<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 34-0-17570
AMERICAN FREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 74-2391754
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2200 Forward Drive, Harrison, Arkansas 72601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 741-9000
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of common stock outstanding at March 31, 1998:
31,567,689.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
<TABLE>
MARCH 31, December 31,
1998 1997
-------------------------
(UNAUDITED) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,812 $ 1,755
Trade receivables, less allowance for
doubtful accounts
(1998-$1,846; 1997-$1,774) 85,417 78,700
Operating supplies and inventories 3,067 2,882
Prepaid expenses 14,108 8,671
Deferred income taxes 15,104 13,306
Income taxes receivable - 1
----------- -----------
Total current assets 121,508 105,315
Property and equipment 720,295 699,176
Accumulated depreciation
and amortization (244,481) (230,870)
----------- -----------
475,814 468,306
Other assets 2,038 1,952
----------- -----------
$ 599,360 $ 575,573
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 14,420 $ 12,910
Accrued expenses 63,362 54,114
Federal and state income taxes 1,026 -
Current portion of long-term debt 11,498 11,497
----------- -----------
Total current liabilities 90,306 78,521
Long-term debt,
less current portion (Note B) 216,511 210,411
Deferred income taxes 61,955 59,225
Shareholders' equity
Common stock, par value $.01 per share--
authorized 250,000 shares; issued and
outstanding 31,568 in 1998 and 1997 316 316
Additional paid-in capital 104,832 104,832
Retained earnings 125,440 122,268
----------- -----------
230,588 227,416
----------- -----------
$ 599,360 $ 575,573
=========== ===========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997,
has been derived from the audited consolidated financial statements
at that date.
See notes to condensed consolidated financial statements.
<PAGE>
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(000's omitted, except per share data)
<TABLE>
Three Months Ended
March 31
1998 1997
-----------------
<S> <C> <C>
OPERATING REVENUE $230,649 $193,051
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 143,430 118,305
Operating supplies and expenses 20,017 18,512
Operating taxes and licenses 9,995 8,601
Insurance 7,142 6,682
Communications and utilities 3,955 3,495
Depreciation and amortization 13,808 12,846
Rents and purchased transportation 13,019 9,890
Other 9,978 8,318
--------- ---------
221,344 186,649
--------- ---------
OPERATING INCOME 9,305 6,402
OTHER INCOME (EXPENSE)
Interest expense (4,086) (4,086)
Interest income 63 55
Gain on disposal of assets 21 16
Other, net 28 11
--------- ---------
(3,974) (4,004)
INCOME BEFORE INCOME TAXES 5,331 2,398
--------- ---------
FEDERAL AND STATE INCOME TAXES
Current 1,227 1,293
Deferred (credit) 932 (353)
--------- ---------
2,159 940
--------- ---------
NET INCOME $ 3,172 $ 1,458
========= =========
PER SHARE (NOTE D)
Net income-basic $ 0.10 $ 0.05
Net income-assuming dilution $ 0.10 $ 0.05
========= =========
AVERAGE SHARES OUTSTANDING (NOTE D)
Basic 31,568 31,258
Assuming dilution 31,625 31,490
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000's omitted)
<TABLE>
Three Months Ended
March 31
1998 1997
----------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 17,319 $ 16,091
INVESTING ACTIVITIES
Proceeds from sales of equipment 26 47
Capital expenditures (21,389) (10,514)
----------- -----------
Net cash used by investing activities (21,363) (10,467)
FINANCING ACTIVITIES
Principal payments on long-term debt (5,606) (35)
Proceeds from notes payable
and long-term borrowings 11,707 -
Proceeds from issuance of common stock - 161
----------- -----------
Net cash provided by financing activities 6,101 126
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 2,057 $ 5,750
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results of the three month period ended March 31, 1998, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to
the Company's consolidated financial statements and footnotes
thereto included in Form 10-K for the year ended December 31, 1997.
NOTE B - LONG-TERM DEBT
As of March 31, 1998, the Company has outstanding borrowings of
$69,200,000 under its existing $175,000,000 unsecured revolving
line of credit. The proceeds of these borrowings were used for the
purchase of revenue equipment and for the purchase and construction
of Customer Center facilities. At March 31, 1998, the amount
available for borrowing under the line of credit was $105,800,000.
In addition to this credit facility, the Company has obtained
letters of credit totaling $3,976,000 to provide collateral on its
self-insurance plan.
As of March 31, 1998, the Company has outstanding borrowings of
$131,250,000 under an uncommitted Master Shelf Agreement which
provides for the issuance of up to $140,000,000 of senior
promissory notes with an average life not to exceed twelve years.
In addition, the Company has outstanding an unsecured senior note
for $20,000,000 payable in equal annual installments of $5,000,000
through November 2001.
NOTE C - COMMITMENTS
Commitments for the purchase of revenue equipment and the purchase
or construction of terminals aggregated approximately $39,793,000
at March 31, 1998.
NOTE D - EARNINGS PER SHARE
Net income for purposes of basic earnings per share and earnings
per share--assuming dilution was $3,172,000 and $1,458,000 for the
three months ended March 31, 1998 and 1997, respectively. A
reconciliation of average shares outstanding for both periods is
presented below:
<TABLE>
Three Months Ended March 31,
1998 1997
-------------------------
(In Thousands)
<S> <C> <C>
Average shares outstanding-basic 31,568 31,258
Effect of dilutive stock options 57 232
----------- -----------
Average shares outstanding
-assuming dilution 31,625 31,490
=========== ===========
</TABLE>
NOTE E - RECENT ACCOUNTING PRONOUNCEMENTS
The impact of adoption of Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income, which was
required for the first quarter of 1998 was not material.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth, for the periods indicated, the
percentages of operating expenses and other items to operating
revenue:
<TABLE>
Three Months Ended
March 31
1998 1997
---------------------
<S> <C> <C>
Operating revenue 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 62.2% 61.3%
Operating supplies and expenses 8.7% 9.6%
Operating taxes and licenses 4.3% 4.5%
Insurance 3.1% 3.5%
Communications and utilities 1.7% 1.8%
Depreciation and amortization 6.0% 6.6%
Rents and purchased transportation 5.7% 5.1%
Other 4.3% 4.3%
---------------------
Total operating expenses and costs 96.0% 96.7%
---------------------
Operating income 4.0% 3.3%
Interest expense 1.8% 2.1%
Other income, net 0.1% 0.1%
---------------------
Income before income taxes 2.3% 1.3%
Income taxes 0.9% 0.5%
---------------------
Net income 1.4% 0.8%
=====================
</TABLE>
RESULTS OF OPERATIONS
Operating Revenue
Operating revenue for the three months ended March 31, 1998 was
$230,649,000, up 19.5%, compared to $193,051,000 for the three
months ended March 31, 1997. The growth in operating revenue was
primarily the result of increased tonnage from new and existing
customers and increased revenue per hundred weight.
