<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 0-17532
---------------------------------------------------------
American Income Partners III-D Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-6579994
- --------------------------------------------- ----------------------------
(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:
519,926 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>
<TABLE>
<CAPTION>
PART IV
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.
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 Marsh Supermarkets, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 as Exhibit 28 (c) and is
incorporated herein by reference.
</TABLE>
* 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>
<TABLE>
<CAPTION>
Exhibit
Number
---------
<S> <C>
99 (b) 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 (d) and is
incorporated herein by reference.
99 (c) Lease agreement with Equicor, Incorporated was filed in
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 as Exhibit 28 (e) and is
incorporated herein by reference.
99 (d) 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.
</TABLE>
<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-D 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 and Chief Operating
Chairman, and a member of the Officer and a 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-D LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 12-20
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 21
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 22
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 23
</TABLE>
-1-
<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 $ 642,023 $ 1,044,707 $ 1,407,741 $ 2,042,586 $ 2,725,865
Net income $ 191,193 $ 311,740 $ 113,721 $ 318,165 $ 102,883
Per Unit:
Net income $ 0.36 $ 0.59 $ 0.22 $ 0.61 $ 0.20
Cash distributions $ 1.13 $ 1.25 $ 2.50 $ 3.75 $ 3.75
Financial
Position
- -------------------------
Total assets $ 1,945,479 $ 2,604,830 $ 3,519,154 $ 4,998,526 $ 7,350,227
Total long-term
obligations $ 51,649 $ 271,796 $ 619,355 $ 745,527 $ 1,448,624
Partners' capital $ 1,743,595 $ 2,143,227 $ 2,487,959 $ 3,687,182 $ 5,338,433
</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-D
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
revenues 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
1988.
Results of Operations
- ---------------------
For the year ended December 31, 1995, the Partnership recognized lease
revenue of $642,023 compared to $1,044,707 and $1,407,741 for the years ended
December 31, 1994 and 1993, respectively. The decrease in lease revenue from
1993 to 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 having a net book value of $127
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $209,004 compared to net gains in 1994 and 1993
of $39,316 and $316,943 on equipment having a net book value of $51,502 and
$81,078, 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
-3-
<PAGE>
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.
The total economic value realized upon final disposition of each asset
is comprised of all primary lease term revenues 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 and amortization expense was $249,541, $593,080 and
$1,422,010 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, $302,300 ($0.58 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 values for passenger jet aircraft.
Interest expense was $9,008 or 1.4% of lease revenue in 1995, $37,092 or
3.6% of lease revenue in 1994, and $51,215 or 3.6% of lease revenue in 1993. In
1994, interest expense, as a percentage of lease revenue, remained consistent
with 1993 as a result of interest incurred on legal costs in connection with a
state sales tax dispute. In the future, interest expense will be minimal due to
the scheduled maturity of the Partnership's debt obligations in 1996.
Management fees were 5% of lease revenue in 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 14.4%, 10.4% and 5.7%
of lease revenue in 1995, 1994 and 1993, respectively. Operating expenses in
1994 include repair and maintenance costs incurred in connection with the re-
lease of an L1011-50 aircraft to a third party and legal costs in connection
with a sales tax dispute. 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.
-4-
<PAGE>
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 inflows of $640,455, $826,134 and $1,288,572 in
1995, 1994 and 1993, respectively. Future renewal, re-lease and equipment sale
activities will cause a gradual decline in the Partnership's lease revenues and
corresponding sources of operating cash. Overall, expenses associated with
rental activities, such as management fees, and net cash flow from operating
activities will also 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 the
agreement, Northwest will continue to lease these aircraft until September 3,
2000. The Partnership, which owns a less than 1% interest in these aircraft,
will receive $24,020 each year through December 31, 1999 and $18,016 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
$7,160 in connection with the upgrade of an L1011-50 aircraft. In 1995, the
Partnership realized $209,131 in equipment sale proceeds compared to $90,818 and
$398,021 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 are reported as components of financing activities. Cash
inflows of $519,929 in 1993 resulted from leveraging a portion of the
Partnership's equipment portfolio with third-party lenders. No leveragings of
equipment occurred in 1994 or 1995.
Each note payable is 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 coincides with the lease rental
term). As rental payments are collected, a portion or all of the rental payment
is used to repay the associated indebtedness. The Partnership's notes payable
will be fully amortized in 1996.
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 $590,825. 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 $584,917, and the General Partners were allocated 1%, or
$5,908. 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
-5-
<PAGE>
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.
