of Lessee for any warranties it has made with respect to the
Equipment.
cc: Ms. Chris Collins /s/ G.L. Nicalin
Corporate Trust and ---------------------------------------
Agency Division Inspector and Authorized Representative
United States Trust of First Security Bank of Utah,
Company of New York National Association, as Vendee,
130 John Street and The Denver and Rio Grande
New York, N. Y. 10038 Western Railroad Company, as
Lessee
<PAGE>
CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT
AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979
- ----------------------------------------------------------
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84125
George S. Eccles
In care of First Security Leasing Company
79 South Main Street
Salt Lake City, Utah 84111
The Denver and Rio Grande Western Railroad Company
One Park Central
1515 Arapahoe Street
Denver, Colorado 80217
I, duly appointed and authorized representative for the Vendee and the
Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated
as of January 1, 1979, respectively, do hereby certify that I inspected and
accepted delivery under the Conditional Sale Agreement and Lease of Equipment of
the following Items of Equipment:
TYPE OF EQUIPMENT: Enclosed Bi-Level Auto Rack
DATE ACCEPTED: June 13, 1979
NUMBER OF UNITS: Fifteen (15)
NUMBERED:
<TABLE>
<CAPTION>
W&K
TTX SERIAL NO. D&RGW NO.
--- ---------- ---------
<S> <C> <C>
TTGX 911516 67305/306 195
TTGX 911520 67307/308 196
TTGX 912078 67309/310 197
TTGX 912658 67311/312 198
TTGX 911524 67313/314 199
TTGX 911536 67315/316 200
TTGX 912556 67317/318 201
TTGX 911933 67303/304 194
TTGX 912065 67301/302 193
TTGX 912070 67299/300 192
TTGX 912102 67319/320 202
TTGX 911197 67321/322 203
TTGX 912760 67323/324 204
TTGX 913478 67325/326 205
TTGX 911861 67327/328 206
</TABLE>
<PAGE>
I do further certify that the foregoing Items of Equipment are in good
order and condition and appear to conform to the specifications, requirements
and standards applicable thereto and to all applicable United States Department
of Transportation and Interstate Commerce Commission requirements and
specifications and to all applicable interchange requirements of the Association
of American Railroads.
I do further certify that each of the foregoing Items of Equipment has
been marked by means of a stencil printed in contrasting colors upon each side
of each Item of Equipment in letters not less than one inch in height as
follows:
"Leased from First Security Bank of Utah, National Association, as
Trustee, and Ownership Subject to a Security Agreement filed with the
Interstate Commerce Commission and a Security Interest under the Uniform
Commercial Code."
The execution of this Certificate will in no way relieve or decrease
the responsibility of Lessee for any warranties it has made with respect to the
Equipment.
cc: Ms. Chris Collins /s/ G.L. Nicalin
Corporate Trust and ---------------------------------------
Agency Division Inspector and Authorized Representative
United States Trust of First Security Bank of Utah,
Company of New York National Association, as Vendee,
130 John Street and The Denver and Rio Grande
New York, N. Y. 10038 Western Railroad Company, as
Lessee
<PAGE>
CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT
AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979
- ----------------------------------------------------------
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84125
George S. Eccles
In care of First Security Leasing Company
79 South Main Street
Salt Lake City, Utah 84111
The Denver and Rio Grande Western Railroad Company
One Park Central
1515 Arapahoe Street
Denver, Colorado 80217
I, duly appointed and authorized representative for the Vendee and the
Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated
as of January 1, 1979, respectively, do hereby certify that I inspected and
accepted delivery under the Conditional Sale Agreement and Lease of Equipment of
the following Items of Equipment:
TYPE OF EQUIPMENT: Roofless Tri-Level Auto Rack
DATE ACCEPTED: June 7, 1979
NUMBER OF UNITS: Fourteen (14)
NUMBERED:
<TABLE>
<CAPTION>
W&K
TTX SERIAL NO. D&RGW NO.
--- ---------- ---------
<S> <C> <C>
CTTX 853863 67707/708 243
CTTX 853918 67725/726 244
CTTX 853914 67727/728 245
CTTX 853832 67711/712 246
CTTX 853912 67709/710 247
CTTX 853784 67729/730 248
CTTX 853870 67731/732 249
CTTX 853835 67733/734 250
CTTX 853916 67713/714 251
CTTX 853833 67715/716 252
CTTX 853915 67717/718 253
CTTX 854072 67719/720 254
CTTX 853741 67721/722 255
CTTX 853840 67723/724 256
</TABLE>
<PAGE>
I do further certify that the foregoing Items of Equipment are in good
order and condition and appear to conform to the specifications, requirements
and standards applicable thereto and to all applicable United States Department
of Transportation and Interstate Commerce Commission requirements and
specifications and to all applicable interchange requirements of the Association
of American Railroads.
I do further certify that each of the foregoing Items of Equipment has
been marked by means of a stencil printed in contrasting colors upon each side
of each Item of Equipment in letters not less than one inch in height as
follows:
"Leased from First Security Bank of Utah, National Association, as
Trustee, and Ownership Subject to a Security Agreement filed with the
Interstate Commerce Commission and a Security Interest under the Uniform
Commercial Code."
The execution of this Certificate will in no way relieve or decrease
the responsibility of Lessee for any warranties it has made with respect to the
Equipment.
cc: Ms. Chris Collins /s/ G.L. Nicalin
Corporate Trust and ---------------------------------------
Agency Division Inspector and Authorized Representative
United States Trust of First Security Bank of Utah,
Company of New York National Association, as Vendee,
130 John Street and The Denver and Rio Grande
New York, N. Y. 10038 Western Railroad Company, as
Lessee
<PAGE>
BILL OF SALE
------------
WHITEHEAD & KALES COMPANY (hereinafter called the Builder), in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration paid by the United States Trust Company of New York (hereinafter
called the Assignee), assignee under an Agreement and Assignment dated as of the
1st day of January 1, 1979, by and between the Builder and the Assignee, by
which the Builder assigned to the Assignee certain rights of the Builder under a
Conditional Sale Agreement dated as of the 1st day of January, 1979, by and
between the Builder and First Security Bank of Utah, N.A., as trustee
(hereinafter called the Vendee), at or before the execution and delivery of
these presents, the receipt of which is hereby acknowledged, does hereby grant,
bargain, sell, transfer and set over unto the Assignee, its successors and
assigns, all of the Builder's right, title and interest (the same being a
security interest) in and to the following items of Equipment which have been
delivered by the Builder to the Vendee pursuant to said Conditional Sale
Agreement:
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION BUILDER'S SERIAL NUMBERS
- ----------------- ----------------------------------- ------------------------
<S> <C> <C>
THIRTY-SIX (36) Fully Enclosed Tri-Level Auto Racks (see attached Exhibit A)
</TABLE>
TO HAVE AND TO HOLD the aforesaid security interest as to all and singular
the railroad equipment above described to the Assignee, its successors and
assigns, for its and their own use and behoof forever.
And the Builder hereby warrants to the Assignee, its successors and
assigns, and to the Vendee, that at the time of delivery of each of the above
described items of Equipment to the Vendee under the above mentioned Conditional
Sale Agreement, the Builder had legal title thereto and good and lawful right to
sell such item, and the title to such item was free and clear of all claims,
liens, and encumbrances of any nature except only the rights created under the
said Conditional Sale Agreement; the aforesaid Agreement and Assignment; and the
rights of the Lessee, Denver & Rio Grande Western Railroad Company, under the
Lease of Railroad Equipment dated as of January 1, 1979, and the Builder
covenants that it will warrant and defend such title against the demands of all
persons whomsoever based on claims originating prior to the delivery of the
Equipment by the Builder under said Conditional Sale Agreement.
IN WITNESS WHEREOF the Builder has caused this instrument to be executed in
its name by a duly authorized officer and its corporate seal to be hereunto
affixed, duly attested, the 16th day of May, 1979.
WHITEHEAD & KALES COMPANY ( S E A L )
By /s/ C.E. Wieser
--------------------------------------
C. E. Wieser, Vice President-Finance
ATTEST:
/s/ G. Konchal
- ---------------------------------
G. Konchal, Treasurer
<PAGE>
THIS EXHIBIT A IS PART OF BILL OF SALE RE CLOSING ON THIRTY-SIX (36) FULLY
ENCLOSED TRI-LEVEL AUTO RACKS FOR THE DENVER & RIO GRANDE WESTERN RAILROAD
COMPANY.
EXHIBIT "A"
<TABLE>
<CAPTION>
Car Number Rack No. Serial No. Shipper Destination
- ----------- -------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
ETTX 854014 DRGW 207 66741-42 RD 12614 Lakewood, Georgia
" 854059 " 208 66743-44 " " "
" 820880 " 209 66745-46 " " "
" 854087 " 210 66747-48 " " "
" 854056 " 211 66749-50 " " "
" 853991 " 212 66751-52 " " "
" 853785 " 213 66753-54 " " "
" 854005 " 214 66755-56 " " "
" 854071 " 215 66757-58 RD 12615 " "
" 854111 " 216 66759-60 " " "
" 854109 " 217 66761-62 " " "
" 854117 " 218 66763-64 " " "
" 854116 " 219 66765-66 " " "
" 853781 " 220 66767-68 " " "
" 853782 " 221 66769-70 " " "
" 853777 " 222 66771-72 RD 12616 Oklahoma City, Oklahoma
" 853776 " 223 66773-74 " " "
" 854120 " 224 66775-76 " " "
" 854010 " 225 66777-78 " " "
" 853986 " 226 66779-80 " " "
" 854039 " 227 66781-82 " " "
" 854055 " 228 66783-84 " " "
" 854098 " 233 66793-94 RD 12626 " "
" 854097 " 235 66797-98 " " "
" 854082 " 236 66799-800 " " "
" 854073 " 229 66785-86 RD 12634 " "
" 854065 " 237 66801-02 RD 12641 " "
" 854100 " 234 66795-96 " " "
" 853831 " 240 66807-08 " " "
" 854080 " 232 66791-92 " " "
" 853995 " 231 66789-90 " " "
" 854113 " 238 66803-04 " " "
" 854051 " 230 66787-88 " " "
" 854094 " 241 66809-10 RD 12644 " "
" 853988 " 239 66805-06 RD 12655 " "
" 854020 " 242 66811-12
</TABLE>
<PAGE>
INVOICE WHITEHEAD & KALES COMPANY
No. 20047 58 HALTINER STREET RIVER ROUGE, MICHIGAN 48218
D.U.N.S 00-535-6258 PHONE:(313)849-1200
<TABLE>
<S> <C>
- -----------------------------------------------
YOUR ORDER NO. OUR ORDER NO. INVOICE DATE MAIL ALL REMITTANCES TO
AB-75140-74101 4-30-79 ABOVE ADDRESS
- ---------------------------------------------------------
GAP INITIAL & NO. SHIPPED VIA F.O.B. TERMS PLEASE PAY FROM
Various Rail Our Plant Net THIS INVOICE
- ---------------------------------------------------------
NO STATEMENT WILL BE ISSUED
UNLESS REQUESTED
United States Trust Company of New York, PAYABLE IN U.S. FUNDS
SOLD as Agent and
TO First Security Bank of Utah, N.A., as
Owner-Trustee
SHIPPED TO
DESTINATION See Attached Exhibit "A"
- -- SHIPPER'S NO Form 010279
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QTY. DESCRIPTION UNIT PRICE AMOUNT W & K USE ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
36 Enclosed Tri-level Superstructures Mounted on
89' -4" Flat Car
20 Units G.M. Service 36,757.71 735,154,20
15 Units G.M. Service 37,035.51 555,532.65
1 Unit Chrysler Service 36,475.71 36,475.71
-------------
$1,327,162.56
Car Numbers, Serial Numbers and Rack Numbers
See Attached Exhibit "A"
THIS INVOICE IS HEREBY APPROVED
BY: [SIGNATURE APPEARS HERE]
-----------------------------------------------
Denver & Rio Grande Western Railroad, Lessee
and
BY: [SIGNATURE APPEARS HERE]
-----------------------------------------------
First Security Bank of Utah, N.A.-Owner-Trustee
No Michigan Sales Tax or Use Tax is included in this
billing. We will issue additional billing for such tax
if it is determined at any future date that the items
herein are taxable.
WHITEHEAD & KALES COMPANY
- -----------------------------------------------------------------------------------------------------------------------------------
NOTICE* ACCOUNTS NOT PAID WHEN DUE BEAR THE INTEREST AT RATE OF 1% PER MONTH
FROM DATE OF MATURITY WHICH IS AN ANNUAL RATE OF 12%.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TERMS OF SALE
1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
NOTICE: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Car Number Rack No. Serial No. Shipper Destination
- ----------- -------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
ETTX 854014 DRGW 207 66741-42 RD 12614 Lakewood, Georgia
" 854059 " 208 66743-44 " " "
" 820880 " 209 66745-46 " " "
" 854087 " 210 66747-48 " " "
" 854056 " 211 66749-50 " " "
" 853991 " 212 66751-52 " " "
" 853785 " 213 66753-54 " " "
" 854005 " 214 66755-56 " " "
" 854071 " 215 66757-58 RD 12615 " "
" 854111 " 216 66759-60 " " "
" 854109 " 217 66761-62 " " "
" 854117 " 218 66763-64 " " "
" 854116 " 219 66765-66 " " "
" 853781 " 220 66767-68 " " "
" 853782 " 221 66769-70 " " "
" 853777 " 222 66771-72 RD 12616 Oklahoma City, Oklahoma
" 853776 " 223 66773-74 " " "
" 854120 " 224 66775-76 " " "
" 854010 " 225 66777-78 " " "
" 853986 " 226 66779-80 " " "
" 854039 " 227 66781-82 " " "
" 854055 " 228 66783-84 " " "
" 854098 " 233 66793-94 RD 12626 " "
" 854097 " 235 66797-98 " " "
" 854082 " 236 66799-800 " " "
" 854073 " 229 66785-86 RD 12634 " "
" 854065 " 237 66801-02 RD 12641 " "
" 854100 " 234 66795-96 " " "
" 853831 " 240 66807-08 " " "
" 854080 " 232 66791-92 " " "
" 853995 " 231 66789-90 " " "
" 854113 " 238 66803-04 " " "
" 854051 " 230 66787-88 " " "
" 854094 " 241 66809-10 RD 12644 " "
" 853988 " 239 66805-06 RD 12655 " "
" 854020 " 242 66811-12
</TABLE>
<PAGE>
BILL OF SALE
------------
WHITEHEAD & KALES COMPANY (hereinafter called the Builder), in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration paid by the United States Trust Company of New York (hereinafter
called the Assignee), assignee under an Agreement and Assignment dated as of the
1st day of January 1, 1979, by and between the Builder and the Assignee, by
which the Builder assigned to the Assignee certain rights of the Builder under a
Conditional Sale Agreement dated as of the 1st day of January, 1979, by and
between the Builder and First Security Bank of Utah, N.A., as trustee
(hereinafter called the Vendee), at or before the execution and delivery of
these presents, the receipt of which is hereby acknowledged, does hereby grant,
bargain, sell, transfer and set over unto the Assignee, its successors and
assigns, all of the Builder's right, title and interest (the same being a
security interest) in and to the following items of Equipment which have been
delivered by the Builder to the Vendee pursuant to said Conditional Sale
Agreement:
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION BUILDER'S SERIAL NUMBERS
- ----------------- ----------------------------------- ------------------------
<S> <C> <C>
FIFTEEN (15) FULLY ENCLOSED BI-LEVEL AUTO RACKS SEE INVOICE
</TABLE>
TO HAVE AND TO HOLD the aforesaid security interest as to all and singular
the railroad equipment above described to the Assignee, its successors and
assigns, for its and their own use and behoof forever.
And the Builder hereby warrants to the Assignee, its successors and
assigns, and to the Vendee, that at the time of delivery of each of the above
described items of Equipment to the Vendee under the above mentioned Conditional
Sale Agreement, the Builder had legal title thereto and good and lawful right to
sell such item, and the title to such item was free and clear of all claims,
liens, and encumbrances of any nature except only the rights created under the
said Conditional Sale Agreement; the aforesaid Agreement and Assignment; and the
rights of the Lessee, Denver & Rio Grande Western Railroad Company, under the
Lease of Railroad Equipment dated as of January 1, 1979, and the Builder
covenants that it will warrant and defend such title against the demands of all
persons whomsoever based on claims originating prior to the delivery of the
Equipment by the Builder under said Conditional Sale Agreement.
IN WITNESS WHEREOF the Builder has caused this instrument to be executed in
its name by a duly authorized officer and its corporate seal to be hereunto
affixed, duly attested, the 22nd day of June, 1979.
WHITEHEAD & KALES COMPANY ( S E A L)
By /s/ C. E. Wieser
--------------------------------------
C. E. Wieser, Vice President-Finance
ATTEST:
/s/ G. Konchal
- ------------------------------
G. Konchal, Treasurer
<PAGE>
INVOICE WHITEHEAD & KALES COMPANY
No. 20251 58 HALTINER STREET RIVER ROUGE, MICHIGAN 48218
D.U.N.S 00-535-5258 PHONE:(313)849-1200
<TABLE>
<S> <C>
R 20578
- -----------------------------------------------
YOUR ORDER NO. OUR ORDER NO. INVOICE DATE MAIL ALL REMITTANCES TO
2488-W-SAS AB 75143-74103 6-19-79 ABOVE ADDRESS
- ---------------------------------------------------------
CAP INITIAL & NO. SHIPPED VIA F.O.B. TERMS PLEASE PAY FROM
N&W Our Plant Net THIS INVOICE
- ---------------------------------------------------------
NO STATEMENT WILL BE ISSUED
UNLESS REQUESTED
United States Trust Company of New York, PAYABLE IN U.S. FUNDS
SOLD as Agent and
TO First Security Bank of Utah, N.A., as
Owner-Trustee
SHIPPED TO Agent of Consolidated Rail Corporation
DESTINATION Lorain, Ohio
- -- SHIPPER'S NO Form 010279
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QTY. DESCRIPTION UNIT PRICE AMOUNT W & K USE ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15 Fully Enclosed Bi-Level Auto-Racks 30534.22 $458,013.30
Car Number Rack No. Serial No. Shipper
----------- -------- ---------- --------
TTGX 912070 DRGW 192 67299-300 RD 12925
" 911933 " 194 67303-04 RD 12951
" 911516 " 195 67305-06 "
" 912065 " 193 67301-02 "
" 911520 " 196 67307-08 RD 12961
" 911536 " 200 67315-16 "
" 911861 " 206 67327-28 RD 12968
" 911197 " 203 67313-14 RD 12978
" 913478 " 205 67325-26 "
" 911524 " 199 67321-22 "
" 912760 " 204 67323-24 RD 12993
" 912102 " 202 67319-20 RD 13002
" 912658 " 198 67311-12 "
" 912078 " 197 67309-10 "
" 912556 " 201 67317-18 RD 13017
THIS INVOICE IS HEREBY APPROVED
By: [SIGNATURE APPEARS HERE]
--------------------------------------------
Denver & Rio Grande Western Railroad, Lessee
and
By: [SIGNATURE APPEARS HERE]
------------------------------------------------ No Michigan Sales Tax or Use Tax is included in this
First Security Bank of Utah, N.A., Owner-Trustee billing. We will issue additional billing for such tax
if it is determined at any future date that the items
herein are taxable.
WHITEHEAD & KALES COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
NOTICE* ACCOUNTS NOT PAID WHEN DUE BEAR THE INTEREST AT RATE OF 1% PER MONTH
FROM DATE OF MATURITY WHICH IS AN ANNUAL RATE OF 12%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TERMS OF SALE
1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
NOTICE: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
BILL OF SALE
------------
WHITEHEAD & KALES COMPANY (hereinafter called the Builder), in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration paid by the United States Trust Company of New York (hereinafter
called the Assignee), assignee under an Agreement and Assignment dated as of the
1st day of January 1, 1979, by and between the Builder and the Assignee, by
which the Builder assigned to the Assignee certain rights of the Builder under a
Conditional Sale Agreement dated as of the 1st day of January, 1979, by and
between the Builder and First Security Bank of Utah, N.A., as trustee
(hereinafter called the Vendee), at or before the execution and delivery of
these presents, the receipt of which is hereby acknowledged, does hereby grant,
bargain, sell, transfer and set over unto the Assignee, its successors and
assigns, all of the Builder's right, title and interest (the same being a
security interest) in and to the following items of Equipment which have been
delivered by the Builder to the Vendee pursuant to said Conditional Sale
Agreement:
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION BUILDER'S SERIAL NUMBERS
- ----------------- ----------------------------------- ------------------------
<S> <C> <C>
FOURTEEN (14) FULLY ENCLOSED COVERLESS TRI-LEVEL
AUTO RACKS (RAILPACS) SEE ATTACHED EXHIBIT "A"
TWENTY-ONE (21) FULLY ENCLOSED BI-LEVEL AUTO RACKS
</TABLE>
TO HAVE AND TO HOLD the aforesaid security interest as to all and singular
the railroad equipment above described to the Assignee, its successors and
assigns, for its and their own use and behoof forever.
And the Builder hereby warrants to the Assignee, its successors and
assigns, and to the Vendee, that at the time of delivery of each of the above
described items of Equipment to the Vendee under the above mentioned Conditional
Sale Agreement, the Builder had legal title thereto and good and lawful right to
sell such item, and the title to such item was free and clear of all claims,
liens, and encumbrances of any nature except only the rights created under the
said Conditional Sale Agreement; the aforesaid Agreement and Assignment; and the
rights of the Lessee, Denver & Rio Grande Western Railroad Company, under the
Lease of Railroad Equipment dated as of January 1, 1979, and the Builder
covenants that it will warrant and defend such title against the demands of all
persons whomsoever based on claims originating prior to the delivery of the
Equipment by the Builder under said Conditional Sale Agreement.
IN WITNESS WHEREOF the Builder has caused this instrument to be executed in
its name by a duly authorized officer and its corporate seal to be hereunto
affixed, duly attested, the 22nd day of June, 1979.
WHITEHEAD & KALES COMPANY ( S E A L)
By /s/ C. E. Wieser,
--------------------------------------
C. E. Wieser, Vice President-Finance
ATTEST :
/s/ G. Konchal
- ------------------------------
G. Konchal, Treasurer
<PAGE>
THIS EXHIBIT "A" IS PART OF BILL OF SALE COVERING PURCHASE BY DENVER RIO GRANDE
WESTERN RAILROAD (LESSEE) OF FOURTEEN (14) FULLY ENCLOSED COVERLESS TRI-LEVEL
AUTO RACKS AND TWENTY-ONE (21) FULLY ENCLOSED BI-LEVEL AUTO RACKS.