Tonnage handled by the Company during the three months ended March
31, 1998 increased 16.8% over levels handled during the three
months ended March 31, 1997. This increase in tonnage was mainly a
result of the following:
- - The Company continued to increase its market penetration into
existing service territories, particularly those geographic areas
added during 1995 and 1996. During 1995, the Company expanded its
all-points coverage to the states of Colorado, Florida, Iowa,
Nebraska, North Carolina, South Carolina and Wisconsin. 1996
expansions included the states of Delaware, Maryland, Minnesota,
Virginia and West Virginia.
- - The continued increase in intrastate tonnage following the
deregulation of intrastate commerce effective January 1, 1995.
- - Effective January 1, 1998, the Company increased its all-
points coverage to 28 states with the addition of the state of
Michigan.
<PAGE>
Revenue per hundred weight for the three months ended March 31,
1998 was up 1.7% from levels experienced in the three months ended
March 31, 1997. Factors which most impacted revenue per hundred
weight were:
- - A general rate increase of approximately 5.5% effective
January 1, 1998. General rate increases initially affect
approximately 45% of the Company's customers. The remaining
customers' rates are determined by contracts and guarantees and are
negotiated throughout the year.
- - A fuel surcharge was in effect during the first quarter of
1997, but not in effect for the majority of the first quarter of
1998. The Company initiated a fuel surcharge beginning September
6, 1996 to help recover the increased costs of fuel. This surcharge
is tied to the Department of Energy's National Diesel Fuel Index
and was 1.0% for LTL shipments during the three months ended March
31, 1997. The surcharge is designed to suspend at the time this
national index moves below $1.15 per gallon. Effective January 7,
1998, the fuel surcharge was suspended and remains suspended as of
March 31, 1998.
- - The percentage of the Company's total revenue that was derived
from truckload shipments (greater than 10,000 pounds) declined to
5.7% during the three months ended March 31, 1998 as compared to
5.9% during the three months ended March 31, 1997.
Management expects that growth in operating revenue is sustainable
in the near term. Although the Company's planned expansions of
service territory during 1998 are more aggressive than those
initiated in 1997, the primary focus for growth in operating
revenue in the near term will be further penetration of existing
markets. As a result, any near-term percentage growth in operating
revenue will likely be less than that experienced in recent years.
The foregoing statement concerning the sustainability of revenue
growth is subject to a number of factors, including LTL industry
capacity, increased tonnage and general economic conditions.
Operating Expenses
Operating expenses as a percentage of operating revenue improved to
96.0% in the three months ended March 31, 1998 from 96.7% in the
three months ended March 31, 1997. This overall improvement was
primarily attributable to:
- - Operating supplies and expenses as a percentage of operating
revenue decreased to 8.7% in the three months ended March 31, 1998
from 9.6% in the three months ended March 31, 1997. This
improvement was due to reduced fuel costs resulting from lower fuel
prices and the increased use of purchased transportation. This
improvement in fuel costs was partially offset by increased costs
of maintaining equipment and facilities. Maintenance expenses, the
other primary component of operating supplies and expenses,
continued to gradually increase. In the near term, management
expects this gradual upward trend in maintenance costs to continue
as the Company's fleet ages.
- - Depreciation and amortization as a percentage of operating
revenue improved to 6.0% in the three months ended March 31, 1998
from 6.6% in the three months ended March 31, 1997. This
improvement was largely due to the increased usage of purchased
transportation and operating lease financing of revenue equipment.
- - Insurance as a percentage of operating revenue decreased to
3.1% in the three months ended March 31, 1998 from 3.5% in the
three months ended March 31, 1997. This improvement was largely
due to improved experience involving vehicle accidents and cargo
claims. Management does not expect this downward trend to
continue. Rather, it is expected that insurance costs as a
percentage of operating revenue will stabilize or gradually
increase during 1998.
These improvements in operating expenses as a percentage of
operating revenue were partially offset by increases in the
following areas:
- - Salaries, wages and benefits as a percentage of operating
revenue increased to 62.2% in the three months ended March 31, 1998
from 61.3% in the three months ended March 31, 1997. This increase
was largely the result of increased costs in the areas of workmen's
compensation and health care. After benefiting from relatively low
claims in these areas during the first quarter of 1997, the level
of claims returned to a level more typically experienced by the
Company. Management expects that during the remainder of 1998,
these expenses will remain at current levels. Comparing the first
quarter of 1998 to the same period of 1997, salaries and wages as a
percentage of operating revenue remained flat despite a general
wage increase of 3.5% in March 1998. During the remainder of 1998,
management anticipates that ongoing educational programs and
changes in operations will result in productivity gains in the form
of improved pickup and delivery density, increased line haul load
factor and more direct line haul schedules. However, these gains
cannot be assured and are subject to a variety of factors which may
or may not be within the control of management.
<PAGE>
- - Rents and purchased transportation as a percentage of operating
revenue increased to 5.7% in the three months ended March 31,
1998 from 5.1% in the three months ended March 31, 1997. This
increase was primarily a result of the utilization of purchased
transportation in selected line-haul lanes in order to improve
asset utilization and decrease overall costs of operations.
Management expects rents and purchased transportation as a
percentage of operating revenue to remain flat or gradually
increase due to two principal reasons: 1) the Company plans to
continue the strategic use of purchased transportation in
selected line-haul lanes and 2) the increased usage of operating
lease financing of revenue equipment (See Liquidity and Capital
Resources).
Other
Interest expense as a percentage of operating revenue decreased to
1.8% in the three months ended March 31, 1998, compared to 2.1% in
the three months ended March 31, 1997. This improvement is
primarily the result of lower interest rates and of reducing total
debt to $228,009,000 as of March 31, 1998 from $238,203,000 as of
March 31, 1997.
The effective tax rate of the Company was 40.5% for the three
months ended March 31, 1998, up from 39.2% for the three months
ended March 31, 1997. This increase was due to increased federal
tax rates on higher levels of income, as well as higher state tax
rates. Net income for the three months ended March 31, 1998 was
$3,172,000, up 117.6%, from $1,458,000 for the three months ended
March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements during the three months ended March 31, 1998
consisted of $21,363,000 in investing activities. The Company
invested $21,389,000 in capital expenditures during the three
months ended March 31, 1998 comprised of $4,084,000 in additional
revenue equipment, $10,430,000 in new Customer Center facilities or
the expansion of existing facilities and $6,875,000 in other
equipment. Management expects capital expenditures for the full
year of 1998 will be approximately $100,000,000, consisting
primarily of anticipated investments in new and existing Customer
Center facilities. However, the actual amount of capital
expenditures required in 1998 will be dependent on the growth rate
of the Company and the timing and size of any future expansions of
service territory. At March 31, 1998, the Company had commitments
for land, Customer Centers, revenue and other equipment of
approximately $39,793,000.
The Company provided for its capital resource requirements in the
three months ended March 31, 1998 predominantly with cash from
operations. Cash from operations totaled $17,319,000 during the
three months ended March 31, 1998 compared to $16,091,000 provided
by operations during the three months ended March 31, 1997. Net
financing activities provided an additional $6,101,000 of cash flow
in the three months ended March 31, 1998. Two primary sources of
credit financing were available to the Company: the revolving line
of credit and the Master Shelf facility.