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-D Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners III-D 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-D 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-D LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 450,165 $ 477,199
Rents receivable, net of allowance for
doubtful accounts of $17,000 18,442 100,470
Accounts receivable - affiliate 37,479 35,800
Equipment at cost, net of accumulated
depreciation of $5,332,783 and $5,670,941
at December 31, 1995 and 1994, respectively
1,439,393 1,991,361
------------ ------------
Total assets $ 1,945,479 $ 2,604,830
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Notes payable $ 51,649 $ 271,796
Accrued interest 153 4,867
Accrued liabilities 20,000 15,500
Accrued liabilities - affiliate 24,668 3,557
Deferred rental income 6,944 1,765
Cash distributions payable to partners 98,470 164,118
------------ ------------
Total liabilities 201,884 461,603
============ ============
Partners' capital (deficit):
General Partners (96,358) (92,362)
Limited Partnership Interests (519,926
Units; initial purchase price of $25 each) 1,839,953 2,235,589
------------ ------------
Total partners' capital 1,743,595 2,143,227
------------ ------------
Total liabilities and partners' capital $ 1,945,479 $ 2,604,830
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-8-
<PAGE>
AMERICAN INCOME PARTNERS III-D 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 $ 642,023 $ 1,044,707 $ 1,407,741
Interest income 25,252 18,510 13,372
Gain on sale of equipment 209,004 39,316 316,943
------------ ----------- -----------
Total income 876,279 1,102,533 1,738,056
------------ ----------- -----------
Expenses:
Depreciation and amortization 249,541 593,080 1,422,010
Write-down of equipment 302,300 -- --
Interest expense 9,008 28,777 51,215
Interest expense - affiliate -- 8,315 --
Equipment management fees - affiliate 32,101 52,235 70,387
Operating expenses - affiliate 92,136 108,386 80,723
------------ ----------- -----------
Total expenses 685,086 790,793 1,624,335
------------ ----------- -----------
Net income $ 191,193 $ 311,740 $ 113,721
============ =========== ===========
Net income
per limited partnership unit $ 0.36 $ 0.59 $ 0.22
============ =========== ===========
Cash distributions declared
per limited partnership unit $ 1.13 $ 1.25 $ 2.50
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
-9-
<PAGE>
AMERICAN INCOME PARTNERS III-D 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 $ (76,922) 519,926 $ 3,764,104 $ 3,687,182
Net income - 1993 1,137 -- 112,584 113,721
Cash distributions declared (13,129) -- (1,299,815) (1,312,944)
------------- ------------ ----------- ------------
Balance at December 31, 1993 (88,914) 519,926 2,576,873 2,487,959
Net income - 1994 3,117 -- 308,623 311,740
Cash distributions declared (6,565) -- (649,907) (656,472)
------------- ------------ ----------- ------------
Balance at December 31, 1994 (92,362) 519,926 2,235,589 2,143,227
Net income - 1995 1,912 -- 189,281 191,193
Cash distributions declared (5,908) -- (584,917) (590,825)
------------- ------------ ----------- ------------
Balance at December 31, 1995 $ (96,358) 519,926 $ 1,839,953 $ 1,743,595
============= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
-10-
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 191,193 $ 311,740 $ 113,721
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 249,541 593,080 1,422,010
Write-down of equipment 302,300 -- --
Gain on sale of equipment (209,004) (39,316) (316,943)
Changes in assets and liabilities:
Decrease (increase) in:
rents receivable 82,028 54,346 (6,015)
accounts receivable - affiliate (1,679) (35,800) 74,087
Increase (decrease) in:
accrued interest (4,714) (7,403) (8,221)
accrued liabilities 4,500 (17,500) (8,500)
accrued liabilities - affiliate 21,111 (17,071) 12,199
deferred rental income 5,179 (15,942) 6,234
------------- ------------- -------------
Net cash from operating activities 640,455 826,134 1,288,572
------------- ------------- -------------
Cash flows from (used in) investing activities:
Purchase of equipment -- (7,160) --
Proceeds from equipment sales 209,131 90,818 398,021
------------- ------------- -------------
Net cash from investing activities 209,131 83,658 398,021
------------- ------------- -------------
Cash flows from (used in) financing activities:
Proceeds from notes payable -- -- 519,929
Principal payments - notes payable (220,147) (347,559) (646,101)
Distributions paid (656,473) (820,589) (1,477,062)
------------- ------------- -------------
Net cash used in financing activities (876,620) (1,168,148) (1,603,234)
------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents (27,034) (258,356) 83,359
Cash and cash equivalents at beginning of year 477,199 735,555 652,196
------------- ------------- -------------
Cash and cash equivalents at end of year $ 450,165 $ 477,199 $ 735,555
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 13,722 $ 44,495 $ 59,436
============= ============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements
-11-
<PAGE>
AMERICAN INCOME PARTNERS III-D 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 December
30, 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 April 15, 1988, the Partnership issued 519,926 units,
representing assignments of limited partnership interests (the "Units") to 1,129
investors. Unitholders and Limited Partners (other than the Initial Limited
Partner) are collectively referred to as Recognized Owners. The 519,926 Units
include 76 bonus units. Subsequent to the Partnership's Closing, 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 subsequently elected to withdraw as Individual General
Partners. The General Partners, each of whom is affiliated with American Finance
Group ("AFG"), a Massachusetts partnership, are not required to make any other
capital contributions to the Partnership, 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 1991, 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 April 19, 1988 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-D 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 $445,000 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
$721,924 are due as follows:
For the year ending December 31, 1996 $ 362,200
1997 236,656
1998 81,032
1999 24,020
2000 18,016
-------------
Total $ 721,924
=============
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- ------------
<S> <C> <C> <C>
Marsh Supermarkets, Inc. $ 157,254 $ 207,512 $ 329,593
Northwest Airlines, Inc. $ 157,136 $ 192,677 $ 228,353
ING Aviation Lease $ 77,133 -- --
Equicor, Incorporated -- $ 133,423 --
</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 less than 1% interest in these aircraft,
will receive $24,020 each year through December 31, 1999 and $18,016 during the
year ending December 31, 2000.