EXHIBIT "A"
<TABLE>
<CAPTION>
Car Number Rack No. Serial No. Shipper Destination
- ----------- -------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
CTTX 853863 DRGW 243 67707-08 RD 12927 Lansing, Michigan
" 853912 " 247 67709-10 " " "
" 853832 " 246 67711-12 " " "
" 853833 " 252 67715-16 RD 12936 " "
" 853914 " 245 67727-28 " " "
" 853870 " 249 67731-32 " " "
" 853784 " 248 67729-30 " " "
" 853916 " 251 67713-14 " " "
" 853915 " 253 67717-18 " " "
" 853835 " 250 67733-34 RD 12949 " "
" 853918 " 244 67725-26 " " "
" 853741 " 255 67721-22 " " "
" 853840 " 256 67723-24 " " "
" 854072 " 254 67719-20 RD 12959 " "
TTGX 911544 DRGW 182 67257-58 RD 12845 Detroit, Michigan
" 912753 " 188 67269-70 RD 12846 Valley Park, Missouri
" 911513 " 187 67267-68 " " "
" 910482 " 184 67261-62 RD 12855 Detroit, Michigan
" 911538 " 185 67263-64 " " "
" 911529 " 171 67277-78 RD 12870 Pontiac, Michigan
" 912426 " 191 67275-76 RD 12871 Valley Park, Missouri
" 912788 " 172 67279-80 RD 12877 Pontiac, Michigan
" 911511 " 173 67281-82 " " "
" 911800 " 190 67273-74 RD 12878 Valley Park, Missouri
" 911534 " 183 67259-60 RD 12879 Detroit, Michigan
" 912071 " 186 67265-66 RD 12895 " "
" 910979 " 174 67283-84 RD 12897 Pontiac, Michigan
" 912240 " 180 67295-96 " " "
" 911860 " 181 67297-98 " " "
" 911662 " 176 67287-88 RD 12905 " "
" 912690 " 177 67289-90 " " "
" 911486 " 175 67285-86 RD 12910 " "
" 912072 " 189 67271-72 RD 12921 Valley Park, Missouri
" 912234 " 179 67293-94 RD 12923 Pontiac, Michigan
" 912765 " 178 67291-92 RD 12938 " "
</TABLE>
<PAGE>
INVOICE WHITEHEAD & KALES COMPANY
No. 20248 58 HALTINER STREET RIVER ROUGE, MICHIGAN 48218
D.U.N.S 00-535-6258 PHONE:(313)849-1200
<TABLE>
<S> <C>
- -----------------------------------------------
YOUR ORDER NO. OUR ORDER NO. INVOICE DATE MAIL ALL REMITTANCES TO
2488-W-SAS AB-75141-75142 6-15-79 ABOVE ADDRESS
- ---------------------------------------------------------
GAP INITIAL & NO. SHIPPED VIA F.O.B. TERMS PLEASE PAY FROM
Various Rail Our Plant Net THIS INVOICE
- ---------------------------------------------------------
NO STATEMENT WILL BE ISSUED
UNLESS REQUESTED
United States Trust Company of New York PAYABLE IN U.S. FUNDS
SOLD as Agent and
TO First Security Bank of Utah, N.A., as
Owner-Trustee
SHIPPED TO
DESTINATION See Attached Exhibit "A"
- -- SHIPPER'S NO " " " "
</TABLE>
<TABLE>
<CAPTION>
Form 010279
- -----------------------------------------------------------------------------------------------------------------------------------
QTY. DESCRIPTION UNIT PRICE AMOUNT W & K USE ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14 Fully enclosed coverless tri-level auto racks
(Railpacs) 35998.00 $ 503,972.00
10 Fully enclosed bi-level auto racks 30077.53 300,775.30
11 Fully enclosed bi-level auto racks 30116.53 331,281.83
-------------
Total Invoice $1,136,029.13
Car numbers, serial numbers and rack numbers
on attached Exhibit "A"
THIS INVOICE IS HEREBY APPROVED
By: [SIGNATURE APPEARS HERE]
-------------------------------------------------
Denver & Rio Grande Western Railroad, Lessee and
By: [SIGNATURE APPEARS HERE]
-------------------------------------------------
First Security Bank of Utah, N.A., Owner-Trustee
No Michigan Sales Tax or Use Tax is included in this
billing. We will issue additional billing for such tax
if it is determined at any future date that the items
herein are taxable.
WHITEHEAD & KALES COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
NOTICE* ACCOUNTS NOT PAID WHEN DUE BEAR THE INTEREST AT RATE OF
1% PER MONTH FROM DATE OF MATURITY WHICH IS AN ANNUAL RATE OF 12%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
NOTICE XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Car Number Rack No. Serial No. Shipper Destination
- ----------- -------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
CTTX 853863 DRGW 243 67707-08 RD 12927 Lansing, Michigan
" 853912 " 247 67709-10 " " "
" 853832 " 246 67711-12 " " "
" 853833 " 252 67715-16 RD 12936 " "
" 853914 " 245 67727-28 " " "
" 853870 " 249 67731-32 " " "
" 853784 " 248 67729-30 " " "
" 853916 " 251 67713-14 " " "
" 853915 " 253 67717-18 " " "
" 853835 " 250 67733-34 RD 12949 " "
" 853918 " 244 67725-26 " " "
" 853741 " 255 67721-22 " " "
" 853840 " 256 67723-24 " " "
" 854072 " 254 67719-20 RD 12959 " "
TTGX 911544 DRGW 182 67257-58 RD 12845 Detroit, Michigan
" 912753 " 188 67269-70 RD 12846 Valley Park, Missouri
" 911513 " 187 67267-68 " " "
" 910482 " 184 67261-62 RD 12855 Detroit, Michigan
" 911538 " 185 67263-64 " " "
" 911529 " 171 67277-78 RD 12870 Pontiac, Michigan
" 912426 " 191 67275-76 RD 12871 Valley Park, Missouri
" 912788 " 172 67279-80 RD 12877 Pontiac, Michigan
" 911511 " 173 67281-82 " " "
" 911800 " 190 67273-74 RD 12878 Valley Park, Missouri
" 911534 " 183 67259-60 RD 12879 Detroit, Michigan
" 912071 " 186 67265-66 RD 12895 " "
" 910979 " 174 67283-84 RD 12897 Pontiac, Michigan
" 912240 " 180 67295-96 " " "
" 911860 " 181 67297-98 " " "
" 911662 " 176 67287-88 RD 12905 " "
" 912690 " 177 67289-90 " " "
" 911486 " 175 67285-86 RD 12910 " "
" 912072 " 189 67271-72 RD 12921 Valley Park, Missouri
" 912234 " 179 67293-94 RD 12923 Pontiac, Michigan
" 912765 " 178 67291-92 RD 12938 " "
</TABLE>
<PAGE>
--------------------------------------------------
--------------------------------------------------
LEASE AGREEMENT (G-BEAL)
dated as of April 30, 1994
between
United States Trust Company of New York
as Trustee of "AFG/British Airways Trust"
Lessor
and
Internationale Nederlanden Aviation Lease B.V.
Lessee
One Used Lockheed
L-1011-385-50
Aircraft
Manufacturers Serial No. 1145
U.K. Registration Mark G-BEAL
and
Three Rolls-Royce RB211-22B Engines
and Related Parts and Records
<PAGE>
TABLE OF CONTENTS
-----------------
1. DEFINITIONS....................................................... 1
1.1 ACMI Lease.................................................. 1
1.2 Acceptance Certificate (Interim)............................ 1
1.3 Acceptance Certificate (Final).............................. 1
1.4 Acceptance Certificate (Return)............................. 1
1.5 Aircraft.................................................... 2
1.6 Airframe.................................................... 2
1.7 Airworthiness Directive..................................... 2
1.8 Applicable Laws............................................. 2
1.9 APU......................................................... 2
1.10 BA.......................................................... 2
1.11 Basic Rent.................................................. 2
1.12 Basic Term.................................................. 2
1.13 Beneficiary................................................. 2
1.14 Business Day(s)............................................. 2
1.15 CAA......................................................... 2
1.16 Certificated Air Carrier.................................... 3
1.17 Cycle....................................................... 3
1.18 Day......................................................... 3
1.19 Delivery Date............................................... 3
1.20 Dollars or $................................................ 3
1.21 Engine...................................................... 3
1.22 Escrow Account.............................................. 3
1.23 Event of Default............................................ 3
1.24 Excepted Payments........................................... 3
1.25 FAA......................................................... 3
1.26 Federal Aviation Act........................................ 3
1.27 Final Month Hours........................................... 3
1.28 Guarantor................................................... 3
1.29 Guaranty.................................................... 4
1.30 Hour(s)..................................................... 4
1.31 Lease....................................................... 4
1.32 Lease Commencement Date..................................... 4
1.33 Lease Documents............................................. 4
1.34 Lessee...................................................... 4
1.35 Lessor...................................................... 4
1.36 Lessor's Lien............................................... 4
1.37 Lien........................................................ 4
1.38 Maintenance Program......................................... 4
1.39 Maintenance Reserve......................................... 4
-ii-
<PAGE>
1.40 Manuals and Technical Records............................... 4
1.41 Modification Payment........................................ 4
1.42 Officer's Certificate....................................... 5
1.43 Operative Documents......................................... 5
1.44 Optional Modifications...................................... 5
1.45 Overdue Rate................................................ 5
1.46 Parts....................................................... 5
1.47 Permitted Liens............................................. 5
1.48 Permitted Sublease.......................................... 5
1.49 Permitted Sublessee......................................... 5
1.50 Person...................................................... 5
1.51 Rent........................................................ 5
1.52 Rent Payment Date........................................... 5
1.53 Replacement Engine.......................................... 6
1.54 Return Location............................................. 6
1.55 Rolls-Royce................................................. 6
1.56 Sublessee................................................... 6
1.57 Stipulated Loss Value....................................... 6
1.58 Supplemental Rent........................................... 6
1.59 Tax......................................................... 6
1.60 Term........................................................ 6
1.61 Total Loss.................................................. 6
1.62 U.K......................................................... 7
2. AGREEMENT TO LEASE; TERM.......................................... 7
2.1 Leasing of Aircraft......................................... 7
2.2 Acceptance.................................................. 7
2.3 Delivery of Aircraft........................................ 7
2.4 Term........................................................ 7
2.5 Guaranty.................................................... 7
3. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS................ 7
3.1 Organization; Good Standing; Certification.................. 7
3.2 Authority; Consent.......................................... 8
3.3 Legal, Valid and Binding.................................... 8
3.4 Compliance with Other Instruments........................... 8
3.5 Governmental Consents....................................... 8
3.6 No Adverse Agreements....................................... 8
3.7 No Defaults or Violations................................... 8
3.8 Litigation.................................................. 8
3.9 No Total Loss or Event of Default........................... 9
3.10 Financial Statements........................................ 9
-iii-
<PAGE>
3.11 Financial and Other Information to be Supplied.............. 9
4. LESSOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS............... 9
5. CONDITIONS PRECEDENT.............................................. 9
5.1 Conditions Precedent to Obligation of Lessor to
Lease Aircraft.............................................. 9
5.2 Conditions Precedent to Obligation of Lessee to
Lease Aircraft.............................................. 11
6. PAYMENTS.......................................................... 12
6.1 Basic Rent.................................................. 12
6.2 Net Lease; No Set-off or Deductions......................... 12
6.3 Immediately Available Funds................................. 13
6.4 Supplemental Rent........................................... 13
7. DISCLAIMER OF WARRANTIES AND MANUFACTURERS' WARRANTIES............ 14
7.1 Disclaimer.................................................. 14
7.2 Other Warranties............................................ 14
8. USE, OPERATION AND MAINTENANCE.................................... 15
8.1 General..................................................... 15
8.2 Operation and Use........................................... 15
8.3 Maintenance in General...................................... 16
8.4 Specific Items of Maintenance............................... 17
8.5 Parts....................................................... 17
8.6 Airworthiness Directives.................................... 18
8.7 Modification Payments by the Government..................... 19
8.8 Corrosion Control........................................... 19
8.9 Modifications............................................... 19
8.10 Possession.................................................. 20
8.11 Reports..................................................... 20
8.12 Right to Inspect............................................ 21
8.13 Aircraft Records............................................ 21
8.14 Maintenance Reserves........................................ 21
9. RETURN OF AIRCRAFT................................................ 22
9.1 Return Location, Notices, Costs, Taxes and Fees............. 22
9.2 Return of Other Engines..................................... 22
-iv-
<PAGE>
9.3 Condition of Aircraft....................................... 23
9.4 Condition of Airframe....................................... 24
9.5 APU......................................................... 24
9.6 Borescope Inspection........................................ 24
9.7 Inspection.................................................. 25
9.8 Operational Ground Check.................................... 25
9.9 Operational Check Flight.................................... 25
9.10 Acceptance.................................................. 25
9.11 Deferred Return Condition Discrepancy Correction............ 26
9.12 Costs....................................................... 26
9.13 Manuals and Technical Records............................... 26
9.14 Lessee's Special Exterior Markings.......................... 26
9.15 Ownership................................................... 26
9.16 Early Termination........................................... 27
10. TITLE; REGISTRATION; LIENS........................................ 27
10.1 Title....................................................... 27
10.2 Registration................................................ 27
10.3 Liens....................................................... 27
10.4 Notice of Ownership......................................... 27
11. INSURANCE......................................................... 28
11.1 All-Risk Insurance.......................................... 28
11.2 War Risk Insurance.......................................... 28
11.3 Liability Insurance......................................... 29
11.4 Additional Requirements; Loss Payment....................... 29
11.5 No Set-Off.................................................. 30
11.6 Notice of Material Alteration or Cancellation............... 30
11.7 Application of Hull Insurance Proceeds...................... 30
11.8 Insurance for Own Account................................... 30
11.9 Reports..................................................... 31
11.10 Continuing Insurance........................................ 31
12. LOSS, DAMAGE OR REQUISITION....................................... 31
12.1 Total Loss of Airframe...................................... 31
12.2 Engine Loss................................................. 32
12.3 Repairable Damage; Use of Insurance Proceeds................ 32
12.4 Payments from Governmental Authorities for
Requisition of Title or Use; Requisition.................... 33
12.5 Application of Payments During Existence of
Event of Default............................................ 33
-v-
<PAGE>
13. EVENTS OF DEFAULT................................................. 33
13.1 Failure to Make Payments.................................... 33
13.2 Failure to Obtain or Maintain Insurance..................... 33
13.3 Failure to Perform Other Obligations........................ 33
13.4 Representations and Warranties Untrue....................... 34
13.5 Guaranty.................................................... 34
13.6 Insolvency or Bankruptcy..................................... 34
14. REMEDIES.......................................................... 35
15. INDEMNITIES....................................................... 36
15.1 General Indemnification and Waiver of Certain Claims........ 36
15.2 Taxes and Other Charges..................................... 38
15.3 Continuing Indemnification.................................. 38
16. TRANSFER, ASSIGNMENT AND SUBLEASE................................. 38
16.1 Assignment or Encumbrance by Lessor......................... 38
16.2 Sublease of Aircraft or Assignment by Lessee................ 39
16.3 Consolidation, Merger or Transfer by Lessee................. 39
16.4 Nonrecourse As to Trustee................................... 39
17. NOTICES........................................................... 39
18. LESSOR'S RIGHT TO PERFORM FOR LESSEE.............................. 40
19. MISCELLANEOUS..................................................... 40
19.1 Waivers, Headings........................................... 40
19.2 Counterparts................................................ 41
19.3 Agreement to Lease.......................................... 41
19.4 Governing Law............................................... 41
19.5 Benefit and Binding Effect.................................. 41
19.6 Further Assurances.......................................... 41
Exhibit A Description of Aircraft..................................... A-1
Exhibit B Acceptance Certificate (Interim)............................ B-1
Exhibit C Acceptance Certificate (Final).............................. C-1
Exhibit D Acceptance Certificate (Return)............................. D-1
Exhibit E Guaranty by Internationale Nederlanden Lease Holding N.V.... E-1
Exhibit F Acceptance Flight Report.................................... F-1
-vi-
<PAGE>
LEASE AGREEMENT (G-BEAL)
------------------------
This LEASE AGREEMENT (G-BEAL), dated as of April 30, 1994, ("Lease"), is by
and between United States Trust Company of New York, a New York corporation,
having its principal place of business at 114 West 47th Street, New York, NY
10036, solely as successor trustee under the Amended and Restated Trust
Agreement "AFG/British Airways Trust" dated as of June 29, 1987 and not in its
individual capacity ("Lessor") and Internationale Nederlanden Aviation Lease
B.V., a Netherlands corporation, having its principal place of business at
Karspeldreef 14, 1101 CK Amsterdam-Zuidoost, The Netherlands ("Lessee");
WITNESSETH
----------
WHEREAS, Lessor desires to lease the Aircraft to Lessee and Lessee desires
to lease the Aircraft from Lessor in each case pursuant to the terms and
conditions of this Lease;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
SECTION 1. DEFINITIONS
The following terms shall have the following respective meanings for all
purposes of this Agreement:
1.1 "ACMI Lease" means any arrangement whereby Lessee (or Sublessee)
agrees to furnish the Aircraft to a third party pursuant to which (i)
Sublessee's crew at all times shall maintain full operational control of the
Aircraft, (ii) the Aircraft shall be operated solely by regular employees of
Sublessee possessing all current appropriate CAA or Swedish Civil Aviation
Authority certificates and licenses (it being understood that cabin attendants
need not be regular employees of Sublessee), (iii) the insurance required under
Section 11 shall remain in full force and effect, (iv) the Aircraft shall be
maintained in accordance with Sublessee's normal maintenance practices and as
required by the terms of this Lease and (v) the term of any such ACMI Lease
does not extend beyond the Term.
1.2 "Acceptance Certificate (Interim)" means a certificate in
substantially the form of Exhibit B to be executed by Lessor and Lessee on the
date Lessee takes possession of the Aircraft in Roswell, New Mexico.
1.3 "Acceptance Certificate (Final)" means a certificate in
substantially the form of Exhibit C hereto, to be executed by Lessor and Lessee
on the Delivery Date as required under Section 2.2.
1.4 "Acceptance Certificate (Return)" means a certificate in
substantially the form of Exhibit D hereto, to be executed by Lessor and Lessee
on the return of the Aircraft to Lessor as required by Section 9.1 hereof.
-1-
<PAGE>
1.5 "Aircraft" means (A) that certain Lockheed L-1011-385-50 Airframe
identified and described in Exhibit A hereto (including all Parts comprising
such Airframe) together with the three Rolls-Royce RB211-22B Engines delivered
in connection therewith as identified and described in Exhibit A hereto (or any
engine substituted for any of said Engines pursuant to Section 9.2 or Section
12.2 of this Lease), whether or not any of such initial Engines or substitute
engines may from time to time be installed on such Airframe or may be installed
on any other airframe or on any other aircraft; and (B) where the context
permits, the Manuals and Technical Records.
1.6 "Airframe" means the Aircraft except the Engines or engines from
time to time installed thereon and the Manuals and Technical Records.
1.7 "Airworthiness Directive(s)" has the meaning given in Section 8.6
hereof.
1.8 "Applicable Law" means all applicable laws and treaties of any
government and applicable, legally adopted rules, regulations, and orders of any
governmental body, instrumentality, agency or authority.
1.9 "APU" means auxiliary power unit.
1.10 "BA" means British Airways PLC, its successors and assigns.
1.11 "Basic Rent" means the rent payable on Rent Payment Dates
throughout the Basic Term for the Aircraft pursuant to 6.1 of the Lease.
1.12 "Basic Term" means the period during which Lessee shall lease the
Aircraft in accordance with this Lease, which shall be a period commencing on
the Delivery Date and ending on the sixth month anniversary of the Delivery
Date.
1.13 "Beneficiary" (collectively "Beneficiaries") means each of
American Income Partners III A Limited Partnership, American Income Partners III
B Limited Partnership, American Income Partners III C Limited Partnership,
American Income Partners III D Limited Partnership, American Income 7 Limited
Partnership and American Income 8 Limited Partnership, the owners of 100% of the
beneficial interest under that certain Amended and Restated Trust Agreement
"AFG/British Airways Trust" dated as of June 29, 1987 pursuant to which Lessor,
as trustee and not in its individual capacity is the owner of the Aircraft and
is Lessor hereunder.
1.14 "Business Day(s)" means any day other than a Saturday, a Sunday
or a day on which commercial banking institutions are authorized by law to be
closed in any city where the principal business office of Lessor is located or
The Netherlands.
1.15 "CAA" means the Civil Aviation Authority of Sweden, or a
successor agency.
-2-
<PAGE>
1.16 "Certificated Air Carrier" means a Person qualified under the Air
Navigation Order 1989 under the laws of the United Kingdom or the laws of the
Kingdom of Sweden or any successor thereto to be designated by Lessor as the
Person in whose name the Aircraft is to be registered and otherwise qualified
under Applicable Law to operate the Aircraft.
1.17 "Cycle" means one take-off and landing of the Aircraft.
1.18 "Day" means one calendar day when used to measure intervals in
the Maintenance Program relating to hard time calendar controlled parts.
1.19 "Delivery Date" means the date on which Lessee executes and
delivers to Lessor an Acceptance Certificate (Final) for the Aircraft, in
accordance with Section 2.2.
1.20 "Dollars or $" means United States Dollars.
1.21 "Engine" means: any or all of the Rolls-Royce RB211-22B engines
identified and described in Exhibit A, whether or not from time to time
installed on such Airframe or installed on any other airframe; and any engine
that may from time to time be substituted, pursuant to Section 9.2 or Section
12.2 of this Lease, for such Engine and constituting a Replacement Engine.
1.22 "Escrow Account" means any account established by Lessor at
National Westminster Bank USA pursuant to the provisions of Section 8.14 hereof.
1.23 "Event of Default" has the meaning given in Section 13 hereof.
1.24 "Excepted Payments" means all public liability insurance and any
proceeds thereof paid or payable as a result of claims paid or losses suffered
by Lessor and any indemnity or other amount payable in favor of Lessor in its
individual capacity or in favor of Beneficiary, including, without limitation,
any payments pursuant to Section 15 hereof.
1.25 "FAA" means the United States Federal Aviation Administration of
the United States Department of Transportation, and any agency or
instrumentality of the United States government succeeding to its functions.
1.26 "Federal Aviation Act" means the Federal Aviation Act of 1958, as
amended, or any subsequent legislation that amends, supplements or supersedes
the Federal Aviation Act.
1.27 "Final Month Hours" shall have the meaning set forth in Section
8.14.