- - The Company experiences periodic cash flow fluctuations common
to the industry. Cash outflows are heaviest during the first part
of any given year while cash inflows are normally weighted towards
the last two quarters of the year. To smooth these fluctuations
and to provide flexibility to fund future growth, the Company
utilizes a variable-rate, unsecured revolving line of credit of
$175,000,000 provided by NationsBank of Texas, N.A. (agent), Chase
Bank of Texas, N.A., Wachovia Bank of Georgia, N.A., ABN-AMRO Bank
N.V., The First National Bank of Chicago and Credit Lyonnais. At
March 31, 1998, $69,200,000 was outstanding on the revolving line
of credit, leaving $105,800,000 available for borrowing. The
Company also had $10,000,000 available under its short-term,
unsecured revolving $10,000,000 line of credit with NationsBank of
Texas, N.A. In addition, the Company maintains a $10,000,000 line
of credit with NationsBank of Texas, N.A. to obtain letters of
credit required for its self-insurance program. At March 31, 1998,
the Company had obtained letters of credit totaling $3,976,000 for
this purpose.
- - To assist in financing longer-lived assets, the Company has an
uncommitted Master Shelf Agreement with the Prudential Insurance
Company of America which provides for the issuance of up to
$140,000,000 in medium to long-term unsecured notes at an interest
rate calculated at issuance. At March 31, 1998, the Company had
$131,250,000 outstanding under this facility.
Management expects that the Company's existing working capital and
its available lines of credit are sufficient to meet the Company's
commitments as of March 31, 1998, and to fund current operating and
capital needs. However, if additional financing is required,
management believes it will be available.
<PAGE>
The Company uses off-balance sheet financing in the form of
operating leases primarily in the following areas; land and
structures, revenue equipment and other equipment. At March 31,
1998, future rental commitments on operating leases were
$72,811,000. The Company prefers to utilize operating leases for
these areas and plans to use them in the future when such financing
is available and suitable.
Future rental commitments on operating leases are as follows:
<TABLE>
Land and Revenue Other
Total Structures Equipment Equipment
--------------------------------------------
<S> <C> <C> <C> <C>
1998 $17,421 $ 3,903 $ 5,203 $ 8,315
1999 18,846 3,261 6,938 8,647
2000 16,547 2,087 6,938 7,522
2001 9,526 1,483 6,162 1,881
Thereafter 10,471 1,731 8,740 ---
------------------------------------------
Total $72,811 $ 12,465 $33,981 $26,365
------------------------------------------
</TABLE>
YEAR 2000 ISSUES
The Company has assessed the impact of the Year 2000 issues on its
computer software systems and applications, and determined that
although many of its applications are already compliant the Company
will have to modify or replace other applications. The Company
expects to have all applications fully compliant by the end of
1998. The Company also has initiated discussions with its
significant customers and suppliers to determine the extent to
which the Company's interface systems would be vulnerable to those
third parties' failure to remediate their own Year 2000 issues.
There is no assurance that the systems of other companies on which
the Company's systems rely will be timely converted and would not
have an adverse effect on the Company's systems. Expenditures
related to the Company's Year 2000 initiatives have not been and
are not expected to be material to the Company's results of
operations or financial position.
ENVIRONMENTAL
At March 31, 1998, the Company had no outstanding inquiries with
any state or federal environmental agency.
<PAGE>
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets--March 31, 1998 and
December 31, 1997
Condensed consolidated statements of income--Three months
ended March 31, 1998 and 1997
Condensed consolidated statements of cash flows--Three months
ended March 31, 1998 and 1997
Notes to condensed consolidated financial statements--March
31, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Shareholders was held April 23, 1998.
c) Listed below is the proposal voted on and number of votes cast
at the 1998 Annual Shareholders' Meeting:
1. TO ELECT THREE (3) DIRECTORS TO THE CLASS WHOSE TERM WILL
EXPIRE IN 2001:
FOR ABSTAIN BROKER NON-VOTES
F.S. (Sheridan) Garrison 25,591,756 324,151 500
Ken Reeves 25,588,160 327,747 500
Doyle Z. Williams 25,589,291 326,616 500
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) Master Lease Agreement with BancBoston
Leasing dated March 23, 1998
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three month period ended March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMERICAN FREIGHTWAYS CORPORATION
(Registrant)
Date: April 29, 1998 /s/Frank Conner
Frank Conner
Executive Vice President-Accounting &
Finance and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finanical information extracted from the
March 31, 1998 quaterly consolidated financial statements and is qualified
in its entirety by reference to such finanical statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,812
<SECURITIES> 0
<RECEIVABLES> 87,263
<ALLOWANCES> 1,846
<INVENTORY> 3,067
<CURRENT-ASSETS> 121,508
<PP&E> 720,295
<DEPRECIATION> 244,481
<TOTAL-ASSETS> 599,360
<CURRENT-LIABILITIES> 90,306
<BONDS> 216,511
0
0
<COMMON> 316
<OTHER-SE> 230,272
<TOTAL-LIABILITY-AND-EQUITY> 599,360
<SALES> 0
<TOTAL-REVENUES> 230,649
<CGS> 0
<TOTAL-COSTS> 221,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 4,086
<INCOME-PRETAX> 5,331
<INCOME-TAX> 2,159
<INCOME-CONTINUING> 3,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,172
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<FN>
<F1>Provision for Doubtful accounts included in costs and expenses applicalbe
to revenues.
</FN>
</TABLE>
BancBoston Leasing
a BANK OF BOSTON company
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT, dated as of the 23rd day of March,
1998 ("Lease Agreement") is made at Boston, Massachusetts by and
between AFI Leasing Trust ("Lessor"), a Massachusetts corporation
with its principal place of business at 100 Federal Street, Boston,
Massachusetts 02110 and American Freightways, Inc. ("Lessee"), an
Arkansas corporation with its principal place of business at 2200
Forward Dr., Harrison, AR 72602.
IN CONSIDERATION OF the mutual promises and covenants
contained herein, Lessor and Lessee hereby agree as follows:
1. Property Leased. At the request of Lessee and subject to
the terms and conditions of this Lease Agreement, Lessor shall
lease to Lessee and Lessee shall lease from Lessor such personal
property ("Equipment") as may be mutually agreed upon by Lessor and
Lessee. The Equipment shall be selected by or ordered at the
request of Lessee, identified in one or more equipment schedules
substantially in the form of Exhibit A attached hereto ("Equipment
Schedule") and accepted by Lessee in one or more certificates of
acceptance ("Certificate of Acceptance") in the form of Exhibit B
attached hereto. Each Equipment Schedule executed by Lessor and
Lessee and each Certificate of Acceptance executed by Lessee shall
constitute a part of this Lease Agreement.