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.
-13-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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 and Amortization
- -----------------------------
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.
Organization costs are amortized using the straight-line method over a
period of five years.
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 6 concerning
allocation of income or loss for income tax purposes.
-14-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Net Income and Cash Distributions Per Unit
- ------------------------------------------
Net income and cash distributions per Unit are based on 519,926 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
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.
-15-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
Lease
Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------------- -------- ----------- -----------------------------
<S> <C> <C> <C>
Aircraft 36-108 $ 3,212,715 MN/Foreign
Retail store fixtures 1-36 2,309,320 AL/DE/GA/IN/KY/MD/NC/SC/TN
VA/WV
Manufacturing 60 414,060 CA
Materials handling 4-60 395,697 AZ/CA/CT/FL/MA/MI/MO/MS/NJ/PA
Computers and peripherals 1-53 272,441 KS/MI
Tractors and heavy-duty trucks 24-60 115,786 NC
Construction and mining 48-60 32,331 MA
Photocopying 6-36 19,826 NJ
-----------
Total equipment cost 6,772,176
Accumulated depreciation (5,332,783)
-----------
Equipment, net of accumulated depreciation $ 1,439,393
===========
</TABLE>
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 $4,065,790,
representing approximately 60% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $1,871,000
which had been fully depreciated at December 31, 1995. (See Note 5.)
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
expiration of the primary lease terms. At December 31, 1995, the Partnership
held equipment for sale or re-lease with a cost of approximately $63,000 which
had been fully depreciated. The Managing General Partner is actively seeking the
sale or re-lease of all equipment not on 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, $302,300 ($0.58 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.
-16-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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 $ 32,101 $ 52,235 $ 70,387
Interest expense - affiliate -- 8,315 --
Administrative services 17,904 12,000 14,955
Reimbursable operating expenses due to
third parties 74,232 96,386 65,768
-------------- -------------- --------------
Total $ 124,237 $ 168,936 $ 151,110
============== ============== ==============
</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 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.
Interest expense - affiliate represents interest incurred on legal costs
in connection with a state sales tax dispute involving certain equipment owned
by the Partnership and other affiliated investment programs sponsored by AFG.
Legal costs incurred by AFG to resolve this matter and the interest thereon was
allocated to the Partnership and other affected investment programs.
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 acquired 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 $37,479 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
-17-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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
37,604 units or 7.23% 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 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1995 consisted of installment notes of
$51,649 payable to a bank. The installment notes are non-recourse, with interest
rates of 7.13% and are collateralized by the equipment and assignment of the
related lease payments. The installment notes will be fully amortized by
noncancellable rents during the year ending December 31, 1996.
NOTE 6 - 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 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 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 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 $ 191,193 $ 311,740 $ 113,721
Financial statement depreciation
in excess of (less than) tax
depreciation (37,022) 219,281 673,802
Write-down of equipment 302,300
Prepaid rental income 5,179 (15,942) 6,234
Other 127 31,502 (2,667)
------------- ------------- -------------
Net income for federal income tax
reporting purposes $ 461,777 $ 546,581 $ 791,090
============= ============= =============
</TABLE>
-18-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The principal component of "Other" consists of the difference between
the tax gain on equipment disposals and the financial statement gain on
equipment disposals.
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 $ 1,743,595 $ 2,143,227
Add back selling commissions and
organization and offering costs 1,517,719 1,517,719
Financial statement distributions in excess
of tax distributions 985 1,641
Cumulative difference between federal income
tax and financial statement income (820,407) (1,090,991)
------------- ------------
Partners' capital for federal income tax
reporting purposes $ 2,441,892 $ 2,571,595
============= ============
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
represent timing differences.