1.28 "Guarantor" means International Nederlanden Lease Holding N.V., a
Netherlands corporation.
-3-
<PAGE>
1.29 "Guaranty" means the Guaranty in substantially the form of
Exhibit E hereto, pursuant to which Guarantor is guaranteeing the obligations of
Lessee hereunder.
1.30 "Hour(s)" means Aircraft flight time, expressed in hours, or part
thereof, between take-off and landing.
1.31 "Lease" means this Lease Agreement as the same may be modified,
amended or supplemented from time to time pursuant to the terms hereof.
1.32 "Lease Commencement Date" means the date designated for the
commencement of the Lease as set forth on the Acceptance Certificate (Final).
1.33 "Lease Documents" means the Lease with attachments and schedules
and those documents in the form of Exhibits A through E hereto.
1.34 "Lessee" means Internationale Nederlanden Aviation Lease B.V., a
Netherlands corporation, its successors and permitted assigns.
1.35 "Lessor" means United States Trust Company of New York, a New
York corporation, not in its individual capacity but solely as trustee of the
"AFG/British Airways Trust" its successors and assigns.
1.36 "Lessor's Lien" means any Lien arising as a result of (i) claims
against Lessor or any Beneficiary not related to the transactions contemplated
by this Lease, (ii) any act or omission of Lessor or any Beneficiary which is
not related to the transactions contemplated by this Lease or is in violation of
any of the terms of this Lease, or (iii) arising out of claims against Lessor or
any Beneficiary with respect to Taxes against which Lessee is not required to
indemnify Lessor or any Beneficiary.
1.37 "Lien" means any mortgage, pledge, lien, charge, encumbrance,
lease or security interest relating to the Aircraft, the Lease or any Part, as
the context may require.
1.38 "Maintenance Program" has the meaning given in Section 8.3
hereof.
1.39 "Maintenance Reserve" has the meaning given in Section 8.14
hereof.
1.40 "Manuals and Technical Records" means all such manuals, technical
data, log books and other records pertaining to the Aircraft (including, without
limitation, the technical manuals and aircraft records listed in the Acceptance
Certificate (Final)) to be maintained by Lessee as shall be required to comply
with the requirements of the CAA or otherwise by Applicable Law.
1.41 "Modification Payment" has the meaning given in Sections 8.7
hereof.
-4-
<PAGE>
1.42 "Officer's Certificate" means as to any company a certificate
signed by any officer duly authorized to execute such certificate.
1.43 "Operative Documents" means the Lease Documents, each document
provided by or entered into by Lessee, Guarantor and Lessor in conjunction with
this Lease.
1.44 "Optional Modifications" has the meaning given in Section 8.9
hereof.
1.45 "Overdue Rate" means the rate of interest per annum, announced
from time to time by the Bank of Boston in Boston, Massachusetts as its "base"
rate of interest which serves as the basis on which effective rates of interest
for loans are calculated, plus 3.0 percentage points; each change in such base
rate shall cause an equal and corresponding change in the Overdue Rate.
1.46 "Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (other than
Engines or engines), which may from time to time be incorporated or installed in
or attached to the Airframe or any Engine or so long as title thereto shall
remain vested in Lessor in accordance with Section 8.5 hereof after removal
therefrom.
1.47 "Permitted Liens" means (a) the respective rights of Lessor and
Lessee as provided herein, including, without limitation, any encumbrance which
Lessor has caused to be placed on the Aircraft as permitted pursuant to Section
16.1 hereof; (b) the rights of others under agreements or arrangements to the
extent expressly permitted in Section 8.10 hereof; (c) Liens for Taxes either
not yet due or being contested in good faith (and for the payments of which
adequate reserves have been provided by Lessee or Sublessee) by appropriate
proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture or loss of the Airframe or any Engine; (d) material
suppliers', mechanics', workers', repairers', employees' or other like liens
arising in the ordinary course of business and for amounts the payment of which
is not yet deliquent and so long as such proceedings do not involve a material
danger of the sale, forfeiture or loss of the Airframe or any Engine; and (e)
Lessor's Liens.
1.48 "Permitted Sublease" means a sublease meeting the requirements of
Section 16.2 hereof.
1.49 "Permitted Sublessee" means any sublessee under a Permitted
Sublease.
1.50 "Person" means an individual, partnership, corporation, business
trust, joint venture, governmental authority or other entity of whatever nature.
1.51 "Rent" means Basic Rent and Supplemental Rent.
1.52 "Rent Payment Date" has the meaning given in Section 6.1 hereof.
-5-
<PAGE>
1.53 "Replacement Engine" means an engine of the same or an improved
model as an Engine being replaced pursuant to Sections 9.2 or 12.2 hereof, which
is suitable for installation and use on the Airframe without impairing the value
or utility of the Airframe and having a time status, modification status, value,
manufacturer's warranty status, condition and utility at least equal to the
Engine it is replacing (assuming such Engine was in the modification status,
condition, and repair required by the terms hereof immediately prior to being
replaced). Any such Replacement Engine shall be an Engine hereunder.
1.54 "Return Location" has the meaning given in Section 9.1(a) hereof.
1.55 "Rolls-Royce" means Rolls-Royce Commercial Aero Engines Limited.
1.56 "Sublessee" means Air Operations of Europe.
1.57 "Stipulated Loss Value" for the Aircraft means eight million
dollars ($8,000,000).
1.58 "Supplemental Rent" means all monetary amounts, liabilities and
obligations (other than Basic Rent) which Lessee assumes or agrees to pay under
any Lease Document to Lessor including, without limitation, Maintenance Reserves
and Stipulated Loss Value.
1.59 "Tax" means all license and registration fees and all taxes,
levies, imposts, duties, charges, assessments or withholdings of any nature
whatsoever together with any penalties, additions to tax, fines or interest
thereon.
1.60 "Term" means the Basic Term pursuant to Sections 2.4 and any
extension thereof pursuant to the terms hereof or otherwise as Lessor and Lessee
may hereinafter agree.
1.61 "Total Loss" with respect to the Aircraft, Airframe, any Engine
or the Manuals and Technical Records means any of the following events with
respect to such property: (i) loss of such property or the use thereof due to
theft of disappearance for more than 90 days; (ii) loss of such property or the
use thereof due to destruction, damage beyond repair or rendition of such
property permanently unfit for normal use; (iii) any event which should or does
result in the receipt of insurance proceeds with respect to such property on the
basis of a total loss, arranged total loss or constructive total loss; (iv)(A)
the condemnation, taking, confiscation or seizure of title to the Aircraft or
Airframe (B) the condemnation, taking, confiscation or seizure of the use of the
Aircraft or Airframe for a period equal to the shorter of 180 days or the date
the Aircraft is required to be returned to Lessor pursuant to Section 9 hereof
by any Person; or (v) with respect to any Engine, the taking of title or
requisition for use by any government and any divestiture of title deemed a
Total Loss pursuant to Section 12.2 of this Lease. A Total Loss with respect to
the Aircraft shall be deemed to occur if a Total Loss occurs with respect to the
Airframe.
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<PAGE>
1.62 "U.K." means the United Kingdom of Great Britain and Northern
Ireland.
SECTION 2. AGREEMENT TO LEASE: TERM.
------------------------
2.1 Leasing of Aircraft. Subject to the terms and conditions of the
-------------------
Lease Documents, and in reliance upon the agreements, representations and
warranties therein contained and made pursuant hereto, Lessee agrees to
provisionally accept the Aircraft for lease hereunder pursuant to the provisions
of the Acceptance Certificate (Interim) and Lessor, agrees to lease the Aircraft
to Lessee pursuant to the terms thereof.
2.2 Acceptance. Subject to the terms and conditions of the Lease
----------
Documents, and in reliance upon the agreements, representations and warranties
therein contained and made pursuant thereto, Lessee hereby agrees to lease the
Aircraft from Lessor hereunder on the Delivery Date, such leasing to be
evidenced by Lessee executing and delivering the Acceptance Certificate (Final),
and (to the extent that it has not already done so) to execute and deliver all
other Operative Documents and certificates and take all other actions as are
required to be executed and delivered or taken by Lessee on or before the
Delivery Date pursuant to the terms of the Operative Documents.
2.3 Delivery of Aircraft. The Aircraft shall be delivered to Lessee
--------------------
by Lessor for purposes of this Lease at Roswell, New Mexico, USA pursuant to the
provisions of the Acceptance Certificate (Interim) and Gatwick Airport, London,
U.K. on the Delivery Date.
2.4 Term. Except as otherwise provided herein, the Aircraft shall
----
be leased for a term which comprises the Basic Term and any extension thereof
pursuant to the terms hereof except that the Term shall end upon any earlier
termination of this Lease in accordance with its terms.
2.5 Guaranty. Simultaneously with the execution and delivery of the
--------
Acceptance Certificate (Interim) by Lessee and Lessor hereunder, Guarantor shall
execute and deliver the Guaranty in favor of Lessor.
SECTION 3. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
--------------------------------------------------
Lessee represents, warrants and agrees as follows:
3.1 Organization: Good Standing: Certification. Lessee is a
------------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of The Netherlands and has the corporate power and authority to own or hold
under lease its properties and to enter into and perform its obligations
hereunder. Lessee is duly qualified and authorized to do business wherever the
nature of its activities or properties requires such authorization. Sublessee is
as of the date hereof and at all times during the Term shall remain a
Certificated Air Carrier.
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<PAGE>
3.2 Authority: Consent. Lessee has the full power, authority and
------------------
legal right to execute, deliver and perform the terms of each of the Operative
Documents to which it is a party. The execution, delivery and performance of
each of the Operative Documents to which it is a party have been duly authorized
by all necessary corporate action of Lessee and do not require any stockholder
approval or approval or consent of, or notice to, any trustee or holders of any
indebtedness or obligations of Lessee.
3.3 Legal, Valid and Binding. Each of the Operative Documents to
------------------------
which Lessee is a party has been duly executed and delivered by Lessee and
constitutes the legal, valid and binding obligations of Lessee, enforceable in
accordance with its terms.
3.4 Compliance with Other Instruments. To the best of Lessee's
---------------------------------
knowledge, neither the execution, delivery or performance by Lessee of the
Operative Documents to which it is a party nor the consummation or performance
by Lessee of the transactions contemplated therein will conflict with or result
in any violation of, or constitute a default under, the certificate of
incorporation or by-laws of Lessee or any agreement, mortgage, indenture, lease
or other instrument or any Applicable Law by which Lessee or its properties or
assets are bound.
3.5 Governmental Consents. Neither the execution and delivery of any
---------------------
of the Operative Documents nor the performance of any of the transactions
contemplated thereby by Lessee requires the consent or approval of, the giving
of notice to, the registration with, or the taking of any other action in
respect to the CAA, or any other governmental authority or agency, including any
judicial body.
3.6 No Adverse Agreements. Lessee is not a party to any agreement or
---------------------
instrument or subject to any charter or any corporate restriction, which if
performed in accordance with terms, would materially and adversely affect
Lessee's financial condition, business or operations or the ability of Lessee to
perform its obligations under any of the Operative Documents to which it is a
party.
3.7 No Defaults or Violations. Lessee is not and during the Term will
-------------------------
not be in default under any mortgage, deed of trust, indenture or other
instrument or agreement to which Lessee is a party or by which it or any of its
properties or assets may be bound, or be in violation of any Applicable Law,
which default or violation would have a material adverse effect on the financial
condition, business or operations of Lessee or its ability to perform any of its
obligations under any of the Lease Documents to which it is a party.
3.8 Litigation. There are no pending or, to the best of Lessee's
----------
knowledge after due inquiry, threatened actions or proceedings by or before any
court, administrative agency, regulatory authority or arbitrator which would if
decided against Lessee either individually or in the aggregate materially and
adversely affect the financial condition, business or operations of Lessee or
the ability of Lessee to perform its obligations under any of the Operative
Documents to which it is a party.
-8-
<PAGE>
3.9 No Total Loss or Event of Default. No event or circumstance
---------------------------------
exists which, upon delivery and leasing of the Aircraft hereunder, would cause
the creation of a Total Loss or an Event of Default hereunder.
3.10 Financial Statements. The audited consolidated balance sheet of
--------------------
Guarantor and its subsidiaries, as of the end of each of its last three fiscal
years (up to December 31, 1993) and the related audited consolidated statements
of income and changes in financial position for the years then ended and the
unaudited consolidated balance sheet of Guarantor and its subsidiaries as of
March 31, 1994 and the related statements of income and changes in financial
position for the 3 months then ended (copies of each of which will be furnished
to Lessor), each prepared in accordance with generally accepted accounting
principles and practices, fairly and accurately present the financial position
of Guarantor and its affiliates, as of the dates thereof and for the periods
covered thereby. Since March 31, 1994, there has been no material adverse change
in the financial condition, business, operations or prospects of Guarantor.
3.11 Financial and Other Information to be Supplied. Lessee agrees to
----------------------------------------------
furnish to Lessor during the Term:
(a) As soon as possible and in any event within 5 days after the
occurrence of an Event of Default which is continuing, an Officer's Certificate
setting forth in detail the nature of such Event of Default and the action which
Lessee proposes to take with respect thereto;
(b) from time to time, such other information relating to its
financial, operational or business affairs or conditions as Lessor may
reasonably request.
SECTION 4. LESSOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
---------------------------------------------------
Lessor covenants that provided no Event of Default has occurred and remains
unremedied, neither it nor anyone claiming exclusively by, through or under
Lessor or any Beneficiary will interfere with Lessee's quiet enjoyment of the
Aircraft during the Term.
SECTION 5. CONDITIONS PRECEDENT.
--------------------
5.1 Conditions Precedent to Obligation of Lessor to Lease Aircraft.
--------------------------------------------------------------
The obligation of Lessor to lease the Aircraft to Leasee under this Lease is
subject to the fulfillment to the satisfaction of Lessor, on or before the
Delivery Date or concurrently with Lessor's leasing of the Aircraft hereunder,
of the following conditions precedent:
(a) Each of the Operative Documents shall have been duly
authorized, executed and delivered by the respective party or parties thereto
and shall be satisfactory in form
-9-
<PAGE>
and substance satisfactory to Lessor, and an executed original or conformed
copy, as appropriate, of the Operative Documents shall have been delivered to
Lessor and, where appropriate in due form of recordation with the CAA;
(b) On the Delivery Date for the Aircraft (i) the
representations and warranties of Lessee contained in the Lease Documents shall
be true and accurate; (ii) nothing shall have occurred which materially and
adversely has affected or will affect the ability of Lessee to carry on its
business and to perform its obligations under the Lease Documents; and (iii) no
event shall have occurred and be continuing, or would result from the lease of
the Aircraft, which constitutes an Event of Default.
(c) No change shall have occurred after the date of this
Agreement in Applicable Law that in the opinion of Lessor would make it illegal
for Lessor to maintain its interest in the Aircraft.
(d) In furtherance of and not in limitation of its rights set
forth in Section 5.1(a), Lessor shall have received the following, in each case
in form and substance satisfactory to it:
(i) incumbency certificates of Lessee and Guarantor regarding
the officers of Lessee and Guarantor authorized to execute and deliver the
Operative Documents to which each is a party, respectively;
(ii) an insurance report of an independent insurance broker and
certificates of insurance, as to Lessee's due compliance with the terms of
Section 11 of this Lease;
(iii) certified copies of all documents evidencing the corporate
actions of Lessee and Guarantor, duly authorizing the lease by Lessee of the
Aircraft hereunder and the execution, delivery and performance by Lessee of each
of the Lease Documents to which it is a party and by Guarantor of the Guaranty;
(iv) such other documents and evidence with respect to Lessee
as Lessor may reasonably request in order to consummate the transactions
contemplated by the Lease Documents, the taking of all corporate actions in
connection therewith and compliance with the conditions herein set forth.
(e) a favorable opinion from Mr. Henk Stoltz, Counsel to
Lessee and Guarantor, covering such matters incident to the transactions
contemplated hereby as it may reasonably request.
(f) Concurrent with the acceptance of the Aircraft for lease
hereunder, Lessee shall have deposited into the Escrow Account the sum of
$145,000 representing an
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<PAGE>
advance payment of the Maintenance Reserve for 200 Hours of usage of the
Aircraft during the sixth month of the Term as calculated pursuant to the
provisions of Section 8.14 hereof.
5.2 Conditions Precedent to Obligation of Lessee to Lease Aircraft.
--------------------------------------------------------------
The obligation of Lessee to lease the Aircraft from Lessor under the Lease is
subject to the fulfillment to the satisfaction of Lessee, on or before Delivery
Date or concurrently with Lessee's execution of the Acceptance Certificate
(Final), of the following conditions precedent:
(a) The Aircraft shall hold a valid U.K. Standard Certificate of
Airworthiness and shall be duly registered with the CAA;
(b) The Engines shall be serviceable in accordance with the written
standards of Rolls-Royce reasonably applicable to the Engines;
(c) The landing gear of the Aircraft shall be serviceable;
(d) The Aircraft shall be in compliance with all outstanding
Airworthiness Directives, compliance with which is mandatory on
the Delivery Date;
(e) Lessee, at its expense, shall have boroscopically inspected the
Engines and shall have reasonably concluded that the condition
of the Engines is satisfactory to it.
(f) The Aircraft shall in addition be in the following condition:
(i) The Aircraft shall be clean by United States commercial airline
standards and shall have received an external washing and interior deep
cleaning;
(ii)The Aircraft shall have had accomplished thereon all outstanding
deferred maintenance items.
(iii)The Aircraft shall have been maintained by cleaning and treating
of all mild corrosion and correcting of all moderate and severe or exfoliated
corrosion in accordance with the recommendations of the manufacturer of the
Airframe. All fuel tanks shall be free of leaks.
(iv)The cockpit shall be clean and pain shall not be cracked or
peeled. There shall be no defective items in the Aircraft's interior.
(v) The fuselage shall be in good repair, and shall be free of (i)
dents, abrasions or scab patches, and (ii) loose or pulled rivets, impact damage
to the Aircraft caused by ground handling equipment or impact damage caused by
foreign objects.
(vi)All Parts shall be serviceable in accordance with CAA standards.
-11-
<PAGE>
(g) Lessee shall use its best efforts to assist Lessor in complying
with the conditions set forth in this Section 5.2(f) by submitting, at the
request of Lessor, a workscope to Lessor for such compliance work and performing
or causing to be performed the portions of such work authorized by Lessor. All
costs and expenses of any such work shall be for the account of Lessor and shall
be paid promptly upon receipt by Lessor of invoice(s) therefor. In the event
Lessor shall fail to meet any of the conditions set forth in Section 5.2(f), the
corresponding condition in Section 9 to any such condition shall be deemed to be
waived by Lessor.
SECTION 6. PAYMENTS.
--------
6.1 Basic Rent. During the Basic Term Lessee shall pay Lessor in
----------
advance, in accordance with the provisions of Section 6.3 hereof Basic Rent in
the amount of $100,000 per month. Basic Rent shall be payable on the Lease
Commencement Date and thereafter on the same day of each month during each of
the five successive calendar months (each such day a "Rent Payment Date").
6.2 Net Lease: No Set-off or Deductions. (a) This Lease is a net
-----------------------------------
lease. Except as set forth in Section 6.2(c) Lessee acknowledges and agrees that
its obligations to pay all Rent due and owing under the terms hereof shall not
be affected by any circumstance whatsoever, including, without limitation any
set-off, counterclaim, recoupment, defense or other right which Lessee may have
against Lessor or anyone else for any reason whatsoever, any defect in the
airworthiness, eligibility for registration with the CAA, or any damage to or
loss or destruction of, the Aircraft, or any interference, interruption or
cessation in or prohibition of the use or possession thereof by Lessee for any
reason whatsoever, including, without limitation, any such interference,
interruption, cessation or prohibition resulting from the act of any
governmental authority, any Liens, or rights of others with respect to the
Aircraft, the invalidity or unenforceability or lack of due authorization or
other infirmity of this Lease or any lack of right, power or authority of Lessor
or Lessee to enter into this Lease, any insolvency, bankruptcy, reorganization
or similar proceedings by or against Lessee, Lessor, or any other person, or
any other cause whether similar or dissimilar to the foregoing, any present or
future law notwithstanding, it being the intention of the parties hereto that,
except as provided in Section 6.2(c) and (d) all Rent payable by Lessee
hereunder shall continue to be payable in all events in the manner and at the
times provided herein. Except as set forth in Section 6.2(c), such Rent shall
not be subject to any abatement and the payments hereof shall not be subject to
any set-off or reduction for any reason whatsoever.
(b) To the extent permitted by Applicable Law, each of Lessee and Lessor
hereby waives any rights which it may now have or which may be conferred upon
it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease
except in accordance with the terms hereof.
(c) Notwithstanding anything contained in this Lease to the contrary, if
Lessor shall breach its covenant contained in Section 4 hereof, Lessee shall be
entitled to suspend payments of Basic Rent required to be made by Lessee
hereunder during the period that, as a results of a
-12-
<PAGE>
breach of the covenant of quiet enjoyment set forth in Section 4 hereof, Lessee
shall be deprived of possession or use of the Aircraft. Notwithstanding anything
contained in this Lease to the contrary, of Lessor shall breach any of its
payment obligations contained in Section 8.3 or 8.6 hereof, Lessee shall be
entitled to offset against such obligations of Lessor to Lessee Lessee's
obligation to pay Rent hereunder.
(d) In the event that during the Term maintenance to the Aircraft is
required the cost of which will, under the terms of Section 8.3 or 8.6, as the
case may be, be for the account of Lessor and if a reputable third-party
aircraft maintenance provider selected by Lessee certifies in writing to Lessor
and Lessee that the projected costs of such maintenance are an amount which
exceeds the amount then in the Escrow Account plus the sum of all unpaid Basic
Rent with respect to the remaining balance of the Basic Term (other than any
portion of such remaining Basic Rent which Lessee intends to use as an offset of
other defaults by Lessor in accordance with Section 6.2(c)), then in any such
circumstance and, after five (5) Business Days from Lessor's actual receipt of
written notice requesting adequate assurances of Lessor's financial ability to
meet the cost of any such maintenance, Lessor has been unable to give adequate
assurances to Lessee which in Lessee's reasonable judgment, exercised in good
faith, constitutes such adequate assurances, then Lessee may upon not less than
ten (10) days' prior written notice to Lessor return the Aircraft to Lessor
pursuant to the provisions of Section 9 hereof and all obligations of Lessee to
pay Basic Rent shall terminate upon such return.