2. Certain Definitions.
2.1 The "Acquisition Cost" shall mean the total cost of the
Equipment paid by Lessor as set forth in the applicable Equipment
Schedule.
2.2 The "Commencement Date" shall mean the date on which the
Equipment identified in the applicable Equipment Schedule is
accepted and placed in service by Lessee under this Lease
Agreement. Each Commencement Date shall be evidenced by the
Certificate of Acceptance applicable to such Equipment Schedule.
2.3 The "Rent Start Date" shall mean either (i) the first day
of the month following the month in which the Commencement Date
occurs or (ii) the Commencement Date, if the Commencement Date
occurs on the first day of the month.
2.4 The "Monthly Rent" shall mean the amount set forth in the
applicable Equipment Schedule as Monthly Rent for the Equipment
identified on such Equipment Schedule.
2.5 The "Daily Rent" shall mean one-thirtieth (1/30) of the
Monthly Rent.
2.6 The words "herein", "hereof", and "hereunder" shall refer
to this Lease Agreement as a whole and not to any particular
section. All other capitalized terms defined in this Lease
Agreement shall have the meanings assigned thereto.
3. Initial Term of Lease; Payment of Rent.
3.1 The term of lease for the Equipment ("Initial Term")
shall begin on the Commencement Date set forth in the applicable
Certificate of Acceptance and shall continue during and until the
expiration of the number of full calendar months set forth in the
applicable Equipment Schedule, measured from the Rent Start Date.
The Initial Term may not be cancelled or terminated except as set
forth in Section 10.2 below.
3.2 At the expiration of the Initial Term, Lessor and
Lessee may extend the lease of the Equipment for any period as they
may agree upon in writing ("Extended Term") at the then fair market
rental value of the Equipment, as determined in good faith by
Lessor.
3.3 Aggregate Daily Rent shall be due and payable by
Lessee on the Rent Start Date in an amount equal to the Daily Rent
multiplied by the actual number of days elapsed from, and
including, the Commencement Date to, but excluding, the Rent Start
Date. The Monthly Rent shall be due and payable on the Rent Start
Date and, thereafter on the first day of each month of the Initial
Term or any Extended Term. All Daily Rents and Monthly Rents shall
be paid to Lessor at its office in Boston, Massachusetts.
4. Acceptance of Equipment; Exclusion of Warranties.
4.1 Lessee shall signify its acceptance of the Equipment
identified in the applicable Equipment Schedule by promptly
executing and delivering to Lessor a Certificate of Acceptance.
Lessee acknowledges that its execution and delivery of the
Certificate of Acceptance shall conclusively establish, as between
Lessor and Lessee, that the Equipment has been inspected by Lessee,
is in good repair and working order, is of the design, manufacture
and capacity selected by Lessee, and is accepted by Lessee under
this Lease Agreement.
4.2 In the event the Equipment is ordered by Lessor from
a manufacturer or supplier at the request of Lessee, Lessor shall
not be required to pay the Acquisition Cost for such Equipment
unless and until the applicable Certificate of Acceptance has been
received by Lessor. Lessee hereby agrees to indemnify, defend and
hold Lessor harmless from any liability to any manufacturer or
supplier arising from the failure of Lessee to lease any Equipment
which is ordered by Lessor at the request of Lessee or for which
Lessor has assumed an obligation to purchase.
4.3 Lessor leases the Equipment to Lessee and Lessee
leases the Equipment from Lessor "AS IS" and "WITH ALL FAULTS".
Lessee hereby acknowledges that (i) Lessor is not a manufacturer,
supplier or dealer of such Equipment nor an agent thereof; and (ii)
LESSOR HAS NOT MADE, DOES NOT MAKE, AND HEREBY DISCLAIMS ANY
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE EQUIPMENT INCLUDING, BUT NOT LIMITED TO, ITS DESIGN,
CAPACITY, CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY
PARTICULAR PURPOSE. Lessee further acknowledges that Lessor is not
responsible for any repairs, maintenance, service, latent or other
defects in the Equipment or in the operation thereof, or for
compliance of any Equipment with requirements of any laws,
ordinances, governmental rules or regulations including, but not
limited to, laws with respect to environmental matters, patent,
trademark, copyright or trade secret infringement, or for any
direct or consequential damages arising out of the use of or
inability to use the Equipment.
4.4 Provided no Event of Default, as defined in Section
16 below, has occurred and is continuing, Lessor agrees to
cooperate with Lessee, at the sole cost and expense of Lessee, in
making any claim against a manufacturer or supplier of the
Equipment arising from a defect in such Equipment. At the request
of Lessee, Lessor shall assign to Lessee all warranties on the
Equipment available from any manufacturer or supplier to the full
extent permitted by the terms of such warranties and by applicable
law.
5. Ownership; Inspection; Maintenance and Use.
5.1 The Equipment shall at all times be the sole and
exclusive property of Lessor. Any Equipment subject to titling and
registration laws shall be titled and registered by Lessee on
behalf of and in the name of Lessor at the sole cost and expense of
Lessee. Lessee shall cooperate with and provide Lessor with any
information or documents necessary for titling and registration of
the Equipment. Upon the request of Lessor, Lessee shall execute
any documents or instruments which may be necessary or appropriate
to confirm, to record or to give notice of the ownership of the
Equipment by Lessor including, but not limited to, financing
statements under the Uniform Commercial Code. Lessee, at the
request of Lessor, shall affix to the Equipment, in a conspicuous
place, any label, plaque or other insignia supplied by Lessor
designating the ownership of the Equipment by Lessor.
5.2 The Equipment shall be located at the address specified
in the applicable Equipment Schedule and shall not be removed
therefrom without the prior written consent of Lessor. Lessor, its
agents or employees shall have the right to enter the premises of
Lessee, upon reasonable notice and during normal business hours,
for the purpose of inspecting the Equipment.
5.3 Lessee shall pay all costs, expenses, fees and
charges whatsoever incurred in connection with the use and
operation of the Equipment. Lessee shall, at all times and at its
own expense, keep the Equipment in good repair and working order,
reasonable wear and tear excepted. Any maintenance contract
required by a manufacturer or supplier for the care and upkeep of
the Equipment shall be entered into by Lessee at its sole cost and
expense. Lessee shall permit the use and operation of the
Equipment only by personnel authorized by Lessee and shall comply
with all laws, ordinances or governmental rules and regulations
relating to the use and operation of the Equipment.
6. Alterations and Modifications. Lessee may make, or cause
to be made on its behalf, any improvement, modification or addition
to the Equipment with the prior written consent of Lessor,
provided, however, that such improvement, modification or addition
is readily removable without causing damage to or impairment of the
functional effectiveness of the Equipment. To the extent that such
improvement, modification or addition is not so removable, it shall
immediately become the property of Lessor and thereupon shall be
considered Equipment for all purposes of this Lease Agreement.
7. Quiet Enjoyment; No Defense, Set-Offs or Counterclaims.
7.1 Provided no Event of Default, as defined in Section
16 below, has occurred and is continuing, Lessee shall have the
quiet enjoyment and use of the Equipment in the ordinary course of
its business during the Initial Term or any Extended Term without
interruption by Lessor or any person or entity claiming through or
under Lessor.