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
On September 7, 1993, Rose's Stores, Inc. (the "Debtor"), a lessee of
the Partnership, filed for protection under Chapter 11 of the Bankruptcy Code.
AFG, on behalf of the Partnership and various other AFG-sponsored investment
programs, filed a proof of claim in this case, which claim was amended and
restated. In August 1994, the Bankruptcy Court approved a Motion to Reject
Certain Executory Equipment Leases filed by the Debtor relating to approximately
$212,000 of equipment owned by this Partnership. The Partnership sold all such
equipment during 1994 and recognized a net gain of $233 for financial statement
purposes. During 1995, the Partnership sold an additional $2,313 of equipment
previously leased to the Debtor and recognized a net gain of $145 for financial
statement purposes. At December 31, 1995, the Partnership owned other equipment,
having an original cost of $439,027, which was leased to the Debtor. This
equipment represents approximately 6% of the Partnership's aggregate equipment
portfolio and is fully depreciated for financial statement purposes. All of this
equipment is currently being leased pursuant to renewal rental schedules
executed by the Debtor; however, a sale with respect to such equipment is
currently pending.
The Debtor's First Amended Joint Plan of Reorganization (the "Plan of
Reorganization") was adopted on December 14, 1994. On June 8, 1995 and August
18, 1995, AFG, on behalf of the Partnership and various other AFG-sponsored
investment programs, was issued 24,319 shares of the Debtor's common stock
pursuant to the Plan of Reorganization. The common stock, which had a market
value of $2.38 per share (for 17,023 of the shares) and $2.56 per share (for
7,296 of the shares) at the respective settlement dates, was issued in full
satisfaction of the outstanding unsecured claims of the affected investment
programs. The Partnership's proportionate interest in this settlement is 5.46%
or approximately 1,329 shares. This bankruptcy did not have a material adverse
effect on the financial position of the Partnership.
-19-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 8 - 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.
-20-
<PAGE>
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1995, 1994 and 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 revenues, 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 $ 885,284 $ 929,133 $ 1,835,296
Sale proceeds realized upon disposition
of equipment 209,131 90,818 398,021
--------------- -------------- -------------
Total cash generated from rents and
equipment sale proceeds 1,094,415 1,019,951 2,233,317
Original acquisition cost of equipment
disposed 890,126 792,558 1,817,146
--------------- -------------- -------------
Excess of total cash generated to cost of
equipment disposed $ 204,289 $ 227,393 $ 416,171
=============== ============== =============
</TABLE>
-21-
<PAGE>
AMERICAN INCOME PARTNERS III-D 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) $ (17,811) $ 209,004 $ 191,193
Add back:
Depreciation 249,541 -- 249,541
Write-down of equipment 302,300 -- 302,300
Management fees 32,101 -- 32,101
Book value of disposed equipment -- 127 127
Less:
Principal reduction of notes payable (220,147) -- (220,147)
------------------ ----------------- -----------------
Cash from operations, sales and
refinancings 345,984 209,131 555,115
Less:
Management fees (32,101) -- (32,101)
------------------ ----------------- -----------------
Distributable cash from operations,
sales and refinancings 313,883 209,131 523,014
Other sources and uses of cash:
Cash at beginning of year 477,199 -- 477,199
Net change in receivables
and accruals 106,425 -- 106,425
Less:
Cash distributions paid (447,342) (209,131) (656,473)
------------------ ----------------- -----------------
Cash at end of year $ 450,165 -- $ 450,165
================== ================== =================
</TABLE>
-22-
<PAGE>
AMERICAN INCOME PARTNERS III-D 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 $ 65,636
-23-
<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-D Limited Partnership of our report
dated March 12, 1996, included in the 1995 Annual Report to the Partners of
American Income Partners III-D Limited Partnership.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
-15-
<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.
-6-
<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.
-7-
<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
-10-
<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.
-13-
<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
-14-
<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
-15-
<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;
-16-
<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
-17-
<PAGE>
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
-18-
<PAGE>
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
-19-
<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.
-20-
<PAGE>
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
-21-
<PAGE>
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
-22-
<PAGE>
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.
-23-
<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.
-24-
<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).
-25-
<PAGE>
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.
-26-
<PAGE>
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.
-27-
<PAGE>
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.
-28-
<PAGE>
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;
-29-
<PAGE>
(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
-30-
<PAGE>
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.
-31-
<PAGE>
(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
-32-
<PAGE>
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
-33-
<PAGE>
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
-34-
<PAGE>
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,
-35-
<PAGE>
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;
-36-
<PAGE>
(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.
-37-
<PAGE>
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