6.3 Immediately Available Funds. All payments of Rent shall be made
---------------------------
in United States Dollars by wire transfer in immediately available funds by
12:00 noon EST or EDT, as the case may be, on the day in question to Lessor at
National Westminster Bank USA, 80 Pine Street, New York, NY 10005, ABA
No. 021 000 322 Account No. 2181-01-7572, Re: AFG RENT ESCROW, with sufficient
information to identify the source and application of such funds. If any Rent
is due on a day which is not a Business Day, it shall be due on the immediately
preceding Business Day.
6.4 Supplemental Rent. Lessee also agrees to pay to Lessor, in
-----------------
accordance with the provisions of Section 6.3 hereof, any and all Supplemental
Rent when the same shall become due and owing, and in the event of any failure
on the part of the Lessee to pay any Supplemental Rent, Lessor shall have all
rights, powers and remedies provided for herein or by law or equity in the case
of nonpayment of Basic Rent. Lessee will also pay, on demand, as Supplemental
Rent, interest at the Overdue Rate on any part of any installment of Basic Rent
not paid when due for any period for which the same shall be overdue and, to the
extent permitted by Applicable Law, on any payment of Supplemental Rent not paid
when due for the period until the same shall be paid.
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<PAGE>
SECTION 7. DISCLAIMER OF WARRANTIES AND MANUFACTURERS' WARRANTIES.
------------------------------------------------------
7.1 Disclaimer. THE AIRCRAFT IS TO BE LEASED HEREUNDER "AS IS"
----------
AND "WHERE IS." LESSOR HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE (WHETHER BY
VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS LEASE, OR HAVING ACQUIRED THE
AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED
TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS LEASE OR OTHERWISE), AND
LESSOR HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE (EXCEPT AS HEREIN BELOW PROVIDED), CONDITION, DESIGN,
OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INTERFERENCE OR INFRINGEMENT
OR THE LIKE, OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT, OR AS
TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT, THE ABSENCE
THEREFROM OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY
OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY
IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF
TRADE), WITH RESPECT TO THE AIRCRAFT; AND LESSEE HEREBY WAIVES, RELEASES,
RENOUNCES AND DISCLAIMS EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR
WARRANTIES. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO LESSEE OR
ANY OTHER PERSON, WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY NEGLIGENCE OR
STRICT LIABILITY OF LESSOR OR OTHERWISE, FOR (I) ANY LIABILITY, LOSS OR DAMAGE
CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY
ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY
OTHER CIRCUMSTANCE IN CONNECTION THEREWITH (II) THE USE, OPERATION OR
PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO, (III) ANY
INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR
CONSEQUENTIAL DAMAGES OR (IV) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE,
REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT. THE WARRANTIES AND
REPRESENTATIONS SET FORTH IN THIS SECTION 7.1 ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR
SHALL NOT BE DEEMED TO HAVE MADE ANY OTHER WARRANTIES, EXCEPT AND ONLY TO THE
EXTENT OF THOSE WARRANTIES SET FORTH IN SECTION 4 OF THIS LEASE.
7.2 Other Warranties. So long as no Event of Default shall have
----------------
occurred, Lessor agrees that if there are any outstanding warranties of
manufacturers and suppliers relating to the Aircraft or any of the Engines which
would otherwise inure to the benefit of or be enforceable by Lessor during the
Term, they shall, notwithstanding title to the Airframe and Engines being vested
in Lessor, inure to the benefit of Lessee throughout the Term and Lessor
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<PAGE>
agrees to authorize Lessee to exercise for the account of Lessor such rights as
Lessor may have under such warranties.
SECTION 8.USE, OPERATION AND MAINTENANCE
------------------------------
8.1 General. Lessee, subject to the provisions of Sections 8.3 and
-------
8.14 hereof but otherwise at its sole costs and expense, shall service, repair,
maintain and overhaul or cause the same to be done to the Airframe and each
Engine under the Maintenance Program for so long as the Aircraft is in the
possession of Lessee or subject to this Lease with the same or better care as
used by Lessee with similar aircraft and engines, if any, owned by it or if
Lessee does not own any such aircraft in at least as good manner and with at
least as much care as used by Lessee with similar aircraft and engines leased
from others. By way of expansion and not in limitation of the foregoing,
Lessee agrees to (i) cause the Airframe and each Engine to be in as good
operating condition as when delivered to Lessee hereunder, ordinary wear and
tear excepted, (ii) keep the Aircraft in such condition as is necessary to
enable the airworthiness certification of the Aircraft to be maintained in good
standing at all times under Applicable Law, (iii) maintain the Manuals and
Technical Records in the English language in accordance with such Maintenance
Program and in a manner acceptable to the CAA and (iv) cause the Aircraft to be
maintained in a manner which will not discriminate against the Aircraft compared
with other similar aircraft owned or operated by Lessee.
8.2 Operation and Use.
-----------------
(a) Lessee agrees not to operate or locate the Airframe or any
Engine, or suffer the Airframe or any Engine to be operated or located, in any
area (i) excluded from coverage by any insurance policy required to be
maintained hereunder with respect to the Airframe or Engines at the time the
Aircraft lands in a particular location or (ii) in any recognized or, in
Lessor's reasonable judgment, threatened area of hostilities unless fully
covered by war risk insurance meeting the terms of Section 11 hereof, except in
the case of a requisition by the United States government, where Lessee obtains
indemnity from the United States government against the risks in the amounts
required by Section 11 hereof covering such area. In the event a location in
which the Aircraft is located ceases to be approved under the terms of the
insurance policy required to be maintained hereunder while the Aircraft is
located in any such location, Lessee shall utilize its best efforts to cause the
Aircraft to be immediately removed from such location. Lessee agrees not to
operate the Aircraft, or suffer the Aircraft to be operated during the Term (1)
unless the Aircraft is covered by insurance as required by the provisions of
Section 11 hereof or Lessee obtains indemnity from the United States government
as set forth above or (2) contrary to the terms of such insurance as required by
the provisions of Section 11 hereof.
(b) Lessee agrees not to (i) operate the Airframe or any Engine
or permit the Airframe or any Engine to be operated during the Term except in a
passenger configuration, in commercial or other operations for which Sublessee
is duly authorized by the CAA or otherwise in accordance with Applicable Law; or
(ii) use or permit the Aircraft to be used for a
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<PAGE>
purpose for which the Aircraft is not designed or reasonably suitable. Lessee
will not permit the Airframe or any Engine to be maintained, used or operated
during the Term in violation of any Applicable Law, or contrary to any
manufacturer's operating manuals or instructions.
8.3 Maintenance in General. (a) Lessee agrees it has the obligation
----------------------
to maintain and repair the Airframe and Engines utilizing the maintenance
program of BA as approved by the CAA ("Maintenance Program"), so as to keep the
Aircraft in at least as a good a condition during the Term as on Delivery Date
and until the Aircraft is redelivered to Lessor pursuant to Section 9 hereof,
ordinary wear and tear excepted, provided however that the costs of the
-------- -------
following maintenance activities shall be for the account of Lessor and shall be
paid promptly upon receipt by Lessor of invoice(s) therefor:
(i) any and all off-wing Engine maintenance and repairs excluding any
and all off-wing Engine maintenance and repairs required by
negligence, abuse, mis-use by Lessee or Sublessee or elective
alterations or elective Parts replacement by Lessee or Sublessee;
(ii) any and all off-fuselage APU maintenance and repairs excluding
any and all off-fuselage APU maintenance and repairs attributable
to negligence, abuse, mis-use or elective Parts replacement by
Lessee;
(iii)landing gear overhauls or partial overhauls;
(iv) "C" checks, "D" checks or their equivalent in accordance with the
BA maintenance program.
(b) The following procedures shall be followed with respect to maintenance and
repair work to be paid for by Lessor:
(i) Lessee will forward to Lessor a quote for any such work from a
CAA and FAA approved maintenance repair station, APU overhaul and
repair station and engine overhaul and repair station, whichever
is applicable;
(ii) Lessor will, within 3 business days grant its consent for Lessee
to undertake such work and provide reasonable evidence to Lessee
that appropriate funds are available or will be made available to
reimburse Lessee for its costs in performing such work, or
alternatively Lessor will provide Lessee with a similar quote
from its own sources and direct Lessee to have the work performed
at the station of Lessor's choice provided that Lessor's choice
meets all CAA and FAA requirements with respect to the
Maintenance Program and provided that Lessor's choice of station
can perform the work within the same time frame as any
alternative station that Lessee may propose;
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<PAGE>
(iii) With respect to any APU and Engine workscopes to be performed
pursuant to the obligations of Lessor set forth in Section 8.3
(a) (i) and (ii), Lessor may at its sole discretion elect at its
expense to furnish a replacement APU and/or Replacement Engine
provided such equipment meets all requirements and have enough
remaining Days, Hours, Cycles prior to any scheduled overhaul to
enable the Lessee to fully utilize the Aircraft without
limitations throughout the remaining Basic Term of the Lease.
8.4 Specific Items of Maintenance. Lessee and Lessor agree that
-----------------------------
maintenance and repairs shall include, but shall not be limited to, the
following specific items:
(a) to perform or have performed in accordance with Section
8.2(a) all routine maintenance work, including on-line maintenance on the
Aircraft, and to ensure that all such maintenance shall be in accordance with
the regulations and directives of the CAA or other applicable government
authority. Lessee shall have all maintenance and repairs performed at repair
facilities approved by the CAA;
(b) to correct promptly and diligently any deficiences revealed
at any time by any inspection of Lessor which under the Maintenance Program
require proper repair, replacement, overhaul and adjustment;
(c) to maintain all Aircraft documentation, including, without
limitation, the Manuals and Technical Records, in compliance with CAA
regulations and in up-to-date status, (if necessary, through manufacturers'
revision service) and to make these available for review and copying by Lessor
on reasonable notice at Lessee's principal maintenance base.
8.5 Parts.
-----
(a) Unless the Airframe or an Engine has suffered a Total Loss,
Lessee, at its own cost and expense, will during the Term promptly replace all
Parts pursuant to Section 8.3 that may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever and shall replace such Parts as
promptly as practicable with replacement Parts. All replacement Parts shall be
made by the same manufacturer and of the same model number and modification
status, or be CAA-approved substitutes normally used by BA, shall be free and
clear of all Liens except Permitted Liens and shall be in at least as good
operating condition as, and shall have a value, utility, and useful life at
least equal to the Parts replaced assuming such replaced Parts were in the
condition and repair required to be maintained by the terms thereof.
(b) All Parts at any time removed from the Airframe or any
Engine shall remain the property of Lessor and subject to this Lease, no matter
where located, until such time as such Parts shall be replaced by Parts that
have been incorporated or installed in or attached to such Airframe or Engine
and that meet the requirements for replacement Parts specified in clause (a) of
this Section 8.5. Immediately upon any replacement Part becoming incorporated
or
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installed in or attached to such Airframe or Engine as provided in clause (a)
hereof, without further act, (i) title to such replacement Part shall thereupon
vest in Lessor; (ii) such replacement Part shall become subject to this Lease
and be deemed part of such Airframe or Engine, as the case may be, for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to such Airframe or Engine; and (iii) title to the
replaced Part shall thereupon vest in Lessee, free and clear of all rights of
Lessor and shall no longer be deemed a Part hereunder.
(c) Title to all Parts incorporated or installed in or attached
or added to the Airframe or any Engine as the result of any alteration,
modification or addition effected by Lessee shall, without further act vest in
Lessor and become subject to this Lease.
8.6 Airworthiness Directives.
------------------------
(a) During the Term hereof Lessee agreees to comply with any
airworthiness directive, Federal Aviation Regulations and Special Federal
Aviation Regulations, manufacturers' mandatory service bulletin or any other
mandatory regulation, directive or instruction ("Airworthiness Directive")
which the FAA may from time to time issue (whether prior to or subsequent to the
commencement of the Term) and with respect to which compliance is required
during the Term in order to meet the requirements of Applicable Law for the
public transport of passengers and/or cargo. All Airworthiness Directives shall
be accomplished in accordance with all applicable bulletins and manuals
published by the manufacturer of the Airframe or Engines or Parts.
(b) Lessor shall hold title to any Parts included in a new
system installed on the Aircraft pursuant to an Airworthiness Directive which is
required by such Airworthiness Directive to be installed during the Term.
(c) The cost of performing terminating action with respect to
Rolls-Royce service bulletin 72-9569 and 72-9594 (both relating to the Engines)
with current compliance date of July 31, 1994 (or any equivalent airworthiness
directive that reflects the workscope of the above-referenced service bulletins)
shall be for the account of Lessor and shall be paid promptly upon receipt by
Lessor of invoice(s) therefor. Notwithstanding the provisions of Section 8.3
hereof, the cost of any other terminating action with respect to any other
single Airworthiness Directive required to be performed pursuant to Section
8.6(a) are entirely for the account of Lessee if any such terminating action
costs $50,000 or less; if such cost exceeds $50,000 but is less than $100,000,
the amount by which such cost exceeds $50,000.00 shall be for the account of
Lessor; if the cost of such terminating action exceeds $100,000.00, Lessor and
Lessee shall share equally such cost to the extent it exceeds $100,000.00 or by
written notice given to the other pursuant to Section 17 hereof either Party may
terminate this Lease pursuant to the provisions of Section 9 hereof on the last
day the Aircraft may be lawfully operated without complying with such
Airworthiness Directive (it being understood that Lessee's compliance with the
provisions of Section 9 shall be waived to the extend that such provisions
require that such Airworthiness Directive be complied with); in any such event,
no Basic Rent shall be due after
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the return of the Aircraft to Lessor and any per diem Basic Rent theretofore
paid with respect to the period from the date of return of the Aircraft to the
next Rent Payment Date (or if there is no next Rent Payment Date, the end of the
Basic Term) shall be promptly repaid by Lessor to Lessee.
(d) In the event an Airworthiness Directive can be complied with
by both more frequent inspection of such Part or the Aircraft than had
theretofore been the case or by terminating action, Lessee, unless otherwise
directed by Lessor, shall comply with such Airworthiness directive by
terminating action.
8.7 Modification Payments by the Government. In the event that,
---------------------------------------
during the Term, Applicable Law shall provide for the payment to Lessee from a
governmental entity (a "Modification Payment") with respect to a modification
of the Aircraft, including without limitation, in whole or in part with respect
to the retrofitting or replacement of the Engines in order for Lessee or
Sublessee to comply with any laws or regulations relating to emissions, noise,
or other pollution, environmental or fuel economy standards and requirements,
Lessee shall comply with such law or regulation by performing upon the Aircraft
such modifications as are required thereby, and only under such circumstances
may Lessee or Sublessee retain such Modification Payment. In the event that
Lessee is not required by such law or by this Agreement to perform any such
modification upon the Aircraft and Lessee has not theretofore given to Lessor
its irrevocable written commitment to perform such modification, Lessee shall
pay Lessor, within 30 days of Lessee's receipt thereof the Modification Payment.
8.8 Corrosion Control. Lessee shall carry out such work as may be
-----------------
required for the control or corrosion, including, without limitation, periodic
inspections for penetration of fuel tanks, periodic inspections and clean-up
under galleys, forward and aft cargo pit areas and lavatories, periodic
treatment of all mild and moderate corrosion and correcting of all severe or
exfoliated corrosion, in accordance with the Maintenance Program.
8.9 Modifications.
-------------
(a) Lessee, at its own expense, may from time to time make such
alterations and modifications in and additions to the Airframe or any Engine as
Lessee may deem desirable in the proper conduct of its business provided that no
such alteration, modification or addition shall diminish the value or utility of
the Aircraft, or impair the condition or airworthiness thereof, below the value,
utility, condition and airworthiness thereof prior to such alteration,
modification or addition assuming the Aircraft met the requirements of this
Lease prior to such alteration, modification or addition. In addition, Lessee
may, at any time during the Term remove any Part (a "Removable Improvement")
pursuant to this paragraph, provided that (1) such Part is in addition to, and
not in replacement of or substitution for, any part originally incorporated or
installed in or attached to the Aircraft at the time of delivery thereof
hereunder or any Part in replacement of, or substitution for any such Part, and
(2) such Part can be removed from the Aircraft without diminishing or impairing
the value, utility, condition or airworthiness required to be maintained by the
terms of this Lease which the Aircraft would have had at such
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<PAGE>
time had such alteration, modification or addition not occurred. Upon removal
of a Removable Improvement from the Aircraft, title thereto without further act
shall vest in the Lessee. Notwithstanding the foregoing, Lessee shall not,
without Lessor's prior written consent, make any modifications, alterations or
additions not required by applicable law or the terms of this Lease,
(collectively, "Optional Modifications") to the Aircraft. For the purposes of
this section Optional Modifications shall exclude the modifications made by
Lessee or Sublessee to standardize the Aircraft to Sublessee's fleet, but shall
include all other Optional Modifications to the Aircraft with a cost of
$25,000. All Optional Modifications shall be accomplished by Lessee at its own
expense.
(b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE, NO
OPTIONAL MODIFICATION SHALL BE MADE WITHOUT LESSOR'S PRIOR WRITTEN CONSENT
(WHICH CONSENT MAY BE WITHHELD FOR ANY REASON WHATSOEVER) IF SUCH OPTIONAL
MODIFICATION HAS THE EFFECT OF DECREASING THE UTILITY OR VALUE OF THE AIRCRAFT
OR ADVERSELY AFFECTS ITS AIRWORTHINESS OR USE FOR TRANSPORTING PASSENGERS IN
COMMERCIAL SERVICE.
8.10 Possession. Lessee shall not sublease the Aircraft except to
----------
Sublessee or otherwise in any manner deliver, relinquish or transfer possession
of the Airframe or any Engine to any person or install any Engine, or permit any
Engine to be installed, on any airframe other than the Airframe, during the
Term, without the prior written consent of Lessor, such consent not to be
unreasonably withheld, provided, however, that so long as Lessee shall comply
with the provisions of Section 11 hereof Lessee may, without the prior written
consent of Lessor:
(a) permit Sublessee to enter into an ACMI Lease in the ordinary
course of Sublessee's business;
(b) deliver possession of the Airframe or an Engine to BA or the
manufacturer thereof for testing or other similar purposes or to any other
qualified organization for service, repair, maintenance or overhaul work on the
Airframe or Engines or for alterations or modifications in or additions to the
Airframe or Engines, to the extent required or permitted by the terms of this
Lease;
(c) Notwithstanding any transfers of possession of the Airframe
or any Engine permitted pursuant to this Section 8.10, Lessee shall at all times
during the Term of this Lease remain fully liable and obligated to perform all
of the terms of this Lease to the same extent as if such transfer had not
occurred.
8.11 Reports. Lessee shall furnish to Lessor, on a monthly basis, the
-------
Hours and Cycles of operation for the Airframe and Engines and such other
information concerning the condition of the Aircraft as Lessor may hereafter
request.
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8.12 Right to Inspect. (a) Lessor and its agents shall have the right
----------------
to inspect the Aircraft at any time reasonably selected so as not to interfere
with Lessee's or Sublessee's normal passenger-carrying use of the Aircraft, upon
giving Lessee reasonable notice, to ascertain the condition of the Aircraft and
to satisfy Lessor that the Aircraft is being repaired and maintained in
accordance with the requirements of this Lease. Lessee shall, at the request of
Lessor, provide Lessor with such information concerning the location of the
Aircraft as may be necessary to facilitate such inspection and shall permit any
duly authorized representative of Lessor to be present during any overhaul or
the performance of any major scheduled maintenance check of the Aircraft. The
cost of the inspection or survey shall be paid by Lessee if the Aircraft, or any
part thereof, is not in the condition required by this Lease but shall otherwise
be for the account of Lessor. All repairs which shall be shown by the inspection
or survey to be required shall be made at Lessee's or Lessor's expense, as the
case may be, in accordance with the provisions of Section 8.3. All required
repairs shall be performed as soon as practicable thereafter. In the event of a
dispute between Lessor and Lessee as to the proper performance by Lessee of the
repairs required hereunder, the decision of a publicly-recognized aircraft
appraiser selected by Lessor and reasonably acceptable to Lessee of the
Airframe, Engine or Part, as the case may be, shall control. The non-prevailing
party shall be responsible for payment of all expenses of such appraiser
incurred in connection with the rendering of its decision. Lessor shall have no
duty to make any such inspection and shall not incur any liability or obligation
by reason of not making such inspection.
(b) Lessee shall make available to Lessor for its review or
shall cause Sublessee to make available to Lessor for its review (1) such
records as it may have in its possession which Lessor may request in the course
of an inspection by Lessor as contemplated by subsection (a), above; (2) such
other written communication with the CAA or other regulatory authority or any
manufacturer as it may have in its possession relating to defects or
malfunctions of the Aircraft or Parts or any other matters relating to the
Aircraft; and (3) Sublessee's most recent CAA-approved operations
specifications, including any amendments or additions made thereto.
8.13 Aircraft Records. Lessee shall maintain or cause to be maintained
----------------
all records during the term of this Lease relating to the service, inspection,
maintenance, modification, repair and overhaul of the Airframe, Engines and
Parts installed therein as required by the CAA and the Maintenance Program which
records will at all times be kept current and up-to-date.
8.14 Maintenance Reserves. Within 5 business days following the day of
--------------------
each month during the Term as the date of the month on which the Delivery Date
falls, Lessee shall pay into the Escrow Account, maintenance reserves in the
total amount of $725.00 for each Hour of use of the Aircraft during the
preceding month ("Maintenance Reserve"). The amount in the Escrow Account shall
be made available to Lessee for the ordinary and reasonable expenses of Lessee
in performing the maintenance activities Lessor is required to pay for pursuant
to Section 8.3. All Maintenance Reserve payments made by Lessee, including the
advance payment made by Lessee under Section 5.1(f), will be held by Lessor in
the Escrow Account. The balance
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in the Escrow Account will, during the Term, be used only to fulfill the
obligation of Lessor under Section 8.3. Notwithstanding the foregoing, at the
time the last Maintenance Reserve payment of Lessee under this Lease would be
made, Lessee shall report the actual number of Hours flown by the Aircraft
during the final 30 or 31 day period (as the case may be) of the Term ("Final
Month Hours") and if such Final Month Hours are less than 200, then Lessor shall
promptly remit it to Lessee, whether from the Escrow Account or otherwise, an
amount equal to $725 multiplied by the number by which the Final Month Hours are
less than 200. If such Final Month Hours exceed 200 Hours, Lessee shall promptly
remit to Lessor in the manner set forth in Section 6.3 hereof, an amount equal
to $725 multiplied by the number of Hours by which the Final Month Hours exceed
200. In the event that there is a remaining positive balance in the Escrow
Account after all payments required to be made pursuant to this Section 8.14
have been made, any such balance shall be for the sole account of Lessor.