7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR
LOSS, DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR
THE INABILITY OF LESSEE TO USE THE EQUIPMENT FOR ANY REASON
WHATSOEVER, SHALL NOT (i) GIVE RISE TO ANY DEFENSE, COUNTERCLAIM,
OR RIGHT OF SET-OFF AGAINST LESSOR, OR (ii) PERMIT ANY ABATEMENT OR
RECOUPMENT OF, OR REDUCTION IN DAILY OR MONTHLY RENT, OR (iii)
RELIEVE LESSEE OF THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS
LEASE AGREEMENT INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION TO
PAY THE FULL AMOUNT OF DAILY RENT AND MONTHLY RENT, WHICH
OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL, unless and until this
Lease Agreement is terminated with respect to such Equipment in
accordance with the provisions of Section 10.2 below. Any claim
that Lessee may have which arises from a defect in or deficiency of
the Equipment shall be brought solely against the manufacturer or
supplier of the Equipment and Lessee shall, notwithstanding any
such claim, continue to pay Lessor all amounts due and to become
due under this Lease Agreement.
8. Adverse Claims and Interests.
8.1 Except for any liens, claims, mortgages, pledges,
encumbrances or security interests created by Lessor, Lessee shall
keep the Equipment, at all times, free and clear from all liens,
claims, mortgages, pledges, encumbrances and security interests and
from all levies, seizures and attachments. Without limitation of
the covenants and obligations of Lessee set forth in the preceding
sentence, Lessee shall immediately notify Lessor in writing of the
imposition of any prohibited lien, claim, levy or attachment on or
seizure of the Equipment at which time Lessee shall provide Lessor
with all relevant information in connection therewith.
8.2 Lessee agrees that the Equipment shall be and at all
times shall remain personal property. Accordingly, Lessee shall
take such steps as may be necessary to prevent any person from
acquiring, having or retaining any rights in or to the Equipment by
reason of its being affixed or attached to real property.
9. Indemnities; Payment of Taxes.
9.1 Lessee hereby agrees to indemnify, defend and hold
harmless Lessor, its agents, employees, successors and assigns from
and against any and all claims, actions, suits, proceedings, costs,
expenses, damages and liabilities whatsoever arising out of or in
connection with the manufacture, ordering, selection,
specifications, availability, delivery, titling, registration,
rejection, installation, possession, maintenance, ownership, use,
leasing, operation or return of the Equipment including, but not
limited to, any claim or demand based upon any STRICT OR ABSOLUTE
LIABILITY IN TORT and upon any infringement or alleged infringement
of any patent, trademark, trade secret, license, copyright or
otherwise. All costs and expenses incurred by Lessor in connection
with any of the foregoing including, but not limited to, reasonable
legal fees, shall be paid by Lessee on demand.
9.2 Lessee hereby agrees to indemnify, defend and hold
Lessor harmless against all Federal, state and local taxes,
assessments, licenses, withholdings, levies, imposts, duties,
assessments, excise taxes, registration fees and other governmental
fees and charges whatsoever, which are imposed, assessed or levied
on or with respect to the Equipment or its use or related in any
way to this Lease Agreement ("Tax Assessments") except for taxes on
or measured by the net income of Lessor determined substantially in
the same manner as under the Internal Revenue Code of 1986, as
amended. Lessee shall file all returns, reports or other such
documents required in connection with the Tax Assessments and shall
provide Lessor with copies thereof. If, under local law or custom,
Lessee is not authorized to make the filings required by a taxing
authority, Lessee shall notify Lessor in writing and Lessor shall
thereupon file such returns, reports or documents. Without
limiting any of the foregoing, Lessee shall indemnity, defend and
hold Lessor harmless from all penalties, fines, interest payments,
claims and expenses including, but not limited to, reasonable legal
fees, arising from any failure of Lessee to comply with the
requirements of this Section 9.2.
9.3 The obligations and indemnities of Lessee under this
Section 9 for events occurring or arising during the Initial Term
or any Extended Term shall continue in full force and effect,
notwithstanding the expiration or other termination of this Lease
Agreement.
10. Risk of Loss; Loss of Equipment.
10.1 Lessee hereby assumes and shall bear the entire risk of
loss for theft, damage, seizure, condemnation, destruction or other
injury whatsoever to the Equipment from any and every cause
whatsoever. Such risk of loss shall be deemed to have been assumed
by Lessee from and after such risk passes from the manufacturer or
supplier by agreement or pursuant to applicable law.
10.2 In the event of any loss, seizure, condemnation or
destruction of the Equipment or damage to the Equipment which
cannot be repaired by Lessee, Lessee shall immediately notify
Lessor in writing. Within thirty (30) days of such notice, during
which time Lessee shall continue to pay Monthly Rent, Lessee shall,
at the option of Lessor, either (i) replace the Equipment with
equipment of the same type and manufacture and in good repair,
condition and working order, transfer title to such equipment to
Lessor free and clear of all liens, claims and encumbrances,
whereupon such equipment shall be deemed Equipment for all purposes
of this Lease Agreement, or (ii) pay to Lessor an amount equal to
the present value of both the aggregate of the remaining unpaid
Monthly Rents and the anticipated residual value of the Equipment
plus any other costs actually incurred by Lessor. Lessor and
Lessee agree that the residual value of the Equipment at the
expiration of the Initial Term is reasonably anticipated to be not
less than twenty (20) percent of the Acquisition Cost of the
Equipment. The present value shall be determined by discounting
the aggregate of the remaining unpaid Monthly Rents and the
anticipated residual value of the Equipment to the date of payment
by Lessee at the rate of five (5) percent per annum. When and as
requested by Lessor, Lessee shall also pay to Lessor amounts due
pursuant to Section 18 below, if any, arising as a result of the
loss, seizure, replacement, condemnation or destruction of the
Equipment. Any insurance or condemnation proceeds received by
Lessor shall be credited to the obligation of Lessee under this
Section 10.2 and the remainder of such proceeds, if any, shall be
paid to Lessee by Lessor in full compensation for the loss of the
leasehold interest in the Equipment by Lessee.
10.3 Upon any replacement of or payment for the Equipment
as provided in Section 10.2 above, this Lease Agreement shall
terminate only with respect to the Equipment so replaced or paid
for, and Lessor shall transfer to Lessee title only to such
Equipment "AS IS," "WITH ALL FAULTS", and WITH NO WARRANTIES
WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR
FOR ANY PARTICULAR PURPOSE. Lessee shall pay any sales or use
taxes due on such transfer.
11. Insurance.
11.1 Lessee shall keep the Equipment insured against all
risks of loss or damage from every cause whatsoever occurring
during the Initial Term, or any Extended Term for an amount not
less than the higher of the full replacement value of the Equipment
or the aggregate of unpaid Daily Rent and Monthly Rent for the
balance of the Initial Term, or the Extended Term. Lessee shall
also carry public liability insurance, both personal injury and
property damage, covering the Equipment, and Lessee shall be liable
for any deductible portions of all required insurance.
11.2 All insurance required under this Section 11 shall
name Lessor as additional insured and loss payee. Such insurance
shall also be with such insurers and shall be in such forms and
amounts as are satisfactory to Lessor. All applicable policies
shall provide that no act, omission or breach of warranty by Lessee
shall give rise to any defense against payment of the insurance
proceeds to Lessor. Lessee shall pay the premiums for such
insurance and, at the request of Lessor, deliver to Lessor
duplicates of such policies or other evidence satisfactory to
Lessor of such insurance coverage. In any event, Lessee shall
provide Lessor with endorsements upon the policies issued by the
insurers which evidence the existence of insurance coverage
required by this Section 11 and by which the insurers agree to give
Lessor written notice at least twenty (20) days prior to the
effective date of any expiration, modification, reduction,
termination or cancellation of any such policies.
11.3 The proceeds of insurance required under this
Section 11 and payable as a result of loss or damage to the
Equipment shall be applied as set forth in Section 10.2 above.
Upon the occurrence of an Event of Default as defined in Section 16
below, Lessee hereby irrevocably appoints Lessor as its attorney-in-
fact, which power shall be deemed coupled with an interest, to make
claim for, receive payment of, execute and endorse all documents,
checks or drafts received in payment for loss or damage under any
insurance policies required by this Section 11.
11.4 Notwithstanding anything herein, Lessor shall not be
under any duty to examine any evidence of insurance furnished
hereunder, or to ascertain the existence of any policy or coverage,
or to advise Lessee of any failure to comply with the provisions of
this Section 11.
12. Surrender To Lessor. Immediately upon the
expiration of the Initial Term or any Extended Term or at any other
termination of this Lease Agreement, Lessee shall surrender the
Equipment to Lessor in good repair and working order, reasonable
wear and tear excepted, by assembling and delivering the Equipment,
ready for shipment, to a place or carrier, as Lessor may designate,
within the state in which the Equipment was originally delivered to
Lessee or to which the Equipment was thereafter moved with the
written consent of Lessor. All costs of removal, assembly, packing
and delivery of such Equipment to the place designated by Lessor
shall be borne by Lessee.
13. Fair Market Value Purchase Option. Lessor hereby
grants to Lessee the option to purchase all, but not less than all,
Equipment set forth on any Equipment Schedule at the expiration of
the applicable Initial Term or Extended Term. Any such purchase
shall be for cash in an amount equal to the then fair market value
of such Equipment, as determined in good faith by Lessor. This
purchase option may be exercised by Lessee, provided that no Event
of Default, as defined in Section 16 below, has occurred and is
continuing. Lessee shall notify Lessor in writing of its intention
to exercise its purchase option at least thirty (30) days prior to
the expiration of the Initial Term or any Extended Term. Upon
payment of the fair market value by Lessee to Lessor, Lessor shall
transfer title to the Equipment to Lessee "AS IS", "WITH ALL
FAULTS", and WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE.
14. Financial Statements. Lessee shall annually, within
ninety (90) days after the close of the fiscal year for Lessee,
furnish to Lessor financial statements of Lessee, including a
balance sheet as of the close of such year and statements of income
and retained earnings for such year, prepared in accordance with
generally accepted accounting principles, consistently applied from
year to year, and certified by independent public accountants for
Lessee. If requested by Lessor, Lessee shall also provide
quarterly financial statements of Lessee, similarly prepared for
each of the first three quarters of each fiscal year, certified
(subject to normal year-end audit adjustments) by the chief
financial officer of Lessee and furnished to Lessor within sixty
(60) days following the end of the quarter, and such other
financial information as may be reasonably requested by Lessor.
15. Delayed Payment Charge. Lessee shall pay to Lessor
interest upon the amount of any Daily Rent, Monthly Rent or other
sums not paid by Lessee when due and owing under this Lease
Agreement, from the due date thereof until paid, at the rate of one
and one half (1-1/2) percent per month, but if such rate violates
applicable law, then the maximum rate of interest allowed by such
law.
16. Default.
16.1 The occurrence of any of the following events shall
constitute an event of default ("Event of Default") under this
Lease Agreement.
(a) Lessee fails to pay any Daily Rent or any Monthly
Rent when due and such failure to pay continues for ten (10)
consecutive days; or
(b) Lessee fails to pay any other sum required
hereunder, and such failure continues for a period of ten (10)
days following written notice from Lessor; or
(c) Lessee fails to maintain the insurance as required
by Section 11 above and such failure continues for ten (10)
days after written notice from Lessor; or
(d) Lessee violates or fails to perform any other term,
covenant or condition of this Lease Agreement or any other
document, agreement or instrument executed pursuant hereto or
in connection herewith, which failure is not cured within
thirty (30) days after written notice from Lessor; or
(e) Lessee ceases to exist or terminates its independent
operations by reason of any discontinuance, dissolution,
liquidation, merger, sale of substantially all of its assets,
or otherwise ceases doing business as a going concern; or
(f) Lessee (i) applies for or consents to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar official for itself
or for all or a substantial part of its property, (ii) is
generally not paying its debts as such debts become due, (iii)
makes a general assignment for the benefit of its creditors,
(iv) commences a voluntary case under the United States
Bankruptcy Code, as now or hereafter in effect, seeking
liquidation, reorganization or other relief with respect to
itself or its debts, (v) files a petition seeking to take
advantage of any other law providing for the relief of
debtors, (vi) takes any action under the laws of its
jurisdiction of incorporation or organization similar to any
of the foregoing, or (vii) takes any corporate action for the
purpose of effecting any of the foregoing; or
(g) A proceeding or case is commenced, without the
application or consent of Lessee, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding up of Lessee or composition or
readjustment of the debts of Lessee, (ii) the appointment of a
trustee, receiver, custodian, liquidator or similar official
for Lessee or for all or any substantial part of its assets,
or (iii) similar relief with respect to Lessee under any law
providing for the relief of debtors; or an order for relief is
entered with respect to Lessee in an involuntary case under
the United States Bankruptcy Code, as now or hereafter in
effect, or an action under the laws of the jurisdiction of
incorporation or organization of Lessee, similar to any of the
foregoing, is taken with respect to Lessee without its
application or consent; or
(h) Lessee makes any representation or warranty herein
or in any statement or certificate at any time given in
writing pursuant to or in connection with this Lease
Agreement, which is false or misleading in any material
respect; or
(i) Lessee* defaults under any promissory note, credit
agreement, loan agreement, conditional sales contract,
guaranty, lease, indenture, bond, debenture or other material
obligation whatsoever, and a party thereto or a holder thereof
is entitled to accelerate the obligations of Lessee*
thereunder; or Lessee* defaults in meeting any of its trade,
tax or other current obligations as they mature, unless such
obligations are being contested diligently and in good faith;
or
* or Guarantor
(j) Any party to any guaranty, letter of credit,
subordination or credit agreement or other undertaking, given
for the benefit of Lessor and obtained in connection with this
Lease Agreement, breaches, fails to continue, contests, or
purports to terminate or to disclaim such guaranty, letter of
credit, subordination or credit agreement or other
undertaking; or such guaranty, letter of credit, subordination
agreement or other undertaking becomes unenforceable; or a
guarantor of this Lease Agreement shall die, cease to exist or
terminate its independent operations.