SECTION 9. RETURN OF AIRCRAFT
------------------
9.1 Return Location, Notices, Costs, Taxes and Fees. The return of
-----------------------------------------------
the Aircraft at the expiration or earlier termination of this Lease shall be
subject to the following provisions:
(a) Return. At the end of the Term or upon the earlier
------
termination of this Lease pursuant to Section 8.6 or 14 hereof, Lessee shall
return the Airframe and Engines to Lessor at Roswell, New Mexico or at such
location as Lessor in its sole discretion shall determine not to exceed the
distance between London, U.K. and Roswell, New Mexico (the "Return Location").
In the event Lessee is returning the Aircraft to Lessor at the expiration of the
Term, Lessor shall five Lessee at least 15 days advance written notice of such
Return Location. The Aircraft at the time of its return shall be free and clear
of all Liens other than Lessor's Liens. At the time of return of the Aircraft to
Lessor, and provided Lessee is in compliance with the terms of this Lease,
Lessor and Lessee shall execute an Acceptance Certificate (Return) at the Return
Location.
(b) Costs of Return. Lessee and Lessor agree that Lessee shall
---------------
pay all costs of returning the Aircraft to Lessor including, but not limited to,
fuel, oil, crew, inspections, insurance, maintenance, repairs, service and other
costs of the Aircraft to the Return Location.
(c) Taxes and Fees. Lessee shall pay all Taxes and fees arising
--------------
out of the return of the Aircraft at the Return Location: in the event the
Return Location selected by Lessor would create an extraordinary Tax liability
for Lessee arising out of its obligations under this Section 9.1(c), Lessor at
Lessee's request will designate another Return Location provided Lessee agrees
to indemnify Lessor for any loss or damage suffered by Lessor because of the
changed Return Location.
9.2 Return of Other Engines. In the event any engine not owned by
-----------------------
Lessor shall be returned with the Airframe, it shall be a Replacement Engine,
and Lessee shall, at its own expense and concurrently with such return, furnish
Lessor with a full warranty bill of sale, in form and substance satisfactory to
Lessor, with respect to each such Replacement Engine and
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shall take such other actions conveying title to the Replacement Engine to
Lessor free and clear of all liens other than Lessor's Liens and such additional
documents, including an opinion of counsel acceptable to Lessor, as Lessor may
request in order that title to such Replacement Engine shall be duly and
properly in Lessor. Upon passage of title to Lessor such Replacement Engine
shall be deemed to be an Engine for all purposes hereof and thereupon Lessor
shall transfer to Lessee, without recourse or warranty except a warranty as to
title and as to no Lessor's Liens, all of Lessor's right, title and interest in
and to any Engine not installed on such Airframe at the time of the return
thereof.
9.3 Condition of Aircraft. The Aircraft at the time of the return
---------------------
to Lessor shall have been maintained and repaired in accordance
with the Maintenance Program and this Lease, and shall meet the following
requirements:
(a) Operating Condition. The Aircraft shall be in at least as
-------------------
good operating condition as on the Delivery Date, ordinary wear and tear from
normal airline passenger operations excepted.
(b) Cleanliness Standards. The Aircraft shall be clean by
---------------------
United States commercial airline standards and shall have received an exterior
washing and an interior deep cleaning since its last commercial flight.
(c) Certificate of Airworthiness. The Aircraft shall have, and
----------------------------
be in compliance with a current valid Standard Certificate of Airworthiness
issued by the CAA without any corrections, repairs, modifications, alterations
or overhauls having to be performed by Lessor to meet such standards and rules.
If required by Lessor, Lessee shall at Lessee's expense request in the name of
Lessor a Swedish Certificate of Airworthiness for Export so as to allow Lessor
to place the Aircraft on the U.S. registry.
(d) Compliance with Governmental Requirements. The Aircraft
-----------------------------------------
shall be in compliance with all Airworthiness Directives affecting the Aircraft
and requiring performance during the Term, or as otherwise required under this
Lease. In the event Lessee has obtained a waiver or deviation from the CAA
having to comply with any such Airworthiness Directives, Lessee shall,
irrespective of such waiver or deviation, fully comply with all such
Airworthiness Directives covered by such waiver or deviation pursuant to the
provisions of Section 8.6 prior to the return of the Aircraft to Lessor as if
such waiver or deviation did not exist.
(e) Deferred Maintenance. The Aircraft shall have had
--------------------
accomplished thereon all outstanding deferred maintenance items. Items deferred
because of maintenance concessions (i.e., and exemption to operate beyond the
normal limits by monitoring) shall be brought up-to-date as if such maintenance
concessions or exemptions did not exist. Parts whose time status exceeds the
conditions or requirements imposed by this Lease shall be brought into
compliance with such conditions or requirements pursuant to the provisions of
Section 8.3 hereof.
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<PAGE>
(f) Corrosion Treatment. The Aircraft shall have been maintained
-------------------
by cleaning and treating of all mild corrosion and correcting of all moderate
and severe or exfoliated corrosion in accordance with the recommendations of the
manufacturer of the Airframe. All fuel tanks shall be free of leaks.
(g) Configuration and Condition. The Aircraft shall be returned
---------------------------
having the same configuration and in the same or better condition with all Parts
installed therein as on the Delivery Date, expecting only Modifications,
additions, replacements and substitution of Parts as may have been properly made
by Lessee pursuant to Section 8 and as specifically otherwise set forth in this
Section 9.
9.4 Condition of Airframe. The Airframe at the time of its return to
---------------------
Lessor shall meet the requirements set forth below, all at Lessee's expense,
except as otherwise provided herein:
(a) The cockpit shall be clean and paint shall not be cracked or
peeled. Lessee shall insure that any items which are found to be defective in
the Aircraft's interior will be replaced or repaired in accordance with the
Maintenance Program;
(b) Lessee shall permanently repair the fuselage, including but
not limited to (i) dents, abrasions, and scab patches; and (ii) loose or pulled
rivets, impact damage to the Aircraft caused by ground handling equipment or
impact damage caused by foreign objects. The exterior of the Airframe shall be
clear of all names, logos and other special marings, which markings the Lessee
shall remove.
(c) All Parts shall be serviceable in accordance with CAA
standards and have a value, modification status and condition equivalent to the
Parts installed in the Aircraft when acquired by Lessor, reasonable wear and
tear expected.
9.5 APU. Lessee will return the Aircraft's installed APU in good
---
and efficient operating condition in accordance with the manufacturer's
specifications and those of the Maintenance Program, ordinary wear and tear
alone excepted. Immediately prior to the return of the Aircraft the APU shall
be inspected and all items requiring repair or replacement shall be repaired or
replaced as provided in Section 8.3 hereof. Any operational discrepancies of the
APU shall be corrected in accordance with the Maintenance Program pursuant to
the provisions of Section 8.3 prior to the return of the Aircraft to Lessor.
9.6 Borescope Inspection. A borescope inspection shall be performed
--------------------
in the presence of a representative of Lessor by BA at Lessor's expense at the
time of the Aircraft's return, and Lessee shall provide evidence satisfactory to
Lessor that no discrepancies exist beyond the applicable shop repair limits of
the manufacturer of the Engines including no abnormal repetitive inspection
limits.
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<PAGE>
9.7 Inspection.
----------
(a) Lessor may, from time to time, wish to make the Aircraft
available for inspection to Persons evaluating the Aircraft for use after the
Term. Lessor agrees to give Lessee not less than 3 Business Days' advance notice
of any such inspection, which shall not unreasonably interfere with Lessee's
commercial use of the Aircraft and Lessee agrees to cooperate with Lessor's
requests in making the Aircraft and the Manuals and Technical Records available
to such Persons.
(b) The Aircraft (including the Manuals and Technical Records to
be returned therewith as set forth in this Section 9) shall be made available to
Lessor for ground inspection by Lessor at Lessee's facilities within the five
days preceding the end of the Term. In the event the Aircraft (including the
Manuals and Technical Records) is not in the condition required by the
provisions of this Section 9, Lessee at its sole cost and expense shall promptly
correct any discrepancies from the condition required by the provisions of this
Section 9.
9.8 Operational Ground Check. Promptly after completion of any
------------------------
corrections required under Section 9.7, Lessee shall conduct an operational
ground check in accordance with the requirements of the Maintenance Program and
shall correct any discrepancies disclosed by such check.
9.9 Operational Check Flight. Promptly after completion of all
------------------------
corrections required under Section 9.7 and 9.8 above, the Aircraft shall be
check flown by Lessee for a flight of up to two hours in length which may be the
first two hours of the ferry flight, using qualified flight personnel
demonstrating to Lessor the satisfactory operation of the Aircraft and its
equipment and systems. Lessor's employees or representatives may participate in
such flight as observers. Such flight shall be flown using standard air carrier
operational check flight procedures requested by Lessor's representative and be
sufficient to demonstrate the proper operation of all systems for normal
passenger use. Upon completion of such operational check flight, the
representatives of Lessee and Lessor participating in such flight shall agree in
writing upon any discrepancies in such Aircraft required to be corrected by
Lessee in order to comply with provisions of this Section 9 and Lessee shall
promptly correct or cause to be corrected at Lessee's expense any such
discrepancies. If any of the discrepancies referred to in Sections 9.7 and 9.8
or 9.9 continue to persist, Lessor may (but shall not be obligated to) accept
delivery of the Aircraft and apply the procedure set forth in Section 9.12 for
such discrepancies.
9.10 Acceptance. Upon completion of the operational check flight
----------
specified in Section 9.10, after Lessee has corrected the discrepancies as
specified therein and after Lessee has delivered the Aircraft to the Return
Location and the Aircraft is in the condition required by this Section 9, the
Aircraft shall be technically accepted by Lessor's representatives at the Return
Location and Lessor's representatives shall thereupon execute the Acceptance
Certificate (Return).
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9.11 Deferred Return Condition Discrepancy Correction. If,
------------------------------------------------
notwithstanding Lessee's best efforts to fully comply with the provisions of
Section 9 hereof, any return condition discrepancies are found during the ground
inspection, operational ground check and operational check flight set forth in
Sections 9.7, 9.8 and 9.9 above, which were not corrected by Lessee prior to
return of the Aircraft to Lessor, at the election of Lessor such discrepancies
may be corrected by Lessor or its designee after return of the Aircraft and
Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor or
its designee for accomplishing such discrepancy corrections or, in the
alternative, Lessor may reasonably determine the cost of performing such
maintenance and repairs (subject to Lessee's reasonable concurrence in Lessor's
determination) and in either event Lessee shall, upon receipt of Lessor's
invoice, pay Lessor for all such costs and expenses. Any late payments shall be
subject to interest at the Overdue Rate.
9.12 Costs. All flights pursuant to Section 9.9 shall be made at
-----
Lessee's expense and Lessee shall pay for any and all costs associated with such
flights including, but not limited to, costs for crew, fuel, oil, airport fees,
insurance, takeoff/landing fees, airway communication fees, and ground handling
fees. At the option of Lessor, Lessee's obligations under this Lease, including
but not limited to Lessee's obligations under Sections 11 and 15 hereof and its
obligation to pay per diem Basic Rent shall remain in effect until the Aircraft
satisfies the redelivery conditions of this Section 9.
9.13 Manuals and Technical Records. Lessee at its sole cost and
-----------------------------
expense shall return to Lessor, at the time the Aircraft is returned to Lessor,
all of the Manuals and Technical Records and other data described in Acceptance
Certificate (Final), originally received from Lessor, and subject to CAA
retention time limits, updated and maintained by Lessee through the date of
return of the Aircraft. In addition, Lessee shall also provide Lessor, at the
time the Aircraft is returned to Lessor, all records, documents, authorizations,
drawings and data in English (or with English translations thereof) which were
developed or caused to be developed by Lessee and required by the CAA or any
other regulatory entity having authority over the Aircraft, updated and
maintained by Lessee for the Aircraft and through the date of return of the
Aircraft in an accurate and correct condition. At the time of return of the
Manuals and Technical Records for the Aircraft and the other documents required
to be delivered by Lessee pursuant to this Section 9.13 to Lessor and provided
such documents are in the condition they are required to be in hereunder,
Lessee and Lessor shall execute the Acceptance Certificate (Return).
9.14 Lessee's Special Exterior Markings. At the time of the return of
----------------------------------
the Aircraft, Lessee shall, at Lessor's election, remove or paint over all of
Lessee's logos and other exterior markings painted on the Aircraft by Lessee. In
the event that, notwithstanding Lessee's obligation to do so, Lessee does not
remove such markings, Lessor shall have no obligation to remove such markings
prior to the sale, lease, or other disposition of the Aircraft by Lessor after
its return.
9.15 Ownership. Any documents, equipment and any other property
---------
returned to Lessor pursuant to this Section 9 which are not already owned by
Lessor shall thereupon and without further act become the property of Lessor.
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9.16 Early Termination. Notwithstanding any other provision of this
-----------------
Lease to the contrary, if the Lessee elects to terminate this Lease pursuant to
Section 6.2(d), then Lessee shall not be obligated to comply with the return
conditions of this Section 9 to the extent but only to the extent that such
return conditions are not satisfied because of Lessor's failure to pay the
amounts required of it by Section 8.3 or 8.6.
SECTION 10. TITLE: REGISTRATION; LIENS.
--------------------------
10.1 Title. Lessee acknowledges that legal title to the Aircraft shall
-----
remain vested in Lessor, notwithstanding the possession and the use thereof by
Lessee, and Lessee shall do all acts and things Lessor may reasonably require to
evidence the interest of Lessor in the Aircraft or to protect such interest
against the claims of any other person. Lessee shall not attempt to hold itself
out as having any power to sell or dispose of the Aircraft or any Engine.
10.2 Registration. Lessee acknowledges that, throughout the Term, the
------------
Aircraft shall be registered in the U.K. in the name of Lessee and Lessee
shall not do, and shall further use its best endeavors to ensure that no third
party does, any act or things which might prejudice or cancel such registration.
10.3 Liens. Lessee shall not directly or indirectly create, incur,
-----
assume or suffer to exist any Lien on or with respect to the Airframe or any
Engine other than Permitted Liens. Lessee shall promptly, at its own expense,
take such action as may be necessary to duly discharge any Lien other than a
Permitted Lien if the same shall arise at any time, which obligations of the
Lessee shall survive the termination of this Lease.
10.4 Notice of Ownership. Within 10 Business Days after the Delivery
-------------------
Date, Lessee shall (i) remove from the Aircraft all notices of the ownership
interest of any prior owner of the Aircraft and (ii) affix in a reasonably
prominent position on the flight deck or cockpit, and on each of the Engines, a
legible notice reading as follows:
"United States Trust Company of New York, as Trustee of the
"AFG/British Airways Trust",
Owner and Lessor
Leased to Internationale Nederlanden Aviation Lease B.V.,
Lessee"
Once affixed as aforesaid, such notice shall not be defaced, covered or
removed during the Term, unless Lessor instructs Lessee to change such notice.
Lessee shall not allow the name of any person other than Lessor or any assignee
of Lessor's interest hereunder to be placed on the Airframe or any Engine as a
designation that might be interpreted as a claim of ownership or any interest
therein, provided, however, that Lessee may operate the Aircraft in its livery,
including its name and logo.
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SECTION 11 INSURANCE.
---------
On or before the Delivery Date and throughout the Term, Lessee shall
without cost or expense to Lessor obtain, maintain and keep in full force and
effect the following insurance with respect to Aircraft, carried with
responsible insurers of recognized and good reputation in the aviation industry
which may contain deductibles in no event greater than standard market
deductible in effect from time to time in the worldwide aviation insurance
market place in relation to the Aircraft an such type of insurance.
11.1 All-Risk Insurance. "All-risk" hull, ground and flight insurance
------------------
on the Aircraft (with flight, taxiing and ingestion coverage) in an amount not
less than the Stipulated Loss Value. In addition, Lessor may request such
greater amounts of coverage as Lessor may determine necessary or desirable from
time to time if reasonably available (and for which Lessor shall reimburse
Lessee for its cost of increased premium, if any, for such greater amounts of
insurance). Such hull insurance shall cover Engines or engines and Parts
temporarily removed from the Airframe pending installation of the same or
similar Engines, engines or Parts on the Airframe in an aggregate amount not
less than their replacement cost.
11.2 War Risk Insurance. War risk and allied perils insurance on the
------------------
Aircraft in an amount not less than the Stipulated Loss Value covering the
perils of:
(a) war, invasion, act of foreign enemies, hostilities (whether
war be declared of not), civil war, rebellion, revolution, insurrection, martial
law, military or usurped power, or attempts at usurpation of power;
(b) strikes, riots, civil commotions or labor disturbances;
(c) any act or one or more persons, whether or not agents of a
sovereign power, for political or terrorist purposes and whether the loss or
damage therefrom is accidental or intentional;
(d) any malicious act or act of sabotage;
(e) confiscation, nationalization, seizure, restraint, detention,
appropriation, requisition of title or use by or under the order of any
government (whether civil, military or de facto) or public or local authority
other than the government or any public or local authority of the country of
registration; and
(f) hijacking or any unlawful seizure or wrongful seizure or
wrongful exercise of control of the Aircraft or crew in flight (including any
attempt at such seizure or control) made by any person or persons on board the
Aircraft acting without the consent of Lessee or Sublessee.
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11.3 Liability Insurance. Public liability insurance for a combined
-------------------
single limit of not less than $500,000,000 per occurrence or such greater
amounts as Lessee may carry from time to time on other aircraft in its fleet
similar to the Aircraft, which shall:
(a) include public liability insurance, passenger liability
insurance and property damage liability insurance; and
(b) provide that all the provisions thereof, except the limits
of liability, shall operate in the same manner as if there were a separate
policy covering each such insured.
In the event that Lessee increases its public liability insurance
coverage, it shall do so with respect to the Aircraft contemporaneously with
increasing its insurance coverage on other aircraft similar to the Aircraft
which it owns or operates.
11.4 Additional Requirements: Loss Payment. The insurance required
-------------------------------------
under this Section 11 shall be provided on an agreed value basis, and the
policies shall:
(a) name Lessor, Beneficiaries, and any assignee of their
interests hereunder as additional insured and (with respect to Lessor) as sole
loss payee for insurance proceeds in excess of $50,000 up to the Stipulated Loss
Value for total loss of the Aircraft;
(b) provide that the insurance shall not be invalidated by any
action or inaction by Lessee and insure the interest of Lessor regardless of any
breach or violation by Lessee or any other named insured of any warranty,
declaration or condition contained in such policies;
(c) provide that the insurers shall waive any right of
subrogation to any right of Lessor or against Lessor;
(d) provide that in the event of separate insurance being
arranged to cover the all-risk hull insurance and the war risk and allied perils
insurance, the underwriters subscribing to such insurance agree to a 50/50 claim
funding arrangement in the event of any dispute as to which insurance is
applicable;
(e) be primary and without right of contribution from other
insurance which may be available to Lessor;
(f) extend to, and the underwriters thereof have agreed to
insure, the indemnification provided in Section 15.1 hereof to the extent that
such insurance is available and carried by Lessee or Sublessee and subject to
the exclusions and limitations of Lessee's or Sublessee's policies;
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(g) be of the type usually carried by corporations engaged in the
same or a similar business, similarly situated with Sublessee and owning and
operating similar aircraft and engines, and covering risks of the kind
customarily insured against by such corporations;
(h) provide that Lessor shall have not liability for premiums,
commissions, calls or assessments with respect to such policies;
(i) provide in the case of the insurance required by Sections 11.1
and 11.2 hereof that, so long as the insurers shall not have received written
notice that an Event of Default has occurred and is continuing, any proceeds of
less than $50,000 shall be payable to Lessee; and any proceeds in excess of
$50,000, and any and all proceeds in respect of a Total Loss, or if the insurers
shall have received written notice that an Event of Default has occurred and is
continuing, any single loss regardless of the amount, shall be payable to
Lessor.
11.5 No Set-off. Each insurance policy to be maintained under this Section
----------
11 shall contain a waiver of any right of the insurers to any set-off or
counterclaim or any other deduction against except for unpaid premiums.
11.6 Notice of Material Alteration or Cancellation. Each insurance policy
---------------------------------------------
to be maintained under this Section 11 shall provide that no cancellation or
lapse of coverage for nonpayment of premium or otherwise, and no material change
of coverage which adversely affects Lessor shall be effective as to Lessor until
not less than 30 days (7 days in the case of war risk policies, subject to
exceptions uniformly applied in war risk policies then available) after sending
written notice to Lessor from the insurers of such cancellation, lapse or
change.
11.7 Application of Hull Insurance Proceeds. As between Lessor and Lessee,
--------------------------------------
any payments received under policies of insurance required to be maintained by
Lessee pursuant to Sections 11.1 or 11.2, shall be applied as follows:
(a) if such payments are received by Lessor with respect to loss or
damage (including a Total Loss with respect to an Engine) not constituting a
Total Loss with respect to the Airframe such payments shall be paid over to
Lessee upon Lessee's performance of its repair or replacement obligations under
this Lease pursuant to Section 12.3 hereof; and
(b) if such payments are received with respect to a Total Loss with
respect to the Airframe, so much of such payments as shall not exceed the amount
required to be paid by Lessee pursuant to Section 12.1 hereof shall be applied
in reduction of Lessee's obligation to pay such amount if not already paid by
Lessee, and to reimburse Lessee if it shall have paid all or part of such
amount, and the balance, if any, of such payments shall be paid over to or
retained by Lessor.
11.8 Insurance for Own Account. Nothing in this Section 11 shall prohibit
-------------------------
Lessor or Lessee from obtaining insurance for its own account and any proceeds
payable thereunder shall be payable as provided in the insurance policy relating
thereto, provided that no
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such insurance may be obtained which would limit or otherwise adversely affect
the coverage or payment of any insurance required to be obtained or maintained
pursuant to this Section 11.
11.9 Reports. Lessee shall furnish to Lessor not later than the
-------
Delivery Date a report signed by a firm of independent insurance brokers
satisfactory to Lessor stating the opinion of such firm that the insurance then
carried and maintained on the Aircraft complies with the terms hereof. Lessee
shall during the Term furnish to Lessor evidence of renewal of the insurance
policies required pursuant to this Section 11 prior to the cancellation, lapse
or expiration of such insurance policies and, on the renewal dates of the
insurance policies carried by Lessee pursuant to this Section 11, a report
signed by a firm of independent aircraft insurance brokers, similar to that
required by the preceding sentence. Lessee will cause such firm to advise Lessor
in writing promptly of any default in the payment of any premium and of any
other act or omission on the part of Lessee in which they have knowledge and
which would in such firm's opinion invalidate or render unenforceable, in whole
or in any material part, any insurance on the Aircraft. Lessee will also cause
such firm to advise Lessor in writing at least 30 days prior to the termination
or cancellation of, or material adverse change in, such insurance carried and
maintained on the Aircraft pursuant to this Section 11.