16.2 No waiver by Lessor of any Event of Default shall
constitute a waiver of any other Event of Default or of the same
Event of Default at any other time.
17. Remedies.
17.1 Upon the occurrence of an Event of Default and while
such Event of Default is continuing, Lessor, at its sole option,
upon its declaration, and to the extent not inconsistent with
applicable law, may exercise any one or more of the following
remedies:
(a) Lessor may terminate this Lease Agreement whereupon
all rights of Lessee to the quiet enjoyment and use of the
Equipment shall cease;
(b) Whether or not this Lease Agreement is terminated,
Lessor may cause Lessee, at the sole cost and expense of
Lessee, to return any or all of the Equipment promptly to the
possession of Lessor in good repair and working order,
reasonable wear and tear excepted. Lessor, at its sole option
and through its employees, agents or contractors, may
peaceably enter upon the premises where the Equipment is
located and take immediate possession of and remove the
Equipment, all without liability to Lessor, its employees,
agents or contractors for such entry. LESSEE HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS
TO NOTICE AND/OR HEARING PRIOR TO THE REPOSSESSION OR REPLEVIN
OF THE EQUIPMENT BY LESSOR, ITS EMPLOYEES, AGENTS OR
CONTRACTORS;
(c) Lessor may proceed by court action to enforce
performance by Lessee of this Lease Agreement or pursue any
other remedy Lessor may have hereunder, at law, in equity or
under any applicable statute, and recover such other actual
damages as may be incurred by Lessor;
(d) Lessor may recover from Lessee damages, not as a
penalty but as liquidation for all purposes and without
limitation of any other amounts due from Lessee under this
Lease Agreement, in an amount equal to the sum of (i) any
unpaid Daily Rents and/or Monthly Rents due and payable for
periods prior to the repossession of the Equipment by Lessor
plus any interest due thereon pursuant to Section 15 above,
(ii) the present value of all future Monthly Rents required to
be paid over the remaining Initial Term or any Extended Term
after repossession of the Equipment by Lessor, determined by
discounting such future Monthly Rents to the date of payment
by Lessee at a rate of five (5) percent per annum, and (iii)
all costs and expenses incurred in searching for, taking,
removing, storing, repairing, restoring, refurbishing and
leasing or selling such Equipment; or
(e) Lessor may sell, lease or otherwise dispose of any
or all of the Equipment, whether or not in the possession of
Lessor, at public or private sale and with or without notice
to Lessee, which notice is hereby expressly waived by Lessee,
to the extent permitted by and not inconsistent with
applicable law. Lessor shall then apply against the
obligations of Lessee hereunder the net proceeds of such sale,
lease or other disposition, after deducting therefrom (i) the
present value of the residual value of the Equipment at the
expiration of the Initial Term, which is anticipated by Lessor
and Lessee to be not less than twenty (20) percent of the
Acquisition Cost, such present value to be determined by
discounting the residual value to the date of sale, lease or
other disposition at a rate of five (5) percent per annum, and
(ii) all costs incurred by Lessor in connection with such
sale, lease or other disposition including, but not limited
to, costs of transportation, repossession, storage,
refurbishing, advertising or other fees. Lessee shall remain
liable for any deficiency, and any excess of such proceeds
over the total obligations owed by Lessee shall be retained by
Lessor. If any notice of such sale, lease or other
disposition of the Equipment is required by applicable law,
ten (10) days written notice to Lessee shall be deemed
reasonable.
17.2 No failure on the part of Lessor to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as
a waiver thereof. No single or partial exercise of any right or
remedy hereunder shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. Each right
and remedy provided hereunder is cumulative and not exclusive of
any other right or remedy including, without limitation, any right
or remedy available to Lessor at law, by statute or in equity.
17.3 Lessee shall pay all costs and expenses including,
but not limited to, reasonable legal fees incurred by Lessor
arising out of or in connection with any Event of Default or this
Lease Agreement. Lessee shall also be liable for any amounts due
and payable to Lessor under any other provision of this Lease
Agreement including, but not limited to, amounts due and payable
under Section 18 below.
18. Tax Indemnification.
18.1 Lessee represents and warrants that the Equipment is
and will remain, during the entire Initial Term and any Extended
Term, property used in a trade or business or for the production of
income within the meaning of Section 167 of the Internal Revenue
Code of 1986, as amended ("Code"). Lessee further acknowledges and
agrees that, pursuant to the Code, Lessor or its affiliated group,
as defined in Section 1504 of the Code ("Affiliated Group"), shall
be entitled to deductions for the recovery of the Acquisition Cost
of the Equipment over the recovery period as set forth in the
applicable Equipment Schedule, using the Accelerated Cost Recovery
System as provided by Section 168 (b) (1) of the Code ("ACRS
Deductions").
18.2 If as a result of any reason or circumstance
whatsoever, except as specifically set forth in Section 18.3 below,
Lessor or its Affiliated Group shall not be entitled to, shall not
be allowed, shall suffer recapture of or shall lose any ACRS
Deductions, then Lessee shall pay to Lessor, upon demand, a sum to
be computed by Lessor in the following manner. Such sum, after
deduction of all federal, state and local income taxes payable by
Lessor as a result of the receipt of such sum, shall be sufficient
to restore Lessor or its Affiliated Group to substantially the same
position, on an after-tax basis, as it would have been in but for
the loss of such ACRS Deductions. In making its computation,
Lessor or its Affiliated Group shall Considers but shall not be
limited to, the following factors: (i) the amounts and timing of
any net loss of tax benefits resulting from any such lack of,
entitlement to or loss, recapture, or disallowance of ACRS
Deductions but offset by any tax benefits derived from any
depreciation or other capital recovery deductions or exclusions
from income allowed to Lessor or its Affiliated Group with respect
to the same Equipment; (ii) penalties, interest or other charges
imposed; (iii) differences in tax years involved; and (iv) the time
value of money at a reasonable rate determined, in good faith, by
Lessor. For purposes of computation only, the amount of
indemnification payments hereunder shall be calculated on the
assumption that Lessor and its Affiliated Group have or will have,
in all tax years involved, sufficient taxable income and the tax
liability to realize all tax benefits and incur all losses of tax
benefits at the highest marginal Federal corporate income tax rate
in each year. Upon request, Lessor shall provide Lessee with the
methods of computation used in determining any sum that may be due
and payable by Lessee under this Section 18.
18.3 Lessee shall not be obligated to pay any sums
required under this Section 18 in the event that lack of
entitlement to, or loss, recapture or disallowance of any ACRS
Deductions results from one or more of the following events: (i) a
disqualifying disposition due to the sale of the Equipment by
Lessor when no Event of Default, as defined in Section 16 above,
has occurred, (ii) a failure of Lessor or its Affiliated Group to
timely claim any ACRS Deductions for the Equipment in its tax
return, and/or (iii) the fact that Lessor or its Affiliated Group
does not have, in any taxable year or years, sufficient taxable
income or tax liability to realize the benefit of any ACRS
Deductions that are otherwise allowable to Lessor or its Affiliated
Group.
18.4 The representations, obligations and indemnities of
Lessee under this Section 18 shall continue in full force and
effect, notwithstanding the expiration or other termination of this
Lease Agreement.
19. Assignment; Sublease.
19.1 Lessor may sell, assign or otherwise transfer all or
any part of its right, title and interest in and to the Equipment
and/or this Lease Agreement to a third-party assignee, subject to
the terms and conditions of this Lease Agreement including, but not
limited to, the right to the quiet enjoyment of the Equipment by
Lessee as set forth in Section 7.1 above. Such assignee shall
assume all of the rights and obligations of Lessor under this Lease
Agreement and shall relieve Lessor therefrom. Thereafter, all
references to Lessor herein shall mean such assignee.
Notwithstanding any such sale, assignment or transfer, the
obligations hereunder shall remain absolute and unconditional as
set forth in Section 7.2 above.
19.2 Lessor may also pledge, mortgage or grant a security
interest in the Equipment and assign this Lease Agreement as
collateral. Each such pledgee, mortgagee, lienholder or assignee
shall have any and all rights as may be assigned by Lessor but none
of the obligations of Lessor hereunder. Any pledge, mortgage or
grant of security interest in the Equipment or assignment of this
Lease Agreement shall be subject to the terms and conditions hereof
including, but not limited to, the right to the quiet enjoyment of
the Equipment by Lessee as set forth in Section 7.1 above. Lessor,
by reason of such pledge, mortgage, grant of security interest or
collateral assignment, shall not be relieved of any of its
obligations hereunder which shall remain absolute and unconditional
as set forth in Section 7.2 above. Upon the written request of
Lessor, Lessee shall acknowledge such obligations the pledgee,
mortgagee, lienholder or assignee.
19.3 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE,
CONVEY OR PLEDGE ANY OF ITS INTEREST IN THIS LEASE AGREEMENT OR ANY
OF THE EQUIPMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any
such sale, transfer, assignment, sublease, conveyance or pledge,
whether by operation of law or otherwise, without the prior written
consent of Lessor, shall be void.
20. Optional Performance By Lessor. If an Event of Default,
as defined in Section 16 above, occurs and is continuing, Lessor in
its sole discretion may pay or perform such obligation in whole or
in part, without thereby becoming obligated to pay or to perform
the same on any other occasion or to pay any other obligation of
Lessee. Any payment or performance by Lessor shall not be deemed
to cure any Event of Default hereunder. Upon such payment or
performance by Lessor, Lessee shall pay forthwith to Lessor the
amount of such payment or an amount equal to all costs and expenses
of such performance, as well as any delayed payment charges on such
amounts as set forth in Section 15 above.
21. Compliance and Approvals. Lessee warrants and agrees
that this Lease Agreement and the performance by Lessee of all of
its obligations hereunder have been duly authorized, do not and
will not conflict with any provision of the charter or bylaws of
Lessee or of any agreement, indenture, lease or other instrument to
which Lessee is a party or by which Lessee or any of its property
is or may be bound. Lessee warrants and agrees that this Lease
Agreement does not and will not require any governmental
authorization, approval, license or consent except those which have
been duly obtained and will remain in effect during the entire
Initial Term and any Extended Term.
22. Miscellaneous.
22.1 The section headings are inserted herein for convenience
of reference and are not part of and shall not affect the meaning
or interpretation of this Lease Agreement.
22.2 Any provision of this Lease Agreement which is
unenforceable in whole or in part in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such
unenforceability without invalidating any remaining part or other
provision hereof and shall not be affected in any manner by reason
of such enforceability in any other jurisdiction. The validity and
interpretation of this Lease Agreement and the rights and
obligations of the parties hereto shall be governed in all respects
by the laws of The Commonwealth of Massachusetts without giving
effect to the conflicts of laws provisions thereof.
22.3 This Lease Agreement, including all Equipment
Schedules and Certificates of Acceptance, constitutes the entire
agreement between Lessor and Lessee. Lessor and Lessee agree that
this Lease Agreement shall not be amended, altered or changed
except by a written agreement signed by the parties hereto. LESSEE
ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS, EXPRESS OR
IMPLIED, BY LESSOR OTHER THAN AS SET FORTH HEREIN AND LESSEE
EXPRESSLY CONFIRMS THAT IT HAS NOT RELIED UPON ANY REPRESENTATIONS
BY LESSOR, EXCEPT THOSE SET FORTH HEREIN, AS A BASIS FOR ENTERING
INTO THIS LEASE AGREEMENT.
22.4 Any notice required to be given by Lessee or Lessor
hereunder shall be deemed adequately given if sent by registered or
certified mail, return receipt requested, to the other party at
their respective addresses stated herein or at such other place as
either party may designate in writing to the other.
22.5 Lessee agrees to execute and deliver such additional
documents and to perform such further acts as may be reasonably
requested by Lessor in order to carry out and effectuate the
purposes of this Lease Agreement. Upon the written request of
Lessor, Lessee further agrees to execute any instrument necessary
for filing or recording this Lease Agreement or to confirm the
ownership of the Equipment by Lessor. Lessor is hereby authorized
to insert in any Equipment Schedule the serial numbers of the
Equipment and other identifying marks or similar information and to
sign, on behalf of Lessee, any Uniform Commercial Code financing
statements.
22.6 This Lease Agreement cannot be cancelled or
terminated except as expressly provided herein.
22.7 Whenever the context of this Lease Agreement
requires, the singular includes the plural and the plural includes
the singular. Whenever the word Lessor is used herein, it includes
all assignees and successors in interest of Lessor. If more than
one Lessee are named in this Lease Agreement, the liability of each
shall be joint and several.
22.8 All agreements, indemnities, representations and
warranties of Lessee made herein and all rights and remedies of
Lessor shall survive the expiration or other termination of this
Lease Agreement, whether or not expressly provided herein.
22.9 Any waiver of any power, right, remedy or privilege
of Lessor hereunder shall not be effective unless in writing signed
by Lessor.
22.10 This Lease Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly
authorized officer or agent, have duly executed and delivered this
Lease Agreement, which is intended to take effect as a sealed
instrument, as of the day and year first written above.
American Freightways, Inc.
By /s/ Stephen Bruffett
Title Director - Finance
Accepted at Boston, Massachusetts
AFI LEASING TRUST
By /s/ Annmare L. Warren
Title Trustee
By /s/ Susan Gallagher
Title Trustee
FORM I (REV 9-87)