11.10 Continuing Insurance. Lessee's insurance coverage shall cover
--------------------
all liabilities which arise during the Term, regardless of the date on which any
claim is made with respect to such occurrence and Lessee at Lessor's request
shall provide evidence of the existence of such insurance following the
expiration or earlier termination of this Lease. Lessee shall in any event be
responsible for any and all liabilities to which Lessor may be exposed as a
result of Lessee's lease, use, possession, or operation of the Aircraft but
only to the extent set forth in Section 15.
SECTION 12. LOSS, DAMAGE OR REQUISITION.
---------------------------
12.1 Total Loss of Airframe. (a) Upon the occurrence of a Total Loss
----------------------
with respect to the Airframe during the Term, Lessee shall give Lessor prompt
written notice of such Total Loss. Lessee shall pay or cause to be paid to
Lessor in immediately available funds within 90 days following the Total Loss,
an amount equal to (i) the Basic Rent, if any, due and payable on or before the
date the Total Loss occurred, plus (ii) all unpaid Supplemental Rent due on or
before such payment date, (including the Stipulated Loss Value for the Aircraft)
plus (iii) an amount equal to the interest at the Overdue Rate minus 3% on all
amounts payable pursuant to Subsections (i) and (ii) above for each day during
the period commencing the day after the date of the Total Loss up to and
including such payment date. Lessee may deduct from all amounts payable pursuant
to the preceding sentence, and retain, an amount equal to the daily equivalent
of Basic Rent multiplied by the number of days from but excluding the date the
Total Loss occurred to and including the day prior to the due date of the next
payment of Basic Rent or the last day of the Basic Term (but for the occurrence
of the Total Loss), as the case may be, together with interest on such amount at
the Overdue Rate minus 3% from and including the day following the date the
Total Loss occurred to but excluding the date payment is made by Lessee to
Lessor as provided in the immediately preceding sentence.
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(b) In the event of a payment in full of the Stipulated Loss Value for the
Aircraft and other Rent payable as provided above, (i) this Lease and the
obligations of Lessee to pay Basic Rent and Supplemental Rent (except for
Supplemental Rent obligations surviving pursuant to Section 15 hereof or which
have otherwise accrued but not been paid as of the date of such payment and the
insurance to be provided pursuant to Section 11.10) shall terminate; and (ii)
Lessor shall convey to Lessee all of Lessor's right, title and interest, as-is,
where-is without recourse or warranty, express or implied, except to warrant as
to title and that it is free and clear of Lessor's Liens, in and to the Airframe
and Engines.
12.2 Engine Loss. (a) Upon the occurrence during the Term of a Total
-----------
Loss with respect to an Engine whether or not installed on the Airframe and not
involving a Total Loss with respect to the Airframe, Lessee shall give Lessor
written notice thereof within 10 Business Days of such loss and shall within 120
days of the occurrences of such Total Loss and on at least 5 days' prior written
notice to Lessor substitute a Replacement Engine for such Engine. In such event,
immediately upon the effectiveness of such substitution on the date set forth in
such notice and without further act,
(i) title to the Replacement Engine shall thereupon vest in
Lessor (subject only to Permitted Liens),
(ii) title to the replaced engine shall thereupon vest in
Lessee, in as-is, where-is condition, free and clear of all rights of Lessor
and shall no longer be deemed an Engine hereunder, and
(iii) such Replacement Engine shall become subject to this
Lease and be deemed part of the Aircraft for all purposes hereof to the same
extent as the Engine originally installed on or attached to the Airframe.
(b) Upon such substitution, Lessee shall execute and deliver to Lessor
such bills of sale, opinions of counsel and other documents and instruments as
Lessor shall reasonably request, in form and substance acceptable to Lessor, to
evidence the interest of Lessor and conveyance to Lessor of good and marketable
title to such Replacement Engine. Upon such substitution, (i) Lessor shall
execute and deliver to Lessee such bills of sale and other documents and
instruments, prepared at Lessee's expense, as Lessee shall reasonably request to
evidence such transfer and vesting of title in and to the replaced Engine in
Lessee, free and clear of all rights of Lessor and (ii) Lessee shall receive all
insurance proceeds and proceeds in respect of any Total Loss causing such
replacement to the extent not previously applied to the purchase price of the
Replacement Engine as provided in Section 12.3 hereof. No Total Loss with
respect to an Engine under the circumstances contemplated by this Section 12.2
shall result in any reduction of Lessee's obligations to pay Rent hereunder.
12.3 Repairable Damage: Use of Insurance Proceeds. In the event of
--------------------------------------------
repairable damage to the Aircraft or any of the Engines, or any Engine Loss
(when no Total Loss of the Aircraft has occurred), Lessor shall forthwith either
pay any insurance proceeds received by it to
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Lessee upon Lessee's furnishing evidence to Lessor that such damage has been
made good or repaired such that the condition of the Aircraft shall be at least
equivalent to its condition, assuming compliance with the provisions of this
Lease, immediately prior to the event of damage or, in case of an Engine loss,
evidence that Lessee has purchased or otherwise acquired and installed a
Replacement Engine.
12.4 Payment from Governmental Authorities for Requisition of Title or
-----------------------------------------------------------------
Use: Requisition.
- ----------------
In the event of a requisition for use by any government, so long as it
does not constitute a Total Loss of the Airframe, Lessee shall promptly notify
Lessor of such requisition and all Lessee's obligations under this Lease shall
continue to the same extent as if such requisition had not occurred; including,
without limitation, that Lessee's obligations for the payment of Rent and its
obligations under Section 11 hereof shall in no way be affected, reduced or
delayed by such requisition. Any payments received by Lessor or Lessee from such
government with respect to such requisition shall be paid over to or retained
by, Lessee. In the event of the requisition for use by a government of any
Engine (but not the Airframe), Lessee shall replace such Engine hereunder by
complying with the terms of Section 12.2 hereof to the same extent as if a Total
Loss had occurred with respect to such Engine. Any payments received by Lessor
or Lessee from such government with respect to such requisition shall be paid
over to, or retained by, Lessor until Lessee's replacement of such Engine
pursuant to Section 12.2 hereof, at which point it shall be paid over to Lessee.
12.5 Application of Payments During Existence of Event of Default.
------------------------------------------------------------
Any amount referred to in Sections 11 or 12 hereof which is payable to Lessee
shall not be paid to Lessee, or, if it has been previously paid directly to
Lessee, shall not be retained by Lessee, if at the time of such payment an Event
of Default shall have occurred and be continuing, but shall be paid to and held
by Lessor as security for the obligations of Lessee under this Lease.
SECTION 13. EVENTS OF DEFAULT
-----------------
Each of the following events shall be an Event of Default:
13.1 Failure to Make Payments. If Lessee shall fail to make any
------------------------
payment of Basic Rent within three Business Days after the same is due or if
Lessee shall fail to make a payment of Supplemental Rent within five Business
Days after notice from Lessor; or
13.2 Failure to Obtain or Maintain Insurance. If Lessee fails to
---------------------------------------
obtain or maintain any insurance required by Section 11 of this Lease or
operates or locates or permits operation or location of the Airframe in
violation of Section 8.2(a) hereof,
13.3 Failure to Perform Other Obligations. If Lessee fails to duly
------------------------------------
observe or perform any of its other obligations or agreements under any Lease
Document to which Lessee is
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a party and such failure shall not have been remedied within a period of 30 days
after written notice specifying the same from Lessor;
13.4 Representations and Warranties Untrue. If any representation or
-------------------------------------
warranty made by Lessee in any Operative Document shall prove to be untrue in
any material respect when made;
13.5 Guaranty. If any Event of Default, as defined therein shall
--------
occur and remain unremedied.
13.6 Insolvency or Bankruptcy.
------------------------
(a) If Lessee shall consent to the appointment of or taking possession
by a receiver, assignee, custodian, sequestrator, trustee or liquidator (or
other similar official) of itself or of a substantial part of its property, or
Lessee shall fail to pay its debts generally as they come due, or shall make a
general assignment for the benefit of its creditors, or Lessee shall commence a
voluntary case or other proceeding seeking liquidation, reorganization other
relief with respect to itself or its debts under the Federal bankruptcy laws, as
now or hereafter constituted or any other applicable bankruptcy, insolvency or
other similar laws or shall consent to the entry of an order for relief in an
involuntary case under any such law or Lessee shall file an answer admitting the
material allegations of a petition filed against Lessee in any such proceedings
or otherwise seek relief under the provisions of any now existing or future
bankruptcy, insolvency or other similar laws providing for the reorganization or
winding-up of corporations, or providing for an agreement, composition,
extension or adjustment with its creditors.
(b) If an order, judgment or decree shall be entered in any
proceedings by any court of competent jurisdiction appointing, without the
consent of Lessee, a receiver, trustee or liquidator of Lessee, or of any
substantial part of its property, or any substantial part of the property of
Lessee shall be sequestered, and any such order, judgment or decree or
appointment or sequestration shall remain in force undismissed, unstayed or
unvacated for a period of 60 days after the date of entry thereof;
(c) If a petition against Lessee in a proceeding or case under the
bankruptcy laws or other insolvency laws shall be filed and shall not be
withdrawn or dismissed within 60 days thereafter, or, in case the approval of
such petition by a court of competent jurisdiction is required, the petition as
filed or amended shall be approved by such a court as properly filed and such
approval shall not be withdrawn or the proceeding dismiss within 60 days
thereafter, or a decree or order for relief in respect of Lessee shall be
entered by a court of competent jurisdiction in an involuntary case under the
Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable bankruptcy, insolvency or other similar laws, as now or hereafter
constituted and such decree or order shall remain unstayed in effect for a
period of 60 days, or if, under the provisions of any law providing for
reorganization of winding-up of corporations which may apply to Lessee any
court of competent jurisdiction shall assume jurisdiction, custody or control
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of Lessee or of any substantial part of its property and such jurisdiction,
custody or control shall remain in force unrelinquished, unstayed or
unterminated for a period of 60 days.
SECTION 14. REMEDIES.
--------
Upon the occurrence of any Event of Default and at any time thereafter so
long as the same shall be continuing, Lessor may, at its option, declare this
Lease to be in default; and at any time thereafter, Lessor may do, and Lessee
shall comply with, any one or more of the following with respect to all or any
part of the Aircraft, as Lessor in its sole discretion shall elect:
(a) Cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to, and Lessee shall, promptly return the Aircraft to Lessor
at such location as selected by Lessor in the manner and condition required by,
and otherwise in accordance with all of the provisions of, Section 9 hereof as
if such Airframe or such Engines were being returned at the end of the Term; or
Lessor, at its option, may enter upon the premises where the Airframe or any or
all Engines are located or believed to be located and take immediate possession
of and remove such Airframe or Engines without the necessity for first
instituting proceedings, or by summary proceedings or otherwise, and Lessee
shall comply therewith, all without liability to Lessor for or by reason of such
entry or taking possession, whether for the restoration of damage to property
caused by such taking otherwise;
(b) Sell or otherwise dispose of any or all of the Aircraft, at
public or private sale and with or without notice to Lessee or advertisement, as
Lessor may determine or hold, use, operate, lease to others or keep idle all or
any part of the Airframe or any Engine as Lessor, in its sole discretion, may
determine, in any such case 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) Whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) above with respect to the Aircraft, Lessor, by written notice to
Lessee specifying a payment date may cause Lessee to 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, any installment of Basic
Rent with respect to the Aircraft due on or before such payment date plus an
amount equal to 120% of all Rent due thereafter during the remaining portion of
the Term or the date Lessor obtains possession of the Aircraft in the condition
on the amount of such excess, if any, from such payment date specified in
Section 9 hereof, whichever shall be later, together with interest at the
Overdue Rate on the amount of such excess, if any, from such payment date
specified pursuant to this paragraph (c) to the date such amount is actually
received by Lessor in cash;
(d) Rescind this Lease as to the Aircraft or exercise any other
right or remedy which may be available under Applicable Law or proceed by
appropriate court action to enforce the terms hereof or to recover damages for
the breach hereof. In addition, Lessee shall be liable for any and all
Supplemental Rent due hereunder before or after any termination hereof,
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including all costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by reason of the occurrence of any Event of Default or
the exercise of Lessor's remedies with respect thereto including all costs and
expenses incurred in connection with the return of the Airframe or any Engine in
accordance with the terms of Section 9 hereof or any appraisal of the Aircraft.
No remedy referred to in this Section 14 is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above 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 any Event of Default hereunder 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, otherwise than in accordance with the provisions of this Section 14, to
sell, Lease or otherwise use the Airframe or any Engine in mitigation of
Lessor's damages or which may otherwise limit or modify any of Lessor's rights
or remedies under this Section 14.
SECTION 15. INDEMNITIES.
-----------
15.1 General Indemnification and Waiver of Certain Claims.
----------------------------------------------------
(a) Claims Defined. For the purposes of this Lease,
--------------
"Claims" shall mean any and all liabilities (including strict or absolute costs,
actions or suits and all legal proceedings whether civil or criminal, fines and
other sanctions, which may be imposed on, incurred by, suffered by, or asserted
against Lessor its successors and assigns and the officers, directors, agents,
partners and employees of Lessor, its successors and assigns, and, the
Beneficiaries and its or their officers, directors, agents, partners and
employees, (individually, an "Indemnified Person" for purposes of this
Section 15.1) and, except as otherwise expressly provided in this Section 15.1,
shall include all reasonable costs, disbursements and expenses (including
attorneys' fees and expenses) of an Indemnified Person in connection therewith
or related thereto.
(b) Claims Indemnified. Lessee agrees to indemnify,
------------------
defend and hold harmless each Indemnified Person against Claims resulting from,
arising out of, or related to:
(i) the operation, possession, use, non-use,
maintenance, storage, overhaul, testing or disposition of the Aircraft, Airframe
or any Engine, or any engine used in connection with the Airframe, or any Part
or part thereof by Lessee or any other Person whatsoever, whether or not such
operation, possession, use, non-use, maintenance, storage, overhaul or testing
is in compliance with the terms of the Lease, including, without limitation,
Claims for death, personal injury or property damage or other loss or harm to
any Person whatsoever, including, without limitation, any passengers, shippers
or other persons whatever located, and Claims relating to any laws, rules or
regulations, including, without limitation, environmental control, noise and
pollution laws, rules or regulations;
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(ii) the manufacture, design, sale, purchase, acceptance,
rejection, delivery, condition, repair, modification, servicing, rebuilding,
airworthiness, performance, nondelivery, sublease, merchantability, fitness for
use, substitution or replacement of the Airframe, an Engine or part under the
Lease, or other transfer of use or possession of the Aircraft, Airframe, Engine
or Part, and registration of the Aircraft, Airframe or any Engine, including,
without limitation, latent and other defects, whether or not discoverable, and
patent, trademark or copyright infringement; and
(iii) any breach of or failure to perform or observe, or any
other non-compliance with, any covenant or agreement to be performed, or other
obligation of Lessee under any Lease Document.
(c) Claims Procedure. An Indemnified Person shall notify Lessee
----------------
of any Claim as to which indemnification is sought. Lessee shall have the right
to investigate and the right to defend, and with the prior written consent of
such Indemnified Party, such consent not to be unreasonably withheld, compromise
any Claim for which indemnification is sought under this Section 15.1, and the
Indemnified Person shall cooperate with all reasonable requests of Lessee in
connection therewith; provided that at such time no Event of Default shall have
occurred and be continuing. In discharging its obligations, under this
Section 15.1 Lessee agrees to utilize counsel reasonably acceptable to such
Indemnified Person. An Indemnified Person may participate at its own expense in
any judicial proceeding controlled by Lessee pursuant to the preceding
provisions, and such participation shall not constitute a waiver of the
indemnification provided in this Section 15.1. Nothing contained in this Section
15.1(c) shall be deemed to require an Indemnified Person to contest any Claim or
to assume responsibility for or control of any judicial proceeding with respect
thereto.
(d) Indemnification on After-Tax Basis. In the event Lessee is
----------------------------------
required to indemnify any Indemnified Person under this Section 15.1 or 15.2,
Lessee shall pay to such Indemnified Person an amount which, after deduction of
all taxes actually required to be paid by such Indemnified Person in respect of
the receipt of such amount under the Applicable Laws of any government or taxing
jurisdiction, shall be equal to the amount of the indemnification required.
(e) Waiver of Certain Claims. Lessee hereby waives and releases
------------------------
any Claim now or hereafter existing against any Indemnified Person arising out
of death or personal injury to personnel of the Lessee, loss or damage to
property of Lessee, or the loss of use of any property of Lessee, which may
result from or arise out of the condition, use or operation of the Aircraft
during the term, including without limitation any latent or patent defect
whether or not discoverable.
(f) Conflicting Provisions. The general indemnification
----------------------
provisions of this Section 15.1 are not intended to waive or supersede any
specific provisions of this Lease to the extent such provisions apply to any
Claim.
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15.2 Taxes and Other Charges.
-----------------------
(a) Lessee shall pay, indemnify and hold Lessor harmless from all
Taxes which relate to the leasing of the Aircraft pursuant hereto which may be
levied or assessed against, or imposed on Lessor, the Aircraft or any Part or
part thereof upon or with respect to or as a result of (i) the interest of
Lessee or Lessor in the Aircraft, (ii) any Rent, (iii) this Lease or the
interest of Lessee or Lessor hereunder, (iv) the manufacture, purchase,
delivery, leasing, operation, return, possession, use, occupancy, installation,
construction, maintenance, repair, renewal or modification of the Aircraft, the
Airframe, the Engines, the Parts or any part of any of the foregoing, (v)
receipts from the Aircraft during or with respect to the Term, or (vi) the
earnings arising from the possession, use or occupancy thereof during the Term.
Without limitation of the foregoing, Lessee shall also pay and discharge, as and
when due and payable without penalty, all Taxes which may be levied or assessed
against or payable by Lessee or Lessor on account of the ownership, leasing, or
use of the Aircraft. Notwithstanding the foregoing provisions of this Section
15.2(a), Lessee shall not be required to pay any Tax levied or based on Lessor's
net income and imposed on Lessor by any taxing jurisdiction in which Lessor is
subject to such tax by reason of activities unrelated to the acquisition,
ownership, financing, installation, construction, leasing or use of the Aircraft
unless any such Tax or a portion thereof is, by its express terms, imposed or
levied upon or assessed against Lessor in substitution for or in place of any
other Tax required to be paid by Lessee pursuant to this Section 15.2
(b) Lessee shall furnish to Lessor, upon Lessor's written
request, proof of the payment of any such Tax which is payable by Lessee
pursuant to Section 15.2(a).
(c) Whenever the term "Lessor" is used in this Section 15.2, such
term shall include Lessor, its successors, transferees, assigns and partners,
and if any Lessor is a trust, the beneficiary and the owner of such trust and
the partners of each such beneficiary and owner.
15.3 Continuing Indemnification. The agreements and indemnities
--------------------------
contained in this Section 15 shall survive the end of the Term.
SECTION 16. TRANSFER, ASSIGNMENT AND SUBLEASE.
---------------------------------
16.1 Assignment or Encumbrance by Lessor. Lessor may, without
-----------------------------------
notice to or the consent of Lessee, sell the Aircraft and assign any of its
rights hereunder whether as collateral security or otherwise, subject only to
the condition that any such assignment or security interest be expressly made
subject to Lessee's rights under Section 4 hereof. In connection with any such
assignment, Lessee further agrees to take all actions as may be reasonably
requested by Lessor to secure such assignee's interest, including without
limitation: (i) indemnifying any assignee to the same extent as Lessor under
Section 15 hereof; (ii) adding any assignee as additional insureds and loss
payees to all insurance policies so naming the Lessor in accordance with Section
11 hereof; (iii) executing, recording and filing and filing all agreements,
certificates, financing statements, opinions and other documents or instruments
as may be reasonably necessary or
-38-
<PAGE>
desirable to recognize, evidence, secure or perfect any assignees ownership or
security interest in the Aircraft and this Lease; (iv) permit the Liens created
by security interests granted pursuant hereto; and (v) to recognize all rights
of such any assignee to exercise any and all rights of Lessor hereunder.
16.2 Sublease of Aircraft or Assignment by Lessee. Lessor and Lessee
--------------------------------------------
agree that Lessee may sublease the Aircraft to the Sublessee pursuant to
sublease agreements with substantially the same terms and conditions as those
set forth herein. Sublessee may enter into in the ordinary course of Sublesse's
business an ACMI Lease. No other sublease of the Aircraft, including the
Airframe or any of the Engines, shall be permitted, and no assignment of the
Aircraft or any of Lessee's rights or obligations under the Lease to any other
party shall be permitted, in either case without the prior written consent of
Lessor.
16.3 Consolidation, Merger or Transfer by Lessee. Lessee shall not,
-------------------------------------------
without the prior written consent of Lessor, consolidate with or merge into any
other corporation or convey, transfer or lease all or substantially all of its
assets as an entity to any Person unless, following such merger, conveyance,
transfer or lease the successor entity shall have assumed the due and punctual
performance of Lessee hereunder pursuant to an agreement in form and substance
reasonably satisfactory to Lessor.
16.4 Nonrecourse As to Trustee. Neither the United States Trust
-------------------------
Company of New York nor any entity acting as successor trustee shall be
personally liable for, or for any loss in respect of, any of the statements,
representations, warranties, agreements, actions, failures to act or obligations
of Lessor hereunder; Lessee hereby agrees to look solely to the trust estate of
the owner trust created by the trust agreement pursuant to which the Aircraft
and this Lease are held by Lessor in the event of any default by Lessor of its
obligations hereunder or otherwise.
SECTION 17. NOTICES.
-------
Unless otherwise specifically provided herein, all notices required or
permitted by the terms hereof shall be in writing. Any written notice shall
become effective the earlier of when received or five days after the deposit of
such notice in the U.S. mail. Any written notice shall either be mailed,
certified or registered mail, return receipt requested, with proper first class
postage prepaid, or sent in the form of a telex, telegram, or telecopy, or by
overnight delivery service or delivered by hand. Any written notice shall be
addressed as follows:
If to Lessor:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attn: Louis P. Young
Fax: (212) 852-1626
-39-
<PAGE>
With a copy to:
American Finance Group
Exchange Place
Boston, MA 02109
Attn: General Counsel
Fax: (617) 523-1410
If to Lessee:
ING Aviation Lease BV
Karspeldreef 14, 1101 CK Amersterdam-Zuidoost
The Netherlands
Attention: Managing Director
Fax: (3120) 652-5704
with a copy to:
David Schmidt, Esq.
Whitman, Breed, Abbott & Morgan
Metlife Building
200 Park Avenue
New York, NY 10166
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this Section 17.
SECTION 18. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make
------------------------------------
any payment of Rent required to be made by it hereunder, or fails to perform or
comply with any of its agreements contained herein, then 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 Overdue
Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
SECTION 19. MISCELLANEOUS.
-------------
19.1 Waivers, Headings. No term or provision of this Lease may be
-----------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. The headings contained herein are for
convenience and reference only and are not intended to define or limit the
scope of any provisions of this Lease.
-40-
<PAGE>
19.2 Counterparts. This Lease may be signed in one or more
------------
counterparts with the same effect as if the signatures to each counterpart
were upon a single instrument.
19.3 Agreement of Lease. This Lease shall constitute an agreement to
------------------
lease, and nothing contained herein shall be construed as conveying to Lessee
any right, title or interest in any Aircraft except as a lessee only.
19.4 Governing Law. This Lease shall in all respects be governed by,
-------------
and construed in accordance with English law, including all matters of
construction, validity and performance but without giving effect to its choice
of law provisions.
19.5 Benefit and Binding Effect. The terms and provisions of this
--------------------------
Lease shall inure to the benefit of and be binding on Lessor its successors and
assigns and Lessee and its successors and permitted assigns.
19.6 Further Assurances. Lessor and Lessee shall, from time to time,
do and perform such other and further acts and execute and deliver any and all
such other and further instruments as may be required by law or reasonably
requested by the other party to establish, maintain and protect the respective
rights and remedies of the other party and to carry out the intent and purpose
of this Lease. In furtherance of and not in limitation of the foregoing and
notwithstanding any breach or alleged breach by Lessor of its obligations
hereunder, Lessee agrees that upon the expiration or earlier termination of this
Lease to promptly execute upon Lessor's request a lease termination certificate
or similar instrument in a form suitable for recordation with the CAA.
[This space intentionally left blank]
-41-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease by their duly
authorized representatives as of the date first above written.
UNITED STATES TRUST COMPANY INTERNATIONALE NEDERLANDEN
OF NEW YORK, not in its AVIATION LEASE B.V.
individual capacity but
solely as Trustee of the
"AFG/British Airways Trust"
By:__[SIGNATURE APPEARS HERE]___ By:_____________________________
Title:___VICE PRESIDENT_________ Title:__________________________
THIS LEASE IS COUNTERPART NO. 1 OF THREE SERIALLY NUMBERED ORIGINAL
---
EXECUTED COUNTERPART COPIES OF THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS
LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS
LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER
THAN THE ORIGINAL EXECUTED COUNTERPART MARKED COUNTERPART NO.1.
-42-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease by their
duly authorized representatives as of the date first above written.
UNITED STATES TRUST COMPANY INTERNATIONALE NEDERLANDEN
OF NEW YORK, not in its AVIATION LEASE B.V.
individual capacity but
solely as Trustee of the
"AFG/British Airways Trust"
By: By: [signature appears here]
------------------------ ----------------------------
Title: Title: [signature appears here]
--------------------- -------------------------
THIS LEASE IS COUNTERPART NO. 1 OF THREE SERIALLY NUMBERED ORIGINAL EXECUTED
COUNTERPART COPIES OF THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE
CONSTITUTES CHATTEL PAPER (AS SUCH TERM DEFINED IN THE UNIFORM COMMERCIAL CODE
AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS
LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER
THAN THE ORIGINAL EXECUTED COUNTERPART MARKED COUNTERPART NO. 1.
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF AIRCRAFT
-----------------------
Model Serial CAA
Manufacturer Configuration Number Reg. Mark
- ------------ ------------- ------ ---------
Lockheed Aircraft L-1011-385-50 1145 G-BEAL
Corporation
Number and Type Serial
of Engines Number
- ------------- ------
Rolls-Royce
RB211-22B
Engine 1 10453
Engine 2 10456
Engine 3 10532
<PAGE>
EXHIBIT B
ACCEPTANCE CERTIFICATE (INTERIM)
This Acceptance Certificate (Interim) ("Certificate") is by and between
United States Trust Company of New York, not in its individual capacity but
solely as trustee of the "AFG/British Airways Trust" ("Lessor") and
Internationale Nederlanden Aviation Lease B.V. ("Lessee") and relates to that
certain Lockheed L-1011-385-50 aircraft MSN 1145, UK Registration Mark G-BEAL
("Aircraft").
WHEREAS, Lessor and Lessee are entering into that certain Lease Agreement
(G-BEAL) dated as of April 30, 1994 relating to the lease by Lessee of the
Aircraft from Lessor; and
WHEREAS, the Aircraft is currently stored at the facilities of Aero Tech in
Roswell, New Mexico; and
WHEREAS, Lessee has preliminarily inspected the Aircraft and based on such
inspection believes that the Aircraft is substantially in condition required by
Lessee to fully accept it for lease under the Lease but that Lessee will be
unable to verify such conclusion until the Aircraft has been flown to the U.K.,
and an Integration Check by BA ("Integration Check") has been performed; and
NOW THEREFORE, Lessor and Lessee hereby certify and agree as follows:
1. Acceptance. Lessee hereby provisionally accepts the Aircraft from
----------
Lessor and hereby agrees to promptly fly the Aircraft to London - Gatwick
Airport (part of which flight will be used as a test flight of the Aircraft) and
to there cause BA to perform the Integration Check, at Lessor's expense, to
ascertain the condition of the Aircraft and its suitability for integration into
the BA maintenance system.
2. The Lease. Lessor and Lessee hereby agree that except as otherwise set
---------
forth herein, from and after the execution of this Certificate, Lessee's
possession and operation of the Aircraft shall be pursuant to all of the terms
and conditions in the Lease, provided however that during the flight from
----------------
Roswell, New Mexico to London - Gatwick Airport, no maintenance reserve shall be
payable with respect to such flight pursuant to Section 8.14 and that no Basic
Rent shall be payable as provided in Section 6.1 of the Lease until the
Acceptance Certificate (Final) is executed by Lessee.
3. Final Acceptance. Upon the successful conclusion of the Integration
----------------
Check, as provided in Section 2.2 of the Lease, Lessee shall execute the
Acceptance Certificate (Final) thereby accepting the Aircraft for lease under
the Lease in all respects.
<PAGE>
4. Failure to Accept. In the event the Aircraft proves in the course of
-----------------
the Integration Check not be in substantially the condition required for lease
under the Lease, Lessee agrees to cause the Aircraft, at Lessor's expense, to be
promptly repaired so that it meets such standards. In the event that it is
determined that the Aircraft cannot be repaired on or before May 28, 1994 or
that the aggregate, ordinary and reasonable costs of such repairs would exceed
$500,000, either Lessee or Lessor may conclude upon written notice given to the
other that the Aircraft cannot be accepted for lease and Lessee shall cause the
Aircraft to be returned to Aero Tech at Roswell, New Mexico at the expense of
the party making such determination. Upon its return to Aero Tech, Lessee shall
have no further liability to Lessor under the Lease or otherwise with respect to
the proposed leasing of the Aircraft by Lessee.
5. Defined Terms. Capitalized terms not otherwise defined herein shall
-------------
have the meaning given to such terms in the Lease.
IN WITNESS WHEREOF, Lessee and Lessor have executed this certificate on May
____, 1994.
United States Trust Company
of New York, Trustee as aforesaid.
By:____________________________
Title:_________________________
Internationale Nederlanden Aviation
Lease B.V.
By:____________________________
Title:_________________________
-2-
<PAGE>
EXHIBIT C
---------
to
Lease Agreement (G-BEAL)
------------------------
dated as of April 30, 1994
ACCEPTANCE CERTIFICATE (FINAL)
------------------------------
Internationale Nederlanden Aviation Lease B.V. ("Lessee") hereby
acknowledges that on the ___ day of May, 1994, United States Trust Company of
New York, as Trustee of the "AFG/British Airways Trust" ("Lessor"), delivered
for inspection to Lessee one (1) Lockheed L-1011-385-50 Aircraft, bearing
Manufacturer's Serial Number 1145 and CAA Registration Mark G-BEAL, together
with three (3) Rolls-Royce RB211-22B Engines, bearing manufacturer's serial
numbers 10453, 10456 and 10532, together with all instruments, parts, and other
equipment attached hereto or installed therein ("Parts"), in accordance with the
Lease Agreement (G-BEAL) between Lessor and Lessee, dated as of April 30, 1994
(the "Lease").
The undersigned hereby further acknowledges that: (i) it did conduct an
inspection of the aforementioned Aircraft, Engines, and Parts as evidenced by
Schedule 1 hereto; (ii) the same are technically acceptable to it and in the
condition for delivery and acceptance as required under the Lease; and (iii)
the execution and delivery of this Acceptance Certificate (Final) signifies the
technical acceptance by Lessee of the Aircraft under the Lease as reflected by
Schedule 1 and the acceptance of the Aircraft in all respects for lease under
the Lease. Any outstanding discrepancies between the condition of the Aircraft
at delivery and the condition of the Aircraft as required by the Lease Agreement
as described in the Lease are noted in Schedule 3 hereto.
IN WITNESS WHEREOF, this Acceptance Certificate (Final) has been executed
and delivered at Gatwick Airport, United Kingdom, this ___ day of May, 1994.
INTERNATIONALE NEDERLANDEN
AVIATION LEASE B.V. (Lessee)
By: ___________________________
Title: ________________________
<PAGE>
SCHEDULE 1
TO
ACCEPTANCE CERTIFICATE (FINAL)
Aircraft Status
Just Prior to Delivery Date
---------------------------
1. Airframe Heaviest Check ("D" Check or Equivalent):
-------------------------------------------------
Interval:
Time Remaining:
2. Airframe "C" Check (or Equivalent) (Phase C):
--------------------------------------------
Interval:
Time Remaining:
3. Landing Gear Overhaul:
---------------------
Interval:
Time Remaining:
Hrs. Left Gear
Hrs. Right Gear
Hrs. Nose Gear
4. Engines:
-------
Interval: On Condition
-2-
<PAGE>
Hot Section Inspection ("HSI"):
============================================================
S/N Time Since HSI* Cycle since HSI*
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
============================================================
*Times and cycles since Acceptance Borescope
-3-
<PAGE>
Interval: On Condition
Cold Section Inspection ("CSI"):
=======================================================
S/N Time Since CSI* Cycles Since CSI*
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
=======================================================
* Times and cycles since Acceptance Borescope
5. Engines Time Remaining to First Restriction:
-------------------------------------------
Engine S/N: ---------- Limiter:
Hours: ---------- ----------
Cycles: ---------- ----------
Engine S/N: ---------- Limiter:
Hours: ---------- ----------
Cycles: ---------- ----------
Engine S/N: ---------- Limiter:
Hours: ---------- ----------
Cycles: ---------- ----------
6. Auxiliary Power Unit:
--------------------
On Condition
Time Since Last APU -------------
Heavy Shop Visit:
Date of Last APU -------------
Heavy Shop Visit:
-4-
<PAGE>
SCHEDULE 2
TO
ACCEPTANCE CERTIFICATE (FINAL)
Manuals and Technical Records
-----------------------------
-5-
<PAGE>
SCHEDULE 3
TO
ACCEPTANCE CERTIFICATE (FINAL)
Discrepancies (Append additional pages as required and initial each such page):
- -------------
INTERNATIONALE NEDERLANDEN UNITED STATES TRUST COMPANY
AVIATION LEASE B.V. OF NEW YORK AS TRUSTEE OF "AFG/
BRITISH AIRWAYS TRUST"
By _________________________ By _________________________
Title ______________________ Title ______________________
Date _______________________ Date _______________________
-6-
<PAGE>
EXHIBIT D
---------
to
Lease Agreement (G-BEAL)
------------------------
dated as of April 30, 1994
ACCEPTANCE CERTIFICATE (RETURN)
-------------------------------
United States Trust Company of New York, as Trustee of the "AFG/British
Airways Trust" ("Lessor"), hereby acknowledges that on the__day of_____, 199_,
Internationale Nederlanden Aviation Lease B.V. ("Lessee") delivered for
inspection to Lessor one (1) Lockheed L-1011-385-50 Aircraft, bearing
Manufacturer's Serial Number 1145 and CAA Registration Mark G-BEAL, together
with three (3) Rolls-Royce RB211-22B Engines, bearing manufacturer's serial
numbers 10453, 10456 and 10532, together with all instruments, parts, and other
equipment attached hereto or installed therein ("Parts"), in accordance with the
Lease Agreement (G-BEAL) between Lessor and Lessee, dated as of April 30, 1994
(the "Lease").
The undersigned hereby further acknowledges that: (i) it did conduct an
inspection of the aforementioned Aircraft, Engines, and Parts as evidenced by
Schedule 1 hereto; (ii) the same are technically acceptable to it and in the
condition for return and acceptance as required under the Lease; and (iii) the
execution and delivery of this Acceptance Certificate (Return) signifies the
technical acceptance by Lessor fo the Aircraft under the Lease as reflected by
Schedule 1 and the acceptance of the Aircraft as meeting in all respects (except
as noted on the attached Schedule 1) the return conditions applicable to the
Aircraft under the Lease. Any outstanding discrepancies between the condition of
the Aircraft at delivery and the condition of the Aircraft as required by the
Lease Agreement as described in the Lease are noted in Schedule 2 hereto.
IN WITNESS WHEREOF, this Acceptance Certificate (Return) has been executed
and delivered at Gatwick Airport, United Kingdom, this__day of___,199_.
United States Trust Company of New York as
Trustee of the "AFG/British Airways Trust"
(Lessor)
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
SCHEDULE 1
TO
ACCEPTANCE CERTIFICATE (RETURN)
Aircraft Status
Just Prior to Delivery Date
---------------------------
1. Airframe Heaviest Check ("D" Check or Equivalent):
------------------------------------------------
Interval:
Time Remaining:
2. Airframe "C" Check (or Equivalent) (Phase C):
--------------------------------------------
Interval:
Time Remaining:
3. Landing Gear Overhaul:
---------------------
Interval:
Time Remaining:
Hrs. Left Gear
Hrs. Right Gear
Hrs. Nose Gear
4. Engines:
-------
Interval: On Condition
-2-
<PAGE>
<TABLE>
<CAPTION>
Hot Section Inspection ("HSI"):
============================================================
S/N Time Since HSI* Cycles Since HSI*
<S> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
============================================================
</TABLE>
* Times and cycles since Acceptance Borescope
-3-
<PAGE>
Interval: On Condition
<TABLE>
<CAPTION>
Cold Section Inspection ("CSI"):
============================================================
S/N Time Since CSI* Cycles Since CSI*
<S> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
============================================================
</TABLE>
* Times and cycles since Acceptance Borescope
5. Engines Time Remaining to First Restriction:
-------------------------------------------
Engine S/N: Limiter:
-------
Hours:
------- -------
Cycles:
------- -------
Engine S/N: Limiter:
-------
Hours:
------- -------
Cycles:
------- -------
Engine S/N: Limiter:
-------
Hours:
------- -------
Cycles:
------- -------
6. Auxiliary Power Unit:
--------------------
On Condition
Time Since Last APU
----------
Heavy Shop Visit:
Date of Last APU
----------
Heavy Shop Visit:
-4-
<PAGE>
SCHEDULE 2
TO
ACCEPTANCE CERTIFICATE (RETURN)
Discrepancies (Append additional pages as required and initial each such page):
- -------------
INTERNATIONALE NEDERLANDEN UNITED STATES TRUST COMPANY
AVIATION LEASE B.V. OF NEW YORK AS TRUSTEE OF "AFG/
BRITISH AIRWAYS TRUST"
By ____________________ By _____________________
Title _________________ Title __________________
Date __________________ Date ___________________
-5-
<PAGE>
EXHIBIT E
GUARANTY OF THE OBLIGATIONS OF INTERNATIONALE
---------------------------------------------
NEDERLANDEN AVIATION LEASE B.V.
-------------------------------
This Guaranty of the Obligations of Internationale Nederlanden Aviation Lease
B.V ("Guaranty"), dated as of April 30, 1994, made by Internationale Nederlanden
Lease Holding N.V., a Netherlands corporation ("Guarantor"),
W I T N E S S E T H:
WHEREAS, Internationale Nederlanden Aviation Lease B.V., a Netherlands
corporation ("Lessee") is desirous of leasing that certain Lockheed
L-1011-385-50 Aircraft manufacturer's serial No. 1145 and U.K. Registration Mark
(G-BEAL) (together with the Engines and related parts and records, the
"Aircraft") from United States Trust Company of New York, not in its individual
capacity but solely as Trustee of the "AFG/British Airways Trust" ("Lessor");
and
WHEREAS, Lessor is willing to lease the Aircraft to Lessee under that
certain Lease Agreement (G-BEAL) dated as of April 30, 1994 (the "Lease") but
only if Lessee's obligations under the Lease are guaranteed by Guarantor.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lessor, as requested by Guarantor, to enter into the Lease, Guarantor does
hereby represent, covenant and agree with Lessor as follows:
1. GUARANTY OBLIGATIONS
--------------------
1.1 Guarantor hereby absolutely and unconditionally, guarantees to Lessor
the punctual and faithful payment and performance of all and singular of the
Liabilities (as hereinafter defined) of Lessee to Lessor under the Lease
(whether such Liabilities are now existing or arise hereafter); and the strict
performance and observance by Lessee of all of the terms, covenants and
conditions contained in the Lease, without reduction, deduction, diminution or
offset of any kind. The obligations of Guarantor with respect to payments made
hereunder shall be the same as those of the Lessee set forth in Section 15.2 of
the Lease with respect to payments made under the Lease. As used herein, the
term "Liabilities" includes, without limitation, any and all Rent, (including
Supplemental Rent), Stipulated Loss Value, indemnity payments and other
payments, indebtedness, liabilities, obligations and undertakings of Lessee to
Lessor of every kind and description under the Lease
<PAGE>
(including, also, without limitation, costs and expenses incurred by Lessor in
attempting to collect or enforce any of the foregoing) accrued in each case to
the date of payment hereunder.
1.2 This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance by Lessee of the Liabilities and
not of their collectibility only. The Liabilities and obligations of Guarantor
hereunder may be enforced in full without any suit or action against Lessee or
any other guarantor of any of the Liabilities, without regard or resort to any
security or other means of obtaining payment of the Liabilities which Lessor may
now or hereafter have or hold, and without the performance or occurrence of any
other condition or contingency whatsoever; provided, however, that the exercise
or attempted exercise, at any time or times, of any or all of such rights and
remedies as Lessor may have against Lessee, or with respect to any security for
liabilities or under any other guaranty of Liabilities shall not affect,
reduce, modify or impair, in any manner whatsoever, the liabilities and
obligations of Guarantor hereunder. Guarantor hereby expressly waives any right
of set-off it may have with respect to its obligations hereunder. Upon the
occurrence of any "Event of Default," as defined in Section 3.1 hereof
(hereinafter an "Event of Default"), the liabilities and obligations of
Guarantor hereunder shall, at the option of Lessor, become forthwith due and
payable to Lessor, without demand or notice of any nature (except as set forth
in Section 3.1.4), all of which are expressly waived by Guarantor. Guarantor
waives notice of acceptance of this Guaranty, presentment, demand of payment,
notice of nonpayment, protest and notice of protest with respect to the
Liabilities and giving of notice of default or other notice to, or making any
demand on, any party liable in any manner for the payment of the Liabilities.
1.3 Guarantor hereby waives any and all suretyship defenses and defenses
in the nature thereof; and agrees that enforcement of this Guaranty shall not be
affected, reduced, modified or impaired by: (i) any dealing by Lessor with
Lessee or anyone else who may now or hereafter become liable in any manner for
any of the Liabilities, in such manner as Lessor, in its sole discretion, may
deem fit; or (ii) if for any reason Lessee has no legal existence or is under no
legal obligation to discharge any of the Liabilities; or (iii) if any
bankruptcy, insolvency, reorganization or similar proceeding in respect of
Guarantor or the Lessee shall have been commenced; or (iv) if, by operation of
law or for any other reason, moneys included in the Liabilities have become
recoverable from Lessee, or (v) if any security for any of the Liabilities or if
any other guaranty thereof is invalid, ineffective or unenforceable. This
Guaranty shall be binding upon Guarantor to the same extent as if Guarantor were
at all times primarily obligated on the Liabilities.
-2-
<PAGE>
1.4 No setoff, counterclaim, reduction or diminution of any Liabilities,
or any defense of any kind or nature, which Guarantor has or may have against
Lessee, shall be available hereunder to Guarantor against Lessor.
1.5 This Guaranty shall remain in full force and effect regardless of any
payment hereunder or of any reduction in, or modification or alteration of the
Liabilities including, without limitation, the extension of the maturity of any
of the Liabilities, until such time as all the Liabilities and all liabilities
and obligations of Guarantor hereunder has been paid and performed in full.
Guarantor's obligations under this Guaranty shall be immediately extinguished
upon the full, complete and faithful performance by Lessee or Guarantor of all
of the Liabilities, provided however, so long as this Guaranty remains in force,
-------- -------
as aforesaid, Guarantor will not, by paying any sum recoverable hereunder
(whether or not demanded by Lessor) or by any means or on any other ground,
claim any set-off or counterclaim against Lessee in respect of any liability of
Guarantor to Lessor or, in bankruptcy or insolvency proceedings of any nature,
prove in competition with Lessor in respect of any payment hereunder or be
entitled to have the benefit of any counterclaim or proof of claim or dividend
or payment by or on behalf of Lessee or the benefit of any other security for
any of the Liabilities which , now or hereafter, Lessor may hold or in which it
may have any share. All payments by Guarantor hereunder shall by made in lawful
money of the United States of America in immediately available funds.
1.6 If for the purpose of Lessor obtaining judgment in any court in any
country with respect to the Liabilities it becomes necessary to convert into any
currency (herein called a "Judgment Currency") other than United States dollars
-------- --------
any amounts payable hereunder or other sum payable by Guarantor under this
Guaranty, then such conversion shall be made at the Rate of Exchange (as defined
herein) prevailing one banking day before the day on which judgment is given.
For this purpose, "Rate of Exchange" means in respect of the Lessor the rate at
----------------
which the Lessor is able on the relevant date of conversion to purchase the
relevant sum of United States dollars as aforesaid with the Judgment Currency.
In the event that there is a change in the Rate of Exchange prevailing between
the banking day before the day on which the judgment is given and the actual
date of payment of the amount due, Guarantor agrees to pay such additional
and/or lesser amounts as the case may be (if any) as may be necessary to ensure
that the amount thus paid on such date is the amount in the Judgment Currency
which when computed at the Rate of Exchange prevailing on the date of payment is
the amount then due and payable under the Guaranty in United States dollars
before conversion into the Judgment Currency was made. Any amount due from
Guarantor under this Section shall be due and payable as a
-3-
<PAGE>
separate debt and shall not be affected by judgment being obtained for any other
sums due under or in respect of this Guaranty.
1.7 Guarantor agrees that notwithstanding the payment of the
Liabilities, the liability of Guarantor hereunder shall continue and remain in
full force and effect in the event all or any part of any such payment is
recovered from Lessor as a preference or fraudulent transfer under any
bankruptcy or other applicable law.
1.8 Guarantor shall have no right of subrogation with respect to any
rights Lessor may have against Lessee or against any security which the Lessor
may hold unless and until the Liabilities have been paid or performed in full.
1.9 Guarantor consents that, without the necessity of any reservation
of rights against it and without notice to or further assent by it (i) the
obligations and liabilities of Lessee and any other party or parties for or upon
any of the Liabilities, or any collateral security therefor may, from time to
time, in whole or in part, be renewed, extended, modified, accelerated,
compromised or released by Lessor; (ii) any and all collateral security at any
time held by Lessor for payment of the Liabilities may be sold, exchanged or
released, all without notice to or further assent by the Guarantor, who will
remain bound hereunder, notwithstanding any such renewal, extension,
modification, acceleration, compromise, sale or exchange or release; and (iii)
the covenants and agreements of Lessee contained in the Lease may at any time be
amended, modified, supplemented or terminated in whole or in part; all as Lessor
may deem advisable from time to time without impairing, abridging, releasing or
affecting the obligations of the Guarantor hereunder.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
Guarantor hereby represents and warrants to Lessor as follows that as of
the date hereof:
2.1 (a) Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of the Netherlands, is duly qualified to do
business and is in good standing in each jurisdiction where the character of its
business and the ownership of its property, as now conducted or owned or as
proposed to be conducted or owned, requires such qualification; has all
requisite power and authority, corporate and otherwise, to conduct its business
and to own its property, as now conducted or owned or as proposed to be
conducted or owned;
-4-
<PAGE>
(b) The execution, delivery and performance by Guarantor of this
Guaranty has been duly authorized by all necessary corporate action on the part
of Guarantor, has been duly executed and delivered by Guarantor,, are not
inconsistent with its charter documents or By-Laws, do not violate any law or
governmental rule, regulation or order applicable to Guarantor, do not and will
not contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is bound and, upon execution
and delivery hereof, will constitute a legal, valid and binding agreement of
Guarantor, enforceable in accordance with its terms;
(c) No consent or approval by any governmental authority or agency is
required with respect to the execution, delivery and performance by Guarantor of
this Guaranty;
(d) There are no litigations or proceedings pending or, to the
knowledge of Guarantor threatened against it which may have a materially adverse
effect on Guarantor or which would prevent or hinder the performance by it of
its obligations hereunder;
(e) Guarantor is not in material default under any agreement,
contract, ordinance, decree, bond, note, mortgage, indenture, order or judgment
to which it is a party or by which any of its properties or assets owned by it
or used in the conduct of its business is affected; and
(f) There has been no material adverse change in the operating or
financial condition of Guarantor since the financial statements of Guarantor
dated December 31, 1993.
III. DEFAULT
-------
3.1 The following described events shall constitute "Events of Default"
hereunder:
3.1.1 An "Event of Default" as defined in the Lease shall occur and
remain unremedied.
3.1.2 Guarantor shall:
(a) admit its inability to pay its debts generally as they become
due or otherwise acknowledging its insolvency;
(b) file a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the bankruptcy law of the United States of
America, or any other jurisdiction which relates to the liquidation or
reorganization of companies or the modification or alteration of the rights of
creditors, (each such law, as from time to time in effect, being sometimes
referred to as a "bankruptcy act", each as now or in
-5-
<PAGE>
the future amended) or an answer or other pleading admitting or failing to deny
the material allegations of such a petition or seeking, consenting to or
acquiescing in the relief therein provided;
(c) make an assignment, or so-called trust mortgage or the like, for
the benefit of its creditors or by its making a proposal to its creditors under
any bankruptcy act;
(d) consent to the appointment of a receiver or a trustee (or other
person performing a similar function) for all or a substantial part of its
property;
(e) be adjudicated a bankrupt;
(f) suffer the entry of, or be the subject of, a court order which
shall not be vacated, set aside or stayed within 60 days from the date of entry,
(i) appointing a receiver or a trustee for all or a substantial part of its
property, or (ii) approving a petition filed or application made against or for,
or effecting an arrangement in bankruptcy or for a reorganization or other
relief pursuant to any bankruptcy act or for any other judicial modification or
alteration of the rights of creditors;
(g) have all or a substantial part of its property taken into custody
or be sequestrated by a court of competent jurisdiction, which custody or
sequestration shall not be suspended or terminated within 60 days (or such
longer period as the Lessor may agree in writing) from its inception.
3.1.3 Any representation or warranty made in writing by Guarantor in
this Guaranty, or in any certificate or written disclosure delivered in
connection with this Guaranty shall prove to have been false or incorrect in any
material respect on the date of such representation or warranty.
3.1.4 Guarantor shall be in default in the observance or performance
or any other covenant, condition or agreement to be observed or performed by
Guarantor hereunder five (5) days after written notice thereof from Lessor.
3.2 Upon the occurrence of an Event of Default, Lessor may, by notice
to Guarantor, declare this Guaranty to be in default and may exercise any of the
following remedies:
Lessor may:
(a) Proceed by appropriate court action either at law or in
equity to enforce performance by Guarantor of the covenants and
terms of this Guaranty and to recover damages for the breach
thereof; and
-6-
<PAGE>
(b) Guarantor shall be liable for all attorneys' fees and
disbursements and other costs and expenses whatsoever incurred by the
Lessor by reason of the occurrence of any Event of Default or by
reason of the exercise by the Lessor of any remedy hereunder,
including without limitation thereto, any costs and expenses incurred
by the Lessor in connection with any retaking of the Aircraft and the
placement of the Aircraft in the condition required by Section 9 of
the Lease.
Lessor's remedies are, except as indicated herein, cumulative and not exclusive,
and are in addition to all remedies at law or in equity. No failure by Lessor
to declare a default shall constitute a waiver of such default or restrict
Lessor's ability to declare a default at a later date.
IV. MISCELLANEOUS
-------------
4.1 No provision of this Guaranty can be changed, waived, discharged or
terminated except by an instrument in writing signed by Lessor and Guarantor
expressly referring to the provision of this Guaranty to which such instrument
is related; and no such waiver shall extend to, affect or impair any right with
respect to any liability or obligation which is not expressly dealt with
therein. No course of dealing or delay or omission on the part of Lessor in
exercising any right or remedy hereunder, shall operate as a waiver thereof or
otherwise be prejudicial thereto. The rights and remedies of Lessor hereunder
are cumulative and not exclusive of any other rights and remedies under any
other guaranty by Guarantor or under applicable law, and all such rights and
remedies may be exercised singly or concurrently.
4.2 Any demand or notice hereunder to Lessor or Guarantor shall be in
writing and shall be effective when delivered to Lessor or Guarantor, as the
case may be, or when sent by certified or registered mail, return receipt
requested, or delivered to a telegraph company, or sent by telex or facsimile,
addressed to Lessor at its address for notices set forth in the Lease or to
Guarantor at its address specified below, or if Lessor or Guarantor has received
written notice of a change of address of the other, to the last address of which
notice has actually been received by Lessor or Guarantor.
4.3 This Guaranty shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts and shall be binding upon
Guarantor and its successors and assigns, and shall inure to the benefit of
Lessor and its successors and assigns.
-7-
<PAGE>
4.4 This Guaranty can be assigned by Lessor if the Lease is assigned
pursuant to its terms and shall be fully enforceable to the same extent as if
made to Lessor's assignee. This Guaranty cannot be assigned by Guarantor
without the prior written consent of Lessor.
4.5 Guarantor agrees to execute and deliver at Lessor's cost all documents
and perform all acts reasonably requested by Lessor so as to permit Lessor to
exercise and enjoy its rights hereunder, including, without limitation the
delivery of opinions, certificates and consents to assignment.
4.6 All capitalized terms not otherwise defined herein shall have the
meaning given to such terms in the Lease.
4.7 Guarantor hereby agrees that any legal action or proceeding with
respect to this Guaranty, or to enforce any judgment obtained against the
Guarantor with respect to the Guaranty, may be brought by the Lessor in the
courts of the Commonwealth of Massachusetts, in the United States federal courts
of the Commonwealth of Massachusetts, or in the courts of any other appropriate
jurisdiction as Lessor may elect and by execution and delivery of this Guaranty
the Guarantor irrevocably submits to each such jurisdiction and service of
process as provided by law but only for the purpose of bringing any legal action
or proceeding with respect to this Guaranty or enforcing any judgment obtained
against the Guarantor with respect to this Guaranty.
In addition, with respect to any action or proceeding within the
jurisdictions of the courts of the Commonwealth of Massachusetts and of the
United States federal courts in the Commonwealth of Massachusetts, the
Guarantor hereby irrevocably consents to the service of process out of said
Massachusetts or United States courts in any such action or proceeding by the
mailing thereof by United States registered mail to it at c/o ING Aviation
Lease, Corner Office, Karspeldreef 14, 1101 CK AMsterdam-Zuidoost, The
Netherlands. Final judgment against the Guarantor (a certified or exemplified
copy of which shall be conclusive evidence of the fact and of the amount of any
indebtedness of the Guarantor therein described) in any such action or
proceeding shall be conclusive and may be enforced in any other jurisdiction by
suit on the judgment.
-8-
<PAGE>
IN WITNESS WHEREOF, Guarantor by its duly authorized representative has
executed this Guaranty as of the day and year first above written.
Internationale Nederlanden Lease Holding N.V.
By:
------------------------
Title:
---------------------
-9-
<PAGE>
EXHIBIT F
to
Lease Agreement (G-BEAL)
------------------------
dated as of April 30, 1994
ACCEPTANCE FLIGHT REPORT
------------------------
DATE_______STATION_________TIME OUT________IN__________AIRCRAFT NO.__________
REASON FOR FLIGHT____________________________________________________________
_________________________________REQUESTED BY________________________________
CHECK ITEMS AND RECORD DATA APPROPRIATE TO FLIGHT AND TYPE. INDICATE CHECKS
PERFORMED WITH "[check mark]" IF SATISFACTORY OR "X" OF UNSATISFACTORY.
PREFLIGHT
- ---------
1. BATTERY(IES) AND EMERGENCY/STANDBY POWER CHECK..................... _______
2. FIRE/O'HEAT WARNING TEST........................................... _______
3. FUELING, CONTROLS AND INDICATORS................................... _______
======================================= ================================
4. FUEL QUANTITY/TEMP__________ 5. ALTIMETERS (SET QNH)
--------------------------------------- --------------------------------
TANK STICK EXT. GAGE F/S GAGE QNH
--------------------------------------- --------------------------------
FIELD ELEV.
--------------------------------------- --------------------------------
CAPT. #1
--------------------------------------- --------------------------------
CAPT. #2
--------------------------------------- --------------------------------
STANDBY
--------------------------------------- --------------------------------
F/O
--------------------------------------- --------------------------------
CAPT. RADIO
--------------------------------------- --------------------------------
TOTAL F/O RADIO
======================================= ================================
<PAGE>
========================= ======================== =======================
6. HYDRAULIC FLUID 7. OIL 8. APU
- ------------------------- ------------------------ -----------------------
SYSTEM QUANTITY ENGINE QUANTITY EGT
- ------------------------- ------------------------ -----------------------
1 N\\1\\/N\\2\\
- ------------------------- ------------------------ -----------------------
2 VOLTS
- ------------------------- ------------------------ -----------------------
3 FREQ.
- ------------------------- ======================== -----------------------
LOAD
========================= -----------------------
=======================
2
<PAGE>
=============== ================== =========================
9. OXYGEN PRESS 10. RAIN REPELLENT 11. RECORDER VOICE FLT
--------------- ------------------ -------------------------
CREW OPERATION
--------------- ------------------ -------------------------
PAX TAPE
=============== ================== =========================
12. ADI SLIP INDICATORS
==================== ====================
==================== ====================
CAPT. CAPT.
A. EXTERIOR CONDITION, AERODYNAMIC CLEANNESS AND
APPEARANCE ............................................ ____
B. INTERIOR CONDITION AND APPEARANCE ..................... ____
C. SEATS, BELTS AND HARNESSES ............................ ____
D. WINDOWS, WINDSHIELDS, VISORS AND SHADES ............... ____
E. DOORS, HATCHES, STAIRS AND SLIDES ..................... ____
F. GALLEYS AND LAVATORIES ................................ ____
G. LANDING GEAR VIEWERS AND INDICATORS ................... ____
H. PLACARDS, DOCUMENTS, MANUALS, LOGBOOKS, CHARTS AND .... ____
CHECKLISTS ........................................... ____
I. EMERGENCY EQUIPMENT ................................... ____
J. OXYGEN MASKS AND OPERATION ............................ ____
K. LIGHTS, NORMAL AND EMERGENCY .......................... ____
L. PROBES, SENSORS, VORTEX GENERATORS AND STATIC
DISCHARGES ............................................ ____
M. PITOT/STATIC PORTS, DRAINS AND BLOWOUT DISCS .......... ____
14. LANDING GEAR, BRAKES AND ACCUMULATORS .................. ____
15. FLIGHT CONTROLS, TRIM FLAPS AND SLATS (MTC) ............ ____
16. ELECTRICAL SYSTEM ...................................... ____
17. HYDRAULIC SYSTEM ....................................... ____
18. FUEL SYSTEM ............................................ ____
19. AIR CONDITIONING/BLEEDS/PRESSURIZATION ................. ____
20. ICE AND RAIN PROTECTION ................................ ____
21. ALTITUDE ALERT SYSTEM .................................. ____
22. GPWS TEST .............................................. ____
23. STALL WARNING .......................................... ____
24. AURAL WARNINGS ......................................... ____
25. COMMUNICATIONS ......................................... ____
26. INSTRUMENTS AND SWITCHING .............................. ____
27. NAVIGATION SYSTEMS ..................................... ____
28. AFCS ................................................... ____
3
<PAGE>
ENGINE START/TAXI
- -----------------
1. ENGINE START AND IDLE
OAT ______ PA _______ APU START AIR PRESS ______
<TABLE>
<CAPTION>
================================================================================
MIN STARTER EGT OIL OIL FLT
ENG AIR CUTOUT PEAK/STABLE N\\1\\ N\\2\\ F/F PRES TEMP IDLE CDE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
2. HYDRAULICS AND BRAKES............................................. _______
3. STEERING CONTROL WHEEL AND RUDDER PEDAL........................... _______
4. YAW DAMPERS....................................................... _______
5. FLIGHT CONTROLS AND POSITION INDICATORS........................... _______
6. WING TAI GROUND TEST.............................................. _______
7. PRESSURIZATION.................................................... _______
8. AUTO PACK TRIP.................................................... _______
9. CSD OIL COOLER.................................................... _______
10. T.O. CONFIGURATION WARNING........................................ _______
11. EPR/N\\1\\ COMPUTER............................................... _______
12. ENGINE ACCELERATION CHECK......................................... _______
<TABLE>
<CAPTION>
=================
ENG. SECS. NOTE:
-----------------
<C> <C> <S>
1 . TIME TO 90% N\\1\\
-----------------
2 . BLEEDS OFF
-----------------
3 . ONE SECOND THROTTLE ADVANCE
=================
</TABLE>
TAKEOFF AND CLIMB
- -----------------
1. TAKEOFF OAT. ______ PA ______ CHART EPR/N\\1\\ ______
<TABLE>
<CAPTION>
================================================================== ============
OIL OIL THROTTLE
ENG EPR N\\1\\ EGT N\\2\\ F/F PRESS TEMP BLEED STAGGER
- ------------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------ ------------
- ------------------------------------------------------------------ ------------
1 2 3
================================================================== ============
</TABLE>
4
<PAGE>
2. GEAR RETRACTION ____ SECS. TAIL SKID ____........... ____
3. ENGINE ANTI-ICE ..................................... ____
4. WINGS/TAIL ANTI-ICE ................................. ____
5. INSTRUMENT SWITCHING ................................ ____
6. FLIGHT CONTROLS, NORMAL/ABNORMAL OPERATION AND TRIM . ____
7. YAW DAMPERS ......................................... ____
8. PRESSURIZATION ...................................... ____
9. FUEL SYSTEM AND HEAT ................................ ____
10. ALTERNATIVE STATIC SOURCES .......................... ____
11. COMPASS HEADINGS .................................... ____
==================================
CAPT HSI 090 180 270 360
----------------------------------
F/O HSI
----------------------------------
STANDBY
==================================
CRUISE AND DESCENT
- ------------------
1. STABILIZE AT NORMAL CRUISE M _____ FL310 OR ABOVE, A/P ON
PA _____ GW _____ RAT/TAT _____ SAT _____
CHART EPR _____ N\\1\\ _____ IAS _____
CAPT IAS _____ M _____ CAPT #1 ALT _____ F/O ALT _____
F/O IAS _____ M _____ CAPT #2 ALT _____ STDBY ALT _____
========================================================== ===========
OIL OIL THROTTLE
ENG EPR N\\1\\ EGT N\\2\\ F/F PRESS TEMP BLEED STAGGER
- ---------------------------------------------------------- -----------
- ---------------------------------------------------------- -----------
- ---------------------------------------------------------- -----------
1 2 3
========================================================== ===========
2. ELECTRICAL
======================================= =====================
KW IDG/CSD
-------
AC LOAD KVAR VOLTS FREQ IN R DC VOLTS LOAD
- --------------------------------------- ---------------------
1
- --------------------------------------- ---------------------
2
- --------------------------------------- ---------------------
3
======================================= ---------------------
---------------------
=====================
5
<PAGE>
3. HYDRAULIC 4. PRESSURIZATION
================================== =========================================
SYS PRESS QUAN AUTO (ISOBARIC)
- ---------------------------------- -----------------------------------------
AUTO MAX/STDBY
- ---------------------------------- -----------------------------------------
RELIEF
- ---------------------------------- -----------------------------------------
ALTITUDE WARNING
- ---------------------------------- -----------------------------------------
ALTITUDE LIMITING
================================== -----------------------------------------
RATE CONTROL
-----------------------------------------
ALTITUDE SEL CALIBRATION
=========================================
NOTE: IF OXYGEN MASK DORP REQUIRED
TAPE DOORS (B727)
5. CABIN LEAKAGE CHECK, SINGLE PACK OPERATION ........................ _______
6. AIR CONDITIONING, AUTO, MANUAL AND DISTRIBUTION ................... _______
7. APFDS, TURNS, MANUAL, HEADING, NAV CAP AND TRACK .................. _______
8. NAVIGATION, VOR, ADF .............................................. _______
9. FLIGHT INSTRUMENTS ................................................ _______
10. COMMUNICATIONS, VHF, HF AND SELCAL ................................ _______
11. ATC TRANSPONDERS, ALT REPORTING ................................... _______
12. AIRCRFT TRIM ....... CLEAN CONFIGURATION .......................... _______
. FUEL LOAD BALANCED AND THRUST EVEN
. TRIM AIRCRAFT TO FLY HANDS OFF ..... SPOILERS FLUSH? ______
. RECORD TRIM POSITIONS (CIRCLE L or R)
. AILERON ______ UNIT(S) L R _______ RUDDER _______ UNIT(S) L R
. IF MORE THAN ONE UNIT AILERON OR RUDDER TRIM
REQUIRED ...... PERFORM FOLLOWING CHECK AND RECORD DATA
================================================================================
USE CAPT BOTH TRIM ZERO RUDDER TRIM ZERO AILERON TRIM ZERO
ADI BALL CONTROL WHEEL TILT AILERON TRIM (UNITS) RUDDER TRIM (UNITS)
- --------------------------------------------------------------------------------
___ *LR WING DOWN ___ *LR WING DOWN ___ *LR NOSE
---------------------------------------------------------------------
200K
- --------------------------------------------------------------------------------
___ *LR WING DOWN ___ *LR WING DOWN ___ *LR NOSE
---------------------------------------------------------------------
250K
- --------------------------------------------------------------------------------
___ *LR WING DOWN ___ *LR WING DOWN ___ *LR NOSE
---------------------------------------------------------------------
300K
================================================================================
6
<PAGE>
13. MMO/VMO WARNING .... KIAS 14. STICK SHAKER .... KIAS
OW_______
============================================= ===============================
FL350 TO 300 BELOW FL 250 FLAPS CHART CAPT F/O
- --------------------------------------------- -------------------------------
ALT____CHART____ ALT____CHART____
- --------------------------------------------- -------------------------------
CAPT A CAPT A
- --------------------------------------------- -------------------------------
B B
- --------------------------------------------- -------------------------------
F/O A F/O A
- --------------------------------------------- -------------------------------
B B
============================================= ===============================
15. SPEED BRAKES....................................................... ______
16. DESCENT ENGINE IDLE AND ACCELERATION............................... ______
17. RADAR, STABILIZATION, PITCH, MAPPING............................... ______
APPROACH/LANDING/TAXI
- ---------------------
1. WARNING HORNS AND CUTOUTS.......................................... ______
2. ALTERNATE LANDING GEAR EXTENSION................................... ______
3. ALTERNATE FLAP EXT______RET______.................................. ______
4. SPEED COMMAND, SRS, AUTOTHROTTLES.................................. ______
5. APFDS, APPROACH AND AUTOLAND....................................... ______
6. RADIO ALTIMETERS................................................... ______
7. GPWS............................................................... ______
8. WINDSHIELD WIPERS/WASHERS AND RAIN REPELLENT....................... ______
9. RUDDER LIMITING.................................................... ______
10. NORMAL GEAR EXTENSION AND NOSE STEERING............................ ______
11. SPOILER ACTUATION.................................................. ______
12. BRAKES, AUTO, ANTI-SKID, ALTERNATE................................. ______
13. THRUST REVERSERS................................................... ______
14. APU................................................................ ______
15. PARKING BRAKES, APPLICATION AND RELEASE............................ ______
16. TOTAL FUEL REMAINING............................................... ______
- --------------------------------------------------------------------------------
FLIGHT CREW COMMENTS CORRECTIVE ACTION ACCOMPLISED BY:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
FLIGHT CREW COMMENTS CORRECTIVE ACTION ACCOMPLISHED BY:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALL ITEMS SIGNED
----------------------------
COMPLETED BY:__________________________
APPROVED BY:___________________________
8
